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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
COMMISSION FILE NUMBER 0-21272
FLEXTRONICS INTERNATIONAL LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
SINGAPORE NOT APPLICABLE
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
11 UBI ROAD 1, #07-01/02
MEIBAN INDUSTRIAL BUILDING
SINGAPORE 408723
(65) 844-3366
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of June 1, 2000, 192,572,807 shares of the Registrant's common stock were
outstanding. The aggregate market value of the common stock held by
non-affiliates of the Registrant as of June 1, 2000 was approximately
$11,347,860,828.50.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's definitive proxy statement, to be delivered to
shareholders in connection with the Registrant's general meeting of
shareholders, are incorporated by reference into Part III of this Form 10-K.
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FLEXTRONICS INTERNATIONAL LIMITED
2000 FORM 10-K
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I
Item 1. Business ..................................................................................... 3
Item 2. Facilities.................................................................................... 18
Item 3. Legal Proceedings............................................................................. 19
Item 4. Submission of Matters to a Vote of Security Holders........................................... 19
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters..................... 20
Item 6. Selected Financial Data....................................................................... 22
Item 7. Management's Discussion and Analysis of Financial Condition And Results of Operations......... 22
Item 8. Financial Statements and Supplementary Data................................................... 32
Item 9. Changes in and Disagreements with Accountants on Accounting And Financial
Disclosure.................................................................................... 61
PART III
Item 10. Directors and Officers ....................................................................... 62
Item 11. Executive Compensation........................................................................ 65
Item 12. Security Ownership of Certain Beneficial Owners and Management................................ 65
Item 13. Certain Relationships and Related Transactions................................................ 65
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.............................. 66
</TABLE>
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PART I
ITEM 1. BUSINESS
Except for historical information contained herein, the matters
discussed in this Annual Report on Form 10-K are forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended, and Section 27A of the Securities Act of 1933, as amended. The words
"expects," "anticipates," "believes," "intends," "plans" and similar expressions
identify forward-looking statements, which speak only as of the date hereof.
These forward-looking statements are subject to certain risks and uncertainties,
including, without limitation, those discussed in "Item 1-Business," "Item
1-Business-Risk Factors," and "Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations" that could cause future results
to differ materially from historical results or those anticipated. Important
factors that could cause actual results to differ materially from the
expectations reflected in the forward-looking statements include those described
in "- Risk Factors," as well as:
- our ability to carry out our strategies;
- the planned expansion of our facilities and operations;
- potential acquisitions;
- adoption of outsourcing by original equipment manufacturers;
- our ability to become an integral part of our customers' operations;
- our ability to win new customer contracts;
- tax matters;
- currency fluctuations; and
- our planned opening of industrial parks in Brazil, Hungary and
Poland.
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We are a leading provider of advanced electronics manufacturing services to
OEMs primarily in the telecommunications and networking, consumer electronics
and computer industries. Our strategy is to provide customers with the ability
to outsource, on a global basis, a complete product where we take responsibility
for engineering, supply chain management, assembly, integration, test and
logistics management. We provide complete product design services, including
electrical and mechanical, circuit and layout, radio frequency and test
development engineering services. Our manufacturing services include the
fabrication and assembly of plastic and metal enclosures, PCBs and backplanes.
We believe that we have developed particular strengths in advanced interconnect,
miniaturization and packaging technologies, and in the engineering and
manufacturing of wireless communications products employing radio frequency
technology. Throughout the production process, we offer logistics services, such
as materials procurement, inventory management, packaging and distribution.
Through a combination of internal growth and acquisitions, including our
mergers with The DII Group, Inc. and Palo Alto Products International Pte. Ltd.,
or PAPI, in April 2000, we have become the world's third largest provider of
electronics manufacturing services, with revenues of $5.7 billion and EBITDA of
$391.4 million in fiscal 2000. In addition, we have increased our manufacturing
square footage from 1.5 million square feet on April 1, 1998 to 11.2 million
square feet to date. We offer a complete and flexible manufacturing solution
that provides accelerated time-to-market and time-to-volume production, reduced
production costs and advanced engineering and design capabilities. By working
closely with and being highly responsive to customers throughout the design,
manufacturing and distribution process, we believe that we can be an integral
part of their operations. We believe that our size, global presence, broad
service offerings and expertise enable us to win large programs from leading
multinational OEMs for the manufacture of advanced electronics products.
Our customers include industry leaders such as Cisco, Ericsson,
Hewlett-Packard, Lucent, Microsoft, Motorola, Nokia, Palm Computing and Philips.
Due to our focus on high growth technology sectors, our prospects are influenced
by such major trends as the upgrade of the communications and Internet
infrastructure, the proliferation of wireless devices, increasing product
miniaturization and other trends in electronics technologies. In addition, our
growth is affected by the pace at which leading OEMs are continuing to adopt
outsourcing as a core business strategy.
We have established an extensive network of manufacturing facilities in the
world's major electronics markets -- Asia, the Americas and Europe -- to serve
the increased outsourcing needs of both multinational and regional OEMs. We
strategically locate facilities near our customers and their end markets. In
fiscal 2000, production in the Americas represented 43% of our net sales,
production in Europe represented 39% of our net sales and production in Asia
represented 18% of our net sales. We have also established fully integrated,
high volume industrial parks in low cost regions near our customers' end
markets. These industrial parks provide a total supply chain management by
co-locating our manufacturing and distribution operations with our suppliers at
a single location. This approach to production and distribution is designed to
benefit our customers by reducing logistical barriers and costs, increasing
flexibility, lowering transportation costs and reducing turnaround times. Our
industrial parks are located in China, Hungary and Mexico and we are building
new industrial parks in Brazil, Hungary and Poland. In addition to our
industrial parks, we have established product introduction centers which provide
engineering expertise in developing new products and preparing them for high
volume manufacturing.
INDUSTRY OVERVIEW
With electronics products growing in technical complexity and experiencing
shorter product lifecycles in response to customer requirements, the demand for
advanced manufacturing capabilities and related services has grown rapidly. Many
OEMs in the electronics industry are increasingly utilizing electronics
manufacturing service providers in their business and manufacturing strategies.
Outsourcing allows OEMs to take advantage of the manufacturing expertise and
capital investments of electronics manufacturing service providers, thereby
enabling OEMs to concentrate on their core competencies, such as product
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development, marketing and sales. We believe that by developing strategic
relationships with electronics manufacturing service providers, OEMs can enhance
their competitive position by:
- reducing production costs;
- accelerating time-to-market and time-to-volume production;
- accessing advanced manufacturing, design and engineering capabilities;
- reducing capital investment requirements and fixed overhead costs;
- improving inventory management and purchasing power; and
- accessing worldwide manufacturing capabilities.
As a result of these factors, industry sources estimate that the overall
market for electronics manufacturing services will grow at an average annual
rate of 20% from 1998 to 2003, reaching an estimated $149.4 billion in 2003.
Over the last few years the larger electronics manufacturing services providers
have grown faster than smaller providers. We believe that the market for
electronic manufacturing services will continue to grow, driven largely by OEMs'
need for increasing flexibility to respond to rapidly changing markets and
technologies and accelerating product life cycles, and their need for advanced
manufacturing and engineering capabilities as a result of increased complexity
and reduced size of electronics products.
STRATEGY
Our objective is to provide customers with the ability to outsource, on a
global basis, a complete product, with Flextronics taking responsibility for the
engineering, supply chain management, assembly, integration, test and logistics
management to accelerate their time-to-market and time-to-volume. To achieve
this objective, we will continue to implement the following strategies:
Develop and Enhance Our Customers' Product Development and Manufacturing
Strategy. We believe we can become an integral part of our customers' operations
by working closely with them throughout the design, manufacturing and
distribution process, and by offering flexible, highly responsive services. We
believe our customer relationships are strengthened through a management
approach which fosters rapid decision-making and a customer service orientation
that responds quickly to frequently changing customer design specifications and
production requirements. Our approach allows our customers to focus on their
core competencies enabling them to accelerate their time-to-market and
time-to-volume production.
Leverage Our Global Presence. We have established an extensive network of
design and manufacturing facilities in the world's major electronics
markets -- Asia, the Americas and Europe -- to serve the increased outsourcing
needs of both multinational and regional OEMs. Our global network of
manufacturing facilities in 23 countries gives us the flexibility to transition
customer projects to any of our locations. This flexibility allows design,
prototyping and initial production to be located near the customer's own
research and development centers, so that manufacturing can then be moved to
locations closer to their end markets, or transitioned to low-cost regional
manufacturing facilities or industrial parks as volumes increase over the
product life-cycle.
Expand Our Industrial Parks Strategy. Our industrial parks are
self-contained facilities that co-locate our manufacturing and distribution
operations with our suppliers in low-cost regions near our customers' end
markets. Our industrial parks provide a total supply chain management. This
approach to production and distribution benefits our customers by reducing
logistical barriers and costs, improving communications, increasing flexibility,
lowering transportation costs and reducing turnaround times. We have
strategically established large industrial parks in Doumen, China, Sarvar and
Zalaegerszeg, Hungary and Guadalajara, Mexico, and are currently building new
industrial parks in Gdansk, Poland, Sao Paulo, Brazil and Nyiregyhaza, Hungary.
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Offer Comprehensive and Integrated Design and Manufacturing Solutions. We
offer a comprehensive range of engineering, supply chain management, assembly,
integration, test and logistics management services to our customers that
simplifies the global product development process and provides them meaningful
cost savings for them. Our capabilities help our customers improve product
quality and performance, reduce costs and accelerate time-to-market.
Streamline Business Processes Through Information Technologies. We utilize
new information technologies to streamline business processes for our customers.
For example, we use innovative Internet supply chain solutions to improve order
placement, tracking and fulfillment. We are also able to provide our customers
with online access to product design and manufacturing process information.
Integrating our information systems with those of our customers allows us to
assist our customers in improving their communications and relationships across
their supply chain.
Pursue Strategic Opportunities. We have actively pursued acquisitions and
purchases of manufacturing facilities to expand our worldwide operations,
broaden our service offerings, diversify and strengthen our customer
relationships and enhance our management depth. We will continue to review
opportunities and are currently in preliminary discussions to acquire
manufacturing operations and enter into business combinations. We cannot assure
the terms of, or that we will complete, such transactions. We will continue to
selectively pursue strategic transactions that we believe will further our
business objectives.
We cannot assure that our strategies can be successfully implemented, or
will reduce the risks associated with our business. See "Risk Factors."
CUSTOMERS
Our customers consist of a select group of OEMs primarily in the
telecommunications and networking, consumer electronics and computer industries.
Within these industries, our strategy is to establish relationships with leading
companies that seek to outsource significant production volumes of complex
products. We have focused on building long-term relationships with these
customers and expanding our relationship to include additional product lines and
services. We have increasingly focused on sales to larger companies and to
customers in the telecommunications and networking, consumer electronics and
computer industries. In fiscal 2000 our five largest customers accounted for
approximately 54% of our net sales (excluding the customers of DII and PAPI).
Our largest customers during fiscal 2000 were Ericsson, Philips and Cisco
accounting for approximately 15%, 12% and 10% of consolidated net sales,
respectively. See "Risk Factors -- The majority of our sales comes from a small
number of customers; if we lose any of these customers, our sales could decline
significantly."
The following table lists in alphabetical order some of our largest
customers in fiscal 2000 and the products of those customers for which we
provide manufacturing services:
<TABLE>
<CAPTION>
CUSTOMER END PRODUCTS
-------- ------------
<S> <C>
Cabletron.................................... Data communications products
Compaq....................................... Computer products
Cisco Systems................................ Data communications products
Ericsson..................................... Business telecommunications systems, GSM
infrastructure
Hewlett-Packard.............................. Inkjet printers, storage devices
Lucent....................................... Data communication products
Motorola..................................... Cellular phones, set-top boxes
Nokia........................................ Cellular phone accessories, office phones
Palm Computing............................... Pilot electronic organizers
Philips Electronics.......................... Consumer electronics products
</TABLE>
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In addition, we recently significantly expanded the scope of our
relationships with a number of existing customers and entered into relationships
with new customers, including ABB Automation Products (PCB assemblies),
Cabletron Systems (data communication products) and General Instruments (set-top
boxes).
On May 30, 2000, we entered into a strategic alliance for product
manufacturing with Motorola. This alliance provides incentives for Motorola to
purchase over $30.0 billion of products and services from us until December 31,
2005. We anticipate that this relationship will encompass a wide range of
products, including cellular phones, pagers, set-top boxes and infrastructure
equipment, and will involve a broad range of services, including design, PCB
fabrication and assembly, plastics, enclosures and supply chain services. The
relationship is not exclusive and does not require that Motorola purchase any
specific volumes of products or services from us. Our ability to achieve any of
the anticipated benefits of this relationship is subject to a number of risks,
including our ability to provide our services on a competitive basis and to
expand our manufacturing resources, as well as demand for Motorola's products.
In connection with this strategic alliance, Motorola will pay $100.0 million for
an equity instrument that entitles them to acquire 11,000,000 Flextronics
ordinary shares at any time through December 31, 2005, upon meeting targeted
purchase levels or making specified payments to us. The issuance of this equity
instrument will result in a one-time non-cash charge of approximately $290.0
million in the first fiscal quarter of fiscal 2001, offset by a corresponding
credit to shareholders' equity.
SALES AND MARKETING
We achieve worldwide sales coverage through a direct sales force, which
focuses on generating new accounts, and through program managers, who are
responsible for managing relationships with existing customers and making
follow-on sales. Our Asian sales offices are located in Singapore and Hong Kong.
In North America, we maintain sales offices in California, Florida,
Massachusetts and Texas. In Europe, we maintain sales offices in England,
France, Germany, the Netherlands and Sweden. In addition to our sales force, our
executive staff plays an integral role in our marketing efforts.
SERVICES
We offer a broad range of integrated services, providing customers with a
total design and manufacturing solution to take a product from initial design
through volume production, test and distribution into post-sales service and
support. These integrated services include the following:
Flextronics Systems Assembly. Our assembly and manufacturing operations,
which reflects the majority of our revenues, include PCB assembly, assembly of
systems and subsystems that incorporate PCBs and complex electromechanical
components. A substantial portion of our net sales is derived from the
manufacture and assembly of complete products. We employ just-in-time,
ship-to-stock and ship-to-line programs, continuous flow manufacturing, demand
flow processes and statistical process control. As OEMs seek to provide greater
functionality in smaller products, they increasingly require more sophisticated
manufacturing technologies and processes. Our investment in advanced
manufacturing equipment and our experience and expertise in innovative
miniaturization, packaging and interconnect technologies, such as chip scale
packaging, chip-on-board and ball grid array, enable us to offer a variety of
advanced manufacturing solutions. In addition, we have recently developed
significant expertise in the manufacture of wireless communications products
employing radio frequency technology.
We offer computer-aided testing of assembled PCBs, systems and subsystems,
which contributes significantly to our ability to deliver high-quality products
on a consistent basis. Our test capabilities include management defect analysis,
in-circuit tests and functional tests. In addition, we also provide
environmental stress tests of board or system assemblies.
Multek. Multek provides PCB and backpanel fabrication services. PCBs and
backpanels are platforms which provide interconnection for integrated circuits
and other electronic components.
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Backpanels also provide interconnection for other printed circuit boards.
Semiconductor designs are currently so complex that they often require printed
circuit boards with many layers of narrow, densely spaced wiring. We manufacture
high density, complex multilayer printed circuit boards and backpanels on a
low-volume, quick-turn basis, as well as on a high-volume production basis. Our
quick-turn prototype service allows us to provide small test quantities to
customers' product development groups in as short as 24 hours. We are one of
only a few independent manufacturers who can respond to our customers' demands
for an accelerated transition from prototype to volume production.
The manufacture of complex multilayer interconnect products often requires
the use of sophisticated circuit interconnections between layers (called "vias")
and adherence to strict electrical characteristics to maintain consistent
circuit transmission speeds. Our production of microvias, by laser ablation and
our surface laminar circuit technology, a photo generated microvia capability,
provides our customers with proven high volume production capacity in both of
the major high density interconnect process solutions.
Flextronics Enclosures. We offer a comprehensive set of custom electronic
enclosures and related products and services. Our services include design,
manufacturing, and integration of electronics packaging systems from custom
enclosure systems, power and thermal subsystems, interconnect subsystems to
cabling and cases. In addition to the typical sheet metal fabrication, we assist
in the design of electronic packaging systems that protect sensitive electronics
and enhance functionality. Our enclosure design services focus on functionality,
manufacturability and testing. These services are integrated with our other
services to provide our customers with greater responsiveness, improved
logistics and overall improved supply chain management. In addition to our
inhouse design and manufacturing capabilities, we have established a strategic
alliance with a top tier enclosure manufacturer to broaden our design,
engineering, supply chain management, manufacturing and assembly expertise for
our customers worldwide.
Flextronics Semiconductor. We coordinate industrial design and tooling for
product manufacturing. By integrating the combined capabilities of design,
engineering and semiconductor services, we can compress the time from product
concept to market introduction and minimize product development costs.
Flextronics semiconductor provides ASIC design services to our OEM customers,
including:
- Conversion services from field programmable gate arrays to ASICs. These
services focus on designs that utilize primarily digital signals, with
only a small amount of analog signals.
- Design services for mixed-signal ASICs. These services focus on designs
that utilize primarily analog signals, with only a small amount of
digital signals.
- Silicon integration design services. These services utilize silicon
design modules that are used to accelerate complex ASIC designs,
including system-on-a-chip.
Flextronics Semiconductor utilizes external foundry suppliers for its
customers' silicon manufacturing requirements, thereby using a "fabless"
manufacturing approach. This enables us to take advantage of the suppliers' high
volume economies of scale and access to advanced process technology.
We believe that our semiconductor design expertise provides us with a
competitive advantage by enabling us to offer our customers reduced costs
through the consolidation of components onto silicon chips.
Flextronics Design Services. We offer a comprehensive spectrum of
value-added design services for products we manufacture for our customers.
Products designed by this group range from commercial and military applications,
including radio frequency analog, high-speed digital, multi-chip module, and
flex circuits, to high volume consumer products, to small quantity prototypes.
We work with our customers to develop product-specific test strategies and can
custom design test equipment and software ourselves or use test equipment and
software provided by our customers.
Approximately 40% of our revenues are from products that incorporate
Flextronics design aspects. To assist customers with initial design, we provide
computer-aided engineering and computer-aided design,
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engineering for manufacturability, printed circuit board layout and test
development. At our product introduction centers, we employ hundreds of advanced
engineers to provide the engineering expertise in developing new products and
preparing them for high volume manufacturing. These centers coordinate and
integrate our worldwide design, prototype, test development practices and, in
some locations, provide dedicated production lines for prototypes.
Flextronics Plastics. We offer tool fabrication, quickturn prototyping and
full production of plastic parts. We are able to quickly transition our
customers' products into volume production. By maintaining these services at our
industrial parks along with manufacturers and suppliers of sheet metal, cable
harnesses, components and packaging, we increase our customers' production
flexibility and speed.
Flextronics Network Services. We offer network installation services to
OEMs in the data and telecommunications industries. Our services include project
planning, documentation, engineering, production, installation and commissioning
of equipment. We have expertise in the installation of public and mobile
telecommunications systems, exchanges, corporate networks and peripheral
equipment.
Supply Chain Services. We provide materials procurement, information
technology solutions and logistics. Materials procurement and management consist
of the planning, purchasing, expediting and warehousing of components and
materials used in the manufacturing process. Our inventory management expertise
and volume procurement capabilities contribute to cost reductions and reduce
total cycle time. Our industrial parks in China, Hungary and Mexico include
providers of many of the custom components that we use to reduce material and
transportation costs, simplify logistics and facilitate inventory management. We
also use sophisticated automated manufacturing resources planning systems and
enhanced electronic data interchange capabilities to ensure inventory control
and optimization. Through our manufacturing resources planning system, we have
real-time visibility on material availability and real-time tracking of work in
process. We also utilize electronic data interchange with our customers and
suppliers to implement a variety of supply chain management programs. Electronic
data interchange allows customers to share demand and product forecasts and
deliver purchase orders while also assisting suppliers with just-in-time
delivery and supplier-managed inventory.
We offer our customers flexible, just-in-time delivery programs allowing
product shipments to be closely coordinated with customers' inventory
requirements. Increasingly, we ship products directly into customers'
distribution channels or directly to the end-user. We believe that this service
can provide our customers with a more comprehensive solution and enable them to
be more responsive to market demands.
COMPETITION
The electronics manufacturing services industry is extremely competitive
and includes hundreds of companies, several of whom have achieved substantial
market share. We compete with different companies, depending on the type of
service or geographic area. We compete against numerous domestic and foreign
electronics manufacturing services providers, and current and prospective
customers also evaluate our capabilities against the merits of internal
production. In addition, in recent years the electronics manufacturing industry
has attracted a significant number of new entrants, including large OEMs with
excess manufacturing capacity, and many existing participants, including us,
have significantly increased their manufacturing capacity by expanding their
facilities and adding new facilities. In the event of a decrease in overall
demand for electronics manufacturing services, this increased capacity could
result in substantial pricing pressures which could harm our operating results.
Some of our competitors, including Solectron Corporation and SCI Systems, may
have greater manufacturing, financial and other resources than us. As
competitors increase the scale of their operations, they may increase their
ability to realize economies of scale, to reduce their prices and to more
effectively meet the needs of large OEMs. We believe that the principal
competitive factors in the segments of the electronics manufacturing services
industry in which we operate are cost, technological capabilities,
responsiveness and flexibility, delivery cycles, location of facilities, product
quality and range of services available. Failure to satisfy any of the
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foregoing requirements could seriously harm our business. See "Risk
Factors -- Our industry is extremely competitive."
ACQUISITIONS
Business Combinations. We have actively pursued business combinations and
other business acquisitions to expand our global reach, manufacturing capacity
and service offerings and strengthen our customer relationships. Since fiscal
1997, we have completed the following business combinations:
<TABLE>
<CAPTION>
DATE ACQUIRED COMPANY NATURE OF BUSINESS CONSIDERATION LOCATION(S)
---- ---------------- ------------------ ------------- -----------
<S> <C> <C> <C> <C>
May 2000 Sample Rate Systems Oyj Provides electronics 88,657 ordinary shares Finland
manufacturing services
May 2000 San Marco Engineering Provides electronics 275,000 ordinary shares Italy
Srl manufacturing services
April 2000 Palo Alto Products Provides industrial and 3,618,374 ordinary Tun Cheng, Taiwan
International Pte. Ltd. electronics shares Samuprakaru, Thailand
manufacturing design Palo Alto, California
services New Braunfels, Texas
April 2000 The DII Group, Inc. Provides electronics 62,768,139 ordinary Anaheim, California
manufacturing services shares Irvine, California
Sunnyvale, California
Palm Harbor, Florida
Austin, Texas
Roseville, Minnesota
Binghamton, New York
Boulder, Colorado
Longmont, Colorado
Zhuhai, China
Melaka, Malaysia
Singapore
Kindberg, Austria
Brno, Czech Republic
Boeblingen, Germany
Cork, Ireland
Guadalajara, Mexico
Puebla, Mexico
Sao Paolo, Brazil
March 2000 PCB Assembly, Inc. Provides electronics 1,084,566 ordinary Sunnyvale, California
design, assembly and shares
test services
March 2000 Purchased remaining 10% Manufactures injection $3.0 million cash Shenzhen, China
interest in FICO molded plastics
Investment Holdings Ltd.
February 2000 Vastbright PCB Co. Ltd. Manufactures advanced $18.0 million cash Zhuhai, China
technology PCBs
November 1999 Circuit Board Provides electronics 559,098 ordinary shares Research Triangle Park,
Assemblers, Inc., EMC design, assembly and North Carolina
International, Inc., test services
Newport Technology and
Summit Manufacturing
July 1999 Kyrel EMS Oyj Provides electronics 3,643,610 ordinary Kyroskoski, Finland
design, assembly and shares Luneville, France
test services
March 1999 Advanced Component Labs Manufactures advanced $15.0 million cash Zhuhai, China
HK Ltd. technology PCBs
</TABLE>
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<TABLE>
<CAPTION>
DATE ACQUIRED COMPANY NATURE OF BUSINESS CONSIDERATION LOCATION(S)
---- ---------------- ------------------ ------------- -----------
<S> <C> <C> <C> <C>
March 1999 Increased ownership of Manufactures injection $7.2 million cash, $3.0 Shenzhen, China
FICO Investment Holdings molded plastics million in promissory
Ltd. from 40% to 90% notes, and 255,700
ordinary shares
March 1998 Conexao Informatica Provides electronics 1,686,372 ordinary Sao Paulo, Brazil
Ltda. design, assembly and shares
test services
March 1998 Altatron, Inc. Provides electronics 3,154,600 ordinary Fremont, California
design, assembly and shares
test services
December 1997 DTM Products, Inc. Manufactures injection 1,009,876 ordinary Boulder, Colorado
molded plastics shares
December 1997 Energipilot AB Provides cable assembly 919,960 ordinary shares Stockholm, Sweden
and engineering services
October 1997 Neutronics Electronics Provides electronics 11,224,000 ordinary Althofen, Austria
Industries Holding AG design, assembly and shares Tab, Hungary
test services Sarvar, Hungary
Zalaegerszeg, Hungary
</TABLE>
Acquisitions of Manufacturing Facilities. We have purchased a number of
manufacturing facilities and related assets from customers and simultaneously
entered into manufacturing agreements to provide electronics design, assembly
and test services to these customers. The transactions were accounted for as
purchases of assets. Since fiscal 1997, we have completed the following
facilities purchases:
<TABLE>
<CAPTION>
DATE CUSTOMER CONSIDERATION FACILITY LOCATION(S)
---- -------- ------------- --------------------
<S> <C> <C> <C>
May 2000 Bosch Telecom GmbH $98.3 million Pandrup, Denmark
March 2000 Cabletron Systems Inc. $83.4 million Rochester, New Hampshire
Limerick, Ireland
January 2000 Fujitsu Siemens $69.7 million Paderborn, Germany
June 1999 Ericsson $39.4 million Visby, Sweden
May 1999 ABB Automation Products $24.5 million Vasteras, Sweden
</TABLE>
We will continue to review opportunities to acquire OEM manufacturing
operations and enter into business combinations and selectively pursue strategic
transactions that we believe will further our business objectives. We are
currently in preliminary discussions to acquire additional businesses and
facilities. We cannot assure the terms of, or that we will complete, such
acquisitions, and our ability to obtain the benefits of such combinations and
transactions is subject to a number of risks and uncertainties, including our
ability to successfully integrate the acquired operations and our ability to
maintain and increase sales to customers of the acquired companies. See "Risk
Factors -- We may encounter difficulties with acquisitions, which could harm our
business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Acquisitions, Purchases of Facilities and Other
Strategic Transactions."
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EMPLOYEES
As of March 31, 2000, we employed approximately 37,200 persons, which
increased to approximately 49,000 persons following the completion of our
acquisitions of DII and Palo Alto Products International. We have never
experienced a work stoppage or strike and we believe that our employee relations
are good.
Our success depends to a large extent upon the continued services of key
managerial and technical employees. The loss of such personnel could seriously
harm our business, results of operations, prospects and debt service ability. To
date, we have not experienced significant difficulties in attracting or
retaining such personnel. Although we are not aware that any of our key
personnel currently intend to terminate their employment, we cannot assure you
of their future services. See "Risk Factors -- We depend on our key personnel."
12
<PAGE> 13
RISK FACTORS
IF WE DO NOT MANAGE EFFECTIVELY THE EXPANSION OF OUR OPERATIONS, OUR BUSINESS
MAY BE HARMED.
We have grown rapidly in recent periods. Our workforce has tripled in size
over the last year as a result of internal growth and acquisitions. This growth
is likely to considerably strain our management control system and resources,
including decision support, accounting management, information systems and
facilities. If we do not continue to improve our financial and management
controls, reporting systems and procedures to manage our employees effectively
and to expand our facilities, our business could be harmed.
We plan to increase our manufacturing capacity by expanding our facilities
and by adding new equipment. Such expansion involves significant risks,
including, but not limited to the following:
- we may not be able to attract and retain the management personnel and
skilled employees necessary to support expanded operations;
- we may not efficiently and effectively integrate new operations and
information systems, expand our existing operations and manage
geographically dispersed operations;
- we may incur cost overruns;
- we may encounter construction delays, equipment delays or shortages,
labor shortages and disputes and production start-up problems that could
harm our growth and our ability to meet customers' delivery schedules;
and
- we may not be able to obtain funds for this expansion, and we may not be
able to obtain loans or operating leases with attractive terms.
In addition, we expect to incur new fixed operating expenses associated
with our expansion efforts, including substantial increases in depreciation
expense and rental expense, that will increase our cost of sales. If our
revenues do not increase sufficiently to offset these expenses, our operating
results would be seriously harmed. Our expansion, both through internal growth
and acquisitions, has contributed to our incurring significant accounting
charges. For example, in connection with our acquisitions of DII and Palo Alto
Products International, we expect to record a one-time charge of approximately
$180.0 million and in connection with the issuance of an equity instrument to
Motorola relating to our alliance with Motorola, we expect to record a one-time
non-cash charge of approximately $290.0 million, both in the first fiscal
quarter of fiscal 2001.
WE MAY ENCOUNTER DIFFICULTIES WITH ACQUISITIONS, WHICH COULD HARM OUR BUSINESS.
We have completed a number of acquisitions of businesses and facilities and
expect to continue to acquire additional businesses and facilities in the
future. We are currently in preliminary discussions to acquire additional
businesses and facilities. Any future acquisitions may require additional debt
or equity financing, which could increase our leverage or be dilutive to our
existing shareholders. We cannot assure the terms of, or that we will complete,
any acquisitions in the future.
To integrate acquired businesses, we must implement our management
information systems and operating systems and assimilate and manage the
personnel of the acquired operations. The difficulties of this integration may
be further complicated by geographic distances. The integration of acquired
businesses may not be successful and could result in disruption to other parts
of our business.
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<PAGE> 14
In addition, acquisitions involve a number of other risks and challenges,
including, but not limited to,
- diversion of management's attention;
- potential loss of key employees and customers of the acquired companies;
- lack of experience operating in the geographic market of the acquired
business; and
- an increase in our expenses and working capital requirements.
Any of these and other factors could harm our ability to achieve
anticipated levels of profitability at acquired operations or realize other
anticipated benefits of an acquisition.
WE HAVE NEW CUSTOMER RELATIONSHIPS FROM WHICH WE ARE NOT YET RECEIVING
SIGNIFICANT REVENUES, AND ORDERS FROM THESE CUSTOMERS MAY NOT REACH ANTICIPATED
LEVELS.
We have recently announced major new customer relationships, including our
alliance with Motorola, from which we anticipate significant future sales.
However, similar to our other customer relationships, there are no volume
purchase commitments under these new programs, and the revenues we actually
achieve may not meet our expectations. In anticipation of future activities
under these programs, we are incurring substantial expenses as we add personnel
and manufacturing capacity and procure materials. Our operating results will be
seriously harmed if sales do not develop to the extent and within the time frame
we anticipate.
OUR CUSTOMERS MAY CANCEL THEIR ORDERS, CHANGE PRODUCTION QUANTITIES OR DELAY
PRODUCTION.
Electronics manufacturing service providers must provide increasingly rapid
product turnaround for their customers. We generally do not obtain firm,
long-term purchase commitments from our customers and we continue to experience
reduced lead-times in customer orders. Customers may cancel their orders, change
production quantities or delay production for a number of reasons.
Cancellations, reductions or delays by a significant customer or by a group of
customers would seriously harm our results of operations.
In addition, we make significant decisions, including determining the
levels of business that we will seek and accept, production schedules, component
procurement commitments, personnel needs and other resource requirements, based
on our estimates of customer requirements. The short-term nature of our
customers' commitments and the possibility of rapid changes in demand for their
products reduces our ability to estimate accurately future customer
requirements. On occasion, customers may require rapid increases in production,
which can stress our resources and reduce margins. Although we have increased
our manufacturing capacity and plan further increases, we may not have
sufficient capacity at any given time to meet our customers' demands. In
addition, because many of our costs and operating expenses are relatively fixed,
a reduction in customer demand can harm our gross margins and operating income.
OUR OPERATING RESULTS VARY SIGNIFICANTLY.
We experience significant fluctuations in our results of operations. The
factors which contribute to fluctuations include:
- the timing of customer orders;
- the volume of these orders relative to our capacity;
- market acceptance of customers' new products;
- changes in demand for customers' products and product obsolescence;
- the timing of our expenditures in anticipation of future orders;
- our effectiveness in managing manufacturing processes;
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<PAGE> 15
- changes in the cost and availability of labor and components;
- changes in our product mix;
- changes in economic conditions;
- local factors and events that may affect our production volume, such as
local holidays; and
- seasonality in customers' product requirements.
One of our significant end-markets is the consumer electronics market. This
market exhibits particular strength towards the end of the year in connection
with the holiday season. As a result, we have experienced relative strength in
revenues in our third fiscal quarter.
THE MAJORITY OF OUR SALES COMES FROM A SMALL NUMBER OF CUSTOMERS; IF WE LOSE ANY
OF THESE CUSTOMERS, OUR SALES COULD DECLINE SIGNIFICANTLY.
Sales to our five largest customers have represented a majority of our net
sales in recent periods. Our five largest customers accounted for approximately
54% of consolidated net sales in fiscal 2000 (excluding the customers of DII and
PAPI). Our largest customers during fiscal 2000 were Ericsson, Philips and Cisco
accounting for approximately 15%, 13% and 12% of consolidated net sales,
respectively. In fiscal 1999, our five largest customers accounted for 54% of
net sales, with Philips, Ericsson and Cisco accounting for approximately 15%,
13% and 10%, respectively. The identity of our principal customers have varied
from year to year, and our principal customers may not continue to purchase
services from us at current levels, if at all. Significant reductions in sales
to any of these customers, or the loss of major customers, would seriously harm
our business. If we are not be able to timely replace expired, canceled or
reduced contracts with new business, our revenues would be harmed.
WE DEPEND ON THE ELECTRONICS INDUSTRY WHICH CONTINUALLY PRODUCES TECHNOLOGICALLY
ADVANCED PRODUCTS WITH SHORT LIFE CYCLES; OUR INABILITY TO CONTINUALLY
MANUFACTURE SUCH PRODUCTS ON A COST-EFFECTIVE BASIS WOULD HARM OUR BUSINESS.
Factors affecting the electronics industry in general could seriously harm
our customers and, as a result, us. These factors include:
- the inability of our customers to adapt to rapidly changing technology
and evolving industry standards, which results in short product life
cycles;
- the inability of our customers to develop and market their products, some
of which are new and untested, the potential that our customers' products
may become obsolete or the failure of our customers' products to gain
widespread commercial acceptance; and
- recessionary periods in our customers' markets.
If any of these factors materialize, our business would suffer.
THERE MAY BE SHORTAGES OF REQUIRED ELECTRONIC COMPONENTS.
A substantial majority of our net sales are derived from turnkey
manufacturing in which we are responsible for purchasing components used in
manufacturing our customers products. We generally do not have long-term
agreements with suppliers of components. This typically results in our bearing
the risk of component price increases because we may be unable to procure the
required materials at a price level necessary to generate anticipated margins
from our agreements with our customers. Accordingly, component price changes
could seriously harm our operating results.
At various times, there have been shortages of some of the electronic
components that we use, and suppliers of some components have lacked sufficient
capacity to meet the demand for these components. In
15
<PAGE> 16
recent months, component shortages have become more prevalent in our industry.
In some cases, supply shortages and delays in deliveries of particular
components have resulted in curtailed production, or delays in production, of
assemblies using that component, which has contributed to an increase in our
inventory levels. We expect that shortages and delays in deliveries of some
components will continue. If we are unable to obtain sufficient components on a
timely basis, we may experience manufacturing and shipping delays, which could
harm our relationships with current or prospective customers and reduce our
sales.
OUR INDUSTRY IS EXTREMELY COMPETITIVE.
The electronics manufacturing services industry is extremely competitive
and includes hundreds of companies, several of which have achieved substantial
market share. Current and prospective customers also evaluate our capabilities
against the merits of internal production. Some of our competitors, including
Solectron, Celestica and SCI Systems, have substantially greater market share
than us, and substantially greater manufacturing, financial, research and
development and marketing resources.
In recent years, many participants in the industry, including us, have
substantially expanded their manufacturing capacity. If overall demand for
electronics manufacturing services should decrease, this increased capacity
could result in substantial pricing pressures, which could seriously harm our
operating results.
WE ARE SUBJECT TO THE RISK OF INCREASED TAXES.
We have structured our operations in a manner designed to maximize income
in countries where tax incentives have been extended to encourage foreign
investment or where income tax rates are low. We base our tax position upon the
anticipated nature and conduct of our business and upon our understanding of the
tax laws of the various countries in which we have assets or conduct activities.
However, our tax position is subject to review and possible challenge by taxing
authorities and to possible changes in law which may have retroactive effect. We
cannot determine in advance the extent to which some jurisdictions may require
us to pay tax or make payments in lieu of tax.
Several countries in which we are located allow for tax holidays or provide
other tax incentives to attract and retain business. We have obtained holidays
or other incentives where available. Our taxes could increase if certain tax
holidays or incentives are not renewed upon expiration, or tax rates applicable
to us in such jurisdictions are otherwise increased. In addition, further
acquisitions may cause our effective tax rate to increase.
WE CONDUCT OPERATIONS IN A NUMBER OF COUNTRIES AND ARE SUBJECT TO RISKS OF
INTERNATIONAL OPERATIONS.
The geographical distances between Asia, the Americas and Europe create a
number of logistical and communications challenges. Our manufacturing operations
are located in a number of countries, including Austria, Brazil, China, the
Czech Republic, Finland, France, Germany, Hungary, Ireland, Italy, Malaysia,
Mexico, Sweden, the United Kingdom and the United States. As a result, we are
affected by economic and political conditions in those countries, including:
- fluctuations in the value of currencies;
- changes in labor conditions;
- longer payment cycles;
- greater difficulty in collecting accounts receivable;
- burdens and costs of compliance with a variety of foreign laws;
- political and economic instability;
- increases in duties and taxation;
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<PAGE> 17
- imposition of restrictions on currency conversion or the transfer of
funds;
- limitations on imports or exports;
- expropriation of private enterprises; and
- reversal of the current policies including favorable tax and lending
policies encouraging foreign investment or foreign trade by our host
countries.
The attractiveness of our services to our U.S. customers can be affected by
changes in U.S. trade policies, such as "most favored nation" status and trade
preferences for some Asian nations. In addition, some countries in which we
operate, such as Brazil, Mexico and Malaysia, have experienced periods of slow
or negative growth, high inflation, significant currency devaluations and
limited availability of foreign exchange. Furthermore, in countries such as
Mexico and China, governmental authorities exercise significant influence over
many aspects of the economy, and their actions could have a significant effect
on us. Finally, we could be seriously harmed by inadequate infrastructure,
including lack of adequate power and water supplies, transportation, raw
materials and parts in countries in which we operate.
WE ARE SUBJECT TO RISKS OF CURRENCY FLUCTUATIONS AND HEDGING OPERATIONS.
A significant portion of our business is conducted in the European euro,
the Swedish krona and the Brazilian real. In addition, some of our costs, such
as payroll and rent, are denominated in currencies such as the Austrian
schilling, the British pound, the Chinese renminbi, the German deutsche mark,
the Hong Kong dollar, the Hungarian forint, the Irish pound, the Malaysian
ringgit, the Mexican peso and the Singapore dollar, as well as the krona, the
euro and the real. In recent years, the Hungarian forint, Brazilian real and
Mexican peso have experienced significant devaluations. Changes in exchange
rates between these and other currencies and the U.S. dollar will affect our
cost of sales, operating margins and revenues. We cannot predict the impact of
future exchange rate fluctuations. We use financial instruments, primarily
forward purchase contracts, to hedge Japanese yen, European euro, U.S. dollar
and other foreign currency commitments arising from trade accounts payable and
fixed purchase obligations. Because we hedge only fixed obligations, we do not
expect that these hedging activities will harm our results of operations or cash
flows. However, our hedging activities may be unsuccessful, and we may change or
reduce our hedging activities in the future. As a result, we may experience
significant unexpected expenses from fluctuations in exchange rates.
WE DEPEND ON OUR KEY PERSONNEL.
Our success depends to a larger extent upon the continued services of our
key executives, managers and skilled personnel. Generally our employees are not
bound by employment or non-competition agreements, and we cannot assure that we
will retain our key officers and employees. We could be seriously harmed by the
loss of key personnel.
WE ARE SUBJECT TO ENVIRONMENTAL COMPLIANCE RISKS.
We are subject to various federal, state, local and foreign environmental
laws and regulations, including those governing the use, storage, discharge and
disposal of hazardous substances in the ordinary course of our manufacturing
process. In addition, we are responsible for cleanup of contamination at some of
our current and former manufacturing facilities and at some third party sites.
If more stringent compliance or cleanup standards under environmental laws or
regulations are imposed, or the results of future testing and analyses at our
current or former operating facilities indicate that we are responsible for the
release of hazardous substances, we may be subject to additional remediation
liability. Further, additional environmental matters may arise in the future at
sites where no problem is currently known or at sites that we may acquire in the
future. Currently unexpected costs that we may incur with respect to
environmental matters may result in additional loss contingencies, the
quantification of which cannot be determined at this time.
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<PAGE> 18
ITEM 2. FACILITIES
Our facilities consist of a global network of industrial parks,
manufacturing and technology centers, regional manufacturing facilities and
product introduction centers, providing approximately 11.2 million square feet
of capacity, which includes the capacity of DII and PAPI. We own facilities with
approximately 2.7 million square feet of capacity in Asia, 2.3 million square
feet in the Americas and 4.2 million square feet in Europe. We lease facilities
with approximately 1.1 million square feet of capacity in Asia, 200,000 square
feet in the Americas and 600,000 square feet in Europe.
Our industrial parks, each incorporating from approximately 205,000 to
435,000 square feet of facilities, are designed for fully integrated, high
volume manufacturing. These industrial parks offer manufacturing and
distribution operations and suppliers that are located together at a single site
in low cost areas close to major electronics markets. We believe that by
offering all of those capabilities at a single site, we can reduce material and
transportation costs, simplify logistics and communications and improve
inventory management. This enables us to provide customers with a more complete,
cost-effective manufacturing solution. Manufacturing and technology centers are
facilities that have both medium and high volume manufacturing and product
introduction centers and, as a result, are where we focus on launching
customers' new products and transitioning them to volume production. Each center
features advanced technological competency. Regional manufacturing facilities
range from approximately 70,000 to 375,000 square feet and provide medium and
high volume production in locations close to strategic markets. Product
information centers provide a broad range of advanced engineering services and
prototype and low volume production capabilities. All of our manufacturing
facilities are registered to the quality requirements of the International
Organization for Standardization (ISO 9002) or are in the process of final
certification.
The locations of our facilities are as follows:
<TABLE>
<CAPTION>
AMERICAS ASIA EUROPE
-------- ---- ------
<S> <C> <C> <C>
INDUSTRIAL PARKS Guadalajara, Mexico Doumen, China Sarvar, Hungary
Zalaegerzeg, Hungary
MANUFACTURING San Jose, California Hong Kong, China Althofen, Austria
AND TECHNOLOGY Fremont, California Tun Cheng, Taiwan Karlskrona, Sweden
CENTERS New Braunfels, Texas Katrineholm, Sweden
Binghamton, New York Stockholm, Sweden
Puebla, Mexico Vasteras, Sweden
Visby, Sweden
REGIONAL Anaheim, California Doumen, China Boeblingen, Germany
MANUFACTURING Austin, Texas Johore, Malaysia Brno, Czech Republic
FACILITIES Greeley, Colorado Melaka, Malaysia Cork, Ireland
Irvine, California Samuprakaru, Thailand Limerick, Ireland
Longmont, Colorado Shenzhen, China Hamilton, Scotland
Raleigh, North Carolina Kindberg, Austria
Palm Harbor, Florida Kyroskoski, Finland
Richardson, Texas Luneville, France
Rochester, New Hampshire Paderborn, Germany
Roseville, Minnesota Solothurn, Switzerland
Sao Paulo, Brazil Tab, Hungary
PRODUCT Dallas, Texas Doumen, China Althofen, Austria
INTRODUCTION Boulder, Colorado Hamilton, Scotland
CENTERS Raleigh, North Carolina Kyroskoski, Finland
Richardson, Texas Karlskrona, Sweden
San Jose, California Malmo, Sweden
San Diego, California Stockholm, Sweden
Sunnyvale, California Monza, Italy
Westford, Massachusetts Paderborn, Germany
</TABLE>
The facilities are generally well maintained and suitable for the
operations conducted and, in substantially all cases where owned, free and clear
of any encumbrances. The productive capacity of our plants is generally adequate
for current needs.
Over the past several years, we have actively increased our overall
capacity through internal growth, acquisitions and purchases of manufacturing
facilities. As a result, we have grown to approximately 11.2 million square feet
of capacity on four continents. We plan to further expand these facilities, add
new equipment and are currently developing new industrial parks in Brazil,
Hungary and Poland. We cannot assure that we will not encounter unforeseen
difficulties, costs or delays in expanding our facilities. See "Risk
Factors -- If we do not manage effectively the expansion of our operations, our
business may be harmed."
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ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At our Extraordinary General Meeting of Shareholders held on March 30,
2000, our shareholders approved the issuance of 1.61 Flextronics ordinary shares
for each outstanding share of common stock of The DII Group, Inc. in connection
with the merger of Flextronics with The DII Group pursuant to the Agreement and
Plan of Merger dated as of November 22, 1999 among Flextronics, Slalom
Acquisition Corp., a wholly-owned subsidiary of Flextronics, and The DII Group,
Inc. Voting in favor of the merger were 89,559,418, opposed were 21,387,
abstaining were 1,832,284, and broker non-votes amounted to 13,872,575.
At that meeting, our shareholders also approved the proposal to amend
our 1993 Share Option Plan to increase the number of ordinary shares authorized
and reserved for issuance there under from 16,400,000 ordinary shares to
20,400,000 ordinary shares. Voting in favor of the amendment were 58,442,193,
opposed were 46,804,911, and abstaining were 38,560.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
PRICE RANGE OF ORDINARY SHARES
Our ordinary shares are traded on the Nasdaq National Market under the
symbol "FLEX". The following table sets forth the high and low per share sales
prices for our ordinary shares since the beginning of our 1999 fiscal year.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL 1999
First Quarter $13.13 $ 9.03
Second Quarter 11.88 5.50
Third Quarter 21.84 7.00
Fourth Quarter 26.09 16.38
FISCAL 2000
First Quarter $29.19 $18.69
Second Quarter 34.06 21.25
Third Quarter 49.38 28.56
Fourth Quarter 79.75 38.31
</TABLE>
All Flextronics share prices have been adjusted to give effect to
two-for-one stock splits by means of bonus issues, the Singapore equivalent of a
stock dividend, paid on January 11, 1999 and December 22, 1999.
On June 1, 2000, there were 2,094 holders of record of our ordinary
shares and the closing sale price of the ordinary shares on the Nasdaq National
Market was $62.875 per share.
DIVIDENDS
Since inception, we have not declared or paid any cash dividends on our
ordinary shares, and our bank credit facility prohibits the payment of cash
dividends without the lenders' prior consent. The terms of our outstanding
senior subordinated notes also restrict our ability to pay cash dividends. See
"Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources." We anticipate that
all earnings in the foreseeable future will be retained to finance the
continuing development of our business.
TAXATION
This summary of Singapore and U.S. tax considerations is based on
current law and is provided for general information. The discussion does not
purport to deal with all aspects of taxation that may be relevant to particular
shareholders in light of their investment or tax circumstances, or to certain
types of shareholders (including insurance companies, tax-exempt organizations,
regulated investment companies, financial institutions or broker-dealers, and
shareholders that are not U.S. shareholders subject to special treatment under
the U.S. federal income tax laws. Such shareholders should consult their own tax
advisors regarding the particular tax consequences to such shareholders of any
investment in our ordinary shares.
INCOME TAXATION UNDER SINGAPORE LAW
Under current provisions of the Income Tax Act, Chapter 134 of
Singapore, corporate profits are taxed at a rate equal to 25.5%. Under
Singapore's taxation system, the tax paid by a company is deemed paid by its
shareholders. Thus, the shareholders receive dividends net of the tax paid by
Flextronics. Dividends received by either a resident or a nonresident of
Singapore are not subject to withholding tax. Shareholders are taxed on the
gross amount of dividends
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(meaning the cash amount of the dividend plus the amount of corporate tax paid
by Flextronics). The tax paid by Flextronics will be available to shareholders
as a tax credit to offset the Singapore income tax liability on their overall
income (including the gross amount of dividends). No tax treaty currently exists
between the Republic of Singapore and the U.S.
Under current Singapore tax law there is no tax on capital gains, and,
thus, any profits from the disposal of shares are not taxable in Singapore
unless the vendor is regarded as carrying on a trade in shares in Singapore (in
which case, the disposal profits would be taxable as trade profits rather than
capital gains).
There is no stamp duty payable in respect of the holding and disposition
of shares. No duty is payable on the acquisition of new shares. Where existing
shares are acquired in Singapore, stamp duty is payable on the instrument of
transfer of the shares at the rate of S$2 for every S$1,000 of the market value
of the shares. The stamp duty is borne by the purchaser unless there is an
agreement to the contrary. Where the instrument of transfer is executed outside
of Singapore, stamp duty must be paid if the instrument of transfer is received
in Singapore. Under Article 22 (iii) of our Articles of Association, our
directors are authorized to refuse to register a transfer unless the instrument
of transfer has been duly stamped.
INCOME TAXATION UNDER UNITED STATES LAW
Individual shareholders that are U.S. citizens or resident aliens (as
defined in Section 7701(b) of the Internal Revenue Code of 1986), corporations
or partnerships or other entities created or organized under the laws of the
United States, or any political subdivision thereof, an estate the income of
which is subject is subject to U.S. federal income taxation regardless of its
source or a trust which is subject to the supervision of a court within the
United States and the control of section 7701(b)(30) of the Internal Revenue
Code will, upon the sale or exchange of a share, recognize gain or loss for U.S.
income tax purposes in an amount equal to the difference between the amount
realized and the U.S. shareholder's tax basis in such a share. If paid in
currency other than U.S. dollars, certain currency translation rules will apply
to determine the U.S. dollar amount realized. Such gain or loss will be capital
gain or loss if the share was a capital asset in the hands of the U.S.
shareholder and will be short-term capital gain or loss if the share has been
held for not more than one year, mid-term capital gain or loss if the share has
been held for more than one year but not more than eighteen months and,
long-term capital gain or loss if the share has been held for more than eighteen
months. If a U.S. shareholder receives any currency other than U.S. dollars on
the sale of a share, such U.S. shareholder may recognize ordinary income or loss
as a result of currency fluctuations between the date of such sale and the date
such sale proceeds are converted into U.S. dollars.
U.S. shareholders will be required to report as income for U.S. income
tax purposes the amount of any dividend received from us to the extent paid out
of our current or accumulated earnings and profits, as determined under current
U.S. income tax principles. If over 50% of our stock (by vote or value) were
owned by U.S. shareholders who individually held 10% or more of our voting
stock, such U.S. shareholders potentially would be required to include in income
a portion or all of their pro rata share of our and our non-U.S. subsidiaries'
earnings and profits. Certain attribution rules apply in this regard. If 50% or
more of our assets during a taxable year produced or were held for the
production of passive income, as defined in section 1297(b) of the Code (e.g.,
certain forms of dividends, interest and royalties), or 75% or more of our gross
income for a taxable year was passive income, adverse U.S. tax consequences
could result to U.S. shareholders. As of March 31, 2000, we were not aware of
any U.S. shareholder who individually held 10% or more of our voting stock.
Shareholders that are not U.S. shareholders will not be required to
report for U.S. federal income tax purposes the amount of any dividend received
from us. Non-U.S. shareholders, upon the sale or exchange of a share, would not
be required to recognize gain or loss for U.S. federal income tax purposes.
ESTATE TAXATION
In the case of an individual who is not domiciled in Singapore, a
Singapore estate tax is imposed on the value of all movable and immovable
properties situated in Singapore. Our shares are considered to be situated in
Singapore. Thus, an individual shareholder who is not domiciled in Singapore at
the time of his or her death will be subject to Singapore estate tax on the
value of any such shares held by the individual upon the individual's death.
Such a shareholder will be required to pay Singapore estate tax to the extent
that the value of the shares (or in aggregate with
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<PAGE> 22
any other assets subject to Singapore estate tax) exceeds S$600,000. Any such
excess will be taxed at a rate equal to 5% on the first S$12,000,000 of the
individual's Singapore chargeable assets and thereafter at a rate equal to 10%.
An individual shareholder who is a U.S. citizen or resident (for U.S. estate tax
purposes) also will have the value of the shares included in the individual's
gross estate for U.S. estate tax purposes. An individual shareholder generally
will be entitled to a tax credit against the shareholder's U.S. estate tax to
the extent the individual shareholder actually pays Singapore estate tax on the
value of the shares; however, such tax credit is generally limited to the
percentage of the U.S. estate tax attributable to the inclusion of the value of
the shares included in the shareholder's gross estate for U.S. estate tax
purposes, adjusted further by a pro rata apportionment of available exemptions.
Individuals who are domiciled in Singapore should consult their own tax advisors
regarding the Singapore estate tax consequences of their investment.
ITEM 6. SELECTED FINANCIAL DATA
<PAGE> 23
The following selected financial data includes for all periods presented
the results of operations and balance sheet of PCB Assembly, Inc. and Kyrel EMS
Oyj, which we acquired in March 2000 and July 1999, respectively, in
transactions accounted for as a pooling-of-interests. These historical results
are not necessarily indicative of the results to be expected in the future. The
following table is qualified by reference to and should be read in conjunction
with the consolidated financial statements, related notes thereto and other
financial data included elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
---------------------------------------------------------------------------------------
1996 1997 1998 1999 2000
---------- ---------- ---------- ---------- ----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net sales ........................ $ 840,450 $ 902,104 $1,335,762 $2,233,208 $4,307,193
Cost of sales .................... 758,438 820,497 1,216,588 2,053,471 4,004,626
Unusual charges .................. 1,254(1) 5,868(2) 8,869(3) 3,361(4) --
---------- ---------- ---------- ---------- ----------
Gross profit ..................... 80,758 75,739 110,305 176,376 302,567
Selling, general and
administrative ................. 37,255 41,785 62,260 81,597 135,540
Goodwill and intangible
amortization ................... 1,296 2,651 3,663 3,664 6,782
Acquired in-process research and
development .................... 29,000(1) -- -- 2,000(4) --
Merger-related expenses .......... -- -- 7,415(3) -- 3,523(5)
Interest and other expense, net .. 4,956 7,749 12,213 20,600 20,300
---------- ---------- ---------- ---------- ----------
Income before provision for
income taxes .................... 8,251 23,554 24,754 68,515 136,422
Provision for income taxes ....... 8,693 3,175 2,318 7,632 15,507
---------- ---------- ---------- ---------- ----------
Net income (loss) ................ $ (442) $ 20,379 $ 22,436 $ 60,883 $ 120,915
========== ========== ========== ========== ==========
Diluted net income (loss)
per share(6) ................... $ (0.01) $ 0.28 $ 0.28 $ 0.63 $ 1.02
========== ========== ========== ========== ==========
Weighted average ordinary
shares and equivalents
outstanding - diluted(6) ....... 66,473 74,041 81,117 97,055 118,274
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31,
---------------------------------------------------------------------------------------
1996 1997 1998 1999 2000
---------- ---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working Capital (deficit) ........ $ 39,354 $ (8,319) $ 140,751 $ 256,857 $1,043,091
Total assets ..................... 400,130 518,899 821,898 1,296,640 3,087,082
Long-term debt and capital
leases, excluding current
portion ........................ 38,407 32,623 192,418 219,995 214,727
Shareholders' equity ............. 112,843 133,912 246,217 500,046 1,593,242
</TABLE>
(1) In fiscal 1996, we wrote off $29.0 million of in-process research and
development associated with the acquisition of Astron and also recorded charges
totaling $1.3 million for costs associated with the closing of one of our
Malaysian plants and our Shekou, China operations.
(2) In fiscal 1997, we incurred plant closing expenses aggregating $5.9 million
in connection with closing our manufacturing facility in Texas, downsizing
manufacturing operations in Singapore, the write-off of excess equipment and
severance obligations at our semiconductor fabrication operations.
(3) In fiscal 1998, we incurred plant closing expenses aggregating $8.9 million
in connection with closing our manufacturing facility in Wales, UK. The Company
also incurred $7.4 million of merger-related costs as a result of the
acquisitions of Neutronics, DTM, Energipilot, Altatron and Conexao in fiscal
1998.
(4) In fiscal 1999, we incurred plant closing expenses aggregating $3.4 million
in connection with consolidating our manufacturing facilities in Hong Kong after
the acquisition of ACL
<PAGE> 24
and restructuring some of our U.S. manufacturing facilities. The Company also
wrote off $2.0 million of in-process research and development associated with
the acquisition of ACL.
(5) In fiscal 2000, we incurred $3.5 million merger-related costs as a result of
the acquisitions of Kyrel and PCB.
(6) We set a record date of December 8, 1999 for a two-for-one stock split to be
effected as a bonus issue (the Singapore equivalent of a stock dividend). The
distribution of ordinary shares occurred on December 22, 1999. This stock
dividend has been reflected in our financial statements for all periods
presented unless otherwise noted. All share and per share amounts have been
retroactively restated to reflect the stock split.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with the supplemental consolidated
financial statements and the related notes included elsewhere in this filing.
This discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ materially from those anticipated
in these forward-looking statements.
BUSINESS ACQUISITIONS AND PURCHASE OF ASSETS
We have actively pursued acquisitions to expand our geographic presence,
enhance our product and service offerings and diversify our customer base. An
increasing number of original equipment manufacturers (OEMs) are outsourcing and
divesting their manufacturing operations as an integral part of their
manufacturing strategy. We intend to selectively pursue OEM divestitures and
other strategic acquisition opportunities, which we believe could favorably
impact our profitability. See "Item 1 - Business - Risk Factors - We may
encounter difficulties with acquisitions, which could harm our business".
We have completed a number of business combinations. The accompanying
consolidated financial statements have been restated for all periods presented
to reflect the pooling-of-interests mergers with Kyrel EMS Oyj and PCB Assembly,
Inc. Additionally, we have completed a number of other immaterial
pooling-of-interests transactions. Prior period statements have not been
restated for these immaterial pooling-of-interests transactions. We have also
made a number of purchase acquisitions. The consolidated financial statements
include the operating results of each business from the date of acquisition. Pro
forma results of operations have not been presented because the effects of these
acquisitions were not material on either an individual or an aggregate basis.
These business combinations are summarized as follows:
<TABLE>
<CAPTION>
APPROXIMATE
DATE ACQUIRED COMPANY ACCOUNTING METHOD CONSIDERATION LOCATION(s)
---- ---------------- ----------------- ------------- -----------
<S> <C> <C> <C> <C>
Mar-00 PCB Assembly, Inc.(1) Pooling-of-interests 1,084,566 ordinary Sunnyvale, California
shares
Mar-00 Purchased remaining 10% Purchase $3.0 million cash Shenzhen, China
interest in FICO Investment
Holdings Ltd(3)
Feb-00 Vastbright PCB Co. Ltd. Purchase $18.0 million cash Zhuhai, China
("Vastbright") (2)
Nov-99 Circuit Board Assemblers, Pooling-of-interests 559,098 ordinary shares Research Triangle
Inc. ("CBA") (1) EMC Park, North Carolina
International, Inc.
("EMC)(1), Newport
Technology(1), and
Summit Manufacturing (1)
Jul-99 Kyrel EMS Oyj(1) Pooling-of-interests 3,643,610 ordinary Two facilities in
shares Finland and one in
Lunerville, France
Mar-99 Advanced Component Labs HK Purchase $15.0 million cash Zhuhai, China
Ltd. ("ACL") (2)
Mar-99 Increased ownership of FICO Purchase $7.2 million cash,$3.0 Shenzhen, China
Investment Holdings Ltd to million in 2%
90%(3) promissory notes, and
255,700 ordinary shares
Mar-98 Conexao Informatica Ltda. Pooling-of-interests 1,686,372 ordinary Sao Paulo, Brazil
(1) shares
Mar-98 Altatron, Inc. (1) Pooling-of-interests 3,154,600 ordinary Freemont, California
shares
Dec-97 DTM Products, Inc. (3) Pooling-of-interests 1,009,876 ordinary Boulder, Colorado
shares
Dec-97 Energipilot AB(4) Pooling-of-interests 919,960 ordinary shares Stockholm, Sweden
Oct-97 Neutronics(1) Pooling-of-interests 11,224,000 ordinary Althofen, Austria;
shares Tab, Sarvar and
Zalaegerszeg, Hungary
</TABLE>
---------------
(1) Provides electronics design, assembly and test services.
(2) Manufactures advanced technology printed circuit boards.
(3) Manufactures injection molded plastics.
22
<PAGE> 25
(4) Provides cable assembly and engineering services.
Additionally, we have purchased manufacturing facilities and related
assets from customers and simultaneously entered into manufacturing agreements
to provide electronics design, assembly and test services to these customers.
The transactions were accounted for as a purchase of assets and the purchase
price has been allocated to the assets acquired based on the relative fair
values of the assets at the date of acquisition.
<TABLE>
<CAPTION>
APPROXIMATE
DATE CUSTOMER CONSIDERATION FACILITY LOCATION(s)
---- -------- ------------- --------------------
<S> <C> <C> <C>
Mar-00 Cabletron Systems Inc. $89.4 million Rochester, New Hampshire and
Limerick, Ireland
Jan-00 Fujitsu Siemens $69.7 million Paderborn, Germany
Jun-99 Ericsson $39.4 million Visby, Sweden
May-99 ABB Automation Products $24.5 million Vasteras, Sweden
</TABLE>
Subsequent to March 31, 2000, we completed two pooling-of-interests
mergers. On April 3, 2000, we merged with The DII Group, Inc. through a
tax-free, stock-for-stock exchange. The DII Group is a leading provider of
electronics manufacturing and design services, operating through a global
operations network in the Americas, Asia/Pacific and Europe. As a result of the
merger, we issued 62,768,139 ordinary shares for all of the outstanding shares
of common stock of the DII Group, based upon the exchange ratio of 1.61
Flextronics ordinary shares for each share of DII common stock, resulting in
current DII shareholders owning approximately 33% of the combined company.
On April 7, 2000, we merged with Palo Alto Products
International Pte. Ltd., an enclosure design and plastic molding
company with operations in Taiwan, Thailand and the United States, by
exchanging 3,618,374 ordinary shares of Flextronics for the outstanding
shares of Palo Alto Products International Pte. Ltd.
23
<PAGE> 26
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
statements of operations data expressed as a percentage of net sales.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
MARCH 31
--------------------------
1998 1999 2000
------ ------ ------
<S> <C> <C> <C>
Net sales ................................... 100.0 100.0 100.0
Cost of sales ............................... 91.1 92.0 93.0
Unusual charges ............................. 0.6 0.1 --
------ ------ ------
Gross margin ............................. 8.3 7.9 7.0
Selling, general and administrative ......... 4.7 3.7 3.1
Goodwill and intangible amortization ........ 0.3 0.2 0.2
Acquired in-process research and
development ................................. -- 0.1 --
Merger-related expenses ..................... 0.5 -- 0.1
Interest and other expense, net ............. 0.9 0.9 0.4
------ ------ ------
Income before income taxes ............... 1.9 3.0 3.2
Provision for income taxes .................. 0.2 0.3 0.4
------ ------ ------
Net income .................................. 1.7 2.7 2.8
====== ====== ======
</TABLE>
NET SALES
We derive our net sales from our wide range of service offerings
including product design, printed circuit board assembly and fabrication,
material procurement, inventory management, plastic injection molding, final
system assembly and test, packaging and distribution.
Net sales for fiscal 2000 increased 92.9% to $4.3 billion from $2.2
billion in fiscal 1999. The increase in sales for fiscal 2000 was primarily the
result of our ability to continue to expand sales to new customers worldwide as
well as expanding sales to our existing customer base and, to a lesser extent,
the incremental revenue associated with the purchases of several manufacturing
facilities and related assets during fiscal 2000. During fiscal 2000, our five
largest customers accounted for approximately 54% of net sales, with Ericsson,
Philips and Cisco accounting for approximately 15%, 13% and 12%, respectively.
Net sales for fiscal 1999 increased 67.2% to $2.2 billion from $1.3
billion in fiscal 1998. The increase in sales for fiscal 1999 was primarily due
to expanding sales to existing customers and, to a lesser extent, sales to new
customers. In fiscal 1999, our five largest customers accounted for
approximately 54% of net sales, with Philips, Ericsson and Cisco accounting for
approximately 15%, 13% and 10%, respectively.
GROSS PROFIT
Gross profit varies from period to period and is affected by a number of
factors, including product mix, component costs, product life cycles, unit
volumes, startup, expansion and consolidation of manufacturing facilities,
pricing, competition and new product introductions. See "Item 1-Business - Risk
Factors".
Gross margin decreased to 7.0% for fiscal 2000 from 7.9% in fiscal 1999.
Excluding unusual pre-tax charges of $3.4 million in fiscal 1999, gross margin
decreased from 8.0% in fiscal 1999 to 7.0% in fiscal 2000. Gross margin
decreased to 7.9% for fiscal 1999 from 8.3% in fiscal 1998. Excluding unusual
pretax charges of $3.4 million and $8.9 million in fiscal 1999 and 1998,
respectively, gross margin decreased from 8.9% in fiscal 1998 to 8% in fiscal
1999. Gross profit in each fiscal year was adversely
24
<PAGE> 27
affected by several factors, including costs associated with expanding are
facilities, costs associated with the startup of new customers and projects
which typically carry higher levels of under absorbed manufacturing overhead
costs until the projects reach higher volume production, and changes in product
mix to higher volume projects, which typically have a lower gross margin.
Increased mix of products that have relatively high material costs as a
percentage of total unit costs can adversely affect our gross margins. We
believe that this and other factors may adversely affect our gross margins, but
we do not expect that this will have a material effect on our income from
operations.
UNUSUAL CHARGES
We recognized unusual pre-tax charges of $3.4 million in fiscal 1999,
comprised of $2.2 million relating to the costs of consolidating our four
manufacturing and administrative facilities in Hong Kong and $1.2 million
relating to the consolidation of certain U.S. facilities. This charge was
comprised of $1.5 million for the reduction of certain personnel due to
consolidation of certain operations, $1.5 million for the write-off of equipment
and assets related to the operations we have exited, and $0.4 million related to
the consolidation of facilities. In connection with the provision for excess
facilities, we have terminated approximately 250 employees. The consolidation of
facilities was substantially completed in November 1999.
We recognized unusual pre-tax charges of $8.9 million in fiscal 1998
relating to the costs incurred in closing the Wales, United Kingdom facility.
This charge consists primarily of the write-off of goodwill and intangible
assets of $3.8 million, $2.4 million of severance payments, $1.6 million for
reimbursement of government grants, and $1.1 million for costs associated with
the disposal of the factory. This closure is a result of our acquisition of
Altatron, which resulted in duplicative facilities in the United Kingdom. See
Note 9 of Notes to Consolidated Financial Statements.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses, or SG&A, for fiscal 2000
increased to $135.5 million from $81.6 million in fiscal 1999 but decreased as a
percentage of net sales to 3.1% in fiscal 2000 from 3.7% in fiscal 1999. SG&A
expenses for fiscal 1999 increased to $81.6 million from $62.3 million in fiscal
1998 but decreased as a percentage of net sales to 3.7% in fiscal 1999 from 4.7%
in fiscal 1998. The dollar increase in SG&A expenses for each fiscal year was
primarily due to continued investment in infrastructure such as sales,
marketing, supply-chain management and other related corporate and
administrative expenses as well as information systems necessary to support the
expansion of our business. The decline in SG&A expenses as a percentage of each
fiscal year's net sales reflects our continued focus on controlling operating
expenses relative to sales growth and gross margin levels.
GOODWILL AND INTANGIBLE ASSETS AMORTIZATION
Goodwill and intangible assets are amortized on a straight-line basis
over the estimated life of the benefits received, which ranges from three to
twenty-five years.
Goodwill and intangible assets amortization in fiscal 2000 increased to
$6.8 million from $3.7 million in fiscal 1999. This increase is primarily the
result of the Vastbright and Fujitsu Siemens acquisitions in fiscal 2000 and
acquisitions of ACL and an additional 50% equity interest in FICO in March 1999.
Goodwill and intangible assets amortization in fiscal 1999 was unchanged
at $3.7 million from fiscal 1998 as there were no increases to goodwill or
intangible assets during fiscal 1999, except for the FICO and ACL acquisitions
which were completed in late March 1999.
25
<PAGE> 28
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT
Based on an independent valuation of certain of the assets of ACL and
other factors, we determined that the purchase price of ACL included in-process
research and development costs totaling $2.0 million which had not reached
technological feasibility and had no probable alternative future use.
Accordingly, we wrote-off $2.0 million of in-process research and development in
fiscal 1999.
MERGER EXPENSES
In fiscal 2000, we incurred merger-related expenses of $3.5 million
associated with the pooling-of-interests acquisitions of Kyrel and PCB. The
merger expenses consisted of a transfer tax of $1.7 million, approximately $0.4
million of investment banking fees and approximately $1.4 million of legal and
accounting fees.
In fiscal 1998, we incurred $7.4 million of merger expenses associated
with the acquisitions of Neutronics, EnergiPilot, DTM, Altatron and Conexao. The
Neutronics merger expenses included $2.2 million in cost associated with the
cancellation of Neutronics's public offering and $0.9 million in other legal and
accounting fees. The remaining $4.3 million consists of a $3.1 million brokerage
and finder's fees incurred in the Altatron acquisition and $1.2 million in legal
and accounting fees for all of the fiscal 1998 acquisitions.
INTEREST AND OTHER EXPENSE, NET
Interest and other expense, net decreased to $20.3 million in fiscal
2000 from $20.6 million in fiscal 1999. The following table sets forth
information concerning the components of interest and other expense.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
MARCH 31
----------------------------------------------
1998 1999 2000
--------- ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest expense ............................... $ (17,964) $ (22,891) $ (33,351)
Interest income ................................ 2,919 5,494 16,770
Foreign exchange gain (loss) ................... 1,221 (5,068) (1,056)
Equity in earnings of associated
companies .................................... 1,194 1,036 --
Minority interest .............................. (356) (1,319) (2,154)
Other income (expense) net ..................... 773 2,148 (509)
--------- --------- ---------
Total interest and other expense, net .......... $ (12,213) $ (20,600) $ (20,300)
========= ========= =========
</TABLE>
Net interest expense decreased to $16.6 million in fiscal 2000 from
$17.4 million in fiscal 1999. The decrease was attributable to the increase in
interest income from our equity offering proceeds invested in money market funds
and corporate debt securities offset by increased bank borrowings to finance our
capital expenditures, expansion of various facilities and purchases of
manufacturing assets. Fiscal 2000 net interest expense includes accelerated
amortization of approximately $1.0 million in bank arrangement fees associated
with termination of a credit facility.
Net interest expense increased to $17.4 million in fiscal 1999 from
$15.0 million in fiscal 1998. The increase was primarily due to increased bank
borrowings to finance capital expenditures and expansion of our facilities in
Sweden, Hungary, Mexico and China.
In fiscal 2000, there was $1.1 million of foreign exchange loss compared
to $5.1 million foreign exchange loss in fiscal 1999. The foreign exchange loss
in fiscal 2000 mainly relates to net non-functional currency monetary
liabilities in Austria, Finland and Hungary. Foreign exchange loss increased to
$5.1
26
<PAGE> 29
million from a foreign exchange gain of $1.2 million in fiscal 1998. The foreign
exchange loss in fiscal 1999 mainly relates to net non-functional currency
monetary liabilities in Austria, Finland, Brazil and Hungary. The foreign
exchange gain in fiscal 1998 was mainly due to the strengthening of the U.S.
dollar against Asian currencies. See Note 2 of Notes to Consolidated Financial
Statements.
Equity in earnings of associated companies for fiscal 2000 was nil as
compared to $1.0 million in fiscal 1999. This decrease is the result of our
having increased our ownership of FICO to 100% by acquiring an additional 50% of
its equity interests in March 1999 and the remaining 10% in March 2000. Prior to
the increased ownership, we accounted for this investment according to the
equity method of accounting, and as a result did not recognize revenue from
sales by FICO but, based on our ownership interest, recognized 40% of the net
income or loss of the associated company.
Equity in earnings of associated companies for fiscal 1999 remained
relatively unchanged at $1.0 million versus $1.2 million in fiscal 1998. The
equity in earnings of associated companies resulted primarily from our previous
40% investment in FICO and, to a lesser extent, certain minority investments of
Neutronics.
Minority interest expense for fiscal 2000 and fiscal 1999 was comprised
primarily of the 8% minority interest in Neutronics and 10% minority interest in
FICO not acquired by us in March 1999.
Minority interest expense for fiscal 1998 was comprised primarily of the
8% minority interest in Neutronics not acquired by us in October 1997 and the
4.1% minority interest in Ecoplast, a subsidiary of Neutronics held by a third
party.
Other income (expense), net decreased from $2.1 million of net other
income in fiscal 1999 to $0.5 million of net other expense in fiscal 2000. The
other expense in fiscal 2000 was comprised mainly of a loss on disposal of fixed
assets in Hungary offset by compensation received in a settlement of a claim.
The other income in fiscal 1999 comprised mainly of gain from disposal of land
in Mexico.
PROVISION FOR INCOME TAXES
Certain of our subsidiaries have, at various times, been granted tax
relief in their respective countries, resulting in lower income taxes than would
otherwise be the case under ordinary tax rates. See Note 7 of Notes to
Consolidated Financial Statements.
The consolidated effective tax rate for a particular year will vary
depending on the mix of earnings, operating loss carryforwards, income tax
credits, and changes in previously established valuation allowances for
deferred tax assets based upon management's current analysis of the
realizability of these deferred tax assets. The Company's consolidated
effective tax rate was 11.4% for fiscal year 2000 compared to 11.1% for fiscal
year 1999. The slight increase in the effective tax rate was due primarily to
the expansion of operations and increase in profitability in countries with
higher tax rates.
BACKLOG
Although we obtain firm purchase orders from our customers, OEM
customers typically do not make firm orders for delivery of products more than
30 to 90 days in advance. We do not believe that the backlog of expected product
sales covered by firm purchase orders is a meaningful measure of future sales
since orders may be rescheduled or canceled.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000 we had cash and cash equivalents balances totaling
$618.6 million, total bank and other debts amounting to $485.6 million and $63.0
million available for borrowing under our credit facilities subject to
compliance with certain financial ratios.
Cash used by operating activities was $67.4 million in fiscal 2000
compared to cash provided by operating activities of $58.1 million and $55.7
million in fiscal 1999 and 1998, respectively. Cash provided by operating
activities decreased in fiscal 2000 from fiscal 1999 because of increases in
accounts receivable, inventories and other current assets, offset by increases
in net income, depreciation and amortization and accounts payable. Cash provided
by operating activities increased in fiscal 1999 from fiscal 1998 due to an
increase in net income, depreciation and amortization and accounts payable,
partially offset by increases in accounts receivables and inventories.
27
<PAGE> 30
Accounts receivable, net of allowance for doubtful accounts, increased
to $635.0 million at March 31, 2000 from $302.4 million at March 31, 1999. The
increase in accounts receivable was primarily due to an increase of 92.9% in
sales in fiscal 2000.
Inventories increased to $840.6 million at March 31, 2000 from $250.4
million at March 31, 1999. The increase in inventories was primarily the result
of increased purchases of materials to support the growing sales, combined with
the inventory acquired in connection with the manufacturing facility purchases
in the fourth quarter of fiscal 2000.
Cash used in investing activities was $572.2 million, $222.4 million and
$110.1 million in fiscal 2000, 1999 and 1998, respectively. Cash used in
investing activities in fiscal 2000 were primarily related to:
- $250.4 million of capital expenditures to purchase equipment and
continued expansion of our manufacturing facilities in Brazil,
China, Hungary, Mexico, United States and Sweden;
- $230.0 million for purchases of manufacturing facilities and
related asset purchases during fiscal 2000;
- $26.8 million for the acquisition of Vastbright, FICO and other
immaterial acquisitions;
- $20.2 million for minority investment in the stocks of various
technology companies in software and related industries, and;
- $75.0 million of funding for a loan to another company.
Cash used in investing activities in fiscal 1999 were primarily related
to:
- $165.9 million of capital expenditures to purchase equipment and
continued expansion of our manufacturing facilities in Brazil,
China, Hungary, Mexico, United States and Sweden;
- $22.2 million for acquisition of ACL and FICO
- $24.0 million of contingent purchase price adjustments (earn-out
payments) relating to the acquisition of Astron, which occurred
in fiscal 1996; and
- $17.8 million for minority investment in the stocks of various
technology companies in software and related industries.
Cash provided by financing activities was $1,070.4 million, $259.0
million and $130.0 million in fiscal 2000, 1999, and 1998, respectively. Cash
provided by financing activities in fiscal 2000 were primarily related to the
completion of our two public stock offerings. In February 2000, we sold a total
of 8.6 million ordinary shares at a price of $59.00 per share resulting in net
proceeds to us of approximately $494.1 million. In October 1999, we sold a total
of 13.8 million ordinary shares at a price of $33.84 per share resulting in net
proceeds to us of approximately $448.9 million. Additionally, cash provided by
financing activities in fiscal 2000 resulted from
- $131.1 million of net proceeds from bank borrowings, capital
leases, and long-term debts;
- $19.8 million in proceeds from stock issued under our stock
plans; offset by
- $23.5 million of dividends paid to former PCB shareholders.
Cash provided by financing activities in fiscal 1999 resulted primarily
from our equity offering of 10.8 million ordinary shares in December 1998 with
net proceeds of $194.0 million. Additionally, cash provided by financing
activities in fiscal 1999 resulted from:
- $58.8 million of net proceeds from bank borrowings, capital
leases and long-term debts;
- $12.6 million in proceeds from stock issued under our stock
plans; offset by
- $6.4 million of dividends paid to former PCB shareholders.
28
<PAGE> 31
In October 1999, we entered into a credit facility with a syndicate of
banks, providing for revolving credit borrowings by us and a number of our
subsidiaries of up to $200.0 million. As of March 31, 2000, there were $137.0
million in borrowings outstanding under this facility and the weighted-average
interest rate for these borrowings was 6.87%. We were in compliance with all
loan covenants at March 31, 2000.
On April 3, 2000, we replaced our $200.0 million credit facility and a
DII credit facility of $210.0 million (other than purchase money debt and
capitalized leases) with a $500.0 million credit facility with a syndicate of
domestic and foreign banks. This new credit facility consists of two separate
credit agreements, one providing for up to $150.0 million principal amount of
revolving credit loans to ourselves and designated subsidiaries and one
providing for up to $350.0 million principal amount of revolving credit loans to
our United States subsidiary. Both agreements are split equally between a
364-day facility and a three-year facility. At the maturity of the 364-day
facility, outstanding borrowings under that facility may be converted into
one-year term loans. Borrowings under the credit facility bear interest, at our
option, at either the agent's base rate or the LIBOR Rate (as defined in the
credit facility) plus a margin for LIBOR loans ranging between 0.625% and 1.75%,
based on our ratio of debt to EBITDA (earnings before interest, taxes,
depreciation, and amortization). The credit facility is secured by a pledge of
stock of certain of our subsidiaries.
The credit facility contains covenants that restrict our ability to (1)
incur secured debt (other than purchase money debt and capitalized leases), (2)
incur liens on our property, (3) make dispositions of assets, and (4) make
investments in companies that are not our subsidiaries. The credit facility also
prohibits us from paying dividends. The credit facility also requires that we
maintain a maximum ratio of total indebtedness in EBITDA, and maintain a minimum
ratio of EBITDA to the sum of our net interest expense plus the current portion
of our long-term debt and a specified portion of certain other debt.
We plan to increase the size of our credit facility, or enter into
additional credit facilities, to fund anticipated growth in our operations. We
cannot provide any assurances that we will be able to complete any such
transaction, or as to its potential terms. In addition, we maintain smaller
credit facilities for a number of our non-U.S. subsidiaries, typically on an
uncommitted basis. We have also entered into relationships with financial
institutions for the sale of accounts receivable, and for leasing transactions.
On June 6, 2000, we entered into a $50.0 million senior note agreement
with Bank of America, N.A., as lender. We plan to replace the senior note
agreement with a new senior note agreement to increase availability to up to
$200.0 million. We intend to use borrowings under these agreements for general
corporate purposes. We cannot provide any assurances that we will be able to
complete this transaction, or as to its potential terms.
In the first fiscal quarter of 2001, we announced our intentions to
purchase the manufacturing facilities and related assets from Ascom Business
Systems AG located in Solothurn, Switzerland and Bosch Telecom GmbH in Pandrup,
Denmark, as well as acquire Uniskor, Ltd., located in Israel. The expected
aggregate cost for the purchases of the manufacturing and business combinations
are expected to aggregate to $178.0 million.
We anticipate that our working capital requirements and capital
expenditures will continue to increase in order to support the anticipated
continued growth in our operations. In addition to our anticipated manufacturing
facility purchases, we anticipate incurring significant capital expenditures and
operating lease commitments in order to support our anticipated expansions of
our industrial parks in China, Hungary, Mexico, Brazil, and Poland. We intend to
continue our acquisition strategy and it is possible that future acquisitions
may be significant. Future liquidity needs will also depend on fluctuations in
levels of inventory, the timing of expenditures by us on new equipment, the
extent to which we utilize operating leases for the new facilities and
equipment, levels of our shipments and changes in volumes of customer orders.
29
<PAGE> 32
Historically, we have funded our operations from the proceeds of public
offerings of equity securities and debt offerings, cash and cash equivalents
generated from operations, bank debt, sales of accounts receivable and lease
financings of capital equipment. We recently announced plans to effect an
underwritten public offering of 5,500,000 ordinary shares. We are also planning
a private offering of senior subordinated notes to qualified institutional
buyers for an aggregate principal amount of approximately $450 million, a
portion of which is expected to be denominated in Euros. We cannot assure you
that such offerings will be successful or that such offerings will be completed
on terms favorable to us. We believe that our existing cash balances, together
with anticipated cash flows from operations, borrowings available under our
credit facility and our net proceeds from our planned public equity offering and
private offering of senior subordinated notes will be sufficient to fund our
operations for at least the next twelve months. We anticipate that we will
continue to enter into debt and equity financings, sales of accounts receivable
and lease transactions to fund our acquisitions and anticipated growth. Such
financings and other transactions may not be available on terms acceptable to us
or at all.
30
<PAGE> 33
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
A portion of our exposure to market risk for changes in interest rates
relates to our investment portfolio. We do not use derivative financial
instruments in our investment portfolio. We invest in high-credit quality
issuers and, by policy, limit the amount of credit exposure to any one issuer.
As stated in our policy, we protect our invested principal funds by limiting
default risk, market risk and reinvestment risk. We mitigate default risk by
investing in safe and high-credit quality securities and by constantly
positioning its portfolio to respond appropriately to a significant reduction in
a credit rating of any investment issuer, guarantor or depository. The portfolio
includes only marketable securities with active secondary or resale markets to
ensure portfolio liquidity. Maturities of short-term investments are timed,
whenever possible, to correspond with debt payments and capital investments. As
of March 31, 2000, the outstanding amount in the investment portfolio was $398.7
million, with an average maturity of 34 days and an average return of 5.84%.
We also have exposure to interest rate risk with certain variable rate
lines of credit. These credit lines are located throughout the world and are
based on a spread over that country's inter-bank offering rate. We primarily
enter into debt obligations to support general corporate purposes including
capital expenditures, acquisitions and working capital needs. As of March 31,
2000, the outstanding short-term debt, including capitalized leases was $270.9
million. The following table presents principal cash flows and related interest
rates by fiscal year of maturity for debt obligations. The variable interest
rate for future years assumes the same rate as March 31, 2000.
<TABLE>
<CAPTION>
EXPECTED FISCAL YEAR OF MATURITY
---------------------------------------------------------------------------
DEBT 2001 2002 2003 2004 2005 THEREAFTER TOTAL
---- -------- ------- ------- ------- ------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Sr. Subordinated Notes -- -- -- -- -- 150,000 150,000
Average Interest Rate 8.75% 8.75% 8.75% 8.75% 8.75% 8.75% 8.75%
Fixed Rate 27,292 17,160 12,554 7,018 1,112 6,657 71,793
Average Interest Rate 7.5% 8.4% 7.5% 7.8% 8.6% 9.0% 7.9%
Variable Rate 243,559 4,409 4,037 9,688 720 1,372 263,785
Average Interest Rate 5.7% 3.5% 3.9% 5.7% 2.9% 6.6% 5.6%
</TABLE>
FOREIGN CURRENCY EXCHANGE RISK
We transact business in various foreign countries. We manage our foreign
currency exposure by borrowing in various foreign currencies and by entering
into foreign exchange forward contracts only with respect to transaction
exposure. Our policy is to maintain a fully hedged position for all certain,
known transactions exposures. These exposures are primarily, but not limited to,
vendor payments and inter-company balances in currencies other than the
functional unit of the operating entity. We will first evaluate and, to the
extent possible, use non-financial techniques, such as currency of invoice,
leading and lagging payments, receivable management or local borrowing to reduce
transaction exposure before taking steps to minimize remaining exposure with
financial instruments. As of March 31, 2000, the total cumulative outstanding
amounts of our forward contracts in French Franc, German Deutsche Mark, Japanese
Yen, Swedish Kronor and United States Dollar was approximately $43.5 million.
YEAR 2000 COMPLIANCE
The Year 2000 computer issue refers to a condition in computer software
where a two-digit field rather than a four-digit field is used to distinguish a
calendar year. We developed a comprehensive Year 2000 project plan to address
the issues associated with programming code in existing computer systems as the
year 2000 approached. While we have not experience material Year 2000 problems
to date, some computer programs may be unable to function and we may experience
errors or interruptions due to the Year 2000 problem. Such an uncorrected
condition could significantly interfere with the conduct of our business, could
result in disruption of our operations, and could subject us to potentially
significant legal liabilities. the issues associated with programming code in
existing computer systems as the year 2000 approached. While we have not
experience material Year 2000 problems to date, some computer programs may be
unable to function and we may experience errors or interruptions due to the Year
2000 problem. Such an uncorrected condition could significantly interfere with
the conduct of our business, could result in disruption of our operations, and
could subject us to potentially significant legal liabilities.
31
<PAGE> 34
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Flextronics International Ltd:
We have audited the accompanying consolidated balance sheets of
Flextronics International Ltd. and subsidiaries (a Singapore company) as of
March 31, 1999 and 2000 and the related consolidated statements of operations,
comprehensive income, shareholders' equity and cash flows for each of the three
years in the period ended March 31, 2000. These financial statements and the
schedule referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
the schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Flextronics
International Ltd. and subsidiaries as of March 31, 1999 and 2000, and the
results of their operations and their cash flows for each of the three years in
the period ended March 31, 2000 in conformity with accounting principles
generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed under Item 14(a) 2 is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
San Jose, California
April 18, 2000
32
<PAGE> 35
FLEXTRONICS INTERNATIONAL LTD.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31
-------------------------------
1999 2000
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................................................... $ 194,509 $ 618,581
Accounts receivable, less allowances
for doubtful accounts of $8,010 and $13,663 as of March 31, 1999
and 2000, respectively ..................................................... 302,364 634,997
Inventories .................................................................. 250,443 840,590
Other current assets ......................................................... 66,793 204,527
----------- -----------
Total current assets ................................................. 814,109 2,298,695
----------- -----------
Property and equipment, net .................................................... 407,353 599,338
Goodwill and other intangibles, net ............................................ 38,839 70,714
Other assets ................................................................... 36,339 118,335
----------- -----------
Total assets ......................................................... $ 1,296,640 $ 3,087,082
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank borrowings and current portion of long-term debt ........................ $ 83,976 $ 254,798
Capital lease obligations .................................................... 11,475 16,053
Accounts payable ............................................................. 349,530 812,194
Accrued liabilities .......................................................... 106,295 168,662
Deferred revenue ............................................................. 5,976 3,897
----------- -----------
Total current liabilities ............................................ 557,252 1,255,604
----------- -----------
Long-term debt, net of current portion ......................................... 188,808 179,297
Capital lease obligations, net of current portion .............................. 31,187 35,430
Deferred income taxes .......................................................... 4,457 4,780
Other long-term liabilities .................................................... 10,868 15,275
Minority interest .............................................................. 4,022 3,454
----------- -----------
Total long-term liabilities .......................................... 239,342 238,236
----------- -----------
Commitments (Note 6)
SHAREHOLDERS' EQUITY:
Ordinary Shares, S$.01 par value; Authorized -- 250,000,000 shares; issued and
outstanding - 100,197,275 and 125,697,596 as of March
31, 1999 and 2000, respectively ........................................... 626 773
Additional paid-in capital ................................................... 425,424 1,391,432
Retained earnings ............................................................ 97,843 192,264
Accumulated other comprehensive income (loss) ................................ (23,847) 8,773
----------- -----------
Total shareholders' equity ........................................... 500,046 1,593,242
----------- -----------
Total liabilities and shareholders' equity ........................... $ 1,296,640 $ 3,087,082
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
33
<PAGE> 36
FLEXTRONICS INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
------------------------------------------
1998 1999 2000
---------- ---------- ----------
<S> <C> <C> <C>
Net Sales ...................................... $1,335,762 $2,233,208 $4,307,193
Cost of Sales .................................. 1,216,588 2,053,471 4,004,626
Unusual charges ................................ 8,869 3,361 --
---------- ---------- ----------
Gross profit ......................... 110,305 176,376 302,567
Selling, general and administrative ............ 62,260 81,597 135,540
Goodwill and intangibles amortization .......... 3,663 3,664 6,782
Acquired in-process research and development ... -- 2,000 --
Other expense:
Merger-related expenses ..................... 7,415 -- 3,523
Interest and other expense, net ............. 12,213 20,600 20,300
---------- ---------- ----------
Income before income taxes ............ 24,754 68,515 136,422
Provision for Income Taxes ..................... 2,318 7,632 15,507
---------- ---------- ----------
Net income ............................ $ 22,436 $ 60,883 $ 120,915
========== ========== ==========
Earnings Per Share:
Basic ..................................... $ 0.29 $ 0.66 $ 1.11
========== ========== ==========
Diluted ................................... $ 0.28 $ 0.63 $ 1.02
========== ========== ==========
Shares used for earnings per share:
Basic ..................................... 77,781 91,867 108,827
========== ========== ==========
Diluted ................................... 81,117 97,055 118,274
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
34
<PAGE> 37
FLEXTRONICS INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------------------------
1998 1999 2000
--------- --------- ---------
<S> <C> <C> <C>
Net income ........................................... $ 22,436 $ 60,883 $ 120,915
Other comprehensive income (loss):
Foreign currency translation adjustment ............ (11,307) (12,024) (18,301)
Unrealized gain on available-for-sale securities,
net of tax .................................. -- -- 50,921
--------- --------- ---------
Comprehensive income ................................. $ 11,129 $ 48,859 $ 153,535
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
35
<PAGE> 38
FLEXTRONICS INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1998, 1999 AND 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED OTHER
ORDINARY SHARES ADDITIONAL COMPREHENSIVE TOTAL
----------------- PAID-IN RETAINED INCOME SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS (LOSS) EQUITY
------ ------ ----------- ----------- ----------------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1997 .......... 70,184 $ 452 $ 106,310 $ 27,666 $ (516) $ 133,912
Adjustment to conform fiscal year
of pooled entity .............. -- -- -- (3,136) -- (3,136)
Impact of immaterial pooling-
of-interests acquisitions ..... 6,298 38 9,801 (2,823) -- 7,016
Exercise of stock options ........ 1,039 8 1,940 -- -- 1,948
Sale of shares in public offering,
net of offering costs ......... 8,740 50 96,100 -- -- 96,150
Net income ....................... -- -- -- 22,436 -- 22,436
Dividend paid to former Kyrel
shareholder ................... -- -- -- (802) -- (802)
Foreign currency translation ..... -- -- -- -- (11,307) (11,307)
----------- ------- ----------- ----------- ----------- -----------
BALANCE AT MARCH 31, 1998 .......... 86,261 548 214,151 43,341 (11,823) 246,217
Issuance of ordinary shares for
acquisition of FICO ............ 256 2 4,798 -- -- 4,800
Exercise of stock options ........ 2,739 16 11,369 -- -- 11,385
Sale of shares in public offering,
net of offering costs .......... 10,800 58 193,942 -- -- 194,000
Ordinary shares issued under
Employee Stock Purchase Plan .. 141 2 1,164 -- -- 1,166
Net income ....................... -- -- -- 60,883 -- 60,883
Dividend paid to former PCB
shareholder ................... -- -- -- (6,381) -- (6,381)
Foreign currency translation ..... -- -- -- -- (12,024) (12,024)
----------- ------- ----------- ----------- ----------- -----------
BALANCE AT MARCH 31, 1999 .......... 100,197 626 425,424 97,843 (23,847) 500,046
Adjustment to conform fiscal year
of pooled entity ................ -- -- -- (818) -- (818)
Impact of immaterial pooling-
of-interests acquisitions ....... 503 4 1,609 (2,162) -- (549)
Exercise of stock options ........ 2,458 13 17,381 -- -- 17,394
Sale of shares in public offering,
net of offering costs .......... 22,400 129 942,895 -- -- 943,024
Ordinary shares issued under
Employee Stock Purchase Plan .. 140 1 2,440 -- -- 2,441
Net income ....................... -- -- -- 120,915 -- 120,915
Dividend paid to former PCB
shareholder ................... -- -- -- (23,514) -- (23,514)
Tax benefit on employee stock
plans ........................ -- -- 1,683 -- -- 1,683
Change in unrealized gain on
available-for-sale securities . -- -- -- -- 50,921 50,921
Foreign currency translation ..... -- -- -- -- (18,301) (18,301)
----------- ------- ----------- ----------- ----------- -----------
BALANCE AT MARCH 31, 2000 .......... 125,698 $ 773 $ 1,391,432 $ 192,264 $ 8,773 $ 1,593,242
=========== ======= =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
36
<PAGE> 39
FLEXTRONICS INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------------------------
1998 1999 2000
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................... $ 22,436 $ 60,883 $ 120,915
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization ............................. 35,567 56,438 82,687
Loss (gain) on sales of equipment ......................... 37 (664) 2,751
Provision for doubtful accounts ........................... 1,850 (423) 7,095
Provision for inventories ................................. 4,096 6,479 32,307
Equity in earnings of associated companies ................ (1,194) (1,036) --
In-process research and development ....................... -- 2,000 --
Unusual charges ........................................... 8,869 3,361 --
Minority interest expense and other non-cash expenses ..... 871 1,238 5,416
Changes in operating assets and liabilities (net of
effect of acquisitions):
Accounts receivable .................................. (46,914) (119,511) (315,982)
Inventories .......................................... (36,559) (86,630) (454,556)
Other current assets ................................. (20,137) (25,939) (71,133)
Accounts payable and accrued liabilities ............. 86,481 162,276 530,961
Deferred revenue ..................................... 317 314 (2,292)
Deferred income taxes ................................ -- (729) (5,561)
----------- ----------- -----------
Net cash provided by (used in) operating activities ............ 55,720 58,057 (67,392)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment .......................... (104,072) (165,933) (250,458)
Proceeds from sale of property and equipment ................. 1,622 6,544 28,874
Investment in associated company ............................. (2,200) -- --
Other investments and notes receivable ....................... (3,611) (17,754) (95,228)
Payment for acquired businesses, earnout obligations and
remaining purchase price related to acquired businesses .... (6,250) (24,000) (26,799)
Effect of acquisitions on cash ............................... 4,363 379 1,278
Cash paid for acquired manufacturing operations .............. -- (22,200) (229,861)
Other ........................................................ 35 572 --
----------- ----------- -----------
Net cash used in investing activities .......................... (110,113) (222,392) (572,194)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank borrowings and proceeds from long-term debt ............. 160,615 190,603 216,561
Repayment of bank borrowings and long-term debt .............. (261,420) (119,817) (57,096)
Borrowings from related company .............................. 2,946 -- --
Repayment of capital lease obligations ....................... (10,152) (11,957) (28,411)
Dividend paid to former shareholders of companies acquired ... (802) (6,381) (23,514)
Proceeds from exercise of stock options and Employee
Stock Purchase Plan ........................................ 1,948 12,551 19,835
Payments on notes payable .................................... (5,000) -- --
Net proceeds from issuance of Senior Subordinated Notes ...... 145,687 -- --
Net proceeds from sales of Ordinary Shares ................... 96,150 194,000 943,024
----------- ----------- -----------
Net cash provided by financing activities ...................... 129,972 258,999 1,070,399
----------- ----------- -----------
Effect of exchange rate changes ................................ (4,305) (2,138) (5,923)
Effect of adjustment to conform fiscal year of pooled
entities ..................................................... 389 -- (818)
----------- ----------- -----------
Increase in cash and cash equivalents .......................... 71,663 92,526 424,072
Cash and cash equivalents, beginning of year ................... 30,320 101,983 194,509
----------- ----------- -----------
Cash and cash equivalents, end of year ......................... $ 101,983 $ 194,509 $ 618,581
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
37
<PAGE> 40
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
1. ORGANIZATION OF THE COMPANY
Flextronics International Ltd. ("Flextronics" or the "Company") is
incorporated in the Republic of Singapore. Flextronics provides advanced
electronics manufacturing services to original equipment manufacturers, or OEMs,
primarily in the telecommunications, networking, consumer electronics and
computer industries. The Company provides customers with the opportunity to
outsource on a global basis, a complete product where the Company takes
responsibility for engineering, supply chain management, assembly, integration,
test and logistics management. The Company provides complete product design
services, including electrical and mechanical, circuit and layout, radio
frequency and test development engineering services.
2. SUMMARY OF ACCOUNTING POLICIES
Principles of consolidation and basis of presentation
The accompanying consolidated financial statements include the accounts
of Flextronics and its wholly and majority-owned subsidiaries, after elimination
of all significant intercompany accounts and transactions.
As is more fully described in Note 11, Flextronics acquired 100% of the
outstanding shares of PCB Assembly, Inc. ("PCB") and Kyrel EMS Oyj ("Kyrel") in
March 2000 and July 1999, respectively. Both acquisitions were accounted for as
pooling-of-interests and the consolidated financial statements have been
restated to reflect the combined operations of PCB, Kyrel and Flextronics for
all periods presented.
Kyrel operated under a calendar year end prior to merging with
Flextronics, and accordingly, Kyrel's statements of operations, shareholders'
equity and cash flows for the years ended December 31, 1998 have been combined
with the corresponding Flextronics consolidated statements for the fiscal years
ended March 31, 1999. During fiscal 2000, Kyrel's year-end was changed from
December 31 to March 31 to conform to the Company's fiscal year end.
Accordingly, Kyrel's operations for the three months ended March 31, 1999, which
included net sales of $101.8 million and net loss of $0.8 million have been
excluded from the consolidated results of fiscal 2000 and was reported as an
adjustment to retained earnings in the first quarter of fiscal 2000.
PCB operated under the same fiscal year end as Flextronics, and
accordingly, PCB's statements of operations, shareholders' equity and cash flows
have been combined with the corresponding Flextronics consolidated statements
for the fiscal years ended March 31, 2000.
All dollar amounts included in the financial statements are expressed in
U.S. dollars unless otherwise designated as Singapore dollars (S$).
Reclassifications
Certain prior years' balances have been reclassified to conform to the
current year's presentation.
Translation of Foreign Currencies
38
<PAGE> 41
The functional currency of the majority of Flextronics' Asian
subsidiaries and certain other subsidiaries is the U.S. dollar. Accordingly, all
of the monetary assets and liabilities of these subsidiaries are translated into
U.S. dollars at the current exchange rate as of the applicable balance sheet
date, and all non-monetary assets and liabilities are remeasured at historical
rates. Revenues and expenses are translated at the average exchange rate
prevailing during the period. Gains and losses resulting from the translation of
these subsidiaries' financial statements are included in the accompanying
consolidated statements of operations.
The financial position and results of operations of the Company's
Swedish, UK, Austrian, Finnish, French, Brazilian and Hungarian subsidiaries are
measured using local currency as the functional currency. Accordingly, for these
subsidiaries all assets and liabilities are translated into U.S. dollars at
current exchange rates as of the respective balance sheet date. Revenue and
expense items are translated at the average exchange rates prevailing during the
period. Cumulative translation gains and losses from the translation of these
subsidiaries' financial statements are reported as a separate component of
shareholders' equity. On January 1, 1999, the Company's Austrian, Finnish,
French and Hungarian subsidiaries adopted the Euro as their functional currency.
Cash, Cash Equivalents and Investments
All highly liquid investments with a maturity of three months or less at
date of purchase are carried at fair market value and considered to be cash
equivalents. Cash and cash equivalents consist of cash deposited in checking and
money market accounts, commercial paper and certificates of deposit.
The Company's investments comprise corporate debt securities and public
corporate equity securities. Investments with maturities of less than one year
are considered short term and are included within Other Current Assets in the
Company's balance sheet and carried at fair value. Nearly all investments are
held in the Company's name and custodied with major financial institutions. The
specific identification method is used to determine the cost of securities
disposed of, with realized gains and losses reflected in other income and
expense. At March 31, 2000, substantially all of the Company's investments were
classified as available-for-sale. Unrealized holding gains and losses on these
investments are included as a separate component of shareholders' equity, net of
any related tax effect.
Cash equivalents and short-term investments are all due within one year
and consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, 2000
---------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Money market funds ........ $115,900 $ -- $ -- $115,900
Certificates of deposits .. 32,026 -- -- 32,026
Corporate debt securities . 282,781 -- -- 282,781
Corporate equity securities 19,563 50,921 -- 70,484
-------- -------- -------- --------
$450,270 $ 50,921 $ -- $501,191
======== ======== ======== ========
Included in cash and cash
</TABLE>
39
<PAGE> 42
<TABLE>
<S> <C> <C> <C> <C>
equivalents .............. $430,707 $ -- $ -- $430,707
Included in other assets .. 19,563 50,921 -- 70,484
-------- -------- -------- --------
$450,270 $ 50,921 $ -- $501,191
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999
---------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Money market funds ........ $ 42,660 $ -- $ -- $ 42,660
Certificates of deposits .. 41,795 -- -- 41,795
Corporate debt securities . 49,504 -- -- 49,504
-------- --------- -------- --------
Included in cash and cash
equivalents .............. $133,959 $ -- $ -- $133,959
======== ========= ======== ========
</TABLE>
There were no sales activities for the fiscal years ended March 31, 2000
and 1999. The Company also has certain investments in non-publicly traded
companies. These investments are included within Other Assets in the Company's
balance sheet and are generally carried at cost. The Company monitors these
investments for impairment and makes appropriate reductions in carrying values
when necessary.
Property and equipment
Property and equipment is stated at cost. Depreciation and amortization
are provided on a straight-line basis over the estimated useful lives of the
related assets (two to ten years), with the exception of building leasehold
improvements, which are amortized over the life of the lease, if shorter.
Repairs and maintenance costs are expensed as incurred. Property and equipment
was comprised of the following as of March 31 (in thousands):
<TABLE>
<CAPTION>
1999 2000
--------- ---------
<S> <C> <C>
Machinery and equipment ........................ $ 291,013 $ 396,827
Land ........................................... 21,229 34,538
Buildings ...................................... 116,458 183,026
Leasehold improvements ......................... 31,389 50,331
Computer equipment and software ................ 36,775 65,456
Furniture, fixtures and vehicles ............... 45,405 63,658
--------- ---------
542,269 793,836
Accumulated depreciation and amortization ...... (134,916) (194,498)
--------- ---------
Property and equipment, net .................... $ 407,353 $ 599,338
========= =========
</TABLE>
Concentration of credit risk
40
<PAGE> 43
Financial instruments, which potentially subject the Company to
concentration of credit risk, are primarily accounts receivable, cash
equivalents and investments. The Company performs ongoing credit evaluations of
its customers' financial condition and maintains an allowance for doubtful
accounts based on the outcome of its credit evaluations. The Company maintains
cash and cash equivalents with various financial institutions that management
believes to be high credit quality. These financial institutions are located in
many different locations throughout the world.
Sales to customers who accounted for more than 10% of net sales were as
follows for the years ended March 31:
<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Ericsson ......................... 21% 13% 15%
Philips .......................... 10 15 13
Cisco ............................ -- 10 12
Lucent ........................... 10 -- --
</TABLE>
41
<PAGE> 44
Goodwill and other intangibles
Any excess of cost over net assets acquired (goodwill) is amortized by
the straight-line method over estimated lives ranging from eight to twenty-five
years.
Intangible assets are comprised of technical agreements, patents,
trademarks, developed technologies and other acquired intangible assets
including assembled work forces, favorable leases and customer lists. Technical
agreements are being amortized on a straight-line basis over periods of up to
five years. Patents and trademarks are being amortized on a straight-line basis
over periods of up to ten years. Purchased developed technologies are being
amortized on a straight-line basis over periods of up to seven years. Intangible
assets related to assembled work forces, favorable leases and customer lists are
amortized on a straight-line basis over three to ten years.
Goodwill and other intangibles were as follows as of March 31 (in
thousands):
<TABLE>
<CAPTION>
1999 2000
-------- --------
<S> <C> <C>
Goodwill ................................. $ 37,533 $ 75,163
Other intangibles ........................ 13,840 14,971
-------- --------
51,373 90,134
Accumulated amortization ................. (12,534) (19,420)
-------- --------
Goodwill and other intangibles, net ...... $ 38,839 $ 70,714
======== ========
</TABLE>
Long-Lived Assets
The Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of property and equipment is measured by
comparison of its carrying amount, including the unamortized portion of goodwill
allocated to the property and equipment, to future net cash flows the property
and equipment are expected to generate. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the property and equipment, including the allocated goodwill,
if any, exceeds its fair market value. The Company assesses the recoverability
of enterprise level goodwill and intangible assets as well as long-lived assets
by determining whether the unamortized balances can be recovered through
undiscounted future results of the operation or asset. The amount of enterprise
level long lived asset impairment, if any, is measured based on projected
discounted future results using a discount rate reflecting the Company's average
cost of funds. To date, the Company has made no adjustments to the carrying
value of its long-lived assets.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
42
<PAGE> 45
Inventories
Inventories are stated at the lower of cost (first-in, first-out basis)
or market value. Cost is comprised of direct materials, labor and overhead. As
of March 31, the components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
1999 2000
-------- --------
<S> <C> <C>
Raw materials .................... $193,036 $669,187
Work-in-process .................. 33,204 109,649
Finished goods ................... 24,203 61,754
-------- --------
$250,443 $840,590
======== ========
</TABLE>
Accrued liabilities
Accrued liabilities was comprised of the following as of March 31 (in
thousands):
<TABLE>
<CAPTION>
1999 2000
-------- --------
<S> <C> <C>
Income taxes payable .................................... $ 11,163 $ 24,557
Accrued payroll ......................................... 40,057 75,151
Accrued loan interest ................................... 6,200 7,696
Accrued expenses for excess facilities (see note 9) ..... 2,523 931
Customer deposits ....................................... 18,299 3,542
Sales tax and other tax payable ......................... 6,118 15,593
Other accrued liabilities ............................... 21,935 41,192
-------- --------
$106,295 $168,662
======== ========
</TABLE>
Revenue recognition
The Company's net sales are comprised of product sales and service
revenue earned from engineering and design services. Revenue from product sales
is recognized upon shipment of the goods. Service revenue is recognized as the
services are performed, or under the percentage-of-completion method of
accounting, depending on the nature of the arrangement. If total costs to
complete a project exceed the anticipated revenue from that project, the loss is
recognized immediately.
Interest and other expense, net
Interest and other expense, net was comprised of the following for the
years ended March 31 (in thousands):
<TABLE>
<CAPTION>
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Interest expense .............................. $(17,964) $(22,891) $(33,351)
Interest income ............................... 2,919 5,494 16,770
Foreign exchange gain (loss) .................. 1,221 (5,068) (1,056)
Equity in earnings of associated companies .... 1,194 1,036 --
Minority interest ............................. (356) (1,319) (2,154)
Other income(expense), net .................... 773 2,148 (509)
-------- -------- --------
Total interest and other
expense, net...................... $(12,213) $(20,600) $(20,300)
======== ======== ========
</TABLE>
43
<PAGE> 46
Net income per share
Basic net income per share is computed using the weighted average number
of Ordinary Shares outstanding during the applicable periods.
Diluted net income per share is computed using the weighted average
number of Ordinary Shares and dilutive Ordinary Share equivalents outstanding
during the applicable periods. Ordinary Share equivalents include Ordinary
Shares issuable upon the exercise of stock options and are computed using the
treasury stock method.
Reconciliation between basic and diluted earnings per share is as
follows for the fiscal years ended March 31 (in thousands, except per share
data):
<TABLE>
<CAPTION>
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Ordinary Shares issued and outstanding(1) ....... 77,781 91,867 108,827
Ordinary Share equivalents -- stock options(2) .. 3,336 5,188 9,447
-------- -------- --------
Weighted average Ordinary Shares and
equivalents -- diluted ........................ 81,117 97,055 118,274
======== ======== ========
Net income ...................................... $ 22,436 $ 60,883 $120,915
======== ======== ========
Basic earnings per share ........................ $ 0.29 $ 0.66 $ 1.11
======== ======== ========
Diluted earnings per share ...................... $ 0.28 $ 0.63 $ 1.02
======== ======== ========
</TABLE>
(1) Ordinary Shares issued and outstanding based on the weighted average
method.
(2) Stock options of the Company calculated based on the treasury stock method
using average market price for the period, if dilutive. Options to purchase
347,584, 112,658 and 246,536 weighted shares outstanding during fiscal 1998,
1999, and 2000, respectively, were excluded from the computation of diluted
earnings per share because the options exercise price was greater than the
average market price of the Company's Ordinary Shares during those years.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," ("SFAS No. 133") which establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments imbedded in other contracts and for hedging activities.
It requires that companies recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The Company expects to adopt SFAS No. 133 in the first quarter of
fiscal 2002 and anticipates that SFAS No. 133 will not have a material impact on
its consolidated financial statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101("SAB 101"), "Revenue Recognition in Financial
Statements". SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. The Company
will adopt SAB 101 as required in the first quarter of 2001 and is evaluating
the effect that such adoption may have on its consolidated results of operations
and financial position.
44
<PAGE> 47
3. SUPPLEMENTAL CASH FLOW DISCLOSURES
For purposes of the statement of cash flows, the Company considers
highly liquid investments with an original maturity of three months or less to
be cash equivalents. The following information relates to fiscal years ended
March 31 (in thousands):
<TABLE>
<CAPTION>
1998 1999 2000
------- ------- -------
<S> <C> <C> <C>
Cash paid for:
Interest ................................................... $11,340 $16,297 $31,553
Income taxes ............................................... 1,331 3,015 5,189
Non-cash investing and financing activities:
Equipment acquired under capital lease obligations ......... 9,094 22,104 32,528
Issuance of 255,700 Ordinary Shares valued at $18.77 for
acquisition of FICO ................................... -- 4,800 --
</TABLE>
4. BANK BORROWINGS AND LONG-TERM DEBT
The Company has $150 million in unsecured Senior Subordinated Notes due
in 2007 outstanding with an annual interest rate of 8.75% due semi-annually. The
fair value of the unsecured Senior Subordinated Notes based on broker trading
prices was 94.5% of the face value on March 31, 2000.
The Company maintained a credit facility with a syndicate of banks. This
facility provided for revolving credit borrowings by Flextronics and a number of
its subsidiaries of up to $200.0 million, subject to compliance with certain
financial covenants and the satisfaction of customary borrowing conditions. The
credit facility consisted of two separate credit agreements, one providing for
up to $40.0 million principal amount of revolving credit loans to the Company
and designated subsidiaries and one providing for up to $160.0 million principal
amount of revolving credit loans to the Company's United States subsidiary. As
of March 31, 2000, there were $137.0 million in borrowings outstanding under the
revolving credit loans and the weighted-average interest rate for the Company's
borrowings under the revolving credit loans was 6.87%.
On April 3, 2000, the Company replaced its $200.0 million credit
facility with a $500.0 million Revolving Credit Facility ("Credit Facility")
with a syndicate of domestic and foreign banks. The Credit Facility consisted of
two separate credit agreements, one providing for up to $150.0 million principal
amount of revolving credit loans to the Company and designated subsidiaries
("Tranche A") and one providing for up to $350.0 million principal amount of
revolving credit loans to the Company's United States subsidiary ("Tranche B").
Both Tranche A and Tranche B are split equally between a 364 day and a three
year facility. Borrowings under the Credit Facility bear interest, at the
Company's option, at either: (i) the Base Rate (as defined in the Credit
Facility); or (ii) the LIBOR Rate (as defined in the Credit Facility) plus the
Applicable Margin for LIBOR loans ranging between 0.625% and 1.75%, based on
certain financial ratios of the Company. The Company is required to pay a
quarterly commitment fee ranging from 0.15% to 0.375% per annum, based on
certain financial ratios of the Company, of the unutilized portion of the Credit
Facility.
The Credit Facility is unsecured, and contains certain restrictions on
the Company's ability to (i) incur certain debt, (ii) make certain investments
and (iii) make certain acquisitions of other entities. The Credit Facility also
requires that the Company maintain certain financial covenants, including, among
other things, a maximum ratio of total indebtedness to EBITDA (earnings before
45
<PAGE> 48
interest, taxes, depreciation, and amortization) and a minimum ratio of fixed
charge coverage, as defined, during the term of the Agreement.
Certain subsidiaries of the Company have various lines of credit
available with annual interest rates ranging from 3.3% to 8.5%. These lines of
credit expire on various dates through 2001. The Company also has term loans
with annual interest rates generally ranging from 1.5% to 9.0% with terms of up
to 20 years. These lines of credit and term loans are primarily secured by
assignment of account receivables and assets.
The Company has financed the purchase of certain facilities with
mortgages. The mortgages generally have terms of 5 to 10 years and annual
interest rates ranging from 7.4% to 10.0% and are secured by the underlying
properties with a net book value of approximately $23.0 million.
In addition, the Company had notes payable for purchase price due to the
former shareholders of FICO for the additional 50% interest acquired in March
1999. The notes were unsecured and bear interest at 2%. The amount outstanding
as of March 31, 2000 was $2.0 million.
Bank borrowings and long-term debt was comprised of the following at
March 31 (in thousands):
<TABLE>
<CAPTION>
1999 2000
--------- ---------
<S> <C> <C>
Senior Subordinated Notes ................ $ 150,000 $ 150,000
Outstanding under lines of credit ........ 13,193 97,946
Credit Facility .......................... 40,073 137,000
Mortgages ................................ 15,630 8,549
Term loans and other debt ................ 53,888 40,600
--------- ---------
272,784 434,095
Current portion ........................ (83,976) (254,798)
--------- ---------
Non-current portion .................... $ 188,808 $ 179,297
========= =========
</TABLE>
Maturities for the bank borrowings and other long-term debt are as
follows for the years ended March 31 (in thousands):
<TABLE>
<S> <C>
2001.............................................. $ 254,798
2002.............................................. 5,878
2003.............................................. 4,430
2004.............................................. 9,972
2005.............................................. 989
Thereafter........................................ 158,028
--------
$ 434,095
========
</TABLE>
5. FINANCIAL INSTRUMENTS
The value of the Company's cash and cash equivalents, investments,
accounts receivable and accounts payable carrying amount approximates fair
value. The fair value of the Company's long-term debt (see Note 4) is determined
based on current broker trading prices. The Company's cash equivalents are
comprised of cash deposited in money market accounts, commercial paper and
certificates of deposit (see Note 2). The Company's investment policy limits the
amount of credit exposure to 10% of the total investment portfolio in any single
issuer.
46
<PAGE> 49
The Company enters into forward exchange contracts to hedge underlying
transactional currency exposures and does not engage in foreign currency
speculation. The credit risk of these forward contracts is minimal since the
contracts are with large financial institutions. The Company hedges committed
exposures and these forward contracts generally do not subject the Company to
risk of accounting losses. The gains and losses on forward contracts generally
offset the gains and losses on the asset, liabilities and transactions hedged.
The Company's off-balance sheet financial instruments consist of $16.5 million
and $61.1 million of aggregate foreign currency forward contracts outstanding at
the end of fiscal year 1999 and 2000, respectively. These foreign exchange
contracts expire in less than three months and will settle in French Franc,
German Deutsche Mark, Japanese Yen, Swedish Kronor and United States dollar.
6. COMMITMENTS
As of March 31, 1999 and 2000, the Company has financed a total of $61.5
million and $41.2 million, respectively in machinery and equipment purchases
with capital leases. Accumulated amortization for property and equipment under
capital leases totaled $14.8 million and $13.7 million at March 31, 1999 and
2000, respectively. These capital leases have interest rates ranging from 1.7%
to 13.0%. The Company also leases certain of its facilities under non-cancelable
operating leases. The capital and operating leases expire in various years
through 2007 and require the following minimum lease payments for the years
ended March 31 (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
------- ---------
<S> <C> <C>
2001.................................................... $16,749 $51,560
2002.................................................... 16,251 48,613
2003.................................................... 12,621 38,969
2004.................................................... 7,051 21,026
2005.................................................... 947 10,988
Thereafter.............................................. -- 14,602
------- --------
Minimum lease payments.................................. 53,619 $185,758
========
Amount representing interest............................ (2,136)
-------
Present value of minimum lease payments................. 51,483
Current portion......................................... (16,053)
-------
Capital lease obligations, net of current
portion............................................... $35,430
=======
</TABLE>
Total rent expense was $8.3 million, $17.3 million and $33.0 million for
the years ended March 31, 1998, 1999 and 2000, respectively.
47
<PAGE> 50
7. INCOME TAXES
The domestic and foreign components of income before income taxes were
comprised of the following for the years ended March 31 (in thousands):
<TABLE>
<CAPTION>
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Singapore.................................... $ (9,346) $ (8,159) $ 16,286
Foreign...................................... 34,100 76,674 120,136
-------- -------- --------
$ 24,754 $ 68,515 $136,422
======== ======== ========
</TABLE>
The provision for income taxes consisted of the following for the years
ended March 31 (in thousands):
<TABLE>
<CAPTION>
1998 1999 2000
-------- ------- --------
<S> <C> <C> <C>
Current :
Singapore................................ $ 226 $ -- $ 477
Foreign.................................. 5,423 8,135 20,034
-------- ------- --------
5,649 8,135 20,511
-------- ------- --------
Deferred :
Singapore................................ (451) -- --
Foreign.................................. (2,880) (503) (5,004)
-------- ------- --------
(3,331) (503) (5,004)
-------- ------- --------
$ 2,318 $ 7,632 $ 15,507
======== ======= ========
</TABLE>
The Singapore statutory income tax rate was 26% for each of the years in
the three year period ended March 31, 2000. The reconciliation of the income tax
expense expected based on Singapore statutory income tax rates to the provision
for income taxes included in the consolidated statements of operations for the
years ended March 31 is as follows (in thousands):
<TABLE>
<CAPTION>
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Income taxes based on Singapore statutory
rates ........................................... $ 6,436 $ 17,814 $ 35,470
Losses from non-incentive Singapore operations .... 2,707 3,098 --
Tax exempt income ................................. -- (549) (866)
Effect of foreign operations taxed at various
rates ........................................... (4,055) (8,536) (22,846)
Amortization of goodwill and intangibles .......... 946 942 1,346
Merger costs ...................................... 398 -- 257
Change in valuation allowance ..................... (2,829) (5,229) 1,363
Joint venture losses .............................. (310) (269) --
Other ............................................. (975) 361 783
-------- -------- --------
Provision for income taxes .............. $ 2,318 $ 7,632 $ 15,507
======== ======== ========
Effective tax rate ................................ 9.4% 11.1% 11.4%
</TABLE>
48
<PAGE> 51
The components of deferred income taxes are as follows as of March 31
(in thousands):
<TABLE>
<CAPTION>
1999 2000
-------- --------
<S> <C> <C>
Deferred tax assets:
Provision for inventory obsolescence ......................... $ 3,260 $ 10,298
Provision for doubtful accounts .............................. 1,717 3,478
Net operating loss carryforwards ............................. 15,107 20,979
General accruals ............................................. 3,777 4,815
Leasing - interest and exchange .............................. 771 --
Uniform capitalization of inventory .......................... -- 2,380
Others ....................................................... 1,870 1,654
-------- --------
Total gross deferred tax assets ......................... 26,502 43,604
Valuation allowance ..................................... (18,637) (27,494)
-------- --------
7,865 16,110
-------- --------
Deferred tax liabilities:
Depreciation ................................................. $ (3,716) $ (8,348)
Intangible assets ............................................ (2,059) --
Fixed assets ................................................. (515) (2,259)
Exchange losses .............................................. (934) (57)
Others ....................................................... (2,010) (1,811)
-------- --------
Total gross deferred tax liabilities ................... $ (9,234) $(12,475)
-------- --------
Net deferred tax asset (liability) ..................... $ (1,369) $ 3,635
======== ========
The net deferred tax liability is classified as follows :
Current asset (classified as Other Current Assets) ...... $ 3,088 $ 8,415
Long-term liability ..................................... (4,457) (4,780)
-------- --------
$ (1,369) $ 3,635
======== ========
</TABLE>
The deferred tax asset arises from available tax loss carryforwards and
non-deductible accruals. The Company has total tax loss carryforwards of
approximately $80.0 million, a portion of which begin expiring in tax year 2010.
The utilization of these tax loss deductions is limited to the future operations
of the Company in the tax jurisdictions in which such loss deductions arose. As
a result, management is uncertain as to when or whether these operations will
generate sufficient profit to realize the deferred tax asset benefit. The
valuation allowance provides a reserve against deferred tax assets that may
expire or go unutilized by the Company. However, management has determined that
it is more likely than not that the Company will realize certain of these
benefits and, accordingly, has recognized a deferred tax asset from these
benefits. The amount of deferred tax assets considered realizable, however,
could be reduced or increased in the near-term if facts, including the amount of
taxable income or the mix of taxable income between subsidiaries, differ from
management's estimates.
No deferred tax liability has been provided for withholding taxes on
distributions of dividends by various subsidiaries in the group as earnings of
foreign subsidiaries are intended to be reinvested indefinitely.
The Company has been granted the following tax incentives:
i) Product Export Enterprise incentive for the Shekou and Shenzhen,
China facilities. The Company's operations in Shekou and Shenzhen, China
are located in "Special Economic Zone" and are approved "Product Export
Enterprise" which qualifies for a special corporate income tax rate of
10%. This special tax is subject to the subsidiaries exporting more than
70% of its total value of products manufactured by the respective plants
49
<PAGE> 52
in China. The subsidiaries' status as a Product Export Enterprise is
reviewed annually by the Chinese government.
ii) The Company's investments in its plants in Xixiang, China and
Doumen, China fall under the "Foreign Investment Scheme" that entitles
the subsidiaries to apply for a five-year tax incentive. The Company
obtained the incentive for the Doumen plant in December 1995 and the
Xixiang plant in October 1996. With the approval of the Chinese tax
authorities, the subsidiaries' tax rates on income from these facilities
during the incentive period will be 0% in years 1 and 2 and 7.5% in
years 3 through 5, commencing in the first profitable year. The Company
has another plant in Doumen, which commenced operations in the fiscal
year 1998. The plant which, falls under the "Foreign Investment Scheme,"
is confident that the five-year tax incentive will be granted upon
formal application in its first profitable year. However, there can be
no assurance that the five-year tax incentive will be granted.
iii) Ten year negotiated tax holiday with the Hungarian government for
its Hungarian subsidiaries. This incentive provides for the reduction of
the regular tax rate to zero percent, beginning January 1, 2000.
8. SHAREHOLDERS' EQUITY
Secondary offerings
In October 1997, the Company completed an offering of its Ordinary
Shares. A total of 8,740,000 ordinary shares were sold at a price of $11.75 per
share resulting in net proceeds to the Company of $96.2 million.
In December 1998, the Company completed another offering of its Ordinary
Shares. A total of 10,800,000 ordinary shares were sold at a price of $18.125
per share resulting in net proceeds to the Company of $194.0 million.
During fiscal 2000, Flextronics completed two secondary offerings of its
Ordinary Shares. In February 2000, a total of 8,600,000 Ordinary Shares were
sold at a price of $59.00 per share resulting in net proceeds to the Company of
approximately $494.1 million. In October 1999, a total of 13,800,000 Ordinary
Shares were sold at a price of $33.84 per share resulting in net proceeds to the
Company of approximately $448.9 million.
Stock split
The Company had two stock splits. The first stock split was in 1998 and
the record date was set on December 22, 1998 for a 2:1 stock split to be
effected as a bonus issue (the Singapore equivalent of a stock dividend). The
distribution of 47,068,458 Ordinary Shares occurred on January 11, 1999. The
second stock split was in 1999 and the record date was December 8, 1999 for a
2:1 stock split. The distribution of 57,497,204 Ordinary Shares occurred on
December 22, 1999. Both stock splits were to be effected as bonus issues (the
Singapore equivalent of a stock dividend). The Company has accounted for these
transactions as a stock split and all share and per share amounts have been
retroactively restated to reflect both stock splits.
Stock-based compensation
50
<PAGE> 53
The Company's 1993 Share Option Plan (the "Plan") provides for the grant
of up to 20,400,000 incentive stock options and non-statutory stock options to
employees and other qualified individuals to purchase Ordinary Shares of the
Company. As of March 31, 2000, the Company had 882,350 Ordinary Shares available
for future option grants under the Plan at an exercise price of not less than
85% of the fair value of the underlying stock on the date of grant. Options
issued under the Plan generally vest over 4 years and expire 5 years from the
date of grant.
The Company's 1997, 1998 and 1999 Interim Option Plans provide for
grants of up to 1,000,000, 1,572,000, and 2,600,000 respectively. These plans
provide grants of non-statutory options to employees and other qualified
individuals to purchase Ordinary Shares of the Company. Options under these
plans can not be granted to executive officers and directors. The Company's
1997, 1998 and 1999 Interim Option Plans had 240,098, 80,317, and 958,244
Ordinary Shares available for future option grants respectively. All Interim
Option Plans have an exercise price of not less than 85% of fair market value of
the underlying stock on the date of grant. Options issued under these plans
generally vest over 4 years and expire 5 years from the date of grant.
The Company has assumed certain option plans and the underlying options
of companies which the Company has merged with or acquired (the "Assumed
Plans"). Options under the Assumed Plans have been converted into the Company's
options and adjusted to effect the appropriate conversion ratio as specified by
the applicable acquisition or merger agreement, but are otherwise administered
in accordance with the terms of the Assumed Plans. Options under the Assumed
Plans generally vest over 4 years and expire 5 years from the date of grant.
The following table presents the activity for options outstanding under
all of the stock option plans as of March 31 ("Price" reflects the weighted
average exercise price):
<TABLE>
<CAPTION>
1998 1999 2000
----------------- ------------------ --------------------
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- ----- --------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year....... 6,700,088 $4.66 9,788,156 $ 6.01 12,991,732 $9.19
Granted.............................. 5,630,016 7.27 6,857,078 11.48 4,675,603 33.14
Exercised............................ (1,038,832) 1.88 (2,738,740) 4.19 (2,457,729) 7.26
Forfeited............................ (1,503,116) 7.53 (914,762) 6.99 (408,160) 11.44
--------- --------- ----------
Outstanding, end of year............. 9,788,156 $6.01 12,991,732 $9.19 14,801,446 $17.01
========= ========= ==========
Exercisable, end of year............. 3,262,304 3,251,040 4,675,210
========= ========= =========
Weighted average fair value per
option granted................... $3.48 $6.61 $15.28
===== ===== =====
</TABLE>
The following table presents the composition of options outstanding and
exercisable as of March 31, 2000 ("Price" and "Life" reflect the weighted
average exercise price and weighted average contractual life unless otherwise
noted):
<TABLE>
<CAPTION>
OPTIONS
OPTIONS OUTSTANDING EXERCISABLE
RANGE OF EXERCISE ----------------------------- -------------------
PRICES AMOUNT PRICE LIFE AMOUNT PRICE
---------------------- --------- ------ ---- --------- ------
<S> <C> <C> <C> <C> <C>
$ 3.69 -- $ 5.82 2,358,364 $ 5.71 2.39 1,688,526 $ 5.69
5.94 -- 8.38 2,194,198 8.05 2.97 878,713 7.99
</TABLE>
51
<PAGE> 54
<TABLE>
<S> <C> <C> <C> <C> <C>
8.41 -- 9.75 1,505,244 9.42 3.17 550,584 9.43
10.03 -- 12.00 3,435,606 11.89 3.52 1,264,127 11.82
12.45 -- 26.19 1,714,537 20.52 4.10 198,760 18.26
26.25 -- 29.00 2,178,920 28.91 4.49 94,500 28.81
29.13 -- 68.50 1,309,377 45.47 4.77 -- --
75.00 -- 75.00 104,200 75.00 5.00 -- --
77.06 -- 77.06 325 77.06 4.99 -- --
78.125-- 78.125 675 78.125 4.99 -- --
---------- ---------
Total, March 31, 2000 14,801,446 $17.01 3.55 4,675,210 $ 9.22
========== =========
</TABLE>
Options reserved for future issuance under all stock options plans was
7,161,009 as of March 31, 2000.
The Company's employee stock purchase plan (the "Purchase Plan")
provides for issuance of up to 800,000 Ordinary Shares. The Purchase Plan was
approved by the stockholders in October 1997. Under the Purchase Plan, employees
may purchase, on a periodic basis, a limited number of shares of common stock
through payroll deductions over a six month period up to 10% of each
participant's compensation. The per share purchase price is 85% of the fair
market value of the stock at the beginning or end of the offering period,
whichever is lower. As of March 31, 2000, there are 519,552 Ordinary Shares
available for sale under this plan. The Ordinary Shares sold under this plan in
fiscal 2000 and 1999 amounted to 139,404 and 141,044, respectively. There were
no Ordinary Shares sold under this plan in 1998. The weighted-average fair value
of Ordinary Shares sold under this plan in fiscal 2000 and 1999 was $17.37 and
$8.05, respectively.
The Company has elected to follow APB Opinion No. 25 "Accounting for
Stock Issued to Employees" and related interpretations in accounting for its
employee stock option plans and employee stock purchase plans and has adopted
the disclosure provisions of SFAS No. 123 "Accounting for Stock Based
Compensation". Because the exercise price of the Company's stock options has
equaled the fair value of the underlying stock on the date of grant, no
compensation expense has been recognized under APB Opinion No. 25. Had the
compensation cost for the Company's stock-based compensation plans been
determined based on the fair values of these options, the Company's fiscal 1998,
1999, and 2000 net income and earnings per share would have been adjusted to the
pro-forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1999 2000
--------- --------- ---------
<S> <C> <C> <C>
Net income:
As reported ................. $ 22,436 $ 60,883 $ 120,915
Pro-forma ................... 16,765 48,294 99,184
Basic earnings per share:
As reported ................. $ 0.29 $ 0.66 $ 1.11
Pro-forma ................... 0.22 0.53 0.91
Diluted earnings per share:
As reported ................. $ 0.28 $ 0.63 $ 1.02
Pro-forma ................... 0.21 0.50 0.84
</TABLE>
In accordance with the disclosure provisions of SFAS No. 123, the fair
value of employee stock options granted during fiscal 1998, 1999 and 2000 was
estimated at the date of grant using the Black-Scholes model and the following
weighted average assumptions:
52
<PAGE> 55
<TABLE>
<CAPTION>
Years Ended March 31,
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Volatility ....................... 66% 64% 62%
Risk-free interest rate range .... 5.9% 5.0% 6.2%
Dividend yield ................... 0% 0% 0%
Expected lives ................... 4.0 yrs 4.0 yrs 3.9 yrs
</TABLE>
Because SFAS No. 123 is applicable only to awards granted subsequent to
December 30, 1994, and due to the subjective nature of the assumptions used in
the Black-Scholes model, the pro-forma net income and net income per share
disclosures may not reflect the associated fair value of the outstanding
options.
Option Repricing
In light of the substantial decline in the market price of the Company's
Ordinary Shares in the first quarter of fiscal 1998, in June 1997 the Company
offered to all employees the opportunity to cancel existing options outstanding
with exercise price in excess of $5.82 per share, the fair market value of the
Company's Ordinary Shares at that time, and to have such options replaced with
options that have the lower exercise price of $5.82 per share. Employees
electing to have options repriced were required to accept an extension of their
vesting schedule. The other terms of the options remained unchanged. On June 5,
1997, the Company repriced options to purchase 1,155,840 shares pursuant to this
offer.
9. UNUSUAL CHARGES
The provision for excess facilities of $3.4 million in fiscal 1999 was
comprised of $2.2 million relating to the costs for consolidating the Company's
four manufacturing and administrative facilities in Hong Kong and $1.2 million
relating to the consolidation of certain U.S. facilities. The provision for
excess facilities consisted of $1.5 million for the reduction of certain
personnel due to consolidation of certain operations, $1.5 million for the
write-off of equipment and assets related to the operations the Company has
exited, and $0.4 million related to the consolidation of facilities. In
connection with the provision for excess facilities, the Company terminated
approximately 250 employees in the areas of finance, engineering, operations,
production and purchasing. The consolidation of these facilities was
substantially completed by November 1999.
The provision for excess facilities of $8.9 million in fiscal 1998
related to the costs incurred in closing the Wales (United Kingdom) facility.
The provision included $3.8 million for the write-off of goodwill associated
with the acquisition of the facility, $1.6 million for severance payments and
payments required under the pension scheme, $2.4 million for fixed asset
write-offs and factory closure expenses and $1.1 million for required repayment
of previously received government grants.
53
<PAGE> 56
10. RELATED PARTY TRANSACTIONS AND NOTES PAYABLES TO SHAREHOLDERS
Stephen Rees, a former Director and Senior Vice President of the
Company, holds a beneficial interest in both Mayfield International Ltd.
("Mayfield") and Croton Ltd. ("Croton"). During fiscal 1998, the Company paid
$140,000 to Croton for management services and $208,000 to Mayfield for the
rental of certain office space. Additionally, as of March 31, 2000, $2.5 million
was due from Mayfield under a note receivable. The note is included in other
current assets on the accompanying balance sheet.
The Company has loaned $6.8 million to various executive officers of the
Company. Each loan is evidenced by a promissory note in favor of the Company.
Certain notes are non-interest bearing and others have interest rates ranging
from 7.0% to 7.25%. The remaining outstanding balance of the loans, including
accrued interest, as of March 31, 2000 was $6.9 million.
11. BUSINESS COMBINATIONS AND ASSET PURCHASES
In fiscal 2000, the Company purchased the manufacturing facilities of
(i) Cabletron Systems Inc. in Rochester, New Hampshire and Limerick, Ireland,
(ii) Fujitsu Siemens Computer in Paderbron, Germany, (iii) Ericsson Business
Network in Visby, Sweden and (iv) ABB Automation Products in Vasteras, Sweden.
These transactions have been accounted for as an acquisition of assets.
Additionally, in fiscal 2000, the Company acquired Vastbright PCB Ltd.
located in Zhuhai, China as well as the remaining 10% interest in FICO located
in Shenzhen, China. These transactions have been accounted for under the
purchase method of accounting and accordingly, the results of the acquired
businesses were included in the Company's consolidated statements of operations
from the acquisition dates forward. Comparative pro-forma information has not
been presented, as the results of the acquired operations were not material to
the Company's consolidated financial statements.
The aggregate purchase price for the asset acquisitions and business
combinations was allocated to the net assets acquired based on their estimated
fair values at the dates of acquisition as follows (in thousands):
<TABLE>
<S> <C>
Net assets at fair value .... $216,806
Goodwill and intangibles .... 35,354
--------
$252,160
========
</TABLE>
The goodwill associated with these transactions is being amortized over
ten years.
In fiscal 2000, the Company merged with Kyrel, an electronics
manufacturing services provider with operations in Finland and France. The
merger was accounted for as a pooling-of-interests and the Company issued
3,643,610 Ordinary Shares in exchange for all the outstanding shares of Kyrel.
All financial statements presented have been retroactively restated to include
the financial results of Kyrel. Kyrel operated under a calendar year end prior
to merging with Flextronics, and accordingly, Kyrel's statements of operations,
shareholders' equity and cash flows for the years ended December 31, 1998 have
been combined with the corresponding Flextronics consolidated statements for the
fiscal year ended March 31, 1999. In fiscal 2000, Kyrel's fiscal year end was
54
<PAGE> 57
changed to conform to Flextronics' fiscal year end. Accordingly, Kyrel's
operations for the three months ended March 31, 1999, which include net sales of
$101.8 million and net loss of $0.8 million have been excluded from the
consolidated results and have been reported as an adjustment to retained
earnings in the first quarter of fiscal 2000.
In fiscal 2000 the Company also merged with PCB, an electronics
manufacturing service provider based in the USA, in exchange for a total of
1,084,566 Ordinary Shares, of which 108,457 Ordinary Shares are to be issued
upon resolution of certain general and specific contingencies. The merger was
accounted for as a pooling-of-interests. All financial statements presented have
been retroactively restated to include the financial results of PCB. PCB has the
same fiscal year as the Company.
Separate results of operations for the periods presented are as follows
for the years ended March 31 (in thousands):
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Net sales:
Previously reported ....... $ 1,113,071 $ 1,807,628
Kyrel ..................... 78,123 235,746
PCB ....................... 144,568 189,834
----------- -----------
As restated ............... $ 1,335,762 $ 2,233,208
=========== ===========
Net income(loss):
Previously reported ....... $ 19,913 $ 51,530
Kyrel ..................... (1,662) 886
PCB ....................... 4,185 8,467
----------- -----------
As restated ............... $ 22,436 $ 60,883
=========== ===========
</TABLE>
The Company also completed several other immaterial pooling-of-interests
transactions. In connection with these mergers, the Company issued 559,098
Ordinary Shares, of which 55,910 Ordinary Shares are to be issued upon
resolution of certain contingencies. The historical operations of these entities
were not material to the Company's consolidated operations on either an
individual or an aggregate basis; therefore, prior period statements have not
been restated for these acquisitions.
In fiscal 1999, the Company acquired the manufacturing facilities and
related assets of Advanced Component Labs HK Ltd. ("ACL"), a Hong Kong based
advanced technology printed circuit board manufacturer for $15.0 million cash.
The transaction has been accounted for under the purchase method and
accordingly, the results of ACL was included in the Company's consolidated
statements of operations from March 1, 1999. Comparative pro-forma information
has not been presented as the results of operations for ACL were not material to
the Company's financial statements. The goodwill associated with this
acquisition is amortized over ten years.
The purchase price was allocated to the net assets acquired based on
their estimated fair values at the date of acquisition as follows (in
thousands):
<TABLE>
<S> <C>
ACL's net assets at fair value.................. $ 5,250
In-process research and development............. 2,000
Goodwill........................................ 7,750
-------
$15,000
=======
</TABLE>
55
<PAGE> 58
The purchase price allocated to in-process research and development
related to development projects which had not reached technological feasibility
and had no probable alternative future uses; accordingly, the Company expensed
the entire amount on the date of acquisition as a one-time charge to operations.
ACL's in-process research and development projects were initiated to address the
rapid technological change associated with the miniaturized printed circuit
board market. The incomplete projects include developing technology for a low
cost Ball Grid Array ("BGA") package, developing thermal vias, and developing
new methods that enable the use of extremely thin 1.5 mil technology.
In fiscal 1997, the Company acquired an initial 40% of FICO, a plastic
injection molding company located in Shenzhen, China for $5.2 million of which
$3.0 million was paid in fiscal 1997. The remaining $2.2 million purchase price
was paid in fiscal 1998. Goodwill and other intangibles resulting from this
initial purchase totaled $3.2 million and are being amortized over ten years.
The Company accounted for its investment in FICO under the equity method and
accordingly has included its 40% share of FICO's operating results in its
accompanying consolidated statement of operations from December 20, 1996 through
February 28, 1999. In fiscal 1999, the Company acquired an additional 50% of
FICO for (i)$7.2 million cash, (ii)255,700 Ordinary Shares issued at closing
valued at $4.8 million, and (iii)$3.0 million in 2% promissory notes due $1.0
million each in year 2000 through year 2002. In fiscal 2000, the Company
acquired the remaining 10% of FICO for $3.0 million cash. This transaction has
been accounted for under the purchase method and accordingly, the results of
operations for FICO have been included in the accompanying consolidated
statements of operations since March 1999. The acquisition of the additional 60%
interest resulted in additional goodwill and intangible assets of $10.2 million
and $420,000 which were being amortized over 8 and 3 years, respectively.
In fiscal 1998, the company merged with (i) Conexao Informatica Ltd.
located in Sao Paulo, Brazil, (ii) Altatron, Inc. headquartered in Fremont,
California with additional facilities in Richardson, Texas and Hamilton,
Scotland, (iii) DTM Products located in Niwot, Colorado, (iv) Energipilot AB
located in Sweden and (v) Neutronics located in Austria and Hungary.
The Company issued the following ordinary shares in connection with
these mergers:
- 1,686,372 shares for Conexao,
- 3,154,600 shares for Altatron,
- 1,009,876 shares for DTM,
- 919,960 shares for Energipilot, and
- 11,224,000 for 92% of Neutronics.
The Conexao, Altatron, DTM and Energipilot mergers were accounted for
under the pooling-of-interests method of accounting. The Company did not restate
its prior period financials statements with respect to these mergers, because
they did not have a material impact on the Company's consolidated results.
Accordingly, the results of these acquired companies are included in the
Company's consolidated statements of operations from the dates of these
acquisitions.
The Neutronics merger was also accounted for under the
pooling-of-interests method of accounting. All financial statements presented
have been retroactively restated to include the results of Neutronics.
Neutronics
56
<PAGE> 59
operated under a calendar year end prior to merging with Flextronics, and during
fiscal 1998, Neutronics' fiscal year end was changed from December 31 to March
31 to conform to the Company's fiscal year-end. Accordingly, Neutronics'
operations for the three months ended March 31, 1997, which included net sales
of $34.9 million and net loss of $3.1 million have been excluded from the
consolidated results and have been reported as an adjustment to retained
earnings in the first quarter of fiscal 1998.
12. SEGMENT REPORTING
The Company operates and is managed internally by four geographic
business segments. The operating segments include Asia, Americas, Western Europe
and Central Europe. Each operating segment has a regional president that reports
to the Company's Chairman and Chief Executive Officer, who is the chief decision
maker.
57
<PAGE> 60
Information about segments for the years ended March 31 (in thousands):
<TABLE>
<CAPTION>
1998 1999 2000
----------- ----------- -----------
<S> <C> <C> <C>
Net Sales :
Asia ...................................... $ 303,993 $ 401,126 $ 677,449
Americas .................................. 422,351 873,398 1,755,821
Western Europe ............................ 410,960 603,792 1,112,386
Central Europe ............................ 210,233 406,107 827,531
Intercompany eliminations ................. (11,775) (51,215) (65,994)
----------- ----------- -----------
$ 1,335,762 $ 2,233,208 $ 4,307,193
=========== =========== ===========
</TABLE>
<TABLE>
<S> <C> <C> <C>
Income(Loss) before Income Taxes :
Asia ...................................... $ 15,970 $ 25,416 $ 44,500
Americas .................................. (228) 27,763 43,595
Western Europe ............................ 7,269 12,885 19,061
Central Europe ............................ 7,723 12,833 18,938
Intercompany eliminations, corporate
allocations and non-recurring charges .... (5,980) (10,382) 10,328
----------- ----------- -----------
$ 24,754 $ 68,515 $ 136,422
=========== =========== ===========
Long Lived Assets:
Asia ...................................... $ 76,011 $ 109,513 $ 134,543
Americas .................................. 91,872 127,712 252,952
Western Europe ............................ 58,689 75,435 92,253
Central Europe ............................ 47,474 94,693 119,590
----------- ----------- -----------
$ 274,046 $ 407,353 $ 599,338
=========== =========== ===========
Depreciation and Amortization :
Asia ...................................... $ 12,690 $ 15,320 $ 23,351
Americas .................................. 7,122 16,465 21,861
Western Europe ............................ 10,498 14,492 22,611
Central Europe ............................ 5,257 10,161 14,864
----------- ----------- -----------
$ 35,567 $ 56,438 $ 82,687
=========== =========== ===========
Capital Expenditures :
Asia ...................................... $ 34,549 $ 37,417 $ 41,788
Americas .................................. 41,025 52,782 140,603
Western Europe ............................ 15,330 22,564 31,218
Central Europe ............................ 13,168 53,170 36,849
----------- ----------- -----------
$ 104,072 $ 165,933 $ 250,458
=========== =========== ===========
</TABLE>
For purposes of the preceding tables, "Asia" includes China, Malaysia,
and Singapore, "Americas" includes USA, Mexico, and Brazil, "Western Europe"
includes Sweden, Finland, France, Scotland, Germany and United Kingdom and
"Central Europe" includes Austria, Hungary and Ireland.
Geographic revenue transfers are based on selling prices to unaffiliated
companies, less discounts. Income before tax is net sales less operating
expenses, interest or other expenses, but prior to income taxes.
58
<PAGE> 61
The following table represents net sales and long lived assets
attributable to foreign countries exceeding 10% for fiscal years ended March 31:
<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Net Sales :
China ......................... 16% 14% 13%
United States ................. 31% 31% 29%
Sweden ........................ 22% 15% 17%
Finland ....................... -- 11% 8%
Hungary ....................... 16% 18% 17%
All others .................... 15% 11% 16%
Long Lived Assets:
China ......................... 24% 25% 25%
United States ................. 23% 19% 18%
Sweden ........................ 15% 10% 17%
Hungary ....................... 17% 23% 16%
All others .................... 21% 23% 24%
</TABLE>
13. SUBSEQUENT EVENTS (UNAUDITED)
Subsequent to March 31, 2000, the Company completed two
pooling-of-interests mergers. On April 3, 2000, Flextronics merged with The Dii
Group, Inc. ("Dii") through a tax-free, stock-for-stock exchange. Dii is a
leading provider of electronics manufacturing and design services, operating
through a global operations network in the Americas, Asia/Pacific and Europe. As
a result of the merger, the Company issued 62,768,139 Ordinary Shares for all of
the outstanding shares of Dii common stock, based upon the exchange ratio of
1.61 Flextronics Ordinary Shares for each share of Dii common stock, resulting
in current Dii shareholders owning approximately 33% of the combined company.
On April 6, 2000, Flextronics merged with Palo Alto Products
International Pte. Ltd.("PAPI"), an industrial design services Company with
plastic molding and enclosure assembly operations in Taiwan, Thailand and the
United States, by exchanging 3,618,374 Ordinary Shares of Flextronics.
The following unaudited pro forma combined results of operations for the
Company assumes that the two mergers were completed April 1, 1997 (in thousands,
except per share data):
<TABLE>
<CAPTION>
1998 1999 2000
---------- ---------- ----------
<S> <C> <C> <C>
Net Sales ...................... $2,202,451 $3,253,025 $5,739,735
Net Income ..................... $ 68,579 $ 48,800 $ 181,445
Diluted Earnings Per Share ..... $ 0.54 $ 0.35 $ 1.04
</TABLE>
These pro forma amounts represent the historical operating results of
Dii and PAPI combined with those of the Company. These pro forma amounts are not
necessarily indicative of operating results that would have occurred if Dii and
PAPI had been operated by current management during the periods presented.
Dii operated under a calendar year end prior to merging with
Flextronics, and accordingly, Dii's statements of operations, shareholders'
equity and cash flows for the years ended December 31, 1999 will be combined
with the corresponding Flextronics' consolidated statements for the fiscal year
ended March 31, 2000. In fiscal 2001, Dii's fiscal year end will be changed to
conform to Flextronics' fiscal year end.
Additionally, in connection with the recently completed
pooling-of-interests mergers with Dii and PAPI, the Company expects to record a
one-time
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<PAGE> 62
charge of approximately $180.0 million in the first fiscal quarter of 2001
relating to expenses incurred in connection with this transaction. The Company
estimates that the one-time charge consists of approximately $120.0 million in
cash charges primarily relating to items such as investment banking and
financial advisory fees, severance, and professional services fees.
In the first fiscal quarter of 2001, the Company announced its
intentions to purchase the manufacturing facilities and related assets from
Ascom Business Systems AG located in Solothurn, Switzerland and Bosch Telecom
GmbH in Pandrup, Denmark, as well as acquire Uniskor, Ltd, located in Israel.
While the Ascom transaction has already closed, the Bosch and Uniskor
transactions are expected to close in the first quarter of 2001 and are subject
to applicable governmental approvals and customary conditions of closing.
These transactions will be accounted for under the purchase method of
accounting and the purchase price, which is expected to aggregates $178.0
million, will be allocated to the net assets acquired based on their estimated
values at the dates of acquisition.
14. Quarterly Financial Data (UNAUDITED)
The following table contains selected unaudited quarterly financial data
for 1999 and 2000 fiscal years.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED
MARCH 31, 1999 MARCH 31, 2000
-------------------------------------------- ---------------------------------------------
First Second Third Fourth First Second Third Fourth
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ............. $ 427,501 $ 515,394 $ 631,932 $ 658,381 $ 685,641 $ 941,760 $1,251,681 $1,428,111
Cost of sales ......... 391,095 472,804 582,306 607,266 633,360 869,276 1,164,498 1,337,492
Unusual charges ....... -- -- -- 3,361 -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross margin .......... 36,406 42,590 49,626 47,754 52,281 72,484 87,183 90,619
Selling, general and
administrative ...... 15,994 19,420 21,527 24,656 25,859 29,802 37,076 42,803
Goodwill and intangible
amortization ........ 884 890 893 997 1,414 1,460 1,471 2,437
Acquired in-process
research and
development ......... -- -- -- 2,000 -- -- -- --
Merger-related expenses -- -- -- -- -- 2,455 -- 1,068
Interest and other
expense, net ........ 4,721 5,289 7,742 2,848 3,531 7,445 5,890 3,434
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before
Income taxes ........ 14,807 16,991 19,464 17,253 21,477 31,322 42,746 40,877
Income tax expense .... 1,576 1,726 2,079 2,251 2,623 3,170 4,680 5,034
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income ............ $ 13,231 $ 15,265 $ 17,385 $ 15,002 $ 18,854 $ 28,152 $ 38,066 $ 35,843
========== ========== ========== ========== ========== ========== ========== ==========
Diluted earnings
per share ........... $ 0.14 $ 0.17 $ 0.18 $ 0.14 $ 0.17 $ 0.25 $ 0.31 $ 0.27
========== ========== ========== ========== ========== ========== ========== ==========
Weighted average
ordinary shares and
Equivalents
outstanding - diluted 91,721 91,029 96,851 108,089 109,555 113,695 121,068 131,455
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
60
<PAGE> 63
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
61
<PAGE> 64
PART III
ITEM 10. DIRECTORS AND OFFICERS
The names, ages and positions of our directors and officers as of June 1,
2000 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Michael E. Marks..................... 49 Chairman of the Board and Chief Executive Officer
Robert R. B. Dykes................... 50 President, Systems Group and Chief Financial Officer
Ronny Nilsson........................ 51 President, Western European Operations
Michael McNamara..................... 43 President, Americas Operations
Ash Bhardwaj......................... 36 President, Asia Pacific Operations
Humphrey Porter...................... 52 President, Central/Eastern European Operations
Steven C. Schlepp.................... 44 President, Multek
Ronald R. Snyder..................... 43 President, Flextronics Semiconductor
Thomas J. Smach...................... 40 Vice President of Finance
Tsui Sung Lam........................ 50 Director
Michael J. Moritz.................... 45 Director
Richard L. Sharp..................... 53 Director
Patrick Foley........................ 68 Director
Chuen Fah Alain Ahkong............... 52 Director
Hui Shing Leong...................... 40 Director
</TABLE>
MICHAEL E. MARKS -- Mr. Marks has been our Chief Executive Officer since
January 1994 and the Chairman of our board of directors since July 1993. He has
been a member of our board of directors since December 1991. From November 1990
to December 1993, Mr. Marks was President and Chief Executive Officer of Metcal,
Inc., a precision heating instrument company. Mr. Marks received a B.A. and an
M.A. from Oberlin College and an M.B.A. from the Harvard Business School.
ROBERT R. B. DYKES -- Mr. Dykes has served as our Chief Financial Officer
since February 1997, and as our President, Systems Group since April 1999. From
February 1997 to April 1999, Mr. Dykes served as our Senior Vice President of
Finance and Administration. Mr. Dykes served as a member of our board of
directors from January 1994 until August 1997. From 1988 to February 1997, Mr.
Dykes served as Executive Vice President, Worldwide Operations and Chief
Financial Officer of Symantec Corporation, an application and system software
products company. Mr. Dykes received a Bachelor of Commerce and Administration
degree from Victoria University in Wellington, New Zealand. Mr. Dykes serves on
the board of directors of Symantec Corporation.
RONNY NILSSON -- Mr. Nilsson has served as our President, Western European
Operations since April 1997. From May 1995 to April 1997, Mr. Nilsson served as
Vice President and General Manager, Supply and Distribution and Vice President,
Procurement of Ericsson Business Networks. From January 1991 to May 1995, Mr.
Nilsson served as Director of Production of the EVOX+RIFA Group, a manufacturer
of components, and Vice President of RIFA AB. Mr. Nilsson received a certificate
in Mechanical Engineering from the Lars Kagg School in Kalmar, Sweden and
certificates from the Swedish Management Institute and the Ericsson Management
Program.
MICHAEL MCNAMARA -- Mr. McNamara has served as our President of Americas
Operations since April 1994. From May 1993 to March 1994, Mr. McNamara served as
President and Chief Executive Officer of Relevant Industries, Inc., which we
acquired in March 1994. From May 1992 to May 1993, Mr. McNamara served as Vice
President, Manufacturing Operations at Anthem Electronics, an electronics
distributor. From April 1987 to May 1992, Mr. McNamara was a Principal of
Pittiglo, Rabin, Todd & McGrath, an operations consulting firm. Mr. McNamara
received a B.S. from the University of Cincinnati and an M.B.A. from Santa Clara
University.
ASH BHARDWAJ -- Mr. Bhardwaj joined Flextronics in 1988. Most recently, Mr.
Bhardwaj served as our Vice President for the China region. Mr. Bhardwaj
received a degree in electrical engineering from Thapar Institute of Engineering
and Technology and an M.B.A. from Southeastern Louisiana University.
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<PAGE> 65
HUMPHREY PORTER -- Mr. Porter has served as our President of Central and
Eastern European Operations since October 1997. From July 1994 to October 1997,
Mr. Porter served as President and Chief Executive Officer of Neutronics
Electronics Industries Holding AG, which we acquired in October 1997. Prior to
joining Neutronics, Mr. Porter served in various positions at Philips. Between
1989 and 1994, Mr. Porter served as Industrial Director for Philips Audio
Austria, and between 1984 and 1989, Mr. Porter served as Managing Director of
the Philips Audio factory in Penang, Malaysia. Mr. Porter has a B.Sc. in
production engineering from Trent University.
STEVEN C. SCHLEPP -- Mr. Schlepp has served as our President, Multek since
April 2000 following our acquisition of DII. From June 1996 to April 2000, Mr.
Schlepp served as Senior Vice President of DII and President of Multilayer
Technology, Inc. From January 1991 until June 1996, Mr. Schlepp served as
President of Toppan West Incorporated, a wholly owned subsidiary of Toppan
Printing Ltd.
RONALD R. SNYDER -- Mr. Snyder has served as our President, Flextronics
Semiconductor since April 2000 following our acquisition of DII. From May 1998
to April 2000, Mr. Snyder served as Senior Vice President of DII and President
of DII Semiconductor. From March 1994 until May 1998, Mr. Snyder served as
Senior Vice President of Sales and Marketing of DII. From March 1993 to March
1994, Mr. Snyder served as President of Dovatron Manufacturing Colorado, a
division of Dovatron International, Inc.
THOMAS J. SMACH -- Mr. Smach has served as our Vice President, Finance
since April 2000 following our acquisition of DII. From August 1997 to April
2000, Mr. Smach served as Senior Vice President, Chief Financial Officer, and
Treasurer of DII. From March 1994 to August 1997, Mr. Smach served as Corporate
Controller and Vice President of DII. From 1982 to March 1994, Mr. Smach served
as a certified public accountant with KPMG LLP.
TSUI SUNG LAM -- Mr. Tsui has served as a member of our board of directors
since 1991. From January 1994 to April 1997, Mr. Tsui served as our President
and Chief Operating Officer. From June 1990 to December 1993, Mr. Tsui served as
our Managing Director and Chief Executive Officer. From 1982 to June 1990, Mr.
Tsui served in various positions for Flextronics, Inc., our predecessor,
including Vice President of Asian Operations. Mr. Tsui received Diplomas in
Production Engineering and Management Studies from Hong Kong Polytechnic, and a
Certificate in Industrial Engineering from Hong Kong University.
MICHAEL J. MORITZ -- Mr. Moritz has served as a member of our board of
directors since July 1993. Since 1988, Mr. Moritz has been a General Partner of
Sequoia Capital, a venture capital firm. Mr. Moritz also serves as director of
Yahoo, Inc., Neomagic, Etoys, Webvan, Saba Software, Agile Software,
PlanetRx.com and several privately-held companies.
RICHARD L. SHARP -- Mr. Sharp has served as a member of our board of
directors since July 1993. Mr. Sharp is Chairman of the Board and Chief
Executive Officer of Circuit City Stores, Inc., a consumer electronics and
appliance retailer. Mr. Sharp joined Circuit City as an Executive Vice President
in 1982. He was President from June 1984 to March 1997 and became Chief
Executive Officer in 1986 and Chairman of the Board in 1994. Mr. Sharp also
serves as a director of Fort James Corporation.
PATRICK FOLEY -- Mr. Foley has served as a member of our board of directors
since October 1997. Mr. Foley is Chairman, President and Chief Executive Officer
of DHL Corporation, Inc. and its major subsidiary, DHL Airways, Inc., a global
document, package and airfreight delivery company. Mr. Foley joined DHL in
September 1988 with more than thirty years experience in hotel and airline
industries. Mr. Foley also serves as a director of Continental Airlines, Inc.,
Del Monte Corporation, DHL International, Foundation Health Systems, Inc. and
Glenborough Realty Trust, Inc.
CHUEN FAH ALAIN AHKONG -- Mr. Ahkong has served as a member of our board of
directors since October 1997. Mr. Ahkong is a founder of Pioneer Management
Services Pte. Ltd., a Singapore-based
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consultancy firm, and has been the Managing Director of Pioneer since 1990.
Pioneer provides advice to us and other multinational corporations on matters
related to international taxation.
HUI SHING LEONG -- Mr. Hui has served as a member of our board of directors
since October 1997. Since 1996, Mr. Hui has served as Managing Director of CS
Hui Holdings in Malaysia. Between 1984 and 1994, Mr. Hui served as Managing
Director of Samda Plastics Industries Ltd., a plastic injection molding company
in Malaysia. Since 1994, Mr. Hui has also served as a committee member of the
Penang, Malaysia Industrial Council, Vice-Chairman of the SMI Center in Malaysia
and Chairman of the Sub-Committee Plastics Technology Training Center in
Malaysia. Since 1990, Mr. Hui has served as President of the North Malaysian
Small and Medium Enterprises Association.
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ITEM 11. EXECUTIVE COMPENSATION
Information with respect to this item may be found in the section
captioned "Executive Compensation" appearing in our definitive proxy statement
to be delivered to shareholders in connection with our 2000 Annual General
Meeting of Shareholders. Such information is incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to this item may be found in the section
captioned "Security Ownership of Certain Beneficial Owners and Management"
appearing in our definitive proxy statement to be delivered to shareholders in
connection with our 2000 Annual General Meeting of Shareholders. Such
information is incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to this item may be found in the section
captioned "Certain Relationships and Related Transactions" appearing in our
definitive proxy statement to be delivered to shareholders in connection with
our 2000 Annual General Meeting of Shareholders. Such information is
incorporated by reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents to be filed as part of this Annual Report on Form 10-K
1. Financial Statements. See Item 8
2. Financial Statement Schedules. The following financial statement is
filed as part of this report and should be read together with our
financial statements:
Schedule II - Valuation and qualifying accounts
3. Exhibits. The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<S> <C>
2.01 Agreement among the Registrant, Alberton Holdings Limited and
Omac Sales Limited dated as of January 6, 1996. (Incorporated by
reference to Exhibit 2.1 of the Registrant's Current Report on
Form 8-K for the event reported on February 2, 1996.)
2.02 Asset Transfer Agreement between Ericsson Business Networks AB
and Flextronics International Sweden AB dated as February 12,
1997. Certain schedules have been omitted. The Registrant agrees
to furnish supplementally a copy of any omitted schedule to the
Commission upon request. (Incorporated by reference to Exhibit
2.6 of the Registrant's registration statement on Form S-3, No.
333-21715.)
2.03 Exchange Agreement dated October 19, 1997 by and among
Registrant, Neutronics Electronic Industries Holding A.G. and
the named Shareholders of Neutronics Electronic Industries
Holding A.G. (Incorporated by reference to Exhibit 2 of the
Registrant's Current Report on Form 8-K for the event reported
on October 30, 1997.)
2.04 Agreement and Plan of Merger dated as of November 22, 1999 among
the Registrant, Slalom Acquisition Corp. and The DII Group, Inc.
Certain schedules have been omitted. The Registrant agrees to
furnish supplementally a copy of any omitted schedule to the
Commission upon request (Incorporated by reference to Exhibit
2.1 of the Registrant's Current Report on Form 8-K for event
reported on November 22, 1999).
3.01 Memorandum of Association of the Registrant. (Incorporated by
reference to Exhibit 3.1 of the Registrant's registration
statement on Form S-1, No. 33-74622.)
3.02 Articles of Association of the Registrant. (Incorporated by
reference to Exhibit 3.2 of the Registrant's registration
statement on Form S-4, No. 33-85842.)
4.01 Indenture dated as of October 15, 1997 between Registrant and
State Street Bank and Trust Company of California, N.A., as
trustee. (Incorporated by reference to Exhibit 10.1 of the
Registrant's Current Report on Form 8-K for event reported on
October 15, 1997.)
10.01 Form of Indemnification Agreement between the Registrant and its
Directors and certain officers. (Incorporated by reference to
Exhibit 10.1 of the Registrant's registration statement on Form
S-1, No. 33-74622.)
10.02 1993 Share Option Plan. (Incorporated by reference to Exhibit
4.2 of the Registrant's registration statement on Form S-8, No.
33-95189).
10.03 1997 Employee Stock Purchase Plan (Incorporated by reference to
Exhibit 4.3 of the Registrant's registration statement on Form
S-8, No. 33-95189).
10.04 nCHIP, Inc. Amended and Restated 1988 Stock Option Plan.
(Incorporated by reference to Exhibit 10.5 of the Registrant's
registration statement on Form S-4, No. 33-85842.)
10.05* Agreement to Grant Options dated as of June 9, 1995 between the
Company and Lifescan. (Incorporated by reference to Exhibit 10.7
of the Registrant's Annual Report on Form 10-K for the fiscal
year ended March 31, 1995.)
10.06 Lease Agreement dated as of October 1, 1994 among Shenzhen Xinan
Industrial Shareholdings Limited, Flextronics Industrial
(Shenzhen) Limited and Flextronics Singapore Pte Ltd.
(Incorporated by reference to Exhibit 10.25 of the Registrant's
Annual Report on Form 10-K for the fiscal year ended March 31,
1995.)
10.07 Lease Agreement dated as of January 2, 1995 between Shenzhen
Xinan Industrial Shareholdings Limited and Flextronics
Industrial (Shenzhen) Limited. (Incorporated by reference to
Exhibit 10.25 of the Registrant's Annual Report on Form 10-K for
the fiscal year ended March 31, 1995.)
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<S> <C>
10.08 Intentionally omitted
10.09 Intentionally omitted
10.10 Promissory Note dated April 17, 1995 executed by Michael E.
Marks in favor of Flextronics Technologies, Inc. (Incorporated
by reference to Exhibit 10.34 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended March 31, 1995.)
10.11* Printed Circuit Board Assembly Services Agreement between
Lifescan Inc., a Johnson & Johnson Company, and the Registration
dated November 1, 1992. (Incorporated by reference to Exhibit
10.41 of the Registrant's registration statement on Form S-1,
No. 33-74622.)
10.12 Tenancy of Flatted Factory Unit dated February 28, 1996 between
Jurong Town Corporation and the Registrant. (Incorporated by
reference to Exhibit 10.44 of the Registrant's Annual Report on
Form 10-K for fiscal year ended March 31, 1990.)
10.13 Tenancy of Flatted Factory Unit dated May 14, 1993 between
Jurong Town Corporation and the Registrant. (Incorporated by
reference to Exhibit 10.45 of the Registrant's registration
statement on Form S-1, No. 33-74622.)
10.14 Flextronics Asia U.S.A. 401(k) plan. (Incorporated by reference
to Exhibit 10.52 of the Registrant's registration statement on
Form S-1, No. 33-74622.)
10.15 Credit Agreement dated as of October 27, 1999 by and among
Flextronics International Ltd, the lenders named therein, ABN
AMRO, as agent, BankBoston, N.A. as documentation agent and Bank
of America, N.A., Banque Nationale de Paris, The Bank of Nova
Scotia and Citicorp USA, Inc., as co-agents (Incorporated by
reference to Exhibit 10.01 of the Company's Report on Form
10-Q/A for the quarterly period ended December 31, 1999.)
10.16 Credit Agreement dated October 27, 1999 by and among Flextronics
International USA, Inc., the lenders named therein, ABN AMRO
Bank N.V., as agent, BankBoston, N.A., as documentation agent,
and Bank of America, N.A., Banque Nationale de Paris, The
Bank of Nova Scotia and Citicorp USA, Inc., as co-agents.
(Incorporated by reference to Exhibit 10.02 of the Registrant's
Report on Form 10-Q/A for the quarterly period ended December
31, 1999.)
10.17 Employment and Noncompetition Agreement dated as of April 30,
1997 between Flextronics International Sweden AB and Ronny
Nilsson. (Incorporated by reference to Exhibit 10.29 of the
Registrant's Annual Report on Form 10-K for fiscal year ended
March 31, 1997.)
10.18 Services Agreement dated as of April 30, 1997 between
Flextronics International USA, Inc. and Ronny Nilsson.
(Incorporated by reference to Exhibit 10.30 of the Registrant's
Annual Report on Form 10-K for fiscal year ended March 31,
1997.)
10.19 Promissory Note dated April 15, 1997 executed by Ronny Nilsson
in favor of Flextronics International USA, Inc. (Incorporated by
reference to Exhibit 10.31 of the Registrant's Annual Report on
Form 10-K for fiscal year ended March 31, 1997.)
10.20 Intentionally omitted
10.21 Intentionally omitted
10.22 Intentionally omitted
10.23 Intentionally omitted
10.24 Loan Agreement between Flextronics International USA, Inc. as
lender, and Michael E. Marks, as borrower dated November 6,
1997. (Incorporated by reference to Exhibit 10.35 of the
Registrant's Registration Statement on Form S-4, No. 333-41293.)
10.25 Secured Full Recourse Promissory Note, dated November 6, 1997,
executed by Michael E. Marks in favor of Flextronics
International USA, Inc. (Incorporated by reference to Exhibit
10.36 to the Registrant's Registration Statement on Form S-4,
No. 333-41293.)
10.26 Credit Agreement dated as of April 3, 2000 among the Registrant,
and its subsidiaries designated under the agreement as borrowers
from time to time, the lenders named in Schedule I to the Credit
Agreement, ABN AMRO Bank N.V. as agent for the lenders, Fleet
National Bank as documentation
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<S> <C>
agent, Bank of America, National Association and Citicorp USA,
Inc. as managing agents, and The Bank of Nova Scotia as
co-agent (certain disclosure schedules have been omitted and
will be provided to the Securities and Exchange Commission upon
request).
10.27 Credit Agreement dated as of April 3, 2000 among Flextronics
International USA, Inc., The DII Group, Inc., the lenders named
in Schedule I to the Credit Agreement, ABN AMRO Bank N.V. as
agent for the lenders, Fleet National Bank, as documentation
agent, Bank of America, National Association and Citicorp USA,
Inc. as managing agents, and The Bank of Nova Scotia as
co-agent (certain disclosure schedules have been omitted and
will be provided to the Securities and Exchange Commission upon
request).
21.01 Subsidiaries of Registrant.
23.01 Consent of Arthur Andersen LLP.
27.01 Financial Data Schedule (EDGAR only).
</TABLE>
----------
* Confidential treatment requested for portions of agreement.
(b) Reports on Form 8-K
We filed a current report on Form 8-K, in connection with our entering into
an underwriting agreement on February 24, 2000 with Banc of America
Securities LLC, providing for the public offering of 8,600,000 ordinary
shares at a public offering price of $59.00 per share. The only exhibits
filed with this report were such underwriting agreement and the press
release relating to such public offering.
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SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereto duly authorized.
Date : June 12, 2000
FLEXTRONICS INTERNATIONAL LTD.
By: /s/ MICHAEL E. MARKS
---------------------------------
Michael E. Marks
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints jointly and severally, Michael E. Marks
and Robert R.B. Dykes and each one of them, his attorneys-in-fact, each with the
power of substitution, for him in any and all capacities, to sign any and all
amendments to this Report (including any and all amendments), and to file the
same, with exhibits thereto and other documents In connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ MICHAEL E. MARKS Chairman of the Board, and June 12, 2000
----------------------------------- Chief Executive Officer
Michael E. Marks (principal executive officer)
/s/ ROBERT R.B. DYKES President, Systems Group and June 12, 2000
----------------------------------- Chief Financial Officer
Robert R.B. Dykes
/s/ THOMAS J. SMACH Vice President of Finance June 12, 2000
----------------------------------- (principal financial and
Thomas J. Smach accounting officer)
/s/ TSUI SUNG LAM Director June 12, 2000
-----------------------------------
Tsui Sung Lam
/s/ MICHAEL J. MORITZ Director June 12, 2000
-----------------------------------
Michael J. Moritz
/s/ RICHARD L. SHARP Director June 12, 2000
-----------------------------------
Richard L. Sharp
Director June 12, 2000
-----------------------------------
Patrick Foley
/s/ ALAIN AHKONG Director June 12, 2000
-----------------------------------
Alain Ahkong
/s/ HUI SHING LEONG Director June 12, 2000
-----------------------------------
Hui Shing Leong
</TABLE>
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<S> <C>
10.26 Credit Agreement dated as of April 3, 2000 among the Registrant,
and its subsidiaries designated under the agreement as borrowers
from time to time, the lenders named in Schedule I to the Credit
Agreement, ABN AMRO Bank N.V. as agent for the lenders, Fleet
National Bank as documentation agent, Bank of America, National
Association and Citicorp USA, Inc. as managing agents, and The Bank
of Nova Scotia as co-agent (certain disclosure schedules have been
omitted and will be provided to the Securities and Exchange
Commission upon request).
10.27 Credit Agreement dated as of April 3, 2000 among Flextronics
International USA, Inc., The DII Group, Inc., the lenders named
in Schedule I to the Credit Agreement, ABN AMRO Bank N.V. as
agent for the lenders, Fleet National Bank, as documentation
agent, Bank of America, National Association and Citicorp USA,
Inc. as managing agents, and The Bank of Nova Scotia as
co-agent (certain disclosure schedules have been omitted and will
be provided to the Securities and Exchange Commission upon
request).
21.01 Subsidiaries of Registrant.
23.01 Consent of Arthur Andersen LLP.
27.01 Financial Data Schedule (EDGAR only).
</TABLE>
