<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended SEPTEMBER 30, 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: 0-23354
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.)
------------------------
MICHAEL E. MARKS
CHIEF EXECUTIVE OFFICER
FLEXTRONICS INTERNATIONAL LTD.
11 UBI ROAD 1 #07-01/02
MEIBAN INDUSTRIAL BUILDING
SINGAPORE 408723
(65) 844-3366
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
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 [ ]
At November 13, 2000, there were 420,908,220 Ordinary Shares, S$0.01 par
value, outstanding.
1
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FLEXTRONICS INTERNATIONAL LTD.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - September 30, 2000 and March 31,
2000 .................................................................... 3
Condensed Consolidated Statements of Operations - Three and Six Months
Ended September 30, 2000 and September 24, 1999 ......................... 4
Condensed Consolidated Statements of Cash Flows - Six Months Ended
September 30, 2000 and September 24, 1999 ............................... 5
Notes to Condensed Consolidated Financial Statements ..................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations ................................................................... 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk ...................... 21
PART II. OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders ............................... 26
Item 6. Exhibits and Reports on Form 8-K ............................................... 27
Signatures ...................................................................... 28
</TABLE>
2
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ITEM 1. FINANCIAL STATEMENTS
FLEXTRONICS INTERNATIONAL LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30, March 31,
2000 2000
------------- -------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ....................................... $ 540,831 $ 739,023
Accounts receivable, net ........................................ 1,575,681 969,832
Inventories, net ................................................ 1,564,477 1,071,491
Other current assets ............................................ 323,178 273,496
------------- -------------
Total current assets .................................... 4,004,167 3,053,842
------------- -------------
Property and equipment, net ....................................... 1,542,100 1,216,863
Goodwill and other intangibles, net................................ 564,884 390,351
Non-current assets ................................................ 105,860 198,072
------------- -------------
Total assets ............................................ $ 6,217,011 $ 4,859,128
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank borrowings and current portion of long-term debt ........... $ 485,330 $ 441,900
Current portion of capital lease obligations .................... 20,517 20,010
Accounts payable ................................................ 1,478,679 1,128,680
Accrued expenses ................................................ 518,415 300,990
------------- -------------
Total current liabilities ............................... 2,502,941 1,891,580
------------- -------------
Long-term debt, net of current portion ............................ 854,886 579,234
Capital lease obligations, net of current portion ................. 46,327 48,833
Other long-term liabilities ....................................... 63,724 53,389
------------- -------------
Total long-term liabilities ............................. 964,937 681,456
------------- -------------
SHAREHOLDERS' EQUITY:
Ordinary shares ................................................. 2,528 2,419
Additional paid-in capital ...................................... 2,841,968 1,933,880
Retained earnings (deficit) ..................................... (36,430) 341,955
Accumulated other comprehensive income (loss) ................... (58,933) 12,922
Deferred compensation ........................................... -- (5,084)
------------- -------------
Total shareholders' equity .............................. 2,749,133 2,286,092
------------- -------------
Total liabilities and shareholders' equity .............. $ 6,217,011 $ 4,859,128
============= =============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
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FLEXTRONICS INTERNATIONAL LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 24, September 30, September 24,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales ..................................... $ 2,947,125 $ 1,391,472 $ 5,471,771 $ 2,494,898
Cost of sales ................................. 2,698,687 1,255,550 5,017,658 2,239,810
Unusual charges ............................... 24,268 -- 107,989 --
------------- ------------- ------------- -------------
Gross profit ............................. 224,170 135,922 346,124 255,088
Selling, general and administrative ........... 104,305 72,223 196,550 138,709
Goodwill and intangibles amortization ......... 12,505 8,787 21,875 18,541
Unusual charges ............................... 24,127 3,523 433,510 3,523
Interest and other expense, net ............... 23,827 19,314 19,831 33,812
------------- ------------- ------------- -------------
Income (loss) before income taxes ........ 59,406 32,075 (325,642) 60,503
Provision for (benefit from) income taxes ..... 8,436 4,210 (7,675) 8,941
------------- ------------- ------------- -------------
Net income (loss) ........................ $ 50,970 $ 27,865 $ (317,967) $ 51,562
============= ============= ============= =============
Earnings (loss) per share:
Basic ....................................... $ 0.12 $ 0.09 $ (0.77) $ 0.16
============= ============= ============= =============
Diluted ..................................... $ 0.11 $ 0.08 $ (0.77) $ 0.15
============= ============= ============= =============
Shares used in computing per share amounts:
Basic ....................................... 419,200 320,158 412,300 316,752
============= ============= ============= =============
Diluted ..................................... 463,614 343,265 412,300 342,372
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE> 5
FLEXTRONICS INTERNATIONAL LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
September 30, September 24,
2000 1999
------------- -------------
<S> <C> <C>
Net cash provided by (used in) operating activities ............ $ (355,978) $ 50,613
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment ................... (483,156) (175,463)
Proceeds from sale of property, plant and equipment .......... 13,166 12,560
Proceeds from sale of investments and certain subsidiaries ... 37,602 26,051
Payments for business acquisitions, net of cash acquired ..... (65,450) (89,360)
Investments in minority owned entities ....................... (15,268) (20,507)
Other investments ............................................ -- (7,515)
------------- -------------
Net cash used in investing activities .......................... (513,106) (254,234)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term credit facility repayments ........................ (306,196) (7,417)
Repayments of capital lease obligations ...................... (12,623) (16,169)
Repayments of long-term debt ................................. (570,318) (41,701)
Bank borrowings and proceeds from long-term debt ............. 1,093,071 168,413
Proceeds from stock issued under stock plans ................. 22,609 9,689
Net proceeds from sale of ordinary shares .................... 442,914 --
Proceeds from issuance of equity instrument .................. 100,000 --
Other ........................................................ -- (101)
------------- -------------
Net cash provided by financing activities ...................... 769,457 112,714
------------- -------------
Effect on cash from:
Exchange rate changes ....................................... (65,859) 1,412
Adjustment to conform fiscal year of pooled entities ........ (32,706) --
------------- -------------
Net decrease in cash and cash equivalents ...................... (198,192) (89,495)
Cash and cash equivalents at beginning of period ............... 739,023 285,107
------------- -------------
Cash and cash equivalents at end of period ..................... $ 540,831 $ 195,612
============= =============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE> 6
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(Unaudited)
Note A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and in accordance with the instructions to Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements, and should be read in conjunction with the Company's
audited consolidated financial statements as of and for the fiscal year ended
March 31, 2000 contained in the Company's annual report on Form 10-K and the
Company's current report on Form 8-K filed on September 20, 2000. In the opinion
of management, all adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the three and six month periods ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the year ending
March 31, 2001.
On July 26, 2000, the Company announced a two-for-one stock split of its
ordinary shares, to be effected in the form of a bonus issue (equivalent to a
stock dividend), payable to the Company's shareholders of record as of September
22, 2000. The Company's shareholders of record at the close of business on
September 22, 2000 received certificates representing one additional share for
every one share held at that time. Distribution of the additional shares
occurred on October 16, 2000. The stock dividend has been reflected in the
Company's financial statements for all periods presented. All share and per
share amounts have been retroactively restated to reflect the stock split.
In the current fiscal year, Flextronics acquired 100% of the outstanding
shares of the DII Group, Inc. ("DII"), Palo Alto Products International Pte.
Ltd. ("Palo Alto Products International"), Chatham Technologies, Inc.
("Chatham") and Lightning Metal Specialties and related entities ("Lightning").
These acquisitions were accounted for as pooling of interests and the condensed
consolidated financial statements have been prepared to give retroactive effect
to the mergers.
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, in April 2000, the Company issued
approximately 125.5 million ordinary shares for all of the outstanding shares of
DII common stock, based upon the exchange ratio of 3.22 Flextronics ordinary
shares for each share of DII common stock. DII operated under a calendar year
end prior to merging with Flextronics and, accordingly, DII's balance sheets,
statements of operations, shareholders' equity and cash flows as of December 31,
1998 and 1999 and for each of the three years ended December 31, 1999 have been
combined with the Company's consolidated financial statements as of March 31,
1999 and 2000 and for each of the three fiscal years ended March 31, 2000.
Starting in fiscal 2001, DII changed its year end from December 31 to March 31
to conform to the Company's fiscal year end. Accordingly, DII's operations for
the three months ended March 31, 2000 have been excluded from the consolidated
results of operations for fiscal 2001 and reported as an adjustment to retained
earnings in the first quarter of fiscal 2001.
Palo Alto Products International is an enclosure design and plastic molding
company with operations in Taiwan, Thailand and the United States. The Company
merged with Palo Alto Products International in April 2000, by exchanging
approximately 7.2 million ordinary shares of Flextronics for all of the
outstanding shares of Palo Alto Products International common stock. Palo Alto
Products International operated under the same fiscal year end as Flextronics,
and accordingly, Palo Alto Products International's balance sheets, statements
of operations, shareholders' equity and cash flows have been combined with the
Company's consolidated financial statements as of March 31, 1999 and 2000 and
for each of the three fiscal years ended March 31, 2000.
Chatham is a leading provider of integrated electronic packaging systems to
the communications industry. As a result of the merger in, August 2000, the
Company issued approximately 15.2 million ordinary shares for all of the
6
<PAGE> 7
outstanding Chatham capital stock, warrants and options. Chatham operated under
a fiscal year which ended on the Saturday closest to September 30 prior to
merging with Flextronics and, accordingly, Chatham's balance sheets, statements
of operations, shareholders' equity and cash flows as of September 30, 1998 and
1999 and for each of the three years ended September 24, 1999 have been combined
with the Company's consolidated financial statements as of March 31, 1999 and
2000 and for each of the three fiscal years ended March 31, 2000. Starting in
fiscal 2001, Chatham changed its year end from the Saturday closest to September
30 to March 31 to conform to the Company's fiscal year end. Accordingly,
Chatham's operations for the six months ended March 31, 2000 have been excluded
from the consolidated results of operations for fiscal 2001 and reported as an
adjustment to retained earnings in the first quarter of fiscal 2001.
Lightning is a provider of fully integrated electronic packaging systems
with operations in Ireland and the United States. As a result of the merger, in
August 2000, the Company issued approximately 2.6 million ordinary shares for
all of the outstanding shares of Lightning common stock and interests. Lightning
operated under a calendar year end prior to merging with Flextronics and,
accordingly, Lightning's balance sheets, statements of operations, shareholders'
equity and cash flows as of December 31, 1998 and 1999 and for each of the three
years ended December 31, 1999 have been combined with the Company's consolidated
financial statements as of March 31, 1999 and 2000 and for each of the three
fiscal years ended March 31, 2000. Starting in fiscal 2001, Lightning changed
its year end from December 31 to March 31 to conform to the Company's fiscal
year end. Accordingly, Lightning's operations for the three months ended March
31, 2000 have been excluded from the consolidated results of operations for
fiscal year 2001 and reported as an adjustment to retained earnings in the first
quarter of fiscal 2001.
A reconciliation of results of operations previously reported by the
separate companies for the three and six month periods ended September 24, 1999
to the results in this Form 10Q is as follows (in thousands):
<TABLE>
<CAPTION>
Three months Six months
ended ended
September 24, September 24,
1999 1999
------------- -------------
<S> <C> <C>
Net sales:
As previously reported .......... $ 941,760 $ 1,627,401
DII ............................. 280,093 527,561
Palo Alto Products .............. 26,731 50,319
Chatham ......................... 73,604 164,689
Lightning ....................... 70,103 126,077
Intercompany elimination ........ (819) (1,149)
------------- -------------
As restated ..................... $ 1,391,472 $ 2,494,898
============= =============
Net income:
As previously reported .......... $ 28,088 $ 46,942
DII ............................. 12,340 21,223
Palo Alto Products .............. 317 582
Chatham ......................... (11,554) (19,377)
Lightning ....................... (1,326) 2,192
------------- -------------
As restated ..................... $ 27,865 $ 51,562
============= =============
</TABLE>
Note B - INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, March 31,
2000 2000
------------- -------------
<S> <C> <C>
Raw materials ........... $ 1,130,046 $ 785,693
Work-in-process ......... 297,324 179,010
Finished goods .......... 137,107 106,788
------------- -------------
$ 1,564,477 $ 1,071,491
============= =============
</TABLE>
Note C - UNUSUAL CHARGES
The Company recognized unusual pre-tax charges of $541.5 million in the
first six months of fiscal 2001. Of this amount, $493.1 million was recorded in
the first quarter and was comprised of approximately $286.5 million related to
7
<PAGE> 8
the issuance of an equity instrument to Motorola combined with approximately
$206.6 million of expenses resulting from the DII and Palo Alto Products
International business combinations. In the second quarter, unusual pre-tax
charges amounted to approximately $48.4 million associated with the Chatham and
Lightning business combinations.
On May 30, 2000, the Company entered into a strategic alliance for product
manufacturing with Motorola. See Note I for further information concerning the
strategic alliance. In connection with this strategic alliance, Motorola paid
$100.0 million for an equity instrument that entitles it to acquire 22,000,000
Flextronics ordinary shares at any time through December 31, 2005, upon meeting
targeted purchase levels or making additional payments to the Company. The
issuance of this equity instrument resulted in a one-time non-cash charge equal
to the excess of the fair value of the equity instrument issued over the $100.0
million proceeds received. As a result, the one-time non-cash charge amounted to
approximately $286.5 million offset by a corresponding credit to additional
paid-in capital in the first quarter of fiscal 2001.
In connection with the aforementioned business acquisitions, the Company
recorded aggregate merger-related charges of $255.0 million, which included
approximately $159.0 million of integration expenses and approximately $96.0
million of direct transaction costs. As discussed below, $108.0 million of the
unusual charges relating to integration expenses have been classified as a
component of Cost of Sales during the first six months of fiscal 2001. The
components of the merger-related unusual charges recorded in the first and
second quarters of fiscal 2001 are as follows (in thousands):
<TABLE>
<CAPTION>
FIRST SECOND
QUARTER QUARTER TOTAL NATURE OF
CHARGES CHARGES CHARGES CHARGES
-------- -------- -------- -------------
<S> <C> <C> <C> <C>
Integration Costs:
Severance .............................................. $ 62,487 $ 5,677 $ 68,164 cash
Long-lived asset impairment ............................ 46,646 14,373 61,019 non-cash
Inventory write-downs .................................. 11,863 -- 11,863 non-cash
Other exit costs ....................................... 12,338 5,650 17,988 cash/non-cash
-------- -------- --------
Total Integration Costs ............................ 133,334 25,700 159,034
Direct Transaction Costs:
Professional fees ...................................... 50,851 7,247 58,098 cash
Other costs ............................................ 22,382 15,448 37,830 cash/non-cash
-------- -------- --------
Total Direct Transaction Costs ..................... 73,233 22,695 95,928
-------- -------- --------
Total Merger-Related Unusual Pre-Tax Charges ........... $206,567 $ 48,395 $254,962
======== ======== ========
</TABLE>
As a result of the consummation of the DII and Palo Alto Products
International business combinations in the first quarter, and the Chatham and
Lightning business combinations in the second quarter, the Company developed
formal plans to exit certain activities and involuntarily terminate employees.
Management's plan to exit an activity included the identification of duplicate
manufacturing and administrative facilities for closure and the identification
of manufacturing and administrative facilities for consolidation into other
facilities. Management currently anticipates that the integration costs and
activities to which all of these charges relate will be substantially completed
within one year of the commitment dates of the respective exit plans, except for
certain long-term contractual obligations. The following table summarizes the
components of the integration costs and related activity in fiscal 2001:
<TABLE>
<CAPTION>
Long-Lived Other
Asset Exit
Severance Impairment Inventory Costs Total
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 2000 ......... $ -- $ -- $ -- $ -- $ --
Activities during the year:
First quarter provision ......... 62,487 46,646 11,863 12,338 133,334
Cash charges .................... (35,800) -- -- (4,753) (40,553)
Non-cash charges ................ -- (46,646) (4,315) -- (50,961)
---------- ---------- ---------- ---------- ----------
Balance at June 30, 2000 .......... 26,687 -- 7,548 7,585 41,820
Activities during the year:
Second quarter provision ........ 5,677 14,373 -- 5,650 25,700
Cash charges .................... (4,002) -- -- (3,014) (7,016)
Non-cash charges ................ -- (14,373) (7,548) (1,743) (23,664)
---------- ---------- ---------- ---------- ----------
Balance at September 30, 2000 ..... $ 28,362 $ -- $ -- $ 8,478 $ 36,840
========== ========== ========== ========== ==========
</TABLE>
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Of the total pre-tax integration charges, $68.1 million relates to employee
termination costs, of which $17.1 million has been classified as a component of
Cost of Sales. As a result of the exit plans, the Company identified 1,993
employees to be involuntarily terminated related to the DII and Palo Alto
Products International business combinations, and 851 employees related to the
Chatham and Lightning business combinations. As of September 30, 2000,
approximately 1,387 employees have been terminated, and approximately another
606 employees have been notified that they are to be terminated upon completion
of the various facility closures and consolidations related to the first quarter
business combinations. Additionally, as of September 30, 2000, approximately 48
employees have been terminated, and approximately another 803 employees have
been notified of their ensuing termination upon completion of the various
facility closures and consolidations related to the second quarter business
combinations. During the first and second quarters of fiscal 2001, the Company
paid employee termination costs of approximately $35.8 million and $4.0 million,
respectively. The remaining $28.4 million of employee termination costs is
classified as accrued liabilities as of September 30, 2000 and is expected to be
paid out within one year of the commitment dates of the respective exit plans.
The unusual pre-tax charges include $61.0 million for the write-down of
long-lived assets to fair value. Of these charges, approximately $46.6 million
and $14.4 million were written down in the first and second quarters of fiscal
2001, respectively. These amounts have been classified as a component of Cost of
Sales. Included in the long-lived asset impairment are charges of $58.1 million,
which relate to property, plant and equipment associated with the various
manufacturing and administrative facility closures which were written down to
their net realizable value based on their estimated sales price. Certain
facilities will remain in service until their anticipated disposal dates
pursuant to the exit plans. Since the assets will remain in service from the
date of the decision to dispose of these assets to the anticipated disposal
date, the assets will be depreciated over this period. The impaired long-lived
assets consisted primarily of machinery and equipment of $48.8 million and
building and improvements of $9.3 million. The long-lived asset impairment also
includes the write-off of the remaining goodwill and other intangibles related
to certain closed facilities of $2.9 million.
The unusual pre-tax charges also include approximately $29.9 million for
losses on inventory write-downs and other exit costs, which resulted from the
integration plans. This amount has been classified as a component of Cost of
Sales. The Company has written off and disposed of approximately $11.9 million
of inventory related to the first quarter business combinations. The $18.0
million of other exit costs relates primarily to items such as lease termination
costs, incremental amounts of uncollectible accounts receivable,
warranty-related accruals, legal and other exit costs, incurred directly as a
result of the various exit plans. Of this amount, $12.3 million related to the
DII and Palo Alto Products International business combinations and $5.7 million
related to the Chatham and Lightning transactions. The Company paid
approximately $4.8 million and $3.0 million of other exit costs during the first
and second quarters of fiscal 2001. Additionally, approximately $1.7 million of
other exit costs were written off during the second quarter. The remaining $8.5
million is classified in accrued liabilities as of September 30, 2000 and is
expected to be paid out by the end of fiscal 2001, except for certain long-term
contractual obligations.
The direct transaction costs include approximately $58.1 million of costs
primarily related to investment banking and financial advisory fees as well as
legal and accounting costs associated with the transactions. Of these charges,
approximately $50.9 million was associated with the first quarter business
combinations and $7.2 million related to the second quarter transactions. Other
direct transaction costs which totaled approximately $37.8 million was mainly
comprised of accelerated debt prepayment expense, accelerated executive stock
compensation, benefit-related expenses and other merger-related costs. The
Company paid approximately $70.2 million and $20.7 million of the direct
transaction costs during the first and second quarters of fiscal 2001,
respectively. The remaining $5.0 million is classified in accrued liabilities as
of September 30, 2000 and is expected to be substantially paid out by the end of
fiscal 2001.
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<PAGE> 10
Note D - EARNINGS PER SHARE
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. Earnings per share data were computed as follows (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 24, September 30, September 24,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Basic earnings (loss) per share:
Net income (loss) ...................................... $ 50,970 $ 27,865 $ (317,967) $ 51,562
------------- ------------- ------------- -------------
Shares used in computation:
Weighted-average ordinary shares outstanding(1) ........ 419,200 320,158 412,300 316,752
============= ============= ============= =============
Basic earnings (loss) per share ........................ $ 0.12 $ 0.09 $ (0.77) $ 0.16
============= ============= ============= =============
Diluted earnings (loss) per share:
Net income (loss) ...................................... $ 50,970 $ 27,865 $ (317,967) $ 51,562
Plus income impact of assumed conversions:
Interest expense (net of tax) on convertible
Subordinated notes .................................. -- -- -- 400
Amortization (net of tax) of debt issuance cost on
Convertible subordinated notes ...................... -- -- -- 33
------------- ------------- ------------- -------------
Net income (loss) available to shareholders .......... $ 50,970 $ 27,865 $ (317,967) $ 51,995
Shares used in computation:
Weighted-average ordinary shares outstanding ........... 419,200 320,158 412,300 316,752
Shares applicable to exercise of dilutive options(2) ... 32,516 22,328 -- 21,962
Shares applicable to deferred stock compensation ....... -- 779 -- 741
Shares applicable to other equity instruments .......... 11,898 -- -- --
Shares applicable to convertible subordinated notes .... -- -- -- 2,917
------------- ------------- ------------- -------------
Shares applicable to diluted earnings ................ 463,614 343,265 412,300 342,372
============= ============= ============= =============
Diluted earnings (loss) per share ...................... $ 0.11 $ 0.08 $ (0.77) $ 0.15
============= ============= ============= =============
</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
1,419,562 shares and 94,992 shares outstanding during the three months ended
September 30, 2000 and September 24, 1999, respectively, and options to
purchase 94,937 shares outstanding during the six months ended September 24,
1999 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 periods. The ordinary
share equivalents from stock options and other equity instruments were
antidilutive for the six months ended September 30, 2000, and therefore not
assumed to be converted for diluted earnings per share computations.
Note E - COMPREHENSIVE INCOME (in thousands)
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 24, September 30, September 24,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income (loss) ....................................... $ 50,970 $ 27,865 $ (317,967) $ 51,562
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments .............. (38,625) 2,020 (43,784) (3,594)
Unrealized holding gain (loss) on available-for-sale
Securities........................................... 13,262 9,608 (22,101) 9,608
------------- ------------- ------------- -------------
Comprehensive income (loss) ............................. $ 25,607 $ 39,493 $ (383,852) $ 57,576
============= ============= ============= =============
</TABLE>
Note F - SEGMENT REPORTING
Information about segments was as follows (in thousands):
10
<PAGE> 11
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 24, September 30, September 24,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Sales:
Asia .................................... $ 487,609 $ 217,515 $ 880,526 $ 383,087
Americas ................................ 1,487,411 667,585 2,686,475 1,203,838
Western Europe .......................... 556,551 323,037 1,072,526 561,704
Central Europe .......................... 505,960 203,252 967,010 375,231
Intercompany eliminations ............... (90,406) (19,917) (134,766) (28,962)
------------- ------------- ------------- -------------
$ 2,947,125 $ 1,391,472 $ 5,471,771 $ 2,494,898
============= ============= ============= =============
Income (Loss) before Income Tax:
Asia .................................... $ 30,599 $ 18,232 $ 53,314 $ 32,186
Americas ................................ 46,251 4,100 70,918 3,926
Western Europe .......................... 9,515 7,920 20,561 13,295
Central Europe .......................... 10,253 4,072 20,423 10,707
Intercompany eliminations,
corporate allocations and
unusual charges ....................... (37,212) (2,249) (490,858) 389
------------- ------------- ------------- -------------
$ 59,406 $ 32,075 $ (325,642) $ 60,503
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
As of As of
September 30, March 31,
2000 2000
------------- -------------
<S> <C> <C>
Long-lived Assets:
Asia ..................... $ 272,251 $ 343,843
Americas ................. 726,528 607,173
Western Europe ........... 287,589 201,593
Central Europe ........... 255,732 182,827
------------- -------------
$ 1,542,100 $ 1,335,436
============= =============
</TABLE>
For purposes of the preceding tables, "Asia" includes China, Malaysia,
Singapore, Thailand and Taiwan, "Americas" includes the U.S., Mexico, and
Brazil, "Western Europe" includes Denmark, Germany, Holland, Sweden,
Switzerland, Norway, Finland, and France, and "Central Europe" includes Austria,
the Czech Republic, Hungary, Ireland, Italy, Scotland and the United Kingdom.
Geographic revenue transfers are based on selling prices to unaffiliated
companies, less discounts. Income before income tax is net sales less operating
expenses, interest or other expenses, but prior to income taxes.
Note G - EQUITY OFFERING
In June 2000, the Company completed an equity offering of 11,000,000
ordinary shares at $35.625 per share with net proceeds of $375.9 million. In
July 2000, the Company issued an additional 1,650,000 ordinary shares at $35.625
per share with net proceeds of $56.3 million, which represents the overallotment
option on the equity offering completed in June 2000. The Company used the net
proceeds from the offering to fund the further expansion of its business
including additional working capital and capital expenditures, and for other
general corporate purposes. The Company may also use a portion of the net
proceeds for strategic acquisitions or investments.
Note H - SENIOR SUBORDINATED NOTES
In June 2000, the Company issued approximately $645.0 million of senior
subordinated notes, consisting of $500.0 million of 9.875% notes and euros 150.0
million of 9.75% notes. Interest is payable on July 1 and January 1 of each
year, commencing January 1, 2001. The notes mature on July 1, 2010.
11
<PAGE> 12
The Company may redeem the notes on or after July 1, 2005. The indentures
relating to the notes contain certain covenants that, among other things, limit
the ability of the Company and certain of its subsidiaries to (i) incur
additional debt, (ii) issue or sell stock of certain subsidiaries, (iii) engage
in asset sales, and (iv) make distributions or pay dividends. The covenants are
subject to a number of significant exceptions and limitations.
Note I - STRATEGIC ALLIANCE
On May 30, 2000, the Company entered into a strategic alliance for product
manufacturing with Motorola. This alliance provides incentives for Motorola to
purchase up to $32.0 billion of products and services from us through December
31, 2005. The relationship is not exclusive and does not require that Motorola
purchase any specific volumes of products or services from the Company. The
Company's ability to achieve any of the anticipated benefits of this
relationship is subject to a number of risks, including its ability to provide
services on a competitive basis and to expand manufacturing resources, as well
as demand for Motorola's products. In connection with this strategic alliance,
Motorola paid $100.0 million for an equity instrument that entitles it to
acquire 22,000,000 Flextronics ordinary shares at any time through December 31,
2005 upon meeting targeted purchase levels or making additional payments to the
Company. The issuance of this equity instrument resulted in a one-time non-cash
charge equal to the excess of the fair value of the equity instrument issued
over the $100.0 million proceeds received. As a result, the one-time non-cash
charge amounted to approximately $286.5 million offset by a corresponding credit
to additional paid-in capital in the first quarter of fiscal 2001. During the
term of the strategic alliance, if Motorola meets targeted purchase levels, no
additional payments may be required by Motorola to acquire 22,000,000
Flextronics ordinary shares. However, there may be additional non-cash charges
of up to $300.0 million over the term of the strategic alliance.
Note J - NEW ACCOUNTING STANDARDS
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 fourth quarter of fiscal 2001 and
anticipates that SAB 101 will not have a material impact on its consolidated
financial statements.
Note K - OTHER MATTERS
On August 10, 2000 the Company announced the signing of a definitive merger
agreement to acquire JIT Holdings Ltd. (JIT), a global provider of electronics
manufacturing and design services with operations in Singapore, China, Malaysia,
Hungary and Indonesia. Under the terms of the merger agreement, Flextronics will
issue approximately 17.4 million ordinary shares in exchange for all of the
outstanding ordinary shares and options of JIT. This merger is intended to be
accounted for as a pooling of interests and is subject to certain closing
conditions, including approval by JIT shareholders. The Company anticipates that
the transaction will be completed at the end of November 2000.
In September 2000, the Company announced the signing of a definitive
agreement to acquire Li Xin Industries Ltd. (Li Xin), a plastics company in Asia
with operations in Singapore, Malaysia and Northern China. Li Xin's primary
activities include the manufacturing and sales of high precision plastic
injection molds and plastic injection molded parts, design support and
sub-assembly services of electrical components. Under the terms of the
agreement, Flextronics will issue ordinary shares having a total value of
approximately $69.0 million. The acquisition is intended to be accounted for as
a purchase and is subject to the approval of the Li Xin shareholders and other
customary conditions. The transaction is expected to close in January 2001.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report on Form 10-Q contains 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. In addition, any statements which refer to
expectations, projections or other characterizations of future events or
circumstances are forward-looking statements. We undertake no obligation to
publicly disclose any revisions to these forward-looking statements to reflect
events or circumstances occurring subsequent to filing this Form 10-Q with the
Securities and Exchange Commission. These forward-looking statements are subject
to risks and uncertainties, including, without limitation, those discussed in
"Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Certain Factors Affecting Operating Results." Accordingly, our
future results may differ materially from historical results or from those
discussed or implied by these forward-looking statements.
Acquisition, Purchases of Facilities and Other Strategic Transactions
We have actively pursued mergers and other business acquisitions to expand
our global reach, manufacturing capacity and service offerings and to diversify
and strengthen customer relationships. We have completed several significant
business combinations since the end of fiscal 2000. In the current fiscal year,
we acquired all of the outstanding shares of the DII Group, Inc., Palo Alto
Products International Pte. Ltd., Chatham Technologies, Inc. and Lightning Metal
Specialties and related entities. Each of these acquisitions was accounted for
as a pooling of interests and our consolidated financial statements have been
restated to reflect the combined operations of the merged companies for all
periods presented.
Additionally, we have completed other immaterial pooling of interests
transactions in the first half of fiscal 2001. Prior period statements have not
been restated for these transactions. We have also made a number of business
acquisitions of other companies. These transactions were accounted for using the
purchase method and, accordingly our 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.
The business combinations that we have completed to date in fiscal 2001, include
the following:
<TABLE>
<CAPTION>
Date Acquired Company Nature of Business Consideration Location(s)
--------- ------------------------- --------------------- -------------- --------------------
<S> <C> <C> <C> <C>
August 2000 Chatham Technologies, Inc. Provides industrial and 15,234,244 ordinary Brazil
electronics manufacturing shares China
design services France
Mexico
Spain
Sweden
United States
August 2000 Lightning Metal Provides injection molding, 2,573,072 ordinary Ireland
Specialties and related metal stamping and shares United States
entities integration services
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
Date Acquired Company Nature of Business Consideration Location(s)
--------- ------------------------- --------------------- -------------- --------------------
<S> <C> <C> <C> <C>
April 2000 Palo Alto Products Provides industrial and 7,236,748 ordinary Taiwan
International Pte. Ltd. electronics manufacturing shares Thailand
design services United States
April 2000 The DII Group, Inc. Provides electronics 125,536,278 ordinary Austria
manufacturing services shares Brazil
China
Czech Republic
Germany
Ireland
Malaysia
Mexico
United States
</TABLE>
Acquisitions of Manufacturing Facilities
In the first half of fiscal 2001 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. We have completed the following facilities purchases in fiscal 2001:
<TABLE>
<CAPTION>
Date Customer Consideration Facility Location(s)
------------ ----------------------- ------------- ------------------------
<S> <C> <C> <C>
May 2000 Ascom $59.7 million Switzerland
cash
May 2000 Bosch Telecom GmbH $98.3 million Denmark
cash
</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".
Other Strategic Transactions
On May 30, 2000, we entered into a strategic alliance for product
manufacturing with Motorola. This alliance provides incentives for Motorola to
purchase up to $32.0 billion of products and services from us through 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 the Company. Our ability to
achieve any of the anticipated benefits of this relationship is subject to a
number of risks, including our ability to provide services on a competitive
basis and to expand manufacturing resources, as well as demand for Motorola's
products. In connection with this strategic alliance, Motorola paid $100.0
million for an equity instrument that entitles it to acquire 22,000,000 of our
ordinary shares at any time through December 31, 2005 upon meeting targeted
purchase levels or making additional payments to us. The issuance of this equity
14
<PAGE> 15
instrument resulted in a one-time non-cash charge equal to the excess of the
fair value of the equity instrument issued over the $100.0 million proceeds
received. As a result, the one-time non-cash charge amounted to approximately
$286.5 million offset by a corresponding credit to additional paid-in capital in
the first quarter of fiscal 2001. During the term of the strategic alliance, if
Motorola meets targeted purchase levels, no additional payments may be required
by Motorola to acquire 22,000,000 of our ordinary shares. However, there may be
additional non-cash charges of up to $300.0 million over the term of the
strategic alliance.
15
<PAGE> 16
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain statement of
operations data expressed as a percentage of net sales.
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 24, September 30, September 24,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales ......................................... 100.0 100.0 100.0 100.0
Cost of sales ..................................... 91.6 90.2 91.7 89.8
Unusual charges ................................... 0.8 -- 2.0 --
------------- ------------- ------------- -------------
Gross margin ................................. 7.6 9.8 6.3 10.2
Selling, general and administrative ............... 3.5 5.2 3.6 5.6
Goodwill and intangibles amortization ............. 0.4 0.6 0.4 0.7
Unusual charges ................................... 0.8 0.3 7.9 0.1
Interest and other expense, net ................... 0.8 1.4 0.4 1.4
------------- ------------- ------------- -------------
Income (loss) before income taxes ............ 2.1 2.3 (6.0) 2.4
Provision for (benefit from) income taxes ......... 0.3 0.3 (0.1) 0.4
------------- ------------- ------------- -------------
Net income (loss) ............................ 1.8 2.0 (5.9) 2.0
------------- ------------- ------------- -------------
</TABLE>
Net Sales
We derive our net sales from our wide range of service offerings, including
product design, semiconductor design, printed circuit board assembly and
fabrication, enclosures, material procurement, inventory and supply chain
management, plastic injection molding, final system assembly and test, packaging
and distribution.
Net sales for the second quarter of fiscal 2001 increased 112% to $2.9
billion from $1.4 billion for the second quarter of fiscal 2000. Net sales for
the first six months of fiscal 2001 increased 119% to $5.5 billion from $2.5
billion for the same period in fiscal 2000. The increase in net sales was
primarily the result of expanding sales to our existing customer base and, to a
lesser extent, sales to new customers. Our five largest customers in the first
six months of fiscal 2001 and 2000 accounted for approximately 41% and 38% of
net sales, respectively. Our largest customer during the first six months of
fiscal 2001 was Ericsson, accounting for approximately 10% of net sales. No
other customers accounted for more than 10% of net sales in the six months ended
September 30, 2000. See "Certain Factors Affecting Operating Results - The
Majority of our Sales Comes from a Small Number of Customers; If We Lose any of
these Customers, our Sales Could Decline Significantly" and "Certain Factors
Affecting Operating Results - 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".
Gross Profit
Gross profit varies from period to period and is affected by a number of
factors, including product mix, component costs and availability, product life
cycles, unit volumes, startup, expansion and consolidation of manufacturing
facilities, pricing, competition and new product introductions.
Gross margin for the second quarter of fiscal 2001 decreased to 7.6% from
9.8% for the second quarter of fiscal 2000. Gross margin decreased to 6.3% for
the first six months of fiscal 2001 from 10.2% for the same period in fiscal
2000. The decrease in gross margin in the current fiscal year is primarily
attributable to unusual pre-tax charges amounting to $24.3 million in the second
quarter and $108.0 million for the fiscal year to date, which were associated
with the integration costs related to the various business combinations, as more
fully described to follow in "Unusual Charges". Excluding these unusual charges,
gross margins for the second quarter and first six months of fiscal 2001 were
8.4% and 8.3%, respectively. Gross margin decreased due to several factors,
including (i) costs associated with expanding our facilities; (ii) costs
associated with the startup of new customers and new projects, which typically
carry higher levels of underabsorbed manufacturing overhead costs until the
projects reach higher volume production; and
16
<PAGE> 17
(iii) changes in product mix to higher volume projects and final systems
assembly projects, which typically have a lower gross margin.
Increased mix of products that have relatively high materials 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. See "Certain Factors Affecting Operating Results - If We Do Not
Manage Effectively the Expansion of our Operations, Our Business may be
Harmed," and "- We may be Adversely Affected by Shortages of Required
Electronic Components".
Unusual Charges
We recognized unusual pre-tax charges of $541.5 million in the first six
months of fiscal 2001. Of this amount, $493.1 million was recorded in the first
quarter and was comprised of approximately $286.5 million related to the
issuance of an equity instrument to Motorola combined with approximately $206.6
million of expenses resulting from the DII and Palo Alto Products International
business combinations. In the second quarter, unusual pre-tax charges amounted
to approximately $48.4 million associated with the Chatham and Lightning
business combinations.
On May 30, 2000, we entered into a strategic alliance for product
manufacturing with Motorola. See Note I for further information concerning the
strategic alliance. In connection with this strategic alliance, Motorola paid
$100.0 million for an equity instrument that entitles it to acquire 22,000,000
Flextronics ordinary shares at any time through December 31, 2005, upon meeting
targeted purchase levels or making additional payments to us. The issuance of
this equity instrument resulted in a one-time non-cash charge equal to the
excess of the fair value of the equity instrument issued over the $100.0 million
proceeds received. As a result, the one-time non-cash charge amounted to
approximately $286.5 million offset by a corresponding credit to additional
paid-in capital in the first quarter of fiscal 2001.
In connection with the aforementioned business acquisitions, we recorded
aggregate merger-related charges of $255.0 million, which included approximately
$159.0 million of integration expenses and approximately $96.0 million of direct
transaction costs. As discussed below, $108.0 million of the unusual charges
relating to integration expenses have been classified as a component of Cost of
Sales during the first six months of fiscal 2001. The components of the
merger-related unusual charges recorded in the first and second quarters of
fiscal 2001 are as follows (in thousands):
<TABLE>
<CAPTION>
FIRST SECOND
QUARTER QUARTER TOTAL NATURE OF
CHARGES CHARGES CHARGES CHARGES
-------- -------- -------- -------------
<S> <C> <C> <C> <C>
Integration Costs:
Severance .................................... $ 62,487 $ 5,677 $ 68,164 cash
Long-lived asset impairment .................. 46,646 14,373 61,019 non-cash
Inventory write-downs ........................ 11,863 -- 11,863 non-cash
Other exit costs ............................. 12,338 5,650 17,988 cash/non-cash
-------- -------- --------
Total Integration Costs .................. 133,334 25,700 159,034
Direct Transaction Costs:
Professional fees ............................ 50,851 7,247 58,098 cash
Other costs .................................. 22,382 15,448 37,830 cash/non-cash
-------- -------- --------
Total Direct Transaction Costs ........... 73,233 22,695 95,928
-------- -------- --------
Total Merger-Related Unusual Pre-Tax Charges.. $206,567 $ 48,395 $254,962
======== ======== ========
</TABLE>
17
<PAGE> 18
As a result of the consummation of the DII and Palo Alto Products
International business combinations in the first quarter, and the Chatham and
Lightning business combinations in the second quarter, we developed formal plans
to exit certain activities and involuntarily terminate employees. Management's
plan to exit an activity included the identification of duplicate manufacturing
and administrative facilities for closure and the identification of
manufacturing and administrative facilities for consolidation into other
facilities. Management currently anticipates that the integration costs and
activities to which all of these charges relate will be substantially completed
within one year of the commitment dates of the respective exit plans, except for
certain long-term contractual obligations. The following table summarizes the
components of the integration costs and related activity in fiscal 2001:
<TABLE>
<CAPTION>
Long-Lived Other
Asset Exit
Severance Impairment Inventory Costs Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 2000 ............. $ -- $ -- $ -- $ -- $ --
Activities during the year:
First quarter provision ............. 62,487 46,646 11,863 12,338 133,334
Cash charges ........................ (35,800) -- -- (4,753) (40,553)
Non-cash charges .................... -- (46,646) (4,315) -- (50,961)
----------- ----------- ----------- ----------- -----------
Balance at June 30, 2000 .............. 26,687 -- 7,548 7,585 41,820
Activities during the year:
Second quarter provision ............ 5,677 14,373 -- 5,650 25,700
Cash charges ........................ (4,002) -- -- (3,014) (7,016)
Non-cash charges .................... -- (14,373) (7,548) (1,743) (23,664)
----------- ----------- ----------- ----------- -----------
Balance at September 30, 2000 ......... $ 28,362 $ -- $ -- $ 8,478 $ 36,840
=========== =========== =========== =========== ===========
</TABLE>
Of the total pre-tax integration charges, $68.1 million relates to employee
termination costs of which, $17.1 million has been classified as a component of
Cost of Sales. As a result of the exit plans, we identified 1,993 employees to
be involuntarily terminated related to the DII and Palo Alto Products
International business combinations, and 851 employees related to the Chatham
and Lightning business combinations. As of September 30, 2000, approximately
1,387 employees have been terminated, and approximately another 606 employees
have been notified that they are to be terminated upon completion of the various
facility closures and consolidations related to the first quarter business
combinations. Additionally, as of September 30, 2000, approximately 48 employees
have been terminated, and approximately another 803 employees have been notified
of their ensuing termination upon completion of the various facility closures
and consolidations related to the second quarter business combinations. During
the first and second quarters of fiscal 2001, we paid employee termination costs
of approximately $35.8 million and $4.0 million, respectively. The remaining
$28.4 million of employee termination costs is classified as accrued liabilities
as of September 30, 2000 and is expected to be paid out within one year of the
commitment dates of the respective exit plans.
The unusual pre-tax charges include $61.0 million for the write-down of
long-lived assets to fair value. Of these charges, approximately $46.6 million
and $14.4 million were written down in the first and second quarters of fiscal
2001, respectively. These amounts have been classified as a component of Cost of
Sales. Included in the long-lived asset impairment are charges of $58.1 million,
which relate to property, plant and equipment associated with the various
manufacturing and administrative facility closures which were written down to
their net realizable value based on their estimated sales price. Certain
facilities will remain in service until their anticipated disposal dates
pursuant to the exit plans. Since the assets will remain in service from the
date of the decision to dispose of these assets to the anticipated disposal
date, the assets will be depreciated over this period. The impaired long-lived
assets consisted primarily of machinery and equipment of $48.8 million and
building and improvements of $9.3 million. The long-lived asset impairment also
includes the write-off of the remaining goodwill and other intangibles related
to certain closed facilities of $2.9 million.
The unusual pre-tax charges also include approximately $29.9 million for
losses on inventory write-downs and other exit costs, which resulted from the
integration plans. This amount has been classified as a component of Cost of
Sales. We have written off and disposed of approximately $11.9 million of
inventory related to the first quarter business combinations. The $18.0 million
of other exit costs relates primarily to items such as lease termination costs,
incremental amounts of uncollectible accounts receivable, warranty-related
accruals, legal and other exit costs, incurred directly as a result of the
various exit plans. Of this amount, $12.3 million related to the DII and Palo
Alto Products International business combinations and $5.7 million related to
the Chatham and Lightning transactions.
18
<PAGE> 19
We paid approximately $4.8 million and $3.0 million of other exit costs during
the first and second quarters of fiscal 2001, respectively. Additionally,
approximately $1.7 million of other exit costs were written off during the
second quarter. The remaining $8.5 million is classified in accrued liabilities
as of September 30, 2000 and is expected to be paid out by the end of fiscal
2001, except for certain long-term contractual obligations.
The direct transaction costs include approximately $58.1 million of costs
primarily related to investment banking and financial advisory fees as well as
legal and accounting costs associated with the transactions. Of these charges,
approximately $50.9 million was associated with the first quarter business
combinations and $7.2 million related to the second quarter transactions. Other
direct transaction costs which totaled approximately $37.8 million was mainly
comprised of accelerated debt prepayment expense, accelerated executive stock
compensation, benefit-related expenses and other merger-related costs. We paid
approximately $70.2 million and $20.7 million of the direct transaction costs
during the first and second quarters of fiscal 2001. The remaining $5.0 million
is classified in accrued liabilities as of September 30, 2000 and is expected to
be substantially paid out by the end of fiscal 2001.
We incurred unusual pre-tax charges of $3.5 million in the second quarter of
fiscal 2000, related to the Kyrel EMS Oyj business combination. The
merger-related 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.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") for the second quarter
of fiscal 2001 increased to $104.3 million from $72.2 million in the same
quarter of fiscal 2000, but decreased as a percentage of net sales to 3.5% for
the second quarter of fiscal 2001 compared to 5.2% for the same quarter of
fiscal 2000. SG&A increased to $196.6 million in the first six months of fiscal
2001 from $138.7 million in the same period of fiscal 2000. The dollar increase
in SG&A was primarily due to the continued investment in infrastructure such as
sales, marketing, supply-chain management, information systems and other related
corporate and administrative expenses. The decline in SG&A as a percentage of
net sales reflects the increases in our net sales, as well as our continued
focus on controlling our operating expenses.
Goodwill and Intangibles Amortization
Goodwill and intangibles asset amortization for the second quarter of fiscal
2001 increased to $12.5 million from $8.8 million for the same period of fiscal
2000. Goodwill and intangibles asset amortization was $21.9 million and $18.5
million for the first six months of fiscal 2001 and fiscal 2000, respectively.
The increase in goodwill and intangible assets amortization in the second
quarter and first six months of fiscal 2001 was primarily a result of goodwill
acquired in connection with the various purchase acquisitions during fiscal 2001
and increased amortization of debt issuance costs associated with the senior
notes offering in June 2000. See Note H - Senior Subordinated Notes.
Interest and Other Expense, Net
Interest and other expense, net was $23.8 million for the second quarter of
fiscal 2001 compared to $19.3 million for the corresponding quarter of fiscal
2000. The increase in interest and other expense, net in the second quarter of
fiscal 2001 is attributable to increased interest expense associated with
increased borrowings, primarily due to the issuance of approximately $645.0
million of senior subordinated notes in June 2000. Interest and other expense,
net was $19.8 million for the first six months of fiscal 2001 compared to $33.8
million for the same period in fiscal 2000. The decrease in interest and other
expense, net for the first six months of fiscal 2001 was primarily attributable
to gains recorded on sale of marketable equity securities, which was offset by
increased interest expense associated with our increased borrowings.
Provision for Income Taxes
Our consolidated effective tax rate was 14.2% and (2.4%) for the second
quarter and first six months of fiscal 2001, compared to 13.1% and 14.8% for the
comparable periods of fiscal 2000. Excluding the unusual charges, the effective
income tax rate in the second quarter and first six months of fiscal 2001 was
13.4% and 13.1%, respectively. The consolidated effective tax rate for a
particular period varies depending on the mix of earnings,
19
<PAGE> 20
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. See "Certain
Factors Affecting Operating Results - We are Subject to the Risk of Increased
Taxes".
Liquidity and Capital Resources
As of September 30, 2000, we had cash and cash equivalents totaling $540.8
million, total bank and other debts totaling $1.4 billion and $228.9 million
available for future borrowing under our credit facility subject to compliance
with certain financial covenants.
Cash used in operating activities was $356.0 million for the first six
months of fiscal 2001 compared to cash provided by operating activities of $50.6
million for first six months of fiscal 2000. Cash provided by operating
activities decreased in the first six months of fiscal 2001 from first six
months of fiscal 2000 because of significant increases in accounts receivable
and inventory, partially offset by an increase in accounts payable.
Accounts receivable, net of allowance for doubtful accounts increased to
$1.6 billion at September 30, 2000 from $969.8 million at March 31, 2000. The
increase in accounts receivable was primarily due to an increase of 119% in net
sales for the first six months of fiscal 2001 over the comparable period in the
prior year.
Inventories increased to $1.6 billion at September 30, 2000 from $1.1
billion at March 31, 2000. The increase in inventories was primarily the result
of increased purchases of material to support the growing sales combined with
the inventory acquired in connection with the manufacturing facility purchases
in the first six months of fiscal 2001.
Cash used in investing activities was $513.1 million and $254.2 million for
the first six months of fiscal 2001 and fiscal 2000, respectively. Cash used in
investing activities for the first six months of fiscal 2001 was primarily
related to (i) capital expenditures of $483.2 million to purchase equipment and
for continued expansion of manufacturing facilities, (ii) payment of $65.4
million for acquisitions of businesses and manufacturing facilities and, (iii)
payment of $15.3 million for minority investments in the stock of various
technology companies, offset by (iv) $13.2 million in proceeds from the sale of
equipment and (v) $37.6 million in proceeds from the sale of marketable equity
securities. Cash used in investing activities for the first six months of fiscal
2000 consisted primarily of (i) capital expenditures of $175.5 million to
purchase equipment, (ii) payment of $89.4 million related for acquisitions of
businesses and manufacturing facilities, and (iii) payment of $20.5 million for
minority investments in the stocks of various technology companies, offset by
proceeds of $12.6 million and $26.1 million related to the sale of equipment and
the sale of certain subsidiaries, respectively.
Net cash provided by financing activities was $769.5 million and $112.7
million for the first six months of fiscal 2001 and fiscal 2000, respectively.
Cash provided by financing activities for the first six months of fiscal 2001
primarily resulted from $1.1 billion of net proceeds from long-term debt and
bank borrowings, $22.6 million in proceeds from stock issued under stock plans,
$442.9 million of net proceeds from equity offerings and $100.0 million of
proceeds from an equity instrument issued to Motorola, offset by $306.2 million
and $570.3 million of short-term credit facility and long-term debt repayments,
respectively.
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. We also 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 and may require the payment of cash. 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 shipments and changes in
volumes of customer orders.
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 capital
equipment lease financings. We believe that our existing cash balances, together
with anticipated cash flows from operations, borrowings available under our
credit facility and the net proceeds from our recent equity offering and private
offering of senior subordinated notes will be sufficient to fund our operations
through 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 its acquisitions and anticipated growth. Such financings
and other transactions
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<PAGE> 21
may not be available on terms acceptable or at all. See "Certain Factors
Affecting Operating Results - If We Do not Manage Effectively the Expansion of
our Operations, our Business may be Harmed".
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no material changes during the three and six months ended
September 30, 2000 to our exposure to market risk for changes in interest rates
and foreign currency exchange rates.
CERTAIN FACTORS EFFECTING OPERATING RESULTS
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 more than tripled
in size over the last year as a result of internal growth and acquisitions. This
growth is likely to strain considerably 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 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, Palo Alto Products International,
Chatham and Lightning, we recorded one-time charges of approximately $255.0
million, and in connection with the issuance of an equity instrument to Motorola
relating to our alliance with Motorola, we recorded a one-time non-cash charge
of approximately $286.5 million.
WE MAY ENCOUNTER DIFFICULTIES WITH ACQUISITIONS, WHICH COULD HARM OUR BUSINESS.
In the last quarter, we completed a significant number of acquisitions of
businesses and facilities, including our acquisitions of Chatham and Lightning.
We 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
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<PAGE> 22
complicated by geographic distances. The integration of acquired businesses may
not be successful and could result in disruption to other parts of our business.
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.
WE MAY BE ADVERSELY AFFECTED BY 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. Component shortages have
recently 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 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 could harm our gross margins and operating
income.
WE ARE DEPENDENT ON THE CONTINUING TREND OF OUTSOURCING BY OEM'S.
A substantial factor in our revenue growth is attributable to the transfer
of manufacturing and supply base management activities from our OEM customers.
Future growth is partially dependent on new outsourcing opportunities. To the
extent that these opportunities are not available, our future growth would be
unfavorably impacted. These outsourcing opportunities may include the transfer
or assets such as facilities, equipment and inventory.
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;
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<PAGE> 23
- changes in demand for customers' products and product obsolescence;
- our ability to manage the timing and amount of our procurement of components
to avoid delays in production and excess inventory levels;
- the timing of our expenditures in anticipation of future orders;
- our effectiveness in managing manufacturing processes;
- 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 calendar year in
connection with the holiday season. As a result, we have historically
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 significant
percentage of our net sales in recent periods. Our five largest
customers in the first six months of fiscal 2001 and 2000 accounted for
approximately 41% and 38% of net sales, respectively. Our largest
customer during the first six months of fiscal 2001 was Ericsson accounting for
approximately 10% of net sales. No other customers accounted for more than 10%
of net sales in the six months ended September 30, 2000. 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.
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<PAGE> 24
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, have
substantially greater market share, and manufacturing, financial, and marketing
resources than us.
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.
OUR CUSTOMERS MAY BE ADVERSELY AFFECTED BY RAPID TECHNOLOGICAL CHANGE.
Our customers compete in markets that are characterized by rapidly changing
technology, evolving industry standards and continuous improvement in products
and services. These conditions frequently result in short product life cycles.
Our success will depend largely on the success achieved by our customers in
developing and marketing their products. If technologies or standards supported
by our customers' products become obsolete or fail to gain widespread commercial
acceptance, our business could be adversely affected.
WE ARE SUBJECT TO THE RISK OF INCREASED TAXES.
We have structured our operations in a manner designed to maximize income in
countries where (1) tax incentives have been extended to encourage foreign
investment or (2) 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 of businesses 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, Denmark, Finland, France, Germany, Holland, Hungary, Ireland,
Italy, Malaysia, Mexico, Norway, Scotland, Sweden, Switzerland, Taiwan,
Thailand, 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;
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<PAGE> 25
- greater difficulty in collecting accounts receivable;
- the burdens and costs of compliance with a variety of foreign laws;
- political and economic instability;
- increases in duties and taxation;
- imposition of restrictions on currency conversion or the transfer of funds;
- limitations on imports or exports;
- expropriation of private enterprises; and
- a potential reversal of current tax or other 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 euro, the krona 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 large 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. In addition, in order to manage our growth, we will need
to recruit and retain additional skilled management personnel and if we are not
able to do so, our business and our ability to continue to grow could be harmed.
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
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<PAGE> 26
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.
PART II - OTHER INFORMATION
ITEMS 1-3. Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
We held our Annual General Meeting of shareholders on September 21, 2000,
at which the following matters were acted upon:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1a) Re-election of Mr. Michael J. Moritz to the Board of Directors. For: 136,271,082
Against: 289,535
1b) Re-election of Mr. Patrick Foley to the Board of Directors. For: 136,277,244
Against: 283,373
2) Adoption of the directors' report, auditors' report and audited accounts for the fiscal year ended For: 136,280,357
March 31, 2000. Against: 25,659
Abstain: 254,601
3) Appointment of Arthur Andersen as our independent auditors for the fiscal year ended March 31, For: 136,303,883
2001. Against: 62,135
Abstain: 194,599
4) Approval of the increase in our authorized share capital to 1,500,000,000 ordinary shares. For: 127,469,945
Against: 8,803,066
Abstain: 287,606
5) Approval of an amendment to our 1993 Share Option Plan relating to the increase in the maximum For: 108,954,208
number of shares authorized for issuance to 25,400,000 ordinary shares and approval of Against: 27,105,041
certain modifications to the 1993 Share Option Plan. Abstain: 501,368
6) Approval of an amendment to our 1997 Employee Share Purchase Plan relating to the increase in For: 135,167,639
the maximum number of shares authorized for issuance to 1,200,000 ordinary shares. Against: 917,781
Abstain: 475,197
7) Approval of grant to the Board of Directors of authority to allot and issue or grant options in For: 134,784,300
respect of ordinary shares. Against: 1,136,150
Abstain: 640,167
8) Approval of grant to the Board of Directors of authority to allot and issue bonus share issuances. For: 135,298,974
Against: 881,811
Abstain: 379,832
</TABLE>
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<PAGE> 27
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.01 Agreement and Plan of Reorganization dated July 31, 2000 among
the Registrant, Chatham Acquisition Corporation, and Chatham
Technologies, 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 the event reported on September 15, 2000.)
2.02 Merger Agreement dated August 10, 2000 among the Registrant, JIT
Holdings Limited, Goh Thiam Poh Tommie and Goh Mui Teck William,
as amended. (Incorporated by reference to Exhibit 2.4 of the
Registrant's Registration Statement on Form S-3, number
333-46770, filed September 27, 2000.)
10.01 Credit Agreement dated as of June 15, 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).
27.01 Financial Data Schedule
(b) Reports on Form 8-K
On September 15, 2000 we filed a current report on Form 8-K, including the
Agreement and Plan of Merger, relating to the completion of our acquisition of
Chatham Technologies, Inc.
On September 20, 2000, we filed a current report on Form 8-K, including the
supplemental consolidated financial statements prepared to give retroactive
effect to the mergers with Chatham Technologies, Inc. and Lightning Metal
Specialities, Inc., both completed on August 31, 2000.
On September 20, 2000, we filed a current report on Form 8-K including our
consolidated financial statements as of March 31, 1999 and 2000 and for each of
the three years in the period ended March 31, 2000, giving retroactive effect
to the mergers with The DII Group, Inc. and with Palo Alto Products
International, Pte. Ltd.
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<PAGE> 28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
FLEXTRONICS INTERNATIONAL LTD.
(Registrant)
Date: November 13, 2000 /s/ ROBERT R.B. DYKES
------------------------------------
Robert R.B. Dykes
President, Systems Group
and Chief Financial Officer
(principal financial and
accounting officer)
28
<PAGE> 29
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
2.01 Agreement and Plan of Reorganization dated July 31, 2000 among
the Registrant, Chatham Acquisition Corporation, and Chatham
Technologies, 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 the event reported on September 15, 2000.)
2.02 Merger Agreement dated August 10, 2000 among the Registrant, JIT
Holdings Limited, Goh Thiam Poh Tommie and Goh Mui Teck William,
as amended. (Incorporated by reference to Exhibit 2.4 of the
Registrant's Registration Statement on Form S-3, number
333-46770, filed September 27, 2000.)
10.01 Credit Agreement dated as of June 15, 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).
27.01 Financial Data Schedule
</TABLE>
