<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A-1
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): APRIL 3, 2000
FLEXTRONICS INTERNATIONAL LTD.
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(Exact Name of Registrant as Specified in Its Charter)
SINGAPORE
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(State or Other Jurisdiction of Incorporation)
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<S> <C>
0-23354 NOT APPLICABLE
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(Commission (IRS Employer
File Number) Identification No.)
11 UBI ROAD 1, #07-01/02, MEIBAN INDUSTRIAL BUILDING, SINGAPORE 408723
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(Address of Principal Executive Offices) (Zip Code)
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(65) 844-3366
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(Registrant's Telephone Number, Including Area Code)
NOT APPLICABLE
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(Former Name or Former Address, if Changed Since Last Report)
<PAGE> 2
On April 18, 2000, Flextronics International Ltd. (the "Company") filed
a Form 8-K to report its acquisition of The DII Group, Inc. ("DII"). Pursuant to
Item 7 of Form 8-K, the Company indicated that it would file certain financial
information no later than the date required by Item 7 of Form 8-K. This
Amendment No. 1 is filed to provide the required financial information.
ITEM 7: FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
The following financial statements of DII and its subsidiaries are
filed herewith:
Independent Auditors' Report
Consolidated Balance Sheets as of January 2, 2000 and January 3, 1999
Consolidated Statements of Operations for each of the three fiscal
years in the period ended January 2, 2000
Consolidated Statements of Stockholders' Equity for each of the three
fiscal years in the period ended January 2, 2000
Consolidated Statements of Cash Flows for each of the three fiscal
years in the period ended January 2, 2000
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
The Board of Directors
The DII Group, Inc.:
We have audited the accompanying consolidated balance sheets of the DII Group,
Inc. and subsidiaries (the "Company") as of January 2, 2000 and January 3, 1999,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended January 2, 2000.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of January 2, 2000
and January 3, 1999, and the results of its operations and its cash flows for
each of the three years in the period ended January 2, 2000 in conformity with
accounting principles generally accepted in the United States of America.
Denver, Colorado
March 28, 2000
<PAGE> 4
THE DII GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE DATA)
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<CAPTION>
JANUARY 2, JANUARY 3,
2000 1999
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 103,736 $ 55,972
Accounts receivable - net of allowance for doubtful accounts
of $7,275 and $5,900 209,906 153,861
Inventories 137,131 66,745
Deferred income taxes 7,440 7,249
Other assets 21,674 11,570
---------- ----------
Total current assets 479,887 295,397
---------- ----------
PROPERTY, PLANT AND EQUIPMENT - net 438,789 326,226
GOODWILL - net of accumulated amortization of $13,334
and $12,130 127,922 97,475
DEBT ISSUE COSTS - net of accumulated amortization of $1,901
and $2,247 7,382 9,319
DEFERRED INCOME TAXES 18,668 11,428
OTHER ASSETS 39,327 7,464
---------- ----------
TOTAL $1,111,975 $ 747,309
========== ==========
</TABLE>
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 3,
2000 1999
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 206,882 $ 122,536
Accrued expenses 52,185 32,414
Accrued compensation and benefits 19,877 11,720
Accrued interest payable 4,691 6,769
Current portion of capital lease obligations 475 5,617
Current portion of long-term debt 116,459 29,031
----------- -----------
Total current liabilities 400,569 208,087
----------- -----------
LONG-TERM DEBT - net of current portion 150,000 271,864
CONVERTIBLE SUBORDINATED NOTES PAYABLE -- 86,235
CAPITAL LEASE OBLIGATION - net of current portion 665 1,820
OTHER 11,345 3,582
COMMITMENTS AND CONTINGENT LIABILITIES (Notes 2, 5, 9 and 15)
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 5,000,000 shares authorized;
none issued -- --
Common stock, $0.01 par value; 90,000,000 shares authorized;
38,250,490 and 26,169,344 shares issued;
and 36,603,490 and 24,522,344 shares outstanding 383 262
ADDITIONAL PAID-IN CAPITAL 434,433 124,410
RETAINED EARNINGS 151,453 93,071
TREASURY STOCK - at cost; 1,647,000 shares (28,544) (28,544)
ACCUMULATED OTHER COMPREHENSIVE LOSS (3,245) (4,139)
DEFERRED COMPENSATION (5,084) (9,339)
----------- -----------
Total stockholders' equity 549,396 175,721
----------- -----------
TOTAL $ 1,111,975 $ 747,309
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
THE DII GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA)
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<TABLE>
<CAPTION>
For the Fiscal Years
---------------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES:
Systems assembly and distribution $ 927,942 $ 589,286 $ 514,078
Printed circuit boards 319,221 208,696 128,107
Other 92,780 127,561 137,418
----------- ----------- -----------
Total net sales 1,339,943 925,543 779,603
----------- ----------- -----------
COST OF SALES:
Cost of sales 1,158,165 786,611 647,663
Unusual charges -- 70,340 --
----------- ----------- -----------
Total cost of sales 1,158,165 856,951 647,663
----------- ----------- -----------
Gross profit 181,778 68,592 131,940
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSES 88,070 81,160 68,783
PROVISION FOR DOUBTFUL ACCOUNTS 5,207 854 1,237
UNUSUAL CHARGES -- 2,454 --
INTEREST INCOME (2,760) (2,894) (1,744)
INTEREST EXPENSE 22,401 21,680 10,661
AMORTIZATION EXPENSE 5,161 4,661 3,968
OTHER - Net 40 (791) (630)
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 63,659 (38,532) 49,665
INCOME TAX EXPENSE (BENEFIT) 5,277 (21,500) 14,345
----------- ----------- -----------
NET INCOME (LOSS) $ 58,382 $ (17,032) $ 35,320
=========== =========== ===========
EARNINGS (LOSS) PER COMMON SHARE:
Basic $ 1.91 $ (0.68) $ 1.43
=========== =========== ===========
Diluted $ 1.81 $ (0.68) $ 1.26
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES AND EQUIVALENTS OUTSTANDING:
Basic 30,598 24,888 24,719
=========== =========== ===========
Diluted 32,497 24,888 30,702
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
THE DII GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
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<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED COMMON PAID-IN RETAINED
STOCK STOCK CAPITAL EARNINGS
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 29, 1996 $ -- $ 239 $ 91,857 $ 74,783
Net income 35,320
Foreign currency translation adjustments
Net comprehensive income
Issuance of 1,180,136 shares of common stock under employee stock plans 12 6,888
Tax benefit on common stock issued under employee stock plans 6,029
Treasury stock, at cost (192,500 shares)
Amortization of deferred employee stock compensation
Deferred employee stock compensation 12,698
Issuance of 212,332 shares of common stock under deferred employee
stock compensation plan 2 (2) --
Issuance of 7,616 shares of common stock under directors' stock plan 142
------- --------- --------- ---------
BALANCE AT DECEMBER 28, 1997 253 117,612 110,103
Net loss (17,032
Foreign currency translation adjustments
Net comprehensive loss
Issuance of 555,935 shares of common stock under employee stock plans 6 6,150
Tax benefit on common stock issued under employee stock plans 1,635
Treasury stock, at cost (1,454,500 shares)
Amortization of deferred employee stock compensation
Deferred employee stock compensation (1,172)
Issuance of 274,836 shares of common stock under deferred employee stock
compensation plan 3 (3)
Issuance of 8,859 shares of common stock under directors' stock plan 173
Conversion of convertible notes (800 shares) 15
------- --------- --------- ---------
BALANCE AT JANUARY 3, 1999 262 124,410 93,071
Net income 58,382
Foreign currency translation adjustments
Net comprehensive income
Issuance of 571,097 shares of common stock under employee stock plans 6 6,388
Tax benefit on common stock issued under employee stock plans 3,102
Public stock offering (6,900,000 shares), net of costs of issuance of
$11,951,000 69 215,680
Amortization of deferred employee stock compensation
Deferred employee stock compensation (361)
Issuance of 5,550 shares of common stock under directors' stock plan 186
Conversion of convertible notes (4,594,064 shares) 46 85,028
------- --------- --------- ---------
BALANCE AT JANUARY 2, 2000 $ -- $ 383 $ 434,433 $ 151,453
======= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
TREASURY COMPREHENSIVE DEFERRED
STOCK LOSS COMPENSATION TOTAL
----------- ------------- ------------ ---------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 29, 1996 $ -- $ (3,849) $ (3,993) $ 159,037
Net income 35,320
Foreign currency translation adjustments (246) (246)
Net comprehensive income 35,074
Issuance of 1,180,136 shares of common stock under employee stock plans 6,900
Tax benefit on common stock issued under employee stock plans 6,029
Treasury stock, at cost (192,500 shares) (4,209) (4,209)
Amortization of deferred employee stock compensation 4,375 4,375
Deferred employee stock compensation (12,698) --
Issuance of 212,332 shares of common stock under deferred employee
stock compensation plan
Issuance of 7,616 shares of common stock under directors' stock plan 142
--------- --------- --------- ---------
BALANCE AT DECEMBER 28, 1997 (4,209) (4,095) (12,316) 207,348
Net loss (17,032)
Foreign currency translation adjustments (44) (44)
Net comprehensive loss (17,076)
Issuance of 555,935 shares of common stock under employee stock plans 6,156
Tax benefit on common stock issued under employee stock plans 1,635
Treasury stock, at cost (1,454,500 shares) (24,335) (24,335)
Amortization of deferred employee stock compensation 1,805 1,805
Deferred employee stock compensation 1,172 --
Issuance of 274,836 shares of common stock under deferred employee
stock compensation plan --
Issuance of 8,859 shares of common stock under directors' stock plan 173
Conversion of convertible notes (800 shares) 15
--------- --------- --------- ---------
BALANCE AT JANUARY 3, 1999 (28,544) (4,139) (9,339) 175,721
Net income 58,382
Foreign currency translation adjustments 894 894
Net comprehensive income 59,276
Issuance of 571,097 shares of common stock under employee stock plans 6,394
Tax benefit on common stock issued under employee stock plans 3,102
Public stock offering (6,900,000 shares), net of costs of issuance of
$11,951,000 215,749
Amortization of deferred employee stock compensation 3,894 3,894
Deferred employee stock compensation 361 --
Issuance of 5,550 shares of common stock under directors' stock plan 186
Conversion of convertible notes (4,594,064 shares) 85,074
--------- --------- --------- ---------
BALANCE AT JANUARY 2, 2000 $ (28,544) $ (3,245) $ (5,084) $ 549,396
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 7
THE DII GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
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<TABLE>
<CAPTION>
FOR THE FISCAL YEARS
1999 1998 1997
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<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 58,382 $ (17,032) $ 35,320
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and fixed asset impairment charges 39,176 81,077 18,374
Amortization and goodwill impairment charges 5,161 5,262 3,968
Provision for doubtful receivables 5,207 854 1,237
Deferred income taxes (4,328) (17,012) 2,179
Loss (gain) on sales of equipment (49) 92 (11)
Loss on business divestitures 51 -- --
Stock plan compensation 4,080 1,978 4,517
Other (1,870) 3,511 (4,637)
Changes in operating assets and liabilities, excluding effects of business
acquisitions and divestitures:
Accounts receivable (60,981) (15,737) (52,297)
Inventories (84,184) 10,782 (26,474)
Other assets (11,252) (4,371) (3,472)
Accounts payable 84,487 12,591 50,619
Accrued expenses 24,975 6,110 22,284
--------- --------- ---------
Net cash provided by operating activities 58,855 68,105 51,607
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment of purchase price adjustment (34,127) -- --
Payments for business acquisitions, net of cash acquired (26,095) (53,895) (7,939)
Investment in unconsolidated companies (20,507) -- --
Additions to property, plant, and equipment (160,376) (153,891) (121,269)
Proceeds from sales of property, plant, and equipment 12,620 3,362 2,717
Proceeds from business divestitures 35,871 -- --
--------- --------- ---------
Net cash used in investing activities (192,614) (204,424) (126,491)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of line of credit (12,500)
Repayments of capital leases (6,297) (3,375) (2,455)
Repayments of long-term debt (29,032) (5,593) (10,219)
Proceeds from issuance of long-term debt 7,369 137,500 150,000
Debt issuance costs (923) (3,076) (5,335)
Proceeds from equity offering 215,749 -- --
Proceeds from stock issued under stock plans 6,394 6,156 6,900
Payments to acquire treasury stock -- (24,335) (4,209)
--------- --------- ---------
Net cash provided by financing activities 180,760 107,277 134,682
--------- --------- ---------
Effect of exchange rate changes on cash 763 (53) 259
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 47,764 (29,095) 60,057
Cash and cash equivalents at beginning of year 55,972 85,067 25,010
--------- --------- ---------
Cash and cash equivalents at end of year $ 103,736 $ 55,972 $ 85,067
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 8
NOTE 1 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BACKGROUND
The Dii Group, Inc. was incorporated in March 1993 as Dovatron
International, Inc., in order to serve as a holding company to effectuate the
spin-off of Dover Corporation's electronic outsourcing business, which occurred
on May 21, 1993. The Dii Group, Inc. and its subsidiaries are referred herein
collectively as the "Dii Group" or the "Company."
The Company's fiscal year consists of either a 52-week or 53-week
period ending on the Sunday nearest to December 31. Accordingly, the
accompanying consolidated financial statements are presented as of January 2,
2000 and January 3, 1999, and for the 52 weeks ended January 2, 2000, the 53
weeks ended January 3, 1999 and the 52 weeks ended December 28, 1997. Each
fiscal year is referred to herein as fiscal 1999, 1998 and 1997, respectively.
(b) DESCRIPTION OF BUSINESS
The Dii Group is a leading provider of electronics design and
manufacturing services. The Company provides the following related products and
services to customers in the global electronics manufacturing industry:
Design and Semiconductor Services -- The Company provides printed
circuit board design services, as well as design for manufacturability and test
and total life cycle planning.
The Company provides the following application-specific integrated
circuit ("ASIC") design services to its OEM customers:
Conversion services from field programmable gate arrays ("FPGAs") to
ASICs. These services focus on designs that utilize primarily digital
signals, with only a small amount of analog signals.
Design services for mixed-signal ASICs. These services focus on designs
that utilize primarily analog signals, with only a small amount of
digital signals.
Silicon integration design services. These services utilize silicon
design modules that are used to accelerate complex ASIC designs,
including system-on-a-chip.
The Company utilizes external foundry suppliers for its customers'
silicon manufacturing requirements, thereby using a "fabless" manufacturing
approach.
By integrating the combined capabilities of design and semiconductor
services, the Company can compress the time from product concept to market
introduction and minimize product development costs.
Printed Circuit Boards -- The Company manufactures high density,
complex multilayer printed circuit boards and back panels.
Systems Assembly and Distribution -- The Company assembles complex
electronic circuits and provides final system configuration ("box build") and
distribution. These services are commonly referred to as contract electronics
manufacturing ("CEM").
By offering comprehensive and integrated design and manufacturing
services, the Company believes that it is better able to differentiate its
product and service offerings from those of its competitors, develop long-term
relationships with its customers, and enhance profitability.
<PAGE> 9
NOTE 1 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED
Process Technologies - The Company also had a non-core business unit
known as Process Technologies International ("PTI"). During Fiscal 1999, the
Company divested of this non-core business unit, in order to sharpen its focus
on the Company's core businesses of custom semiconductor design, printed wiring
board design and fabrication, and systems assembly and distribution. The Company
received cash proceeds of $35,871 and recognized a pretax loss of $51 resulting
from this divestiture.
Operating results may be affected by a number of factors including the
economic conditions in the markets the Company serves; price and product
competition; the level and the timing of orders; product mix; the amount of
automation employed on specific manufacturing projects; efficiencies achieved by
inventory management; fixed
asset utilization; the experience in manufacturing a particular
product; customer product delivery requirements; shortages of components or
experienced labor; the integration of acquired businesses; start-up costs
associated with adding new geographical locations; expenditures required for
research and development; and failure to introduce, or lack of market acceptance
of, new processes, services, technologies, and products on a timely basis. Each
of these factors has had in the past, and may have in the future, an adverse
effect on the Company's operating results.
The Dii Group has actively pursued acquisitions in furtherance of its
strategy to be the fastest and most comprehensive provider of custom design,
engineering and manufacturing services for original equipment customers.
Acquisitions involve numerous risks, including difficulties in the assimilation
of the operations, technologies, and products and services of the acquired
companies; the diversion of management's attention from other business concerns;
risks of entering markets in which the Dii Group has no or limited direct prior
experience and where competitors in such markets have stronger market positions;
and the potential loss of key employees of the acquired company. The integration
of certain operations following an acquisition requires the dedication of
management resources, which may distract attention from the day-to-day business
of the Company.
A majority of the Company's sales are to customers in the electronics
industry, which is subject to rapid technological change, product obsolescence,
and price competition. The factors affecting the electronics industry, in
general, or any of the Company's major customers, in particular, could have a
material adverse effect on the Company's operating results. The electronics
industry has historically been cyclical and subject to significant economic
downturns at times, which are characterized by diminished product demand,
accelerated erosion of average selling prices, and overcapacity. The Company's
customers also are subject to short product life cycles and pricing and margin
pressures, which risks are in turn borne by the Company. The Company seeks a
well- balanced customer profile across most sectors of the electronics industry
in order to reduce exposure to a downturn in any particular sector. The primary
sectors within the electronics industry served by the Company are office
automation, mainframes and mass storage, data communications, computers and
peripherals, telecommunications, industrial and instrumentation, and medical.
The Company offers manufacturing capabilities in three major
electronics markets of the world (North America, Europe and Asia). The Company's
operations located outside of the United States generated approximately 58%,
43%, and 42% of total net sales in fiscal 1999, 1998, and 1997, respectively.
The Company's international operations subject the Company to the risks of doing
business abroad, including currency fluctuations, export duties, import controls
and trade barriers, restrictions on the transfer of funds, greater difficulty in
accounts receivable collection, burdens of complying with a wide variety of
foreign laws, and, in certain parts of the world, political and economic
instability.
(c) BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany accounts and
transactions are eliminated.
<PAGE> 10
NOTE 1 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED
(d) TRANSLATION OF FOREIGN CURRENCIES
The Company's primary functional currency is the U.S. dollar. Foreign
subsidiaries with a functional currency other than the U.S. dollar translate net
assets at year-end exchange rates, while income and expense accounts are
translated at weighted-average exchange rates. Adjustments resulting from these
translations are reflected in stockholders' equity as cumulative foreign
currency translation adjustments. Some transactions of the Company and its
subsidiaries are made in currencies different from their functional currencies.
Gains and losses from these transactions are included in income as they occur.
To date, the effect on income of such amounts has been immaterial.
In order to minimize foreign exchange transaction risk, the Company
selectively hedges certain of its foreign exchange exposures through forward
exchange contracts, principally relating to non-functional currency monetary
assets and liabilities. Gains and losses resulting from these agreements are
deferred and reflected as adjustments to the related foreign currency
transactions. The strategy of selective hedging can reduce the Company's
vulnerability to certain of its foreign currency exposures, and the Company
expects to continue this practice in the future. To date, the Company's hedging
activity has been immaterial, and there were no open foreign exchange contracts
as of the balance sheet dates included in the accompanying Consolidated
Financial Statements.
(e) CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
investment instruments with original maturities of three months or less to be
cash equivalents.
(f) INVENTORIES
Inventory costs include material, labor, and overhead. An allowance is
provided to reduce inventories to the lower of cost or market. Consideration is
given to deterioration, obsolescence, and other factors when establishing the
allowance. Cost is determined using the first-in, first-out (FIFO) method.
(g) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment includes the cost of land, buildings,
machinery and equipment, and significant improvements of existing plant and
equipment. Expenditures for maintenance, repairs, and minor renewals are
expensed as incurred. Plant and equipment are depreciated on straight-line
methods over the estimated useful lives of the assets, which are 30 years for
buildings and 3 to 10 years for machinery and equipment.
(h) GOODWILL AND DEBT ISSUANCE COSTS
Goodwill arising from business acquisitions is amortized on the
straight-line basis over 15 to 30 years. Debt issuance costs are amortized on
the straight-line basis over the term of the related debt.
(i) IMPAIRMENT OF ASSETS
Long-lived assets, including goodwill, are reviewed for impairment if
events or circumstances indicate the carrying amount of these assets may not be
recoverable. If this review indicates that these assets will not be recoverable,
based on the forecasted undiscounted future operating cash flows expected to
result from the use of these assets and their eventual disposition, the
Company's carrying value of these assets is reduced to fair value. Management
does not believe current events or circumstances indicate that its long-lived
assets, including goodwill, are impaired as of January 2, 2000.
<PAGE> 11
NOTE 1 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED
(j) INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(k) EMPLOYEE BENEFIT PLANS
The Company maintains various defined contribution plans for employees
who have completed certain length of service and age requirements. Participants
may elect to contribute a certain portion of their compensation on a pre-tax
basis to these plans. The Company matches various percentages of the
participants' contributions up to a maximum percentage of their compensation.
In connection with the purchase of a manufacturing facility in Germany
in fiscal 1998, the Company assumed a defined benefit pension plan for the
employees of that facility. As of January 2, 2000, plan assets approximated the
accumulated benefit obligation. The Company's pension expense for fiscal 1999
and 1998 was $224 and $66, respectively.
Additionally, the Company provides a nonqualified deferred compensation
plan for select senior executives and directors of the Company. Contributions to
the deferred compensation plan are held in an irrevocable "rabbi trust." The
participants elect to make contributions of portions of their cash and incentive
stock compensation on a pretax basis to the plan. The Company matches various
percentages of the participants' cash compensation contributions up to a maximum
percentage of such contributions. The Company accounts for this arrangement
under the Emerging Issues Task Force ("EITF") consensus on EITF Issue 97-14,
"Accounting for Deferred Compensation Arrangements Where Amounts Earned are Held
in a Rabbi Trust and Invested" ("EITF 97-14"). Under EITF 97-14, assets of the
trust are consolidated with those of the employer and the value of the
employer's stock held in the rabbi trust is classified in stockholders' equity
in a manner similar to Treasury Stock. At January 2, 2000 and January 3, 1999,
approximately 513,500 and 235,500 shares, respectively, of the Company's stock
are included in the rabbi trust. The shares and the corresponding liability to
employees are included in stockholders' equity in the Company's consolidated
balance sheets. The assets held in the rabbit trust purchased with employees'
cash contributions are included in the Company's consolidated balance sheet with
a corresponding amount included in the deferred compensation payable. These
amounts were not material at January 2, 2000, or January 3, 1999.
The Company's contribution to all of its employee benefit plans
amounted to $2,159, $1,983, and $1,233 in fiscal 1999, 1998, and 1997,
respectively.
(l) FAIR VALUE OF FINANCIAL INSTRUMENTS
Unless otherwise stated herein, the fair value of the Company's
financial instruments approximates their carrying amount due to the relatively
short periods to maturity of the instruments and/or variable interest rates of
the instruments, which approximate current market interest rates.
(m) COMMITMENTS AND CONTINGENCIES
Liabilities for loss contingencies, including environmental remediation
costs, arising from claims, assessments, litigation, fines and penalties, and
other sources are recorded when the amount of assessment and/or remediation
<PAGE> 12
NOTE 1 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED
costs are probable and can be reasonably estimated. The costs for a specific
clean-up site are discounted if the aggregate amount of the obligation and the
amount and timing of the cash payments for that site are fixed or reliably
determinable, generally based upon information derived from the remediation plan
for that site. Recoveries from third parties that are probable of realization
are separately recorded, and are not offset against the related liability.
(n) LOSSES ON SALES CONTRACTS
From time to time, the Company enters into certain non-cancelable
agreements to provide products and services to customers at fixed prices. Once
the Company enters into such agreements, the Company becomes obligated to
fulfill the terms of the agreement. If the Company is committed under such
agreements to supply products and services at selling prices which are not
sufficient to cover the cost to produce such products and services, a liability
is recorded for the estimated future amount of such losses at the time that the
loss is probable and reasonably estimable.
(o) REVENUE RECOGNITION
The Company recognizes revenue upon shipment of product to its
customers.
(p) EARNINGS PER SHARE
Basic EPS excludes dilution and is computed by dividing earnings
available to common shareholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS assumes the conversion of the
convertible subordinated notes, if dilutive, and the issuance of common stock
for other potentially dilutive equivalent shares outstanding.
(q) PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ materially from those estimates.
(r) RECLASSIFICATIONS
Certain 1998 and 1997 balances have been reclassified to conform with
the 1999 presentation.
(s) COMPREHENSIVE INCOME
The Company adopted SFAS No. 130, "Reporting Comprehensive Income"
(SFAS 130), effective January 1, 1998. SFAS 130 requires that changes in equity
during a reporting period, except transactions with owners in their capacity as
owners (for example, the issuance of common stock and dividends paid on common
stock) and transactions reported as direct adjustments to retained earnings, be
reported as a component of comprehensive income. Disclosure of comprehensive
income for the fiscal years ended January 2, 2000, January 3, 1999, and December
28, 1997, is included in the accompanying financial statements as part of the
statements of stockholders' equity.
<PAGE> 13
NOTE 1 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED
(t) CERTAIN TRANSACTIONS AND RELATIONSHIPS
The Company made loans to certain of its executives in order to enable
the executives to satisfy their tax obligations in connection with the vesting
of their performance shares in 1996 and 1997. The loans were advanced in January
1996 and April 1997. Interest on the loans accrues at a rate of 5.7% per annum
and 6.5% per annum, respectively. As of January 2, 2000 and January 3, 1999, the
aggregate amount of principal and interest outstanding with respect to these
loans was approximately $588 and $1,141, respectively. The loans are being
forgiven in proportionate installments over a four-year period commencing
January 1, 1997.
Two of the Company's executive officers have leased to the Company
usage of a resort property located in Arrowhead, Colorado for purposes of
holding corporate meetings and other corporate purposes. The terms of the lease
provide for usage for a period of 80 days per year at a rental rate of $240 and
a lease deposit of $500. The lease is for a period of five years commencing
September 1, 1997.
The Company has a note receivable from IMS for services provided. IMS
is a subsidiary of the Thomas Corp. and a director for the Thomas Corp. is a
director for the Company. The balance of the note at January 2, 2000 and January
3, 1999 was $662.
(u) NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in its statement of financial position and measure those instruments
at fair value. The accounting for changes in the fair value of a derivative
(that is, gains and losses) are recognized in earnings or in other comprehensive
income each reporting period, depending on the intended use of the derivative
and the resulting designation. Generally, changes in the fair value of
derivatives not designated as a hedge, as well as changes in fair value of fair
value-designated hedges (and the item being hedged), are required to be reported
in earnings. Changes in fair value of other types of designated hedges are
generally reported in other comprehensive income. The ineffective portion of a
designated hedge, as defined, is reported in earnings immediately. The Company
will be required to adopt SFAS 133 for the year ending December 30, 2001. The
Company has not completed the process of evaluating the impact that will result
from adopting SFAS No. 133 and is therefore unable to disclose the impact that
adopting SFAS No. 133 will have on its financial position and results of
operations when such statement is adopted.
NOTE 2 BUSINESS COMBINATIONS AND STRATEGIC INVESTMENTS
In September 1999, the Company acquired a printed circuit board
fabricator with operations in Brazil. The cash purchase price, net of cash
acquired, amounted to $26,095. The fair value of the assets acquired, excluding
cash acquired, amounted to $14,767 and liabilities assumed were $5,988,
including estimated acquisition costs. The cost in excess of net assets acquired
amounted to $17,316. The acquisition is subject to an earn-out arrangement
whereby the sellers of the business may earn an additional $9,000 through 2005,
as discussed below.
In August 1998, the Company acquired a printed circuit board fabricator
and contract electronics manufacturer with operations in the People's Republic
of China. The cash purchase price, net of cash acquired, amounted to $51,795.
The fair value of the assets acquired, excluding cash acquired, amounted to
$55,699 and liabilities assumed were $21,801, including estimated acquisition
costs. The cost in excess of net assets acquired amounted to $17,897. The
acquisition was subject to an earn-out arrangement whereby the sellers of the
business earned an additional $43,127 based upon the business having achieved
specified levels of earnings through August 1999.
<PAGE> 14
NOTE 2 BUSINESS COMBINATIONS AND STRATEGIC INVESTMENTS, CONTINUED
During fiscal 1998 and 1997, the Company completed certain other
business combinations that are immaterial to the Company's results from
operations and financial position. The cash purchase price, net of cash
acquired, amounted to $2,100 and $7,939 in fiscal 1998 and 1997, respectively.
The fair value of the assets acquired and liabilities assumed from these
acquisitions was immaterial. The cost in excess of net assets acquired through
these acquisitions amounted to $9,133 in fiscal 1997.
The costs of these acquisitions have been allocated on the basis of the
estimated fair value of assets acquired and liabilities assumed. Goodwill
associated with the Brazilian acquisition, as well as previous acquisitions, is
subject to future adjustment for contingent consideration for varying periods,
all of which end no later than September 2005. The Company increased goodwill in
the amount of $34,127 and $11,500 for contingent purchase price adjustments
during fiscal 1999 and 1998, respectively. All amounts accrued for during Fiscal
1999 were paid as of January 2, 2000. There were no contingent purchase price
adjustments during fiscal 1997.
These acquisitions were accounted for by the purchase method of
accounting for business combinations. Accordingly, the accompanying consolidated
statements of income do not include any revenue or expenses related to these
acquisitions prior to their respective closing dates. The pro forma results for
fiscal 1999, 1998, and 1997, assuming these acquisitions had been made at the
beginning of the prior year, would not be materially different from reported
results.
During the first quarter of fiscal 1999, the Company made two strategic
minority investments amounting to $20,507. First, the Company entered into a
joint venture with Virtual IP Group ("VIP"), a complex integrated circuit design
company with locations in Hyderabad, India and Sunnyvale, California. The
Company acquired a 49% interest in VIP for approximately $5,007. The Company
accounts for its investment in VIP under the equity method.
In March 1999, the Company acquired 15,000 non-voting preferred shares
of DVB (Group) Limited ("DVB"), an affiliate of Capetronic International
Holdings Limited ("Capetronic") for a purchase price of $15,500. The preferred
stock accrues a 5% annual dividend and can be converted into common stock of
Capetronic after 15 months and at a price of HK$4.80 per share. Additionally, at
anytime after 15 months, Capetronic can force conversion if the market price is
at least HK$10.00 per share. At a conversion price of HK$4.80 per share (based
on an agreed exchange rate of US$1.00 equals HK$7.50) the Company would hold
approximately 24,219 common shares of Capetronic, which currently would
represent approximately 13% of the issued common stock of Capetronic after
giving effect to the conversion, excluding the effect of other dilutive
instruments which are currently in existence. However, under the terms of the
agreement, the Company cannot hold more than 10% of the outstanding common stock
of Capetronic. If, upon conversion, the Company holds in excess of 10% of the
outstanding common stock of Capetronic, the Company would be required to divest
of shares to reduce its holdings to 10% or less. The Company currently accounts
for its investment in Capetronic under the cost method. Once the criteria for
conversion are reached, the Company will account for this investment as an
available-for-sale marketable equity security in accordance with SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
NOTE 3 INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 3,
2000 1999
-------- --------
<S> <C> <C>
Raw materials . $ 83,799 $ 44,669
Work in process 50,522 24,922
Finished goods 7,974 6,622
-------- --------
142,295 76,213
Less allowance 5,164 9,468
-------- --------
$137,131 $ 66,745
======== ========
</TABLE>
<PAGE> 15
NOTE 4 PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consisted of the following:
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 3,
2000 1999
-------- --------
<S> <C> <C>
Land ............................................. $ 17,491 $ 12,816
Buildings ........................................ 152,693 125,886
Machinery and equipment .......................... 341,482 234,221
Construction in progress ......................... 36,409 40,313
-------- --------
548,075 413,236
Less accumulated depreciation and amortization ... 109,286 87,010
-------- --------
$438,789 $326,226
======== ========
</TABLE>
In October 1999, the Company acquired the assets of Stanford
Telecommunications, Inc.'s Manufacturing and Quality Assurance division for
approximately $11,900. The purchase price was allocated to the assets acquired
based on the relative fair values of the assets at the date of acquisition.
In August 1999, the Company acquired Ericsson Austria AG's electronics
manufacturing and distribution facility located in Kindberg, Austria, and its
related production equipment for approximately $12,765. The purchase price was
allocated to the assets acquired based on the relative fair values of the assets
at the date of acquisition.
In October 1998, the Company acquired Hewlett-Packard Company's printed
wiring board fabrication facility located in Boeblingen, Germany, and its
related production equipment, inventory and other assets for a purchase price of
approximately $89,900. The purchase price was allocated to the assets acquired
based on the relative fair values of the assets at the date of acquisition.
NOTE 5 LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 3,
2000 1999
-------- --------
<S> <C> <C>
Senior subordinated notes ................................. $150,000 $150,000
Bank term loan ............................................ 84,000 100,000
Revolving line-of-credit advances ......................... 25,000 37,500
Notes payable with interest rates ranging from 7.74% to
9.05% ................................................... 7,459 1,845
Non-interest-bearing notes payable to sellers of businesses
acquired ................................................ -- 11,550
-------- --------
Total long-term debt ............................ 266,459 300,895
Less current portion ...................................... 116,459 29,031
-------- --------
Long-term debt, net of current portion .................. $150,000 $271,864
======== ========
</TABLE>
The aggregate maturities of long-term debt for fiscal years subsequent
to January 2, 2000, are as follows: $116,459 in 2000; and $150,000 in 2007.
<PAGE> 16
NOTE 5 LONG-TERM DEBT, CONTINUED
The senior subordinated notes bear interest at 8.5% and mature on
September 15, 2007. Interest is payable on March 15 and September 15 of each
year. The Company may redeem the notes on or after September 15, 2002. The
indenture contains 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 capital stock of certain subsidiaries, (iii) engage in asset
sales, (iv) incur layered debt, (v) create liens on its properties and assets,
and (vi) make distributions or pay dividends. The covenants are subject to a
number of significant exceptions and qualifications. The fair value of the
Company's senior subordinated notes approximated $149,250 at January 2, 2000 and
$143,685 at January 3, 1999.
On October 30, 1998, the Company replaced its $80,000 senior secured
revolving line-of-credit facility with a $210,000 Credit Agreement (the
"Agreement") with a syndicate of domestic and foreign banks. The Agreement
provides for a $100,000 5-year term loan ("Bank term loan"), and a $110,000
revolving line-of-credit facility ("Revolver"). The Revolver expires on November
1, 2003. Borrowings under the Agreement bear interest, at the Company's option,
at either: (i) the Applicable Base Rate ("ABR") (as defined in the Agreement)
plus the Applicable Margin for ABR Loans ranging between 0.00% and 0.75%, based
on certain financial ratios of the Company; or (ii) the Eurodollar Rate (as
defined in the Agreement) plus the Applicable Margin for Eurodollar Loans
ranging between 1.00% and 2.25%, based on certain financial ratios of the
Company. The Company is required to pay a quarterly commitment fee ranging from
0.25% to 0.50% per annum, based on certain financial ratios of the Company, of
the unused commitment under the Revolver. At January 2, 2000 and January 3,
1999, the weighted-average interest rate for the Company's Bank term loan was
7.63% and 7.15%, respectively. At January 2, 2000 and January 3, 1999,
borrowings of $25,000 and $37,500 were outstanding under the Revolver at a
weighted-average interest rate of 8.25% and 7.21%, respectively.
The Agreement is secured by substantially all of the Company's assets,
and contains certain restrictions on the Company's ability to (i) incur certain
debt, (ii) create liens on its properties and assets, (iii) make certain
investments and capital expenditures, (iv) merge or consolidate with other
entities, (v) pay dividends or make distributions, (vi) repurchase or redeem
common stock, or (vii) dispose of assets. The Agreement also requires that the
Company maintain certain financial covenants, including, among other things, a
maximum ratio of consolidated funded debt to EBITDA (earnings before interest,
taxes, depreciation, and amortization), a minimum ratio of consolidated interest
coverage, and minimum levels of consolidated net worth, as defined, during the
term of the Agreement. During the year ended January 2, 2000, the Company
violated a covenant limiting capital expenditures. The Company did not obtain a
waiver for this violation because the Agreement is expected to be refinanced
with another long-term debt agreement upon closing of the transaction with
Flextronics International Ltd. as discussed in Note 15. As a result of the
Company not obtaining a waiver of this covenant violation, all borrowings under
the Agreement have been classified as current at January 2, 2000.
The Company made long-term debt interest payments of $21,711, $13,004,
and $1,353 during fiscal 1999, 1998, and 1997, respectively.
NOTE 6 CONVERTIBLE SUBORDINATED NOTES
As of February 18, 1999, substantially all of the Company's convertible
subordinated notes were converted into approximately 4,600,000 shares of common
stock and the unconverted portion was redeemed for $101. The Company made
convertible subordinated note interest payments of $538 during fiscal 1999 and
$5,175 during each of fiscal 1998 and 1997. The fair market value of the
Company's 6% convertible subordinated notes approximated $107,794 based upon the
last sales price on January 3, 1999.
NOTE 7 UNUSUAL CHARGES
During fiscal 1998, the Company recognized unusual pre-tax charges of $72,794,
substantially all of which related to the operations of the Company's wholly
owned subsidiary, Orbit Semiconductor, Inc. ("Orbit"). The Company decided to
sell Orbit's 6-inch, 0.6 micron wafer fabrication facility ("Fab") and adopt a
fabless manufacturing strategy to complement Orbit's design and engineering
services. The charges were primarily due to
<PAGE> 17
NOTE 7 UNUSUAL CHARGES, CONTINUED
the impaired recoverability of inventories, intangible assets and fixed assets,
and other costs associated with the exit of semiconductor manufacturing. The Fab
was ultimately sold in January 1999. As discussed below, $70,340 of the unusual
pre-tax charges have been classified as a component of cost of sales.
The components of the unusual charges recorded in fiscal 1998 are as
follows:
<TABLE>
<CAPTION>
FIRST FOURTH FISCAL NATURE OF
QUARTER QUARTER 1998 CHARGE
------- ------- ------- ---------
<S> <C> <C> <C> <C>
Severance ........................................ $ 498 $ 900 $ 1,398 cash
Long-lived asset impairment ...................... 38,257 15,083 53,340 non-cash
Losses on sales contracts ........................ 2,658 3,100 5,758 non-cash
Incremental uncollectible accounts
receivable ..................................... 900 -- 900 non-cash
Incremental sales returns and allowances ......... 1,500 500 2,000 non-cash
Inventory write-downs ............................ 5,500 250 5,750 non-cash
Other exit costs ................................. 1,845 1,803 3,648 cash
------- ------- --------
Total unusual pre-tax charges .......... $51,158 $21,636 $72,794
======= ======= ========
</TABLE>
The following table summarizes the components and activity related to
the charges taken in connection with the 1998 unusual charges:
<TABLE>
<CAPTION>
LONG-LIVED LOSSES UNCOLLECTIBLE
ASSET ON SALES ACCOUNTS
SEVERANCE IMPAIRMENT CONTRACTS RECEIVABLE
--------- ---------- --------- -------------
<S> <C> <C> <C> <C>
Balance at December 28, 1997 ...... $ -- $ -- $ -- $ --
Activities during the year:
1998 provision .................. 1,398 53,340 5,758 900
Cash charges .................... (498) -- -- --
Non-cash charges ................ -- (53,340) (4,658) (767)
-------- -------- -------- --------
Balance at January 3, 1999 ........ 900 -- 1,100 133
Activities during the year:
1999 provision .................. -- -- -- --
Cash charges .................... (900) -- -- --
Non-cash charges ................ -- -- (1,100) (133)
-------- -------- -------- --------
Balance at January 2, 2000 ........ $ -- $ -- $ -- $ --
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
SALES INVENTORY
RETURNS AND WRITE- OTHER
ALLOWANCES DOWNS EXIT COSTS TOTAL
----------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Balance at December 28, 1997 ...... $ -- $ -- $ -- $ --
Activities during the year:
1998 provision .................. 2,000 5,750 3,648 72,794
Cash charges .................... -- -- (465) (963)
Non-cash charges ................ (1,500) (5,500) (643) (66,408)
-------- -------- -------- --------
Balance at January 3, 1999 ........ 500 250 2,540 5,423
Activities during the year:
1999 provision .................. -- -- -- --
Cash charges .................... -- -- (2,490) (3,390)
Non-cash charges ................ (500) (250) (50) (2,033)
-------- -------- -------- --------
Balance at January 2, 2000 ........ $ -- $ -- $ -- $ --
======== ======== ======== ========
</TABLE>
Of the total unusual pre-tax charges, $1,398 relates to employee
termination costs and has been classified as a component of costs of sales. As
of January 3, 1999, 40 people were terminated, and another 170 people were
terminated when the Fab was sold in the first quarter of fiscal 1999. The
Company paid approximately $498 of employee termination costs during fiscal
1998. The remaining $900 was classified as accrued compensation and benefits as
of January 3, 1999 and was paid out in the first quarter of fiscal 1999.
The unusual pre-tax charges include $53,340 for the write-down of
long-lived assets to fair value. This amount has been classified as a component
of cost of sales. Included in the long-lived asset impairment are charges of
$50,739 related to the Fab which was written down to its net realizable value
based on its sales price. The Company kept the Fab in service until the sale
date in January 1999. In accordance with SFAS No. 121, the Company discontinued
depreciation expense on the Fab when it determined that it would be disposed of
and its net realizable value was known. The impaired long-lived assets consisted
primarily of machinery and equipment of $52,418, which were written down by
$43,418 to a carrying value of $9,000 and building and improvements of $7,321,
which were written down to a carrying value of zero. The long-lived asset
impairment also includes the write-off of the remaining goodwill related to
Orbit of $601. The remaining $2,000 of asset impairment relates to the
write-down to net realizable value of a facility the Company exited during 1998.
<PAGE> 18
NOTE 7 UNUSUAL CHARGES, CONTINUED
The Company entered into certain non-cancelable sales contracts to provide
semiconductors to customers at fixed prices. Because the Company was obligated
to fulfill the terms of the agreements at selling prices which were not
sufficient to cover the cost to produce or acquire such products, a liability
for losses on sales contracts was recorded for the estimated future amount of
such losses. The unusual pre-tax charges include $8,658 for losses on sales
contracts, incremental amounts of uncollectible accounts receivable, and
estimated incremental costs for sales returns and allowances. Of this amount,
$6,925 was incurred during fiscal 1998 and $1,733 was incurred in the first
quarter of fiscal 1999 and was included in accrued expenses at January 3, 1999.
These losses have been classified as a component of cost of sales.
The unusual pre-tax charges also include $9,398 for losses on inventory
write-downs and other exit costs. The Company has written off and disposed of
approximately $5,750 of inventory, which has been classified as a component of
cost of sales. The loss on the sale of the Fab includes $3,648 of incremental
costs and contractual obligations for items such as lease termination costs,
litigation, environmental clean-up costs, and other exit costs incurred directly
as a result of the exit plan. Of the $3,648, approximately $1,194 have been
classified as a component of cost of sales.
The exit plan was completed in the third quarter of 1999. Total cash
expenditures incurred in 1999 were $3,390, consisting of $900 of severance and
$2,490 of other exit costs, including legal settlement costs, lease and other
exit fees, and environmental costs. Total cash expenditures in 1998 were $963,
consisting of $498 of severance and $465 of other exit costs, including legal
settlement costs and environmental costs. These expenditures were funded through
operating cash flows of the Company.
NOTE 8 INCOME TAXES
Income (loss) before income taxes for domestic and foreign operations were
as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS
-----------------------------------------
1999 1998 1997
------------ ---------- ----------
<S> <C> <C> <C>
Domestic....................................................... $ 3,954 $ (71,253) $ 23,729
Foreign........................................................ 59,705 32,721 25,936
------------ ---------- ----------
$ 63,659 $ (38,532) $ 49,665
============ ========= =========
Income taxes (benefit) were allocated as follows:
Income (loss) from operations................................ $ 5,277 $ (21,500) $ 14,345
Stockholders' equity (for compensation expense for
tax purposes in excess of amounts recognized for
financial reporting purposes)............................. (3,102) (1,635) (5,805)
------------ ---------- ----------
$ 2,175 $ (23,135) $ 8,540
============ ========== ==========
</TABLE>
Income tax expense (benefit) attributable to income from operations
consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
FISCAL 1999:
U.S. Federal ........... $ 7,249 $ (5,451) $ 1,798
State .................. (570) (1,277) (1,847)
Foreign ................ 2,927 2,399 5,326
-------- -------- --------
$ 9,606 $ (4,329) $ 5,277
======== ======== ========
FISCAL 1998:
U.S. Federal ........... $ (7,983) $(15,710) $(23,693)
State .................. (185) (1,479) (1,664)
Foreign ................ 3,680 177 3,857
-------- -------- --------
$ (4,488) $(17,012) $(21,500)
======== ======== ========
FISCAL 1997:
U.S. Federal ........... $ 8,983 $ 297 $ 9,280
State .................. 672 1,339 2,011
Foreign ................ 2,511 543 3,054
-------- -------- --------
$ 12,166 $ 2,179 $ 14,345
======== ======== ========
</TABLE>
<PAGE> 19
NOTE 8 INCOME TAXES, CONTINUED
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS
--------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
The significant components of deferred tax
expense (benefit) attributable to income
from operations are: Deferred tax expense
(benefit) (exclusive of the effects
of other components listed below) ...................... $(13,404) $(19,414) $ 812
Charge in lieu of taxes resulting from initial
recognition of acquired tax liabilities that are
allocated to goodwill related to an acquired
entity ................................................. -- -- (326)
Increase in the valuation allowance for deferred tax
assets ................................................. 9,075 2,402 1,693
-------- -------- --------
$ (4,329) $(17,012) $ 2,179
======== ======== ========
</TABLE>
Income tax expense differed from the amounts computed by applying the U.S.
Federal income tax rate of 35 percent to income (loss) before income taxes as a
result of the following:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS
--------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit) ....................... $ 22,281 $(13,486) $ 17,383
Capital loss carryover .......................................... (5,544)
Increase (reduction) in income taxes resulting from:
Foreign tax rate differential ................................. (16,210) (7,695) (5,825)
State income taxes, net of federal income tax benefit
(350) (1,098) 1,307
Tax credits and carryforwards ................................. (4,800) (1,166) (786)
Change in the valuation allowance for deferred tax assets
9,075 2,402 1,693
Other ......................................................... 825 (457) 573
-------- -------- --------
$ 5,277 $(21,500) $ 14,345
======== ======== ========
</TABLE>
The Company's operations in China, Malaysia and the Czech Republic were
not subject to tax in 1999. Upon expiration of the tax holiday in China, the
Chinese tax rate is expected to increase to 7.5% in each of fiscal years 2002
and 2003, and 15% thereafter. The Malaysian tax holiday was scheduled to expire
in 1999; however, the Company expects to obtain an extension of this tax holiday
through 2004. If this extension is granted the Company's Malaysian tax rate will
be 28% beginning in 2005, if this extension is not granted, the rate will be 28%
beginning in 2000. The tax holiday in the Czech Republic is for an initial term
through 2004 and may extend up to an additional five years. Upon expiration, the
Company's tax rate on operations in the Czech Republic will be 35%.
<PAGE> 20
NOTE 8 INCOME TAXES, CONTINUED
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
JANUARY 2, 2000 JANUARY 3, 1999
-------------------- ------------------
<S> <C> <C>
Deferred tax assets:
Inventories............................................. $ 1,590 $ 1,604
Property................................................ -- 5,595
Deferred compensation................................... 6,057 1,594
Compensated absences.................................... 1,164 1,093
Allowance for doubtful accounts......................... 1,895 593
Accrued liabilities..................................... 785 3,598
Net operating and capital loss carryforwards............ 34,067 7,284
Federal and state tax credits........................... 11,605 6,628
Merger costs............................................ -- 368
Other................................................... 1,571 22
----------- -----------
Total gross deferred tax assets................. 58,734 28,379
Less valuation allowance........................ 16,041 6,966
----------- -----------
42,693 21,413
----------- -----------
Deferred tax liabilities:
Property................................................ 13,288 --
Goodwill................................................ 3,297 2,723
Other................................................... -- 13
----------- -----------
Total gross deferred tax liabilities............ 16,585 2,736
----------- -----------
Net deferred tax asset.......................... $ 26,108 $ 18,677
=========== ===========
</TABLE>
At January 2, 2000, approximately $69,377 U.S. and $7,228 foreign tax
losses were available to carry forward. These carryforwards generally expire in
tax years 2019 and 2020. State manufacturing investment tax credits of $4,081
expire in tax years 2002 through 2005. Other state tax credits and carryforwards
of $1,100 expire in tax years 2008 through 2020. State research and development
tax credits and alternative minimum tax credits total $4,800 and $1,624,
respectively, and carry forward with no expiration. Capital loss carryforwards
totaling $5,642 expire in 2004.
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. Based
upon the level of historical taxable income and projections for future taxable
income over the periods in which the deferred tax assets are deductible,
management believes it is more likely than not the Company will realize the
benefits of these deductible differences, net of the established valuation
allowance.
The Company does not provide for federal income taxes on the undistributed
earnings of its foreign subsidiaries, as such earnings are not intended by
management to be repatriated in the foreseeable future. Deferred income taxes
have not been provided on undistributed foreign earnings of $128,708 as of
January 2, 2000. Determination of the amount of the unrecognized deferred tax
liability on these undistributed earnings is not practicable.
The Company made income tax payments of $2,703, $2,575, and $5,235 in
fiscal 1999, 1998, and 1997, respectively.
<PAGE> 21
NOTE 9 COMMITMENTS AND CONTINGENCIES
As of January 2, 2000, and January 3, 1999, the Company has financed a
total of $2,609 and $8,849, respectively, in machinery and equipment purchases
with capital leases. Accumulated amortization for machinery and equipment under
capital leases totaled $1,474 and $3,426 at January 2, 2000, and January 3,
1999, respectively. These capital leases have interest rates ranging from 6.8%
to 9.0%. The Company also has several non-cancelable operating leases, primarily
for equipment. These leases generally contain renewal options and require the
Company to pay all executory costs, such as maintenance and insurance. The
capital and operating leases expire in various years through 2005, and require
the following minimum lease payments:
<TABLE>
<CAPTION>
OPERATING CAPITAL
--------- -------
<S> <C> <C>
2000........................................................... $ 4,194 $ 525
2001........................................................... 3,147 736
2002........................................................... 2,061
2003........................................................... 1,017
2004........................................................... 994
Thereafter..................................................... 4,394
----------- ---------
Total minimum lease payments......................... $ 15,807 1,261
===========
Less amount representing interest.............................. 121
---------
Present value of net minimum capital lease payments............ 1,140
Less current portion........................................... 475
---------
Obligations under capital leases, excluding current
Portion...................................................... $ 665
=========
</TABLE>
Rental expense for operating leases amounted to $4,522, $6,474, and $7,213
in fiscal 1999, 1998, and 1997, respectively.
The Company has approximately $14,392 of capital commitments as of January
2, 2000. The majority of these commitments are expected to be completed by the
end of fiscal 2000.
In 1997, two related complaints, as amended, were filed in the District
Court of Boulder, Colorado and the U.S. District Court for the District of
Colorado against the Company and certain of its officers. In July 1999, the
federal court action was dismissed with prejudice. The state court action
purports to be brought on behalf of a class of persons who purchased the
Company's common stock during the period from April 1, 1996 through September 8,
1996, and claims violations of Colorado laws based on allegedly false and
misleading statements made in connection with the offer, sale or purchase of the
Company's common stock at allegedly artificially inflated prices, including
statements made prior to the Company's acquisition of Orbit. The complaint seeks
compensatory and other damages, as well as equitable relief. The Company has
filed an answer denying that it misled the securities market. The parties to the
state and federal court actions have entered into an agreement to settle the
lawsuits in consideration of a $1.2 million payment to the plaintiffs, subject
to court approval.
In addition to the above matters, the Company is involved in certain other
litigation arising in the ordinary course of business. Although management is of
the opinion that these matters will not have a material adverse effect on the
consolidated financial position or results of operations of the Company, the
ultimate outcome of these matters cannot, at this time, be predicted, in light
of the uncertainties inherent in litigation.
In April 1998 the Company entered into Consent Orders with New York
Department of Environmental Conservation (NYDEC) concerning the performance of a
remedial investigation/feasibility study (RI/FS) with respect to environmental
matters at a formerly owned facility in Kirkwood, New York, and a facility that
is owned and leased out to a third party in Binghamton, New York. The Company's
(RI/FS) for each site has been submitted to NYDEC and has been made available
for public comment.
The Company is 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 its
manufacturing process. In addition, the Company is responsible for the cleanup
of contamination at some of its
<PAGE> 22
NOTE 9 COMMITMENTS AND CONTINGENCIES, CONTINUED
current and former manufacturing facilities. If more stringent compliance or
cleanup standards under environmental laws or regulations are implied, or the
results of future testing at the Company's operating facilities indicate that
the Company is responsible for the release of hazardous substances, the Company
may be subject to additional remediation liability.
The ultimate outcome of these matters cannot, at this time, be predicted
in light of the uncertainties inherent in these matters. Based upon the facts
and circumstances currently known, management cannot estimate the most likely
loss or the maximum loss for the above environmental matters. The Company has
accrued the minimum estimated costs, which amounts are immaterial, associated
with these matters in the accompanying consolidated financial statements. No
assurance can be given that actual costs will not exceed amounts accrued or that
costs will not be incurred with respect to sites as to which no problem is
currently known. Further, there can be no assurance that additional
environmental matters will not arise in the future at sites where no problem is
currently known or at sites that the Company may acquire in the future.
NOTE 10 STOCKHOLDERS' EQUITY
During 1998 and 1997, the Company repurchased 1,454,500 and 192,500 shares
of its common stock at a cost of $24,335 and $4,209, respectively. The Company
could repurchase an additional 353,000 shares of common stock in future years as
a part of its share repurchase plan, subject to certain restrictions under its
Credit Agreement. The Company did not repurchase shares during fiscal 1999.
Each outstanding share of common stock carries a dividend of one preferred
share purchase right ("Right"). The Rights are not exercisable until the earlier
of (i) ten days following a public announcement that, without consent of the
Company, a person or group (an "Acquiring Person") has acquired beneficial
ownership of 20% or more of the voting power of all outstanding securities of
the Company or (ii) ten days following the commencement of a tender or exchange
offer that would result in a person or group becoming an Acquiring Person,
without the prior consent of the Company. In the event that a person or group
becomes an Acquiring Person, each holder of a Right, other than the Acquiring
Person, shall have the right to receive, upon exercise, that number of shares of
the common stock of the Company having a market value of two times the exercise
price of the Right. In addition, after a person or group becomes an Acquiring
Person, if the Company is involved in a merger or other business combination
transaction in which the Company is not the surviving corporation, holders of
the Rights, other than the Acquiring Person, will be entitled to purchase shares
of the acquiring company at a similar discount. The Rights will expire, unless
earlier redeemed by the Company, on May 3, 2004.
NOTE 11 STOCK PLANS
Under the Company's 1993 Stock Option Plan, the Compensation Committee of
the Board of Directors is authorized to grant stock options to purchase up to an
aggregate of 1,100,000 shares of common stock. In addition, under the 1994 Stock
Incentive Plan, the Committee is also authorized to make awards of performance
shares and/or grant stock options to purchase up to an aggregate of 5,500,000
shares of common stock. Under the terms of these plans, shares may be awarded or
options may be granted to key employees to purchase shares of the Company's
common stock. Options are granted at a purchase price equal to the fair market
value of the common stock on the date of the grant, and performance shares are
awarded in the form of shares of restricted common stock.
In connection with the acquisition of Orbit, the Company assumed Orbit's
stock option plans. The Company discontinued issuing options under Obit's plans
in 1996.
Under the 1993 Stock Option Plan and the 1994 Stock Incentive Plan, most
outstanding options expire ten years from the date of grant and vest over a
three-year period. All outstanding options under the Orbit plans were fully
vested on January 2, 2000, and expire no later than 10 years after grant date.
<PAGE> 23
NOTE 11 STOCK PLANS, CONTINUED
As of January 2, 2000, there are 1,107,693 shares available for future
grant under the Company's 1993 Stock Option Plan and 1994 Stock Incentive Plan.
The following table summarizes the stock option transactions under the
Company's Stock Option Plans:
<TABLE>
<CAPTION>
SHARES UNDERLYING WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
----------------- ----------------
<S> <C> <C>
OPTIONS OUTSTANDING AT DEC. 29, 1996..................... 3,388,670 $ 7.81
Granted................................................ 627,700 16.08
Exercised.............................................. (1,082,680) 5.60
Canceled............................................... (373,100) 9.43
-----------
OPTIONS OUTSTANDING AT DEC. 28, 1997..................... 2,560,590 $ 10.53
Granted................................................ 1,596,134 14.20
Exercised.............................................. (327,734) 7.96
Canceled............................................... (340,723) 14.01
-----------
OPTIONS OUTSTANDING AT JAN. 3, 1999...................... 3,488,267 $ 11.99
Granted................................................ 738,886 27.01
Exercised.............................................. (500,938) 10.07
Canceled............................................... (272,642) 15.73
-----------
OPTIONS OUTSTANDING AT JAN. 2, 2000...................... 3,453,573 $ 15.20
===========
OPTIONS EXERCISABLE AT JAN. 2, 2000...................... 1,449,608 $ 11.34
===========
</TABLE>
The following table summarizes stock option information under the
Company's Stock Option Plans:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AT JANUARY 2, 2000 OPTIONS EXERCISABLE AT JANUARY 2, 2000
------------------------------------------------------------------ -----------------------------------------
WEIGHTED-AVERAGE
NUMBER WEIGHTED-AVERAGE REMAINING CONTRACTUAL NUMBER WEIGHTED-AVERAGE
OUTSTANDING EXERCISE PRICE TERM (IN YEARS) OUTSTANDING EXERCISE PRICE
----------- ---------------- --------------------- ----------- ---------------
<S> <C> <C> <C> <C>
750,050 $ 7.90 3.59 746,309 $ 7.89
1,116,105 10.32 8.35 210,823 10.41
920,132 16.55 7.49 389,068 14.59
667,286 29.72 8.99 103,408 25.85
--------- ---------
3,453,573 15.20 7.21 1,449,608 11.34
========= =========
</TABLE>
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25"), and related
Interpretations, in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under SFAS
No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), requires
the use of option valuation models that were not developed for use in valuing
employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of the grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
statement. The weighted-average grant date fair value of options granted was
$15.36, $5.20, and $8.56 for fiscal 1999, 1998, 1997 respectively, using a
Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rates of 6.29%, 5.41%, and 5.47% in fiscal 1999,
1998, and 1997, respectively; volatility factors of the expected market price of
the Company's common stock of 55% in fiscal 1999, 52% in fiscal 1998, and 51% in
fiscal 1997; a weighted-average expected life of the option of three years; and
no expected dividend yields.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of the employee stock options.
<PAGE> 24
NOTE 11 STOCK PLANS, CONTINUED
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
FISCAL YEARS
--------------------------------------
1999 1998 1997
------------- ----------- ----------
<S> <C> <C> <C>
PRO FORMA:
Net income (loss)...................... $ 55,018 $ (19,453) $ 33,272
Basic earnings (loss) per share........ $ 1.80 $ (.78) $ 1.35
Diluted earnings (loss) per share...... $ 1.69 $ (.78) $ 1.08
</TABLE>
Pro forma net income (loss) reflects only options granted in fiscal 1999,
1998, and 1997. Therefore, the full impact of calculating compensation cost for
stock options under SFAS No. 123 is not reflected in the pro forma net income
amounts presented above because compensation cost for options granted prior to
January 1, 1995, are not considered.
The Compensation Committee of the Board of Directors awarded 456,000, and
250,000 shares in fiscal 1998, and 1997, respectively, to key executives under
the 1994 Stock Incentive Plan. Shares vest over a period of time, which in no
event exceeds eight years. Certain shares may vest at an accelerated rate upon
the achievement of certain annual earnings-per-share targets established by the
Compensation Committee. Non vested shares for individual participants who are no
longer employed by the Company on the plan termination date are forfeited.
Participants will receive all unissued shares upon their death or disability, or
in the event of a change of control of the Company. The shares are not reported
as outstanding until vested. The number of shares vested amounted to 294,500,
62,500, and 262,336 for fiscal 1999, 1998, and 1997, respectively.
Unearned compensation equivalent to the market value at the date the
shares were awarded is charged to stockholders' equity and is amortized to
expense based upon the estimated number of shares expected to be issued in any
particular year. Unearned compensation expense amounting to $3,894, $1,805, and
$4,375 was amortized to expense during fiscal 1999, 1998, and 1997,
respectively. The weighted-average fair value of performance shares awarded in
1999, 1998, and 1997 was $20.06, $19.97, and $10.67 per share, respectively.
The Company's Non-Employee Directors' Stock Compensation Plan (the
"Directors' Plan") provides for the automatic grant to each non-employee
director of the Company of 2,000 shares of common stock per annum as
consideration for regular service as a director. Shares will be issued in
quarterly installments at the end of each fiscal quarter. The Company recognizes
quarterly compensation expense equal to the fair market value of the stock to be
issued at the end of each quarter. The aggregate number of shares which may be
issued under the Directors' Plan is 60,000 shares, and the plan will terminate
on December 31, 2004. As of January 2, 2000, there are 16,825 shares available
for future grant under this plan. Shares issued under this plan in 1999, 1998
and 1997 were 5,550, 8,859 and 7,616, respectively. The weighted-average fair
value of director shares awarded in fiscal 1999, 1998, and 1997 was $33.51,
$19.53, and $18.64 per share, respectively.
The Company also has a 1994 Employee Stock Purchase Plan under which all
U.S. and international employees may be granted the opportunity to purchase up
to 1,000,000 shares of common stock at 85% of market value on the first or last
business day of a six-month payment period, whichever is lower. As of January 2,
2000, there are 491,001 shares available for sale under this plan. The shares
sold under this plan in fiscal 1999, 1998, and 1997 amounted to 70,159, 228,201,
and 97,456, respectively. The weighted-average fair value of shares sold under
this plan in fiscal 1999, 1998, and 1997 was $24.46, $17.13, and $16.33 per
share, respectively.
<PAGE> 25
NOTE 12 EARNINGS PER SHARE
Earnings (loss) per common share ("EPS") data were computed as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
BASIC EPS:
Net income (loss) ................................... $ 58,382 $(17,032) $ 35,320
======== ======== ========
Shares used in computation:
Weighted-average common shares outstanding ....... 30,598 24,888 24,719
======== ======== ========
Basic EPS ............................................. $ 1.91 $ (0.68) $ 1.43
======== ======== ========
DILUTED EPS:
Net income (loss) ................................... $ 58,382 $(17,032) $ 35,320
Plus income impact of assumed conversions:
Interest expense (net of tax) on convertible
subordinated notes ............................. 400 -- 3,105
Amortization (net of tax) of debt issuance cost on
convertible subordinated notes ................. 33 -- 260
-------- -------- --------
Net income (loss) available to common stockholders .... $ 58,815 $(17,032) $ 38,685
======== ======== ========
SHARES USED IN COMPUTATION:
Weighted-average common shares outstanding .......... 30,598 24,888 24,719
Shares applicable to exercise of dilutive options ... 1,352 -- 1,242
Shares applicable to deferred stock compensation .... 94 -- 141
Shares applicable to convertible subordinated
notes ............................................ 453 -- 4,600
-------- -------- --------
Shares applicable to diluted earnings ................. 32,497 24,888 30,702
======== ======== ========
Diluted EPS ........................................... $ 1.81 $ (0.68) $ 1.26
======== ======== ========
</TABLE>
The common equivalent shares from common stock options, deferred stock
compensation and convertible subordinated notes were antidilutive for fiscal
1998, and therefore were not assumed to be converted for diluted
earnings-per-share computations.
NOTE 13 BUSINESS CONCENTRATIONS AND GEOGRAPHIC AREAS
The Company's businesses are organized, managed, and internally reported
as three reportable segments. These segments, which are based on differences in
products, technologies, and services are Systems Assembly and Distribution,
Printed Circuit Boards, and Other. See Note 1(b) for further information
regarding the products and services provided by these segments. These segments
offer products and services across most sectors of the electronics industry in
order to reduce exposure to downturn in any particular sector.
<PAGE> 26
NOTE 13 BUSINESS CONCENTRATIONS AND GEOGRAPHIC AREAS, CONTINUED
Transactions between segments are recorded at cost. The Company's
businesses are operated on an integrated basis and are characterized by
substantial intersegment cooperation, cost allocations, and marketing efforts.
Substantially all interest expense is incurred at Corporate. Therefore,
management does not represent that these segments, if operated independently,
would report the operating income and other financial information shown.
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS
-----------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES:
Systems assembly and distribution ...................... $ 927,942 $ 589,286 $ 514,078
Printed circuit boards ................................. 319,221 208,696 128,107
Other .................................................. 92,780 127,561 137,418
----------- ----------- -----------
$ 1,339,943 $ 925,543 $ 779,603
=========== =========== ===========
INCOME (LOSS) BEFORE INCOME TAXES*:
Systems assembly and distribution ...................... $ 44,519 $ 32,558 $ 30,645
Printed circuit boards ................................. 34,311 29,084 26,935
Other .................................................. 12,291 2,805 12,048
Unallocated general corporate .......................... (27,462) (30,185) (19,963)
----------- ----------- -----------
$ 63,659 $ 34,262 $ 49,665
=========== =========== ===========
IDENTIFIABLE ASSETS AT THE END OF EACH FISCAL YEAR:
Systems assembly and distribution ...................... $ 401,730 $ 238,027 $ 209,886
Printed circuit boards ................................. 559,286 390,194 170,503
Other .................................................. 53,038 79,453 143,110
Unallocated general corporate .......................... 97,921 39,635 69,230
----------- ----------- -----------
$ 1,111,975 $ 747,309 $ 592,729
=========== =========== ===========
DEPRECIATION AND AMORTIZATION**:
Systems assembly and distribution ...................... $ 15,628 $ 10,629 $ 6,915
Printed circuit boards ................................. 23,994 10,925 7,008
Other .................................................. 3,453 10,283 7,628
Unallocated general corporate .......................... 1,262 1,162 791
----------- ----------- -----------
$ 44,337 $ 32,999 $ 22,342
=========== =========== ===========
CAPITAL EXPENDITURES:
Systems assembly and distribution ...................... $ 94,118 $ 21,317 $ 25,493
Printed circuit boards ................................. 53,550 118,818 61,326
Other .................................................. 10,339 11,912 34,334
Unallocated general corporate .......................... 2,369 1,844 116
----------- ----------- -----------
$ 160,376 $ 153,891 $ 121,269
=========== =========== ===========
</TABLE>
-----------
* Excludes unusual charges of $72,794 in fiscal 1998, which related
primarily to other services. See Note 7 for additional information
regarding the unusual charges.
** Excludes unusual charges related to property, plant, and equipment and
goodwill impairment charges of $53,340 in fiscal 1998, which related
primarily to other services. See Note 7 for additional information
regarding the unusual charges.
<PAGE> 27
NOTE 13 BUSINESS CONCENTRATIONS AND GEOGRAPHIC AREAS, CONTINUED
The following summarizes financial information by geographic areas:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS
-----------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES:
Americas ................................................ $ 685,990 $ 637,795 $ 543,469
Europe .................................................. 336,151 175,675 150,174
Asia .................................................... 317,802 112,073 85,960
TRANSFERS BETWEEN GEOGRAPHIC AREAS:
Americas ................................................ 818 166 3,021
Europe .................................................. 50 85 61
Asia .................................................... 121 1,091 220
Eliminations ............................................ (989) (1,342) (3,302)
----------- ----------- -----------
$ 1,339,943 $ 925,543 $ 779,603
=========== =========== ===========
INCOME (LOSS) BEFORE INCOME TAXES:
Americas ................................................ $ 38,775 $ (38,053) $ 47,780
Europe .................................................. 22,080 20,027 17,635
Asia .................................................... 30,267 9,874 4,035
Unallocated general corporate ........................... (27,463) (30,380) (19,785)
----------- ----------- -----------
$ 63,659 $ (38,532) $ 49,665
=========== =========== ===========
LONG-LIVED ASSETS AT THE END OF EACH FISCAL YEAR:
Americas ................................................ $ 266,129 $ 232,134 $ 257,673
Europe .................................................. 136,888 110,296 12,466
Asia .................................................... 161,966 80,635 7,065
Unallocated general corporate ........................... 9,110 9,955 7,706
----------- ----------- -----------
$ 574,093 $ 433,020 $ 284,910
=========== =========== ===========
</TABLE>
Export sales from the United States are immaterial.
At any given time, certain customers may account for significant portions
of the Company's business. Hewlett-Packard accounted for 19%, 10% and 17% of net
sales in fiscal 1999, 1998 and 1997, respectively. IBM accounted for 14% and 10%
of net sales in fiscal 1999 and 1998, respectively. No other customer accounted
for more than 10% of net sales in fiscal 1999, 1998, or 1997. The Company's top
ten customers accounted for 60%, 48%, and 50% of net sales in fiscal 1999, 1998,
and 1997, respectively. The percentage of the Company's sales to its major
customers may fluctuate from period to period. Significant reductions in sales
to any of these customers would have a material adverse effect on the Company's
operating results. The Company has few material, firm, long-term commitments or
volume guarantees from its customers. In addition, customer orders can be
canceled and volume levels can be changed or delayed. From time to time, some of
the Company's customers have terminated their manufacturing arrangements with
the Company, and other customers have reduced or delayed the volume of design
and manufacturing services performed by the Company. The timely replacement of
canceled, delayed, or reduced contracts with new business cannot be assured, and
termination of a manufacturing relationship or change, reduction, or delay in
orders could have a material adverse effect on the Company's operating results.
In the past, changes in customer orders have had a significant impact on the
Company's results of operations due to corresponding changes in the level of
overhead absorption.
Credit risk represents the accounting loss that would be recognized at the
reporting date if counterparties completely failed to perform as contracted.
Concentrations of credit risk (whether on or off balance sheet) that arise from
financial instruments exist for groups of customers or counterparties when they
have similar economic characteristics that would cause their ability to meet
contractual obligations to be similarly affected by changes in economic or other
conditions. The Company has concentrations of credit risk in accounts receivable
from its top ten customers. The Company performs ongoing credit evaluations of
its customers and generally does not require collateral. The Company maintained
reserves for potential credit losses of $7,275 and $5,900 at January 2, 2000,
and January 3, 1999, respectively. In addition, the Company has concentrations
of credit risk in cash and cash equivalents, which are maintained at recognized
financial institutions. The Company performs ongoing financial evaluations of
these financial institutions.
<PAGE> 28
NOTE 14 SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following summarizes the quarterly financial information for the year
ended January 2, 2000:
<TABLE>
<CAPTION>
1999 FISCAL QUARTERS FISCAL
---------------------------------------------------------- ----------
FIRST SECOND THIRD FOURTH 1999
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Sales .............................. $ 247,468 $ 280,093 $ 365,089 $ 447,293 $1,339,943
Gross profit ....................... 37,929 42,312 47,924 53,613 181,778
Net income ......................... 8,883 12,340 16,251 20,909 58,383
Basic earnings per share ........... .32 .42 .55 .57 1.91
Diluted earnings per share ......... .31 .40 .52 .55 1.81
</TABLE>
The following summarizes quarterly financial information for the year
ended January 3, 1999:
<TABLE>
<CAPTION>
1998 FISCAL QUARTERS FISCAL
------------------------------------------------------- ---------
FIRST SECOND THIRD FOURTH 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Sales ..................................... $ 235,374 $ 221,938 $ 205,917 $ 262,314 $ 925,543
Gross profit .............................. (15,872) 33,142 32,022 19,300 68,592
Net income (loss) ......................... (30,001) 5,023 5,590 2,356 (17,032)
Basic earnings (loss) per share ........... (1.19) .20 .23 .10 (.68)
Diluted earnings (loss) per share ......... (1.19) .19 .21 .09 (.68)
</TABLE>
The Company recorded $51,158 and $21,636 on non-recurring charges during
the first and fourth quarters of fiscal 1998, respectively, relating to Orbit's
semiconductor wafer fabrication facility. See Note 7 for additional information
regarding the non-recurring charges.
NOTE 15 OTHER INFORMATION
On November 22, 1999, the Company announced the signing of a definitive
agreement for a tax-free, stock-for-stock merger with Flextronics International
Ltd. (Flextronics). Under the terms of the agreement, Dii Group shareholders
will receive 1.61 Flextronics ordinary shares for each share of the Company's
common stock resulting in current Dii Group shareholders owning approximately
33% of the combined company. The merger was completed in April 2000.
NOTE 16 SUBSEQUENT EVENTS (UNAUDITED)
In March 2000, the Company acquired Hewlett Packard Company's
manufacturing facility and related assets located in Greeley, Colorado and its
related production equipment, inventory and other assets for a purchase price of
approximately $30,500. The purchase price was allocated to the assets acquired
based on the relative fair values of the assets at the date of acquisition. The
Company also entered into a long-term supply agreement to supply tape and
optical libraries to Hewlett Packard Company.
In January 2000, the Company announced that it had signed a memorandum of
understanding with Ascom Business Systems AG, a wholly owned subsidiary of Ascom
Holdings AG, to purchase its manufacturing facility and related assets located
in Solothurn, Switzerland. Subject to concluding this transaction, the Company
will enter into a long-term supply agreement with Ascom Business Systems AG to
provide printed circuit board assembly, final systems assembly and various
engineering support services. The transaction is subject to applicable
governmental approvals and customary conditions of closing. This transaction
will be accounted for as a purchase of assets. Subject to final negotiations,
due diligence and working capital levels at the time of closing, the estimated
purchase price will be in the range of $60,000 to $70,000.
<PAGE> 29
(b) Pro Forma Financial Information.
The required unaudited consolidated pro forma condensed combined
consolidated financial statements and notes thereto of the Company are
incorporated by reference to the Company's amendment to registration
statement on Form S-4/A filed with the Securities and Exchange
Commission on February 29, 2000.
(c) Exhibits.
2.01 Agreement and Plan of Merger dated as of November 22, 1999 by
and among Flextronics International Ltd., Slalom Acquisition
Corp. and The DII Group, Inc. (Incorporated by reference to
Exhibit 2.01 to Flextronics' current report on Form 8-K, filed
with the Commission on December 6, 1999.)
23.01 Consent of Deloitte & Touche LLP.
99.01 Press Release issued by Flextronics on April 3, 2000
announcing the closing of the merger. (Incorporated by
reference to Exhibit 2.01 to Flextronics' current report on
Form 8-K, filed with the Commission on April 18, 2000.)
<PAGE> 30
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to report to be signed on its behalf
by the undersigned thereunto duly authorized.
FLEXTRONICS INTERNATIONAL LTD.
Date: June 19, 2000 By: /s/ Robert R.B. Dykes
------------------------
Robert R. B. Dykes
President, Systems Group and
Chief Financial Officer
<PAGE> 31
EXHIBIT INDEX
2.01 Agreement and Plan of Merger dated as of November 22, 1999 by
and among Flextronics International Ltd., Slalom Acquisition
Corp. and The DII Group, Inc. (Incorporated by reference to
Exhibit 2.01 to Flextronics' current report on Form 8-K, filed
with the Commission on December 6, 1999.)
23.01 Consent of Deloitte & Touche LLP.
99.01 Press Release issued by Flextronics on April 3, 2000
announcing the closing of the merger. (Incorporated by
reference to Exhibit 2.01 to Flextronics' current report on
Form 8-K, filed with the Commission on April 18, 2000.)
