<PAGE> 1
Filed Pursuant to Rule 424(b)(5)
Registraton Statement No. 333-87139
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY
CHANGE. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS ARE NOT
AN OFFER TO SELL THESE SECURITIES AND ARE NOT SOLICITING AN OFFER TO BUY
THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JUNE 12, 2000
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED SEPTEMBER 24, 1999)
5,500,000 SHARES
[FLEXTRONICS LOGO]
ORDINARY SHARES
-------------------------
Flextronics International Ltd. is offering 5,500,000 ordinary shares in a
firm commitment underwriting. On June 8, 2000, the last reported sale price of
the ordinary shares on the Nasdaq National Market was $62.50 per share.
-------------------------
The ordinary shares are listed on the Nasdaq National Market under the
symbol "FLEX."
-------------------------
INVESTING IN THE ORDINARY SHARES INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE S-6 OF THIS PROSPECTUS SUPPLEMENT.
-------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ----------
<S> <C> <C>
Offering Price.............................................. $ $
Discounts and Commissions to Underwriters...................
Offering Proceeds to Flextronics............................
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus supplement is truthful or complete. Any representation to the
contrary is a criminal offense.
We have granted the underwriters the right to purchase up to an additional
825,000 ordinary shares to cover any over-allotments. The underwriters can
exercise this right at any time within 30 days after the offering. Banc of
America Securities LLC expects to deliver the ordinary shares to investors on or
about , 2000.
BANC OF AMERICA SECURITIES LLC
SALOMON SMITH BARNEY
THOMAS WEISEL PARTNERS LLC
LEHMAN BROTHERS
-------------------------
, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
PROSPECTUS SUPPLEMENT
Forward-Looking Statements.................................. ii
Prospectus Supplement Summary............................... S-1
Risk Factors................................................ S-6
Dividends................................................... S-12
Use of Proceeds............................................. S-12
Price Range of Ordinary Shares.............................. S-12
Capitalization.............................................. S-13
Selected Supplemental Consolidated Financial Data........... S-14
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. S-16
Business.................................................... S-26
Underwriters................................................ S-36
Legal Matters............................................... S-38
Index to Financial Statements............................... F-1
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
PROSPECTUS
About This Prospectus....................................... 2
Where You Can Find More Information......................... 2
Forward-Looking Statements.................................. 3
The Company................................................. 4
Enforcement of Civil Liabilities............................ 4
Risk Factors................................................ 4
Use of Proceeds............................................. 4
Description of Capital Shares............................... 4
Taxation.................................................... 7
Plan of Distribution........................................ 8
Legal Matters............................................... 9
Experts..................................................... 9
</TABLE>
The information in this prospectus supplement assumes that the
underwriters' over-allotment option will not be exercised. In addition, the
financial information in this prospectus supplement includes the results of
operations and balance sheet of The DII Group, Inc. and Palo Alto Products
International Pte. Ltd. each of which we acquired in April 2000, in transactions
accounted for as pooling of interests. In this prospectus supplement and in the
accompanying prospectus, references to "$" are to United States dollars and
references to "S$" are to Singapore dollars. In this prospectus supplement only,
all information pertaining to share and per share amounts reflects the
two-for-one stock split effected as a bonus issue, the Singapore equivalent of a
stock dividend, paid on December 22, 1999. In the accompanying prospectus, all
information pertaining to share and per share amounts does not reflect this
stock split.
i
<PAGE> 3
FORWARD-LOOKING STATEMENTS
This prospectus supplement and the accompanying prospectus (including the
documents incorporated by reference in the prospectus) contain forward-looking
statements. The words "will," "may," "designed to," "outlook," "believes,"
"should," "anticipates," "plans," "expects," "intends," "estimates" and similar
expressions identify these forward-looking statements. These forward-looking
statements are contained principally under the headings "Prospectus Supplement
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business." Because these
forward-looking statements are also subject to risks and uncertainties, actual
results may differ materially from the expectations expressed in the
forward-looking statements. Important factors that could cause actual results to
differ materially from the expectations reflected in the forward-looking
statements include those described in "Risk Factors," as well as:
- our ability to carry out our strategies;
- the planned expansion of our facilities and operations;
- potential acquisitions;
- adoption of outsourcing by original equipment manufacturers;
- our ability to become an integral part of our customers' operations;
- our ability to win new customer programs;
- tax matters;
- currency fluctuations; and
- our planned opening of industrial parks in Brazil, Hungary and Poland.
You should rely only on the information contained in this prospectus
supplement and the accompanying prospectus. We have not authorized anyone to
provide you with different information. We are not making an offer to sell these
securities in any jurisdiction where the offer or sale is not permitted. You
should assume that the information appearing in this prospectus supplement is
accurate as of the date on the front cover of this prospectus supplement only.
Our business, financial condition, results of operations and prospects may have
changed since that date.
ii
<PAGE> 4
PROSPECTUS SUPPLEMENT SUMMARY
You should read the following summary together with the more detailed
information appearing elsewhere in this prospectus supplement and in the
accompanying prospectus, including the documents incorporated by reference in
the prospectus.
THE COMPANY
We are a leading provider of advanced electronics manufacturing services to
original equipment manufacturers, or OEMs, primarily in the telecommunications
and networking, consumer electronics and computer industries. Our strategy is to
provide customers with the ability to outsource, on a global basis, a complete
product where we take responsibility for engineering, supply chain management,
assembly, integration, test and logistics management. We provide complete
product design services, including electrical and mechanical, circuit and
layout, radio frequency and test development engineering services. Our
manufacturing services include the fabrication and assembly of plastic and metal
enclosures, PCBs and backplanes. We believe that we have developed particular
strengths in advanced interconnect, miniaturization and packaging technologies,
and in the engineering and manufacturing of wireless communications products
employing radio frequency technology. Throughout the production process, we
offer logistics services, such as materials procurement, inventory management,
packaging and distribution.
Through a combination of internal growth and acquisitions, we have become
the world's third largest provider of electronics manufacturing services, with
revenues of $5.7 billion and EBITDA (earnings before interest, taxes,
depreciation and amortization) of $391.4 million in fiscal 2000. In addition, we
have increased our manufacturing square footage from 1.5 million square feet on
April 1, 1998 to 11.2 million square feet to date. We offer a complete and
flexible manufacturing solution that provides accelerated time-to-market and
time-to-volume production, reduced production costs and advanced engineering and
design capabilities. By working closely with and being highly responsive to
customers throughout the design, manufacturing and distribution process, we
believe that we can be an integral part of their operations. We believe that our
size, global presence, broad service offerings and expertise enable us to win
large programs from leading multinational OEMs for the manufacture of advanced
electronics products.
Our customers include industry leaders such as Cisco Systems, Inc.,
Ericsson Business Networks AB, Hewlett-Packard Company, Lucent Technologies
Inc., Microsoft Corporation, Motorola, Inc., Nokia Corp., Palm Computing and
Philips Electronics. Due to our focus on high growth technology sectors, our
prospects are influenced by such major trends as the upgrade of the
communications and Internet infrastructure, the proliferation of wireless
devices, increasing product miniaturization and other trends in electronics
technologies. In addition, our growth is affected by the pace at which leading
OEMs are continuing to adopt outsourcing as a core business strategy.
We have established an extensive network of manufacturing facilities in the
world's major electronics markets -- Asia, the Americas and Europe -- to serve
the increased outsourcing needs of both multinational and regional OEMs. We
strategically locate facilities near our customers and their end markets. In
fiscal 2000, production in the Americas represented 43% of our net sales,
production in Europe represented 39% of our net sales and production in Asia
represented 18% of our net sales. We have also established fully integrated,
high volume industrial parks in low cost regions near our customers' end
markets. These industrial parks provide total supply chain management by
co-locating our manufacturing and distribution operations with our suppliers at
a single location. This approach to production and distribution is designed to
benefit our customers by reducing logistical barriers and costs, increasing
flexibility, lowering transportation costs and reducing turnaround times. Our
industrial parks are located in China, Hungary and Mexico and we are building
new industrial parks in Brazil, Hungary and Poland. In addition to our
industrial parks, we have established product introduction centers which provide
engineering expertise in developing new products and preparing them for high
volume manufacturing.
S-1
<PAGE> 5
INDUSTRY OVERVIEW
With electronics products growing in technical complexity and experiencing
shorter product lifecycles in response to customer requirements, the demand for
advanced manufacturing capabilities and related services has grown rapidly. Many
OEMs in the electronics industry are increasingly utilizing electronics
manufacturing service providers in their business and manufacturing strategies.
Outsourcing allows OEMs to take advantage of the manufacturing expertise and
capital investments of electronics manufacturing service providers, thereby
enabling OEMs to concentrate on their core competencies, such as product
development, marketing and sales. We believe that by developing strategic
partnerships with electronics manufacturing service providers, OEMs can enhance
their competitive position by:
- reducing production costs;
- accelerating time-to-market and time-to-volume production;
- accessing advanced manufacturing, design and engineering capabilities;
- reducing capital investment requirements and fixed overhead costs;
- improving inventory management and purchasing power; and
- accessing worldwide manufacturing capabilities.
STRATEGY
Our objective is to provide customers with the ability to outsource, on a
global basis, a complete product, with Flextronics taking responsibility for the
engineering, supply chain management, assembly, integration, test and logistics
management to accelerate their time-to-market and time-to-volume. To achieve
this objective, we will continue to implement the following strategies:
Develop and Enhance Our Customers' Product Development and Manufacturing
Strategy. We believe we can become an integral part of our customers' operations
by working closely with them throughout the design, manufacturing and
distribution process, and by offering flexible, highly responsive services. We
believe our customer relationships are strengthened through a management
approach which fosters rapid decision-making and a customer service orientation
that responds quickly to frequently changing customer design specifications and
production requirements. Our approach allows our customers to focus on their
core competencies, enabling them to accelerate their time-to-market and
time-to-volume production.
Leverage Our Global Presence. We have established an extensive network of
design and manufacturing facilities in the world's major electronics
markets -- Asia, the Americas and Europe -- to serve the increased outsourcing
needs of both multinational and regional OEMs. Our global network of
manufacturing facilities in 23 countries gives us the flexibility to transition
customer projects to any of our locations. This flexibility allows design,
prototyping and initial production to be located near the customer's own
research and development centers, so that manufacturing can then be moved to
locations closer to their end markets, or transitioned to low-cost regional
manufacturing facilities or industrial parks as volumes increase over the
product life-cycle.
Expand Our Industrial Park Strategy. Our industrial parks are
self-contained facilities that co-locate our manufacturing and distribution
operations with our suppliers in low-cost regions near our customers' end
markets. Our industrial parks provide total supply chain management. This
approach to production and distribution benefits our customers by reducing
logistical barriers and costs, improving communications, increasing flexibility,
lowering transportation costs and reducing turnaround times. We have
strategically established large industrial parks in Doumen, China, Sarvar and
Zalaegerszeg, Hungary and Guadalajara, Mexico, and are currently building new
industrial parks in Gdansk, Poland, Sao Paulo, Brazil and Nyiregyhaza, Hungary.
S-2
<PAGE> 6
Offer Comprehensive and Integrated Design and Manufacturing Solutions. We
offer a comprehensive range of engineering, supply chain management, assembly,
integration, test and logistics management services to our customers that
simplifies the global product development process and provides them meaningful
cost savings. Our capabilities help our customers improve product quality and
performance, reduce costs and accelerate time-to-market.
Streamline Business Processes Through Information Technologies. We utilize
new information technologies that streamline business processes for our
customers. For example, we use innovative Internet supply chain solutions to
improve order placement, tracking and fulfillment. We are also able to provide
our customers with online access to product design and manufacturing process
information. Integrating our information systems with those of our customers
allows us to assist our customers in improving their communications and
relationships across their supply chain.
Pursue Strategic Opportunities. We have actively pursued acquisitions and
purchases of manufacturing facilities to expand our worldwide operations,
broaden our service offerings, diversify and strengthen our customer
relationships and enhance our management depth. We will continue to review
opportunities and are currently in preliminary discussions to acquire
manufacturing operations and enter into acquisitions. We cannot assure the terms
of, or that we will complete, such transactions. We will continue to selectively
pursue strategic transactions that we believe will further our business
objectives.
RECENT DEVELOPMENTS
Since the end of fiscal 2000, we have completed several major acquisitions
and entered into new strategic relationships to expand our management team,
global reach, manufacturing capacity, technological capabilities and service
offerings. On April 3, 2000, we acquired DII, a leading provider of electronics
manufacturing and design services, operating through a global network of
operations in the Americas, Asia/ Pacific and Europe. On April 7, 2000, we
acquired Palo Alto Products International, an industrial design services company
with plastic molding and enclosure assembly operations in Taiwan, Thailand and
the United States. In addition, we have completed several smaller acquisitions
and facilities acquisitions. In connection with our mergers with DII and Palo
Alto Products International, we expect to record a one-time charge of
approximately $180.0 million in the first quarter of fiscal 2001. We estimate
that the cash portion of this one-time charge will be approximately $120.0
million.
On May 30, 2000, we entered into a strategic alliance for product
manufacturing with Motorola, Inc. This alliance provides incentives for Motorola
to purchase over $30.0 billion of products and services from us until December
31, 2005. We anticipate that this relationship will encompass a wide range of
products, including cellular phones, pagers, set-top boxes and infrastructure
equipment, and will involve a broad range of services, including design, PCB
fabrication and assembly, plastics, enclosures and supply chain services. The
relationship is not exclusive and does not require that Motorola purchase any
specific volumes of products or services from us. Our ability to achieve any of
the anticipated benefits of this relationship is subject to a number of risks,
including our ability to provide our services on a competitive basis and to
expand our manufacturing resources, as well as demand for Motorola's products.
In connection with this strategic alliance, Motorola will pay $100.0 million to
us for an equity instrument that entitles it to acquire 11,000,000 Flextronics
ordinary shares at any time through December 31, 2005, upon meeting targeted
purchase levels or making additional payments to us. The issuance of this equity
instrument will result in a one-time non-cash charge of approximately $290.0
million in the first quarter of fiscal 2001, offset by a corresponding credit to
shareholders' equity. Therefore, our financial position will not change as a
result of this one-time non-cash charge. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Acquisitions,
Purchases of Facilities and Other Strategic Transactions."
S-3
<PAGE> 7
THE OFFERING
Ordinary shares............ 5,500,000 shares
Ordinary shares to be
outstanding after the
offering................... 193,747,589 shares, excluding 825,000 shares
subject to the underwriters' over-allotment option
Use of proceeds............ The net proceeds will be used to fund the further
expansion of our business, including additional
working capital and capital expenditures and
general corporate purposes. We may use a portion of
the net proceeds for strategic acquisitions or
investments.
Nasdaq National Market
symbol..................... FLEX
The number of ordinary shares to be outstanding after the offering is based
on the number of ordinary shares actually outstanding as of March 31, 2000. This
number excludes a total of 26,996,651 ordinary shares subject to outstanding
options or reserved for issuance under our share option plans and share purchase
plans.
CONCURRENT PRIVATE OFFERING OF SENIOR SUBORDINATED NOTES
Concurrently with this offering, we are offering $450 million aggregate
principal amount of senior subordinated notes due 2010 in a private offering to
qualified institutional buyers and institutions outside of the United States.
The offering of the ordinary shares is not contingent on the completion of this
private offering of senior subordinated notes.
S-4
<PAGE> 8
SUMMARY SUPPLEMENTAL CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following summary supplemental consolidated financial data should be
read in conjunction with our supplemental consolidated financial statements and
related notes and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this prospectus supplement. The
supplemental consolidated financial statements have been prepared to give
retroactive effect to the merger with The DII Group, Inc. on April 3, 2000 and
the merger with Palo Alto Products International Pte. Ltd. on April 7, 2000. The
summary supplemental consolidated financial data as of March 31, 2000 and for
each of the three years in the period ended March 31, 2000 is derived from our
supplemental consolidated financial statements that have been audited by Arthur
Andersen LLP, independent public accountants. Historical results are not
necessarily indicative of the results to be expected in the future.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
--------------------------------------
1998 1999 2000
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
SUPPLEMENTAL STATEMENT OF OPERATIONS DATA:
Net sales.......................................... $2,202,451 $3,253,025 $5,739,735
Cost of sales...................................... 1,924,901 2,910,353 5,235,406
Unusual charges.................................... 8,869(1) 76,155(2) --
---------- ---------- ----------
Gross profit.................................... 268,681 266,517 504,329
Selling, general and administrative................ 143,597 179,808 240,274
Goodwill and intangibles amortization.............. 8,471 9,165 12,783
Acquired in-process research and development....... -- 2,000 --
Merger-related expenses............................ 7,415(1) -- 3,523(3)
Interest and other expense, net.................... 18,538 38,759 44,907
---------- ---------- ----------
Income before income taxes...................... 90,660 36,785 202,842
Provision for (benefit from) income taxes.......... 22,081 (12,015) 21,397
---------- ---------- ----------
Net income...................................... $ 68,579 $ 48,800 $ 181,445
========== ========== ==========
Diluted Net Income Per share(4)...................... $ 0.54 $ 0.35 $ 1.04
========== ========== ==========
Weighted Average Ordinary Shares and Equivalents
Outstanding -- Diluted(4)......................... 134,234 149,595 174,404
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 2000
-----------------------------------------------
AS ADJUSTED FOR AS ADJUSTED FOR
ORDINARY ORDINARY SHARES
ACTUAL SHARES AND NOTES
---------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Working capital..................................... $1,149,494 $1,479,416 $1,769,916
Total assets........................................ 4,325,985 4,655,907 4,655,907
Total debt.......................................... 776,135 776,135 789,635
Shareholders' equity................................ 2,214,073 2,543,995 2,543,995
</TABLE>
------------------------
(1) In fiscal 1998, we incurred plant closing expenses aggregating $8.9 million
in connection with closing a manufacturing facility. We also incurred $7.4
million of merger-related costs as a result of acquisitions in fiscal 1998.
(2) In fiscal 1999, we recorded unusual pre-tax charges of $76.2 million, of
which $70.8 million was primarily non-cash and related to the write-down of
a semiconductor wafer fabrication facility to net realizable value, losses
on sales contracts, incremental amounts of uncollectible accounts
receivable, incremental amounts of sales returns and allowances, inventory
write-downs and other exit costs.
(3) In fiscal 2000, we incurred $3.5 million of merger-related costs as a result
of acquisitions.
(4) Diluted net income per share and weighted average ordinary shares and
equivalents outstanding -- diluted are discussed in Note 2 of notes to
Supplemental Consolidated Financial Statements.
S-5
<PAGE> 9
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks described below and the other information in this prospectus
supplement and the accompanying prospectus, including the information
incorporated by reference in the accompanying prospectus, before deciding to
invest in our ordinary shares. If any of the risks described below materializes,
our operating results and financial condition could be adversely affected, and
the trading price of our ordinary shares could decline.
IF WE DO NOT MANAGE EFFECTIVELY THE EXPANSION OF OUR OPERATIONS, OUR BUSINESS
MAY BE HARMED.
We have grown rapidly in recent periods. Our workforce has tripled in size
over the last year as a result of internal growth and acquisitions. This growth
is likely to considerably strain our management control system and resources,
including decision support, accounting management, information systems and
facilities. If we do not continue to improve our financial and management
controls, reporting systems and procedures to manage our employees effectively
and to expand our facilities, our business could be harmed.
We plan to increase our manufacturing capacity by expanding our facilities
and by adding new equipment. Such expansion involves significant risks,
including, but not limited to the following:
- we may not be able to attract and retain the management personnel and
skilled employees necessary to support expanded operations;
- we may not efficiently and effectively integrate new operations and
information systems, expand our existing operations and manage
geographically dispersed operations;
- we may incur cost overruns;
- we may encounter construction delays, equipment delays or shortages,
labor shortages and disputes and production start-up problems that could
harm our growth and our ability to meet customers' delivery schedules;
and
- we may not be able to obtain funds for this expansion, and we may not be
able to obtain loans or operating leases with attractive terms.
In addition, we expect to incur new fixed operating expenses associated
with our expansion efforts, including substantial increases in depreciation
expense and rental expense, that will increase our cost of sales. If our
revenues do not increase sufficiently to offset these expenses, our operating
results would be seriously harmed. Our expansion, both through internal growth
and acquisitions, has contributed to our incurring significant accounting
charges. For example, in connection with our acquisitions of DII and Palo Alto
Products International, we expect to record a one-time charge of approximately
$180.0 million and in connection with the issuance of an equity instrument to
Motorola relating to our alliance with Motorola, we expect to record a one-time
non-cash charge of approximately $290.0 million, both in the first fiscal
quarter of fiscal 2001.
WE MAY ENCOUNTER DIFFICULTIES WITH ACQUISITIONS, WHICH COULD HARM OUR BUSINESS.
We have completed a number of acquisitions of businesses and facilities and
expect to continue to acquire additional businesses and facilities in the
future. We are currently in preliminary discussions to acquire additional
businesses and facilities. Any future acquisitions may require additional debt
or equity financing, which could increase our leverage or be dilutive to our
existing shareholders. We cannot assure the terms of, or that we will complete,
any acquisitions in the future.
To integrate acquired businesses, we must implement our management
information systems and operating systems and assimilate and manage the
personnel of the acquired operations. The difficulties of this integration may
be further complicated by geographic distances. The integration of acquired
businesses may not be successful and could result in disruption to other parts
of our business.
S-6
<PAGE> 10
In addition, acquisitions involve a number of other risks and challenges,
including, but not limited to,
- diversion of management's attention;
- potential loss of key employees and customers of the acquired companies;
- lack of experience operating in the geographic market of the acquired
business; and
- an increase in our expenses and working capital requirements.
Any of these and other factors could harm our ability to achieve
anticipated levels of profitability at acquired operations or realize other
anticipated benefits of an acquisition.
WE HAVE NEW CUSTOMER RELATIONSHIPS FROM WHICH WE ARE NOT YET RECEIVING
SIGNIFICANT REVENUES, AND ORDERS FROM THESE CUSTOMERS MAY NOT REACH ANTICIPATED
LEVELS.
We have recently announced major new customer relationships, including our
alliance with Motorola, from which we anticipate significant future sales.
However, similar to our other customer relationships, there are no volume
purchase commitments under these new programs, and the revenues we actually
achieve may not meet our expectations. In anticipation of future activities
under these programs, we are incurring substantial expenses as we add personnel
and manufacturing capacity and procure materials. Our operating results will be
seriously harmed if sales do not develop to the extent and within the time frame
we anticipate.
OUR CUSTOMERS MAY CANCEL THEIR ORDERS, CHANGE PRODUCTION QUANTITIES OR DELAY
PRODUCTION.
Electronics manufacturing service providers must provide increasingly rapid
product turnaround for their customers. We generally do not obtain firm,
long-term purchase commitments from our customers and we continue to experience
reduced lead-times in customer orders. Customers may cancel their orders, change
production quantities or delay production for a number of reasons.
Cancellations, reductions or delays by a significant customer or by a group of
customers would seriously harm our results of operations.
In addition, we make significant decisions, including determining the
levels of business that we will seek and accept, production schedules, component
procurement commitments, personnel needs and other resource requirements, based
on our estimates of customer requirements. The short-term nature of our
customers' commitments and the possibility of rapid changes in demand for their
products reduces our ability to estimate accurately future customer
requirements. On occasion, customers may require rapid increases in production,
which can stress our resources and reduce margins. Although we have increased
our manufacturing capacity and plan further increases, we may not have
sufficient capacity at any given time to meet our customers' demands. In
addition, because many of our costs and operating expenses are relatively fixed,
a reduction in customer demand can harm our gross margins and operating income.
OUR OPERATING RESULTS VARY SIGNIFICANTLY.
We experience significant fluctuations in our results of operations. The
factors which contribute to fluctuations include:
- the timing of customer orders;
- the volume of these orders relative to our capacity;
- market acceptance of customers' new products;
- changes in demand for customers' products and product obsolescence;
- the timing of our expenditures in anticipation of future orders;
- our effectiveness in managing manufacturing processes;
S-7
<PAGE> 11
- changes in the cost and availability of labor and components;
- changes in our product mix;
- changes in economic conditions;
- local factors and events that may affect our production volume, such as
local holidays; and
- seasonality in customers' product requirements.
One of our significant end-markets is the consumer electronics market. This
market exhibits particular strength towards the end of the year in connection
with the holiday season. As a result, we have experienced relative strength in
revenues in our third fiscal quarter.
THE MAJORITY OF OUR SALES COMES FROM A SMALL NUMBER OF CUSTOMERS; IF WE LOSE ANY
OF THESE CUSTOMERS, OUR SALES COULD DECLINE SIGNIFICANTLY.
Sales to our five largest customers have represented a majority of our net
sales in recent periods. Our five largest customers accounted for approximately
44% of consolidated net sales in fiscal 2000. Our largest customers during
fiscal 2000 were Ericsson and Philips accounting for approximately 12% and 10%
of consolidated net sales. Our largest customer during fiscal 1999 was Philips
accounting for approximately 10% of consolidated net sales. The identity of our
principal customers have varied from year to year, and our principal customers
may not continue to purchase services from us at current levels, if at all.
Significant reductions in sales to any of these customers, or the loss of major
customers, would seriously harm our business. If we are not be able to timely
replace expired, canceled or reduced contracts with new business, our revenues
would be harmed.
WE DEPEND ON THE ELECTRONICS INDUSTRY WHICH CONTINUALLY PRODUCES TECHNOLOGICALLY
ADVANCED PRODUCTS WITH SHORT LIFE CYCLES; OUR INABILITY TO CONTINUALLY
MANUFACTURE SUCH PRODUCTS ON A COST-EFFECTIVE BASIS WOULD HARM OUR BUSINESS.
Factors affecting the electronics industry in general could seriously harm
our customers and, as a result, us. These factors include:
- the inability of our customers to adapt to rapidly changing technology
and evolving industry standards, which results in short product life
cycles;
- the inability of our customers to develop and market their products, some
of which are new and untested, the potential that our customers' products
may become obsolete or the failure of our customers' products to gain
widespread commercial acceptance; and
- recessionary periods in our customers' markets.
If any of these factors materialize, our business would suffer.
THERE MAY BE SHORTAGES OF REQUIRED ELECTRONIC COMPONENTS.
A substantial majority of our net sales are derived from turnkey
manufacturing in which we are responsible for purchasing components used in
manufacturing our customers products. We generally do not have long-term
agreements with suppliers of components. This typically results in our bearing
the risk of component price increases because we may be unable to procure the
required materials at a price level necessary to generate anticipated margins
from our agreements with our customers. Accordingly, component price changes
could seriously harm our operating results.
At various times, there have been shortages of some of the electronic
components that we use, and suppliers of some components have lacked sufficient
capacity to meet the demand for these components. In
S-8
<PAGE> 12
recent months, component shortages have become more prevalent in our industry.
In some cases, supply shortages and delays in deliveries of particular
components have resulted in curtailed production, or delays in production, of
assemblies using that component, which has contributed to an increase in our
inventory levels. We expect that shortages and delays in deliveries of some
components will continue. If we are unable to obtain sufficient components on a
timely basis, we may experience manufacturing and shipping delays, which could
harm our relationships with current or prospective customers and reduce our
sales.
OUR INDUSTRY IS EXTREMELY COMPETITIVE.
The electronics manufacturing services industry is extremely competitive
and includes hundreds of companies, several of which have achieved substantial
market share. Current and prospective customers also evaluate our capabilities
against the merits of internal production. Some of our competitors, including
Solectron, Celestica and SCI Systems, have substantially greater market share
than us, and substantially greater manufacturing, financial, research and
development and marketing resources.
In recent years, many participants in the industry, including us, have
substantially expanded their manufacturing capacity. If overall demand for
electronics manufacturing services should decrease, this increased capacity
could result in substantial pricing pressures, which could seriously harm our
operating results.
WE ARE SUBJECT TO THE RISK OF INCREASED TAXES.
We have structured our operations in a manner designed to maximize income
in countries where tax incentives have been extended to encourage foreign
investment or where income tax rates are low. We base our tax position upon the
anticipated nature and conduct of our business and upon our understanding of the
tax laws of the various countries in which we have assets or conduct activities.
However, our tax position is subject to review and possible challenge by taxing
authorities and to possible changes in law which may have retroactive effect. We
cannot determine in advance the extent to which some jurisdictions may require
us to pay tax or make payments in lieu of tax.
Several countries in which we are located allow for tax holidays or provide
other tax incentives to attract and retain business. We have obtained holidays
or other incentives where available. Our taxes could increase if certain tax
holidays or incentives are not renewed upon expiration, or tax rates applicable
to us in such jurisdictions are otherwise increased. In addition, further
acquisitions may cause our effective tax rate to increase.
WE CONDUCT OPERATIONS IN A NUMBER OF COUNTRIES AND ARE SUBJECT TO RISKS OF
INTERNATIONAL OPERATIONS.
The geographical distances between Asia, the Americas and Europe create a
number of logistical and communications challenges. Our manufacturing operations
are located in a number of countries, including Austria, Brazil, China, the
Czech Republic, Finland, France, Germany, Hungary, Ireland, Italy, Malaysia,
Mexico, Sweden, the United Kingdom and the United States. As a result, we are
affected by economic and political conditions in those countries, including:
- fluctuations in the value of currencies;
- changes in labor conditions;
- longer payment cycles;
- greater difficulty in collecting accounts receivable;
- burdens and costs of compliance with a variety of foreign laws;
- political and economic instability;
- increases in duties and taxation;
S-9
<PAGE> 13
- imposition of restrictions on currency conversion or the transfer of
funds;
- limitations on imports or exports;
- expropriation of private enterprises; and
- reversal of the current policies including favorable tax and lending
policies encouraging foreign investment or foreign trade by our host
countries.
The attractiveness of our services to our U.S. customers can be affected by
changes in U.S. trade policies, such as "most favored nation" status and trade
preferences for some Asian nations. In addition, some countries in which we
operate, such as Brazil, Mexico and Malaysia, have experienced periods of slow
or negative growth, high inflation, significant currency devaluations and
limited availability of foreign exchange. Furthermore, in countries such as
Mexico and China, governmental authorities exercise significant influence over
many aspects of the economy, and their actions could have a significant effect
on us. Finally, we could be seriously harmed by inadequate infrastructure,
including lack of adequate power and water supplies, transportation, raw
materials and parts in countries in which we operate.
WE ARE SUBJECT TO RISKS OF CURRENCY FLUCTUATIONS AND HEDGING OPERATIONS.
A significant portion of our business is conducted in the European euro,
the Swedish krona and the Brazilian real. In addition, some of our costs, such
as payroll and rent, are denominated in currencies such as the Austrian
schilling, the British pound, the Chinese renminbi, the German deutsche mark,
the Hong Kong dollar, the Hungarian forint, the Irish pound, the Malaysian
ringgit, the Mexican peso and the Singapore dollar, as well as the krona, the
euro and the real. In recent years, the Hungarian forint, Brazilian real and
Mexican peso have experienced significant devaluations. Changes in exchange
rates between these and other currencies and the U.S. dollar will affect our
cost of sales, operating margins and revenues. We cannot predict the impact of
future exchange rate fluctuations. We use financial instruments, primarily
forward purchase contracts, to hedge Japanese yen, European euro, U.S. dollar
and other foreign currency commitments arising from trade accounts payable and
fixed purchase obligations. Because we hedge only fixed obligations, we do not
expect that these hedging activities will harm our results of operations or cash
flows. However, our hedging activities may be unsuccessful, and we may change or
reduce our hedging activities in the future. As a result, we may experience
significant unexpected expenses from fluctuations in exchange rates.
WE DEPEND ON OUR KEY PERSONNEL.
Our success depends to a larger extent upon the continued services of our
key executives, managers and skilled personnel. Generally our employees are not
bound by employment or non-competition agreements, and we cannot assure that we
will retain our key officers and employees. We could be seriously harmed by the
loss of key personnel.
WE ARE SUBJECT TO ENVIRONMENTAL COMPLIANCE RISKS.
We are subject to various federal, state, local and foreign environmental
laws and regulations, including those governing the use, storage, discharge and
disposal of hazardous substances in the ordinary course of our manufacturing
process. In addition, we are responsible for cleanup of contamination at some of
our current and former manufacturing facilities and at some third party sites.
If more stringent compliance or cleanup standards under environmental laws or
regulations are imposed, or the results of future testing and analyses at our
current or former operating facilities indicate that we are responsible for the
release of hazardous substances, we may be subject to additional remediation
liability. Further, additional environmental matters may arise in the future at
sites where no problem is currently known or at sites that we may acquire in the
future. Currently unexpected costs that we may incur with respect to
environmental matters may result in additional loss contingencies, the
quantification of which cannot be determined at this time.
S-10
<PAGE> 14
THE MARKET PRICE OF OUR ORDINARY SHARES IS VOLATILE.
The stock market in recent years has experienced significant price and
volume fluctuations that have affected the market prices of technology
companies. These fluctuations have often been unrelated to or disproportionately
impacted by the operating performance of these companies. The market for our
ordinary shares may be subject to similar fluctuations. Factors such as
fluctuations in our operating results, announcements of technological
innovations or events affecting other companies in the electronics industry,
currency fluctuations and general market conditions may have a significant
effect on the market price of our ordinary shares.
S-11
<PAGE> 15
DIVIDENDS
Since inception, we have not declared or paid any cash dividends on our
ordinary shares, and our credit facility prohibits the payment of cash dividends
without the lenders' prior consent. The terms of our senior subordinated notes
also restrict our ability to pay cash dividends. We anticipate that all earnings
in the foreseeable future will be retained to finance the continuing development
of our business.
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the 5,500,000 ordinary
shares offered by this prospectus supplement and the accompanying prospectus
will be approximately $329.9 million, at an assumed public offering price of
$62.50 per share and after deducting the estimated underwriting discounts and
commissions. If the underwriters' over-allotment option is exercised in full, we
estimate that the net proceeds will be approximately $379.4 million. We intend
to use the net proceeds of this offering to fund the further expansion of our
business, including additional working capital and capital expenditures, and for
general corporate purposes. Until the net proceeds have been used, they will be
invested in short-term marketable securities.
PRICE RANGE OF ORDINARY SHARES
The ordinary shares are traded on the Nasdaq National Market under the
symbol "FLEX." The following table shows the high and low sale prices of our
ordinary shares since the beginning of our 1999 fiscal year as reported on the
Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL YEAR ENDED MARCH 31, 1999
First Quarter............................................. $13.13 $ 9.03
Second Quarter............................................ 11.88 5.50
Third Quarter............................................. 21.84 7.00
Fourth Quarter............................................ 26.09 16.38
FISCAL YEAR ENDED MARCH 31, 2000
First Quarter............................................. $29.19 $18.69
Second Quarter............................................ 34.06 21.25
Third Quarter............................................. 49.38 28.56
Fourth Quarter............................................ 79.75 38.31
FISCAL YEAR ENDING MARCH 31, 2001
First Quarter (through June 8, 2000)...................... $72.00 $44.75
</TABLE>
On June 8, 2000, the closing sale price of our ordinary shares as reported
on the Nasdaq National Market was $62.50 per share.
S-12
<PAGE> 16
CAPITALIZATION
The following table sets forth our unaudited capitalization as of March 31,
2000 on a supplemental actual basis giving effect to the acquisitions of DII and
Palo Alto Products International, as adjusted to reflect the issuance and sale
of 5,500,000 ordinary shares in this equity offering at an assumed public
offering price of $62.50 per share and further adjusted to reflect the
repurchase of DII's 8.50% Senior Subordinated Notes and the receipt and
application of the estimated net proceeds from the sale of the concurrent senior
subordinated notes.
<TABLE>
<CAPTION>
MARCH 31, 2000
-----------------------------------------------------
AS ADJUSTED FOR
AS ADJUSTED FOR ORDINARY SHARES
ACTUAL ORDINARY SHARES AND NOTES(3)
---------- ---------------------- ---------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents(1)...................... $ 725,647 $1,055,569 $1,055,569
========== ========== ==========
Long-term debt, including current portion:
Credit facilities(1)(2)(3)........................ 351,199 351,199 64,699
Capital lease obligations......................... 52,623 52,623 52,623
8.75% Senior Subordinated Notes due 2007.......... 150,000 150,000 150,000
8.50% Senior Subordinated Notes due 2007(1)....... 150,000 150,000 --(3)
Notes offered by the offering memorandum dated
June 12, 2000................................... -- -- 450,000
Other............................................. 72,313 72,313 72,313
---------- ---------- ----------
Total debt...................................... 776,135 776,135 789,635
---------- ---------- ----------
Shareholders' equity:
Ordinary shares, S$0.01 par value; authorized --
250,000,000; issued and
outstanding -- 188,247,589 and 193,747,589 as of
March 31, 2000 on an actual basis and as
adjusted for this offering, respectively........ 1,473 1,505 1,505
Additional paid-in capital........................ 1,827,651 2,157,541 2,157,541
Retained earnings................................. 375,722 375,722 375,722
Deferred compensation............................. (5,084) (5,084) (5,084)
Accumulated other comprehensive income............ 14,311 14,311 14,311
---------- ---------- ----------
Total shareholders' equity...................... 2,214,073 2,543,995 2,543,995
---------- ---------- ----------
Total capitalization............................ $2,990,208 $3,320,130 $3,333,630
========== ========== ==========
</TABLE>
---------------
(1) Since March 31, 2000, we have incurred approximately $120.0 million of
one-time cash charges related to the DII merger, have paid approximately
$178.0 million for acquisitions, refinanced DII's 8.50% Senior Subordinated
Notes and increased working capital. As a result, our cash and cash
equivalents have been reduced significantly and borrowings under our credit
facilities have increased.
(2) On April 3, 2000, we entered into a new $500.0 million credit facility. On
June 6, 2000, we entered into a $50.0 million senior note agreement. We plan
to replace the senior note agreement with a new senior note agreement to
increase availability to up to $200.0 million. See "Description of Existing
Indebtedness."
(3) Reflects the repurchase of DII's 8.50% Senior Subordinated Notes due 2007,
including fees and accrued interest, which was completed on June 7, 2000.
S-13
<PAGE> 17
SELECTED SUPPLEMENTAL CONSOLIDATED FINANCIAL DATA
The following selected supplemental consolidated financial data should be
read in conjunction with our supplemental consolidated financial statements and
related notes and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this prospectus supplement. The
supplemental consolidated financial statements have been prepared to give
retroactive effect to the merger with The DII Group, Inc. on April 3, 2000 and
the merger with Palo Alto Products International Pte. Ltd. on April 7, 2000,
each of which has been accounted for as a pooling of interests as described in
Note 2 to the supplemental consolidated financial statements. Generally accepted
accounting principles proscribe giving effect to a consummated business
combination accounted for by the pooling-of-interests method in financial
statements that do not include the date of consummation. These supplemental
consolidated financial statements do not extend through the date of
consummation. However, they will become our historical consolidated financial
statements after the financial statements covering the date of consummation of
the business combination are issued.
The supplemental consolidated statement of operations data for each of the
years in the three-year period ended March 31, 2000, and the supplemental
consolidated balance sheet data as of March 31, 1999 and 2000, are derived from
supplemental consolidated financial statements that have been audited by Arthur
Andersen LLP, independent auditors, and are included elsewhere in this
prospectus supplement. The supplemental consolidated statement of operations
data as of March 31, 1996 and 1997 and the supplemental balance sheet data as of
March 31, 1996, 1997 and 1998 are derived from consolidated financial statements
that have been audited by Arthur Andersen LLP that are not included in this
prospectus supplement. Historical results are not necessarily indicative of the
results to be expected in the future.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
------------------------------------------------------------------
1996 1997 1998 1999 2000
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net sales.............................. $1,291,541 $1,435,362 $2,202,451 $3,253,025 $5,739,735
Cost of sales.......................... 1,116,119 1,243,386 1,924,901 2,910,353 5,235,406
Unusual charges........................ 1,254(1) 17,751(2) 8,869(3) 76,155(4) --
---------- ---------- ---------- ---------- ----------
Gross profit......................... 169,576 174,225 268,681 266,517 504,329
Selling, general and administrative.... 83,458 103,463 143,597 179,808 240,274
Goodwill and intangible amortization... 3,777 5,979 8,471 9,165 12,783
Acquired in-process research and
development.......................... 29,000(1) -- -- 2,000(5) --
Merger-related expenses................ -- 4,649(2) 7,415(3) -- 3,523(6)
Interest and other expense, net........ 6,088 11,250 18,538 38,759 44,907
---------- ---------- ---------- ---------- ----------
Income before income taxes and
extraordinary item................. 51,845 48,884 90,660 36,785 202,842
Provision for (benefit from) income
taxes................................ 22,069 11,907 22,081 (12,015) 21,397
---------- ---------- ---------- ---------- ----------
Income before extraordinary item..... 29,776 36,977 68,579 48,800 181,445
Extraordinary loss..................... 708 -- -- -- --
---------- ---------- ---------- ---------- ----------
Net income........................... $ 29,068 $ 36,977 $ 68,579 $ 48,800 $ 181,445
========== ========== ========== ========== ==========
Diluted net income per share(7)........ $ 0.26 $ 0.31 $ 0.54 $ 0.35 $ 1.04
========== ========== ========== ========== ==========
Weighted Average Ordinary Shares and
Equivalents
Outstanding -- Diluted(7)............ 111,352 118,028 134,234 149,595 174,404
</TABLE>
S-14
<PAGE> 18
<TABLE>
<CAPTION>
AS OF MARCH 31,
------------------------------------------------------------------
1996 1997 1998 1999 2000
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL CONSOLIDATED BALANCE SHEET
DATA:
Working capital........................ $ 142,868 $ 80,611 $ 321,371 $ 335,360 $1,149,494
Total assets........................... 756,473 905,629 1,487,886 2,149,700 4,325,985
Total long-term debt, excluding current
portion.............................. 134,058 131,811 435,213 554,829 379,604(8)
Shareholders' equity................... 266,229 320,821 501,671 735,970 2,214,073(8)(9)
</TABLE>
---------------
(1) In fiscal 1996, we wrote off $29.0 million of in-process research and
development associated with an acquisition and also recorded charges
totaling $1.3 million for costs associated with the closing of some
operations.
(2) In fiscal 1997, we incurred $4.6 million of merger-related expenses
associated with an acquisition and $17.8 million in costs associated with
the closing and sale of certain operations.
(3) In fiscal 1998, we incurred plant closing expenses aggregating $8.9 million
in connection with the closure of a manufacturing facility. We also incurred
$7.4 million of merger-related costs as a result of some acquisitions.
(4) In fiscal 1999, we recorded unusual pre-tax charges of $76.2 million, of
which $70.8 million was primarily non-cash and related to the write-down of
a semiconductor wafer fabrication facility to net realizable value, losses
on sales contracts, incremental amounts of uncollectible accounts
receivable, incremental amounts of sales returns and allowances, inventory
write-downs and other exit costs.
(5) In fiscal 1999, we wrote off $2.0 million of in-process research and
development associated with an acquisition.
(6) In fiscal 2000, we incurred $3.5 million of merger-related costs as a result
of acquisitions.
(7) Diluted net income per share and weighted average ordinary shares and
equivalents outstanding -- diluted are discussed in Note 2 of the audited
supplemental consolidated financial statements.
(8) In fiscal 2000, substantially all of DII's convertible subordinated notes
were converted into approximately 7,406,000 ordinary shares and the
unconverted portion was redeemed for $100,000.
(9) In fiscal 2000, we completed two offerings of our ordinary shares. In
February 2000, we sold a total of 8,600,000 ordinary shares, resulting in
net proceeds of approximately $494.1 million. In October 1999, we sold a
total of 13,800,000 ordinary shares, resulting in net proceeds of
approximately $448.9 million. In September 1999, DII completed an offering
of 6,900,000 shares of its common stock, resulting in net proceeds of
approximately $215.7 million.
S-15
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ACQUISITIONS, PURCHASES OF FACILITIES AND OTHER STRATEGIC TRANSACTIONS
We have actively pursued mergers and other business acquisitions to expand
our global reach, manufacturing capacity and service offerings and to diversify
and strengthen customer relationships. We have completed several significant
business combinations since the end of fiscal 1999. In April 2000, we acquired
all of the outstanding shares of DII and Palo Alto Products International. In
March 2000, we acquired all of the outstanding shares of PCB Assembly, Inc. In
July 1999, we acquired all of the outstanding shares of Kyrel EMS Oyj. Each of
these acquisitions was accounted for as pooling of interests and our
consolidated financial statements have been restated to reflect the combined
operations of Flextronics, DII, Palo Alto Products International, PCB Assembly
and Kyrel for all periods presented.
In connection with our mergers with DII and Palo Alto Products
International, we expect to record a one-time charge approximately $180.0
million in the first fiscal quarter of fiscal 2001. We estimate that
approximately $120.0 million of this one-time charge will consist of cash
charges relating to severance payments, investment banking and financial
advisory fees and professional services fees.
Additionally, we have completed a number of other smaller
pooling-of-interests transactions. Prior period statements have not been
restated for these transactions. We have also made a number of purchase
acquisitions of other companies and manufacturing facilities. Our consolidated
financial statements include the operating results of each business from the
date of acquisition. Pro forma results of operations have not been presented
because the effects of these acquisitions were not material on either an
individual or an aggregate basis.
We are currently in preliminary discussions to acquire additional
businesses and facilities. We cannot assure the terms of, or that we will
complete, such acquisitions. For more information about our business
combinations and acquisitions, see "Business -- Acquisitions" and "Risk
Factors -- We may encounter difficulties with acquisitions, which could harm our
business."
On May 30, 2000, we entered into a strategic alliance for product
manufacturing with Motorola. This alliance provides incentives for Motorola to
purchase over $30.0 billion of products and services from us through December
31, 2005. We anticipate that this relationship will encompass a wide range of
products, including cellular phones, pagers, set-top boxes and infrastructure
equipment, and will involve a broad range of services, including design, PCB
fabrication and assembly, plastics, enclosures and supply chain services. The
relationship is not exclusive and does not require that Motorola purchase any
specific volumes of products or services from us. Our ability to achieve any of
the anticipated benefits of this relationship is subject to a number of risks,
including our ability to provide our services on a competitive basis and to
expand our manufacturing resources, as well as demand for Motorola's products.
In connection with this strategic alliance, Motorola will pay $100.0 million for
an equity instrument that entitles it to acquire 11,000,000 Flextronics ordinary
shares at any time through December 31, 2005 upon meeting targeted purchase
levels or making additional payments to us. The issuance of this equity
instrument will result in a one-time non-cash charge equal to the excess of the
fair value of the equity instrument issued over the $100.0 million proceeds to
be received. As a result, the one-time non-cash charge will be approximately
$290.0 million, offset by a corresponding credit to shareholders' equity in the
first quarter of fiscal 2001. During the term of the strategic alliance, if
Motorola meets targeted purchase levels, no additional payments may be required
by Motorola to acquire 11,000,000 Flextronics ordinary shares. However, there
may be additional non-cash charges of up to $300.0 million over the term of the
strategic alliance.
S-16
<PAGE> 20
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, some statements
of operations data expressed as a percentage of net sales. The information has
been derived from our supplemental audited consolidated financial statements and
should be read in conjunction with the supplemental consolidated financial
statements and related notes included elsewhere in this offering memorandum.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
-----------------------------
1998 1999 2000
------- ------- -------
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
Cost of sales............................................... 87.4 89.5 91.2
Unusual charges............................................. 0.4 2.3 --
----- ----- -----
Gross margin.............................................. 12.2 8.2 8.8
Selling, general and administrative......................... 6.5 5.5 4.2
Goodwill and intangible amortization........................ 0.4 0.3 0.2
Acquired in-process research and development................ -- 0.1 --
Merger-related expenses..................................... 0.3 -- 0.1
Interest and other expense, net............................. 0.9 1.2 0.8
----- ----- -----
Income before income taxes................................ 4.1 1.1 3.5
Provision for (benefit from) income taxes................... 1.0 (0.4) 0.4
----- ----- -----
Net income................................................ 3.1% 1.5% 3.1%
===== ===== =====
</TABLE>
Net Sales
We derive our net sales from our wide range of service offerings, including
product design, semiconductor design, printed circuit board assembly and
fabrication, material procurement, inventory management, plastic injection
molding, final system assembly and test, packaging and distribution.
Net sales for fiscal 2000 increased 76.4% to $5.7 billion from $3.3 billion
in fiscal 1999. The increase in sales for fiscal 2000 was primarily the result
of well as expanding sales to our existing customer base (primarily our five
largest customers) and, to a lesser extent, sales to new customers. The increase
in sales in part reflects the incremental revenue associated with the purchases
of several manufacturing facilities and other acquisitions during fiscal 2000.
In fiscal 2000, our five largest customers accounted for approximately 44% of
net sales, with Ericsson accounting for approximately 12% and Philips accounting
for approximately 10%.
In fiscal 1999, our five largest customers accounted for approximately 36%
of net sales, with Philips accounting for approximately 10%. Net sales for
fiscal 1999 increased 47.7% to $3.3 billion from $2.2 billion in fiscal 1998.
The increase in sales for fiscal 1999 was primarily due to expanding sales to
existing customers and, to a lesser extent, sales to new customers.
Gross Profit
Gross profit varies from period to period and is affected by a number of
factors, including product mix, component costs, product life cycles, unit
volumes, startup, expansion and consolidation of manufacturing facilities,
pricing, competition and new product introductions.
Gross margin increased to 8.8% for fiscal 2000 from 8.2% in fiscal 1999.
The increase in gross margin is primarily attributable to $76.2 million of
unusual pre-tax charges during fiscal 1999, of which $70.8 million
S-17
<PAGE> 21
were associated with our exit from semiconductor wafer fabrication. Excluding
these unusual charges, our gross margin decreased from 10.5% to 8.8%. Gross
margin decreased due to several factors, including:
- costs associated with expanding our facilities;
- costs associated with the startup of new customers and new projects,
which typically carry higher levels of underabsorbed manufacturing
overhead costs until the projects reach higher volume production; and
- changes in product mix to higher volume projects and final systems
assembly projects, which typically have a lower gross margin.
Gross margin decreased to 8.2% for fiscal 1999 from 12.2% in fiscal 1998.
The decrease in gross margin is attributable in part to $76.2 million of unusual
pre-tax charges during fiscal 1999, of which $70.8 million was primarily
non-cash and were associated with our exit from semiconductor wafer fabrication.
Excluding unusual charges, our gross margin decreased from 12.6% to 10.5%. Gross
margin decreased due to several factors, including:
- costs associated with expanding our facilities;
- costs associated with the startup of new customers and new projects which
typically carry higher levels of underabsorbed manufacturing overhead
costs until the projects reach higher volume production;
- changes in product mix to higher volume projects and final systems
assembly projects, which typically have a lower gross margin; and
- manufacturing inefficiencies, underutilization, and yield problems at our
semiconductor fabrication facility.
Increased mix of products that have relatively high materials costs as a
percentage of total unit costs can adversely affect our gross margins. We
believe that this and other factors may adversely affect our gross margins, but
we do not expect that this will have a material effect on our income from
operations.
Unusual Charges
During fiscal 1999, we recognized unusual pre-tax charges of $76.2 million,
of which $70.8 million was primarily non-cash and related to the operations of
Orbit Semiconductor. DII purchased Orbit in August 1996, and supported Orbit's
previously-made decision to replace its wafer fabrication facility with a
fabrication facility that would incorporate more advanced technology. The
transition to the new fabrication facility was originally scheduled for
completion during the summer of 1997, but the changeover took longer than
expected and was finally completed in the first quarter of fiscal 1999.
The delayed changeover and the resulting simultaneous operation of both
fabrication facilities put pressure on the work force, and resulted in quality
problems. Compounding these problems, the semiconductor industry was
characterized by excess capacity, which led to increased competition. Further,
many of Orbit's customers migrated faster than expected to a technology that was
not supported by Orbit's fabrication capabilities, requiring Orbit to outsource
more of its manufacturing requirements than originally expected. Based upon
these continued conditions and the future outlook, we took an unusual charge of
$51.2 million in the first quarter of fiscal 1999 to correctly size Orbit's
asset base to allow its recoverability based upon its then current business
size. In fiscal 1999, we decided to sell Orbit's fabrication facility and
outsource semiconductor manufacturing, resulting in an additional unusual charge
of $19.6 million in the fourth quarter of fiscal 1999. The facility was sold in
the first quarter of fiscal 2000.
S-18
<PAGE> 22
The components of the unusual charges recorded in fiscal 1999 are as
follows:
<TABLE>
<CAPTION>
FIRST FOURTH FISCAL NATURE
QUARTER QUARTER 1999 OF CHARGE
------- ------- ------- -------------
<S> <C> <C> <C> <C>
Severance...................................... $ 498 $ 2,371 $ 2,869 cash
Long-lived asset impairment.................... 38,257 16,538 54,795 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 2,238 4,083 cash/non-cash
------- ------- -------
Total unusual pre-tax charges................ $51,158 $24,997 $76,155
======= ======= =======
</TABLE>
The following table summarizes the components and activity related to
fiscal 1999 unusual charges:
<TABLE>
<CAPTION>
LONG-LIVED LOSSES ON UNCOLLECTIBLE SALES RETURNS OTHER
ASSET SALES ACCOUNTS AND INVENTORY EXIT
SEVERANCE IMPAIRMENT CONTRACTS RECEIVABLE ALLOWANCES WRITE-DOWNS COSTS TOTAL
--------- ---------- --------- ------------- ------------- ----------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31,
1998.................... $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Activities during the
year:
1999 provision.......... 2,869 54,795 5,758 900 2,000 5,750 4,083 76,155
Cash charges............ (1,969) -- -- -- -- -- (900) (2,869)
Non-cash charges........ -- (54,795) (4,658) (767) (1,500) (5,500) (643) (67,863)
------- -------- ------- ----- ------- ------- ------- --------
Balance at March 31,
1999.................... 900 -- 1,100 133 500 250 2,540 5,423
Activities during the
period:
Cash charges............ (900) -- -- -- -- -- (2,540) (3,440)
Non-cash charges........ -- -- (1,100) (133) (500) (250) -- (1,983)
------- -------- ------- ----- ------- ------- ------- --------
Balance at March 31,
2000.................... $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
======= ======== ======= ===== ======= ======= ======= ========
</TABLE>
Of the total unusual pre-tax charges, $2.9 million relates to employee
termination costs. As of the first quarter of fiscal 2000, approximately 290
people had been terminated, and another 170 people were terminated when the
fabrication facility was sold. We paid approximately $0.9 million and $2.0
million of employee termination costs during fiscal 2000 and 1999.
The unusual pre-tax charges include $54.8 million for the write-down of
long-lived assets to fair value. Included in the long-lived asset impairment are
charges of $50.7 million, which relate to the fabrication facility, which were
written down to its net realizable value based on its sales price. We kept the
fabrication facility in service until the sale date in the first quarter of
fiscal 2000. We discontinued depreciation expense on the fabrication facility
when we 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 $52.4 million, which were written down to a carrying value of $9.0
million and building improvements of $7.3 million, 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 $0.6 million. The remaining
$3.5 million of asset impairment relates to the write-down to net realizable
value of plant and equipment relating to other facilities we closed during
fiscal 1999.
We entered into some non-cancellable sales contracts to provide
semiconductors to customers at fixed prices. Because we were obligated to
fulfill the terms of the agreements at selling prices which were not sufficient
to cover the cost to produce or acquire these products, a liability for losses
on sales contracts was recorded for the estimated future amount of these losses.
The unusual pre-tax charges include $8.7 million for losses on sales contracts,
incremental amounts of uncollectible accounts receivable, and estimated
incremental costs for sales returns and allowances.
The unusual pre-tax charges also include $9.8 million for losses on
inventory write-downs and other exit costs. We have written off and disposed of
approximately $5.8 million of inventory. The remaining
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<PAGE> 23
$4.0 million relates primarily to the loss on the sale of the fabrication
facility relating to incremental costs and contractual obligations for items
such as lease termination costs, litigation, environmental clean-up costs, and
other costs incurred directly as a result of the exit plan.
We also recognized unusual pre-tax charges of $8.9 million in fiscal 1998
related to costs incurred in closing the Wales, United Kingdom facility. This
charge consisted primarily of the write-off of goodwill and intangible assets of
$3.8 million, $1.6 million for severance payments, $1.1 million for
reimbursement of government grants, and $2.4 million of costs associated with
the disposal of the factory. This closure was a result of our acquisition of
Altatron, which resulted in duplicative facilities in the United Kingdom.
Selling, General and Administrative
Selling, general and administrative expenses, or SG&A, for fiscal 2000
increased 33.6% to $240.3 million from $179.8 million in fiscal 1999, but
decreased as a percentage of net sales to 4.2% in fiscal 2000 from 5.5% in
fiscal 1999. SG&A for fiscal 1999 increased 25.2% to $179.8 million from $143.6
million in fiscal 1998, but decreased as a percentage of net sales to 5.5% in
fiscal 1999 from 6.5% in fiscal 1998. The dollar increase in SG&A for each
fiscal year was primarily due to the continued investment in infrastructure such
as sales, marketing, supply-chain management and other related corporate and
administrative expenses. The dollar increase in SG&A also was due to expenses
related to continued investment in information systems necessary to support the
expansion of our business. Additionally, the dollar increase in SG&A for each
fiscal year was attributable to the incremental expenses associated with the
several manufacturing facility purchases. The decline in SG&A as a percentage of
each fiscal year's net sales reflects increases in our net sales, as well as our
continued focus on controlling our operating expenses.
Goodwill and Intangible Assets Amortization
Goodwill and intangible assets amortization in fiscal 2000 increased to
$12.8 million from $9.2 million in fiscal 1999. This increase is attributable to
the acquisitions of ACL, Greatsino and an additional 50% equity interest in FICO
in March 1999, combined with the amortization of debt issue costs associated
with our increased borrowings.
Goodwill and intangible assets amortization in fiscal 1999 increased to
$9.2 million from $8.5 million in fiscal 1998. This increase was primarily
attributable to the amortization of debt issue costs associated with the
increased borrowings used to fund our acquisitions and the amortization of
goodwill associated with our acquisitions completed in late fiscal 1999.
Acquired In-Process Research and Development
Based on an independent valuation of some of the assets of ACL and other
factors, we determined that the purchase price of ACL included in-process
research and development costs, totaling $2.0 million, that had not reached
technological feasibility and had no probable alternative future use.
Accordingly, we wrote-off $2.0 million of in-process research and development in
fiscal 1999.
Merger-Related Expenses
In fiscal 2000, we incurred merger-related expenses of $3.5 million
associated with the pooling-of-interests acquisitions of Kyrel and PCB. The
merger expenses consisted of a transfer tax of $1.7 million, approximately $0.4
million of investment banking fees and approximately $1.4 million of legal and
accounting fees.
In fiscal 1998, we incurred $7.4 million of merger-related expenses
associated with the acquisitions of Neutronics, EnergiPilot, DTM, Altatron and
Conexao. The Neutronics merger expenses included $2.2 million in costs
associated with the cancellation of Neutronics's public offering and $0.9
million in other legal and
S-20
<PAGE> 24
accounting fees. The remaining $4.3 million consisted of $3.1 million in
brokerage and finders fees incurred in the Altatron acquisition and $1.2 million
in legal and accounting fees for all of the fiscal 1998 acquisitions.
In connection with our recently completed mergers with DII and Palo Alto
Products International, we expect to record a one-time charge of approximately
$180.0 million in the first fiscal quarter of fiscal 2001. We estimate that
approximately $120.0 million of this one-time charge will consist of cash
charges relating to severance payments, investment banking and financial
advisory fees and professional services fees.
Interest and other expense, net
Interest and other expense, net increased to $44.9 million in fiscal 2000
from $38.8 million in fiscal 1999. The following table sets forth information
concerning the components of interest and other expense.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
------------------------------
1998 1999 2000
------- ------- --------
<S> <C> <C> <C>
Interest expense............................................ $28,675 $44,645 $ 56,481
Interest income............................................. (4,996) (9,129) (20,420)
Foreign exchange loss (gain)................................ (4,137) 5,112 2,705
Equity in earnings of associated companies.................. (1,194) (1,036) --
Minority interest........................................... 356 1,319 1,002
Other expense (income), net................................. (166) (2,152) 5,139
------- ------- --------
$18,538 $38,759 $ 44,907
======= ======= ========
</TABLE>
Net interest expense increased to $36.1 million in fiscal 2000 from $35.5
million in fiscal 1999. The increase was attributable to increased borrowings
used to fund our acquisitions, purchases of manufacturing facilities, strategic
investments, expansion of various facilities and capital expenditures, offset by
an increase in interest income from our equity offering proceeds invested in
money market funds and corporate debt securities. Fiscal 2000 net interest
expense includes accelerated amortization of approximately $1.0 million in bank
arrangement fees associated with the termination of a credit facility.
Net interest expense increased to $35.5 million in fiscal 1999 from $23.7
million in fiscal 1998. The increase was primarily due to increased bank
borrowings to finance the capital expenditures and expansion of our facilities
in Sweden, Hungary, Mexico and China and the purchases of manufacturing
facilities.
In fiscal 2000, foreign exchange loss decreased to $2.7 million from $5.1
million foreign exchange loss in fiscal 1999. The foreign exchange loss in
fiscal 2000 mainly relates to net non-functional currency monetary liabilities
in Austria, Finland and Hungary. Foreign exchange loss increased to $5.1 million
from a foreign exchange gain of $4.1 million in fiscal 1998. The foreign
exchange loss in fiscal 1999 mainly relates to net non-functional currency
monetary liabilities in Austria, Finland, Brazil and Hungary. The foreign
exchange gain in fiscal 1998 was mainly due to the strengthening of the U.S.
dollar against Asian currencies.
Equity in earnings of associated companies for fiscal 2000 was nil as
compared to $1.0 million in fiscal 1999. This decrease is the result of
increasing our ownership of FICO to 100% by acquiring an additional 50% of its
equity interests in March 1999 and the remaining 10% in March 2000. Prior to the
increased ownership, we accounted for this investment according to the equity
method of accounting, and as a result did not recognize revenue from sales by
FICO, but recognized 40% of the net income or loss of the associated company,
based on our ownership interest.
Equity in earnings of associated companies for fiscal 1999 remained
relatively unchanged at $1.0 million versus $1.2 million in fiscal 1998. The
equity in earnings of associated companies resulted primarily from our previous
40% investment in FICO and, to a lesser extent, certain minority investments of
Neutronics.
Minority interest expense for fiscal 2000 and fiscal 1999 was comprised
primarily of the 8% minority interest in Neutronics and 10% minority interest in
FICO not acquired by us in March 1999.
S-21
<PAGE> 25
Minority interest expense for fiscal 1998 was comprised primarily of the 8%
minority interest in Neutronics not acquired by us in October 1997 and the 4.1%
minority interest in Ecoplast, a subsidiary of Neutronics held by a third party.
Other expense (income), net decreased from $2.1 million of income in fiscal
1999 to $5.1 million of expense in fiscal 2000. The other expense in fiscal 2000
was comprised mainly of a loss on disposal of fixed assets in Hungary and
increased provisions for doubtful accounts offset by compensation received in a
settlement of a claim. The other income in fiscal 1999 comprised mainly of a
gain from the sale of land in Mexico.
Provision for Income Taxes
Some of our subsidiaries have, at various times, been granted tax relief in
their respective countries, resulting in lower income taxes than would otherwise
be the case under ordinary tax rates. See Note 7 of Notes to Supplemental
Consolidated Financial Statements included elsewhere in this prospectus
supplement.
The consolidated effective tax rate for a particular year varies depending
on the mix of earnings, operating loss carryforwards, income tax credits and
changes in previously established valuation allowances for deferred tax assets
based upon management's current analysis of the realizability of these deferred
tax assets. Our consolidated effective tax rate was 10.5% for fiscal year 2000
compared to (32.7)% for fiscal year 1999. Excluding the unusual charges, the
effective income tax rate in fiscal 1999 was 14.9%. The decrease in the
effective tax rate was due primarily to the expansion of operations and increase
in profitability in countries with lower tax rates or a tax holiday, the
recognition of income tax loss and tax credit carryforwards and management's
current assessment of the required valuation allowance.
BACKLOG
Although we obtain firm purchase orders from our customers, OEM customers
typically do not make firm orders for delivery of products more than thirty to
ninety days in advance. We do not believe that the backlog of expected product
sales covered by firm purchase orders is a meaningful measure of future sales
since orders may be rescheduled or canceled.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, we had cash and cash equivalents balances totaling
$725.6 million, total bank and other debts amounting to $776.1 million and $63.0
million available for borrowing under our credit facilities subject to
compliance with certain financial ratios. Since March 31, 2000, we have incurred
approximately $120.0 million of one-time cash charges related to the DII merger,
have paid approximately $178.0 million for acquisitions, refinanced DII's 8.50%
Senior Subordinated Notes and have also increased our net working capital. As a
result, our cash and cash equivalents have been reduced significantly and
borrowings under our credit facilities have increased.
Cash used by operating activities was $18.9 million in fiscal 2000 compared
to cash provided by operating activities of $143.8 million and $110.0 million in
fiscal 1999 and 1998, respectively. Cash provided by operating activities
decreased in fiscal 2000 from fiscal 1999 because of increases in accounts
receivable, inventories and other current assets, offset by increases in net
income, depreciation and amortization and accounts payable. Cash provided by
operating activities increased in fiscal 1999 from fiscal 1998 due to an
increase in net income, depreciation and amortization and accounts payable,
partially offset by increases in accounts receivables and inventories.
Accounts receivable, net of allowance for doubtful accounts increased to
$861.8 million at March 31, 2000 from $470.3 million at March 31, 1999. The
increase in accounts receivable was primarily due to an increase of 76.4% in
sales in fiscal 2000.
S-22
<PAGE> 26
Inventories increased to $992.7 million at March 31, 2000 from $324.8
million at March 31, 1999. The increase in inventories was primarily the result
of increased purchases of material to support the growing sales combined with
the inventory acquired in connection with the manufacturing facility purchases
in the fourth quarter of fiscal 2000.
Cash used in investing activities was $789.1 million in fiscal 2000, $449.9
million in fiscal 1999 and $242.8 million in fiscal 1998. Cash used in investing
activities in fiscal 2000 was primarily related to:
- $433.1 million of capital expenditures to purchase equipment and
continued expansion of our manufacturing facilities in Brazil, China,
Hungary, Mexico, United States and Sweden;
- $288.8 million for the manufacturing facilities and related asset
purchases during fiscal 2000;
- $26.8 million for the acquisitions of Vastbright, FICO and other
acquisitions;
- $42.7 million for minority investments in the stocks of various
technology companies in software and related industries; and
- $75.0 million for a loan to another company.
Additionally, we received proceeds of $35.9 million from the sale of
certain subsidiaries and $41.5 million from the sale of property, plant and
equipment.
Cash used in investing activities in fiscal 1999 was primarily related to:
- $343.0 million of capital expenditures to purchase equipment and
continued expansion of our manufacturing facilities in Brazil, China,
Hungary, Mexico, United States and Sweden;
- $76.1 million for the acquisitions of ACL, Greatsino and FICO;
- $24.0 million of contingent purchase price adjustments (earn-out
payments) relating to the acquisition of Astron, which occurred in fiscal
1996; and
- $17.7 million for minority investments in the stocks of various
technology companies in software and related industries.
Cash provided by financing activities was $1,263.7 million in fiscal 2000,
$386.7 million in fiscal 1999 and $273.0 million in fiscal 1998. Cash provided
by financing activities in fiscal 2000 was primarily related to our completion
of three public stock offerings. In February 2000, we sold a total of 8.6
million ordinary shares in a public offering at a price of $59.00 per share
resulting in net proceeds to us of approximately $494.1 million. In October
1999, we sold a total of 13.8 million ordinary shares in a public offering at a
price of $33.84 per share, resulting in net proceeds to us of approximately
$448.9 million. In addition, in October 1999, DII sold a total of 6.9 million
shares of its common stock in a public offering at a price of $33.00 per share,
resulting in net proceeds of approximately $215.7 million. Additionally, cash
provided by financing activities in fiscal 2000 resulted from:
- $97.9 million of net proceeds from bank borrowings, capital leases, and
long-term debts; and
- $26.2 million in proceeds from stock issued under our stock plans; offset
by
- $23.5 million for dividends paid to former shareholders of PCB Assembly
prior to its acquisition by us in March 2000.
Cash provided by financing activities in fiscal 1999 resulted primarily
from:
- our equity offering of 10.8 million ordinary shares in December 1998 with
net proceeds of $194.0 million;
- $197.9 million of net proceeds from bank borrowings, capital leases, and
long-term debts; and
- $18.7 million in proceeds from stock issued under our stock plans; offset
by
- $24.3 million from DII's repurchase of 1.5 million shares of its common
stock.
S-23
<PAGE> 27
In October 1999, we entered into a credit facility with a syndicate of
banks providing for revolving credit borrowings by us and a number of our
subsidiaries of up to $200.0 million. As of March 31, 2000, there were $137.0
million in borrowings outstanding under this facility and the weighted-average
interest rate for these borrowings was 6.87%. We were in compliance with all
loan covenants at March 31, 2000.
On April 3, 2000, we replaced our $200.0 million credit facility and a DII
credit facility of $210.0 million with a $500.0 million credit facility with a
syndicate of domestic and foreign banks. This new credit facility consists of
two separate credit agreements, one providing for up to $150.0 million principal
amount of revolving credit loans to Flextronics and designated subsidiaries and
one providing for up to $350.0 million principal amount of revolving credit
loans to our United States subsidiaries. Both agreements are split equally
between a 364-day facility and a three-year facility. At the maturity of the
364-day facility, outstanding borrowings under that facility may be converted
into one-year term loans. Borrowings under the credit facility bear interest, at
our option, at either the agent's base rate or the LIBOR Rate, as defined in the
credit facility, plus a margin for LIBOR loans ranging between 0.625% and 1.75%,
based on our ratio of debt to EBITDA (earnings before interest, taxes,
depreciation, and amortization). The credit facility is secured by a pledge of
stock of certain of our subsidiaries.
The credit facility contains covenants that restrict our ability to (1)
incur secured debt (other than purchase money debt and capitalized leases), (2)
incur liens on our property, (3) make dispositions of assets, and (4) make
investments in companies that are not our subsidiaries. The credit facility also
prohibits us from paying dividends. The credit facility also requires that we
maintain a maximum ratio of total indebtedness to EBITDA, and maintain a minimum
ratio of EBITDA to the sum of our net interest expense plus the current portion
of our long-term debt and a specified portion of certain other debt.
We plan to increase the size of our credit facility, or enter into
additional credit facilities, to fund anticipated growth in our operations. We
cannot provide any assurances that we will be able to complete any such
transaction, or as to its potential terms. In addition, we maintain smaller
credit facilities for a number of our non-U.S. subsidiaries, typically on an
uncommitted basis. We have also entered into relationships with financial
institutions for the sale of accounts receivable, and for leasing transactions.
On June 6, 2000, we entered into a $50.0 million senior note agreement with
Bank of America, N.A., as lender. We plan to replace the senior note agreement
with a new senior note agreement to increase availability to up to $200.0
million. We intend to use borrowings under these agreements for general
corporate purposes. We cannot provide any assurances that we will be able to
complete this transaction, or as to its potential terms.
In addition, we anticipate issuing $450 million aggregate principal amount
of Senior Subordinated Notes due 2010 in a private offering. We intend to use
the proceeds from this private offering to repay indebtedness under our credit
facility, for working capital and capital expenditures and for general corporate
purposes. We cannot provide any assurances as to whether, or on what terms, this
private offering will be completed.
In the first fiscal quarter of 2001, we announced our intentions to
purchase the manufacturing facilities and related assets from Ascom Business
Systems AG located in Solothurn, Switzerland and Bosch Telecom GmbH in Pandrup,
Denmark, as well as acquire Uniskor, Ltd, located in Israel. The expected
aggregate cost for the purchases of the manufacturing facilities and business
combination are expected to aggregate $178.0 million.
We anticipate that our working capital requirements and capital
expenditures will continue to increase in order to support the anticipated
continued growth in our operations. In addition to our anticipated manufacturing
facility purchases, we anticipate incurring significant capital expenditures and
operating lease commitments in order to support our anticipated expansions of
our industrial parks in China, Hungary, Mexico, Brazil and Poland. We intend to
continue our acquisition strategy and it is possible that future acquisitions
may be significant. Future liquidity needs will also depend on fluctuations in
levels of inventory, the timing of expenditures by us on new equipment, the
extent to which we utilize operating leases for the new facilities and
equipment, levels of our shipments and changes in volumes of customer orders.
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<PAGE> 28
Historically, we have funded our operations from the proceeds of public
offerings of equity securities and debt offerings, cash and cash equivalents
generated from operations, bank debt, sales of accounts receivable and lease
financings of capital equipment. We believe that our existing cash balances,
together with anticipated cash from operations, borrowings available under our
credit facility and our net proceeds from this offering and from our planned
private offering of senior subordinated notes will be sufficient to fund our
operations through fiscal 2001 for at least the next twelve months. We
anticipate that we will continue to enter into debt and equity financings, sales
of accounts receivable and lease transactions to fund our acquisitions and
anticipated growth. Such financings and other transactions may not be available
on terms acceptable to us or at all. See "Risk Factors -- If we do not manage
effectively the expansion of our operations, our business may be harmed."
S-25
<PAGE> 29
BUSINESS
We are a leading provider of advanced electronics manufacturing services to
OEMs primarily in the telecommunications and networking, consumer electronics
and computer industries. Our strategy is to provide customers with the ability
to outsource, on a global basis, a complete product where we take responsibility
for engineering, supply chain management, assembly, integration, test and
logistics management. We provide complete product design services, including
electrical and mechanical, circuit and layout, radio frequency and test
development engineering services. Our manufacturing services include the
fabrication and assembly of plastic and metal enclosures, PCBs and backplanes.
We believe that we have developed particular strengths in advanced interconnect,
miniaturization and packaging technologies, and in the engineering and
manufacturing of wireless communications products employing radio frequency
technology. Throughout the production process, we offer logistics services, such
as materials procurement, inventory management, packaging and distribution.
Through a combination of internal growth and acquisitions, we have become
the world's third largest provider of electronics manufacturing services, with
revenues of $5.7 billion and EBITDA of $391.4 million in fiscal 2000. In
addition, we have increased our manufacturing square footage from 1.5 million
square feet on April 1, 1998 to 11.2 million square feet to date. We offer a
complete and flexible manufacturing solution that provides accelerated
time-to-market and time-to-volume production, reduced production costs and
advanced engineering and design capabilities. By working closely with and being
highly responsive to customers throughout the design, manufacturing and
distribution process, we believe that we can be an integral part of their
operations. We believe that our size, global presence, broad service offerings
and expertise enable us to win large programs from leading multinational OEMs
for the manufacture of advanced electronics products.
Our customers include industry leaders such as Cisco, Ericsson,
Hewlett-Packard, Lucent, Microsoft, Motorola, Nokia, Palm Computing and Philips.
Due to our focus on high growth technology sectors, our prospects are influenced
by such major trends as the upgrade of the communications and Internet
infrastructure, the proliferation of wireless devices, increasing product
miniaturization and other trends in electronics technologies. In addition, our
growth is affected by the pace at which leading OEMs are continuing to adopt
outsourcing as a core business strategy.
We have established an extensive network of manufacturing facilities in the
world's major electronics markets -- Asia, the Americas and Europe -- to serve
the increased outsourcing needs of both multinational and regional OEMs. We
strategically locate facilities near our customers and their end markets. In
fiscal 2000, production in the Americas represented 43% of our net sales,
production in Europe represented 39% of our net sales and production in Asia
represented 18% of our net sales. We have also established fully integrated,
high volume industrial parks in low cost regions near our customers' end
markets. These industrial parks provide a total supply chain management by
co-locating our manufacturing and distribution operations with our suppliers at
a single location. This approach to production and distribution is designed to
benefit our customers by reducing logistical barriers and costs, increasing
flexibility, lowering transportation costs and reducing turnaround times. Our
industrial parks are located in China, Hungary and Mexico and we are building
new industrial parks in Brazil, Hungary and Poland. In addition to our
industrial parks, we have established product introduction centers which provide
engineering expertise in developing new products and preparing them for high
volume manufacturing.
INDUSTRY OVERVIEW
With electronics products growing in technical complexity and experiencing
shorter product lifecycles in response to customer requirements, the demand for
advanced manufacturing capabilities and related services has grown rapidly. Many
OEMs in the electronics industry are increasingly utilizing electronics
manufacturing service providers in their business and manufacturing strategies.
Outsourcing allows OEMs to take advantage of the manufacturing expertise and
capital investments of electronics manufacturing service providers, thereby
enabling OEMs to concentrate on their core competencies, such as product
development,
S-26
<PAGE> 30
marketing and sales. We believe that by developing strategic relationships with
electronics manufacturing service providers, OEMs can enhance their competitive
position by:
- reducing production costs;
- accelerating time-to-market and time-to-volume production;
- accessing advanced manufacturing, design and engineering capabilities;
- reducing capital investment requirements and fixed overhead costs;
- improving inventory management and purchasing power; and
- accessing worldwide manufacturing capabilities.
As a result of these factors, industry sources estimate that the overall
market for electronics manufacturing services will grow at an average annual
rate of 20% from 1998 to 2003, reaching an estimated $149.4 billion in 2003.
Over the last few years the larger electronics manufacturing services providers
have grown faster than smaller providers. We believe that the market for
electronic manufacturing services will continue to grow, driven largely by OEMs'
need for increasing flexibility to respond to rapidly changing markets and
technologies and accelerating product life cycles, and their need for advanced
manufacturing and engineering capabilities as a result of increased complexity
and reduced size of electronics products.
STRATEGY
Our objective is to provide customers with the ability to outsource, on a
global basis, a complete product, with Flextronics taking responsibility for the
engineering, supply chain management, assembly, integration, test and logistics
management to accelerate their time-to-market and time-to-volume. To achieve
this objective, we will continue to implement the following strategies:
Develop and Enhance Our Customers' Product Development and Manufacturing
Strategy. We believe we can become an integral part of our customers' operations
by working closely with them throughout the design, manufacturing and
distribution process, and by offering flexible, highly responsive services. We
believe our customer relationships are strengthened through a management
approach which fosters rapid decision-making and a customer service orientation
that responds quickly to frequently changing customer design specifications and
production requirements. Our approach allows our customers to focus on their
core competencies enabling them to accelerate their time-to-market and
time-to-volume production.
Leverage Our Global Presence. We have established an extensive network of
design and manufacturing facilities in the world's major electronics
markets -- Asia, the Americas and Europe -- to serve the increased outsourcing
needs of both multinational and regional OEMs. Our global network of
manufacturing facilities in 23 countries gives us the flexibility to transition
customer projects to any of our locations. This flexibility allows design,
prototyping and initial production to be located near the customer's own
research and development centers, so that manufacturing can then be moved to
locations closer to their end markets, or transitioned to low-cost regional
manufacturing facilities or industrial parks as volumes increase over the
product life-cycle.
Expand Our Industrial Parks Strategy. Our industrial parks are
self-contained facilities that co-locate our manufacturing and distribution
operations with our suppliers in low-cost regions near our customers' end
markets. Our industrial parks provide a total supply chain management. This
approach to production and distribution benefits our customers by reducing
logistical barriers and costs, improving communications, increasing flexibility,
lowering transportation costs and reducing turnaround times. We have
strategically established large industrial parks in Doumen, China, Sarvar and
Zalaegerszeg, Hungary and Guadalajara, Mexico, and are currently building new
industrial parks in Gdansk, Poland, Sao Paulo, Brazil and Nyiregyhaza, Hungary.
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<PAGE> 31
Offer Comprehensive and Integrated Design and Manufacturing Solutions. We
offer a comprehensive range of engineering, supply chain management, assembly,
integration, test and logistics management services to our customers that
simplifies the global product development process and provides them meaningful
cost savings for them. Our capabilities help our customers improve product
quality and performance, reduce costs and accelerate time-to-market.
Streamline Business Processes Through Information Technologies. We utilize
new information technologies to streamline business processes for our customers.
For example, we use innovative Internet supply chain solutions to improve order
placement, tracking and fulfillment. We are also able to provide our customers
with online access to product design and manufacturing process information.
Integrating our information systems with those of our customers allows us to
assist our customers in improving their communications and relationships across
their supply chain.
Pursue Strategic Opportunities. We have actively pursued acquisitions and
purchases of manufacturing facilities to expand our worldwide operations,
broaden our service offerings, diversify and strengthen our customer
relationships and enhance our management depth. We will continue to review
opportunities and are currently in preliminary discussions to acquire
manufacturing operations and enter into business combinations. We cannot assure
the terms of, or that we will complete, such transactions. We will continue to
selectively pursue strategic transactions that we believe will further our
business objectives.
We cannot assure that our strategies can be successfully implemented, or
will reduce the risks associated with our business. See "Risk Factors."
CUSTOMERS
Our customers consist of a select group of OEMs primarily in the
telecommunications and networking, consumer electronics and computer industries.
Within these industries, our strategy is to establish relationships with leading
companies that seek to outsource significant production volumes of complex
products. We have focused on building long-term relationships with these
customers and expanding our relationship to include additional product lines and
services. We have increasingly focused on sales to larger companies and to
customers in the telecommunications and networking, consumer electronics and
computer industries. In fiscal 2000 our five largest customers accounted for
approximately 44% of our net sales. Our largest customers during fiscal 2000
were Ericsson and Philips accounting for approximately 12% and 10% of
consolidated net sales. See "Risk Factors -- The majority of our sales comes
from a small number of customers; if we lose any of these customers, our sales
could decline significantly."
The following table lists in alphabetical order some of our largest
customers in fiscal 2000 and the products of those customers for which we
provide manufacturing services:
<TABLE>
<CAPTION>
CUSTOMER END PRODUCTS
-------- ------------
<S> <C>
Cabletron.................................... Data communications products
Compaq....................................... Computer products
Cisco Systems................................ Data communications products
Ericsson..................................... Business telecommunications systems, GSM
infrastructure
Hewlett-Packard.............................. Inkjet printers, storage devices
Lucent....................................... Data communication products
Motorola..................................... Cellular phones, set-top boxes
Nokia........................................ Cellular phone accessories, office phones
Palm Computing............................... Pilot electronic organizers
Philips Electronics.......................... Consumer electronics products
</TABLE>
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<PAGE> 32
In addition, we recently significantly expanded the scope of our
relationships with a number of existing customers and entered into relationships
with new customers, including ABB Automation Products (PCB assemblies),
Cabletron Systems (data communication products) and General Instruments (set-top
boxes).
On May 30, 2000, we entered into a strategic alliance for product
manufacturing with Motorola. This alliance provides incentives for Motorola to
purchase over $30.0 billion of products and services from us until December 31,
2005. We anticipate that this relationship will encompass a wide range of
products, including cellular phones, pagers, set-top boxes and infrastructure
equipment, and will involve a broad range of services, including design, PCB
fabrication and assembly, plastics, enclosures and supply chain services. The
relationship is not exclusive and does not require that Motorola purchase any
specific volumes of products or services from us. Our ability to achieve any of
the anticipated benefits of this relationship is subject to a number of risks,
including our ability to provide our services on a competitive basis and to
expand our manufacturing resources, as well as demand for Motorola's products.
In connection with this strategic alliance, Motorola will pay $100.0 million for
an equity instrument that entitles them to acquire 11,000,000 Flextronics
ordinary shares at any time through December 31, 2005, upon meeting targeted
purchase levels or making specified payments to us. The issuance of this equity
instrument will result in a one-time non-cash charge of approximately $290.0
million in the first fiscal quarter of fiscal 2001, offset by a corresponding
credit to shareholders' equity.
SALES AND MARKETING
We achieve worldwide sales coverage through a direct sales force, which
focuses on generating new accounts, and through program managers, who are
responsible for managing relationships with existing customers and making
follow-on sales. Our Asian sales offices are located in Singapore and Hong Kong.
In North America, we maintain sales offices in California, Florida,
Massachusetts and Texas. In Europe, we maintain sales offices in England,
France, Germany, the Netherlands and Sweden. In addition to our sales force, our
executive staff plays an integral role in our marketing efforts.
SERVICES
We offer a broad range of integrated services, providing customers with a
total design and manufacturing solution to take a product from initial design
through volume production, test and distribution into post-sales service and
support. These integrated services include the following:
Flextronics Systems Assembly. Our assembly and manufacturing operations,
which reflects the majority of our revenues, include PCB assembly, assembly of
systems and subsystems that incorporate PCBs and complex electromechanical
components. A substantial portion of our net sales is derived from the
manufacture and assembly of complete products. We employ just-in-time,
ship-to-stock and ship-to-line programs, continuous flow manufacturing, demand
flow processes and statistical process control. As OEMs seek to provide greater
functionality in smaller products, they increasingly require more sophisticated
manufacturing technologies and processes. Our investment in advanced
manufacturing equipment and our experience and expertise in innovative
miniaturization, packaging and interconnect technologies, such as chip scale
packaging, chip-on-board and ball grid array, enable us to offer a variety of
advanced manufacturing solutions. In addition, we have recently developed
significant expertise in the manufacture of wireless communications products
employing radio frequency technology.
We offer computer-aided testing of assembled PCBs, systems and subsystems,
which contributes significantly to our ability to deliver high-quality products
on a consistent basis. Our test capabilities include management defect analysis,
in-circuit tests and functional tests. In addition, we also provide
environmental stress tests of board or system assemblies.
Multek. Multek provides PCB and backpanel fabrication services. PCBs and
backpanels are platforms which provide interconnection for integrated circuits
and other electronic components. Backpanels also provide interconnection for
other printed circuit boards. Semiconductor designs are currently so complex
that
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<PAGE> 33
they often require printed circuit boards with many layers of narrow, densely
spaced wiring. We manufacture high density, complex multilayer printed circuit
boards and backpanels on a low-volume, quick-turn basis, as well as on a
high-volume production basis. Our quick-turn prototype service allows us to
provide small test quantities to customers' product development groups in as
short as 24 hours. We are one of only a few independent manufacturers who can
respond to our customers' demands for an accelerated transition from prototype
to volume production.
The manufacture of complex multilayer interconnect products often requires
the use of sophisticated circuit interconnections between layers (called "vias")
and adherence to strict electrical characteristics to maintain consistent
circuit transmission speeds. Our production of microvias, by laser ablation and
our surface laminar circuit technology, a photo generated microvia capability,
provides our customers with proven high volume production capacity in both of
the major high density interconnect process solutions.
Flextronics Enclosures. We offer a comprehensive set of custom electronic
enclosures and related products and services. Our services include design,
manufacturing, and integration of electronics packaging systems from custom
enclosure systems, power and thermal subsystems, interconnect subsystems to
cabling and cases. In addition to the typical sheet metal fabrication, we assist
in the design of electronic packaging systems that protect sensitive electronics
and enhance functionality. Our enclosure design services focus on functionality,
manufacturability and testing. These services are integrated with our other
services to provide our customers with greater responsiveness, improved
logistics and overall improved supply chain management. In addition to our
inhouse design and manufacturing capabilities, we have established a strategic
alliance with a top tier enclosure manufacturer to broaden our design,
engineering, supply chain management, manufacturing and assembly expertise for
our customers worldwide.
Flextronics Semiconductor. We coordinate industrial design and tooling for
product manufacturing. By integrating the combined capabilities of design,
engineering and semiconductor services, we can compress the time from product
concept to market introduction and minimize product development costs.
Flextronics semiconductor provides ASIC design services to our OEM customers,
including:
- Conversion services from field programmable gate arrays to ASICs. These
services focus on designs that utilize primarily digital signals, with
only a small amount of analog signals.
- Design services for mixed-signal ASICs. These services focus on designs
that utilize primarily analog signals, with only a small amount of
digital signals.
- Silicon integration design services. These services utilize silicon
design modules that are used to accelerate complex ASIC designs,
including system-on-a-chip.
Flextronics Semiconductor utilizes external foundry suppliers for its
customers' silicon manufacturing requirements, thereby using a "fabless"
manufacturing approach. This enables us to take advantage of the suppliers' high
volume economies of scale and access to advanced process technology.
We believe that our semiconductor design expertise provides us with a
competitive advantage by enabling us to offer our customers reduced costs
through the consolidation of components onto silicon chips.
Flextronics Design Services. We offer a comprehensive spectrum of
value-added design services for products we manufacture for our customers.
Products designed by this group range from commercial and military applications,
including radio frequency analog, high-speed digital, multi-chip module, and
flex circuits, to high volume consumer products, to small quantity prototypes.
We work with our customers to develop product-specific test strategies and can
custom design test equipment and software ourselves or use test equipment and
software provided by our customers.
Approximately 40% of our revenues are from products that incorporate
Flextronics design aspects. To assist customers with initial design, we provide
computer-aided engineering and computer-aided design, engineering for
manufacturability, printed circuit board layout and test development. At our
product introduction centers, we employ hundreds of advanced engineers to
provide the engineering expertise in
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<PAGE> 34
developing new products and preparing them for high volume manufacturing. These
centers coordinate and integrate our worldwide design, prototype, test
development practices and, in some locations, provide dedicated production lines
for prototypes.
Flextronics Plastics. We offer tool fabrication, quickturn prototyping and
full production of plastic parts. We are able to quickly transition our
customers' products into volume production. By maintaining these services at our
industrial parks along with manufacturers and suppliers of sheet metal, cable
harnesses, components and packaging, we increase our customers' production
flexibility and speed.
Flextronics Network Services. We offer network installation services to
OEMs in the data and telecommunications industries. Our services include project
planning, documentation, engineering, production, installation and commissioning
of equipment. We have expertise in the installation of public and mobile
telecommunications systems, exchanges, corporate networks and peripheral
equipment.
Supply Chain Services. We provide materials procurement, information
technology solutions and logistics. Materials procurement and management consist
of the planning, purchasing, expediting and warehousing of components and
materials used in the manufacturing process. Our inventory management expertise
and volume procurement capabilities contribute to cost reductions and reduce
total cycle time. Our industrial parks in China, Hungary and Mexico include
providers of many of the custom components that we use to reduce material and
transportation costs, simplify logistics and facilitate inventory management. We
also use sophisticated automated manufacturing resources planning systems and
enhanced electronic data interchange capabilities to ensure inventory control
and optimization. Through our manufacturing resources planning system, we have
real-time visibility on material availability and real-time tracking of work in
process. We also utilize electronic data interchange with our customers and
suppliers to implement a variety of supply chain management programs. Electronic
data interchange allows customers to share demand and product forecasts and
deliver purchase orders while also assisting suppliers with just-in-time
delivery and supplier-managed inventory.
We offer our customers flexible, just-in-time delivery programs allowing
product shipments to be closely coordinated with customers' inventory
requirements. Increasingly, we ship products directly into customers'
distribution channels or directly to the end-user. We believe that this service
can provide our customers with a more comprehensive solution and enable them to
be more responsive to market demands.
COMPETITION
The electronics manufacturing services industry is extremely competitive
and includes hundreds of companies, several of whom have achieved substantial
market share. We compete with different companies, depending on the type of
service or geographic area. We compete against numerous domestic and foreign
electronics manufacturing services providers, and current and prospective
customers also evaluate our capabilities against the merits of internal
production. In addition, in recent years the electronics manufacturing industry
has attracted a significant number of new entrants, including large OEMs with
excess manufacturing capacity, and many existing participants, including us,
have significantly increased their manufacturing capacity by expanding their
facilities and adding new facilities. In the event of a decrease in overall
demand for electronics manufacturing services, this increased capacity could
result in substantial pricing pressures which could harm our operating results.
Some of our competitors, including Solectron Corporation and SCI Systems, may
have greater manufacturing, financial and other resources than us. As
competitors increase the scale of their operations, they may increase their
ability to realize economies of scale, to reduce their prices and to more
effectively meet the needs of large OEMs. We believe that the principal
competitive factors in the segments of the electronics manufacturing services
industry in which we operate are cost, technological capabilities,
responsiveness and flexibility, delivery cycles, location of facilities, product
quality and range of services available. Failure to satisfy any of the foregoing
requirements could seriously harm our business. See "Risk Factors -- Our
industry is extremely competitive."
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<PAGE> 35
ACQUISITIONS
Business Combinations. We have actively pursued business combinations and
other business acquisitions to expand our global reach, manufacturing capacity
and service offerings and strengthen our customer relationships. Since fiscal
1997, we have completed the following business combinations:
<TABLE>
<CAPTION>
DATE ACQUIRED COMPANY NATURE OF BUSINESS CONSIDERATION LOCATION(S)
---- ---------------- ------------------ ------------- -----------
<S> <C> <C> <C> <C>
May 2000 Sample Rate Systems Oyj Provides electronics 88,657 ordinary shares Finland
manufacturing services
May 2000 San Marco Engineering Provides electronics 275,000 ordinary shares Italy
Srl manufacturing services
April 2000 Palo Alto Products Provides industrial and 3,618,374 ordinary Tun Cheng, Taiwan
International Pte. Ltd. electronics shares Samuprakaru, Thailand
manufacturing design Palo Alto, California
services New Braunfels, Texas
April 2000 The DII Group, Inc. Provides electronics 62,768,139 ordinary Anaheim, California
manufacturing services shares Irvine, California
Sunnyvale, California
Palm Harbor, Florida
Austin, Texas
Roseville, Minnesota
Binghamton, New York
Boulder, Colorado
Longmont, Colorado
Zhuhai, China
Melaka, Malaysia
Singapore
Kindberg, Austria
Brno, Czech Republic
Boeblingen, Germany
Cork, Ireland
Guadalajara, Mexico
Puebla, Mexico
Sao Paulo, Brazil
March 2000 PCB Assembly, Inc. Provides electronics 1,084,566 ordinary Sunnyvale, California
design, assembly and shares
test services
March 2000 Purchased remaining 10% Manufactures injection $3.0 million cash Shenzhen, China
interest in FICO molded plastics
Investment Holdings Ltd.
February 2000 Vastbright PCB Co. Ltd. Manufactures advanced $18.0 million cash Zhuhai, China
technology PCBs
November 1999 Circuit Board Provides electronics 559,098 ordinary shares Research Triangle Park,
Assemblers, Inc., EMC design, assembly and North Carolina
International, Inc., test services
Newport Technology and
Summit Manufacturing
July 1999 Kyrel EMS Oyj Provides electronics 3,643,610 ordinary Kyroskoski, Finland
design, assembly and shares Luneville, France
test services
March 1999 Advanced Component Labs Manufactures advanced $15.0 million cash Zhuhai, China
HK Ltd. technology PCBs
March 1999 Increased ownership of Manufactures injection $7.2 million cash, $3.0 Shenzhen, China
FICO Investment Holdings molded plastics million in promissory
Ltd. from 40% to 90% notes, and 255,700
ordinary shares
March 1998 Conexao Informatica Provides electronics 1,686,372 ordinary Sao Paulo, Brazil
Ltda. design, assembly and shares
test services
March 1998 Altatron, Inc. Provides electronics 3,154,600 ordinary Fremont, California
design, assembly and shares
test services
</TABLE>
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<PAGE> 36
<TABLE>
<CAPTION>
DATE ACQUIRED COMPANY NATURE OF BUSINESS CONSIDERATION LOCATION(S)
---- ---------------- ------------------ ------------- -----------
<S> <C> <C> <C> <C>
December 1997 DTM Products, Inc. Manufactures injection 1,009,876 ordinary Boulder, Colorado
molded plastics shares
December 1997 Energipilot AB Provides cable assembly 919,960 ordinary shares Stockholm, Sweden
and engineering services
October 1997 Neutronics Electronics Provides electronics 11,224,000 ordinary Althofen, Austria
Industries Holding AG design, assembly and shares Tab, Hungary
test services Sarvar, Hungary
Zalaegerszeg, Hungary
</TABLE>
Acquisitions of Manufacturing Facilities. We have purchased a number of
manufacturing facilities and related assets from customers and simultaneously
entered into manufacturing agreements to provide electronics design, assembly
and test services to these customers. The transactions were accounted for as
purchases of assets. Since fiscal 1997, we have completed the following
facilities purchases:
<TABLE>
<CAPTION>
DATE CUSTOMER CONSIDERATION FACILITY LOCATION(S)
---- -------- ------------- --------------------
<S> <C> <C> <C>
May 2000 Bosch Telecom GmbH $98.3 million Pandrup, Denmark
March 2000 Cabletron Systems Inc. $83.4 million Rochester, New Hampshire
Limerick, Ireland
January 2000 Fujitsu Siemens $69.7 million Paderborn, Germany
June 1999 Ericsson $39.4 million Visby, Sweden
May 1999 ABB Automation Products $24.5 million Vasteras, Sweden
</TABLE>
We will continue to review opportunities to acquire OEM manufacturing
operations and enter into business combinations and selectively pursue strategic
transactions that we believe will further our business objectives. We are
currently in preliminary discussions to acquire additional businesses and
facilities. We cannot assure the terms of, or that we will complete, such
acquisitions, and our ability to obtain the benefits of such combinations and
transactions is subject to a number of risks and uncertainties, including our
ability to successfully integrate the acquired operations and our ability to
maintain and increase sales to customers of the acquired companies. See "Risk
Factors -- We may encounter difficulties with acquisitions, which could harm our
business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Acquisitions, Purchases of Facilities and Other
Strategic Transactions."
FACILITIES
Our facilities consist of a global network of industrial parks,
manufacturing and technology centers, regional manufacturing facilities and
product introduction centers, providing approximately 11.2 million square feet
of capacity. We own facilities with approximately 2.7 million square feet of
capacity in Asia, 2.3 million square feet in the Americas and 4.2 million square
feet in Europe. We lease facilities with approximately 1.1 million square feet
of capacity in Asia, 200,000 square feet in the Americas and 600,000 square feet
in Europe.
Our industrial parks, each incorporating from approximately 205,000 to
435,000 square feet of facilities, are designed for fully integrated, high
volume manufacturing. These industrial parks offer manufacturing and
distribution operations and suppliers that are located together at a single site
in low cost areas close to major electronics markets. We believe that by
offering all of those capabilities at a single site, we can reduce material and
transportation costs, simplify logistics and communications and improve
inventory management. This enables us to provide customers with a more complete,
cost-effective manufacturing solution. Manufacturing and technology centers are
facilities that have both medium and high volume manufacturing and product
introduction centers and, as a result, are where we focus on launching
customers' new products and transitioning them to volume production. Each center
features advanced technological competency. Regional manufacturing facilities
range from approximately 70,000 to 375,000 square feet and provide medium and
high volume production in locations close to strategic markets. Product
information centers provide a broad range of advanced engineering services and
prototype and low volume production
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<PAGE> 37
capabilities. All of our manufacturing facilities are registered to the quality
requirements of the International Organization for Standardization (ISO 9002) or
are in the process of final certification.
The locations of our facilities are as follows:
<TABLE>
<CAPTION>
AMERICAS ASIA EUROPE
-------- ---- ------
<S> <C> <C> <C>
INDUSTRIAL PARKS Guadalajara, Mexico Doumen, China Sarvar, Hungary
Zalaegerzeg, Hungary
MANUFACTURING San Jose, California Hong Kong, China Althofen, Austria
AND TECHNOLOGY Fremont, California Tun Cheng, Taiwan Karlskrona, Sweden
CENTERS New Braunfels, Texas Katrineholm, Sweden
Binghamton, New York Stockholm, Sweden
Puebla, Mexico Vasteras, Sweden
Visby, Sweden
REGIONAL Anaheim, California Doumen, China Boeblingen, Germany
MANUFACTURING Austin, Texas Johore, Malaysia Brno, Czech Republic
FACILITIES Greeley, Colorado Melaka, Malaysia Cork, Ireland
Irvine, California Samuprakaru, Thailand Limerick, Ireland
Longmont, Colorado Shenzhen, China Hamilton, Scotland
Raleigh, North Carolina Kindberg, Austria
Palm Harbor, Florida Kyroskoski, Finland
Richardson, Texas Luneville, France
Rochester, New Hampshire Paderborn, Germany
Roseville, Minnesota Solothurn, Switzerland
Sao Paulo, Brazil Tab, Hungary
PRODUCT Dallas, Texas Doumen, China Althofen, Austria
INTRODUCTION Boulder, Colorado Hamilton, Scotland
CENTERS Raleigh, North Carolina Kyroskoski, Finland
Richardson, Texas Karlskrona, Sweden
San Jose, California Malmo, Sweden
San Diego, California Stockholm, Sweden
Sunnyvale, California Monza, Italy
Westford, Massachusetts Paderborn, Germany
</TABLE>
The facilities are generally well maintained and suitable for the
operations conducted and, in substantially all cases where owned, free and clear
of any encumbrances. The productive capacity of our plants is generally adequate
for current needs.
Over the past several years, we have actively increased our overall
capacity through internal growth, acquisitions and purchases of manufacturing
facilities. As a result, we have grown to approximately 11.2 million square feet
of capacity on four continents. We plan to further expand these facilities, add
new equipment and are currently developing new industrial parks in Brazil,
Hungary and Poland. We cannot assure that we will not encounter unforeseen
difficulties, costs or delays in expanding our facilities. See "Risk
Factors -- If we do not manage effectively the expansion of our operations, our
business may be harmed."
EMPLOYEES
As of March 31, 2000, we employed approximately 37,200 persons, which
increased to approximately 49,000 persons following the completion of our
acquisitions of DII and Palo Alto Products International. We have never
experienced a work stoppage or strike and we believe that our employee relations
are good.
Our success depends to a large extent upon the continued services of key
managerial and technical employees. The loss of such personnel could seriously
harm our business, results of operations, prospects and debt service ability. To
date, we have not experienced significant difficulties in attracting or
retaining such personnel. Although we are not aware that any of our key
personnel currently intend to terminate their employment, we cannot assure you
of their future services. See "Risk Factors -- We depend on our key personnel."
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<PAGE> 38
ENVIRONMENTAL REGULATION
Our operations are subject to federal, state, local and foreign laws and
regulatory requirements relating to the use, storage, discharge and disposal of
hazardous substances used in connection with our manufacturing processes. In
addition, we are responsible for cleanup of contamination at some of our current
and former manufacturing facilities.
DII has joined together with other potentially responsible parties to
negotiate with the New York Department of Environmental Conservation concerning
the performance of a remedial investigation/feasibility study at the Roblin
Steel Site. In connection with this negotiation, DII executed the Roblin Steel
Site De Minimus Contributors Participation Agreement. Our share of the
agreement, which we have assumed as a result of our acquisition of DII, is less
than 2%. A Consent Order concerning the performance of a remedial
investigation/feasibility study was reached with the New York Department of
Environmental Conservation in July 1997.
In 1998, DII entered into Consent Orders with the New York Department of
Environmental Conservation concerning the performance of a remedial
investigation/feasibility study with respect to environmental contamination at a
formerly owned facility in Kirkwood, New York, and a facility that is owned and
leased to a third party in Binghamton, New York. A third party has assumed
responsibility for cleanup of these two sites pursuant to an agreement with DII.
If the third party does not fully perform, there is potential recourse by the
federal and state governments to assume completion of the required cleanups.
The ultimate outcome of these matters cannot be predicted in light of the
uncertainties inherent in these matters. The imposition of more stringent
compliance or cleanup standards under environmental laws or regulations, the
results of future testing and analysis undertaken at our current or former
operating facilities, or a determination that we are potentially responsible for
the release of hazardous substances at third party sites could result in
expenditures in excess of amounts currently estimated to be required for such
matters. Actual costs may exceed amounts accrued, and costs may be incurred with
respect to sites as to which no problem is currently known. Further,
environmental matters may arise in the future at sites where no problem is
currently know or at sites that we may acquire. See "Risk Factors -- We are
subject to environmental compliance risks."
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<PAGE> 39
UNDERWRITERS
We are offering ordinary shares described in this prospectus supplement
through a number of underwriters. Banc of America Securities LLC, Salomon Smith
Barney Inc., Thomas Weisel Partners LLC and Lehman Brothers Inc. are the
representatives of the underwriters. We have entered into a firm commitment
underwriting agreement with the representatives. Subject to the terms and
conditions of the underwriting agreement, we have agreed to sell to the
underwriters, and each of the underwriters have each agreed to purchase, the
number of ordinary shares listed next to its name in the following table.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER ORDINARY SHARES
----------- ---------------
<S> <C>
Banc of America Securities LLC..............................
Salomon Smith Barney Inc. ..................................
Thomas Weisel Partners LLC..................................
Lehman Brothers Inc. .......................................
---------
Total..................................................... 5,500,000
=========
</TABLE>
The underwriters initially will offer ordinary shares to the public at the
price specified on the cover page of this prospectus supplement. The
underwriters may allow to some dealers a concession of not more than $ per
share. The underwriters also may allow, and any dealers may reallow, a
concession of not more than $ per share to some other dealers. If all the
shares are not sold at the public offering price, the underwriters may change
the offering price and the other selling terms. The shares are offered subject
to a number of conditions, including:
- receipt and acceptance of our ordinary shares by the underwriters; and
- the right to reject orders in whole or in part.
We have granted the underwriters an option to buy up to 825,000 additional
ordinary shares. These additional shares, called the over-allotment option,
would cover sales of shares by the underwriters which exceed the number of
shares specified in the table above. The underwriters have 30 days to exercise
this option. If the underwriters exercise this option, they will each purchase
additional shares approximately in proportion to the amounts specified in the
table above.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters and the estimated offering
expenses to be paid by us. These amounts are shown assuming no exercise and full
exercise of the underwriters' option to purchase additional shares.
<TABLE>
<CAPTION>
PAID BY FLEXTRONICS
-----------------------
NO EXERCISE FULL
----------- --------
<S> <C> <C>
Per share underwriting discounts and commissions............ $ $
Total underwriting discounts and commissions................
Estimated expenses to be paid by Flextronics................
</TABLE>
We have agreed not to offer, sell, contract to sell or otherwise dispose
of, or enter into any transaction which is designed to, or could be expected to,
result in the disposition of any portion of ordinary shares for a period of 90
days after the date of this prospectus supplement without the prior written
consent of Banc of America Securities LLC, except that we may issue, and grant
options to purchase ordinary shares under existing share option and share
purchase plans. Banc of America Securities LLC may grant such consent at any
time and without public notice.
We will indemnify the underwriters against liabilities, including
liabilities under the Securities Act. If we are unable to provide this
indemnification, it will contribute to payments the underwriters may be required
to make in respect of those liabilities.
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<PAGE> 40
In connection with this offering, the underwriters may purchase and sell
ordinary shares in the open market. These transactions may include:
- short sales;
- stabilizing transactions; and
- purchases to cover positions created by short sales.
Short sales involve the sale by the underwriters of a greater number of
shares than they are required to purchase in this offering. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
retarding a decline in the market price of the ordinary shares while this
offering is in progress.
The underwriters may also impose a penalty bid. This means that if the
representatives purchase shares in the open market in stabilizing transactions
or to cover short sales, the representatives can require the underwriters that
sold those shares as part of this offering to repay the underwriting discount
received by them.
The underwriters may engage in activities that stabilize, maintain or
otherwise affect the price of the ordinary shares, including:
- over-allotment;
- stabilization;
- syndicate covering transactions; and
- imposition of penalty bids.
As a result of these activities, the price of our ordinary shares may be
higher than the price that otherwise might exist in the open market. If the
underwriters commence these activities, they may discontinue them at any time.
The underwriters may carry out these transactions on the Nasdaq National Market,
in the over-the-counter-market or otherwise.
In connection with this offering, some underwriters and any selling group
members who are qualified market makers on the Nasdaq National Market may engage
in passive market making transactions in our ordinary shares on the Nasdaq
National Market in accordance with Rule 103 of Regulation M, during the business
day before the pricing of the offering, before the commencement of offers or
sales of our ordinary shares. Passive market makers must comply with applicable
volume and price limitations and must be identified as a passive market maker.
In general, a passive market maker must display its bid at a price not in excess
of the highest independent bid for the security; if all independent bids are
lowered below the passive market maker's bid, however, the bid must then be
lowered when purchase limits are exceeded.
Some of the underwriters or their affiliates have in the past engaged, and
may in the future engage, in transactions with and perform services, including
commercial banking, financial advisory and investment banking services for us
and our affiliates in the ordinary course of business. A predecessor company of
Banc of America Securities LLC was an initial purchaser in our 8 3/4% Senior
Subordinated Notes due 2007 offering which closed on October 15, 1997. In
addition, affiliates of Banc of America Securities LLC and Salomon Smith Barney
Inc. are lenders under our credit facility.
Due to the fact that one of the representatives of the underwriters was
organized within the last three years, we are providing you the following
information. Thomas Weisel Partners LLC, one of the representatives of the
underwriters, was organized and registered as a broker-dealer in December 1998.
Since December 1998, Thomas Weisel Partners LLC has been named as a lead or
co-manager on 162 filed public offerings of equity securities, of which 118 have
been completed, and has acted as a syndicate member in an additional 95 public
offerings of equity securities. Thomas Weisel Partners LLC does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual relationship with us
pursuant to the underwriting agreement entered into in connection with this
offering.
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<PAGE> 41
LEGAL MATTERS
The validity of the ordinary shares offered hereby has been passed upon for
us by Allen & Gledhill, Singapore and for the underwriters by Arfat Selvam &
Gunasingham, Singapore. Certain United States legal matters in connection with
this offering will be passed upon for us by Fenwick & West LLP, Palo Alto,
California, and for the underwriters by Cahill Gordon & Reindel, New York, New
York.
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<PAGE> 42
FLEXTRONICS INTERNATIONAL LTD.
INDEX TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Arthur Andersen LLP, Independent Public
Accountants............................................... F-2
Supplemental Consolidated Balance Sheets.................... F-3
Supplemental Consolidated Statements of Operations.......... F-4
Supplemental Consolidated Statements of Comprehensive
Income.................................................... F-5
Supplemental Consolidated Statements of Shareholders'
Equity.................................................... F-6
Supplemental Consolidated Statements of Cash Flows.......... F-7
Notes to Supplemental Consolidated Financial Statements..... F-8
</TABLE>
F-1
<PAGE> 43
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Flextronics International Ltd.:
We have audited the accompanying supplemental consolidated balance sheets
of Flextronics International Ltd. (a Singapore company) and subsidiaries as of
March 31, 1999 and 2000 and the related supplemental consolidated statements of
operations, comprehensive income, shareholders' equity and cash flows for each
of the three years in the period ended March 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of The DII Group, Inc.
("DII") and Palo Alto Products International Pte. Ltd. ("Palo Alto Products
International"), except for the financial statements of Palo Alto Products
International as of March 31, 2000 and for the year then ended, two companies
acquired on April 3, 2000 and April 7, 2000, respectively, in transactions
accounted for as pooling-of-interests, as discussed in Note 2 to supplemental
consolidated financial statements. Such statements are included in the
supplemental consolidated financial statements of Flextronics International Ltd.
and reflect total assets and total revenues of various percentages of the
consolidated totals as stated in Note 2 to supplemental consolidated financial
statements. These statements were audited by other auditors whose reports have
been furnished to us and our opinion, insofar as it relates to amounts included
for DII and Palo Alto Products International, is based solely upon the reports
of the other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the supplemental
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the supplemental consolidated financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, based on our audits and the reports of other auditors, the
supplemental consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Flextronics International
Ltd. and subsidiaries as of March 31, 1999 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
March 31, 2000 in conformity with accounting principles generally accepted in
the United States.
ARTHUR ANDERSEN LLP
San Jose, California
April 18, 2000
F-2
<PAGE> 44
FLEXTRONICS INTERNATIONAL LTD.
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31
----------------------------
1999 2000
------------ ------------
(IN THOUSANDS, EXCEPT
SHARE AND PER SHARE AMOUNTS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 275,926 $ 725,647
Accounts receivable, less allowances for doubtful accounts
of $15,378 and $22,070 as of March 31, 1999 and 2000,
respectively........................................... 470,252 861,764
Inventories............................................... 324,761 992,711
Other current assets...................................... 92,446 255,379
---------- ----------
Total current assets.............................. 1,163,385 2,835,501
---------- ----------
Property and equipment, net................................. 774,034 1,095,485
Goodwill and other intangibles, net......................... 145,224 206,706
Other assets................................................ 67,057 188,293
---------- ----------
Total assets...................................... $2,149,700 $4,325,985
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank borrowings and current portion of long-term debt..... $ 152,852 $ 380,003
Capital lease obligations................................. 17,092 16,528
Accounts payable.......................................... 488,808 1,033,100
Accrued liabilities....................................... 162,830 251,998
Deferred revenue.......................................... 6,443 4,378
---------- ----------
Total current liabilities......................... 828,025 1,686,007
---------- ----------
Long-term debt, net of current portion...................... 521,822 343,509
Capital lease obligations, net of current portion........... 33,007 36,095
Other long-term liabilities................................. 23,697 36,554
Minority interests.......................................... 7,179 9,747
---------- ----------
Total long-term liabilities....................... 585,705 425,905
---------- ----------
Commitments (Note 6)
SHAREHOLDERS' EQUITY:
Ordinary shares, S$.01 par value;
authorized -- 250,000,000 shares; issued and
outstanding -- 143,290,012 and 188,247,589 as of March
31, 1999 and 2000, respectively........................ $ 1,204 $ 1,473
Additional paid-in capital................................ 551,575 1,827,651
Retained earnings......................................... 220,671 375,722
Accumulated other comprehensive income (loss)............. (27,986) 14,311
Deferred compensation..................................... (9,494) (5,084)
---------- ----------
Total shareholders' equity........................ 735,970 2,214,073
---------- ----------
Total liabilities and shareholders' equity........ $2,149,700 $4,325,985
========== ==========
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-3
<PAGE> 45
FLEXTRONICS INTERNATIONAL LTD.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------------
1998 1999 2000
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net sales.............................................. $2,202,451 $3,253,025 $5,739,735
Cost of sales.......................................... 1,924,901 2,910,353 5,235,406
Unusual charges........................................ 8,869 76,155 --
---------- ---------- ----------
Gross profit...................................... 268,681 266,517 504,329
Selling, general and administrative.................... 143,597 179,808 240,274
Goodwill and intangibles amortization.................. 8,471 9,165 12,783
Acquired in-process research and development........... -- 2,000 --
Merger-related expenses................................ 7,415 -- 3,523
Interest and other expense, net........................ 18,538 38,759 44,907
---------- ---------- ----------
Income before income taxes........................ 90,660 36,785 202,842
Provision for (benefit from) income taxes.............. 22,081 (12,015) 21,397
---------- ---------- ----------
Net income........................................ $ 68,579 $ 48,800 $ 181,445
========== ========== ==========
Earnings per share:
Basic................................................ $ 0.57 $ 0.36 $ 1.12
========== ========== ==========
Diluted.............................................. $ 0.54 $ 0.35 $ 1.04
========== ========== ==========
Shares used for earnings per share:
Basic................................................ 121,197 135,555 161,708
========== ========== ==========
Diluted.............................................. 134,234 149,595 174,404
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-4
<PAGE> 46
FLEXTRONICS INTERNATIONAL LTD.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------
1998 1999 2000
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net income.................................................. $ 68,579 $ 48,800 $181,445
Other comprehensive income (loss):
Foreign currency translation adjustment................... (11,553) (12,068) (17,407)
Unrealized gain on available-for-sale securities, net of
tax.................................................... -- -- 59,704
-------- -------- --------
Comprehensive income........................................ $ 57,026 $ 36,732 $223,742
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-5
<PAGE> 47
FLEXTRONICS INTERNATIONAL LTD.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1998, 1999 AND 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
ORDINARY SHARES ADDITIONAL COMPREHENSIVE TOTAL
---------------- PAID-IN RETAINED GAIN DEFERRED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS (LOSS) COMPENSATION EQUITY
------- ------ ---------- --------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1997.............. 111,886 $ 971 $ 213,248 $116,434 $ (4,365) $ (5,567) $ 320,721
Adjustment to conform fiscal year of
pooled entity...................... (3,136) (3,136)
Impact of immaterial
pooling-of-interests
acquisitions....................... 6,298 38 9,801 (2,823) 7,016
Exercise of stock options............ 2,782 8 1,940 1,948
Sale of shares in public offering,
net of offering costs.............. 8,740 50 96,100 96,150
Ordinary shares issued under Employee
Stock Purchase Plan................ 753 36 21,469 21,505
DII's common stock repurchase........ (310) (4,209) (4,209)
Amortization of deferred
compensation....................... 5,352 5,352
Deferred stock compensation.......... 12,698 (12,698) --
Dividend paid to former Kyrel
shareholder........................ (802) (802)
Net income........................... 68,579 68,579
Foreign currency translation......... (11,553) (11,553)
------- ------ ---------- -------- -------- -------- ----------
BALANCE AT MARCH 31, 1998.............. 130,149 1,103 351,047 178,252 (15,918) (12,913) 501,571
Issuance of ordinary shares for
acquisition of FICO................ 256 2 4,798 4,800
Issuance of common stock............. 208 14 6,965 6,979
Exercise of stock options............ 3,269 16 11,369 11,385
Sale of shares in public offering,
net of offering costs.............. 10,800 58 193,942 194,000
Ordinary shares issued under Employee
Stock Purchase Plan................ 950 11 8,946 8,957
DII's common stock repurchase........ (2,342) (24,335) (24,335)
Conversion of convertible notes...... 15 15
Dividend paid to former PCB
shareholder........................ (6,381) (6,381)
Amortization of deferred
compensation....................... 2,247 2,247
Deferred stock compensation.......... (1,172) 1,172 --
Net income........................... 48,800 48,800
Foreign currency translation......... (12,068) (12,068)
------- ------ ---------- -------- -------- -------- ----------
BALANCE AT MARCH 31, 1999.............. 143,290 1,204 551,575 220,671 (27,986) (9,494) 735,970
Adjustment to conform fiscal year of
pooled entity...................... (818) (818)
Impact of immaterial
pooling-of-interests
acquisitions....................... 503 5 1,609 (2,062) (448)
Issuance of common stock............. 14 231 231
Exercise of stock options............ 3,264 13 17,381 17,394
Sale of shares in public offering,
net of offering costs.............. 33,509 198 1,158,575 1,158,773
Ordinary shares issued under Employee
Stock Purchase Plan................ 271 7 13,613 13,620
Dividend paid to former PCB
shareholder........................ (23,514) (23,514)
Amortization of deferred
compensation....................... 4,049 4,049
Deferred stock compensation.......... (361) 361 --
Conversion of convertible notes...... 7,396 46 85,028 85,074
Net income........................... 181,445 181,445
Change in unrealized gain on
available-for-sale securities...... 59,704 59,704
Foreign currency translation......... (17,407) (17,407)
------- ------ ---------- -------- -------- -------- ----------
BALANCE AT MARCH 31, 2000.............. 188,247 $1,473 $1,827,651 $375,722 $ 14,311 $ (5,084) $2,214,073
======= ====== ========== ======== ======== ======== ==========
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-6
<PAGE> 48
FLEXTRONICS INTERNATIONAL LTD.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------
1998 1999 2000
--------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 68,579 $ 48,800 $ 181,445
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation, amortization and impairment charges..... 59,737 146,498 132,053
Loss (gain) on sale of equipment...................... 26 (572) 2,703
Provision for doubtful accounts....................... 3,087 431 12,302
Provision for inventories............................. 4,096 6,479 32,307
Amortization of deferred stock compensation........... 5,352 2,247 4,049
Equity in earnings of associated companies............ (1,194) (1,036) --
In-process research and development................... -- 2,000 --
Gain on sales of subsidiary and long-term
investments........................................ -- (67) (365)
Other non-cash adjustments............................ 5,245 10,998 4,799
Changes in operating assets and liabilities (net of
effect of acquisitions):
Accounts receivable................................ (106,272) (129,411) (379,797)
Inventories........................................ (66,385) (75,629) (546,157)
Other current assets............................... (24,928) (33,264) (88,776)
Accounts payable and accrued liabilities........... 159,460 182,455 638,911
Deferred revenue................................... 317 314 (2,292)
Deferred income taxes.............................. 2,860 (16,468) (10,055)
--------- --------- ----------
Net cash provided by(used in) operating activities.......... 109,980 143,775 (18,873)
--------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (231,573) (342,963) (433,149)
Proceeds from sale of property and equipment.............. 4,339 9,906 41,494
Proceeds from sale of subsidiaries........................ -- -- 35,871
Minority investments in various companies................. (2,200) -- --
Other investments and notes receivable.................... (3,611) (17,686) (117,741)
Payment for acquired businesses, earnout obligations and
remaining purchase price related to acquired
businesses.............................................. (6,250) (24,000) (60,926)
Effect of acquisitions on cash............................ 4,363 379 1,278
Cash paid for acquired manufacturing operations........... (7,939) (76,095) (255,956)
Other..................................................... 35 572 --
--------- --------- ----------
Net cash used in investing activities....................... (242,836) (449,887) (789,129)
--------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank borrowings and proceeds from long-term debt.......... 305,171 339,262 231,843
Repayment of bank borrowings and long-term debt........... (271,639) (126,048) (99,266)
Borrowings from related company........................... 2,946 -- 1,162
Repayment of capital lease obligations.................... (12,607) (15,332) (34,708)
Proceeds from exercise of stock options and Employee Stock
Purchase Plan........................................... 8,848 18,707 26,229
Payments on notes payable................................. (5,000) -- --
Net proceeds from issuance of senior subordinated notes... 145,687 -- --
Net proceeds from sales of ordinary shares................ 104,584 200,807 1,161,955
DII stock repurchase payments............................. (4,209) (24,335) --
Dividends paid to former shareholders of companies
acquired................................................ (802) (6,381) (23,514)
--------- --------- ----------
Net cash provided by financing activities................... 272,979 386,680 1,263,701
--------- --------- ----------
Effect of exchange rate changes............................. (4,046) (2,191) (5,160)
Effect of adjustment to conform fiscal year of pooled
entities.................................................. 389 -- (818)
--------- --------- ----------
Increase in cash and cash equivalents....................... 136,466 78,377 449,721
Cash and cash equivalents, beginning of year................ 61,083 197,549 275,926
--------- --------- ----------
Cash and cash equivalents, end of year...................... $ 197,549 $ 275,926 $ 725,647
========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-7
<PAGE> 49
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION OF THE COMPANY
Flextronics International Ltd. ("Flextronics" or the "Company") is
incorporated in the Republic of Singapore. Flextronics provides advanced
electronics manufacturing services to original equipment manufacturers, or OEMs,
primarily in the telecommunications, networking, consumer electronics and
computer industries. The Company provides customers with the opportunity to
outsource on a global basis, a complete product where the Company takes
responsibility for engineering, supply chain management, assembly, integration,
test and logistics management. The Company provides complete product design
services, including electrical and mechanical, circuit and layout, radio
frequency and test development engineering services.
2. SUMMARY OF ACCOUNTING POLICIES
Principles of consolidation and basis of presentation
All dollar amounts included in the financial statements are expressed in
U.S. Dollars unless otherwise designated as Singapore Dollars (S$).
The accompanying consolidated financial statements include the accounts of
Flextronics and its wholly and majority-owned subsidiaries, after elimination of
all significant intercompany accounts and transactions.
In April 2000, Flextronics acquired 100% of the outstanding shares of DII
Group, Inc. ("DII") and Palo Alto Products International Pte. Ltd. ("Palo Alto
Products International"). Both acquisitions were accounted for as
pooling-of-interests and the supplemental consolidated financial statements have
been prepared to give retroactive effect to the mergers. Generally accepted
accounting principles prohibit giving effect to consummated business
combinations accounted for by the pooling-of-interests method in financial
statements that do not include the dates of consummation. These supplemental
consolidated financial statements do not extend through the date of
consummation; however, they will become the historical consolidated financial
statements of the Company after financial statements covering the date of
consummation of the business combination are issued.
Dii operated under a calendar year end prior to merging with Flextronics
and, accordingly, DII's balance sheets, statements of operations, shareholders'
equity and cash flows as of December 31, 1998 and 1999 and for each of the three
years ended December 31, 1999 have been combined with the Company's consolidated
financial statements as of March 31, 1999 and 2000 and for each of the fiscal
years ended March 31, 2000. Starting in fiscal 2001, DII will change its year
end from December 31 to March 31 to conform to the Company's fiscal year end.
Accordingly, DII's operations for the three months ended March 31, 2000 will be
excluded from the consolidated results of operations for fiscal 2001 and will be
reported as an adjustment to retained earnings in the first quarter of fiscal
2001. DII is a leading provider of electronics manufacturing and design
services, operating through a global operations network in the Americas,
Asia/Pacific and Europe. As a result of the merger, the Company issued
62,768,139 ordinary shares for all of the outstanding shares of DII common
stock, based upon the exchange ratio of 1.61 Flextronics ordinary shares for
each share of DII common stock, resulting in former DII shareholders owning
approximately 33% of the combined company.
Palo Alto Products International operated under the same fiscal year end as
Flextronics, and accordingly, Palo Alto Products International's balance sheets,
statements of operations, shareholders' equity and cash flows have been combined
with the Company's consolidated financial statements as of March 31, 1999 and
2000 and for each of the fiscal years ended March 31, 2000. Palo Alto Products
International is a enclosure design and plastic molding company with operations
in Taiwan, Thailand and the United States. The
F-8
<PAGE> 50
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company merged with Palo Alto Products International by exchanging 3,618,374
ordinary shares of Flextronics for all of the outstanding shares of Palo Alto
Products International common stock.
The results of operations previously reported by the separate companies and
the combined amounts presented in the supplemental consolidated financial
statements are summarized below.
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
--------------------------------------
1998 1999 2000
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenues:
Flextronics.......................................... $1,335,762 $2,233,208 $4,307,193
DII.................................................. 779,603 925,543 1,339,943
Palo Alto Products International..................... 88,341 95,519 95,458
Intercompany elimination............................. (1,255) (1,245) (2,859)
---------- ---------- ----------
Combined............................................. $2,202,451 $3,253,025 $5,739,735
========== ========== ==========
Net income (loss):
Flextronics.......................................... $ 22,436 $ 60,883 $ 120,915
DII.................................................. 35,320 (17,032) 58,382
Palo Alto Products International..................... 10,823 4,949 2,148
---------- ---------- ----------
Combined............................................. $ 68,579 $ 48,800 $ 181,445
========== ========== ==========
</TABLE>
The supplemental consolidated financial statements of Flextronics include
the financial statements of DII and Palo Alto Products International and reflect
total assets and total revenues as a percentage of the consolidated totals as of
March 31, 1999 and 2000 and for each of the three years in the period ended
March 31, 2000 as follows:
<TABLE>
<CAPTION>
AS OF
MARCH 31,
------------
TOTAL ASSETS 1999 2000
------------ ---- ----
<S> <C> <C>
Palo Alto Products International............................ 5% 3%
DII......................................................... 35% 26%
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------
TOTAL REVENUES 1998 1999 2000
-------------- ----- ----- -----
<S> <C> <C> <C>
Palo Alto Products International............................ 4% 3% 2%
DII......................................................... 35% 28% 23%
</TABLE>
Reclassifications
Certain prior years' balances have been reclassified to conform to the
current year's presentation.
Translation of Foreign Currencies
The functional currency of the majority of Flextronics' Asian subsidiaries
and certain other subsidiaries is the U.S. dollar. Accordingly, all of the
monetary assets and liabilities of these subsidiaries are translated into U.S.
dollars at the current exchange rate as of the applicable balance sheet date,
and all non-monetary assets and liabilities are remeasured at historical rates.
Revenues and expenses are translated at the average
F-9
<PAGE> 51
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
exchange rate prevailing during the period. Gains and losses resulting from the
translation of these subsidiaries' financial statements are included in the
accompanying consolidated statements of operations.
The financial position and results of operations of the Company's other
subsidiaries are measured using local currency as the functional currency.
Accordingly, for these subsidiaries all assets and liabilities are translated
into U.S. dollars at current exchange rates as of the respective balance sheet
date. Revenue and expense items are translated at the average exchange rates
prevailing during the period. Cumulative translation gains and losses from the
translation of these subsidiaries' financial statements are reported as a
separate component of shareholders' equity. On January 1, 1999, the Company's
Austrian, Finnish, French and Hungarian subsidiaries adopted the Euro as its
functional currency.
Cash, Cash Equivalents and Investments
All highly liquid investments with a maturity of three months or less at
date of purchase are carried at fair market value and considered to be cash
equivalents. Cash and cash equivalents consist of cash deposited in checking and
money market accounts, commercial paper and certificates of deposit.
The Company's investments are comprised of corporate debt securities and
public corporate equity securities. Investments with maturities of less than one
year are considered short term and are included within Other Current Assets in
the Company's balance sheet and carried at fair value. Nearly all investments
are held in the Company's name and custodied with major financial institutions.
The specific identification method is used to determine the cost of securities
disposed of, with realized gains and losses reflected in other income and
expense. At March 31, 1999 and 2000, substantially all of the Company's
investments were classified as available-for-sale. Unrealized holding gains and
losses on these investments are included as a separate component of
shareholders' equity, net of any related tax effect.
Cash equivalents and short-term investments are all due within one year and
consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, 2000
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Money market funds.............................. $222,966 $ -- $-- $222,966
Certificates of deposits........................ 34,026 -- -- 34,026
Corporate debt securities....................... 282,781 -- -- 282,781
Corporate equity securities..................... 19,660 59,704 -- 79,364
-------- ------- -- --------
$559,433 $59,704 $-- $619,137
======== ======= == ========
Included in cash and cash equivalents........... $539,773 $ -- $-- $539,773
Included in other current assets................ 19,660 59,704 -- 79,364
-------- ------- -- --------
$559,433 $59,704 $-- $619,137
======== ======= == ========
</TABLE>
F-10
<PAGE> 52
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31, 1999
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Money market funds.............................. $113,490 $-- $-- $113,490
Certificates of deposits........................ 52,382 -- -- 52,382
Corporate debt securities....................... 49,504 -- -- 49,504
-------- -- -- --------
Included in cash and cash equivalents........... $215,376 $-- $-- $215,376
======== == == ========
</TABLE>
The Company also has certain investments in non-publicly traded companies.
These investments are included within Other Assets in the Company's balance
sheet and are generally carried at cost. The Company monitors these investments
for impairment and makes appropriate reductions in carrying values when
necessary.
Property and equipment
Property and equipment is stated at cost. Depreciation and amortization are
provided on a straight-line basis over the estimated useful lives of the related
assets (two to thirty years), with the exception of building leasehold
improvements, which are amortized over the life of the lease, if shorter.
Repairs and maintenance costs are expensed as incurred. Property and equipment
was comprised of the following as of March 31 (in thousands):
<TABLE>
<CAPTION>
1999 2000
---------- ----------
<S> <C> <C>
Machinery and equipment..................................... $ 539,698 $ 764,865
Land........................................................ 49,891 68,080
Buildings................................................... 250,705 354,255
Leasehold improvements...................................... 31,877 50,867
Computer equipment and software............................. 37,135 67,959
Furniture, fixtures and vehicles............................ 47,105 63,658
Construction in progress.................................... 40,945 36,409
Other....................................................... 2,823 1,784
---------- ----------
1,000,179 1,407,877
Accumulated depreciation and amortization................... (226,145) (312,392)
---------- ----------
Property and equipment, net................................. $ 774,034 $1,095,485
========== ==========
</TABLE>
Concentration of credit risk
Financial instruments, which potentially subject the Company to
concentration of credit risk, are primarily accounts receivable, cash
equivalents and investments. The Company performs ongoing credit evaluations of
its customers' financial condition and maintains an allowance for doubtful
accounts based on the outcome of its credit evaluations. The Company maintains
cash and cash equivalents with various financial institutions that management
believes to be high credit quality. These financial institutions are located in
many different locations throughout the world.
F-11
<PAGE> 53
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Sales to customers who accounted for more than 10% of net sales were as
follows for the years ended March 31:
<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Ericsson.................................................... 13% * 12%
Philips..................................................... * 10% 10%
</TABLE>
* Less than 10%
Goodwill and other intangibles
Any excess of cost over net assets acquired (goodwill) is amortized by the
straight-line method over estimated lives ranging from eight to thirty years.
Intangible assets are comprised of technical agreements, patents,
trademarks, developed technologies and other acquired intangible assets
including assembled work forces, favorable leases and customer lists. Technical
agreements are being amortized on a straight-line basis over periods of up to
five years. Patents and trademarks are being amortized on a straight-line basis
over periods of up to ten years. Purchased developed technologies are being
amortized on a straight-line basis over periods of up to seven years. Intangible
assets related to assembled work forces, favorable leases and customer lists are
amortized on a straight-line basis over three to ten years.
Goodwill and other intangibles were as follows as of March 31 (in
thousands):
<TABLE>
<CAPTION>
1999 2000
-------- --------
<S> <C> <C>
Goodwill.................................................... $156,738 $226,019
Other intangibles........................................... 15,040 16,171
-------- --------
171,778 242,190
Accumulated amortization.................................... (26,554) (35,484)
-------- --------
Goodwill and other intangibles, net......................... $145,224 $206,706
======== ========
</TABLE>
Long-Lived Assets
The Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of property and equipment is measured by
comparison of its carrying amount, including the unamortized portion of goodwill
allocated to the property and equipment, to future net cash flows the property
and equipment are expected to generate. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the property and equipment, including the allocated goodwill,
if any, exceeds its fair market value. The Company assesses the recoverability
of enterprise level goodwill and intangible assets as well as long-lived assets
by determining whether the unamortized balances can be recovered through
undiscounted future results of the operation or asset. The amount of enterprise
level long-lived asset impairment, if any, is measured based on projected
discounted future results using a discount rate reflecting the Company's average
cost of funds. To date, the Company's adjustments to the carrying value of its
long-lived assets are discussed in Note 9.
F-12
<PAGE> 54
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Inventories
Inventories are stated at the lower of cost (first-in, first-out basis) or
market value. Cost is comprised of direct materials, labor and overhead. As of
March 31, the components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
1999 2000
-------- --------
<S> <C> <C>
Raw materials............................................... $228,237 $747,822
Work-in-process............................................. 58,126 160,171
Finished goods.............................................. 38,398 84,718
-------- --------
$324,761 $992,711
======== ========
</TABLE>
Accrued liabilities
Accrued liabilities was comprised of the following as of March 31 (in
thousands):
<TABLE>
<CAPTION>
1999 2000
-------- --------
<S> <C> <C>
Income taxes payable........................................ $ 11,163 $ 24,572
Accrued payroll............................................. 53,910 96,559
Accrued loan interest....................................... 12,989 12,394
Accrual for excess facilities............................... 2,523 931
Customer deposits........................................... 18,299 3,542
Sales tax and other tax payable............................. 5,925 18,913
Other accrued liabilities................................... 58,021 95,087
-------- --------
$162,830 $251,998
======== ========
</TABLE>
Revenue recognition
The Company's net sales are comprised of product sales and service revenue
earned from engineering and design services. Revenue from product sales is
recognized upon shipment of the goods. Service revenue is recognized as the
services are performed, or under the percentage-of-completion method of
accounting, depending on the nature of the arrangement. If total costs to
complete a project exceed the anticipated revenue from that project, the loss is
recognized immediately.
F-13
<PAGE> 55
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Interest and other expense, net
Interest and other expense, net was comprised of the following for the
years ended March 31 (in thousands):
<TABLE>
<CAPTION>
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Interest expense.................................... $ 28,675 $ 44,645 $ 56,481
Interest income..................................... (4,996) (9,129) (20,420)
Foreign exchange loss (gain)........................ (4,137) 5,112 2,705
Equity in earnings of associated companies.......... (1,194) (1,036) --
Minority interest................................... 356 1,319 1,002
Other expense (income), net......................... (166) (2,152) 5,139
-------- -------- --------
Total interest and other expense, net..... $ 18,538 $ 38,759 $ 44,907
======== ======== ========
</TABLE>
Net income per share
Basic net income per share is computed using the weighted average number of
ordinary shares outstanding during the applicable periods.
Diluted net income per share is computed using the weighted average number
of ordinary shares and dilutive ordinary share equivalents outstanding during
the applicable periods. Ordinary share equivalents include ordinary shares
issuable upon the exercise of stock options and are computed using the treasury
stock method. Earnings per share data were computed as follows as of March 31:
<TABLE>
<CAPTION>
1998 1999 2000
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
BASIC EPS:
Net income................................................. $ 68,579 $ 48,800 $181,445
======== ======== ========
Shares used in computation:
Weighted-average ordinary shares outstanding.......... 121,197 135,555 161,708
======== ======== ========
Basic EPS.................................................. $ 0.57 $ 0.36 $ 1.12
======== ======== ========
DILUTED EPS:
Net income................................................. $ 68,579 $ 48,800 $181,445
Plus income impact of assumed conversions:
Interest expense (net of tax) on convertible
subordinated notes.................................. 3,105 3,105 400
Amortization (net of tax) of debt issuance cost on
Convertible subordinated notes...................... 260 260 33
-------- -------- --------
Net income available to shareholders.................. $ 71,944 $ 52,165 $181,878
======== ======== ========
SHARES USED IN COMPUTATION:
Weighted-average ordinary shares outstanding............... 121,197 135,555 161,708
Shares applicable to exercise of dilutive options(1)....... 5,405 6,443 11,816
Shares applicable to deferred stock compensation........... 227 216 151
Shares applicable to convertible subordinated Notes........ 7,405 7,381 729
-------- -------- --------
Shares applicable to diluted earnings................. 134,234 149,595 174,404
======== ======== ========
Diluted EPS................................................ $ 0.54 $ 0.35 $ 1.04
======== ======== ========
</TABLE>
---------------
(1) Stock options of the Company calculated based on the treasury stock method
using average market price for the period, if dilutive. Options to purchase
573,295, 785,635 and 426,666,weighted shares outstanding
F-14
<PAGE> 56
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
during fiscal 1998, 1999, and 2000, respectively, were excluded from the
computation of diluted earnings per share because the options exercise price
was greater than the average market price of the Company's ordinary shares
during those years.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," ("SFAS No. 133") which establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments imbedded in other contracts and for hedging activities. It requires
that companies recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
Company expects to adopt SFAS No. 133 in the first quarter of fiscal 2002 and
anticipates that SFAS No. 133 will not have a material impact on its
consolidated financial statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101("SAB 101"), "Revenue Recognition in Financial
Statements". SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. The Company
will adopt SAB 101 as required in the first quarter of fiscal 2001 and is
evaluating the effect that such adoption may have on its consolidated results of
operations and financial position.
3. SUPPLEMENTAL CASH FLOW DISCLOSURES
For purposes of the statement of cash flows, the Company considers highly
liquid investments with an original maturity of three months or less to be cash
equivalents. The following information relates to fiscal years ended March 31
(in thousands):
<TABLE>
<CAPTION>
1998 1999 2000
------- ------- -------
<S> <C> <C> <C>
Cash paid for:
Interest.................................................. $12,737 $29,341 $53,989
Income taxes.............................................. 13,324 10,538 8,584
Non-cash investing and financing activities:
Equipment acquired under capital lease obligations........ 19,852 30,953 35,137
Issuance of 255,700 Ordinary Shares valued at $18.77 for
acquisition of FICO.................................... -- 4,800 --
Conversion of DII debt to equity.......................... -- -- 85,074
</TABLE>
4. BANK BORROWINGS AND LONG-TERM DEBT
Senior Subordinated Notes
The Company has $150 million in unsecured Senior Subordinated Notes due in
2007 outstanding with an annual interest rate of 8.75% due semi-annually. The
fair value of the unsecured Senior Subordinated Notes based on broker trading
prices was 94.5% of the face value on March 31, 2000.
DII has $150.0 million of senior subordinated notes which bear interest at
8.5% and mature on September 15, 2007. Interest is payable semi-annually. The
fair value of these senior subordinated notes based on broker trading prices was
99.5% of the face value on March 31, 2000. The Company repurchased these notes
subsequent to March 31, 2000.
The Company maintained a credit facility with a syndicate of banks. This
facility provided for revolving credit borrowings by Flextronics and a number of
its subsidiaries of up to $200.0 million, subject to
F-15
<PAGE> 57
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
compliance with certain financial covenants and the satisfaction of customary
borrowing conditions. The credit facility consisted of two separate credit
agreements, one providing for up to $40.0 million principal amount of revolving
credit loans to the Company and designated subsidiaries and one providing for up
to $160.0 million principal amount of revolving credit loans to the Company's
United States subsidiary. As of March 31, 2000, there were $137.0 million in
borrowings outstanding under the revolving credit loans and the weighted-average
interest rate for the Company's borrowings under the revolving credit loans was
6.87%.
DII maintained a $210.0 million credit facility with a syndicate of banks.
This facility provides for a $100.0 million 5-year term loan ("DII's Term Loan")
and a $110.0 million revolving line-of-credit facility ("DII's Revolver"). At
March 31, 2000, there were $84.0 million outstanding under DII's Term Loan at a
weighted average interest rate was 7.63%. At March 31, 2000, borrowings of $25.0
million were outstanding under DII's Revolver at a weighted average interest
rate of 8.25%.
On April 3, 2000, the Company replaced both its $200.0 million credit
facility and DII's $210.0 million credit facility with a $500.0 million
Revolving Credit Facility ("Credit Facility") with a syndicate of domestic and
foreign banks. The Credit Facility consisted of two separate credit agreements,
one providing for up to $350.0 million principal amount of revolving credit
loans to the Company and designated subsidiaries ("Tranche A") and one providing
for up to $150.0 million principal amount of revolving credit loans to the
Company's United States subsidiary ("Tranche B"). Both Tranche A and Tranche B
are split equally between a 364 day and a three year facility. At the maturity
of the 364-day facilities, outstanding borrowings under the facility may be
converted into one-year term loans. Borrowings under the Credit Facility bear
interest, at the Company's option, at either: (i) the Base Rate (as defined in
the Credit Facility); or (ii) the LIBOR Rate (as defined in the Credit Facility)
plus the Applicable Margin for LIBOR loans ranging between 0.625% and 1.75%,
based on certain financial ratios of the Company. The Company is required to pay
a quarterly commitment fee ranging from 0.15% to 0.375% per annum, based on
certain financial ratios of the Company, of the unutilized portion of the Credit
Facility.
In fiscal 2000, substantially all of the DII's convertible subordinated
notes were converted into approximately 7,406,000 ordinary shares and the
unconverted portion was redeemed for $0.1 million.
Certain subsidiaries of the Company have various lines of credit available
with annual interest rates ranging from 3.3% to 8.5%. These lines of credit
expire on various dates through 2001. The Company also has term loans with
annual interest rates generally ranging from 1.5% to 9.0% with terms of up to 20
years. These lines of credit and term loans are primarily secured by assignment
of account receivables and assets.
The Company has financed the purchase of certain facilities with mortgages.
The mortgages generally have terms of 5 to 10 years and annual interest rates
ranging from 7.4% to 10.0% and are secured by the underlying properties with a
net book value of approximately $23.0 million.
In addition, the Company had notes payable for purchase price due to the
former shareholders of FICO for the additional 50% interest acquired in March
1999. The notes were unsecured and bear interest at 2%. The amount outstanding
as of March 31, 2000 was $2.0 million.
F-16
<PAGE> 58
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Bank borrowings and long-term debts were comprised of the following at
March 31 (in thousands):
<TABLE>
<CAPTION>
1999 2000
--------- ---------
<S> <C> <C>
Senior subordinated notes................................... $ 300,000 $ 300,000
Outstanding under lines of credit........................... 14,097 105,199
Credit facility............................................. 40,073 137,000
DII credit facility......................................... 137,500 109,000
Mortgages................................................... 15,630 8,549
Convertible subordinated notes payable...................... 86,235 --
Term loans and other debt................................... 81,139 63,764
--------- ---------
674,674 723,512
Current portion........................................ (152,852) (380,003)
--------- ---------
Non-current portion.................................... $ 521,822 $ 343,509
========= =========
</TABLE>
Maturities for the bank borrowings and other long-term debt are as follows
for the years ended March 31 (in thousands):
<TABLE>
<S> <C>
2001.............................................. $380,003
2002.............................................. 7,962
2003.............................................. 6,514
2004.............................................. 12,056
2005.............................................. 3,021
Thereafter........................................ 313,956
--------
$723,512
========
</TABLE>
5. FINANCIAL INSTRUMENTS
The value of the Company's cash and cash equivalents, investments, accounts
receivable and accounts payable carrying amount approximates fair value. The
fair value of the Company's long-term debt (see Note 4) is determined based on
current broker trading prices. The Company's cash equivalents are comprised of
cash deposited in money market accounts, commercial paper and certificate of
deposits (see Note 2). The Company's investment policy limits the amount of
credit exposure to 10% of the total investment portfolio in any single issuer.
The Company enters into forward exchange contracts to hedge underlying
transactional currency exposures and does not engage in foreign currency
speculation. The credit risk of these forward contracts is minimal since the
contracts are with large financial institutions. The Company hedges committed
exposures and these forward contracts generally do not subject the Company to
risk of accounting losses. The gains and losses on forward contracts generally
offset the gains and losses on the asset, liabilities and transactions hedged.
The Company's off-balance sheet financial instruments consist of $16.5 million
and $61.1 million of aggregate foreign currency forward contracts outstanding at
the end of fiscal year 1999 and 2000, respectively. These foreign exchange
contracts expire in less than three months and will settle in French Franc,
German Deutsche Mark, Japanese Yen, Swedish Kronor and United States Dollar.
6. COMMITMENTS
As of March 31, 1999 and 2000, the Company has financed a total of $70.3
million and $43.8 million, respectively in machinery and equipment purchases
with capital leases. Accumulated amortization for property and equipment under
capital leases totaled $18.2 million and $15.1 million at March 31, 1999 and
F-17
<PAGE> 59
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2000, respectively. These capital leases have interest rates ranging from 1.7%
to 13.0%. The Company also leases certain of its facilities under non-cancelable
operating leases. The capital and operating leases expire in various years
through 2007 and require the following minimum lease payments for the years
ended March 31 (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
-------- ---------
<S> <C> <C>
2001........................................................ $ 17,274 $ 57,016
2002........................................................ 16,987 52,793
2003........................................................ 12,621 42,032
2004........................................................ 7,051 22,623
2005........................................................ 947 12,420
Thereafter.................................................. -- 19,046
-------- --------
Minimum lease payments...................................... 54,880 $205,930
========
Amount representing interest................................ (2,257)
--------
Present value of minimum lease payments..................... 52,623
Current portion............................................. (16,528)
--------
Capital lease obligations, net of current portion........... $ 36,095
========
</TABLE>
Total rent expense was $16.1 million, $24.6 million and $39.5 million for
the years ended March 31, 1998, 1999 and 2000, respectively.
7. INCOME TAXES
The domestic and foreign components of income before income taxes were
comprised of the following for the years ended March 31 (in thousands):
<TABLE>
<CAPTION>
1998 1999 2000
-------- ------- --------
<S> <C> <C> <C>
Singapore........................................... $ (9,346) $(8,159) $ 16,286
Foreign............................................. 100,006 44,944 186,556
-------- ------- --------
$ 90,660 $36,785 $202,842
======== ======= ========
</TABLE>
The provision for (benefit from) income taxes consisted of the following
for the years ended March 31 (in thousands):
<TABLE>
<CAPTION>
1998 1999 2000
------- -------- -------
<S> <C> <C> <C>
Current:
Singapore........................................... $ 226 $ -- $ 477
Foreign............................................. 22,326 4,227 30,420
------- -------- -------
22,552 4,227 30,897
------- -------- -------
Deferred:
Singapore........................................... (451) -- --
Foreign............................................. (20) (16,242) (9,500)
------- -------- -------
(471) (16,242) (9,500)
------- -------- -------
$22,081 $(12,015) $21,397
======= ======== =======
</TABLE>
F-18
<PAGE> 60
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Singapore statutory income tax rate was 26% for the years ended March
31, 1998, 1999 and 2000. The reconciliation of the income tax expense expected
based on Singapore statutory income tax rates to the provision for income taxes
included in the consolidated statements of operations for the years ended March
31 is as follows (in thousands):
<TABLE>
<CAPTION>
1998 1999 2000
------- -------- --------
<S> <C> <C> <C>
Income taxes based on Singapore statutory rates............. $23,572 $ 9,564 $ 52,739
Losses (income) from non-incentive Singapore operations..... 2,707 3,098 (5,544)
Tax exempt income........................................... -- (549) (866)
Effect of foreign operations taxed at various rates......... (4,215) (19,615) (33,432)
Amortization of goodwill and intangibles.................... 946 942 1,347
Merger costs................................................ 398 -- 257
Change in valuation allowance............................... (1,136) (2,827) 10,438
Joint venture losses........................................ (310) (269) --
State income taxes, net of federal income tax benefit....... 1,307 (1,098) (350)
Tax credits and carryforwards............................... (786) (1,166) (4,800)
Other....................................................... (402) (95) 1,608
------- -------- --------
Provision for (benefit from) income taxes.............. $22,081 $(12,015) $ 21,397
======= ======== ========
Effective tax rate.......................................... 24.4% (32.7)% 10.5%
</TABLE>
F-19
<PAGE> 61
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The components of deferred income taxes are as follows as of March 31 (in
thousands):
<TABLE>
<CAPTION>
1999 2000
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Depreciation.............................................. $ (3,496) $ (8,121)
Deferred revenue and other reserves....................... (2,080) (2,273)
Unremitted earnings of foreign subsidiaries............... (2,766) (2,766)
Intangible assets......................................... (4,782) (3,297)
Fixed assets.............................................. (515) (15,547)
Exchange losses........................................... (934) (57)
Others.................................................... (2,187) (1,934)
-------- --------
Total deferred tax liability...................... $(16,760) $(33,995)
-------- --------
Deferred tax assets:
Property.................................................. $ 5,595 $ --
Deferred compensation..................................... 1,594 6,057
Compensation absences..................................... 1,093 1,164
Provision for inventory obsolescence...................... 3,260 10,867
Provision for doubtful accounts........................... 2,310 5,625
Net operating loss carryforwards.......................... 22,391 55,046
Federal and State credits................................. 6,628 11,857
Merger-related costs...................................... 368 --
General accruals and reserves............................. 8,616 5,702
Leasing -- interest and exchange.......................... 771 --
Uniform capitalization of inventory....................... 2,005 4,493
Others.................................................... 1,922 3,512
-------- --------
56,553 104,323
Valuation allowance....................................... (25,603) (43,535)
-------- --------
Total deferred tax asset............................... $ 30,950 $ 60,788
-------- --------
Net deferred tax asset.................................... $ 14,190 $ 26,793
======== ========
The net deferred tax asset is classified as follows:
Current asset (classified as Other Current
Assets)......................................... $ 12,009 $ 18,058
Non-current assets (classified as Other Assets)... 2,181 8,735
-------- --------
$ 14,190 $ 26,793
======== ========
</TABLE>
The deferred tax asset arises from available tax loss carryforwards and
non-deductible reserves and accruals. At March 31, 2000, the Company had total
foreign tax loss carryforwards of approximately $157.0 million, a portion of
which begin expiring in tax year 2010, and tax credit carryforwards of $11.9
million, some of which begin expiring in tax year 2002. The utilization of these
net operating loss carryforwards and tax credit carryforwards is limited to the
future operations of the Company in the tax jurisdictions in which such
carryforwards arose. As a result, management is uncertain as to when or whether
these operations will generate sufficient profit to realize the deferred tax
asset benefit. The valuation allowance provides a reserve against deferred tax
assets that may expire or go unutilized by the Company. However, management has
determined that it is more likely than not that the Company will realize certain
of these benefits and, accordingly, has recognized a deferred tax asset from
these benefits. The amount of deferred tax assets considered realizable,
however, could be reduced or increased in the near-term if facts, including the
amount of taxable income or the mix of taxable income between subsidiaries,
differ from management's estimates.
F-20
<PAGE> 62
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
No deferred tax liability has been provided for withholding taxes on
distributions of dividends by various subsidiaries in the group as earnings of
foreign subsidiaries are intended to be reinvested indefinitely.
The Company has been granted the following tax incentives:
i) Pioneer status for various products were granted for the Malaysian
subsidiaries under the Promotion of Investment Act. This incentive
provides for partial tax exemption on manufacturing income from some of
the products of the subsidiary. In addition, a tax holiday has been
granted for one of its Malaysian subsidiaries resulting in zero income
tax. This 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 subsidiary's Malaysian tax rate
will be 28% beginning in 2005.
ii) Product Export Enterprise incentive for the Shekou and Shenzhen, China
facilities. The Company's operations in Shekou and Shenzhen, China are
located in "Special Economic Zone" and are an approved "Product Export
Enterprise" which qualifies for a special corporate income tax rate of
10%. This special tax is subject to the subsidiaries exporting more
than 70% of their total value of products manufactured by the
respective plants in China. The subsidiaries' status as a Product
Export Enterprise is reviewed annually by the Chinese government.
iii) The Company's investments in its plants in Xixiang and Doumen, China
fall under the "Foreign Investment Scheme" that entitles the
subsidiaries to apply for a five-year tax incentive. The Company
obtained the incentive for the Doumen plant in December 1995 and the
Xixiang plant in October 1996. With the approval of the Chinese tax
authorities, the subsidiaries' tax rates on income from these
facilities during the incentive period will be 0% in years 1 and 2
and 7.5% in years 3 through 5, commencing in the first profitable
year. The Company has another plant in Doumen, China which commenced
operations in the fiscal year 1998. The plant falls under the
"Foreign Investment Scheme" and the Company is confident that the
five-year tax incentive will be granted for this plant upon formal
application in its first profitable year. However, there can be no
assurance that the five-year tax incentive will be granted.
iv) The Company's other operations in China which have been granted tax
holidays are expected to have their tax increase from 0% to 7.5% in
each of fiscal years 2002 and 2003, and 15% thereafter.
v) Ten year negotiated tax holiday with the Hungarian government for its
Hungarian subsidiaries. This incentive provides for the reduction of
the regular tax rate to 0%, beginning January 1, 2000.
vi) Tax holiday in the Czech Republic has been granted 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%.
vii) Three year corporate income tax holiday for the Company's Thailand
operations through September 2002. Upon expiration, the Company's tax
rate on operations in Thailand will be 30%.
8. SHAREHOLDERS' EQUITY
SECONDARY OFFERINGS
In October 1997, the Company completed an offering of its ordinary shares.
A total of 8,740,000 ordinary shares were sold at a price of $11.75 per share
resulting in net proceeds to the Company of $96.2 million.
F-21
<PAGE> 63
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In December 1998, the Company completed another offering of its Ordinary
Shares. A total of 10,800,000 shares were sold at a price of $18.125 per share
resulting in net proceeds to the Company of $194.0 million.
In September 1999, the Dii Group completed a secondary offering of its
common stock. A total of 6,900,000 common stock, or 11,109,000 ordinary shares
were sold at a price of $33.00 per share resulting in net proceeds to the
Company of approximately $215.7 million.
During fiscal 2000, the Company completed two secondary offerings of its
ordinary shares. In February 2000, a total of 8,600,000 ordinary shares were
sold at a price of $59.00 per share resulting in net proceeds to the Company of
approximately $494.1 million. In October 1999, a total of 13,800,000 ordinary
shares were sold at a price of $33.84 per share resulting in net proceeds to the
Company of approximately $448.9 million.
STOCK SPLIT
The Company has effected two stock splits. A two-for-one stock split was
effected in 1998 as a bonus issue (the Singapore equivalent of a stock
dividend). The record date was December 22, 1998 and the distribution of
47,068,458 ordinary shares occurred on January 11, 1999. A two-for-one stock
split was effected in 1999 as a bonus issue. The record date was December 8,
1999 and the distribution of 57,497,204 ordinary shares occurred on December 22,
1999. The Company has accounted for these transactions as a stock split and all
share and per share amounts have been retroactively restated to reflect both
stock splits.
STOCK-BASED COMPENSATION
The Company's 1993 Share Option Plan (the "Plan") provides for the grant of
up to 16,400,000 incentive stock options and non-statutory stock options to
employees and other qualified individuals to purchase ordinary shares of the
Company. As of March 31, 2000, the Company had 882,350 ordinary shares available
for future option grants under the Plan at an exercise price of not less than
85% of the fair value of the underlying stock on the date of grant. Options
issued under the Plan generally vest over 4 years and expire 5 years from the
date of grant.
The Company's 1997, 1998 and 1999 Interim Option Plans provide for grants
of up to 1,000,000, 1,572,000, and 2,600,000 respectively. These plans provide
grants of non-statutory options to employees and other qualified individuals to
purchase ordinary shares of the Company. Options under these plans cannot be
granted to executive officers and directors. The Company's 1997, 1998 and 1999
Interim Option Plans had 240,098, 80,317, and 958,244 ordinary shares available
for future option grants respectively. All Interim Option Plans have an exercise
price of not less than 85% of fair market value of the underlying stock on the
date of grant. Options issued under these plans generally vest over 4 years and
expire 5 years from the date of grant.
The Company has assumed certain option plans and the underlying options of
companies which the Company has merged with or acquired (the "Assumed Plans").
Options under the Assumed Plans have been converted into the Company's options
and adjusted to effect the appropriate conversion ratio as specified by the
applicable acquisition or merger agreement, but are otherwise administered in
accordance with the terms of the Assumed Plans. Options under the Assumed Plans
generally vest over 4 years and expire 5 years from the date of grant. In
connection with the acquisition of DII by Flextronics in April 2000, each
outstanding option to purchase DII common stock granted under DII's 1993 Plan
and 1994 Plan immediately vested as a result of the change in control provision
in both plans.
F-22
<PAGE> 64
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table presents the activity for options outstanding under all
of the stock option plans as of March 31 ("Price" reflects the weighted average
exercise price):
<TABLE>
<CAPTION>
1998 1999 2000
------------------- -------------------- --------------------
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
----------- ----- ----------- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year............ 12,268,895 $4.86 13,629,793 $ 6.36 18,384,693 $ 8.77
Granted................................... 6,588,198 8.02 9,360,842 10.64 5,444,258 27.34
Exercised................................. (2,839,427) 3.30 (3,237,464) 4.30 (3,358,266) 7.27
Forfeited................................. (2,387,873) 6.89 (1,368,478) 8.20 (536,126) 11.35
----------- ----------- -----------
Outstanding, end of year.................. 13,629,793 $6.36 18,384,693 $ 8.77 19,934,559 $14.86
=========== =========== ===========
Exercisable, end of year.................. 5,458,643 5,653,457 6,787,924
=========== =========== ===========
Weighted average fair value per option
granted................................. $ 3.48 $ 6.60 $ 14.88
=========== =========== ===========
</TABLE>
The following table presents the composition of options outstanding and
exercisable as of March 31, 2000 ("Price" and "Life" reflect the weighted
average exercise price and weighted average contractual life unless otherwise
noted):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
RANGE OF -------------------------- --------------------
EXERCISE PRICES AMOUNT PRICE LIFE AMOUNT PRICE
--------------------- ---------- ------ ---- ---------- -------
<S> <C> <C> <C> <C> <C>
$ 0.77 - $ 5.81 3,385,757 $ 5.46 2.64 2,712,959 $ 5.37
5.94 - 8.37 4,530,164 7.33 5.40 1,639,134 7.39
8.41 - 12.00 5,270,093 11.12 3.69 1,881,847 11.06
12.45 - 27.06 3,182,315 18.55 6.02 452,239 16.15
27.22 - 78.12 3,566,230 35.60 4.81 101,745 28.91
---------- ---------
19,934,559 $14.86 4.47 6,787,924 $ 8.51
========== =========
</TABLE>
Options to purchase ordinary shares were reserved for future issuance under
all stock option plans was 7,062,092 as of March 31, 2000.
The Company's Employee Stock Purchase Plan (the "Purchase Plan") provides
for issuance of up to 800,000 ordinary shares. The Purchase Plan was approved by
the stockholders in October 1997. Under the Purchase Plan, employees may
purchase, on a periodic basis, a limited number of shares of common stock
through payroll deductions over a six month period up to 10% of each
participant's compensation. The per share purchase price is 85% of the fair
market value of the stock at the beginning or end of the offering period,
whichever is lower. As of March 31, 2000, there are 519,552 ordinary shares
available for sale under this plan. The ordinary shares sold under this plan in
fiscal 2000 and 1999 amounted to 139,404 and 141,044, respectively. There were
no ordinary shares sold under this plan in 1998. The weighted-average fair value
of ordinary shares sold under this plan in fiscal 2000 and 1999 was $17.37 and
$8.05, respectively.
In connection with the acquisition of DII, the Company assumed DII's
employee stock purchase plan ("DII's Purchase Plan"). The ordinary shares sold
under this plan in fiscal 2000, 1999 and 1998 amounted to 112,956, 367,404 and
156,904, respectively. The weighted average fair value of ordinary shares sold
under DII Purchase Plan in fiscal 2000, 1999 and 1998 was $15.19, $10.64 and
$10.14 per share, respectively. In addition, the Company also assumed DII's
non-employee directors' stock compensation plan ("DII's Directors Plan"). The
ordinary shares sold under this plan in fiscal 2000, 1999 and 1998 amounted to
8,936, 14,263 and 12,262, respectively. The weighted average fair value of
ordinary shares sold under this plan in fiscal 2000, 1999 and 1998 was $20.81,
$12.13 and $11.58, respectively. The Company discontinued issuing ordinary
shares under both plans in fiscal 2001.
F-23
<PAGE> 65
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company has elected to follow APB Opinion No. 25 "Accounting for Stock
Issued to Employees" and related interpretations in accounting for its employee
stock option plans and employee stock purchase plans and has adopted the
disclosure provisions of SFAS No. 123 "Accounting for Stock Based Compensation".
Because the exercise price of the Company's stock options has equaled the fair
value of the underlying stock on the date of grant, no compensation expense has
been recognized under APB Opinion No. 25. Had the compensation cost for the
Company's stock-based compensation plans been determined based on the fair
values of these options, the Company's fiscal 1998, 1999, and 2000 net income
and earnings per share would have been adjusted to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1998 1999 2000
------- ------- --------
<S> <C> <C> <C>
Net income:
As reported............................................... $68,579 $48,800 $181,445
Pro-forma................................................. 60,860 33,788 156,350
Basic earnings per share:
As reported............................................... $ 0.57 $ 0.36 $ 1.12
Pro-forma................................................. 0.50 0.25 0.97
Diluted earnings per share:
As reported............................................... $ 0.54 $ 0.35 $ 1.04
Pro-forma................................................. 0.48 0.25 0.90
</TABLE>
In accordance with the disclosure provisions of SFAS No. 123, the fair
value of employee stock options granted during fiscal 1998, 1999 and 2000 was
estimated at the date of grant using the Black-Scholes model and the following
weighted average assumptions:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------------
1998 1999 2000
------- ------- -------
<S> <C> <C> <C>
Volatility.................................................. 59% 58% 58%
Risk-free interest rate range............................... 6.1% 5.2% 6.2%
Dividend yield.............................................. 0% 0% 0%
Expected lives.............................................. 3.5 yrs 3.5 yrs 3.5 yrs
</TABLE>
Because SFAS No. 123 is applicable only to awards granted subsequent to
December 30, 1994, and due to the subjective nature of the assumptions used in
the Black-Scholes model, the pro forma net income and net income per share
disclosures may not reflect the associated fair value of the outstanding
options.
OPTION REPRICING
In light of the substantial decline in the market price of the Company's
ordinary shares in the first quarter of fiscal 1998, in June 1997 the Company
offered to all employees the opportunity to cancel existing options outstanding
with exercise price in excess of $5.82 per share, the fair market value of the
Company's ordinary shares at that time, and to have such options replaced with
options that have the lower exercise price of $5.82 per share. Employees
electing to have options repriced were required to accept an extension of their
vesting schedule. The other terms of the options remained unchanged. On June 5,
1997, the Company repriced options to purchase 1,155,840 shares pursuant to this
offer.
DEFERRED STOCK COMPENSATION
Under the DII 1994 Stock Incentive Plan certain key executives of DII were
awarded 734,160 and 402,500 shares in fiscal 1999, and 1998, respectively.
Shares vest over a period of time, which in no event exceeds eight years. The
shares vested at an accelerated rate upon the achievement of certain annual
earnings-
F-24
<PAGE> 66
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
per-share targets established by DII's Compensation Committee. Non vested shares
for individual participants who are no longer employed by the Company on the
plan termination date are forfeited. Participants 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 474,145, 100,625, and 422,361 for fiscal 2000, 1999,
and 1998, respectively.
Deferred stock 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 $3.9 million, $1.8
million, and $4.4 million was amortized to expense during fiscal 2000, 1999, and
1998, respectively. The weighted-average fair value of performance shares
awarded in 2000, 1999, and 1998 was $12.46, $12.40, and $6.63 per share,
respectively.
In fiscal 1997, the Company, through its wholly-owned subsidiary Palo Alto
Products International, recorded deferred stock compensation of $2.4 million,
for options granted with an exercise price below the deemed fair value at the
date of grant. Compensation expense is recognized on an accelerated basis over
the vesting period of the options and aggregated $0.4 million, $1.0 million and
$0.8 million during fiscal 2000, 1999 and 1998, respectively.
9. UNUSUAL CHARGES
During fiscal 1999, the Company recognized unusual pre-tax charges of $76.2
million, of which $70.8 million was primarily non-cash and related to the
operations of the Company's wholly-owned subsidiary, Orbit Semiconductor
("Orbit"). The Company purchased Orbit in August of 1996, and supported Orbit's
previously made decision to replace its wafer fabrication facility ("Fab") with
a higher technology fab. The transition to the 6-inch fab was originally
scheduled for completion during the summer of 1997, but the changeover took
longer than expected and was finally completed in January 1998.
The delayed changeover and the resulting simultaneous operation of both
fabrication facilities put pressure on the work force, with resulting quality
problems. Compounding these problems, the semiconductor industry was
characterized by excess capacity, which led larger competitors to invade Orbit's
niche market. Further, many of Orbit's customers migrated faster than expected
to a technology in excess of Orbit's fabrication capabilities, requiring Orbit
to outsource more of its manufacturing requirements than originally expected.
Based upon these continued conditions and the future outlook, the Company took
an unusual charge of $51.2 million in the first quarter of fiscal 1999 to
correctly size Orbit's asset base to allow its recoverability based upon its
then current business size.
The Company decided to sell Orbit's fabrication facility and outsource
semiconductor manufacturing, resulting in an additional unusual charge in the
fourth quarter of fiscal 1999 of $19.6 million. These charges were primarily due
to the impaired recoverability of inventory, intangible assets and fixed assets,
and other costs associated with the exit from semiconductor manufacturing. The
manufacturing facility was sold in the first quarter of fiscal 2000, and the
Company has successfully adopted a fabless manufacturing strategy.
F-25
<PAGE> 67
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The components of the total unusual charge recorded in fiscal 1999 are as
follows:
<TABLE>
<CAPTION>
FIRST FOURTH FISCAL NATURE OF
QUARTER QUARTER 1999 CHARGE
------- ------- ------- -------------
<S> <C> <C> <C> <C>
Severance...................................... $ 498 $ 2,371 $ 2,869 cash
Long-lived asset impairment.................... 38,257 16,538 54,795 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 2,238 4,083 cash/non-cash
------- ------- -------
Total unusual pre-tax charges................ $51,158 $24,997 $76,155
======= ======= =======
</TABLE>
The following table summarizes the components and activity related to the
fiscal 1999 unusual charges:
<TABLE>
<CAPTION>
LONG-LIVED LOSSES ON UNCOLLECTIBLE SALES RETURNS OTHER
ASSET SALES ACCOUNTS AND INVENTORY EXIT
SEVERANCE IMPAIRMENT CONTRACTS RECEIVABLE ALLOWANCES WRITE-DOWNS COSTS TOTAL
--------- ---------- --------- ------------- ------------- ----------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31,
1998.................... $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Activities during the
year:
1999 provision.......... 2,869 54,795 5,758 900 2,000 5,750 4,083 76,155
Cash charges............ (1,969) -- -- -- -- -- (900) (2,869)
Non-cash charges........ (54,795) (4,658) (767) (1,500) (5,500) (643) (67,863)
------- -------- ------- ----- ------- ------- ------- --------
Balance at March 31,
1999.................... 900 -- 1,100 133 500 250 2,540 5,423
Activities during the
period:
Cash charges............ (900) -- -- -- -- -- (2,540) (3,440)
Non-cash charges........ -- -- (1,100) (133) (500) (250) -- (1,983)
------- -------- ------- ----- ------- ------- ------- --------
Balance at March 31,
2000.................... $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
======= ======== ======= ===== ======= ======= ======= ========
</TABLE>
Of the total unusual pre-tax charges, $2.9 million relates to employee
termination costs. As of January 3, 1999, approximately 290 people have been
terminated, and another 170 people were terminated when the fabrication facility
was sold in the first quarter of fiscal 2000. The Company paid approximately
$0.9 million and $2.0 million of employee termination costs during fiscal 2000
and 1999, respectively. The remaining $0.9 million is classified as accrued
payroll as of March 31, 1999 and was paid out in the first quarter of fiscal
2000.
The unusual pre-tax charges include $54.8 million for the write-down of
long-lived assets to fair value. Included in the long-lived asset impairment are
charges of $50.7 million, which relate to the fabrication facility which was
written down to its net realizable value based on its sales price. The Company
kept the fabrication facility in service until the sale date in the first
quarter of fiscal 2000. The Company discontinued depreciation expense on the
fabrication facility 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 $52.4 million, which were written down to a
carrying value of $9.0 million and building and improvements of $7.3 million,
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 $0.6 million. The remaining $3.5 million of asset impairment relates to
the write-down to net realizable value of plant and equipment relating to other
facilities the Company exited during 1999.
The Company entered into certain non-cancellable 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 these products, a liability
for losses
F-26
<PAGE> 68
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
on sales contracts was recorded for the estimated future amount of these losses.
The unusual pre-tax charges include $8.7 million for losses on sales contracts,
incremental amounts of uncollectible accounts receivable, and estimated
incremental costs for sales returns and allowances.
The unusual pre-tax charges also include $9.8 million for losses on
inventory write-downs and other exit costs. The Company has written off and
disposed of approximately $5.8 million of inventory. The remaining $4.0 million
relates primarily to the loss on the sale of the fabrication facility relating
to 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.
The Company also recognized unusual pre-tax charges of $8.9 million in
fiscal 1998 relating to the costs incurred in closing the Wales, United Kingdom
facility. This charge consists primarily of the write-off of goodwill and
intangible assets of $3.8 million, $1.6 million for severance payments, $1.1
million for reimbursement of government grants and $2.4 million of costs
associated with the disposal of the factory. This closure is a result of the
Company's acquisition of Altatron, which resulted in duplicative facilities in
the United Kingdom.
10. RELATED PARTY TRANSACTIONS AND NOTES PAYABLES TO SHAREHOLDERS
Stephen Rees, a former Director and Senior Vice President of the Company,
holds a beneficial interest in both Mayfield International Ltd. ("Mayfield") and
Croton Ltd. ("Croton"). During fiscal 1998, the Company paid $140,000 to Croton
for management services and $208,000 to Mayfield for the rental of certain
office space. Additionally, as of March 31, 2000, $2.5 million was due from
Mayfield under a note receivable. The note is included in other current assets
on the accompanying balance sheet.
The Company has loaned $6.8 million to various executive officers of the
Company. Each loan is evidenced by a promissory note in favor of the Company.
Certain notes are non-interest bearing and others have interest rates ranging
from 7.0% to 7.25%. The remaining outstanding balance of the loans, including
accrued interest, as of March 31, 2000 was $6.9 million.
11. BUSINESS COMBINATIONS, ASSET PURCHASES AND STRATEGIC INVESTMENTS
In fiscal 2000, the Company purchased the manufacturing facilities of (i)
Cabletron Systems Inc. in Rochester, New Hampshire and Limerick, Ireland, (ii)
Fujitsu Siemens Computer in Paderbron, Germany, (iii) Ericsson Business Network
in Visby, Sweden, (iv) ABB Automation Products in Vasteras, Sweden, (v) Ericsson
Austria AG in Kindberg, Austria, as well as several other immaterial facilities.
These transactions have been accounted for as an acquisition of assets.
Additionally, in fiscal 2000, the Company acquired Vastbright PCB Ltd.
located in Zhuhai, China, Micro Electronica, Ltda. located in Sao Paolo, Brazil,
as well as the remaining 10% interest in FICO which is located in Shenzhen,
China. These transactions have been accounted for under the purchase method of
accounting and accordingly, the results of the acquired businesses were included
in the Company's consolidated statements of operations from the acquisition
dates forward. Comparative pro forma information has not been presented, as the
results of the acquired operations were not material to the Company's
consolidated financial statements.
F-27
<PAGE> 69
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The aggregate purchase price for the asset acquisitions and business
combinations was allocated to the net assets acquired based on their estimated
fair values at the dates of acquisition as follows (in thousands):
<TABLE>
<S> <C>
Net assets at fair value.......................... $225,585
Goodwill and intangibles.......................... 52,670
--------
$278,255
========
</TABLE>
The goodwill associated with these transactions is being amortized over ten
years.
In fiscal 2000, the Company merged with Kyrel, an electronics manufacturing
services provider with operations in Finland and France. The merger was
accounted for as a pooling-of-interests and the Company issued 3,643,610
ordinary shares in exchange for all the outstanding shares of Kyrel. All
financial statements presented have been retroactively restated to include the
financial results of Kyrel. Kyrel operated under a calendar year end prior to
merging with Flextronics, and accordingly, Kyrel's statements of operations,
shareholders' equity and cash flows for the years ended December 31, 1998 have
been combined with the corresponding Flextronics consolidated statements for the
fiscal year ended March 31, 1999. In fiscal 2000, Kyrel's fiscal year end was
changed to conform to Flextronics' fiscal year end. Accordingly, Kyrel's
operations for the three months ended March 31, 1999, which include net sales of
$101.8 million and net loss of $0.8 million have been excluded from the
consolidated results and have been reported as an adjustment to retained
earnings in the first quarter of fiscal 2000.
In fiscal 2000 the Company also merged with PCB, an electronics
manufacturing service provider based in the USA, in exchange for a total of
1,084,566 ordinary shares, of which 108,457 ordinary shares are to be issued
upon resolution of certain general and specific contingencies. The merger was
accounted for as a pooling-of-interests. All financial statements presented have
been retroactively restated to include the financial results of PCB. PCB has the
same fiscal year as the Company.
The Company also completed several other immaterial pooling-of-interests
transactions. In connection with these mergers, the Company issued 559,098
ordinary shares, of which 55,910 ordinary shares are to be issued upon
resolution of certain contingencies. The historical operations of these entities
were not material to the Company's consolidated operations on either an
individual or an aggregate basis; therefore, prior period statements have not
been restated for these acquisitions.
In March 1999, the Company acquired the manufacturing facilities and
related assets of Advanced Component Labs HK Ltd. ("ACL"), a Hong Kong based
advanced technology printed circuit board manufacturer for $15.0 million cash.
The transaction has been accounted for under the purchase method and
accordingly, the results of ACL was included in the Company's consolidated
statements of operations from March 1999. Comparative pro forma information has
not been presented as the results of operations for ACL were not material to the
Company's financial statements. The goodwill associated with this acquisition is
amortized over ten years.
The purchase price was allocated to the net assets acquired based on their
estimated fair values at the date of acquisition as follows (in thousands):
<TABLE>
<S> <C>
ACL's net assets at fair value............................. $ 5,250
In-process research and development........................ 2,000
Goodwill................................................... 7,750
-------
$15,000
=======
</TABLE>
The purchase price allocated to in-process research and development related
to development projects which had not reached technological feasibility and had
no probable alternative future uses; accordingly, the
F-28
<PAGE> 70
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company expensed the entire amount on the date of acquisition as a one-time
charge to operations. ACL's in-process research and development projects were
initiated to address the rapid technological change associated with the
miniaturized printed circuit board market. The incomplete projects include
developing technology for a low cost Ball Grid Array ("BGA") package, developing
thermal vias, and developing new methods that enable the use of extremely thin
1.5 mil technology.
In 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 $89.9 million. 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 1998, the Company acquired Greatsino Electronics Technology
("Greatsino"), a printed circuit board fabricator and contract electronics
manufacturer with operations in the People's Republic of China. The transaction
has been accounted for under the purchase method and accordingly, the results of
Greatsino was included in the Company's consolidated statements of operations
from August 1998. Comparative pro-forma information has not been presented as
the results of operations for Greatsino were not material to the Company's
financial statements.
The purchase price of $51.8 million was allocated to the net assets
acquired based on their estimated fair values at the date of acquisition as
follows (in thousands):
<TABLE>
<S> <C>
Greatsino's net assets at fair value....................... $33,898
Goodwill................................................... 17,897
-------
$51,795
=======
</TABLE>
The acquisition was subject to an earn-out arrangement whereby the sellers
of the business earned an additional $43.1 million based upon the business
having achieved specified levels of earnings through August 1999. The goodwill
associated with this transaction is being amortized over thirty years.
During fiscal 1999, 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
$2.1 million. The fair value of the assets acquired and liabilities assumed from
these acquisitions was immaterial.
In fiscal 1998, the company merged with (i) Conexao Informatica Ltd.
located in Sao Paolo, Brazil, (ii) Altatron, Inc. headquartered in Fremont,
California with additional facilities in Richardson, Texas and Hamilton,
Scotland, (iii) DTM Products located in Niwot, Colorado, (iv) Energipilot AB
located in Sweden, and (v) Neutronics located in Austria and Hungary.
The Company issued the following Ordinary Shares in connection with these
mergers:
- 1,686,372 shares for Conexao,
- 3,154,600 shares for Altatron,
- 1,009,876 shares for DTM,
- 919,960 shares for Energipilot, and
- 11,224,000 shares for 92% of Neutronics.
These mergers were accounted for under the pooling-of-interests method of
accounting. Except for the Neutronics merger, the Company did not restate its
prior period financials statements with respect to these
F-29
<PAGE> 71
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
mergers, because they did not have a material impact on the Company's
consolidated results. Accordingly, the results of these acquired companies are
included in the Company's consolidated statements of operations from the dates
of these acquisitions.
The Neutronics merger was accounted for under the pooling-of-interests
method of accounting. All financial statements presented have been retroactively
restated to include the results of Neutronics. Neutronics operated under a
calendar year end prior to merging with Flextronics, and during fiscal 1998,
Neutronics' fiscal year end was changed from December 31 to March 31 to conform
to the Company's fiscal year-end. Accordingly, Neutronics' operations for the
three months ended March 31, 1997, which included net sales of $34.9 million and
net loss of $3.1 million have been excluded from the consolidated results and
have been reported as an adjustment to retained earnings in the first quarter of
fiscal 1998.
During fiscal 1998, 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
$7.9 million. The fair value of the assets acquired and liabilities assumed from
these acquisitions was immaterial. The costs in excess of net assets acquired of
these acquisitions amounted to $9.1 million.
12. SEGMENT REPORTING
The Company operates and is managed internally by four geographic business
segments. The operating segments include Asia, Americas, Western Europe and
Central Europe. Each operating segment has a regional president that reports to
the Company's Chairman and Chief Executive Officer, who is the chief decision
maker.
F-30
<PAGE> 72
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Information about segments for the years ended March 31 (in thousands):
<TABLE>
<CAPTION>
1998 1999 2000
---------- ---------- ----------
<S> <C> <C> <C>
Net Sales:
Asia................................................. $ 422,550 $ 530,074 $1,013,398
Americas............................................. 1,021,004 1,580,938 2,510,181
Western Europe....................................... 411,521 624,181 1,199,506
Central Europe....................................... 360,406 570,292 1,085,502
Intercompany eliminations............................ (13,030) (52,460) (68,852)
---------- ---------- ----------
$2,202,451 $3,253,025 $5,739,735
========== ========== ==========
Income (Loss) before Income Taxes:
Asia................................................. $ 42,706 $ 41,948 $ 80,574
Americas............................................. 28,578 (40,591) 48,379
Western Europe....................................... 7,175 13,436 24,568
Central Europe....................................... 25,357 32,242 42,156
Intercompany eliminations, corporate allocations and
non-recurring charges............................. (13,156) (10,250) 7,165
---------- ---------- ----------
$ 90,660 $ 36,785 $ 202,842
========== ========== ==========
Long-Lived Assets:
Asia................................................. $ 100,635 $ 221,109 $ 343,843
Americas............................................. 359,845 379,250 539,288
Western Europe....................................... 58,735 165,735 182,165
Central Europe....................................... 59,940 114,734 166,656
---------- ---------- ----------
$ 579,155 $ 880,828 $1,231,952
========== ========== ==========
Depreciation and Amortization:*
Asia................................................. $ 15,807 $ 21,215 $ 32,763
Americas............................................. 27,047 44,588 51,898
Western Europe....................................... 10,498 15,501 29,906
Central Europe....................................... 6,385 11,854 17,486
---------- ---------- ----------
$ 59,737 $ 93,158 $ 132,053
========== ========== ==========
Capital Expenditures:
Asia................................................. $ 40,329 $ 57,413 $ 111,854
Americas............................................. 156,366 117,743 205,879
Western Europe....................................... 15,376 110,087 36,355
Central Europe....................................... 19,502 57,720 79,061
---------- ---------- ----------
$ 231,573 $ 342,963 $ 433,149
========== ========== ==========
</TABLE>
---------------
* Excludes unusual charges related to property, plant and equipment and goodwill
impairment charges of $53,340 in fiscal 1999. See Note 9 for additional
information regarding the unusual charges.
For purposes of the preceding tables, "Asia" includes China, Malaysia, and
Singapore, "Americas" includes U.S., Mexico, and Brazil, "Western Europe"
includes Sweden, Finland, France, Scotland, Germany and United Kingdom and
"Central Europe" includes Austria, Hungary and Ireland.
Geographic revenue transfers are based on selling prices to unaffiliated
companies, less discounts. Income before tax is net sales less operating
expenses, interest or other expenses, but prior to income taxes.
F-31
<PAGE> 73
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table represents net sales and long-lived assets attributable
to foreign countries exceeding 10% for fiscal years ended March 31:
<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Net Sales :
China..................................................... 10% 10% 12%
United States............................................. 42% 40% 33%
Sweden.................................................... 13% 10% 13%
Hungary................................................... 10% 12% 13%
All others................................................ 25% 28% 29%
Long-Lived Assets:
China..................................................... 11% 20% 24%
United States............................................. 54% 35% 27%
Sweden.................................................... --% 10% 7%
Hungary................................................... 8% 11% 8%
All others................................................ 27% 24% 34%
</TABLE>
13. SUBSEQUENT EVENTS (UNAUDITED)
In the first fiscal quarter of 2001, the Company announced its intentions
to purchase the manufacturing facilities and related assets from Ascom Business
Systems AG located in Solothurn, Switzerland and Bosch Telecom GmbH in Pandrup,
Denmark, as well as acquire Uniskor, Ltd, located in Israel.
While the Ascom and Bosch transactions have already closed, the Uniskor
transaction is expected to close in the second quarter of 2001 and is subject to
applicable governmental approvals and customary conditions of closing.
These transactions will be accounted for under the purchase method of
accounting and the purchase price, which is expected to aggregate $178.0
million, will be allocated to the net assets acquired based on their estimated
values at the dates of acquisition.
F-32
<PAGE> 74
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table contains selected unaudited quarterly financial data
for fiscal 1999 and 2000:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED
MARCH 31, 1999 MARCH 31, 2000
----------------------------------------- -----------------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
-------- -------- -------- -------- -------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales......................... $685,658 $762,509 $862,981 $941,877 $956,367 $1,247,765 $1,638,858 $1,896,745
Cost of sales..................... 610,256 680,153 774,578 845,366 861,023 1,127,743 1,498,552 1,748,088
Unusual charges................... 51,158 -- -- 24,997 -- -- -- --
-------- -------- -------- -------- -------- ---------- ---------- ----------
Gross profit...................... 24,244 82,356 88,403 71,514 95,344 120,022 140,306 148,657
Selling, general and
administrative.................. 39,060 44,610 45,804 50,334 50,549 54,954 64,294 70,477
Goodwill and intangible
amortization.................... 2,215 2,194 2,271 2,485 2,919 2,977 2,955 3,932
Acquired in-process research and
development..................... -- -- -- 2,000 -- -- -- --
Merger-related expenses........... -- -- -- -- -- 2,549 -- 974
Interest and other expense, net... 7,531 9,167 12,656 9,405 9,516 13,419 14,671 7,301
-------- -------- -------- -------- -------- ---------- ---------- ----------
Income (loss) before income
taxes........................... (24,562) 26,385 27,672 7,290 32,360 46,123 58,386 65,973
Provision for (benefit from)
income taxes.................... (9,442) 4,332 4,369 (11,274) 4,358 5,408 3,009 8,622
-------- -------- -------- -------- -------- ---------- ---------- ----------
Net income (loss)................. $(15,120) $ 22,053 $ 23,303 $ 18,564 $ 28,002 $ 40,715 $ 55,377 $ 57,351
======== ======== ======== ======== ======== ========== ========== ==========
Diluted earnings (loss) per
share........................... $ (0.11) $ 0.15 $ 0.16 $ 0.12 $ 0.17 $ 0.24 $ 0.32 $ 0.29
======== ======== ======== ======== ======== ========== ========== ==========
Weighted average ordinary shares
and equivalents
outstanding -- diluted.......... 136,172 143,745 148,812 159,665 162,366 167,274 175,114 196,541
======== ======== ======== ======== ======== ========== ========== ==========
</TABLE>
F-33
<PAGE> 75
PROSPECTUS
FLEXTRONICS INTERNATIONAL LTD.
ORDINARY SHARES
-------------------------
By this prospectus, we may offer up to 14,400,000 ordinary shares. We will
provide specific terms for the sale of the ordinary shares in supplements to
this prospectus. You should read this prospectus and any prospectus supplement
carefully before you invest.
The ordinary shares are quoted on the Nasdaq National Market under the
symbol "FLEX." On September 13, 1999, the closing sale price of the ordinary
shares was $65.8125 per share.
-------------------------
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" IN THE
SUPPLEMENT TO THIS PROSPECTUS.
-------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is September 24, 1999.
<PAGE> 76
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
About This Prospectus....................................... 2
Where You Can Find More Information......................... 2
Forward-Looking Statements.................................. 3
The Company................................................. 4
Enforcement of Civil Liabilities............................ 4
Risk Factors................................................ 4
Use of Proceeds............................................. 4
Description of Capital Shares............................... 4
Taxation.................................................... 7
Plan of Distribution........................................ 8
Legal Matters............................................... 9
Experts..................................................... 9
</TABLE>
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
SEC utilizing a "shelf" registration process. Under this shelf process, we may
sell up to 14,400,000 ordinary shares in one or more offerings. This prospectus
provides you with a general description of the ordinary shares we may offer.
Each time we sell ordinary shares, we will provide a prospectus supplement that
will contain specific information about the terms of that offering. The
prospectus supplement may also add, update or change information contained in
this prospectus. You should read both this prospectus and any prospectus
supplement together with additional information described under the heading
"Where You Can Find More Information." The registration statement that contains
this prospectus, including the exhibits to the registration statement, contains
additional information about us and the securities offered under this
prospectus. That registration statement can be read at the SEC web site or at
the SEC offices mentioned under the heading "Where You Can Find More
Information." We may only use this prospectus to sell securities if it is
accompanied by a prospectus supplement. We are only offering these securities in
states where the offer is permitted.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available on the SEC's
website at "http://www.sec.gov."
The SEC allows us to "incorporate by reference" information from other
documents that we file with them, which means that we can disclose important
information by referring to those documents. The information incorporated by
reference is considered to be part of this prospectus, and information that we
file later with the SEC will automatically update and supersede this
information. We incorporate by reference the documents listed below, and any
future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934 prior to the sale of all the shares covered
by this prospectus:
- our Annual Report on Form 10-K for the fiscal year ended March 31, 1999;
- our Quarterly Report on Form 10-Q for the quarter ended June 25, 1999;
and
- the description of our ordinary shares contained in our Registration
Statement on Form 8-A dated January 31, 1994.
2
<PAGE> 77
You may request a copy of these filings, at no cost, by writing or
telephoning us at:
Flextronics International Ltd.
2245 Lundy Drive
San Jose, California 95131
Attention: Laurette F. Slawson
Treasurer and Director of Investor Relations
Telephone: (408) 428-1300
You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement, other than any information
superseded by a later document filed with the SEC and incorporated by reference
in this prospectus. We have not authorized anyone else to provide you with
different information. The selling shareholders may not make an offer of these
shares in any state where the offer is not permitted. You should not assume that
the information in this prospectus or any supplement is accurate as of any date
other than the date on the front of those documents.
FORWARD-LOOKING STATEMENTS
This prospectus includes "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. This Act provides a "safe
harbor" for forward-looking statements to encourage companies to provide
prospective information about themselves so long as they identify these
statements as forward-looking and provide meaningful cautionary statements
identifying important factors that could cause actual results to differ from the
projected results. All statements other than statements of historical fact we
make in this prospectus, prospectus supplement or in any document incorporated
by reference are forward-looking. In particular, the statements herein regarding
industry prospects and our future results of operations or financial position
are forward-looking statements. Forward-looking statements reflect our current
expectations and are inherently uncertain. Our actual results may differ
significantly from our expectations. The section entitled "Risk Factors" that
appears in our Annual Report on Form 10-K for the year ended March 31, 1999 and
in the prospectus supplement accompanying this prospectus describe some, but not
all, of the factors that could cause these differences.
3
<PAGE> 78
THE COMPANY
Flextronics is a leading provider of advanced electronics manufacturing
services to original equipment manufacturers in the telecommunications,
networking, computer, consumer electronics and medical device industries. We
provide a wide range of integrated services, from initial product design to
volume production and fulfillment. Our manufacturing services range from printed
circuit board fabrication and assembly to complete product assembly and test. We
believe that we have developed particular strengths in advanced interconnect,
miniaturization and packaging technologies. In addition, we provide advanced
engineering services, including product design, PCB layout, quickturn
prototyping and test development. Throughout the production process, we offer
logistics services, such as materials procurement, inventory management,
packaging and distribution. Our principal executive offices are located at 514
Chai Chee Lane, #04-13, 1 Bedok Industrial Estate, Singapore 469029 and our
telephone number is 65-449-5255.
ENFORCEMENT OF CIVIL LIABILITIES
We are incorporated in Singapore under the Companies Act. Some of our
directors and executive officers reside in Singapore. All or a substantial
portion of the assets of such persons, and a substantial portion of our assets,
are located outside the United States. As a result, it may not be possible for
persons purchasing ordinary shares to effect service of process within the
United States upon such persons or Flextronics or to enforce against them, in
the United States courts, judgments obtained in such courts predicated upon the
civil liability provisions of the federal securities laws of the United States.
We have been advised by our Singapore legal advisors, Allen & Gledhill, that
there is doubt as to the enforceability in Singapore, either in original actions
or in actions for the enforcement of judgments of United States courts, of civil
liabilities predicated upon the federal securities laws of the United States.
RISK FACTORS
An investment in the ordinary shares involves a high degree of risk. You
should carefully consider the information contained under the heading "Risk
Factors" in the applicable supplement to this prospectus before investing in the
ordinary shares.
USE OF PROCEEDS
Unless otherwise indicated in the applicable supplement to this prospectus,
the net proceeds from the sale of ordinary shares offered under this prospectus
will be added to our general funds and may be used to:
- meet our working capital requirements;
- fund capital expenditures;
- repay debt; and
- finance acquisitions of other assets and companies.
Until the net proceeds have been used, they will be invested in short-term
marketable securities.
DESCRIPTION OF CAPITAL SHARES
The following is a brief summary of the more important rights of holders of
ordinary shares under Singapore law and our Articles of Association (the
"Articles"). This summary is not complete. Our Articles and our Memorandum of
Association also are exhibits to the registration statement of which this
prospectus forms a part. The Articles and the Memorandum of Association can be
obtained from our SEC filings as
4
<PAGE> 79
described under the heading "Where You Can Find More Information" and also at
our San Jose, California office and at our registered office in Singapore.
ORDINARY SHARES
Our authorized capital consists of 250,000,000 ordinary shares, par value
S$0.01, of which 49,953,237 shares were outstanding on September 10, 1999. The
Articles enable us in certain circumstances to issue shares with preferential,
deferred or other special rights or restrictions as our directors may determine.
All of our outstanding shares are fully paid and our shareholders are not
subject to any calls on such shares. The shares offered hereby, when issued,
will also be fully paid and investors will not be subject to any calls on such
shares. All of our shares are in registered form, and the shares offered hereby
also will be in registered form. Except in the circumstances permitted by the
Singapore Companies Act, we can neither purchase our outstanding shares nor
grant any financial assistance for the acquisition of our shares.
NEW SHARES
New shares may only be issued with the prior approval of our shareholders
in a general meeting. Such approval, if granted, will lapse at the next Annual
General Meeting or, if earlier, the expiration of the period within which the
next Annual General Meeting is required to be held. At our 1999 Annual General
Meeting, our shareholders provided our directors with general authority to issue
new ordinary shares prior to our next Annual General Meeting. Subject to this,
and the provisions of the Singapore Companies Act and our Articles, our
directors may allot and issue new shares on such terms as they may think fit.
SHAREHOLDERS
Only persons who are registered in our books are recognized as shareholders
and absolute owners of the shares. On September 10, 1999, there were
approximately 392 holders of ordinary shares. We may, on giving not less than 14
days' notice, close the register of members for any time or times but the
register may not be closed for more than 30 days in any calendar year. Such
closure is normally made for the purpose of determining shareholders'
entitlement to receive dividends and other distributions and would, in the usual
case, not exceed 10 days.
TRANSFER OF SHARES
Subject to applicable securities laws, the ordinary shares are freely
transferable, and may be transferred by a duly signed instrument of transfer in
a form approved by our directors. The directors may decline to register any
transfer unless, among other things, it has been duly stamped and is presented
for registration together with the share certificate and such other evidence of
title as they may require. We will replace lost or destroyed certificates for
shares upon notice to us and upon, among other things, the applicant furnishing
such evidence and indemnity as the directors may require.
SHAREHOLDERS' MEETINGS
We are required to hold an Annual General Meeting in each year. Our
directors may convene an Extraordinary General Meeting whenever they think fit
and they must do so upon the request in writing of shareholders representing not
less than one-tenth of the total voting rights of all shareholders. In addition,
two or more shareholders holding not less than one-tenth of our issued share
capital may call a meeting. Unless otherwise required by law or by the Articles,
voting at general meetings is by ordinary resolution, requiring an affirmative
vote of a simple majority of the votes cast at a meeting of which at least 14
days' written notice is given. An ordinary resolution suffices, for example, in
respect of appointments of directors. A special resolution, requiring an
affirmative vote of at least 75% of the votes cast at the meeting of which at
least 21 days' written notice is given, is necessary for certain matters under
Singapore law, such as an alteration of the Articles.
5
<PAGE> 80
VOTING RIGHTS
Voting at any meeting of shareholders is by a show of hands unless a poll
is duly demanded. If voting is by a show of hands, every shareholder who is
present in person or by proxy at the meeting has one vote. On a poll every
shareholder who is present in person or by proxy has one vote for every share
held by him. A poll may be demanded by the chairman of the meeting or by not
less than three members present in person or by proxy and entitled to vote or by
shareholders present in person or by proxy and representing in the aggregate not
less than one-tenth of the total voting rights of all shareholders having the
right to attend and vote at the meeting. There are no limitations imposed by the
laws of Singapore or by the Articles on the right of nonresident shareholders to
hold or vote ordinary shares, other than the limitations described below under
"Takeovers," which are applicable to all of our shareholders.
DIVIDENDS
Since inception, we have not declared or paid any cash dividends and our
current loan agreement prohibits the payment of cash dividends without the
lenders' prior consent. We anticipate that all earnings in the foreseeable
future will be retained to finance our business.
BONUS AND RIGHTS ISSUES
We may, with the approval by our shareholders in a general meeting,
capitalize any reserves or profits and distribute them as bonus shares to our
shareholders in proportion to their shareholdings. At our 1999 Annual General
Meeting, our shareholders authorized our directors, at any time on or before
June 30, 2000, to distribute one bonus share for each outstanding ordinary
share. Our directors may also issue to shareholders rights to take up additional
shares, in proportion to their shareholdings. Such rights would be subject to
any conditions attached to such issue.
TAKEOVERS
The acquisition of our shares is regulated by the Singapore Companies Act
(Chapter 50) and the Singapore Code on Takeovers and Mergers (the "Takeovers
Code"). Any person (or parties acting in concert) acquiring an interest in 25%
or more of the voting rights in us is obliged to extend a takeover offer for the
remaining voting shares in accordance with the provisions of the Takeovers Code.
An offer for consideration other than cash must be accompanied by a cash
alternative at not less than the highest price (excluding stamp duty and
commission) paid by the offeror or parties acting in concert with him for shares
of that class within the preceding 12 months. A mandatory takeover offer is also
required to be made if a person holding between 25% and 50% of the voting
rights, either on his own or together with parties acting in concert with him,
acquires additional shares representing more than 3% of the voting rights in any
12-month period.
LIQUIDATION OR OTHER RETURN OF CAPITAL
On a winding-up or other return of our capital, subject to any special
rights attaching to any other class of shares, holders of ordinary shares will
be entitled to participate in any surplus assets in proportion to their
shareholdings.
INDEMNITY
As permitted by the laws of Singapore, the Articles provide that, subject
to the Singapore Companies Act, our directors and officers will be indemnified
by us against any liability incurred by them in defending any proceedings,
whether civil or criminal, which relate to anything done or omitted to have been
done as our officer, director or employee and in which judgment is given in
their favor or in which they are acquitted or in connection with any application
under any statute for relief from liability in respect thereof in which relief
6
<PAGE> 81
is granted by the court. Directors and officers may not be indemnified by us
against any liability to us for negligence, default, breach of duty or breach of
trust.
TRANSFER AGENT
Our transfer agent is Boston EquiServe, P.O. Box 8040, Boston,
Massachusetts 02266-8040.
TAXATION
This summary of Singapore and U.S. tax considerations is based on current
law and is provided for general information. The discussion does not purport to
deal with all aspects of taxation that may be relevant to particular
shareholders in light of their investment or tax circumstances, or to certain
types of shareholders, including insurance companies, tax-exempt organizations,
regulated investment companies, financial institutions or broker-dealers, and
shareholders that are not U.S. shareholders (as defined below) subject to
special treatment under the U.S. federal income tax laws. U.S. shareholders
should consult their own tax advisors regarding the particular tax consequences
to such shareholders of any investment in the ordinary shares.
INCOME TAXATION UNDER SINGAPORE LAW
Under current provisions of the Income Tax Act, Chapter 134 of Singapore,
corporate profits are taxed at a rate equal to 25.5%. Under Singapore's taxation
system, the tax paid by a company is deemed paid by its shareholders. Thus, the
shareholders receive dividends net of the tax paid by us. Dividends received by
either a resident or a nonresident of Singapore are not subject to withholding
tax. Shareholders are taxed on the cash amount of the dividend plus the amount
of corporate tax paid by us. The tax paid by us will be available to
shareholders as a tax credit to offset the Singapore income tax liability on
their overall income, including the gross amount of dividends. No tax treaty
currently exists between the Republic of Singapore and the U.S.
Under current Singapore tax law there is no tax on capital gains, and,
thus, any profits from the disposal of shares are not taxable in Singapore
unless the vendor is regarded as carrying on a trade in shares in Singapore, in
which case, the disposal profits would be taxable as trade profits rather than
capital gains.
There is no stamp duty payable in respect of the holding and disposition of
shares, or the acquisition of newly issued shares. When outstanding shares are
acquired in Singapore, stamp duty is payable on the instrument of transfer of
the shares at the rate of S$2 for every S$1,000 of the market value of the
shares. The stamp duty is borne by the purchaser unless there is an agreement to
the contrary. Where the instrument of transfer is executed outside of Singapore,
stamp duty must be paid if the instrument of transfer is received in Singapore.
Under our Articles of Association, our directors are authorized to refuse to
register a transfer unless the instrument of transfer has been duly stamped.
INCOME TAXATION UNDER UNITED STATES LAW
Individual shareholders that are U.S. citizens or resident aliens (as
defined in the Internal Revenue Code), corporations or partnerships or other
entities created or organized under the laws of the United States, or any
political subdivision thereof, and certain trusts and estates ("U.S.
shareholders") will, upon the sale or exchange of a share, recognize gain or
loss for U.S. income tax purposes in an amount equal to the difference between
the amount realized and the U.S. shareholder's tax basis in such a share. If
paid in currency other than U.S. dollars, the U.S. dollar amount realized (as
determined on the trade date) is determined by translating the foreign currency
into U.S. dollars at the spot rate in effect on the settlement date of the sale
in the case of a U.S. shareholder that is a cash basis taxpayer. An accrual
basis taxpayer may elect to use the spot rate in effect on the settlement date
of the sale by filing a statement with the U.S. shareholder's first return in
which the election is effective clearly indicating that the election has been
made. Such an election must be applied consistently from year to year and cannot
be changed without the consent
7
<PAGE> 82
of the Internal Revenue Service. Such gain or loss will be capital gain or loss
if the share was a capital asset in the hands of the U.S. shareholder and will
not be short-term capital gain or loss if the share has been held for more than
one year. If a U.S. shareholder receives any currency other than U.S. dollars on
the sale of a share, such U.S. shareholder may recognize ordinary income or loss
as a result of currency fluctuations between the date of such sale and the date
such sale proceeds are converted into U.S. dollars.
U.S. shareholders will be required to report as income for U.S. income tax
purposes the amount of any dividend received from us to the extent paid out of
our current or accumulated earnings and profits, as determined under current
U.S. income tax principles. If over 50% of our stock, by vote or value, were
owned by U.S. shareholders who individually held 10% or more of our voting
stock, the U.S. shareholders potentially would be required to include in income
a portion or all of their pro rata share of our earnings and profits and the
earnings and profits of our non-U.S. subsidiaries. If 50% or more of our assets
during a taxable year produced or were held for the production of passive
income, as defined in Section 1297(b) of the Internal Revenue Code (for example,
certain forms of dividends, interest and royalties), or 75% or more of our gross
income for a taxable year was passive income, adverse U.S. tax consequences
could result to our U.S. shareholders.
Shareholders that are not U.S. shareholders ("non-U.S. shareholders") will
not be required to report for U.S. federal income tax purposes the amount of any
dividend received from us. Non-U.S. shareholders, upon the sale or exchange of a
share, would generally not be required to recognize gain or loss for U.S.
federal income tax purposes.
ESTATE TAXATION
In the case of an individual who is not domiciled in Singapore, a Singapore
estate tax is imposed on the value of all movable and immovable properties
situated in Singapore. Our ordinary shares are considered to be situated in
Singapore. Thus, an individual shareholder who is not domiciled in Singapore at
the time of his or her death will be subject to Singapore estate tax on the
value of any such shares held by the individual upon the individual's death.
Such a shareholder will be required to pay Singapore estate tax to the extent
that the value of the shares (or in aggregate with any other assets subject to
Singapore estate tax) exceeds S$600,000. Any excess will be taxed at a rate
equal to 5% on the first S$12,000,000 of the individual's Singapore chargeable
assets and thereafter at a rate equal to 10%. An individual shareholder who is a
U.S. citizen or resident (for U.S. estate tax purposes) also will have the value
of the shares included in the individual's gross estate for U.S. estate tax
purposes. An individual shareholder generally will be entitled to a tax credit
against the shareholder's U.S. estate tax to the extent the individual
shareholder actually pays Singapore estate tax on the value of the shares;
however, the tax credit is generally limited to the percentage of the U.S.
estate tax attributable to the inclusion of the value of the shares included in
the shareholder's gross estate for U.S. estate tax purposes, adjusted further by
a pro rata apportionment of available exemptions. Individuals who are domiciled
in Singapore should consult their own tax advisors regarding the Singapore
estate tax consequences of their investment.
PLAN OF DISTRIBUTION
We may sell the securities (1) through underwriters or dealers, (2) through
agents, or (3) directly to one or more purchasers. The applicable prospectus
supplement will describe the terms of the offering of the securities, including:
- the name or names of any underwriters, if any;
- the purchase price of the securities and the proceeds we will receive
from the sale;
- any underwriting discounts and other items constituting underwriters'
compensation;
- any initial public offering price;
8
<PAGE> 83
- any discounts or concessions allowed or reallowed or paid to dealers; and
- any securities exchange or market on which the securities may be listed.
Only underwriters named in the prospectus supplement are underwriters of
the securities offered by the prospectus supplement.
If underwriters are used in the sale, they will acquire the securities for
their own account and may resell them from time to time in one or more
transactions at a fixed public offering price or at varying prices determined at
the time of sale. We may offer the securities to the public through underwriting
syndicates represented by managing underwriters or by underwriters without a
syndicate. Subject to certain conditions, the underwriters will be obligated to
purchase all the securities of the series offered by the prospectus supplement.
Any public offering price and any discounts or concessions allowed or reallowed
or paid to dealers may change from time to time.
We may sell securities directly or through agents we designate from time to
time. We will name any agent involved in the offering and sale of securities and
we will describe any commissions we will pay the agent in the prospectus
supplement. Unless the prospectus supplement states otherwise, our agent will
act on a best-efforts basis for the period of its appointment.
We may authorize agents or underwriters to solicit offers by certain types
of institutional investors to purchase securities from us at the public offering
price set forth in the prospectus supplement pursuant to delayed delivery
contracts providing for payment and delivery on a specified date in the future.
We will describe the conditions to these contracts and the commissions we must
pay for solicitation of these contracts in the prospectus supplement.
We may provide agents and underwriters with indemnification against certain
civil liabilities, including liabilities under the Securities Act, or
contribution with respect to payments that the agents or underwriters may make
with respect to such liabilities. Agents and underwriters may engage in
transactions with, or perform services for, us in the ordinary course of
business.
All securities we offer other than common stock will be new issues of
securities with no established trading market. Any underwriters may make a
market in these securities, but will not be obligated to do so and may
discontinue any market making at any time without notice. We cannot guarantee
the liquidity of the trading markets for any securities.
LEGAL MATTERS
Allen & Gledhill, Singapore will provide us with an opinion as to the
legality of the ordinary shares. Counsel for any underwriters named in the
applicable prospectus supplement will provide an opinion as to certain legal
matters relating to the ordinary shares.
EXPERTS
Our consolidated financial statements appearing in our Annual Report (Form
10-K) for the year ended March 31, 1999 have been audited by Arthur Andersen
LLP, independent public accountants as indicated in their report therein. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing. Our future financial statements and the reports thereon
of Arthur Andersen LLP also will be incorporated by reference in this prospectus
in reliance upon the authority of that firm as experts in giving those reports
to the extent said firm has audited those financial statements and consented to
the use of their reports thereon.
9
<PAGE> 84
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
5,500,000 SHARES
[FLEXTRONICS LOGO]
-------------------------
PROSPECTUS SUPPLEMENT
, 2000
-------------------------
BANC OF AMERICA SECURITIES LLC
SALOMON SMITH BARNEY
THOMAS WEISEL PARTNERS LLC
LEHMAN BROTHERS
SUBJECT TO COMPLETION, DATED JUNE 12, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
