===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended December 31, 1999
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ________ to _________
COMMISSION FILE NUMBER: 0-23354
FLEXTRONICS INTERNATIONAL LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
SINGAPORE NOT APPLICABLE
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
------------------------
SINGAPORE 469029
(65) 449-5255
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
MICHAEL E. MARKS
CHIEF EXECUTIVE OFFICER
FLEXTRONICS INTERNATIONAL LTD.
11 UBI ROAD 1 #07-01/02
MEIBAN INDUSTRIAL BUILDING
SINGAPORE 408723
(65) 449-5255
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes {X} No { }
At February 8, 2000, there were 115,466,882 Ordinary Shares, S$0.01 par
value, outstanding.
1
<PAGE>
FLEXTRONICS INTERNATIONAL LIMITED
INDEX
PART I. FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - December 31, 1999 and
March 31, 1999 .............................................. 3
Condensed Consolidated Statements of Income - Three Months
Ended December 31, 1999 and December 31, 1998 ............... 4
Condensed Consolidated Statements of Income - Nine Months Ended
December 31, 1999 and December 31, 1998 ..................... 5
Condensed Consolidated Statements of Cash Flow - Nine
Months Ended December 31, 1999 and December 31, 1998 ........ 6
Notes to Condensed Consolidated Financial Statements .......... 7-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................... 11-20
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K .............................. 21
Signatures .................................................. 22
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
FLEXTRONICS INTERNATIONAL LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, March 31,
1999 1999
----------- -----------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents ....................... $ 472,380 $ 184,860
Accounts receivable, net ........................ 462,572 273,203
Inventories ..................................... 469,791 221,352
Short-term investments and other current assets . 174,916 66,109
----------- -----------
Total current assets .................... 1,579,659 745,524
Property and equipment, net ....................... 550,671 397,167
Other non-current assets .......................... 122,661 75,178
----------- -----------
Total assets ............................ $ 2,252,991 $ 1,217,869
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank borrowings and current portion of
long-term debt ................................ $ 159,153 $ 83,976
Capital lease obligations ....................... 18,278 11,475
Accounts payable and accrued liabilities ........ 610,050 292,757
Other current liabilities ....................... 125,610 105,718
----------- -----------
Total current liabilities ............... 913,091 493,926
----------- -----------
Long-term debt, net of current portion ............ 183,261 188,808
Capital lease obligations, net of current portion . 49,969 31,187
Deferred income taxes ............................. 4,504 4,831
Other long-term liabilities ....................... 6,794 10,157
Minority interest ................................. 4,998 4,022
----------- -----------
Total long-term liabilities ............. 249,526 239,005
----------- -----------
Shareholders' Equity:
Ordinary Shares ................................. 711 620
Additional paid-in capital ...................... 887,846 425,397
Retained earnings ............................... 153,126 82,768
Accumulated other comprehensive income (loss) ... 48,691 (23,847)
----------- -----------
Total shareholders' equity .............. 1,090,374 484,938
----------- -----------
Total liabilities and shareholders' equity $ 2,252,991 $ 1,217,869
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
FLEXTRONICS INTERNATIONAL LTD.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Three months ended
---------------------------
December 31, December 31,
1999 1998
----------- -----------
Net sales ...................................... $ 1,179,488 $ 580,395
Cost of sales .................................. 1,098,587 534,053
----------- -----------
Gross margin ......................... 80,901 46,342
----------- -----------
Operating expenses:
Selling, general and administrative .......... 34,700 19,783
Goodwill and intangibles amortization ........ 1,470 893
----------- -----------
Total operating expenses ............. 36,170 20,676
----------- -----------
Income from operations ............... 44,731 25,666
Other income and expenses:
Interest expense ............................. 8,803 6,044
Interest income .............................. (5,324) (1,308)
Other expense, net ........................... 2,247 3,055
----------- -----------
Income before income taxes ........... 39,005 17,875
Provision for income taxes ..................... 4,680 2,079
----------- -----------
Net income ........................... $ 34,325 $ 15,796
=========== ===========
Earnings per share:
Basic ........................................ $ 0.31 $ 0.18
Diluted ...................................... $ 0.29 $ 0.16
Shares used in computing per share amounts:
Basic ........................................ 110,286 90,178
Diluted ...................................... 119,983 95,766
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
FLEXTRONICS INTERNATIONAL LTD.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Nine months ended
---------------------------
December 31, December 31,
1999 1998
----------- -----------
Net sales ...................................... $ 2,661,578 $ 1,448,557
Cost of sales .................................. 2,469,479 1,329,240
----------- -----------
Gross margin ......................... 192,099 119,317
----------- -----------
Operating expenses:
Selling, general and administrative .......... 85,653 52,742
Goodwill and intangibles amortization ........ 4,344 2,667
----------- -----------
Total operating expenses ............. 89,997 55,409
----------- -----------
Income from operations ......................... 102,102 63,908
Other income and expenses:
Interest expense ............................. 22,820 16,577
Interest income .............................. (8,609) (2,789)
Merger related expenses ...................... 2,455 --
Other expense, net ........................... 2,421 4,165
----------- -----------
Income before income taxes ........... 83,015 45,955
Provision for income taxes ..................... 10,473 5,381
----------- -----------
Net income ........................... $ 72,542 $ 40,574
=========== ===========
Earnings per share:
Basic ........................................ $ 0.70 $ 0.46
Diluted ...................................... $ 0.64 $ 0.44
Shares used in computing per share amounts:
Basic ........................................ 103,927 87,898
Diluted ...................................... 112,654 92,142
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
FLEXTRONICS INTERNATIONAL LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine months ended
-------------------------
December 31, December 31,
1999 1998
------------ ------------
Net cash provided by operating activities ............ $ 13,962 $ 27,058
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment ................ (178,715) (109,433)
Proceeds from sale of property and equipment ....... 6,533 5,905
Net cash paid for acquisition of net assets ........ (76,544) --
Other investments .................................. (8,721) (2,265)
Effect of acquisition on cash ...................... (253) --
Payment of earnout and remaining purchase
price related to the acquisition of FICO ........ (1,500) --
Payment of earnout and remaining purchase
price related to the acquisition of Astron ...... -- (24,000)
--------- ---------
Net cash used in investing activities ................ (259,200) (129,793)
--------- ---------
Cash flows from financing activities:
Bank borrowings and proceeds from long-term debt ... 165,144 95,381
Repayment of bank borrowings and long-term debt .... (94,563) (68,236)
Repayment of capital lease obligations ............. (16,096) (7,452)
Proceeds from mortgage of equipment ................ 18,663 --
Proceeds from exercise of stock options and
Employee Stock Purchase Plan ..................... 12,005 8,341
Net Proceeds from equity offering .................. 448,924 194,000
--------- ---------
Net cash provided by financing activities ............ 534,077 222,034
--------- ---------
Effect of exchange rate changes on cash .............. (501) (1,574)
Effect of Kyrel fiscal year conversion ............... (818) --
--------- ---------
Net increase in cash and cash equivalents ............ 287,520 117,725
Cash and cash equivalents at beginning of period ..... 184,860 91,827
--------- ---------
Cash and cash equivalents at end of period ........... $ 472,380 $ 209,552
========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE>
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
(unaudited)
Note A - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and in accordance with the instructions to Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements, and should be read in conjunction with the annual audited
consolidated statements as of and for the year ended March 31, 1999 contained in
the Company's 1999 annual report on Form 10-K and Form 8-K dated December 23,
1999 which reflects restated financial statements including the results of Kyrel
EMS. In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the three and nine month period ended December
31, 1999 are not necessarily indicative of the results that may be expected for
the year ending March 31, 2000.
On July 15, 1999, Flextronics acquired 100% of the outstanding shares of
Kyrel EMS Oyj ("Kyrel"), a provider of electronics manufacturing services with
two facilities in Finland and one in Luneville, France, in exchange for
3,643,610 Ordinary Shares, of which 364,361 Ordinary Shares are to be issued
upon resolution of certain contingencies. The acquisition was accounted for as a
pooling-of-interests and, accordingly, the Company's condensed consolidated
financial statements have been restated to reflect the merger as if it occurred
at the beginning of the first period presented. Kyrel's fiscal year ends
December 31. The condensed consolidated income statement combined Kyrel's
results for the three and nine months ended December 31, 1999 with Flextronics
results for the three and nine ended December 31, 1999. The condensed
consolidated income statements also combined Kyrel's results for the three and
nine months ended September 30, 1998 with Flextronics results for the three and
nine months ended December 31, 1998. The condensed consolidated balance sheets
as of March 31, 1999 include Kyrel's balance sheet as of December 31, 1998.
Kyrel's net loss of $818,000 for the three months ended March 31, 1999 has been
recorded as an adjustment to retained earnings. A reconciliation of the
previously reported results for the three and nine months ended December 31,
1998 to the results in this form 10-Q is as followings (in thousands):
Three months Nine months
ended ended
December 31, December 31,
1998 1998
---------- ----------
Net Sales :
As previously reported .............. $ 499,901 $1,298,928
Kyrel ............................... 80,494 149,629
---------- ----------
As restated ......................... $ 580,395 $1,448,557
========== ==========
Net Income :
As previously reported .............. $ 15,493 $ 40,013
Kyrel ............................... 303 561
---------- ----------
As restated ......................... $ 15,796 $ 40,574
========== ==========
Note B - Inventories
Inventories consist of the following (in thousands):
December 31, March 31,
1999 1999
---------- ----------
Raw materials ............................ $ 377,418 $ 173,739
Work-in-process .......................... 61,330 25,740
Finished goods ........................... 31,043 21,873
---------- ----------
$ 469,791 $ 221,352
========== ==========
Note C - EARNINGS PER SHARE
Reconciliation between basic and diluted earnings per share is as follows
for the three and nine month periods ended December 31, 1999 and December 31,
1998 (in thousands, except per share data):
7
<PAGE>
Three months ended Nine months ended
December 31 December 31
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
Shares issued and outstanding (1) .. 110,286 90,178 103,927 87,898
-------- -------- -------- --------
Weighted average ordinary
shares - basic ..................... 110,286 90,178 103,927 87,898
Ordinary shares equivalents:
Stock options (2) .................. 9,697 5,588 8,727 4,244
-------- -------- -------- --------
Weighted average ordinary shares
and equivalents - diluted .......... 119,983 95,766 112,654 92,142
======== ======== ======== ========
Net income ......................... $ 34,325 $ 15,796 $ 72,542 $ 40,574
======== ======== ======== ========
Basic earnings per share ........... $ 0.31 $ 0.18 $ 0.70 $ 0.46
======== ======== ======== ========
Diluted earnings per share ......... $ 0.29 $ 0.16 $ 0.64 $ 0.44
======== ======== ======== ========
(1) Ordinary Shares issued and outstanding based on the weighted average
method.
(2) Stock options of the Company calculated based on the treasury stock method
using average market price for the period, if dilutive. Options to purchase
39,414 shares and 31,947 shares outstanding during the three months ended
December 31, 1999 and 1998, respectively, and options to purchase 44,844
shares and 824,394 shares outstanding during the nine months ended December
31, 1999 and 1998, respectively, were excluded from the computation of
diluted earnings per share because the options' exercise price were greater
than the average market price of the Company's Ordinary Shares during those
periods.
Note D - COMPREHENSIVE INCOME (in thousands)
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31 December 31
-------------------------- --------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income ...................................................... $ 34,325 $ 15,796 $ 72,542 $ 40,574
Other comprehensive income/(loss), net of tax:
Foreign currency translation adjustments ...................... (7,293) (2,244) (10,602) 878
Unrealized holding gain on available-for-sale securities ...... 66,032 -- 73,967 --
--------- --------- --------- ---------
Comprehensive income ............................................ $ 93,064 $ 13,552 $ 135,907 $ 41,452
========= ========= ========= =========
</TABLE>
Note E - NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," ("SFAS No. 133") which establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments imbedded in other contracts and for hedging activities. It requires
that companies recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
Company expects to adopt SFAS No. 133 the first quarter of fiscal 2001 and
anticipates that SFAS No. 133 will not have a material impact on its
consolidated financial statements.
8
<PAGE>
Note F - SEGMENT REPORTING
The Company adopted SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("SFAS No. 131") during the fourth quarter
of fiscal 1999. SFAS No. 131 establishes standards for reporting information
about operating segments in financial statements. Operating segments are defined
as components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker, or
chief decision making group, in deciding how to allocate resources and in
assessing performance. Mr. Michael Marks, Chairman and chief executive officer,
is the Company's chief decision maker. 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 who reports to Mr. Michael Marks.
Information about segments were as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31 December 31
------------------------------- -------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales :
Asia ............................................. $ 211,126 $ 113,411 $ 466,537 $ 291,966
Americas ......................................... 416,535 161,423 947,244 482,981
Western Europe ................................... 316,497 187,356 735,228 422,072
Central Europe ................................... 256,434 134,978 555,915 291,888
Intercompany eliminations ........................ (21,104) (16,773) (43,346) (40,350)
----------- ----------- ----------- -----------
$ 1,179,488 $ 580,395 $ 2,661,578 $ 1,448,557
=========== =========== =========== ===========
Income (Loss) before Income Tax :
Asia ............................................. $ 15,712 $ 6,552 $ 30,297 $ 16,828
Americas ......................................... 8,259 1,110 18,517 13,565
Western Europe ................................... 6,597 4,996 15,449 9,937
Central Europe ................................... 6,545 5,067 14,108 10,389
Intercompany eliminations ........................ 1,892 150 4,644 (4,764)
----------- ----------- ----------- -----------
$ 39,005 $ 17,875 $ 83,015 45,955
=========== =========== =========== ===========
</TABLE>
9
<PAGE>
As of As of
December 31, March 31,
1999 1999
-------- --------
Long-lived assets :
Asia ................................... $127,040 $109,513
Americas ............................... 198,239 117,526
Western Europe ......................... 92,458 75,435
Central Europe ......................... 132,934 94,693
-------- --------
$550,671 $397,167
======== ========
For purposes of the preceding tables, "Asia" includes China, Malaysia, and
Singapore, "Americas" includes the U.S, Mexico, and Brazil, "Western Europe"
includes Sweden, Finland, France Scotland and United Kingdom and "Central
Europe" includes Austria and Hungary.
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.
Note G - EQUITY OFFERING
In October 1999, the Company completed an equity offering of 13.8 million
Ordinary Shares at $33.85 per share with net proceeds of $448.9 million. The
Company intends to use the net proceeds from the offering to fund the further
expansion of its business including additional working and capital expenditures,
and for other general corporate purposes. The Company may also use a portion of
the net proceeds for strategic acquisitions or investments.
Note H - STOCK SPLIT
The Company set a record date of December 8, 1999 for a two-for-one stock
split to be effected as a bonus issue (the Singapore equivalent of a stock
dividend). The distribution of 57,497,204 Ordinary Shares occurred on December
22, 1999. This stock dividend has been reflected in the Company's financial
statements for all periods presented. All share and per share amounts have been
retroactively restated to reflect the stock split.
Note I - DII GROUP MERGER AGREEMENT AND FUJITSU SIEMENS MANUFACTURING AGREEMENT
On November 22, 1999, the Company announced the signing of a definitive
merger agreement with the Dii Group. Under the agreement, Dii shareholders will
receive 1.61 Flextronics ordinary shares for each share of the Dii Group. This
merger is intended to be accounted for as a pooling-of-interest and is subject
to approval by shareholders of both companies. This merger is expected to be
completed by April 2000.
On November 30, 1999, the Company announced a joint agreement in which
Fujitsu Siemens Computer will outsource advanced network server production to
the Company. The terms of the manufacturing agreement provide the Company will
acquire Fujitsu Siemens manufacturing facilities in Paderborn, Germany for
approximately $70 million and employ the existing 650 employees of this
facility. This transaction closed in January 2000.
Note J - SUBSEQUENT EVENTS
On January 19, 2000 the Company announced the signing of an agreement to
acquire certain manufacturing facilities of Cabletron Systems Inc. These
facilities are located in Rochester, New Hampshire and Limerick, Ireland. Under
the terms of the agreement, the Company will acquire the manufacturing related
assets and inventories at these locations for approximately $100 million and
will employee approximately 1,000 employees currently employed by Cabletron.
This transaction is expected to close in the fourth quarter of fiscal 2000.
On February 1, 2000 the Company announced the signing of a definitive
merger agreement to acquire Palo Alto Products International Pte. Ltd., an
enclosure design and plastic injection molding company with operations in
Taiwan, Thailand and the United States. This merger is intended to be accounted
for as a pooling-of-interest and is expected to be completed by April 2000.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Except for historical information contained herein, the matters discussed
in this Form 10-Q are forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the
Securities Act of 1933, as amended. The words "expects," "anticipates,"
"believes," "intends," "plans" and similar expressions identify forward-looking
statements, which speak only as of the date hereof. In addition, any statements
which refer to expectations, projections or other characterizations of future
events or circumstances are forward-looking statements. The Company undertakes
no obligation to publicly disclose any revisions to these forward-looking
statements to reflect events or circumstances occurring subsequent to filing
this Form 10-Q with the Securities and Exchange Commission. These
forward-looking statements are subject to certain risks and uncertainties,
including, without limitation, those discussed in "Item 2-Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Certain Factors Affecting Operating Results." Accordingly, our
future results may differ materially from historical results or from those
discussed or implied by these forward-looking statements.
OVERVIEW
Flextronics is a leading provider of advanced electronics manufacturing
services to original equipment manufacturers ("OEMs") primarily in the
telecommunications and networking, consumer electronics and computer industries.
The Company provides a wide range of integrated services, from initial product
design to volume production and fulfillment. In addition, the Company provides
advanced engineering services, including product design, PCB layout, quick-turn
prototyping and test development. Throughout the production process, the Company
offers logistics services, such as materials procurement, inventory management,
and packaging and distribution. In recent years, the Company has substantially
expanded its manufacturing capacity, technological capabilities and service
offerings, through both acquisitions and internal growth.
In October, 1999, the Company completed an equity offering of 13.8 million
Ordinary Shares at $33.85 per share with net proceeds of $448.9 million. The
Company intends to use the net proceeds from the offering to fund the further
expansion of its business including additional working and capital expenditures,
and for other general corporate purposes. The Company may also use a portion of
the net proceeds for strategic acquisitions or investments.
On November 22, 1999, the Company announced the signing of a definitive
merger agreement with Dii Group. Under the agreement, Dii shareholders will
receive 1.61 Flextronics ordinary shares for each share of the Dii Group. This
merger is intended to be accounted for as a pooling-of-interest and is subject
to approval by shareholders of both companies. This merger is expected to be
completed by April 2000.
On November 30, 1999, the Company announced a joint agreement in which
Fujitsu Siemens Computer will outsource advanced network server production to
the Company. The terms of the manufacturing agreement allow the Company to
acquire the existing manufacturing facilities in Paderborn, Germany for
approximately $70 million and employ the existing 650 employees of this
facility. This transaction closed in January 2000. The acquired facilities
provides approximately 400,000 square feet of capacity.
On December 22, 1999, the Company completed a two-for-one stock split to be
effected as a bonus issue (the Singapore equivalent of a stock dividend). This
stock dividend has been reflected in the Company's financial statements as of
and for the three and nine months ended December 31, 1999, unless otherwise
noted. All share and per share amounts have been retroactively restated to
reflect the stock split.
On January 19, 2000 the Company announced the signing of an agreement to
acquire certain manufacturing facilities of Cabletron Systems Inc. These
facilities are located in Rochester, New Hampshire with approximately 200,000
square feet and Limerick, Ireland with approximately 100,000 square feet. Under
the terms of the agreement, the Company will acquire the manufacturing related
assets and inventories at these locations for approximately $100 million and
will employ approximately 1,000 employees currently employed by Cabletron. This
transaction is expected to close in the fourth quarter of fiscal 2000.
On February 1, 2000 the Company announced the signing of a definitive
merger agreement to acquire Palo Alto Products international Pte. Ltd., an
enclosure design and plastic injection molding company with operations in
Taiwan, Thailand and in the United States. The Company would issue up to
approximately 3.6 million Ordinary Shares in exchange for substantially all of
the outstanding Ordinary Shares of Palo Alto Products (including assumed
options). This merger is intended to be accounted for as a pooling-of-interest
and is expected to be completed by April 2000.
On July 15, 1999, Flextronics acquired 100% of Kyrel EMS Oyj ("Kyrel"), a
provider of electronics manufacturing services with two facilities in Finland
and one in Luneville, France in exchange for 3,643,610 Ordinary shares, of which
364,361 Ordinary Shares are to be issued upon resolution of certain
contingencies. The acquisition has been accounted for as a pooling-of-interests
and, accordingly, the company's condensed consolidated financial statements have
been restated to reflect the combined results as if it occurred at the beginning
of the first period presented.
On June 30, 1999, Flextronics purchased the manufacturing facilities and
related assets of Ericsson's Visby, Sweden operations for $39.4 million.
Ericsson's Visby facility manufactures mobile systems infrastructure, primarily
radio base stations. Flextronics also offered employment to approximately 900
persons who had been employed by Ericsson at this facility. In connection with
the acquisition of assets, the Company has also entered into a manufacturing
service agreement with Ericsson.
On May 31, 1999, Flextronics purchased the manufacturing facilities and
related assets of ABB Automation Products in Vasteras, Sweden for approximately
$24.5 million. This facility provides printed circuit board assemblies and other
electronic equipment. Flextronics has also offered employment to 575 ABB
personnel who were previously employed by ABB Automation Products. In connection
with the acquisition of the manufacturing facilities, the Company has also
entered into a manufacturing service agreement with ABB Automation Products.
In addition to acquisitions, the Company has substantially increased
overall capacity by expanding operations in its industrial parks in China,
Hungary, and Mexico. The Company is continuing to expand operations and capacity
at each of the industrial parks and is developing an industrial park in Brazil.
See "-Certain Factors Affecting Operating Results -- If we do not manage
effectively the expansion of our operations, our business may be harmed."
11
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
statement of operations data expressed as a percentage of net sales.
Three months Nine months
ended ended
December 31 December 31
-------------- --------------
1999 1998 1999 1998
----- ----- ----- -----
Net sales .................................. 100.0 100.0 100.0 100.0
Cost of sales .............................. 93.1 92.0 92.8 91.8
----- ----- ----- -----
Gross margin ............................. 6.9 8.0 7.2 8.2
Selling, general and administrative ........ 2.9 3.4 3.2 3.6
Goodwill and intangibles amortization ...... 0.2 0.2 0.2 0.2
----- ----- ----- -----
Income from operations ..................... 3.8 4.4 3.8 4.4
Other expenses, net ........................ 0.5 1.3 0.7 1.2
----- ----- ----- -----
Income before income taxes ................. 3.3 3.1 3.1 3.2
Provision for income taxes ................. 0.4 0.4 0.4 0.4
----- ----- ----- -----
Net income ............................... 2.9 2.7 2.7 2.8
===== ===== ===== =====
Net Sales
Substantially all of the Company's net sales have been derived from the
manufacture and assembly of products for OEM customers. Net sales for the third
quarter of fiscal 2000 increased 103% to $1.2 billion from $580.4 million for
the third quarter of fiscal 1999. Net Sales for the nine months ended December
31, 1999 increased 84% to $2.7 billion from $1.4 billion for the same period of
fiscal 1999. The increase in net sales was primarily due to increased sales to
certain existing customers and, to a lesser extent, sales to new customers. The
Company's five largest customers in the first nine months of fiscal 2000
accounted for approximately 55.2% of net sales. During the third quarter of
fiscal 2000, the Company's five largest customers accounted for approximately
58.5% of net sales, with no single customer exceeding 20% of net sales. See
"-Certain Factors Affecting Operating Results - A majority of our sales comes
from small number of customers: if we loss any of these customers, our sales
could decline significantly" and "We are dependent upon the electronics industry
which continually produces technologically advanced products with short life
cycles; our inability to continually manufacture such products on a
cost-effective basis would harm our business."
Gross Profit
Gross profit varies from period to period and is affected by, among other
things, product mix, component costs, customer's product life cycles, unit
volumes, expansion and consolidation of manufacturing facilities, pricing,
competition and new product introductions. Gross profit margin for the third
quarter of fiscal 2000 decreased to 6.9% from 8.0% for the third quarter of
fiscal 1999. Gross profit margin decreased to 7.2% for the first nine months of
fiscal 2000 from 8.2% for the first nine months of fiscal 1999. Gross profit was
adversely affected by several factors, including costs associated with expanding
facilities, manufacturing overhead cost associated with the startup of new
customer and projects, changes in product mix, as well as other factors. Prices
paid to the Company by its significant customers can vary based on the
customer's order level, with per unit prices typically declining as volumes
increase. These changes in price and volumes can materially affect the Company's
gross profit. We believe our gross margin will continue to be affected by
start-up costs associated with new programs. See "-Certain Factors Affecting
Operating Results - If we do not manage effectively the expansion of our
operations, our business may be harmed."
12
<PAGE>
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") for the third quarter
of fiscal 2000 increased to $34.7 million from $19.8 million for the third
quarter of fiscal 1999 but decreased as a percentage of net sales to 2.9% for
the third quarter of fiscal 2000 from 3.4% for the third quarter of fiscal 1999.
SG&A increased to $85.7 million in the first nine months of fiscal 2000 from
$52.7 million in the first nine months of fiscal 1999. The dollar increase in
SG&A was mainly due to SG&A expenses from increased expansion of operations in
Brazil and Hungary, increased staffing and related administrative expenses, and
increased sales and marketing expenses. The Company anticipates its SG&A
expenses will continue to increase in absolute terms in the future. However, to
the extent that net sales continue to grow faster than SG&A expenses, SG&A
expenses may decline as a percentage of net sales.
Goodwill and Intangibles Amortization
Goodwill and intangible assets are amortized on a straight-line basis over
the estimated life of the benefits received, which ranges from three to
twenty-five years. Goodwill and intangible asset amortization for the third
quarter of fiscal 2000 increased to $1.5 million from $0.9 million for the same
period of fiscal 1999. Goodwill and intangible assets amortization was $4.3
million and $2.7 million for the first nine months of fiscal 2000 and fiscal
1999, respectively. The increase in goodwill and intangible assets amortization
in the third quarter and first nine months of fiscal 2000 was primarily due to
the goodwill and intangible assets amortization associated with acquisition of
Advanced Component Labs HK Ltd ("ACL") in Asia and the increase in the Company's
ownership interest in FICO Investment Holding Ltd ("FICO").
Interest Expense, Net
Interest expense, net was $3.5 million for the third quarter of fiscal 2000
compared to $4.7 million for the third quarter of fiscal 1999. Interest
expenses, net increased to $14.2 million for the first nine months of fiscal
2000 from $13.8 million for the first nine months of fiscal 1999. Interest
expense, net decreased for the quarter compared to fiscal 1999 primarily due to
the increase in interest income from the Company's equity offering proceeds
invested in money market funds and corporate debt securities. The increase in
interest expense, net for the first nine months of fiscal 2000 was primarily
attributable to a $1.0 million interest expense charge related to the write off
of the remaining bank arrangement fees associated with the termination of the
Bank of Boston credit facilities during the second quarter of fiscal 2000,
increase in costs of factoring accounts receivable in Sweden after assuming
Ericsson's and ABB's facilities, offset by the increase in interest income from
the Company's equity offering proceeds invested in money market funds and
corporate debt securities.
As discussed above, included in net interest expense of $14.2 million was
the accelerated amortization of approximately $1.0 million in bank arrangement
fees associated with termination of the Company's credit facilities with the
Bank of Boston. The Bank of Boston credit facilities were secured facilities
that contained a number of convenants that restrict the operations of the
Company. During the third quarter of fiscal 2000, the Company replaced the Bank
of Boston credit facilities with an unsecured credit facility from another bank
that contains fewer restrictions on the Company's operations.
Merger Expenses
In the nine months ended December 31, 1999, the Company incurred $2.5
million of merger expenses associated with the pooling-of-interest acquisition
of Kyrel. The merger expenses included a transfer tax of $1.7 million and legal
and accounting fees of approximately $0.8 million.
Other expenses, net
Other expenses, net was a net expenses of $2.2 million for the third
quarter of fiscal 2000 compared to a net expenses of $3.1 million for the third
quarter of fiscal 1999. The net expenses of $2.2 million primarily consists of
foreign exchange loss, loss on disposal of fixed assets and minority interests
from FICO and the Company's Austrian subsidiary, partially offset by
compensation received in settlement of a claim. Other expenses, net was a net
expenses of $2.4 million for the first nine months of fiscal 2000 compared to a
net expenses of $4.2 million for the first nine months of fiscal 1999. The net
expenses of $4.2 million for the first nine months of fiscal 1999 was primarily
due to a foreign exchange loss, partially offset by income from the previous
associated company, FICO.
Provision for Income Taxes
The Company's consolidated effective tax rates were 12.0% and 12.6% for the
third quarter and the first nine months of fiscal 2000, respectively.
13
<PAGE>
The Company is structured as a holding company, conducting its operations
through manufacturing and marketing subsidiaries in Austria, Brazil, China,
Finland, France, Hungary, Italy, Malaysia, Mauritius, Mexico, Singapore, Sweden,
the United Kingdom, and the United States. These subsidiaries are subject to
taxation in the country in which they have been formed. The Company's Asian and
Hungarian manufacturing subsidiaries have, at various times, been granted
certain tax relief in each of these countries, resulting in lower income taxes
than would otherwise be the case under ordinary tax rates. See "- Certain
Factors Affecting Operating Results - We are subject to Risk of Increased
Taxes."
Liquidity and Capital Resources
The Company has funded its operations from the proceeds of public offerings
of equity and debt securities, cash and cash equivalents generated from
operations, bank debt and lease financing of capital equipment. As of December
31, 1999, the Company had cash and cash equivalents totaling $472.4 million,
total bank and other debts totaling $410.7 million and $40.0 million available
for future borrowing under its credit facility subject to compliance with
certain financial covenants.
Cash provided by operating activities was $14.0 million and $27.1 million
for the first nine months of fiscal 2000 and fiscal 1999, respectively.
Cash used in investing activities was $259.2 million and $129.8 million for
the first nine months of fiscal 2000 and fiscal 1999, respectively. Cash used in
investing activities for the first nine months of fiscal 2000 was primarily
related to (i) capital expenditures of $178.7 million to purchase equipment and
expand existing facilities, (ii) $72.3 million related to the acquisition of
manufacturing facilities and related assets from Ericsson and ABB in Sweden,
(iii) $4.2 million related to the acquisition of assets from Newport Technology
in North Carolina and (iv) payment of $1.5 million to the former shareholders of
FICO for the remaining purchase price payable in connection with the Company's
acquisition of FICO. Cash used in investing activities for the first nine months
of fiscal 1999 consisted primarily of capital expenditures of $109.5 million to
purchase equipment and payment of $24.0 million to the former shareholders of
Astron for the remaining purchase price payable in connection with the Company's
acquisition of Astron.
Net cash provided by financing activities was $534.1 million and $222.0
million for the first nine months of fiscal 2000 and fiscal 1999, respectively.
Cash provided by financing activities for the first nine months of fiscal 2000
and fiscal 1999 were both primarily resulting from net proceeds from equity
offerings of $448.9 million and $194.0 million, respectively, and short-term
bank borrowing partially offset by repayments of capital leases. In the first
nine months of fiscal 2000, proceeds from the mortgage of equipment in Austria
amounted to $18.7 million.
The Company has currently incurred in excess of $20 million in total
hardware, software, and system related costs in connection with remediation of
Year 2000 issues. These costs are primarily costs associated with the
implementation of the Company's new information system and have primarily been
capitalized as fixed assets.
The Company anticipates that its working capital requirements will increase
in order to support anticipated increases in its business. In addition, the
Company anticipates incurring significant capital expenditures in order to
support the anticipated expansions of its facilities in Brazil, China, Hungary
and Mexico. Future liquidity needs will depend on fluctuations in inventory
levels, the timing of expenditures by the Company on new equipment, the extent
to which the Company utilizes leases to finance new facilities and equipment,
levels of shipments by the Company and changes in volumes of customer orders.
The Company believes that its existing cash balances, together with anticipated
cash flows from operations and amounts available under its credit facilities,
will be sufficient to fund its operations at its current level of business. To
the extent the Company finances its working capital and capital expenditures
through increased borrowings, its interest expense may increase. From time to
time, the Company may consider alternative financing opportunities, including
certain off-balance sheet transactions such as sale leasebacks transactions or
receivable financings. See "- Certain Factors Affecting Operating Results - If
we do not manage effectively the expansion of our operations, our business may
be harmed."
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with programming code in
existing computer systems. The Year 2000 computer issue refers to a condition in
computer software where a two digit field rather than a four digit field is used
to distinguish a calendar year. While the Company has not experienced material
year 2000 problems, some computer programs could be unable to function and the
Company may experience errors or interruptions due to the Year 2000 problem.
Such an uncorrected condition could significantly interfere with the conduct of
the Company's business, could result in disruption of its operations, and could
subject it to potentially significant legal liabilities.
14
<PAGE>
Qualitative and Quantitative Disclosures About Market Risk
There were no material changes during the three months ended December 31,
1999 to the Company's exposure to market risk for changes in interest rates and
foreign currency exchange rates.
CERTAIN FACTORS AFFECTING OPERATING RESULTS
If we do not manage effectively the expansion of our operations, our
business may be harmed.
We have grown rapidly in recent periods, and this growth may not continue.
Internal growth will require us to develop new customer relationships and expand
existing ones, improve our operational and information systems and further
expand our manufacturing capacity.
We plan to increase our manufacturing capacity by expanding our facilities
and by adding new equipment. Such expansion involves significant risks. For
example:
o we may not be able to attract and retain the management personnel and
skilled employees necessary to support expanded operations;
o we may not efficiently and effectively integrate new operations,
expand existing ones and manage geographically dispersed operations;
o we may incur cost overruns;
o we may encounter construction delays, equipment delays or shortages,
labor shortages and disputes and production start-up problems that
could adversely affect our growth and our ability to meet customers'
delivery schedules; and
o 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 adversely affected. Our expansion, both through acquisitions
and internal growth, has contributed to our incurring significant merger related
expenses and experiencing volatility in our operating results and may continue
to do so in the future.
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 pursue growth through acquisitions in the future.
Acquisitions involve a number of risks and challenges, including:
o diversion of management's attention;
o the need to integrate acquired operations;
o potential loss of key employees and customers of the acquired
companies;
o lack of experience operating in the geographic market of the acquired
business; and
o an increase in our expenses and working capital requirements.
To integrate acquired operations, 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.
15
<PAGE>
Any of these and other factors could adversely affect our ability to
achieve anticipated levels of profitability at acquired operations or realize
other anticipated benefits of an acquisition. Furthermore, any future
acquisitions may require additional debt or equity financing, which could
increase our leverage or be dilutive to our existing shareholders. No assurance
can be given that we will consummate any acquisitions in the future.
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 from which we
anticipated 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, manufacturing capacity, and new
manufacturing programs for existing customers and procure materials. Our
operating results will be adversely affected if sales do not develop to the
extent and within the time frame we anticipate. Finally, if we are unable to
achieve the increases in our manufacturing capacity necessary to support these
new and expanded relationships in a timely manner, or are unable to implement
these infrastructures to support these expanded operations, we will not achieve
the sales that we expect from these new and expanded relationships.
Our customer requirements and operating results vary significantly.
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. 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 adversely affect our results of operations.
In addition to the variable nature of our operating results due to the
short-term nature of our customers' commitments, other factors may contribute to
significant fluctuations in our results of operations. These factors include:
o the timing of customer orders;
o the volume of these orders relative to our capacity;
o market acceptance of customers' new products;
o changes in demand for customers' products and product obsolescence;
o the timing of our expenditures in anticipation of future orders;
o our effectiveness in managing manufacturing processes;
o changes in the cost and availability of labor and components;
o changes in our product mix;
o changes in economic conditions;
o local factors and events that may affect our production volume such as
local holidays; and
o seasonality in customers' product requirements.
One of our significant end-markets is the consumer electronics market. This
market exhibits particular strength towards the end of the calendar year in
connection with the holiday season. As a result, we have experienced relative
strength in our revenues in the third fiscal quarter ended December 31, 1999.
16
<PAGE>
We make significant decisions, including 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 adversely affect our gross margins and operating income.
Customer Concentration; Dependence on Electronics Industry
Our five largest customers accounted for approximately 62% of consolidated
net sales in fiscal 1999 and 57% in fiscal 1998. Our largest customers during
fiscal 1999 were Philips, Ericsson and Cisco accounting for approximately 18%,
16% and 13% of consolidated net sales, respectively. Sales to our five largest
customers have represented a majority of our net sales in recent periods. The
identity of our principal customers has 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 have a material and adverse effect on us. We
can not assure the timely replacement of expired, canceled, or reduced contracts
with new business. See "--Variability of Customer Requirements and Operating
Results."
Factors affecting the electronics industry in general could have a material
adverse effect on our customers and, as a result on us. Such factors include:
o the inability of our customers to adapt to rapidly changing technology
and evolving industry standards, which results in short product life
cycles;
o the inability of our customers to develop and market their products,
some of which are new and untested. If customers' products become
obsolete or fail to gain widespread commercial acceptance, our
business may be materially and adversely affected; and
o recessionary periods in our customers' markets.
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. Our taxes could increase if these
tax incentives are not renewed upon expiration, or tax rates applicable to us
are increased. Substantially all of the products manufactured by our Asian
subsidiaries are sold to customers based in North America and Europe. We believe
that profits from our Asian operations are not sufficiently connected to
jurisdictions in North America or Europe to give rise to income taxation there.
However, tax authorities in jurisdictions in North America and Europe could
challenge the manner in which profits are allocated among our subsidiaries, and
we may not prevail in any such challenge. If our Asian profits became subject to
income taxes in such other jurisdictions, our worldwide effective tax rate could
increase.
Significant Leverage
Our level of indebtedness presents risks to investors, including:
o the possibility that we may be unable to generate cash sufficient to
pay the principal of and interest on the indebtedness when due;
o making us more vulnerable to economic downturns;
o limiting our ability to pursue new business opportunities; and
o reducing our flexibility in responding to changing business and
economic conditions.
17
<PAGE>
Risks of Competition
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. Certain of our competitors, including
Solectron and SCI Systems, have substantially greater market shares 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
adversely affect our operating results.
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, Finland,
France, Hungary, 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:
o fluctuations in the value of currencies;
o changes in labor conditions;
o longer payment cycles;
o greater difficulty in collecting accounts receivable;
o burdens and costs of compliance with a variety of foreign laws;
o political and economic instability;
o increases in duties and taxation;
o imposition of restrictions on currency conversion or the transfer of
funds;
o limitations on imports or exports;
o expropriation of private enterprises; and
o reversal of the current policies (including favorable tax and lending
policies) encouraging foreign investment or foreign trade by our host
countries.
18
<PAGE>
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 certain Asian nations. For example, trade preferences extended
by the United States to Malaysia in recent years were not renewed in 1997. 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 adversely
affected by inadequate infrastructure, including lack of adequate power and
water supplies, transportation, raw materials and parts in countries in which we
operate.
Risks Relating to China. Under its current leadership, the Chinese
government has been pursuing economic reform policies. There can be no assurance
that the Chinese government will continue to pursue such policies, or that such
policies will be successful if pursued. In addition, China does not have a
comprehensive and highly developed system of laws, and enforcement of laws and
contracts is uncertain. The United States annually reconsiders the renewal of
most favored nation trading status of China. China's loss of most favored nation
status could adversely affect us by increasing the cost to U.S. customers of
products manufactured by us in China.
Risks relating to Mexico. The Mexican government exercises significant
influence over many aspects of the Mexican economy and its action could have a
significant effect on private sector entities in general and the Company in
particular. In addition, during the 1980s, Mexico experienced periods of slow or
negative growth, high inflation, significant devaluation of the peso and limited
availability of foreign exchange.
Risks Relating to Hungary. Hungary has undergone significant political and
economic change in recent years. Political, economic, social and other
developments, and changes in laws could have a material and adverse effect on
our business. Annual inflation and interest rates in Hungary have historically
been much higher than those in Western Europe. Exchange rate policies have not
always allowed for the free conversion of currencies at the market rate. Laws
and regulations in Hungary have been, and continue to be, substantially revised
during its transition to a market economy. As a result, laws and regulations may
be applied inconsistently. Also in some circumstances, it may not be possible to
obtain the legal remedies provided for under those laws and regulations in a
reasonably timely manner, if at all.
Risks Relating to Brazil. During the past several years, the Brazilian
economy has been affected by significant intervention by the Brazilian
government. The Brazilian government has changed monetary, credit, tariff and
other policies to influence the course of Brazil's economy. The Brazilian
government's actions to control inflation and effect other policies have often
involved wage, price and exchange controls as well as other measures such as
freezing bank accounts and imposing capital controls.
Risks of Currency Fluctuations and Hedging Operations
A significant portion of our business is conducted in the Swedish kronor,
European Euro and Brazilian real. In addition, some of our costs, such as
payroll and rent, are denominated in currencies such as the Singapore dollar,
the Hong Kong dollar, the Malaysian ringgit, the Hungarian forint, the Mexican
peso, and the British pound, as well as the kronor, the euro and the real. In
recent years, the Hungarian forint, Brazilian real and Mexican peso have
experienced significant devaluations, and in January 1999 the Brazilian real
experienced further significant devaluations. Changes in exchange rates between
these and other currencies and the U.S. dollar will affect our cost of sales and
operating margins. 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 have a material effect on 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. We may
experience significant unexpected expense from fluctuations in exchange rates.
Dependence of Key Personnel
Our success depends to a larger extent upon the continued services of our
key executives and skilled personnel. Generally our employees are not bound by
employment or non-competition agreements, and there can be no assurance that we
will retain our officers and key employees. We could be materially and adversely
affected by the loss of such personnel.
19
<PAGE>
Limited Availability of Components
A substantial majority of our net sales are derived from turnkey
manufacturing in which we are responsible for procuring materials, which
typically results in our bearing the risk of component price increases. At
various times, there have been shortages of certain electronic components.
Component shortages could result in manufacturing and shipping delays or higher
prices, which could have a material adverse effect on us.
Environmental Compliance Risks
We are subject to a variety of environmental regulations relating to the
use, storage, discharge and disposal of hazardous chemicals. Although we believe
that our facilities are currently in material compliance with applicable
environmental laws, there can be no assurances that violations will not occur.
The costs and penalties that could result from a violation of environmental laws
could materially and adversely affect us.
Volatility of Market Price of Ordinary Shares
The stock market in recent years have experienced significant price and
volume fluctuations that have affected the market prices of technology
companies. Such fluctuations have often been unrelated to or disproportionately
impacted by the operating performance of such 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.
20
<PAGE>
PART II - OTHER INFORMATION
(a) Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.01 Financial Data Schedule
(b) Reports on Form 8-K
On October 29, 1999 the Company filed Form 8-K including an
Underwriting Agreement (the "Underwriting Agreement") with Banc of
America Securities LLC, Morgan Stanley & Co. Incorporated, Donaldson,
Lufkin & Jenrette Securities Corporation, Lehman Brothers Inc., SG
Cowen Securities Corporation and Thomas Weisel Partners LLC providing
for the public offering of 6,000,000 pre-split Ordinary Shares of
Flextronics, all of which were sold by Flextronics, at a public
offering price of $67.68 pre-split per share. In addition,
Flextronics granted the underwriters an option to purchase an
additional 900,000 pre-split Ordinary Shares to cover over-allotments.
On December 6, 1999, the Company filed Form 8-K relating to its
execution of the Agreement and Plan of Merger with the Dii Group.
On December 23, 1999, the Company filed Form 8-K including audited
restated consolidated financial statements in connection with the July
15, 1999 merger with Kyrel EMS Oyj.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
FLEXTRONICS INTERNATIONAL LTD.
(Registrant)
Date : February 14, 2000 /s/ MICHAEL E.MARKS
----------------------------
Michael E. Marks
Chief Executive Officer
Date : February 14, 2000 /s/ ROBERT R.B. DYKES
----------------------------
Robert R.B. Dykes
President, Systems Group
and Chief Financial Officer
(principal financial and
accounting officer)
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF DECEMBER 31, 1999 (UNAUDITED) AND THE STATEMENTS OF INCOME FOR THE
NINE MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY
BY REFERNCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 472,380
<SECURITIES> 0
<RECEIVABLES> 469,796
<ALLOWANCES> 7,224
<INVENTORY> 469,791
<CURRENT-ASSETS> 1,529,659
<PP&E> 723,470
<DEPRECIATION> 172,799
<TOTAL-ASSETS> 2,252,991
<CURRENT-LIABILITIES> 913,091
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<OTHER-SE> 1,089,663
<TOTAL-LIABILITY-AND-EQUITY> 2,252,991
<SALES> 2,661,578
<TOTAL-REVENUES> 2,661,578
<CGS> 2,469,479
<TOTAL-COSTS> 2,469,479
<OTHER-EXPENSES> 4,876
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,211
<INCOME-PRETAX> 83,015
<INCOME-TAX> 10,473
<INCOME-CONTINUING> 72,542
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