-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HdD0NsNC939dB4qZvWZ2vswYwnihAwjV//7tDGORADRWwZzyiJ2ojAew5A9Xa/eL kvuBhsHT2VodpERB5BDDJQ== /in/edgar/work/0000891618-00-005063/0000891618-00-005063.txt : 20001115 0000891618-00-005063.hdr.sgml : 20001115 ACCESSION NUMBER: 0000891618-00-005063 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FLEXTRONICS INTERNATIONAL LTD CENTRAL INDEX KEY: 0000866374 STANDARD INDUSTRIAL CLASSIFICATION: [3672 ] IRS NUMBER: 000000000 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23354 FILM NUMBER: 764496 BUSINESS ADDRESS: STREET 1: 11 UBI ROAD 1 STREET 2: #07 01 02 MEIBAN INDUSTRIAL BLDG CITY: SINGAPORE 408723 STATE: U0 BUSINESS PHONE: 0654495255 FORMER COMPANY: FORMER CONFORMED NAME: FLEX HOLDINGS PTE LTD DATE OF NAME CHANGE: 19940201 10-Q 1 f67144e10-q.txt FORM 10-Q PERIOD ENDED SEPTEMBER 30, 2000 1 =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended SEPTEMBER 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from ________ to _________ COMMISSION FILE NUMBER: 0-23354 FLEXTRONICS INTERNATIONAL LTD. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) SINGAPORE NOT APPLICABLE (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) ------------------------ MICHAEL E. MARKS CHIEF EXECUTIVE OFFICER FLEXTRONICS INTERNATIONAL LTD. 11 UBI ROAD 1 #07-01/02 MEIBAN INDUSTRIAL BUILDING SINGAPORE 408723 (65) 844-3366 (NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] At November 13, 2000, there were 420,908,220 Ordinary Shares, S$0.01 par value, outstanding. 1 2 FLEXTRONICS INTERNATIONAL LTD. INDEX
Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets - September 30, 2000 and March 31, 2000 .................................................................... 3 Condensed Consolidated Statements of Operations - Three and Six Months Ended September 30, 2000 and September 24, 1999 ......................... 4 Condensed Consolidated Statements of Cash Flows - Six Months Ended September 30, 2000 and September 24, 1999 ............................... 5 Notes to Condensed Consolidated Financial Statements ..................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ................................................................... 13 Item 3. Quantitative and Qualitative Disclosures About Market Risk ...................... 21 PART II. OTHER INFORMATION Item 4. Submission of Matters to Vote of Security Holders ............................... 26 Item 6. Exhibits and Reports on Form 8-K ............................................... 27 Signatures ...................................................................... 28
2 3 ITEM 1. FINANCIAL STATEMENTS FLEXTRONICS INTERNATIONAL LTD. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
September 30, March 31, 2000 2000 ------------- ------------- (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents ....................................... $ 540,831 $ 739,023 Accounts receivable, net ........................................ 1,575,681 969,832 Inventories, net ................................................ 1,564,477 1,071,491 Other current assets ............................................ 323,178 273,496 ------------- ------------- Total current assets .................................... 4,004,167 3,053,842 ------------- ------------- Property and equipment, net ....................................... 1,542,100 1,216,863 Goodwill and other intangibles, net................................ 564,884 390,351 Non-current assets ................................................ 105,860 198,072 ------------- ------------- Total assets ............................................ $ 6,217,011 $ 4,859,128 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Bank borrowings and current portion of long-term debt ........... $ 485,330 $ 441,900 Current portion of capital lease obligations .................... 20,517 20,010 Accounts payable ................................................ 1,478,679 1,128,680 Accrued expenses ................................................ 518,415 300,990 ------------- ------------- Total current liabilities ............................... 2,502,941 1,891,580 ------------- ------------- Long-term debt, net of current portion ............................ 854,886 579,234 Capital lease obligations, net of current portion ................. 46,327 48,833 Other long-term liabilities ....................................... 63,724 53,389 ------------- ------------- Total long-term liabilities ............................. 964,937 681,456 ------------- ------------- SHAREHOLDERS' EQUITY: Ordinary shares ................................................. 2,528 2,419 Additional paid-in capital ...................................... 2,841,968 1,933,880 Retained earnings (deficit) ..................................... (36,430) 341,955 Accumulated other comprehensive income (loss) ................... (58,933) 12,922 Deferred compensation ........................................... -- (5,084) ------------- ------------- Total shareholders' equity .............................. 2,749,133 2,286,092 ------------- ------------- Total liabilities and shareholders' equity .............. $ 6,217,011 $ 4,859,128 ============= =============
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 4 FLEXTRONICS INTERNATIONAL LTD. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited)
Three months ended Six months ended September 30, September 24, September 30, September 24, 2000 1999 2000 1999 ------------- ------------- ------------- ------------- Net sales ..................................... $ 2,947,125 $ 1,391,472 $ 5,471,771 $ 2,494,898 Cost of sales ................................. 2,698,687 1,255,550 5,017,658 2,239,810 Unusual charges ............................... 24,268 -- 107,989 -- ------------- ------------- ------------- ------------- Gross profit ............................. 224,170 135,922 346,124 255,088 Selling, general and administrative ........... 104,305 72,223 196,550 138,709 Goodwill and intangibles amortization ......... 12,505 8,787 21,875 18,541 Unusual charges ............................... 24,127 3,523 433,510 3,523 Interest and other expense, net ............... 23,827 19,314 19,831 33,812 ------------- ------------- ------------- ------------- Income (loss) before income taxes ........ 59,406 32,075 (325,642) 60,503 Provision for (benefit from) income taxes ..... 8,436 4,210 (7,675) 8,941 ------------- ------------- ------------- ------------- Net income (loss) ........................ $ 50,970 $ 27,865 $ (317,967) $ 51,562 ============= ============= ============= ============= Earnings (loss) per share: Basic ....................................... $ 0.12 $ 0.09 $ (0.77) $ 0.16 ============= ============= ============= ============= Diluted ..................................... $ 0.11 $ 0.08 $ (0.77) $ 0.15 ============= ============= ============= ============= Shares used in computing per share amounts: Basic ....................................... 419,200 320,158 412,300 316,752 ============= ============= ============= ============= Diluted ..................................... 463,614 343,265 412,300 342,372 ============= ============= ============= =============
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 5 FLEXTRONICS INTERNATIONAL LTD. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Six months ended September 30, September 24, 2000 1999 ------------- ------------- Net cash provided by (used in) operating activities ............ $ (355,978) $ 50,613 ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment ................... (483,156) (175,463) Proceeds from sale of property, plant and equipment .......... 13,166 12,560 Proceeds from sale of investments and certain subsidiaries ... 37,602 26,051 Payments for business acquisitions, net of cash acquired ..... (65,450) (89,360) Investments in minority owned entities ....................... (15,268) (20,507) Other investments ............................................ -- (7,515) ------------- ------------- Net cash used in investing activities .......................... (513,106) (254,234) ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Short-term credit facility repayments ........................ (306,196) (7,417) Repayments of capital lease obligations ...................... (12,623) (16,169) Repayments of long-term debt ................................. (570,318) (41,701) Bank borrowings and proceeds from long-term debt ............. 1,093,071 168,413 Proceeds from stock issued under stock plans ................. 22,609 9,689 Net proceeds from sale of ordinary shares .................... 442,914 -- Proceeds from issuance of equity instrument .................. 100,000 -- Other ........................................................ -- (101) ------------- ------------- Net cash provided by financing activities ...................... 769,457 112,714 ------------- ------------- Effect on cash from: Exchange rate changes ....................................... (65,859) 1,412 Adjustment to conform fiscal year of pooled entities ........ (32,706) -- ------------- ------------- Net decrease in cash and cash equivalents ...................... (198,192) (89,495) Cash and cash equivalents at beginning of period ............... 739,023 285,107 ------------- ------------- Cash and cash equivalents at end of period ..................... $ 540,831 $ 195,612 ============= =============
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 6 FLEXTRONICS INTERNATIONAL LTD. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2000 (Unaudited) Note A - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements, and should be read in conjunction with the Company's audited consolidated financial statements as of and for the fiscal year ended March 31, 2000 contained in the Company's annual report on Form 10-K and the Company's current report on Form 8-K filed on September 20, 2000. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended September 30, 2000 are not necessarily indicative of the results that may be expected for the year ending March 31, 2001. On July 26, 2000, the Company announced a two-for-one stock split of its ordinary shares, to be effected in the form of a bonus issue (equivalent to a stock dividend), payable to the Company's shareholders of record as of September 22, 2000. The Company's shareholders of record at the close of business on September 22, 2000 received certificates representing one additional share for every one share held at that time. Distribution of the additional shares occurred on October 16, 2000. The stock dividend has been reflected in the Company's financial statements for all periods presented. All share and per share amounts have been retroactively restated to reflect the stock split. In the current fiscal year, Flextronics acquired 100% of the outstanding shares of the DII Group, Inc. ("DII"), Palo Alto Products International Pte. Ltd. ("Palo Alto Products International"), Chatham Technologies, Inc. ("Chatham") and Lightning Metal Specialties and related entities ("Lightning"). These acquisitions were accounted for as pooling of interests and the condensed consolidated financial statements have been prepared to give retroactive effect to the mergers. DII is a leading provider of electronics manufacturing and design services, operating through a global operations network in the Americas, Asia/Pacific and Europe. As a result of the merger, in April 2000, the Company issued approximately 125.5 million ordinary shares for all of the outstanding shares of DII common stock, based upon the exchange ratio of 3.22 Flextronics ordinary shares for each share of DII common stock. DII operated under a calendar year end prior to merging with Flextronics and, accordingly, DII's balance sheets, statements of operations, shareholders' equity and cash flows as of December 31, 1998 and 1999 and for each of the three years ended December 31, 1999 have been combined with the Company's consolidated financial statements as of March 31, 1999 and 2000 and for each of the three fiscal years ended March 31, 2000. Starting in fiscal 2001, DII changed its year end from December 31 to March 31 to conform to the Company's fiscal year end. Accordingly, DII's operations for the three months ended March 31, 2000 have been excluded from the consolidated results of operations for fiscal 2001 and reported as an adjustment to retained earnings in the first quarter of fiscal 2001. Palo Alto Products International is an enclosure design and plastic molding company with operations in Taiwan, Thailand and the United States. The Company merged with Palo Alto Products International in April 2000, by exchanging approximately 7.2 million ordinary shares of Flextronics for all of the outstanding shares of Palo Alto Products International common stock. Palo Alto Products International operated under the same fiscal year end as Flextronics, and accordingly, Palo Alto Products International's balance sheets, statements of operations, shareholders' equity and cash flows have been combined with the Company's consolidated financial statements as of March 31, 1999 and 2000 and for each of the three fiscal years ended March 31, 2000. Chatham is a leading provider of integrated electronic packaging systems to the communications industry. As a result of the merger in, August 2000, the Company issued approximately 15.2 million ordinary shares for all of the 6 7 outstanding Chatham capital stock, warrants and options. Chatham operated under a fiscal year which ended on the Saturday closest to September 30 prior to merging with Flextronics and, accordingly, Chatham's balance sheets, statements of operations, shareholders' equity and cash flows as of September 30, 1998 and 1999 and for each of the three years ended September 24, 1999 have been combined with the Company's consolidated financial statements as of March 31, 1999 and 2000 and for each of the three fiscal years ended March 31, 2000. Starting in fiscal 2001, Chatham changed its year end from the Saturday closest to September 30 to March 31 to conform to the Company's fiscal year end. Accordingly, Chatham's operations for the six months ended March 31, 2000 have been excluded from the consolidated results of operations for fiscal 2001 and reported as an adjustment to retained earnings in the first quarter of fiscal 2001. Lightning is a provider of fully integrated electronic packaging systems with operations in Ireland and the United States. As a result of the merger, in August 2000, the Company issued approximately 2.6 million ordinary shares for all of the outstanding shares of Lightning common stock and interests. Lightning operated under a calendar year end prior to merging with Flextronics and, accordingly, Lightning's balance sheets, statements of operations, shareholders' equity and cash flows as of December 31, 1998 and 1999 and for each of the three years ended December 31, 1999 have been combined with the Company's consolidated financial statements as of March 31, 1999 and 2000 and for each of the three fiscal years ended March 31, 2000. Starting in fiscal 2001, Lightning changed its year end from December 31 to March 31 to conform to the Company's fiscal year end. Accordingly, Lightning's operations for the three months ended March 31, 2000 have been excluded from the consolidated results of operations for fiscal year 2001 and reported as an adjustment to retained earnings in the first quarter of fiscal 2001. A reconciliation of results of operations previously reported by the separate companies for the three and six month periods ended September 24, 1999 to the results in this Form 10Q is as follows (in thousands):
Three months Six months ended ended September 24, September 24, 1999 1999 ------------- ------------- Net sales: As previously reported .......... $ 941,760 $ 1,627,401 DII ............................. 280,093 527,561 Palo Alto Products .............. 26,731 50,319 Chatham ......................... 73,604 164,689 Lightning ....................... 70,103 126,077 Intercompany elimination ........ (819) (1,149) ------------- ------------- As restated ..................... $ 1,391,472 $ 2,494,898 ============= ============= Net income: As previously reported .......... $ 28,088 $ 46,942 DII ............................. 12,340 21,223 Palo Alto Products .............. 317 582 Chatham ......................... (11,554) (19,377) Lightning ....................... (1,326) 2,192 ------------- ------------- As restated ..................... $ 27,865 $ 51,562 ============= =============
Note B - INVENTORIES Inventories consist of the following (in thousands):
September 30, March 31, 2000 2000 ------------- ------------- Raw materials ........... $ 1,130,046 $ 785,693 Work-in-process ......... 297,324 179,010 Finished goods .......... 137,107 106,788 ------------- ------------- $ 1,564,477 $ 1,071,491 ============= =============
Note C - UNUSUAL CHARGES The Company recognized unusual pre-tax charges of $541.5 million in the first six months of fiscal 2001. Of this amount, $493.1 million was recorded in the first quarter and was comprised of approximately $286.5 million related to 7 8 the issuance of an equity instrument to Motorola combined with approximately $206.6 million of expenses resulting from the DII and Palo Alto Products International business combinations. In the second quarter, unusual pre-tax charges amounted to approximately $48.4 million associated with the Chatham and Lightning business combinations. On May 30, 2000, the Company entered into a strategic alliance for product manufacturing with Motorola. See Note I for further information concerning the strategic alliance. In connection with this strategic alliance, Motorola paid $100.0 million for an equity instrument that entitles it to acquire 22,000,000 Flextronics ordinary shares at any time through December 31, 2005, upon meeting targeted purchase levels or making additional payments to the Company. The issuance of this equity instrument resulted in a one-time non-cash charge equal to the excess of the fair value of the equity instrument issued over the $100.0 million proceeds received. As a result, the one-time non-cash charge amounted to approximately $286.5 million offset by a corresponding credit to additional paid-in capital in the first quarter of fiscal 2001. In connection with the aforementioned business acquisitions, the Company recorded aggregate merger-related charges of $255.0 million, which included approximately $159.0 million of integration expenses and approximately $96.0 million of direct transaction costs. As discussed below, $108.0 million of the unusual charges relating to integration expenses have been classified as a component of Cost of Sales during the first six months of fiscal 2001. The components of the merger-related unusual charges recorded in the first and second quarters of fiscal 2001 are as follows (in thousands):
FIRST SECOND QUARTER QUARTER TOTAL NATURE OF CHARGES CHARGES CHARGES CHARGES -------- -------- -------- ------------- Integration Costs: Severance .............................................. $ 62,487 $ 5,677 $ 68,164 cash Long-lived asset impairment ............................ 46,646 14,373 61,019 non-cash Inventory write-downs .................................. 11,863 -- 11,863 non-cash Other exit costs ....................................... 12,338 5,650 17,988 cash/non-cash -------- -------- -------- Total Integration Costs ............................ 133,334 25,700 159,034 Direct Transaction Costs: Professional fees ...................................... 50,851 7,247 58,098 cash Other costs ............................................ 22,382 15,448 37,830 cash/non-cash -------- -------- -------- Total Direct Transaction Costs ..................... 73,233 22,695 95,928 -------- -------- -------- Total Merger-Related Unusual Pre-Tax Charges ........... $206,567 $ 48,395 $254,962 ======== ======== ========
As a result of the consummation of the DII and Palo Alto Products International business combinations in the first quarter, and the Chatham and Lightning business combinations in the second quarter, the Company developed formal plans to exit certain activities and involuntarily terminate employees. Management's plan to exit an activity included the identification of duplicate manufacturing and administrative facilities for closure and the identification of manufacturing and administrative facilities for consolidation into other facilities. Management currently anticipates that the integration costs and activities to which all of these charges relate will be substantially completed within one year of the commitment dates of the respective exit plans, except for certain long-term contractual obligations. The following table summarizes the components of the integration costs and related activity in fiscal 2001:
Long-Lived Other Asset Exit Severance Impairment Inventory Costs Total ---------- ---------- ---------- ---------- ---------- Balance at March 31, 2000 ......... $ -- $ -- $ -- $ -- $ -- Activities during the year: First quarter provision ......... 62,487 46,646 11,863 12,338 133,334 Cash charges .................... (35,800) -- -- (4,753) (40,553) Non-cash charges ................ -- (46,646) (4,315) -- (50,961) ---------- ---------- ---------- ---------- ---------- Balance at June 30, 2000 .......... 26,687 -- 7,548 7,585 41,820 Activities during the year: Second quarter provision ........ 5,677 14,373 -- 5,650 25,700 Cash charges .................... (4,002) -- -- (3,014) (7,016) Non-cash charges ................ -- (14,373) (7,548) (1,743) (23,664) ---------- ---------- ---------- ---------- ---------- Balance at September 30, 2000 ..... $ 28,362 $ -- $ -- $ 8,478 $ 36,840 ========== ========== ========== ========== ==========
8 9 Of the total pre-tax integration charges, $68.1 million relates to employee termination costs, of which $17.1 million has been classified as a component of Cost of Sales. As a result of the exit plans, the Company identified 1,993 employees to be involuntarily terminated related to the DII and Palo Alto Products International business combinations, and 851 employees related to the Chatham and Lightning business combinations. As of September 30, 2000, approximately 1,387 employees have been terminated, and approximately another 606 employees have been notified that they are to be terminated upon completion of the various facility closures and consolidations related to the first quarter business combinations. Additionally, as of September 30, 2000, approximately 48 employees have been terminated, and approximately another 803 employees have been notified of their ensuing termination upon completion of the various facility closures and consolidations related to the second quarter business combinations. During the first and second quarters of fiscal 2001, the Company paid employee termination costs of approximately $35.8 million and $4.0 million, respectively. The remaining $28.4 million of employee termination costs is classified as accrued liabilities as of September 30, 2000 and is expected to be paid out within one year of the commitment dates of the respective exit plans. The unusual pre-tax charges include $61.0 million for the write-down of long-lived assets to fair value. Of these charges, approximately $46.6 million and $14.4 million were written down in the first and second quarters of fiscal 2001, respectively. These amounts have been classified as a component of Cost of Sales. Included in the long-lived asset impairment are charges of $58.1 million, which relate to property, plant and equipment associated with the various manufacturing and administrative facility closures which were written down to their net realizable value based on their estimated sales price. Certain facilities will remain in service until their anticipated disposal dates pursuant to the exit plans. Since the assets will remain in service from the date of the decision to dispose of these assets to the anticipated disposal date, the assets will be depreciated over this period. The impaired long-lived assets consisted primarily of machinery and equipment of $48.8 million and building and improvements of $9.3 million. The long-lived asset impairment also includes the write-off of the remaining goodwill and other intangibles related to certain closed facilities of $2.9 million. The unusual pre-tax charges also include approximately $29.9 million for losses on inventory write-downs and other exit costs, which resulted from the integration plans. This amount has been classified as a component of Cost of Sales. The Company has written off and disposed of approximately $11.9 million of inventory related to the first quarter business combinations. The $18.0 million of other exit costs relates primarily to items such as lease termination costs, incremental amounts of uncollectible accounts receivable, warranty-related accruals, legal and other exit costs, incurred directly as a result of the various exit plans. Of this amount, $12.3 million related to the DII and Palo Alto Products International business combinations and $5.7 million related to the Chatham and Lightning transactions. The Company paid approximately $4.8 million and $3.0 million of other exit costs during the first and second quarters of fiscal 2001. Additionally, approximately $1.7 million of other exit costs were written off during the second quarter. The remaining $8.5 million is classified in accrued liabilities as of September 30, 2000 and is expected to be paid out by the end of fiscal 2001, except for certain long-term contractual obligations. The direct transaction costs include approximately $58.1 million of costs primarily related to investment banking and financial advisory fees as well as legal and accounting costs associated with the transactions. Of these charges, approximately $50.9 million was associated with the first quarter business combinations and $7.2 million related to the second quarter transactions. Other direct transaction costs which totaled approximately $37.8 million was mainly comprised of accelerated debt prepayment expense, accelerated executive stock compensation, benefit-related expenses and other merger-related costs. The Company paid approximately $70.2 million and $20.7 million of the direct transaction costs during the first and second quarters of fiscal 2001, respectively. The remaining $5.0 million is classified in accrued liabilities as of September 30, 2000 and is expected to be substantially paid out by the end of fiscal 2001. 9 10 Note D - EARNINGS PER SHARE Diluted net income per share is computed using the weighted average number of ordinary shares and dilutive ordinary share equivalents outstanding during the applicable periods. Ordinary share equivalents include ordinary shares issuable upon the exercise of stock options and are computed using the treasury stock method. Earnings per share data were computed as follows (in thousands, except per share amounts):
Three months ended Six months ended September 30, September 24, September 30, September 24, 2000 1999 2000 1999 ------------- ------------- ------------- ------------- Basic earnings (loss) per share: Net income (loss) ...................................... $ 50,970 $ 27,865 $ (317,967) $ 51,562 ------------- ------------- ------------- ------------- Shares used in computation: Weighted-average ordinary shares outstanding(1) ........ 419,200 320,158 412,300 316,752 ============= ============= ============= ============= Basic earnings (loss) per share ........................ $ 0.12 $ 0.09 $ (0.77) $ 0.16 ============= ============= ============= ============= Diluted earnings (loss) per share: Net income (loss) ...................................... $ 50,970 $ 27,865 $ (317,967) $ 51,562 Plus income impact of assumed conversions: Interest expense (net of tax) on convertible Subordinated notes .................................. -- -- -- 400 Amortization (net of tax) of debt issuance cost on Convertible subordinated notes ...................... -- -- -- 33 ------------- ------------- ------------- ------------- Net income (loss) available to shareholders .......... $ 50,970 $ 27,865 $ (317,967) $ 51,995 Shares used in computation: Weighted-average ordinary shares outstanding ........... 419,200 320,158 412,300 316,752 Shares applicable to exercise of dilutive options(2) ... 32,516 22,328 -- 21,962 Shares applicable to deferred stock compensation ....... -- 779 -- 741 Shares applicable to other equity instruments .......... 11,898 -- -- -- Shares applicable to convertible subordinated notes .... -- -- -- 2,917 ------------- ------------- ------------- ------------- Shares applicable to diluted earnings ................ 463,614 343,265 412,300 342,372 ============= ============= ============= ============= Diluted earnings (loss) per share ...................... $ 0.11 $ 0.08 $ (0.77) $ 0.15 ============= ============= ============= =============
(1) Ordinary shares issued and outstanding based on the weighted average method. (2) Stock options of the Company calculated based on the treasury stock method using average market price for the period, if dilutive. Options to purchase 1,419,562 shares and 94,992 shares outstanding during the three months ended September 30, 2000 and September 24, 1999, respectively, and options to purchase 94,937 shares outstanding during the six months ended September 24, 1999 were excluded from the computation of diluted earnings per share because the options' exercise price was greater than the average market price of the Company's ordinary shares during those periods. The ordinary share equivalents from stock options and other equity instruments were antidilutive for the six months ended September 30, 2000, and therefore not assumed to be converted for diluted earnings per share computations. Note E - COMPREHENSIVE INCOME (in thousands)
Three months ended Six months ended September 30, September 24, September 30, September 24, 2000 1999 2000 1999 ------------- ------------- ------------- ------------- Net income (loss) ....................................... $ 50,970 $ 27,865 $ (317,967) $ 51,562 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments .............. (38,625) 2,020 (43,784) (3,594) Unrealized holding gain (loss) on available-for-sale Securities........................................... 13,262 9,608 (22,101) 9,608 ------------- ------------- ------------- ------------- Comprehensive income (loss) ............................. $ 25,607 $ 39,493 $ (383,852) $ 57,576 ============= ============= ============= =============
Note F - SEGMENT REPORTING Information about segments was as follows (in thousands): 10 11
Three months ended Six months ended September 30, September 24, September 30, September 24, 2000 1999 2000 1999 ------------- ------------- ------------- ------------- Net Sales: Asia .................................... $ 487,609 $ 217,515 $ 880,526 $ 383,087 Americas ................................ 1,487,411 667,585 2,686,475 1,203,838 Western Europe .......................... 556,551 323,037 1,072,526 561,704 Central Europe .......................... 505,960 203,252 967,010 375,231 Intercompany eliminations ............... (90,406) (19,917) (134,766) (28,962) ------------- ------------- ------------- ------------- $ 2,947,125 $ 1,391,472 $ 5,471,771 $ 2,494,898 ============= ============= ============= ============= Income (Loss) before Income Tax: Asia .................................... $ 30,599 $ 18,232 $ 53,314 $ 32,186 Americas ................................ 46,251 4,100 70,918 3,926 Western Europe .......................... 9,515 7,920 20,561 13,295 Central Europe .......................... 10,253 4,072 20,423 10,707 Intercompany eliminations, corporate allocations and unusual charges ....................... (37,212) (2,249) (490,858) 389 ------------- ------------- ------------- ------------- $ 59,406 $ 32,075 $ (325,642) $ 60,503 ============= ============= ============= =============
As of As of September 30, March 31, 2000 2000 ------------- ------------- Long-lived Assets: Asia ..................... $ 272,251 $ 343,843 Americas ................. 726,528 607,173 Western Europe ........... 287,589 201,593 Central Europe ........... 255,732 182,827 ------------- ------------- $ 1,542,100 $ 1,335,436 ============= =============
For purposes of the preceding tables, "Asia" includes China, Malaysia, Singapore, Thailand and Taiwan, "Americas" includes the U.S., Mexico, and Brazil, "Western Europe" includes Denmark, Germany, Holland, Sweden, Switzerland, Norway, Finland, and France, and "Central Europe" includes Austria, the Czech Republic, Hungary, Ireland, Italy, Scotland and the United Kingdom. Geographic revenue transfers are based on selling prices to unaffiliated companies, less discounts. Income before income tax is net sales less operating expenses, interest or other expenses, but prior to income taxes. Note G - EQUITY OFFERING In June 2000, the Company completed an equity offering of 11,000,000 ordinary shares at $35.625 per share with net proceeds of $375.9 million. In July 2000, the Company issued an additional 1,650,000 ordinary shares at $35.625 per share with net proceeds of $56.3 million, which represents the overallotment option on the equity offering completed in June 2000. The Company used the net proceeds from the offering to fund the further expansion of its business including additional working capital and capital expenditures, and for other general corporate purposes. The Company may also use a portion of the net proceeds for strategic acquisitions or investments. Note H - SENIOR SUBORDINATED NOTES In June 2000, the Company issued approximately $645.0 million of senior subordinated notes, consisting of $500.0 million of 9.875% notes and euros 150.0 million of 9.75% notes. Interest is payable on July 1 and January 1 of each year, commencing January 1, 2001. The notes mature on July 1, 2010. 11 12 The Company may redeem the notes on or after July 1, 2005. The indentures relating to the notes contain certain covenants that, among other things, limit the ability of the Company and certain of its subsidiaries to (i) incur additional debt, (ii) issue or sell stock of certain subsidiaries, (iii) engage in asset sales, and (iv) make distributions or pay dividends. The covenants are subject to a number of significant exceptions and limitations. Note I - STRATEGIC ALLIANCE On May 30, 2000, the Company entered into a strategic alliance for product manufacturing with Motorola. This alliance provides incentives for Motorola to purchase up to $32.0 billion of products and services from us through December 31, 2005. The relationship is not exclusive and does not require that Motorola purchase any specific volumes of products or services from the Company. The Company's ability to achieve any of the anticipated benefits of this relationship is subject to a number of risks, including its ability to provide services on a competitive basis and to expand manufacturing resources, as well as demand for Motorola's products. In connection with this strategic alliance, Motorola paid $100.0 million for an equity instrument that entitles it to acquire 22,000,000 Flextronics ordinary shares at any time through December 31, 2005 upon meeting targeted purchase levels or making additional payments to the Company. The issuance of this equity instrument resulted in a one-time non-cash charge equal to the excess of the fair value of the equity instrument issued over the $100.0 million proceeds received. As a result, the one-time non-cash charge amounted to approximately $286.5 million offset by a corresponding credit to additional paid-in capital in the first quarter of fiscal 2001. During the term of the strategic alliance, if Motorola meets targeted purchase levels, no additional payments may be required by Motorola to acquire 22,000,000 Flextronics ordinary shares. However, there may be additional non-cash charges of up to $300.0 million over the term of the strategic alliance. Note J - NEW ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," ("SFAS No. 133") which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments imbedded in other contracts and for hedging activities. It requires that companies recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Company expects to adopt SFAS No. 133 in the first quarter of fiscal 2002 and anticipates that SFAS No. 133 will not have a material impact on its consolidated financial statements. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements". SAB 101 provides guidance on applying generally accepted accounting principles to revenue recognition issues in financial statements. The Company will adopt SAB 101 as required in the fourth quarter of fiscal 2001 and anticipates that SAB 101 will not have a material impact on its consolidated financial statements. Note K - OTHER MATTERS On August 10, 2000 the Company announced the signing of a definitive merger agreement to acquire JIT Holdings Ltd. (JIT), a global provider of electronics manufacturing and design services with operations in Singapore, China, Malaysia, Hungary and Indonesia. Under the terms of the merger agreement, Flextronics will issue approximately 17.4 million ordinary shares in exchange for all of the outstanding ordinary shares and options of JIT. This merger is intended to be accounted for as a pooling of interests and is subject to certain closing conditions, including approval by JIT shareholders. The Company anticipates that the transaction will be completed at the end of November 2000. In September 2000, the Company announced the signing of a definitive agreement to acquire Li Xin Industries Ltd. (Li Xin), a plastics company in Asia with operations in Singapore, Malaysia and Northern China. Li Xin's primary activities include the manufacturing and sales of high precision plastic injection molds and plastic injection molded parts, design support and sub-assembly services of electrical components. Under the terms of the agreement, Flextronics will issue ordinary shares having a total value of approximately $69.0 million. The acquisition is intended to be accounted for as a purchase and is subject to the approval of the Li Xin shareholders and other customary conditions. The transaction is expected to close in January 2001. 12 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. The words "expects," "anticipates," "believes," "intends," "plans" and similar expressions identify forward-looking statements. In addition, any statements which refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. We undertake no obligation to publicly disclose any revisions to these forward-looking statements to reflect events or circumstances occurring subsequent to filing this Form 10-Q with the Securities and Exchange Commission. These forward-looking statements are subject to risks and uncertainties, including, without limitation, those discussed in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Certain Factors Affecting Operating Results." Accordingly, our future results may differ materially from historical results or from those discussed or implied by these forward-looking statements. Acquisition, Purchases of Facilities and Other Strategic Transactions We have actively pursued mergers and other business acquisitions to expand our global reach, manufacturing capacity and service offerings and to diversify and strengthen customer relationships. We have completed several significant business combinations since the end of fiscal 2000. In the current fiscal year, we acquired all of the outstanding shares of the DII Group, Inc., Palo Alto Products International Pte. Ltd., Chatham Technologies, Inc. and Lightning Metal Specialties and related entities. Each of these acquisitions was accounted for as a pooling of interests and our consolidated financial statements have been restated to reflect the combined operations of the merged companies for all periods presented. Additionally, we have completed other immaterial pooling of interests transactions in the first half of fiscal 2001. Prior period statements have not been restated for these transactions. We have also made a number of business acquisitions of other companies. These transactions were accounted for using the purchase method and, accordingly our consolidated financial statements include the operating results of each business from the date of acquisition. Pro forma results of operations have not been presented because the effects of these acquisitions were not material on either an individual or an aggregate basis. The business combinations that we have completed to date in fiscal 2001, include the following:
Date Acquired Company Nature of Business Consideration Location(s) - --------- ------------------------- --------------------- -------------- -------------------- August 2000 Chatham Technologies, Inc. Provides industrial and 15,234,244 ordinary Brazil electronics manufacturing shares China design services France Mexico Spain Sweden United States August 2000 Lightning Metal Provides injection molding, 2,573,072 ordinary Ireland Specialties and related metal stamping and shares United States entities integration services
13 14
Date Acquired Company Nature of Business Consideration Location(s) - --------- ------------------------- --------------------- -------------- -------------------- April 2000 Palo Alto Products Provides industrial and 7,236,748 ordinary Taiwan International Pte. Ltd. electronics manufacturing shares Thailand design services United States April 2000 The DII Group, Inc. Provides electronics 125,536,278 ordinary Austria manufacturing services shares Brazil China Czech Republic Germany Ireland Malaysia Mexico United States
Acquisitions of Manufacturing Facilities In the first half of fiscal 2001 we have purchased a number of manufacturing facilities and related assets from customers and simultaneously entered into manufacturing agreements to provide electronics design, assembly and test services to these customers. The transactions were accounted for as purchases of assets. We have completed the following facilities purchases in fiscal 2001:
Date Customer Consideration Facility Location(s) ------------ ----------------------- ------------- ------------------------ May 2000 Ascom $59.7 million Switzerland cash May 2000 Bosch Telecom GmbH $98.3 million Denmark cash
We will continue to review opportunities to acquire OEM manufacturing operations and enter into business combinations and selectively pursue strategic transactions that we believe will further our business objectives. We are currently in preliminary discussions to acquire additional businesses and facilities. We cannot assure the terms of, or that we will complete, such acquisitions, and our ability to obtain the benefits of such combinations and transactions is subject to a number of risks and uncertainties, including our ability to successfully integrate the acquired operations and our ability to maintain and increase sales to customers of the acquired companies. See "Risk Factors - We May Encounter Difficulties with Acquisitions, Which Could Harm our Business". Other Strategic Transactions On May 30, 2000, we entered into a strategic alliance for product manufacturing with Motorola. This alliance provides incentives for Motorola to purchase up to $32.0 billion of products and services from us through December 31, 2005. We anticipate that this relationship will encompass a wide range of products, including cellular phones, pagers, set-top boxes and infrastructure equipment, and will involve a broad range of services, including design, PCB fabrication and assembly, plastics, enclosures and supply chain services. The relationship is not exclusive and does not require that Motorola purchase any specific volumes of products or services from the Company. Our ability to achieve any of the anticipated benefits of this relationship is subject to a number of risks, including our ability to provide services on a competitive basis and to expand manufacturing resources, as well as demand for Motorola's products. In connection with this strategic alliance, Motorola paid $100.0 million for an equity instrument that entitles it to acquire 22,000,000 of our ordinary shares at any time through December 31, 2005 upon meeting targeted purchase levels or making additional payments to us. The issuance of this equity 14 15 instrument resulted in a one-time non-cash charge equal to the excess of the fair value of the equity instrument issued over the $100.0 million proceeds received. As a result, the one-time non-cash charge amounted to approximately $286.5 million offset by a corresponding credit to additional paid-in capital in the first quarter of fiscal 2001. During the term of the strategic alliance, if Motorola meets targeted purchase levels, no additional payments may be required by Motorola to acquire 22,000,000 of our ordinary shares. However, there may be additional non-cash charges of up to $300.0 million over the term of the strategic alliance. 15 16 RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain statement of operations data expressed as a percentage of net sales.
Three months ended Six months ended September 30, September 24, September 30, September 24, 2000 1999 2000 1999 ------------- ------------- ------------- ------------- Net sales ......................................... 100.0 100.0 100.0 100.0 Cost of sales ..................................... 91.6 90.2 91.7 89.8 Unusual charges ................................... 0.8 -- 2.0 -- ------------- ------------- ------------- ------------- Gross margin ................................. 7.6 9.8 6.3 10.2 Selling, general and administrative ............... 3.5 5.2 3.6 5.6 Goodwill and intangibles amortization ............. 0.4 0.6 0.4 0.7 Unusual charges ................................... 0.8 0.3 7.9 0.1 Interest and other expense, net ................... 0.8 1.4 0.4 1.4 ------------- ------------- ------------- ------------- Income (loss) before income taxes ............ 2.1 2.3 (6.0) 2.4 Provision for (benefit from) income taxes ......... 0.3 0.3 (0.1) 0.4 ------------- ------------- ------------- ------------- Net income (loss) ............................ 1.8 2.0 (5.9) 2.0 ------------- ------------- ------------- -------------
Net Sales We derive our net sales from our wide range of service offerings, including product design, semiconductor design, printed circuit board assembly and fabrication, enclosures, material procurement, inventory and supply chain management, plastic injection molding, final system assembly and test, packaging and distribution. Net sales for the second quarter of fiscal 2001 increased 112% to $2.9 billion from $1.4 billion for the second quarter of fiscal 2000. Net sales for the first six months of fiscal 2001 increased 119% to $5.5 billion from $2.5 billion for the same period in fiscal 2000. The increase in net sales was primarily the result of expanding sales to our existing customer base and, to a lesser extent, sales to new customers. Our five largest customers in the first six months of fiscal 2001 and 2000 accounted for approximately 41% and 38% of net sales, respectively. Our largest customer during the first six months of fiscal 2001 was Ericsson, accounting for approximately 10% of net sales. No other customers accounted for more than 10% of net sales in the six months ended September 30, 2000. See "Certain Factors Affecting Operating Results - The Majority of our Sales Comes from a Small Number of Customers; If We Lose any of these Customers, our Sales Could Decline Significantly" and "Certain Factors Affecting Operating Results - We Depend on the Electronics Industry which Continually Produces Technologically Advanced Products with Short Life Cycles; Our Inability to Continually Manufacture such Products on a Cost-Effective Basis would Harm our Business". Gross Profit Gross profit varies from period to period and is affected by a number of factors, including product mix, component costs and availability, product life cycles, unit volumes, startup, expansion and consolidation of manufacturing facilities, pricing, competition and new product introductions. Gross margin for the second quarter of fiscal 2001 decreased to 7.6% from 9.8% for the second quarter of fiscal 2000. Gross margin decreased to 6.3% for the first six months of fiscal 2001 from 10.2% for the same period in fiscal 2000. The decrease in gross margin in the current fiscal year is primarily attributable to unusual pre-tax charges amounting to $24.3 million in the second quarter and $108.0 million for the fiscal year to date, which were associated with the integration costs related to the various business combinations, as more fully described to follow in "Unusual Charges". Excluding these unusual charges, gross margins for the second quarter and first six months of fiscal 2001 were 8.4% and 8.3%, respectively. Gross margin decreased due to several factors, including (i) costs associated with expanding our facilities; (ii) costs associated with the startup of new customers and new projects, which typically carry higher levels of underabsorbed manufacturing overhead costs until the projects reach higher volume production; and 16 17 (iii) changes in product mix to higher volume projects and final systems assembly projects, which typically have a lower gross margin. Increased mix of products that have relatively high materials costs as a percentage of total unit costs can adversely affect our gross margins. We believe that this and other factors may adversely affect our gross margins, but we do not expect that this will have a material effect on our income from operations. See "Certain Factors Affecting Operating Results - If We Do Not Manage Effectively the Expansion of our Operations, Our Business may be Harmed," and "- We may be Adversely Affected by Shortages of Required Electronic Components". Unusual Charges We recognized unusual pre-tax charges of $541.5 million in the first six months of fiscal 2001. Of this amount, $493.1 million was recorded in the first quarter and was comprised of approximately $286.5 million related to the issuance of an equity instrument to Motorola combined with approximately $206.6 million of expenses resulting from the DII and Palo Alto Products International business combinations. In the second quarter, unusual pre-tax charges amounted to approximately $48.4 million associated with the Chatham and Lightning business combinations. On May 30, 2000, we entered into a strategic alliance for product manufacturing with Motorola. See Note I for further information concerning the strategic alliance. In connection with this strategic alliance, Motorola paid $100.0 million for an equity instrument that entitles it to acquire 22,000,000 Flextronics ordinary shares at any time through December 31, 2005, upon meeting targeted purchase levels or making additional payments to us. The issuance of this equity instrument resulted in a one-time non-cash charge equal to the excess of the fair value of the equity instrument issued over the $100.0 million proceeds received. As a result, the one-time non-cash charge amounted to approximately $286.5 million offset by a corresponding credit to additional paid-in capital in the first quarter of fiscal 2001. In connection with the aforementioned business acquisitions, we recorded aggregate merger-related charges of $255.0 million, which included approximately $159.0 million of integration expenses and approximately $96.0 million of direct transaction costs. As discussed below, $108.0 million of the unusual charges relating to integration expenses have been classified as a component of Cost of Sales during the first six months of fiscal 2001. The components of the merger-related unusual charges recorded in the first and second quarters of fiscal 2001 are as follows (in thousands):
FIRST SECOND QUARTER QUARTER TOTAL NATURE OF CHARGES CHARGES CHARGES CHARGES -------- -------- -------- ------------- Integration Costs: Severance .................................... $ 62,487 $ 5,677 $ 68,164 cash Long-lived asset impairment .................. 46,646 14,373 61,019 non-cash Inventory write-downs ........................ 11,863 -- 11,863 non-cash Other exit costs ............................. 12,338 5,650 17,988 cash/non-cash -------- -------- -------- Total Integration Costs .................. 133,334 25,700 159,034 Direct Transaction Costs: Professional fees ............................ 50,851 7,247 58,098 cash Other costs .................................. 22,382 15,448 37,830 cash/non-cash -------- -------- -------- Total Direct Transaction Costs ........... 73,233 22,695 95,928 -------- -------- -------- Total Merger-Related Unusual Pre-Tax Charges.. $206,567 $ 48,395 $254,962 ======== ======== ========
17 18 As a result of the consummation of the DII and Palo Alto Products International business combinations in the first quarter, and the Chatham and Lightning business combinations in the second quarter, we developed formal plans to exit certain activities and involuntarily terminate employees. Management's plan to exit an activity included the identification of duplicate manufacturing and administrative facilities for closure and the identification of manufacturing and administrative facilities for consolidation into other facilities. Management currently anticipates that the integration costs and activities to which all of these charges relate will be substantially completed within one year of the commitment dates of the respective exit plans, except for certain long-term contractual obligations. The following table summarizes the components of the integration costs and related activity in fiscal 2001:
Long-Lived Other Asset Exit Severance Impairment Inventory Costs Total ----------- ----------- ----------- ----------- ----------- Balance at March 31, 2000 ............. $ -- $ -- $ -- $ -- $ -- Activities during the year: First quarter provision ............. 62,487 46,646 11,863 12,338 133,334 Cash charges ........................ (35,800) -- -- (4,753) (40,553) Non-cash charges .................... -- (46,646) (4,315) -- (50,961) ----------- ----------- ----------- ----------- ----------- Balance at June 30, 2000 .............. 26,687 -- 7,548 7,585 41,820 Activities during the year: Second quarter provision ............ 5,677 14,373 -- 5,650 25,700 Cash charges ........................ (4,002) -- -- (3,014) (7,016) Non-cash charges .................... -- (14,373) (7,548) (1,743) (23,664) ----------- ----------- ----------- ----------- ----------- Balance at September 30, 2000 ......... $ 28,362 $ -- $ -- $ 8,478 $ 36,840 =========== =========== =========== =========== ===========
Of the total pre-tax integration charges, $68.1 million relates to employee termination costs of which, $17.1 million has been classified as a component of Cost of Sales. As a result of the exit plans, we identified 1,993 employees to be involuntarily terminated related to the DII and Palo Alto Products International business combinations, and 851 employees related to the Chatham and Lightning business combinations. As of September 30, 2000, approximately 1,387 employees have been terminated, and approximately another 606 employees have been notified that they are to be terminated upon completion of the various facility closures and consolidations related to the first quarter business combinations. Additionally, as of September 30, 2000, approximately 48 employees have been terminated, and approximately another 803 employees have been notified of their ensuing termination upon completion of the various facility closures and consolidations related to the second quarter business combinations. During the first and second quarters of fiscal 2001, we paid employee termination costs of approximately $35.8 million and $4.0 million, respectively. The remaining $28.4 million of employee termination costs is classified as accrued liabilities as of September 30, 2000 and is expected to be paid out within one year of the commitment dates of the respective exit plans. The unusual pre-tax charges include $61.0 million for the write-down of long-lived assets to fair value. Of these charges, approximately $46.6 million and $14.4 million were written down in the first and second quarters of fiscal 2001, respectively. These amounts have been classified as a component of Cost of Sales. Included in the long-lived asset impairment are charges of $58.1 million, which relate to property, plant and equipment associated with the various manufacturing and administrative facility closures which were written down to their net realizable value based on their estimated sales price. Certain facilities will remain in service until their anticipated disposal dates pursuant to the exit plans. Since the assets will remain in service from the date of the decision to dispose of these assets to the anticipated disposal date, the assets will be depreciated over this period. The impaired long-lived assets consisted primarily of machinery and equipment of $48.8 million and building and improvements of $9.3 million. The long-lived asset impairment also includes the write-off of the remaining goodwill and other intangibles related to certain closed facilities of $2.9 million. The unusual pre-tax charges also include approximately $29.9 million for losses on inventory write-downs and other exit costs, which resulted from the integration plans. This amount has been classified as a component of Cost of Sales. We have written off and disposed of approximately $11.9 million of inventory related to the first quarter business combinations. The $18.0 million of other exit costs relates primarily to items such as lease termination costs, incremental amounts of uncollectible accounts receivable, warranty-related accruals, legal and other exit costs, incurred directly as a result of the various exit plans. Of this amount, $12.3 million related to the DII and Palo Alto Products International business combinations and $5.7 million related to the Chatham and Lightning transactions. 18 19 We paid approximately $4.8 million and $3.0 million of other exit costs during the first and second quarters of fiscal 2001, respectively. Additionally, approximately $1.7 million of other exit costs were written off during the second quarter. The remaining $8.5 million is classified in accrued liabilities as of September 30, 2000 and is expected to be paid out by the end of fiscal 2001, except for certain long-term contractual obligations. The direct transaction costs include approximately $58.1 million of costs primarily related to investment banking and financial advisory fees as well as legal and accounting costs associated with the transactions. Of these charges, approximately $50.9 million was associated with the first quarter business combinations and $7.2 million related to the second quarter transactions. Other direct transaction costs which totaled approximately $37.8 million was mainly comprised of accelerated debt prepayment expense, accelerated executive stock compensation, benefit-related expenses and other merger-related costs. We paid approximately $70.2 million and $20.7 million of the direct transaction costs during the first and second quarters of fiscal 2001. The remaining $5.0 million is classified in accrued liabilities as of September 30, 2000 and is expected to be substantially paid out by the end of fiscal 2001. We incurred unusual pre-tax charges of $3.5 million in the second quarter of fiscal 2000, related to the Kyrel EMS Oyj business combination. The merger-related expenses consisted of a transfer tax of $1.7 million, approximately $0.4 million of investment banking fees and approximately $1.4 million of legal and accounting fees. Selling, General and Administrative Expenses Selling, general and administrative expenses ("SG&A") for the second quarter of fiscal 2001 increased to $104.3 million from $72.2 million in the same quarter of fiscal 2000, but decreased as a percentage of net sales to 3.5% for the second quarter of fiscal 2001 compared to 5.2% for the same quarter of fiscal 2000. SG&A increased to $196.6 million in the first six months of fiscal 2001 from $138.7 million in the same period of fiscal 2000. The dollar increase in SG&A was primarily due to the continued investment in infrastructure such as sales, marketing, supply-chain management, information systems and other related corporate and administrative expenses. The decline in SG&A as a percentage of net sales reflects the increases in our net sales, as well as our continued focus on controlling our operating expenses. Goodwill and Intangibles Amortization Goodwill and intangibles asset amortization for the second quarter of fiscal 2001 increased to $12.5 million from $8.8 million for the same period of fiscal 2000. Goodwill and intangibles asset amortization was $21.9 million and $18.5 million for the first six months of fiscal 2001 and fiscal 2000, respectively. The increase in goodwill and intangible assets amortization in the second quarter and first six months of fiscal 2001 was primarily a result of goodwill acquired in connection with the various purchase acquisitions during fiscal 2001 and increased amortization of debt issuance costs associated with the senior notes offering in June 2000. See Note H - Senior Subordinated Notes. Interest and Other Expense, Net Interest and other expense, net was $23.8 million for the second quarter of fiscal 2001 compared to $19.3 million for the corresponding quarter of fiscal 2000. The increase in interest and other expense, net in the second quarter of fiscal 2001 is attributable to increased interest expense associated with increased borrowings, primarily due to the issuance of approximately $645.0 million of senior subordinated notes in June 2000. Interest and other expense, net was $19.8 million for the first six months of fiscal 2001 compared to $33.8 million for the same period in fiscal 2000. The decrease in interest and other expense, net for the first six months of fiscal 2001 was primarily attributable to gains recorded on sale of marketable equity securities, which was offset by increased interest expense associated with our increased borrowings. Provision for Income Taxes Our consolidated effective tax rate was 14.2% and (2.4%) for the second quarter and first six months of fiscal 2001, compared to 13.1% and 14.8% for the comparable periods of fiscal 2000. Excluding the unusual charges, the effective income tax rate in the second quarter and first six months of fiscal 2001 was 13.4% and 13.1%, respectively. The consolidated effective tax rate for a particular period varies depending on the mix of earnings, 19 20 operating loss carryforwards, income tax credits and changes in previously established valuation allowances for deferred tax assets based upon management's current analysis of the realizability of these deferred tax assets. See "Certain Factors Affecting Operating Results - We are Subject to the Risk of Increased Taxes". Liquidity and Capital Resources As of September 30, 2000, we had cash and cash equivalents totaling $540.8 million, total bank and other debts totaling $1.4 billion and $228.9 million available for future borrowing under our credit facility subject to compliance with certain financial covenants. Cash used in operating activities was $356.0 million for the first six months of fiscal 2001 compared to cash provided by operating activities of $50.6 million for first six months of fiscal 2000. Cash provided by operating activities decreased in the first six months of fiscal 2001 from first six months of fiscal 2000 because of significant increases in accounts receivable and inventory, partially offset by an increase in accounts payable. Accounts receivable, net of allowance for doubtful accounts increased to $1.6 billion at September 30, 2000 from $969.8 million at March 31, 2000. The increase in accounts receivable was primarily due to an increase of 119% in net sales for the first six months of fiscal 2001 over the comparable period in the prior year. Inventories increased to $1.6 billion at September 30, 2000 from $1.1 billion at March 31, 2000. The increase in inventories was primarily the result of increased purchases of material to support the growing sales combined with the inventory acquired in connection with the manufacturing facility purchases in the first six months of fiscal 2001. Cash used in investing activities was $513.1 million and $254.2 million for the first six months of fiscal 2001 and fiscal 2000, respectively. Cash used in investing activities for the first six months of fiscal 2001 was primarily related to (i) capital expenditures of $483.2 million to purchase equipment and for continued expansion of manufacturing facilities, (ii) payment of $65.4 million for acquisitions of businesses and manufacturing facilities and, (iii) payment of $15.3 million for minority investments in the stock of various technology companies, offset by (iv) $13.2 million in proceeds from the sale of equipment and (v) $37.6 million in proceeds from the sale of marketable equity securities. Cash used in investing activities for the first six months of fiscal 2000 consisted primarily of (i) capital expenditures of $175.5 million to purchase equipment, (ii) payment of $89.4 million related for acquisitions of businesses and manufacturing facilities, and (iii) payment of $20.5 million for minority investments in the stocks of various technology companies, offset by proceeds of $12.6 million and $26.1 million related to the sale of equipment and the sale of certain subsidiaries, respectively. Net cash provided by financing activities was $769.5 million and $112.7 million for the first six months of fiscal 2001 and fiscal 2000, respectively. Cash provided by financing activities for the first six months of fiscal 2001 primarily resulted from $1.1 billion of net proceeds from long-term debt and bank borrowings, $22.6 million in proceeds from stock issued under stock plans, $442.9 million of net proceeds from equity offerings and $100.0 million of proceeds from an equity instrument issued to Motorola, offset by $306.2 million and $570.3 million of short-term credit facility and long-term debt repayments, respectively. We anticipate that our working capital requirements and capital expenditures will continue to increase in order to support the anticipated continued growth in our operations. We also anticipate incurring significant capital expenditures and operating lease commitments in order to support our anticipated expansions of our industrial parks in China, Hungary, Mexico, Brazil and Poland. We intend to continue our acquisition strategy and it is possible that future acquisitions may be significant and may require the payment of cash. Future liquidity needs will also depend on fluctuations in levels of inventory, the timing of expenditures by us on new equipment, the extent to which we utilize operating leases for the new facilities and equipment, levels of shipments and changes in volumes of customer orders. Historically, we have funded our operations from the proceeds of public offerings of equity securities and debt offerings, cash and cash equivalents generated from operations, bank debt, sales of accounts receivable and capital equipment lease financings. We believe that our existing cash balances, together with anticipated cash flows from operations, borrowings available under our credit facility and the net proceeds from our recent equity offering and private offering of senior subordinated notes will be sufficient to fund our operations through for at least the next twelve months. We anticipate that we will continue to enter into debt and equity financings, sales of accounts receivable and lease transactions to fund its acquisitions and anticipated growth. Such financings and other transactions 20 21 may not be available on terms acceptable or at all. See "Certain Factors Affecting Operating Results - If We Do not Manage Effectively the Expansion of our Operations, our Business may be Harmed". ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There were no material changes during the three and six months ended September 30, 2000 to our exposure to market risk for changes in interest rates and foreign currency exchange rates. CERTAIN FACTORS EFFECTING OPERATING RESULTS IF WE DO NOT MANAGE EFFECTIVELY THE EXPANSION OF OUR OPERATIONS, OUR BUSINESS MAY BE HARMED. We have grown rapidly in recent periods. Our workforce has more than tripled in size over the last year as a result of internal growth and acquisitions. This growth is likely to strain considerably our management control system and resources, including decision support, accounting management, information systems and facilities. If we do not continue to improve our financial and management controls, reporting systems and procedures to manage our employees effectively and to expand our facilities, our business could be harmed. We plan to increase our manufacturing capacity by expanding our facilities and adding new equipment. Such expansion involves significant risks, including, but not limited to the following: - - we may not be able to attract and retain the management personnel and skilled employees necessary to support expanded operations; - - we may not efficiently and effectively integrate new operations and information systems, expand our existing operations and manage geographically dispersed operations; - - we may incur cost overruns; - - we may encounter construction delays, equipment delays or shortages, labor shortages and disputes and production start-up problems that could harm our growth and our ability to meet customers' delivery schedules; and - - we may not be able to obtain funds for this expansion, and we may not be able to obtain loans or operating leases with attractive terms. In addition, we expect to incur new fixed operating expenses associated with our expansion efforts, including substantial increases in depreciation expense and rental expense, that will increase our cost of sales. If our revenues do not increase sufficiently to offset these expenses, our operating results would be seriously harmed. Our expansion, both through internal growth and acquisitions, has contributed to our incurring significant accounting charges. For example, in connection with our acquisitions of DII, Palo Alto Products International, Chatham and Lightning, we recorded one-time charges of approximately $255.0 million, and in connection with the issuance of an equity instrument to Motorola relating to our alliance with Motorola, we recorded a one-time non-cash charge of approximately $286.5 million. WE MAY ENCOUNTER DIFFICULTIES WITH ACQUISITIONS, WHICH COULD HARM OUR BUSINESS. In the last quarter, we completed a significant number of acquisitions of businesses and facilities, including our acquisitions of Chatham and Lightning. We expect to continue to acquire additional businesses and facilities in the future. We are currently in preliminary discussions to acquire additional businesses and facilities. Any future acquisitions may require additional debt or equity financing, which could increase our leverage or be dilutive to our existing shareholders. We cannot assure the terms of, or that we will complete, any acquisitions in the future. To integrate acquired businesses, we must implement our management information systems and operating systems and assimilate and manage the personnel of the acquired operations. The difficulties of this integration may be further 21 22 complicated by geographic distances. The integration of acquired businesses may not be successful and could result in disruption to other parts of our business. In addition, acquisitions involve a number of other risks and challenges, including, but not limited to: - - diversion of management's attention; - - potential loss of key employees and customers of the acquired companies; - - lack of experience operating in the geographic market of the acquired business; and - - an increase in our expenses and working capital requirements. Any of these and other factors could harm our ability to achieve anticipated levels of profitability at acquired operations or realize other anticipated benefits of an acquisition. We have new customer relationships from which we are not yet receiving significant revenues, and orders from these customers may not reach anticipated levels. We have recently announced major new customer relationships, including our alliance with Motorola, from which we anticipate significant future sales. However, similar to our other customer relationships, there are no volume purchase commitments under these new programs, and the revenues we actually achieve may not meet our expectations. In anticipation of future activities under these programs, we are incurring substantial expenses as we add personnel and manufacturing capacity and procure materials. Our operating results will be seriously harmed if sales do not develop to the extent and within the time frame we anticipate. WE MAY BE ADVERSELY AFFECTED BY SHORTAGES OF REQUIRED ELECTRONIC COMPONENTS. A substantial majority of our net sales are derived from turnkey manufacturing in which we are responsible for purchasing components used in manufacturing our customers products. We generally do not have long-term agreements with suppliers of components. This typically results in our bearing the risk of component price increases because we may be unable to procure the required materials at a price level necessary to generate anticipated margins from our agreements with our customers. Accordingly, component price changes could seriously harm our operating results. At various times, there have been shortages of some of the electronic components that we use, and suppliers of some components have lacked sufficient capacity to meet the demand for these components. Component shortages have recently become more prevalent in our industry. In some cases, supply shortages and delays in deliveries of particular components have resulted in curtailed production, or delays in production, of assemblies using that component, which has contributed to an increase in our inventory levels. We expect that shortages and delays in deliveries of some components will continue. If we are unable to obtain sufficient components on a timely basis, we may experience manufacturing and shipping delays, which could harm our relationships with current or prospective customers and reduce our sales. OUR CUSTOMERS MAY CANCEL THEIR ORDERS, CHANGE PRODUCTION QUANTITIES OR DELAY PRODUCTION. Electronics manufacturing service providers must provide increasingly rapid product turnaround for their customers. We generally do not obtain firm, long-term purchase commitments from our customers and we continue to experience reduced lead-times in customer orders. Customers may cancel their orders, change production quantities or delay production for a number of reasons. Cancellations, reductions or delays by a significant customer or by a group of customers would seriously harm our results of operations. In addition, we make significant decisions, including determining the levels of business that we will seek and accept, production schedules, component procurement commitments, personnel needs and other resource requirements, based on our estimates of customer requirements. The short-term nature of our customers' commitments and the possibility of rapid changes in demand for their products reduces our ability to estimate accurately future customer requirements. On occasion, customers may require rapid increases in production, which can stress our resources and reduce margins. Although we have increased our manufacturing capacity, and plan further increases, we may not have sufficient capacity at any given time to meet our customers' demands. In addition, because many of our costs and operating expenses are relatively fixed, a reduction in customer demand could harm our gross margins and operating income. WE ARE DEPENDENT ON THE CONTINUING TREND OF OUTSOURCING BY OEM'S. A substantial factor in our revenue growth is attributable to the transfer of manufacturing and supply base management activities from our OEM customers. Future growth is partially dependent on new outsourcing opportunities. To the extent that these opportunities are not available, our future growth would be unfavorably impacted. These outsourcing opportunities may include the transfer or assets such as facilities, equipment and inventory. OUR OPERATING RESULTS VARY SIGNIFICANTLY. We experience significant fluctuations in our results of operations. The factors which contribute to fluctuations include: - - the timing of customer orders; - - the volume of these orders relative to our capacity; - - market acceptance of customers' new products; 22 23 - - changes in demand for customers' products and product obsolescence; - - our ability to manage the timing and amount of our procurement of components to avoid delays in production and excess inventory levels; - - the timing of our expenditures in anticipation of future orders; - - our effectiveness in managing manufacturing processes; - - changes in the cost and availability of labor and components; - - changes in our product mix; - - changes in economic conditions; - - local factors and events that may affect our production volume, such as local holidays; and - - seasonality in customers' product requirements. One of our significant end-markets is the consumer electronics market. This market exhibits particular strength towards the end of the calendar year in connection with the holiday season. As a result, we have historically experienced relative strength in revenues in our third fiscal quarter. THE MAJORITY OF OUR SALES COMES FROM A SMALL NUMBER OF CUSTOMERS; IF WE LOSE ANY OF THESE CUSTOMERS, OUR SALES COULD DECLINE SIGNIFICANTLY. Sales to our five largest customers have represented a significant percentage of our net sales in recent periods. Our five largest customers in the first six months of fiscal 2001 and 2000 accounted for approximately 41% and 38% of net sales, respectively. Our largest customer during the first six months of fiscal 2001 was Ericsson accounting for approximately 10% of net sales. No other customers accounted for more than 10% of net sales in the six months ended September 30, 2000. The identity of our principal customers have varied from year to year, and our principal customers may not continue to purchase services from us at current levels, if at all. Significant reductions in sales to any of these customers, or the loss of major customers, would seriously harm our business. If we are not be able to timely replace expired, canceled or reduced contracts with new business, our revenues would be harmed. WE DEPEND ON THE ELECTRONICS INDUSTRY WHICH CONTINUALLY PRODUCES TECHNOLOGICALLY ADVANCED PRODUCTS WITH SHORT LIFE CYCLES; OUR INABILITY TO CONTINUALLY MANUFACTURE SUCH PRODUCTS ON A COST-EFFECTIVE BASIS WOULD HARM OUR BUSINESS. Factors affecting the electronics industry in general could seriously harm our customers and, as a result, us. These factors include: - - the inability of our customers to adapt to rapidly changing technology and evolving industry standards, which results in short product life cycles; - - the inability of our customers to develop and market their products, some of which are new and untested, the potential that our customers' products may become obsolete or the failure of our customers' products to gain widespread commercial acceptance; and - - recessionary periods in our customers' markets. If any of these factors materialize, our business would suffer. 23 24 OUR INDUSTRY IS EXTREMELY COMPETITIVE. The electronics manufacturing services industry is extremely competitive and includes hundreds of companies, several of which have achieved substantial market share. Current and prospective customers also evaluate our capabilities against the merits of internal production. Some of our competitors, have substantially greater market share, and manufacturing, financial, and marketing resources than us. In recent years, many participants in the industry, including us, have substantially expanded their manufacturing capacity. If overall demand for electronics manufacturing services should decrease, this increased capacity could result in substantial pricing pressures, which could seriously harm our operating results. OUR CUSTOMERS MAY BE ADVERSELY AFFECTED BY RAPID TECHNOLOGICAL CHANGE. Our customers compete in markets that are characterized by rapidly changing technology, evolving industry standards and continuous improvement in products and services. These conditions frequently result in short product life cycles. Our success will depend largely on the success achieved by our customers in developing and marketing their products. If technologies or standards supported by our customers' products become obsolete or fail to gain widespread commercial acceptance, our business could be adversely affected. WE ARE SUBJECT TO THE RISK OF INCREASED TAXES. We have structured our operations in a manner designed to maximize income in countries where (1) tax incentives have been extended to encourage foreign investment or (2) income tax rates are low. We base our tax position upon the anticipated nature and conduct of our business and upon our understanding of the tax laws of the various countries in which we have assets or conduct activities. However, our tax position is subject to review and possible challenge by taxing authorities and to possible changes in law which may have retroactive effect. We cannot determine in advance the extent to which some jurisdictions may require us to pay tax or make payments in lieu of tax. Several countries in which we are located allow for tax holidays or provide other tax incentives to attract and retain business. We have obtained holidays or other incentives where available. Our taxes could increase if certain tax holidays or incentives are not renewed upon expiration, or tax rates applicable to us in such jurisdictions are otherwise increased. In addition, further acquisitions of businesses may cause our effective tax rate to increase. WE CONDUCT OPERATIONS IN A NUMBER OF COUNTRIES AND ARE SUBJECT TO RISKS OF INTERNATIONAL OPERATIONS. The geographical distances between Asia, the Americas and Europe create a number of logistical and communications challenges. Our manufacturing operations are located in a number of countries, including Austria, Brazil, China, the Czech Republic, Denmark, Finland, France, Germany, Holland, Hungary, Ireland, Italy, Malaysia, Mexico, Norway, Scotland, Sweden, Switzerland, Taiwan, Thailand, the United Kingdom and the United States. As a result, we are affected by economic and political conditions in those countries, including: - - fluctuations in the value of currencies; - - changes in labor conditions; - - longer payment cycles; 24 25 - - greater difficulty in collecting accounts receivable; - - the burdens and costs of compliance with a variety of foreign laws; - - political and economic instability; - - increases in duties and taxation; - - imposition of restrictions on currency conversion or the transfer of funds; - - limitations on imports or exports; - - expropriation of private enterprises; and - - a potential reversal of current tax or other policies encouraging foreign investment or foreign trade by our host countries. The attractiveness of our services to our U.S. customers can be affected by changes in U.S. trade policies, such as "most favored nation" status and trade preferences for some Asian nations. In addition, some countries in which we operate, such as Brazil, Mexico and Malaysia, have experienced periods of slow or negative growth, high inflation, significant currency devaluations and limited availability of foreign exchange. Furthermore, in countries such as Mexico and China, governmental authorities exercise significant influence over many aspects of the economy, and their actions could have a significant effect on us. Finally, we could be seriously harmed by inadequate infrastructure, including lack of adequate power and water supplies, transportation, raw materials and parts in countries in which we operate. WE ARE SUBJECT TO RISKS OF CURRENCY FLUCTUATIONS AND HEDGING OPERATIONS. A significant portion of our business is conducted in the European euro, the Swedish krona and the Brazilian real. In addition, some of our costs, such as payroll and rent, are denominated in currencies such as the Austrian schilling, the British pound, the Chinese renminbi, the German deutsche mark, the Hong Kong dollar, the Hungarian forint, the Irish pound, the Malaysian ringgit, the Mexican peso and the Singapore dollar, as well as the euro, the krona and the real. In recent years, the Hungarian forint, Brazilian real and Mexican peso have experienced significant devaluations. Changes in exchange rates between these and other currencies and the U.S. dollar will affect our cost of sales, operating margins and revenues. We cannot predict the impact of future exchange rate fluctuations. We use financial instruments, primarily forward purchase contracts, to hedge Japanese yen, European euro, U.S. dollar and other foreign currency commitments arising from trade accounts payable and fixed purchase obligations. Because we hedge only fixed obligations, we do not expect that these hedging activities will harm our results of operations or cash flows. However, our hedging activities may be unsuccessful, and we may change or reduce our hedging activities in the future. As a result, we may experience significant unexpected expenses from fluctuations in exchange rates. WE DEPEND ON OUR KEY PERSONNEL. Our success depends to a large extent upon the continued services of our key executives, managers and skilled personnel. Generally our employees are not bound by employment or non-competition agreements, and we cannot assure that we will retain our key officers and employees. We could be seriously harmed by the loss of key personnel. In addition, in order to manage our growth, we will need to recruit and retain additional skilled management personnel and if we are not able to do so, our business and our ability to continue to grow could be harmed. WE ARE SUBJECT TO ENVIRONMENTAL COMPLIANCE RISKS. We are subject to various federal, state, local and foreign environmental laws and regulations, including those governing the use, storage, discharge and disposal of hazardous substances in the ordinary course of our manufacturing process. In addition, we are responsible for cleanup of contamination at some of our current and former manufacturing facilities and at some third party sites. If more stringent compliance or cleanup standards under environmental laws or regulations are imposed, or the results of future testing and analyses at our current or former operating facilities indicate that we are responsible for the release of hazardous substances, we may be subject to additional remediation liability. Further, additional environmental matters may arise in the future at sites where no problem is currently known 25 26 or at sites that we may acquire in the future. Currently unexpected costs that we may incur with respect to environmental matters may result in additional loss contingencies, the quantification of which cannot be determined at this time. PART II - OTHER INFORMATION ITEMS 1-3. Not Applicable ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS We held our Annual General Meeting of shareholders on September 21, 2000, at which the following matters were acted upon:
1a) Re-election of Mr. Michael J. Moritz to the Board of Directors. For: 136,271,082 Against: 289,535 1b) Re-election of Mr. Patrick Foley to the Board of Directors. For: 136,277,244 Against: 283,373 2) Adoption of the directors' report, auditors' report and audited accounts for the fiscal year ended For: 136,280,357 March 31, 2000. Against: 25,659 Abstain: 254,601 3) Appointment of Arthur Andersen as our independent auditors for the fiscal year ended March 31, For: 136,303,883 2001. Against: 62,135 Abstain: 194,599 4) Approval of the increase in our authorized share capital to 1,500,000,000 ordinary shares. For: 127,469,945 Against: 8,803,066 Abstain: 287,606 5) Approval of an amendment to our 1993 Share Option Plan relating to the increase in the maximum For: 108,954,208 number of shares authorized for issuance to 25,400,000 ordinary shares and approval of Against: 27,105,041 certain modifications to the 1993 Share Option Plan. Abstain: 501,368 6) Approval of an amendment to our 1997 Employee Share Purchase Plan relating to the increase in For: 135,167,639 the maximum number of shares authorized for issuance to 1,200,000 ordinary shares. Against: 917,781 Abstain: 475,197 7) Approval of grant to the Board of Directors of authority to allot and issue or grant options in For: 134,784,300 respect of ordinary shares. Against: 1,136,150 Abstain: 640,167 8) Approval of grant to the Board of Directors of authority to allot and issue bonus share issuances. For: 135,298,974 Against: 881,811 Abstain: 379,832
26 27 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 2.01 Agreement and Plan of Reorganization dated July 31, 2000 among the Registrant, Chatham Acquisition Corporation, and Chatham Technologies, Inc. Certain schedules have been omitted. The Registrant agrees to furnish supplementally a copy of any omitted schedule to the Commission upon request. (Incorporated by reference to Exhibit 2.1 of the Registrant's Current Report on Form 8-K for the event reported on September 15, 2000.) 2.02 Merger Agreement dated August 10, 2000 among the Registrant, JIT Holdings Limited, Goh Thiam Poh Tommie and Goh Mui Teck William, as amended. (Incorporated by reference to Exhibit 2.4 of the Registrant's Registration Statement on Form S-3, number 333-46770, filed September 27, 2000.) 10.01 Credit Agreement dated as of June 15, 2000 among Flextronics International USA, Inc., The DII Group, Inc., the lenders named in Schedule I to the Credit Agreement, ABN AMRO Bank N.V. as agent for the lenders, Fleet National Bank, as documentation agent, Bank of America, National Association and Citicorp USA, Inc. as managing agents, and The Bank of Nova Scotia as co-agent (certain disclosure schedules have been omitted and will be provided to the Securities and Exchange Commission upon request). 27.01 Financial Data Schedule (b) Reports on Form 8-K On September 15, 2000 we filed a current report on Form 8-K, including the Agreement and Plan of Merger, relating to the completion of our acquisition of Chatham Technologies, Inc. On September 20, 2000, we filed a current report on Form 8-K, including the supplemental consolidated financial statements prepared to give retroactive effect to the mergers with Chatham Technologies, Inc. and Lightning Metal Specialities, Inc., both completed on August 31, 2000. On September 20, 2000, we filed a current report on Form 8-K including our consolidated financial statements as of March 31, 1999 and 2000 and for each of the three years in the period ended March 31, 2000, giving retroactive effect to the mergers with The DII Group, Inc. and with Palo Alto Products International, Pte. Ltd. 27 28 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. FLEXTRONICS INTERNATIONAL LTD. (Registrant) Date: November 13, 2000 /s/ ROBERT R.B. DYKES ------------------------------------ Robert R.B. Dykes President, Systems Group and Chief Financial Officer (principal financial and accounting officer) 28 29
EXHIBIT INDEX EXHIBIT NO. DESCRIPTION ------- ----------- 2.01 Agreement and Plan of Reorganization dated July 31, 2000 among the Registrant, Chatham Acquisition Corporation, and Chatham Technologies, Inc. Certain schedules have been omitted. The Registrant agrees to furnish supplementally a copy of any omitted schedule to the Commission upon request. (Incorporated by reference to Exhibit 2.1 of the Registrant's Current Report on Form 8-K for the event reported on September 15, 2000.) 2.02 Merger Agreement dated August 10, 2000 among the Registrant, JIT Holdings Limited, Goh Thiam Poh Tommie and Goh Mui Teck William, as amended. (Incorporated by reference to Exhibit 2.4 of the Registrant's Registration Statement on Form S-3, number 333-46770, filed September 27, 2000.) 10.01 Credit Agreement dated as of June 15, 2000 among Flextronics International USA, Inc., The DII Group, Inc., the lenders named in Schedule I to the Credit Agreement, ABN AMRO Bank N.V. as agent for the lenders, Fleet National Bank, as documentation agent, Bank of America, National Association and Citicorp USA, Inc. as managing agents, and The Bank of Nova Scotia as co-agent (certain disclosure schedules have been omitted and will be provided to the Securities and Exchange Commission upon request). 27.01 Financial Data Schedule
EX-10.01 2 f67144ex10-01.txt EXHIBIT 10.01 1 EXHIBIT 10.01 AMENDMENT TO CREDIT AGREEMENT THIS AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of June 15, 2000, is entered into by and among: (1) FLEXTRONICS INTERNATIONAL USA, INC., a California corporation, and The DII Group, Inc., a Delaware corporation (together, "Borrowers"); (2) Each of the financial institutions currently listed in Schedule I to the Credit Agreement referred to in Recital A below (collectively, the "Lenders"); and (3) ABN AMRO BANK N.V., as agent for the Lenders (in such capacity, "Agent"). RECITALS A. Borrowers, the Lenders, Agent, Fleet National Bank, as documentation agent for Lenders, Bank of America, National Association and Citicorp USA, Inc., as managing agents, and The Bank of Nova Scotia, as co-agent, are parties to a Credit Agreement dated as of April 3, 2000 (the "Credit Agreement"). B. Borrowers have requested the Lenders and Agent to amend the Credit Agreement in certain respects. C. The Lenders executing this Amendment and Agent are willing so to amend the Credit Agreement and to provide such consent upon the terms and subject to the conditions set forth below. AGREEMENT NOW, THEREFORE, in consideration of the above recitals and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Borrowers, the Lenders and Agent hereby agree as follows: 1. DEFINITIONS, INTERPRETATION. All capitalized terms defined above and elsewhere in this Amendment shall be used herein as so defined. Unless otherwise defined herein, all other capitalized terms used herein shall have the respective meanings given to those terms in the Credit Agreement, as amended by this Amendment. The rules of construction set forth in Section I of the Credit Agreement shall, to the extent not inconsistent with the terms of this Amendment, apply to this Amendment and are hereby incorporated by reference. 2. AMENDMENTS TO CREDIT AGREEMENT. Subject to the satisfaction of the conditions set forth in paragraph 4 below, the Credit Agreement is hereby amended as follows: (a) Paragraph 5.02(a) is amended by changing clause (iv) thereof to read in its entirety as follows: (iv) Indebtedness of any Borrower to any other Borrower, FIL or any 2 Eligible Material Subsidiary or Indebtedness of any Eligible Material Subsidiary to any Borrower, FIL or any other Eligible Material Subsidiary, in each case to the extent otherwise permitted pursuant to Subparagraph 5.02(e) and Subparagraph 5.02(i); and (b) Paragraph 5.02(b) is amended by changing clause (i) thereof to read in its entirety as follows: (i) Liens that secure only Indebtedness which constitutes Permitted Indebtedness under clause (ii), (iii), (iv) or (v) of Subparagraph 5.02(a); (c) Paragraph 5.02(f) is amended by adding a new clause (iii) to read in its entirety as follows: (iii) Either Borrower may pay dividends to or repurchase its capital stock from such Borrower's parent. 3. REPRESENTATIONS AND WARRANTIES. Borrowers hereby represents and warrants to Agent and the Lenders that the following are true and correct on the date of this Amendment and that, after giving effect to the amendments set forth in paragraph 2, the following will be true and correct on the Effective Date (as defined below): (a) The representations and warranties of Borrowers set forth in Paragraph 4.01 of the Credit Agreement and in the other Credit Documents are true and correct in all material respects; (b) No Default or Event of Default has occurred and is continuing; and (c) Each of the Credit Documents is in full force and effect. (Without limiting the scope of the term "Credit Documents," Borrowers expressly acknowledge in making the representations and warranties set forth in this paragraph 3 that, on and after the date hereof, such term includes this Amendment.) 4. EFFECTIVE DATE. The amendments effected by paragraph 2 above shall become effective on June 15, 2000 (the "Effective Date"), subject to receipt by Agent and the Lenders on or prior to the Effective Date of the following, each in form and substance satisfactory to Agent, the Required Lenders and their respective counsel: (a) This Amendment duly executed by Borrowers and the Required Lenders; and (b) Such other evidence as Agent or any Lender may reasonably request to establish the accuracy and completeness of the representations and warranties and the compliance with the terms and conditions contained in this Amendment and the other Credit Documents. 5. EFFECT OF THIS AMENDMENT. On and after the Effective Date, each reference in 2 3 the Credit Agreement and the other Credit Documents to the Credit Agreement shall mean the Credit Agreement as amended hereby. Except as specifically amended above, (a) the Credit Agreement and the other Credit Documents shall remain in full force and effect and are hereby ratified and confirmed and (b) the execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power, or remedy of the Lenders or Agent, nor constitute a waiver of any provision of the Credit Agreement or any other Credit Document. 6. MISCELLANEOUS. (a) Counterparts. This Amendment may be executed in any number of identical counterparts, any set of which signed by all the parties hereto shall be deemed to constitute a complete, executed original for all purposes. (b) Headings. Headings in this Amendment are for convenience of reference only and are not part of the substance hereof. (c) Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of California without reference to conflicts of law rules. [The signature pages follow.] 3 4 IN WITNESS WHEREOF, Borrowers, Agent and the Lenders executing this Amendment have caused this Amendment to be executed as of the day and year first above written. BORROWER: FLEXTRONICS INTERNATIONAL USA, INC. By:_________________________________ Name:____________________________ Title:___________________________ BORROWER: THE DII GROUP, INC. By:_________________________________ Name:____________________________ Title:___________________________ AGENT: ABN AMRO BANK, N.V. By:_________________________________ Name:____________________________ Title:___________________________ By:_________________________________ Name:____________________________ Title:___________________________ LENDERS: ABN AMRO BANK, N.V., By:_________________________________ Name:____________________________ Title:___________________________ By:_________________________________ Name:____________________________ Title:___________________________ 4 5 FLEET NATIONAL BANK By:_________________________________ Name:____________________________ Title:___________________________ By:_________________________________ Name:____________________________ Title:___________________________ BANK OF AMERICA, NATIONAL ASSOCIATION By:_________________________________ Name:____________________________ Title:___________________________ By:_________________________________ Name:____________________________ Title:___________________________ CITICORP USA, INC. By:_________________________________ Name:____________________________ Title:___________________________ By:_________________________________ Name:____________________________ Title:___________________________ 5 6 THE BANK OF NOVA SCOTIA By:_________________________________ Name:____________________________ Title:___________________________ By:_________________________________ Name:____________________________ Title:___________________________ 6 EX-27.01 3 f67144ex27-01.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AS OF SEPTEMBER 30, 2000 (UNAUDITED) AND THE STATEMENTS OF INCOME FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS MAR-31-2001 APR-01-2000 SEP-30-2000 540,831 0 1,605,681 30,000 1,564,477 323,178 2,043,288 501,188 6,217,011 2,502,941 0 0 0 2,528 2,746,605 6,217,011 5,471,771 5,471,771 5,125,647 5,125,647 611,678 0 60,088 (325,642) (7,675) (317,967) 0 0 0 (317,967) (0.77) (0.77)
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