pre14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Soliciting Material Pursuant to §240.14a-12 |
FLEXTRONICS INTERNATIONAL LTD.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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the previous filing by registration statement number, or the Form or Schedule and the date of
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PRELIMINARY COPY
FLEXTRONICS INTERNATIONAL LTD.
(Incorporated in the Republic of Singapore)
(Company Registration Number 199002645H)
NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS
To Be Held on September 20, 2005
To our shareholders:
You are cordially invited to attend and NOTICE IS HEREBY GIVEN
of the Annual General Meeting of Shareholders of FLEXTRONICS
INTERNATIONAL LTD., which will be held at our principal
U.S. offices located at 2090 Fortune Drive, San Jose,
California, 95131, U.S.A., at 9:00 a.m., Pacific Daylight
Time (PDT), on September 20, 2005 for the following
purposes:
As Ordinary Business
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1. |
To re-elect each of the following Directors, who will retire by
rotation pursuant to Article 95 of our Articles of
Association, to the Board of Directors: |
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(a) |
Mr. James A. Davidson; and |
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(b) |
Mr. Lip-Bu Tan. |
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2. |
To re-appoint Mr. Patrick Foley as a Director to the Board
of Directors pursuant to Section 153(6) of the Singapore
Companies Act, Chapter 50, to hold such office from the
date of this Annual General Meeting until our next Annual
General Meeting. |
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3. |
To consider and vote upon a proposal to re-appoint
Deloitte & Touche LLP as our independent auditors for
the fiscal year ending March 31, 2006 and to authorize the
Board of Directors to fix their remuneration. |
As Special Business
4. To pass the following resolution as an Ordinary
Resolution:
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RESOLVED THAT, pursuant to the provisions of
Section 161 of the Singapore Companies Act, Cap. 50, and
notwithstanding the provisions of Article 46 of our
Articles of Association but subject otherwise to the provisions
of that Act and our Articles of Association, authority be and is
hereby given to our Directors to: |
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(a) (i) |
allot and issue ordinary shares in our capital; and/or |
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(ii) |
make or grant offers, agreements or options that might or would
require ordinary shares in our capital to be allotted and issued
whether after the expiration of this authority or otherwise
(including but not limited to the creation and issue of
warrants, debentures or other instruments convertible into
ordinary shares in our capital), |
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at any time to and/or with such persons and upon such terms and
conditions and for such purposes as our Directors may in their
absolute discretion deem fit, and with such rights or
restrictions as our Directors may think fit to impose and as are
set forth in our Articles of Association aforesaid; and |
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(notwithstanding the authority conferred by this resolution may
have ceased to be in force) allot and issue ordinary shares in
our capital in pursuance of any offer, agreement or option made
or granted by our Directors while this resolution was in force, |
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and that such authority shall continue in force until the
conclusion of our next Annual General Meeting or the expiration
of the period within which our next Annual General Meeting is
required by law to be held, whichever is the earlier. |
5. To pass the following resolution as an Ordinary
Resolution:
RESOLVED THAT, approval be and is hereby given for
us to provide:
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(a) |
$10,000 of quarterly cash compensation to each of our
non-employee Directors for services rendered as a director; |
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an additional $2,500 of quarterly cash compensation to the
Chairman of the Audit Committee (if appointed) of the Board of
Directors for services rendered as Chairman of the Audit
Committee and for his or her participation on the Audit
Committee; and |
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an additional $1,250 of quarterly cash compensation to each of
our non-employee Directors for their participation on each
committee of the Board of Directors on which such Director
serves. |
6. To pass the following resolution as an Ordinary
Resolution:
RESOLVED THAT:
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for the purposes of Sections 76C and 76E of the Singapore
Companies Act, Cap. 50 (the Companies Act) and
subject to the provisions of Applicable Laws from time to time
in force, the exercise by our Directors of all our powers to
purchase or otherwise acquire issued ordinary shares of S$0.01
each fully paid in our capital, not exceeding in aggregate the
number of issued ordinary shares representing 10% of our issued
ordinary share capital as at the date of the passing of this
resolution, at such price or prices as may be determined by our
Directors from time to time up to the maximum purchase price
described in paragraph (c) below, whether by way of: |
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market purchases on the NASDAQ National Market or any other
stock exchange on which our ordinary shares may for the time
being be listed and quoted; and/or |
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off-market purchases (if effected other than on the NASDAQ
National Market or, as the case may be, any other stock exchange
on which our ordinary shares may for the time being be listed
and quoted) in accordance with any equal access scheme(s) as may
be determined or formulated by our Directors as they consider
fit, which scheme(s) shall satisfy all the conditions prescribed
by the Companies Act, |
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and otherwise in accordance with all other laws and regulations
and rules of the NASDAQ National Market or, as the case may be,
any other stock exchange on which our ordinary shares may for
the time being be listed and quoted as may for the time being be
applicable, be and is hereby authorized and approved generally
and unconditionally; |
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subject to Applicable Laws from time to time in force, unless
varied or revoked by our shareholders in a general meeting, the
authority conferred on our Directors pursuant to the mandate
contained in paragraph (a) above may be exercised by
our Directors at any time and from time to time during the
period commencing from the date of the passing of this
resolution and expiring on the earlier of: |
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the date on which our next Annual General Meeting is
held; or |
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the date by which our next Annual General Meeting is required by
law to be held; |
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subject to Applicable Laws from time to time in force, the
maximum purchase price (excluding brokerage, commission,
applicable goods and services tax and other related expenses)
which may |
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be paid for an ordinary share purchased or acquired by us
pursuant to the mandate contained in
paragraph (a) above shall not exceed: |
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in the case of a market purchase of an ordinary share, one
hundred and five percent (105%) of the Average Closing Price of
our ordinary shares; and |
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in the case of an off-market purchase pursuant to an equal
access scheme, one hundred and ten percent (110%) of the Average
Closing Price of our ordinary shares, |
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and for the above purposes, the term Average Closing Price means
the average of the last dealt prices of an ordinary share for
the five consecutive trading days on which our ordinary shares
are transacted on the NASDAQ National Market or, as the case may
be, any other stock exchange on which our ordinary shares may
for the time being be listed and quoted, immediately preceding
the date of the market purchase by us or, as the case may be,
the date of the making of the offer pursuant to the off-market
purchase. The date of the making of the offer refers to the date
on which we announce our intention to make an offer for the
purchase or acquisition of our ordinary shares from holders of
our ordinary shares, stating therein the purchase price (which
shall not be more than the maximum purchase price calculated on
the foregoing basis) for each ordinary share and the relevant
terms of the equal access scheme for effecting the off-market
purchase; and |
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our Directors and/or any of them be and are hereby authorized to
complete and do all such acts and things (including executing
such documents as may be required) as they and/or he may
consider expedient or necessary to give effect to the
transactions contemplated and/or authorized by this resolution,
and the source of funds for any purchase or acquisition of
ordinary shares shall be as authorized or permitted under
Applicable Laws. |
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For the purposes of the resolutions above, the term
Applicable Laws shall mean the Companies Act or any
statutory modification, amendment or re-enactment thereof from
time to time in force and any and every other act or regulation
of the Republic of Singapore from time to time in force
concerning companies and affecting us |
7. To transact any other business as may properly be
transacted at any Annual General Meeting.
iii
Notes
At the 2005 Annual General Meeting, our shareholders shall have
the opportunity to discuss and ask any questions that they may
have regarding our Singapore audited accounts for the fiscal
year ended March 31, 2005, together with the reports of the
Directors and Auditors thereon, in compliance with Singapore
law. Shareholder approval of our audited accounts is not being
sought by this Proxy Statement and will not be sought at the
2005 Annual General Meeting. The Board of Directors has fixed
the close of business on July 29, 2005 as the record date
for determining those shareholders who will be entitled to
receive copies of this Notice and accompanying proxy statement.
However, shareholders of record on September 20, 2005 will
be entitled to vote at the 2005 Annual General Meeting. A
shareholder entitled to attend and vote at the 2005 Annual
General Meeting is entitled to appoint a proxy to attend and
vote on his or her behalf. A proxy need not also be a
shareholder. Representation of at least
331/3%
of all outstanding ordinary shares of Flextronics International
Ltd. is required to constitute a quorum. Accordingly, it is
important that your shares be represented at the 2005 Annual
General Meeting. Whether or not you plan to attend the
meeting, please complete, date and sign the enclosed proxy card
and return it in the enclosed envelope. A proxy card must be
received not less than 48 hours before the time appointed
for holding the 2005 Annual General Meeting. Your proxy may be
revoked at any time prior to the time it is voted.
Only funds legally available for purchasing or acquiring our
issued ordinary shares in accordance with our Articles of
Association and the applicable laws of Singapore will be used
for the purchase or acquisition by us of our own issued ordinary
shares pursuant to the proposed renewal of the Share Purchase
Mandate referred to in Proposal No. 6. We intend to
use our internal sources of funds to finance the purchase or
acquisition of our issued ordinary shares. The amount of
financing required for us to purchase or acquire our issued
ordinary shares, and the impact on our financial position,
cannot be ascertained as of the date of this Notice, as these
will depend on the number of ordinary shares purchased or
acquired and the price at which such ordinary shares are
purchased or acquired. Our net tangible assets and the
consolidated net tangible assets of us and our subsidiaries will
be reduced by the purchase price of any ordinary shares
purchased or acquired. We do not anticipate that the purchase or
acquisition of our ordinary shares in accordance with the Share
Purchase Mandate would have a material impact on our
consolidated earnings for the current financial year.
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By Order of the Board of Directors, |
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Bernard Liew Jin Yang |
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Yap Lune Teng |
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Joint Secretaries |
Singapore
August , 2005
Shareholders should read this entire proxy statement
carefully prior to returning their proxy cards.
iv
TABLE OF CONTENTS
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v
The information contained under the captions
Compensation Committee Report on Executive
Compensation, Audit Committee Report and
Stock Price Performance Graph shall not be deemed to
be soliciting material or to be filed
with the U.S. Securities and Exchange Commission, which we
refer to as the SEC, nor shall such information be incorporated
by reference into any future filing under the
U.S. Securities Act of 1933, as amended, which we refer to
as the Securities Act, or the U.S. Securities Exchange Act
of 1934, as amended, which we refer to as the Exchange Act, or
subject to the liabilities of Section 18 of the Exchange
Act, except to the extent that we specifically incorporate this
information by reference into such filing.
vi
PRELIMINARY COPY
PROXY STATEMENT FOR
THE 2005 ANNUAL GENERAL MEETING OF
SHAREHOLDERS OF
FLEXTRONICS INTERNATIONAL LTD.
To Be Held on September 20, 2005
This Proxy Statement is furnished in connection with the
solicitation by the Board of Directors of Flextronics
International Ltd. of proxies to be voted at the 2005 Annual
General Meeting, which will be held at 9:00 a.m., Pacific
Daylight Time (PDT), on September 20, 2005 at our principal
U.S. executive offices located at 2090 Fortune Drive,
San Jose, California, 95131, U.S.A. or at any adjournments
or postponements thereof, for the purposes set forth in the
accompanying Notice of Annual General Meeting. This Proxy
Statement and the enclosed proxy card were first mailed on or
about August , 2005 to
shareholders of record as of July 29, 2005. The entire cost
of soliciting proxies will be borne by us. Following the
original mailing of the proxies and other soliciting materials,
we and/or our agents may also solicit proxies by mail,
telephone, telegraph or in person. Following the original
mailing of the proxies and other soliciting materials, we will
request that brokers, custodians, nominees and other record
holders of our ordinary shares forward copies of the proxy and
other soliciting materials to persons for whom they hold
ordinary shares and request authority for the exercise of
proxies. In these cases, we will reimburse the record holders
for their reasonable expenses if they ask us to do so. We have
retained Georgeson Shareholder Services, an independent proxy
solicitation firm, to assist in soliciting proxies at an
estimated fee of $7,500.00, plus reimbursement of reasonable
expenses. The mailing address of our principal executive offices
is One Marina Boulevard, #28-00, Singapore 018989.
VOTING RIGHTS AND SOLICITATION OF PROXIES
The close of business on July 29, 2005 was the record date
for shareholders entitled to notice of the 2005 Annual General
Meeting. As of that date, we
had ordinary
shares, S$0.01 par value per share, issued and outstanding.
All of the ordinary shares issued and outstanding on
September 20, 2005 are entitled to be voted at the 2005
Annual General Meeting, and shareholders of record on
September 20, 2005 entitled to vote at the meeting will on
a poll have one vote for each ordinary share so held on the
matters to be voted upon.
Ordinary shares represented by proxies in the accompanying form
which are properly executed and returned to us will be voted at
the 2005 Annual General Meeting in accordance with the
shareholders instructions contained therein.
Representation of at least
331/3%
of all issued and outstanding ordinary shares is required to
constitute a quorum. The affirmative vote by a show of hands of
a majority of the shareholders present and voting at the 2005
Annual General Meeting, or if a poll is demanded by the chair or
by any 10% or greater shareholder in accordance with our
Articles of Association, a simple majority of the shares voting
at the 2005 Annual General Meeting, is required to re-elect and
re-appoint the Directors nominated pursuant to Proposals
No. 1 and 2, to re-appoint Deloitte & Touche
LLP as our independent auditors and authorize our Board of
Directors to fix their remuneration pursuant to
Proposal No. 3, and to approve the ordinary
resolutions contained in Proposals No. 4 through 6.
If a shareholder abstains from voting, including brokers holding
their customers shares of record who cause abstentions to
be recorded, these shares are considered present and entitled to
be voted at the 2005 Annual General Meeting. These shares will
count toward determining whether or not a quorum is present.
However, these shares will not be counted in the tabulation of
the votes cast on proposals presented to shareholders. If a
shareholder does not give a proxy to its broker with
instructions as to how to vote the shares, the broker has
authority under New York Stock Exchange rules to vote those
shares for or against certain routine matters,
including all of the proposals to be voted on at the 2005 Annual
General Meeting. If a
broker or nominee indicates on the proxy card that it does not
have discretionary authority to vote as to a particular matter,
those shares will not be counted in the tabulation of the votes
cast on proposals presented to shareholders.
In the absence of contrary instructions, shares represented by
proxies will be voted FOR the Board nominees in Proposals
No. 1 and 2 and FOR Proposals No. 3 through 6.
Management does not know of any matters to be presented at the
2005 Annual General Meeting other than those set forth in this
Proxy Statement and in the Notice accompanying this Proxy
Statement. If other matters should properly come before the
meeting, the proxy holders will vote on such matters in
accordance with their best judgment.
Any shareholder of record has the right to revoke his or her
proxy at any time prior to voting at the 2005 Annual General
Meeting by (i) submitting a subsequently dated proxy or
(ii) by attending the meeting and voting in person.
We have prepared, in accordance with Singapore law, Singapore
statutory financial statements, which are enclosed with this
Proxy Statement. Except as otherwise stated herein, all monetary
amounts in this Proxy Statement have been presented in
U.S. dollars.
PROPOSALS NO. 1 AND 2:
RE-ELECTION AND RE-APPOINTMENT OF DIRECTORS
Under Article 95 of our Articles of Association, at each
Annual General Meeting, at least one-third of the Directors, or,
if their number is not a multiple of three, then the number
nearest to but not less than one-third of the Directors, are
required to retire from office. The Directors required to retire
in each year are those who have been in office longest since
their last re-election or appointment. As between persons who
became or were last re-elected Directors on the same day, those
required to retire are (unless they otherwise agree among
themselves) determined by lot. Retiring Directors are eligible
for re-election. Mr. Davidson and Mr. Tan are the
members of the Board of Directors who will retire by rotation in
the manner stated above. They are both eligible for re-election
and have been nominated to stand for re-election at the 2005
Annual General Meeting.
Under Section 153(2) of the Singapore Companies Act, Cap.
50, which we refer to as the Companies Act, the office of a
director of a public company or of a subsidiary of a public
company becomes vacant at the conclusion of the annual general
meeting commencing next after such director attains the age of
70 years. However, under Section 153(6) of the
Companies Act, a person 70 years old or older may, by
ordinary resolution be appointed or re-appointed as a director
of that company to hold office until the next annual general
meeting of shareholders of the company or be authorized to
continue in office as a director until the next annual general
meeting of shareholders of the company. Mr. Foley turned 73
in February 2005, and, under Singapore law, his office as a
Director will become vacant at the conclusion of the 2005 Annual
General Meeting. Mr. Foley was re-appointed as a Director
at the 2004 Annual General Meeting, pursuant to
Section 153(6) of the Companies Act. Accordingly, it is
proposed that a resolution be passed at the 2005 Annual General
Meeting, pursuant to Section 153(6) of the Companies Act,
to re-appoint Mr. Foley as a Director to hold office from
the date of the 2005 Annual General Meeting until the 2006
Annual General Meeting.
The proxy holders intend to vote all proxies received by them in
the accompanying form for the nominees for Directors listed
below. In the event that any nominee is unable or declines to
serve as a director at the time of the 2005 Annual General
Meeting, the proxies will be voted for any nominee who shall be
designated by the present Board of Directors, in accordance with
Article 100 of our Articles of Association, to fill the
vacancy. As of the date of this Proxy Statement, the Board of
Directors is not aware of any nominee who is unable or will
decline to serve as a Director.
Nominees to Our Board of Directors
Set forth below are the names and ages as of the date of this
Proxy Statement of, and certain information regarding, each of
the nominees for the 2005 Annual General Meeting.
2
James A. Davidson (age 46)
Mr. Davidson has served as a member of our Board of
Directors since March 2003. He is a founder and managing
director of Silver Lake Partners, a private equity investment
firm. From June 1990 to November 1998, he was an investment
banker with Hambrecht & Quist, most recently serving as
Managing Director and Head of Technology Investment Banking.
From 1984 to 1990, Mr. Davidson was a corporate and
securities lawyer with Pillsbury, Madison & Sutro.
Currently, Mr. Davidson serves on the board of Seagate
Technology, as well as a number of private companies. He
received a B.S. from the University of Nebraska and J.D. from
the University of Michigan.
Lip-Bu Tan (age 45) Mr. Tan has
served as a member of our Board of Directors since March 2003.
In 1987, he founded and since that time has served as Chairman
of Walden International, a venture capital fund. Mr. Tan
currently serves on the boards of Cadence Design Systems, Inc.,
Centillium Communications, Inc., Creative Technology Ltd.,
Integrated Silicon Solution, Inc., Leadis Technology, Inc.,
Semiconductor Manufacturing International Corporation and SINA
Corporation, as well as a number of private companies.
Mr. Tan received an M.S. in Nuclear Engineering from the
Massachusetts Institute of Technology, an M.B.A. from the
University of San Francisco, and a B.S. from Nanyang
University in Singapore.
Patrick Foley (age 73) Mr. Foley
has served as a member of our Board of Directors since October
1997. Mr. Foley served in various positions with DHL
Corporation and its major subsidiary, DHL Airways, Inc., a
global document, package and airfreight delivery company from
September 1988 to 2001, most recently as its Chairman, President
and Chief Executive Officer. He also serves as a director of
Health Net, Inc. and Glenborough Realty Trust Incorporated, as
well as several private companies.
Directors Not Standing for Re-Election
Set forth below are the names and ages as of the date of this
Proxy Statement of, and certain information regarding, each of
the Directors who are not standing for re-election at the 2005
Annual General Meeting.
Richard L. Sharp (age 58) Mr. Sharp
has served as a member of our Board of Directors since July 1993
and as Chairman of our Board since January 2003. Mr. Sharp
will continue to serve as a Director upon Mr. Marks
becoming the Chairman of our Board on January 31, 2006.
Mr. Sharp served in various positions with Circuit City
Stores, Inc., a consumer electronics and personal computer
retailer, from 1982 to 2002, most recently as President from
1984 to 1997, Chief Executive Officer from 1986 to 2000 and
Chairman of the Board from 1994 to 2002. Mr. Sharp is the
Chairman of the Board of CarMax, Inc.
Michael E. Marks (age 54) Mr. Marks
has served as our Chief Executive Officer since January 1994. He
has served as a member of our Board of Directors since December
1991, and he has been appointed by our Board of Directors to
serve as Chairman of our Board effective upon his retirement as
Chief Executive Officer on January 31, 2006. He previously
served as Chairman of our Board from July 1993 to January 2003.
Mr. Marks serves on the boards of KLA-Tencor Corporation,
SanDisk Corporation, Schlumberger Limited (Schlumberger N.V.)
and Western Brands, LLC. He received a B.A. and an M.A. from
Oberlin College and an M.B.A. from Harvard Business School.
Michael J. Moritz (age 50)
Mr. Moritz has served as a member of our Board of Directors
since July 1993. Since 1988, he has been a General Partner of
Sequoia Capital, a venture capital firm. Mr. Moritz also
serves as a director of Saba Software, Inc., Google Inc. and
several privately-held companies, as well as Chairman of the
Board of RedEnvelope, Inc. Mr. Moritz received an M.A. from
Christ Church, University of Oxford.
The Board recommends a vote FOR
the re-election of Mr. Davidson and Mr. Tan
and the re-appointment of Mr. Foley to the Board of
Directors.
Our Board and Meetings
Under our Articles of Association, the Board of Directors is
vested with general powers to manage our business. The Board
oversees and provides policy guidance on our strategic and
business planning processes.
3
The Board also oversees the conduct of our business by senior
management and is principally responsible for the succession
planning for our key executives, including our Chief Executive
Officer.
The Board has determined that each of our Directors is an
independent director as defined by the applicable rules of the
NASDAQ Stock Market other than Mr. Marks, who currently
serves as our Chief Executive Officer.
Our Board of Directors held a total of 40 meetings during fiscal
year 2005, of which six were regularly scheduled meetings and 34
were administrative meetings. During the period for which each
current director was a director or a committee member, all
Directors attended at least 75% of the aggregate of the total
number of regularly scheduled meetings of our Board together
with the total number of meetings held by all committees of our
Board on which he served. Only Mr. Marks and
Mr. Moritz attended 75% of the aggregate of the total
number of administrative meetings of our Board. During fiscal
year 2005, our non-employee Directors met at regularly scheduled
executive sessions without management participation. At these
executive sessions, Mr. Sharp acted as the presiding
non-employee Director. Our Board has adopted a policy that
encourages each Director to attend the Annual General Meeting,
but attendance is not required. Mr. Marks attended the 2004
Annual General Meeting.
Board Committees and Meetings
The Board of Directors currently has an Audit Committee, a
Compensation Committee, a Nominating and Corporate Governance
Committee and a Finance Committee. The table below provides
current membership for each of these committees for fiscal year
2005.
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Nominating and | |
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Corporate | |
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Audit | |
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Compensation | |
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Governance | |
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Committee | |
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Michael E. Marks
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James A. Davidson
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X |
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Patrick Foley
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X |
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Michael J. Moritz
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X |
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Richard L. Sharp
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Lip-Bu Tan
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The Audit Committee is currently composed of Mr. Foley,
Mr. Moritz and Mr. Davidson, each of whom the Board
has determined to be an independent director and meets the
financial experience requirements under both the rules of the
SEC and the NASDAQ Stock Market listing standards. The Board has
also determined that Mr. Davidson is an audit
committee financial expert within the meaning of the rules
of the SEC and is financially sophisticated within
the meaning of the rules of the NASDAQ Stock Market. The Audit
Committee held four meetings during fiscal year 2005. The Audit
Committees principal functions are to (1) monitor and
evaluate periodic reviews of the adequacy of the accounting and
financial reporting processes and systems of internal control
that are conducted by our financial and senior management, and
our independent auditors; (2) be directly responsible for
the appointment, compensation and oversight of the work of our
independent auditors (including resolution of any disagreements
between our management and the auditors regarding financial
reporting); and (3) facilitate communication among our
independent auditors, our financial and senior management and
our Board. Our Board has adopted an Audit Committee Charter that
is available on our website at http://www.flextronics.com/
Investors/corporateGovernance.asp.
The Compensation Committee is currently composed of
Mr. Sharp and Mr. Moritz, each of whom our Board has
determined to be an independent director under applicable NASDAQ
Stock Market listing standards. The Compensation Committee
recommends compensation for our key employees to our Board and
4
administers the employee share option plans. The Compensation
Committee held eight meetings during fiscal year 2005. Our Board
has adopted a Compensation Committee Charter that is available
on our website at http://www.flextronics.com/
Investors/corporateGovernance.asp.
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Nominating and Corporate Governance Committee |
The Nominating and Corporate Governance Committee currently
consists of Mr. Foley and Mr. Tan, each of whom our
Board has determined to be an independent director under
applicable NASDAQ Stock Market listing standards. The Nominating
and Corporate Governance Committee held two meetings during
fiscal year 2005. The Nominating and Corporate Governance
Committee recruits, evaluates and recommends candidates for
appointment or election as members of our Board and recommends
corporate governance guidelines to the Board. Our Board has
adopted a Nominating and Corporate Governance Committee Charter
that is available on our website at
http://www.flextronics.com/
Investors/corporateGovernance.asp.
The Nominating and Corporate Governance Committee generally
recruits, evaluates and recommends nominees for our Board based
upon recommendations by our Directors, management and
shareholders. The Nominating and Corporate Governance Committee
will also consider recommendations submitted by our
shareholders. To date, we have not received any such
recommendations from our shareholders. Shareholders can
recommend qualified candidates for our Board to the Nominating
and Corporate Governance Committee by submitting recommendations
to our corporate secretary at Flextronics International Ltd.,
One Marina Boulevard, #28-00, Singapore 018989. Submissions
that are received and meet the criteria outlined below will be
forwarded to the Nominating and Corporate Governance Committee
for review and consideration. Shareholder recommendations for
our 2006 Annual General Meeting should be made at least three
months prior to August , 2006
to ensure adequate time for meaningful consideration by the
Nominating and Corporate Governance Committee.
The goal of the Nominating and Corporate Governance Committee is
to ensure that our Board possesses a variety of perspectives and
skills derived from high-quality business and professional
experience. The Nominating and Corporate Governance Committee
seeks to achieve a balance of knowledge, experience and
capability on our Board, while maintaining a sense of
collegiality and cooperation that is conducive to a productive
working relationship within the Board and between the Board and
management. To this end, the Nominating and Corporate Governance
Committee seeks nominees with the highest professional and
personal ethics and values, an understanding of our business and
industry, diversity of business experience and expertise, a high
level of education, broad-based business acumen, and the ability
to think strategically. Although the Nominating and Corporate
Governance Committee uses these and other criteria to evaluate
potential nominees, we have no stated minimum criteria for
nominees. The Nominating and Corporate Governance Committee does
not use different standards to evaluate nominees depending on
whether they are proposed by our Directors and management or by
our shareholders. To date, we have not paid a third party to
assist us in finding nominees for our Board.
The Finance Committee is currently composed of Mr. Marks
and Mr. Moritz. The Finance Committee reviews and approves
various financial matters that are not reserved for approval
from our Board.
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics that
applies to all of our employees and our Directors. The Code is
available on our website at http://www.flextronics.com/
Investors/ corporateGovernance.asp. Any amendment (other
than technical, administrative or other non-substantive
amendments) to or material waiver (as defined by the SEC) of a
provision of the Code that applies to our principal executive
officer, principal financial officer, principal accounting
officer, controller or persons performing similar functions and
relates to elements of the Code specified in the rules of the
SEC will be posted on our website.
5
Shareholder Communications with Our Board
Our shareholders may communicate with our Board by submitting an
e-mail to Board@flextronics.com. All e-mails received
will be sent to our Chairman of the Board and Chief Financial
Officer and/or Vice President, Finance & Investor Relations.
Our Vice President, Finance & Investor Relations will review
all of the e-mail correspondence and provide regular summaries
to our Board.
Director Compensation
Each individual who first becomes a non-employee Director is
granted stock options to purchase 25,000 ordinary shares
under the automatic option grant provisions of our 2001 Equity
Incentive Plan, which we refer to as the 2001 Plan. After this
initial grant, under the terms of the automatic option grant
provisions of the 2001 Plan, on the date of each Annual General
Meeting, each individual who is at that time serving as a
non-employee Director receives stock options to
purchase 12,500 ordinary shares. During fiscal year 2005,
Mr. Moritz, Mr. Foley, Mr. Sharp,
Mr. Davidson and Mr. Tan each received stock options
to purchase 12,500 ordinary shares under this program.
Under the terms of the discretionary option grant provisions of
the 2001 Plan, non-employee Directors are eligible to receive
stock options granted at the discretion of the Compensation
Committee. Pursuant to these provisions, during fiscal year
2005, Mr. Moritz, Mr. Foley, Mr. Sharp,
Mr. Davidson and Mr. Tan each received stock options
to purchase 20,000 ordinary shares. In addition, under the
terms of the discretionary stock bonus grant provisions of the
2001 Plan, which were approved by shareholders at the 2004
Annual General Meeting, non-employee Directors are eligible to
receive stock bonuses at the discretion of the Compensation
Committee. Pursuant to these provisions, the Compensation
Committee recently approved the granting of a stock bonus,
consisting of such number of shares having an aggregate fair
market value of US$100,000 on or about the date of grant, to
each non-employee Director. This stock bonus will be granted on
the date of each Annual General Meeting, commencing with the
2005 Annual General Meeting. The maximum number of ordinary
shares that may be subject to awards granted to each
non-employee Director under the 2001 Plan is 100,000 ordinary
shares in each calendar year.
For the twelve-month period since the 2004 Annual General
Meeting, each non-employee Director received (i) annual
cash compensation of $37,200 for services rendered as a director
and (ii) $700 for each quarterly meeting of the Board of
Directors that he attended as well as reimbursement of
reasonable out-of-pocket expenses incurred in connection with
meetings of the Board of Directors. We are currently seeking
approval from our shareholders for us to provide $10,000 of cash
compensation, payable on the first day of each fiscal quarter
commencing on October 1, 2005, to each of our non-employee
Directors for services rendered as a director. We are also
currently seeking approval from our shareholders for us to
provide (i) an additional $2,500 of cash compensation,
payable on the first day of each fiscal quarter commencing on
October 1, 2005, to the Chairman of the Audit Committee (if
appointed) of the Board of Directors for services rendered as
Chairman of the Audit Committee and for his or her participation
on the Audit Committee and (ii) an additional $1,250 of
cash compensation, payable on the first day of each fiscal
quarter commencing on October 1, 2005, to each of our
non-employee Directors for their participation on each committee
of the Board of Directors on which such Director serves. No
Director who is our employee receives compensation for services
rendered as a director.
Compensation Committee Interlocks and Insider
Participation
The members of the Compensation Committee of our Board during
fiscal year 2005 were Mr. Sharp and Mr. Moritz. None
of our executive officers serves on the Compensation Committee.
No interlocking relationships exist between our Board or the
Compensation Committee, on the one hand, and the board of
directors or compensation committee of any other company, on the
other hand.
6
PROPOSAL NO. 3:
RE-APPOINTMENT OF INDEPENDENT AUDITORS FOR FISCAL YEAR 2006
AND
AUTHORIZATION OF OUR BOARD TO FIX THEIR REMUNERATION
The Audit Committee has recommended to the Board of Directors
the re-appointment of Deloitte & Touche LLP as
independent auditors to audit our accounts and records for the
fiscal year ending March 31, 2006, and to perform other
appropriate services. We expect that a representative from
Deloitte & Touche LLP will be present at the 2005
Annual General Meeting. This representative will have the
opportunity to make a statement if he or she so desires and is
expected to be available to respond to appropriate questions.
Principal Accountant Fees and Services
Set forth below are the fees paid for the services performed by
Deloitte & Touche LLP, a member firm of Deloitte Touche
Tohmatsu, and their respective affiliates during fiscal year
2005 and fiscal year 2004. All audit and permissible non-audit
services reflected in the fees below were pre-approved by the
Audit Committee in accordance with established procedures.
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Fiscal Year | |
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2005 | |
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2004 | |
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Audit Fees
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$ |
7.6 |
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$ |
4.5 |
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Audit-Related Fees
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0.0 |
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1.0 |
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Tax Fees
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2.6 |
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2.0 |
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All Other Fees
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Total:
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10.2 |
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7.5 |
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Audit Fees consist of fees for professional services
rendered by our independent auditors for the audit of our annual
financial statements included in our Annual Report on
Form 10-K (including services incurred with rendering an
opinion under Section 404 of the Sarbanes-Oxley Act of
2002) and the review of our quarterly financial statements
included in our Quarterly Reports on Form 10-Q. These fees
include fees for services that are normally incurred in
connection with statutory and regulatory filings or engagements,
such as comfort letters, statutory audits, consents and review
of documents filed with the SEC.
Audit-Related Fees consist of fees for assurance and
related services by our auditors that are reasonably related to
the performance of the audit or review of our financial
statements and not included in Audit Fees. In fiscal year 2004,
these fees related primarily to accounting consultation services
and readiness services related to Section 404 of the
Sarbanes-Oxley Act of 2002.
Tax Fees consist of fees for professional services
rendered by our independent auditors for tax compliance, tax
advice, tax consultation and tax planning services.
All Other Fees consist of fees for professional services
rendered by our independent auditors for permissible non-audit
services, if any. We did not incur fees under this category
during fiscal year 2005 and fiscal year 2004.
Audit Committee Pre-Approval Policy
The Audit Committees policy is to pre-approve all audit
and permissible non-audit services provided by the independent
auditors. These services may include audit services,
audit-related services, tax services and other services.
Pre-approval is generally provided for up to one year, and any
pre-approval is detailed as to the particular service or
category of services. The independent auditors and management
are required to periodically report to the Audit Committee
regarding the extent of services provided by the independent
auditors in accordance with this pre-approval, and the fees for
the services performed to date. The Audit Committee may also
pre-approve particular services on a case-by-case basis.
7
The Audit Committee has determined that the provision of
non-audit services under appropriate circumstances may be
compatible with maintaining the independence of
Deloitte & Touche LLP, and that all such services
provided by Deloitte & Touche LLP to us in the past
were compatible with maintaining such independence. The Audit
Committee is sensitive to the concern that some non-audit
services, and related fees, could impair independence and the
Audit Committee believes it important that independence be
maintained. However, the Audit Committee also recognizes that in
some areas, services that are identified by the relevant
regulations as tax fees or other fees
are sufficiently related to the audit work performed by
Deloitte & Touche LLP that it would be highly
inefficient and unnecessarily expensive to use a separate firm
to perform those non-audit services. The Audit Committee intends
to evaluate each such circumstance on its own merits, and to
approve the performance of non-audit services where it believes
efficiency can be obtained without meaningfully compromising
independence.
The Board recommends a vote FOR the re-appointment of
Deloitte & Touche LLP,
upon the recommendation of the Audit Committee, as
independent auditors for fiscal year 2006
and authorization of the Board, upon the recommendation of
the Audit Committee, to
fix their remuneration.
PROPOSAL NO. 4:
ORDINARY RESOLUTION TO AUTHORIZE
ORDINARY SHARE ISSUANCES
We are incorporated in the Republic of Singapore. Under
Singapore law, our Directors may only issue ordinary shares and
make or grant offers, agreements or options that might or would
require the issuance of ordinary shares, with the prior approval
from our shareholders. If this proposal is approved, the
authorization would be effective from the date of the 2005
Annual General Meeting until the earlier of (i) the
conclusion of the 2006 Annual General Meeting or (ii) the
expiration of the period within which the 2006 Annual General
Meeting is required by law to be held. The 2006 Annual General
Meeting is required to be held no later than 15 months
after the date of the 2005 Annual General Meeting and no later
than 6 months after the date of our 2006 fiscal year end.
The Board believes that it is advisable and in the best
interests of our shareholders for our shareholders to authorize
the Directors to issue ordinary shares and to make or grant
offers, agreements or options that might or would require the
issuance of ordinary shares. In the past, the Board has issued
shares or made agreements that would require the issuance of new
ordinary shares in connection with strategic transactions and
acquisitions, pursuant to public and private offerings of our
ordinary shares as well as instruments convertible into our
ordinary shares and in connection with our equity compensation
plans and arrangements. Notwithstanding this general
authorization to issue our ordinary shares, we will be required
to seek shareholder approval with respect to future issuances of
ordinary shares where required under the rules of the NASDAQ
National Market, such as where we propose to issue ordinary
shares that will result in a change in control of the company or
in connection with a transaction involving the issuance of
ordinary shares representing 20% or more of our outstanding
ordinary shares.
The Board expects that we will continue to issue ordinary shares
and grant options in the future under circumstances similar to
those in the past. As of the date of this Proxy Statement, other
than issuances of ordinary shares or agreements that would
require the issuance of new ordinary shares in connection with
our equity compensation plans and arrangements, we have no
specific plans, agreements or commitments to issue any ordinary
shares for which approval of this proposal is required.
Nevertheless, the Board believes that it is advisable and in the
best interests of our shareholders for our shareholders to
provide this general authorization in order to avoid the delay
and expense of obtaining shareholder approval at a later date
and to provide us with greater flexibility to pursue strategic
transactions and acquisitions and raise additional capital
through public and private offerings of our ordinary shares as
well as instruments convertible into our ordinary shares.
At the 2000 Annual General Meeting, our shareholders approved an
increase in our authorized share capital to 1,500,000,000
ordinary shares, par value S$0.01 per share. As of
July 29,
2005, ordinary
8
shares were issued and outstanding. Further, as of that date, we
had ordinary
shares reserved for issuance upon the exercise of outstanding
options and other awards under our equity compensation plans and
ordinary shares available for grant pursuant to options and
other awards under our equity compensation plans. In addition,
as of that date, we
had shares
reserved for issuance upon conversion of our outstanding
convertible notes. If this proposal is approved, our Directors
would be authorized to issue, during the period described above,
all remaining ordinary shares out of our authorized but unissued
ordinary share capital, subject to applicable Singapore laws and
the rules of the NASDAQ National Market, although we currently
do not intend to do so. The issuance of a large number of
ordinary shares could be dilutive to existing shareholders or
reduce the trading price of our ordinary shares on the NASDAQ
National Market.
We are submitting this proposal because we are required to do so
under Singapore law before we can issue any ordinary shares in
connection with strategic transactions, public and private
offerings and in connection with our equity compensation plans.
We are not submitting this proposal in response to a threatened
takeover. In the event of a hostile attempt to acquire control
of our company, we could seek to impede the attempt by issuing
ordinary shares, which may dilute the voting power of our
existing shareholders. This could also have the effect of
impeding the efforts of our shareholders to remove an incumbent
Director and replace him with a new Director of their choice.
These potential effects could limit the opportunity for our
shareholders to dispose of their ordinary shares at the premium
that may be available in takeover attempts.
The following agreements, which are not affected by approval of
this proposal, may have anti-takeover effects:
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Our Articles of Association permit the Chairman of the Annual
General Meeting (provided he is a person entitled to vote at the
Annual General Meeting) or any shareholder(s) present and
representing not less than one-tenth of the total voting rights
of all shareholders having the right to vote at that meeting to
demand that votes at the Annual General Meeting be decided by a
poll (where each ordinary share is entitled to one vote), rather
than by a show of hands (where each shareholder is entitled to
one vote, irrespective of the number of shares held by that
shareholder). |
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Our option agreements with each executive officer provide that
if the executive officer is terminated without cause or leaves
for good reason within the first 12 months following a
change in control of the company, the vesting of any unvested
portion of the option will be accelerated in full. If the
executive officer is still employed upon the first year
anniversary of such a change of control of the company, the
vesting of any unvested portion of the option will be
accelerated in full. Each option includes a limited stock
appreciation right pursuant to which the option will
automatically be cancelled upon the occurrence of certain
hostile tender offers, in return for a cash distribution from us
based on the tender offer price per share. |
Further, under Singapore law, the Singapore Code on Take-overs
and Mergers prescribes that (a) any person who acquires
whether by a series of transactions over a period of time or
not, shares which carry 30% or more of our voting rights (taken
together with shares held or acquired by persons acting in
concert with him); or (b) any person who, together with
persons acting in concert with him, holds not less than 30% but
not more than 50% of our voting rights and such person, or any
person acting in concert with him, acquires in any period of
6 months additional shares carrying more than 1% of our
voting rights, must, extend a mandatory take-over offer
immediately for our remaining shares which carry voting rights.
We have no current plans or proposals to enter into any
arrangement that could have material anti-takeover consequences.
The Board recommends a vote FOR the resolution
to authorize ordinary share issuances.
9
PROPOSAL NO. 5:
ORDINARY RESOLUTION TO APPROVE DIRECTOR
CASH COMPENSATION AND ADDITIONAL CASH COMPENSATION FOR THE
CHAIRMAN
OF THE AUDIT COMMITTEE (IF APPOINTED) AND FOR COMMITTEE
PARTICIPATION
Under Singapore law, we may only provide cash compensation to
our Directors for services rendered in their capacity as
directors with the prior approval from our shareholders at a
general meeting. We believe that it is advisable and in the best
interests of our shareholders for our shareholders to authorize
us to provide $10,000 of cash compensation, payable on the first
day of each fiscal quarter commencing on October 1, 2005,
to each of our non-employee Directors for services rendered as a
director. We believe that this authorization will benefit our
shareholders by enabling us to attract and retain qualified
individuals to serve as members of our Board of Directors and to
continue to provide leadership for our company.
We are also currently seeking approval from our shareholders for
us to provide (i) an additional $2,500 of cash
compensation, payable on the first day of each fiscal quarter
commencing on October 1, 2005, to the Chairman of the Audit
Committee (if appointed) of the Board of Directors for services
rendered as Chairman of the Audit Committee and for his or her
participation on the Audit Committee and (ii) an additional
$1,250 of cash compensation, payable on the first day of each
fiscal quarter commencing on October 1, 2005, to each of
our non-employee Directors for their participation on each
committee of the Board of Directors. In connection with recent
amendments to SEC and NASDAQ Stock Market rules, our Directors
have incurred additional committee responsibilities in addition
to their existing Board responsibilities. We believe that it is
advisable and in the best interests of our shareholders to
authorize us to provide additional quarterly cash compensation
to the Chairman of the Audit Committee (if appointed) and for
committee participation to reflect the additional commitment
that is required from these Directors.
The Board recommends a vote FOR the resolution
to approve Directors cash compensation and additional
cash compensation
for the Chairman of the Audit Committee (if appointed) and
for committee participation.
PROPOSAL NO. 6:
ORDINARY RESOLUTION TO APPROVE THE PROPOSED
RENEWAL OF THE SHARE PURCHASE MANDATE
The Proposed Renewal of the Share Purchase Mandate
Our purchases or acquisitions of our ordinary shares must be
made in accordance with, and in the manner prescribed by, the
Companies Act, the applicable listing rules of the NASDAQ
National Market and such other laws and regulations as may from
time to time be applicable.
Under Singapore law, a Singapore company wishing to purchase or
otherwise acquire its own shares is required to obtain
shareholder approval of a general and unconditional mandate
given to the companys directors to exercise all of the
companys powers to purchase or otherwise acquire its own
shares. We refer to this general and unconditional mandate as
the Share Purchase Mandate. While our shareholders approved a
renewal of the Share Purchase Mandate at the 2004 Annual General
Meeting, our Directors have not exercised any of the
companys powers to purchase any of our issued ordinary
shares pursuant to this renewed Share Purchase Mandate. The
Share Purchase Mandate renewed at the 2004 Annual General
Meeting will expire on the date of the 2005 Annual General
Meeting. Accordingly, we are submitting this proposal to seek
approval from our shareholders at the 2005 Annual General
Meeting for another renewal of the Share Purchase Mandate. This
resolution will be proposed as an Ordinary Resolution pursuant
to which the Share Purchase Mandate will be given to our
Directors to exercise all the companys powers to purchase
or otherwise acquire our issued ordinary shares on the terms of
the Share Purchase Mandate.
If renewed by shareholders at the 2005 Annual General Meeting,
the authority conferred by the Share Purchase Mandate will,
unless varied or revoked by our shareholders at a general
meeting, continue in force
10
until the earlier of the date of the 2006 Annual General Meeting
or the date by which the 2006 Annual General Meeting is required
by law to be held.
The authority and limitations placed on our share purchases or
acquisitions under the proposed Share Purchase Mandate, if
renewed at the 2005 Annual General Meeting, are summarized below:
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(A) Maximum number of ordinary shares |
We may purchase or acquire only ordinary shares which are issued
and fully paid up. The total number of ordinary shares which we
may purchase or acquire is limited to that number of ordinary
shares representing not more than 10% of our issued ordinary
share capital at the date of the Annual General Meeting at which
the Share Purchase Mandate is approved.
Purely for illustrative purposes, on the basis of issued
ordinary shares as of July 29, 2005, and assuming that no
further ordinary shares are issued on or prior to the 2005
Annual General Meeting, pursuant to the proposed Share Purchase
Mandate, we may purchase not more
than issued
ordinary shares (representing 10% of our issued ordinary share
capital at that date).
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(B) Duration of authority |
Purchases or acquisitions of ordinary shares may be made, at any
time and from time to time, on and from the date of approval of
the Share Purchase Mandate up to the earlier of:
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the date on which our next Annual General Meeting is held or
required by law to be held; or |
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(2) |
the date on which the authority conferred by the Share Purchase
Mandate is revoked or varied. |
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(C) Manner of purchases or acquisitions of ordinary
shares |
Purchases or acquisitions of ordinary shares may be made by way
of:
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(1) |
market purchases on the NASDAQ National Market or any other
stock exchange on which our ordinary shares may for the time
being be listed and quoted, through one or more duly licensed
dealers appointed by us for that purpose; and/or |
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(2) |
off-market purchases (if effected other than on the NASDAQ
National Market or, as the case may be, any other stock exchange
on which our ordinary shares may for the time being be listed
and quoted), in accordance with an equal access scheme. |
In connection with or in relation to any equal access scheme or
schemes, our Directors may impose such terms and conditions
which are not inconsistent with the Share Purchase Mandate, the
applicable listing rules of the NASDAQ National Market and the
Companies Act, as they consider fit and in our interests. An
equal access scheme must, however, satisfy all of the following
conditions:
|
|
|
|
(1) |
offers for the purchase or acquisition of ordinary shares shall
be made to every person who holds ordinary shares to purchase or
acquire the same percentage of their ordinary shares; |
|
|
(2) |
all of those persons shall be given a reasonable opportunity to
accept the offers made; and |
|
|
(3) |
the terms of all of the offers are the same (except that there
shall be disregarded (a) differences in consideration
attributable to the fact that offers may relate to ordinary
shares with different accrued dividend entitlements and
(b) differences in the offers introduced solely to ensure
that each person is left with a whole number of ordinary shares). |
11
The purchase price (excluding brokerage commission, applicable
goods and services tax and other related expenses) to be paid
for an ordinary share will be determined by our Directors. The
maximum purchase price to be paid for the ordinary shares as
determined by our Directors must not exceed:
|
|
|
|
(1) |
in the case of a market purchase, 105% of the Average
Closing Price of our ordinary shares; and |
|
|
(2) |
in the case of an off-market purchase pursuant to an equal
access scheme, 110% of the Average Closing Price of
our ordinary shares, |
in either case, excluding related expenses of the purchase or
acquisition.
For the above purposes, the term Average Closing
Price means the average of the last dealt prices of an
ordinary share for the five consecutive trading days on which
our ordinary shares are transacted on the NASDAQ National Market
or, as the case may be, any other stock exchange on which our
ordinary shares may for the time being be listed and quoted,
immediately preceding the date of the market purchase by us or,
as the case may be, the date of the making of the offer pursuant
to the off-market purchase. The date of the making of the offer
refers to the date on which we announce our intention to make an
offer for the purchase or acquisition of ordinary shares from
holders of ordinary shares, stating the purchase price (which
shall not be more than the maximum purchase price calculated on
the foregoing basis) for each ordinary share and the relevant
terms of the equal access scheme for effecting the off-market
purchase.
Sources of Funds
Only funds legally available for purchasing or acquiring
ordinary shares in accordance with our Articles of Association
and applicable laws of Singapore shall be used. We intend to use
our internal sources of funds to finance any purchase or
acquisition of our ordinary shares. We do not intend to borrow
money to finance any purchase or acquisition of our ordinary
shares. Our Directors do not propose to exercise the Share
Purchase Mandate in a manner and to such an extent that would
materially affect our working capital requirements and those of
our subsidiaries.
Under current Singapore law, any purchases and acquisitions of
ordinary shares must be made out of our distributable profits
which are available for payment as dividends, excluding any
amount in our share premium account and capital redemption
reserve fund. However, pursuant to the Companies (Amendment) Act
No. 21 of 2005, which we refer to as the Amendment Act and
which is yet to be in force, purchases and acquisitions of
ordinary shares may be made out of the companys capital or
profits, so long as the company is solvent for the purposes of
the new section 76F(4) of the Companies Act. For this
purpose, under the Amendment Act, a company is solvent if
(a) it is able to pay its debts in full at the time of the
payment made in consideration of the acquisition of any right
with respect to the purchase or acquisition of ordinary shares
in accordance with the provisions of the Companies Act and will
be able to pay its debts as they fall due in the normal course
of business during the 12-month period immediately following the
date of payment; and (b) the value of the companys
assets is not less than the value of its liabilities (including
contingent liabilities) and will not, after giving effect to the
proposed purchase or acquisition, become less than the value of
its liabilities (including contingent liabilities).
Status of Purchased or Acquired Ordinary Shares
Any ordinary share we purchase or acquire is deemed cancelled
immediately on purchase or acquisition, and all rights and
privileges attached to that ordinary share will expire on
cancellation.
We will cancel and destroy certificates in respect of purchased
or acquired ordinary shares as soon as reasonably practicable
following settlement of any purchase or acquisition of such
ordinary shares.
12
Financial Effects
The amount by which our issued share capital is diminished on
cancellation of ordinary shares purchased or acquired must be
transferred to a reserve called the capital redemption
reserve. In the event that we implement a bonus issue of
shares in the future, such reserve may be applied by us in
paying up any unissued shares to be allotted and issued to our
shareholders as fully paid bonus shares.
Our total issued share capital will be diminished by the total
nominal amount (or par value) of the ordinary shares purchased
or acquired by us. Under current Singapore law, the
consideration paid by us for the purchase or acquisition of
ordinary shares (excluding related brokerage, goods and services
tax, stamp duties and clearance fees) will correspondingly
reduce the amount available for the distribution of cash
dividends by us.
Our net tangible assets and the consolidated net tangible assets
of our subsidiaries will be reduced by the purchase price of any
ordinary shares purchased or acquired. We do not anticipate that
the purchase or acquisition of our ordinary shares in accordance
with the Share Purchase Mandate would have a material impact on
our consolidated earnings for the current financial year.
Pursuant to the Amendment Act, in the event that our ordinary
shares are purchased or acquired out of the companys
capital or profits and cancelled, our share capital or profits
will be reduced, respectively, by the total amount of the
purchase price paid by us for the ordinary shares cancelled. In
the event that our ordinary shares are purchased or acquired out
of both the companys capital or profits and cancelled, our
share capital and profits will be reduced proportionately by the
total amount of the purchase price paid by us for the ordinary
shares cancelled.
Rationale for the Share Purchase Mandate
We believe that a renewal of the Share Purchase Mandate at the
2005 Annual General Meeting will benefit our shareholders by
providing our Directors with appropriate flexibility to
repurchase ordinary shares if our Directors believe that such
repurchases would be in the best interests of our shareholders.
Our decision to repurchase our ordinary shares from time to time
will depend on our continuing assessment of then-current market
conditions, our need to use available cash to finance
acquisitions and other strategic transactions, the level of our
debt and the terms and availability of financing.
Take-Over Implications
If, as a result of our purchase or acquisition of our issued
ordinary shares, a shareholders proportionate interest in
our voting capital increases, such increase will be treated as
an acquisition for the purposes of The Singapore Code on
Take-overs and Mergers. If such increase results in a change of
effective control, or, as a result of such increase, a
shareholder or a group of shareholders acting in concert obtains
or consolidates effective control of our company, such
shareholder or group of shareholders acting in concert could
become obliged to make a take-over offer for our company under
Rule 14 of The Singapore Code on Take-overs and Mergers.
Under The Singapore Code on Take-overs and Mergers, persons
acting in concert comprise individuals or companies who,
pursuant to an agreement or understanding (whether formal or
informal) co-operate, through the acquisition by any of them of
shares in a company to obtain or consolidate effective control
of that company. Unless the contrary is established, the
following persons will be presumed to be acting in concert,
namely, (i) a company with any of its directors (together
with their close relatives, related trusts as well as companies
controlled by any of the directors, their close relatives and
related trusts) and (ii) a company, its parent,
subsidiaries and fellow subsidiaries, and their associated
companies and companies of which such companies are associated
companies, all with each other. For this purpose, a company is
an associated company of another company if the second company
owns or controls at least 20% but not more than 50% of the
voting rights of the first company.
The circumstances under which shareholders (including Directors)
and persons acting in concert with them, respectively, will
incur an obligation to make a take-over offer under Rule 14
of The Singapore Code on
13
Take-overs and Mergers after a purchase or acquisition of our
issued ordinary shares by us are set out in Appendix 2 of
The Singapore Code on Take-overs and Mergers.
The effect of Appendix 2 is that, unless exempted,
Directors and persons acting in concert with them will incur an
obligation to make a take-over offer under Rule 14 if, as a
result of us purchasing or acquiring our issued ordinary shares,
the voting rights of such Directors and parties acting in
concert with them would increase to 30% or more, or if such
Directors and their concert parties hold between 30% and 50% of
our voting rights, the voting rights of such Directors and
parties acting in concert with them would increase by more than
1% in any period of six months.
Under Appendix 2, a shareholder not acting in concert with
the Directors will not be required to make a take-over offer
under Rule 14 if, as a result of us purchasing or acquiring
our issued ordinary shares, the voting rights of such
shareholder in us would increase to 30% or more, or if such
shareholder holds between 30% and 50% of our voting rights, the
voting rights of such shareholder would increase by more than 1%
in any period of six months. Such shareholder need not abstain
from voting in respect of the resolution authorizing the Share
Purchase Mandate.
Shareholders who are in doubt as to their obligations, if any,
to make a mandatory take-over offer under The Singapore Code on
Take-overs and Mergers as a result of any share purchase by us
should consult the Securities Industry Council of Singapore
and/or their professional advisers at the earliest opportunity.
The Board recommends a vote FOR the resolution
to approve the proposed renewal of the Share Purchase
Mandate.
14
EXECUTIVE OFFICERS AND DIRECTORS
The names, ages and positions of our executive officers and
directors as of June 30, 2005 are as follows:
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|
Name |
|
Age | |
|
Position |
|
|
| |
|
|
Michael E. Marks
|
|
|
54 |
|
|
Chief Executive Officer and Director |
Michael M. McNamara
|
|
|
48 |
|
|
Chief Operating Officer |
Thomas J. Smach
|
|
|
45 |
|
|
Chief Financial Officer |
Ronny Nilsson
|
|
|
56 |
|
|
President, Flextronics Network Services |
Peter Tan
|
|
|
56 |
|
|
President and Managing Director, Asia Operations |
Richard L. Sharp
|
|
|
58 |
|
|
Chairman of the Board |
James A. Davidson
|
|
|
46 |
|
|
Director |
Patrick Foley
|
|
|
73 |
|
|
Director |
Michael J. Moritz
|
|
|
50 |
|
|
Director |
Lip-Bu Tan
|
|
|
45 |
|
|
Director |
Michael E. Marks. Mr. Marks has served as our Chief
Executive Officer since January 1994. He has served as a member
of our Board of Directors since December 1991, and he has been
appointed by our Board of Directors to serve as Chairman of our
Board effective upon his retirement as Chief Executive Officer
on January 31, 2006. He previously served as Chairman of
our Board from July 1993 to January 2003. Mr. Marks serves
on the boards of KLA-Tencor Corporation, SanDisk Corporation,
Schlumberger Limited (Schlumberger N.V.) and Western Brands. He
received a B.A. and an M.A. from Oberlin College and an M.B.A.
from Harvard Business School.
Michael M. McNamara. Mr. McNamara has served as
Chief Operating Officer since January 2002, and he has been
appointed by our Board of Directors to succeed Mr. Marks as
our Chief Executive Officer effective January 31, 2006.
Mr. McNamara previously served as President, Americas
Operations from April 1997 to December 2001, and as Vice
President, North American Operations from April 1994 to April
1997. Mr. McNamara received a B.S. from the University of
Cincinnati and an M.B.A. from Santa Clara University.
Thomas J. Smach. Mr. Smach has served as our Chief
Financial Officer since December 2004. Prior to his promotion,
he served as Senior Vice President, Finance from April 2000 to
December 2004 following our acquisition of the Dii Group, Inc.,
a provider of electronics manufacturing services. From August
1997 to April 2000, he served as the Senior Vice President,
Chief Financial Officer and Treasurer of the Dii Group, Inc.
Mr. Smach is a certified public accountant and he received
a B.S. in Accounting from State University of New York at
Binghamton.
Ronny Nilsson. Mr. Nilsson has served as President,
Flextronics Network Services since January 2002. Prior to his
promotion, Mr. Nilsson served as President, Western Europe
Operations from April 1997 to December 2001. Mr. Nilsson
received a certificate in Mechanical Engineering from the Lars
Kagg School in Kalmar, Sweden and certificates from the Swedish
Management Institute and the Ericsson Management Program.
Peter Tan. Mr. Tan has served as President and
Managing Director, Asia Operations since March 2005. Prior to
his promotion, Mr. Tan served as Executive Vice
President & Managing Director, Asia Operations,
following our acquisition of JIT Electronics in August 2000,
where he held the position of Executive Director. Prior to
joining JIT Electronics in 1997, Mr. Tan served as Managing
Director, Asia Pacific Operations for Apple Computer, and
previously as General Manager and Managing Director at Molex
Singapore for five years. Preceding Molex Singapore,
Mr. Tan spent 18 years with National Semiconductor
Asia Pacific, where he held various positions in manufacturing,
materials management, operations and product lines planning.
Mr. Tan received a Graduate Diploma in Management Studies
from the University of Chicago Graduate School of Business and
an M.B.A. from Golden Gate University, San Francisco.
15
Richard L. Sharp. Mr. Sharp has served as a member
of our Board of Directors since July 1993 and as Chairman of our
Board since January 2003. Mr. Sharp will continue to serve
as a Director upon Mr. Marks becoming the Chairman of our
Board on January 31, 2006. Mr. Sharp served in various
positions with Circuit City Stores, Inc., a consumer electronics
and personal computer retailer, from 1982 to 2002, most recently
as President from 1984 to 1997, Chief Executive Officer from
1986 to 2000 and Chairman of the Board from 1994 to 2002.
Mr. Sharp is the Chairman of the Board of CarMax, Inc.
James A. Davidson. Mr. Davidson has served as a
member of our Board of Directors since March 2003. He is a
founder and managing director of Silver Lake Partners, a private
equity investment firm. From June 1990 to November 1998, he was
an investment banker with Hambrecht & Quist, most
recently serving as Managing Director and Head of Technology
Investment Banking. From 1984 to 1990, Mr. Davidson was a
corporate and securities lawyer with Pillsbury,
Madison & Sutro. Currently, Mr. Davidson serves on
the board of Seagate Technology. He received a B.S. from the
University of Nebraska and J.D. from the University of Michigan.
Patrick Foley. Mr. Foley has served as a member of
our Board of Directors since October 1997. Mr. Foley served
in various positions with DHL Corporation and its major
subsidiary, DHL Airways, Inc., a global document, package and
airfreight delivery company from September 1988 to 2001, most
recently as its Chairman, President and Chief Executive Officer.
He also serves as a director of Health Net, Inc. and Glenborough
Realty Trust Incorporated, as well as several private companies.
Michael J. Moritz. Mr. Moritz has served as a member
of our Board of Directors since July 1993. Since 1988, he has
been a General Partner of Sequoia Capital, a venture capital
firm. Mr. Moritz also serves as a director of Saba
Software, Inc., Google Inc. and several privately-held
companies, as well as Chairman of the Board of RedEnvelope, Inc.
Mr. Moritz received an M.A. from Christ Church, University
of Oxford.
Lip-Bu Tan. Mr. Tan has served as a member of our
Board of Directors since March 2003. In 1987, he founded and
since that time has served as Chairman of Walden International,
a venture capital fund. Mr. Tan currently serves on the
boards of Cadence Design Systems, Inc., Centillium
Communications, Inc., Creative Technology Ltd., Integrated
Silicon Solution, Inc., Leadis Technology, Inc., Semiconductor
Manufacturing International Corporation and SINA Corporation, as
well as a number of private companies. Mr. Tan received an
M.S. in Nuclear Engineering from the Massachusetts Institute of
Technology, an M.B.A. from the University of San Francisco,
and a B.S. from Nanyang University in Singapore.
16
EXECUTIVE COMPENSATION
The following table presents information concerning the
compensation paid or accrued by us for services rendered during
fiscal year 2005, fiscal year 2004 and fiscal year 2003 by
(i) our chief executive officer, (ii) each of our four
other most highly compensated executive officers and
(iii) Robert R.B. Dykes, who would have been one of our
four other most highly compensated executive officers but who is
no longer an executive officer. The individuals listed in the
following table are referred to in this Proxy Statement as the
Named Executive Officers.
Summary Compensation Table
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Long Term | |
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Compensation | |
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Awards | |
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| |
|
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|
Annual Compensation | |
|
Securities | |
|
|
|
|
| |
|
Underlying | |
|
All Other | |
Name and Principal Position |
|
Fiscal Year | |
|
Salary | |
|
Bonus | |
|
Options | |
|
Compensation | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Michael E. Marks
|
|
|
2005 |
|
|
$ |
985,000 |
|
|
$ |
2,795,350 |
|
|
|
2,375,000 |
|
|
$ |
1,567,595 |
(1) |
|
Chief Executive Officer |
|
|
2004 |
|
|
|
785,442 |
|
|
|
605,000 |
|
|
|
|
|
|
|
17,599 |
(2) |
|
|
|
|
2003 |
|
|
|
341,402 |
|
|
|
150,000 |
|
|
|
5,000,000 |
|
|
|
10,048 |
(3) |
Michael M. McNamara
|
|
|
2005 |
|
|
$ |
800,000 |
|
|
$ |
1,143,860 |
|
|
|
600,000 |
|
|
$ |
6,780 |
(4) |
|
Chief Operating Officer |
|
|
2004 |
|
|
|
700,110 |
|
|
|
393,750 |
|
|
|
|
|
|
|
17,183 |
(5) |
|
|
|
|
2003 |
|
|
|
257,127 |
|
|
|
84,375 |
|
|
|
2,600,000 |
|
|
|
7,548 |
(6) |
Thomas J. Smach(7)
|
|
|
2005 |
|
|
$ |
441,250 |
|
|
$ |
642,750 |
|
|
|
500,000 |
|
|
$ |
12,075 |
(8) |
|
Chief Financial Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ronny Nilsson
|
|
|
2005 |
|
|
$ |
576,969 |
|
|
$ |
385,900 |
|
|
|
37,500 |
|
|
$ |
1,395 |
(9) |
|
President, Flextronics |
|
|
2004 |
|
|
|
538,362 |
|
|
|
17,414 |
|
|
|
75,000 |
|
|
|
47,625 |
(10) |
|
Network Services |
|
|
2003 |
|
|
|
349,562 |
|
|
|
100,147 |
|
|
|
375,000 |
|
|
|
47,568 |
(11) |
Peter Tan(12)
|
|
|
2005 |
|
|
$ |
350,000 |
|
|
$ |
251,628 |
|
|
|
350,000 |
|
|
$ |
24,640 |
(13) |
|
President and Managing
Director, Asia Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert R.B. Dykes(14)
|
|
|
2005 |
|
|
$ |
367,500 |
|
|
$ |
707,325 |
|
|
|
500,000 |
|
|
$ |
2,050,725 |
(15) |
|
President, Systems Group |
|
|
2004 |
|
|
|
475,000 |
|
|
|
267,188 |
|
|
|
1,000,000 |
|
|
|
7,115 |
(16) |
|
and Chief Financial Officer |
|
|
2003 |
|
|
|
221,327 |
|
|
|
79,688 |
|
|
|
700,000 |
|
|
|
272 |
(17) |
|
|
|
|
(1) |
Represents our contribution to the supplemental executive
retirement plan for Mr. Marks of $1,554,286, our contribution to
the 401(k) plan of $8,374, life insurance premium payments of
$660, disability insurance premium payments of $3,939 and
imputed income for group term life insurance of $336. |
|
|
(2) |
Represents our contribution to the 401(k) plan of $7,100, life
insurance premium payments of $867, disability insurance premium
payments of $5,985, imputed income for group term life insurance
of $276 and a vehicle allowance of $3,371. |
|
|
(3) |
Represents our contributions to the 401(k) plan of $2,716, life
insurance premium payments of $2,250 and a vehicle allowance of
$5,082. |
|
|
(4) |
Represents our contribution to the 401(k) plan of $6,600 and
imputed income for group term life insurance of $180. |
|
|
(5) |
Represents our contributions to the 401(k) plan of $6,000, life
insurance premium payments of $1,431, disability insurance
premium payments of $2,047, imputed income for group term life
insurance of $180, a vehicle allowance of $70 and personal use
of the company jet of $7,455. |
|
|
(6) |
Represents our contributions to the 401(k) plan of $3,525, life
insurance premium payments of $98 and a vehicle allowance of
$3,925. |
|
|
(7) |
Mr. Smach was elected our Chief Financial Officer during
fiscal year 2005. |
|
|
(8) |
Represents our contributions to the 401(k) plan of $6,188, life
insurance premium payments of $852, imputed income for group
term life insurance of $135 and a vehicle allowance of $4,900. |
17
|
|
|
|
(9) |
Represents life insurance premium payments of $85 and health
insurance premium payments of $1,310. |
|
|
(10) |
Represents our contributions to a pension retirement fund of
$46,672 and health insurance premium payments of $953. |
|
(11) |
Represents our contributions to a pension retirement fund of
$39,046 and a vehicle allowance of $8,522. |
|
(12) |
Mr. Tan was elected our President and Managing Director,
Asia Operations during fiscal year 2005. |
|
(13) |
Represents health insurance premium payments of $330, disability
insurance premium payments of $150 and a vehicle allowance of
$24,160. |
|
(14) |
Mr. Dykes resigned on December 14, 2004. |
|
(15) |
Represents a lump-sum cash payment of $2,033,739 in connection
with Mr. Dykes resignation on December 14, 2004,
our contribution to the 401(k) plan of $13,714, imputed income
for domestic partner insurance coverage of $2,885 and imputed
income for group term life insurance of $387. |
|
(16) |
Represents our contribution to the 401(k) plan of $762, life
insurance premium payments of $864, disability insurance premium
payments of $2,047, imputed income for domestic partner
insurance coverage of $2,986, imputed income for group term life
insurance of $336 and a vehicle allowance of $120. |
|
(17) |
Represents life insurance premium payments of $150 and a vehicle
allowance of $122. |
Option Grants During Fiscal Year 2005
The following table presents information regarding option grants
during fiscal year 2005 to each Named Executive Officer. Option
grants to our Named Executive Officers during fiscal year 2005
were awarded pursuant to our existing equity compensation plans.
In accordance with the rules of the SEC, the table presents the
potential realizable values that would exist for the options at
the end of their four- or ten-year terms, as the case may be.
These values are based on assumed rates of annual compound stock
price appreciation of 5% and 10% from the date the option was
granted to the end of the option term. These are based on
assumed annual rates of return mandated by the rules of the SEC
and do not represent our estimate or projection of future
ordinary share prices. The closing sale price per ordinary share
as reported on the NASDAQ National Market on March 31,
2005, the last trading day of fiscal year 2005, was $12.04.
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Individual Grants | |
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| |
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Potential Realizable Value at | |
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Number of | |
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|
|
Assumed Annual Rates of | |
|
|
Securities | |
|
Percent of Total | |
|
|
|
Stock Price Appreciation for | |
|
|
Underlying | |
|
Options Granted | |
|
Exercise | |
|
|
|
Option Term | |
|
|
Options | |
|
to Employees in | |
|
Price per | |
|
Expiration | |
|
| |
Name |
|
Granted | |
|
Fiscal Year 2005 | |
|
Share | |
|
Date | |
|
5% | |
|
10% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Michael E. Marks
|
|
|
1,000,000 |
(1) |
|
|
5.42 |
% |
|
$ |
17.69 |
|
|
|
04/21/2014 |
|
|
$ |
11,125,146 |
|
|
$ |
28,193,304 |
|
|
|
|
1,375,000 |
(2) |
|
|
7.45 |
% |
|
$ |
11.53 |
|
|
|
08/23/2014 |
|
|
$ |
9,970,338 |
|
|
$ |
25,266,795 |
|
Michael M. McNamara
|
|
|
400,000 |
(1) |
|
|
2.17 |
% |
|
$ |
16.07 |
|
|
|
04/30/2014 |
|
|
$ |
4,042,535 |
|
|
$ |
10,244,577 |
|
|
|
|
200,000 |
(3) |
|
|
1.08 |
% |
|
$ |
11.53 |
|
|
|
08/23/2014 |
|
|
$ |
1,450,231 |
|
|
$ |
3,675,170 |
|
Thomas J. Smach
|
|
|
500,000 |
(3) |
|
|
2.71 |
% |
|
$ |
11.53 |
|
|
|
08/23/2014 |
|
|
$ |
3,625,578 |
|
|
$ |
9,187,925 |
|
Ronny Nilsson
|
|
|
37,500 |
(4) |
|
|
0.20 |
% |
|
$ |
11.53 |
|
|
|
08/23/2008 |
|
|
$ |
93,180 |
|
|
$ |
200,665 |
|
Peter Tan
|
|
|
100,000 |
(1) |
|
|
0.54 |
% |
|
$ |
17.37 |
|
|
|
04/01/2014 |
|
|
$ |
1,092,390 |
|
|
$ |
2,768,331 |
|
|
|
|
100,000 |
(1) |
|
|
0.54 |
% |
|
$ |
13.18 |
|
|
|
09/28/2014 |
|
|
$ |
828,883 |
|
|
$ |
2,100,553 |
|
|
|
|
150,000 |
(3) |
|
|
0.81 |
% |
|
$ |
12.05 |
|
|
|
10/29/2014 |
|
|
$ |
1,136,727 |
|
|
$ |
2,880,689 |
|
Robert R.B. Dykes(5)
|
|
|
500,000 |
(4) |
|
|
2.71 |
% |
|
$ |
11.53 |
|
|
|
08/23/2014 |
|
|
$ |
3,625,578 |
|
|
$ |
9,187,925 |
|
|
|
(1) |
The vesting of these options was accelerated to January 17,
2005. |
|
(2) |
Options for 1,000,000 shares vest and become exercisable on
the first anniversary of the date of grant with respect to 50%
of these shares and at the rate of
1/12 per
month thereafter until fully vested with respect to the
remaining shares. Options for 375,000 shares vest and
become exercisable on the first anniversary of |
18
|
|
|
the date of grant with respect to 25% of these shares and at the
rate of
1/36 per
month thereafter until fully vested with respect to the
remaining shares. |
|
|
(3) |
These options vest and become exercisable on the first
anniversary of the date of grant with respect to 25% of the
total shares and at the rate of
1/36 per
month thereafter until fully vested with respect to the
remaining shares. |
|
(4) |
These options were 100% vested and exercisable on the date of
grant. |
|
(5) |
Mr. Dykes resigned on December 14, 2004. |
The options shown in the table above were granted with an
exercise price equal to the fair market value of our ordinary
shares on the date of grant and are non-statutory stock options,
except that options for 3,111 shares granted to
Mr. McNamara on April 30, 2004 and options for
2,826 shares granted to Mr. Marks on April 21,
2004 are incentive stock options (to the extent permitted under
the Internal Revenue Code). With the exception of options
granted to Mr. Nilsson, options granted to our executive
officers expire ten years from the date of grant. In the case of
Mr. Nilsson, Swedish tax legislation imposes significant
adverse consequences if there are any restrictions on the
exercisability or transfer of options. The term of
Mr. Nilssons option has therefore been shortened to
four years from the date of grant.
Our Compensation Committee has the discretion to provide for
alternative vesting schedules to maximize the retention value of
our equity compensation. See Change in Control
Arrangements below for a description of the acceleration
provisions of these options. The exercise price of each option
may be paid in cash or through a cashless exercise procedure
involving a same-day sale of the purchase shares. We granted
options to purchase an aggregate of 18,461,056 ordinary shares
to our employees during fiscal year 2005.
Aggregated Option Exercises During Fiscal Year 2005
and Option Values at March 31, 2005
The following table presents information concerning the exercise
of options during fiscal year 2005 by each Named Executive
Officer.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities | |
|
|
|
|
|
|
|
|
Underlying Unexercised | |
|
Value of Unexercised | |
|
|
|
|
|
|
Options at | |
|
In-the-Money Options at | |
|
|
Shares | |
|
|
|
March 31, 2005 | |
|
March 31, 2005 | |
|
|
Acquired | |
|
|
|
| |
|
| |
Name |
|
on Exercise | |
|
Value Realized | |
|
Vested | |
|
Unvested | |
|
Vested | |
|
Unvested | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Michael E. Marks
|
|
|
|
|
|
$ |
|
|
|
|
3,600,000 |
|
|
|
5,366,000 |
|
|
$ |
4,140,000 |
|
|
$ |
17,256,660 |
|
Michael M. McNamara
|
|
|
|
|
|
|
|
|
|
|
1,725,000 |
|
|
|
1,875,000 |
|
|
|
3,336,000 |
|
|
|
6,966,000 |
|
Thomas J. Smach
|
|
|
50,000 |
|
|
|
520,700 |
|
|
|
1,260,000 |
|
|
|
635,000 |
|
|
|
2,214,900 |
|
|
|
813,900 |
|
Ronny Nilsson
|
|
|
|
|
|
|
|
|
|
|
645,833 |
|
|
|
|
|
|
|
1,571,625 |
|
|
|
|
|
Peter Tan
|
|
|
|
|
|
|
|
|
|
|
405,750 |
|
|
|
212,500 |
|
|
|
215,085 |
|
|
|
254,915 |
|
Robert R.B. Dykes(1)
|
|
|
556,000 |
|
|
|
1,212,360 |
|
|
|
1,516,667 |
|
|
|
|
|
|
|
2,898,000 |
|
|
|
|
|
|
|
(1) |
In connection with Mr. Dykes resignation on
December 14, 2004, we agreed to amend certain of
Mr. Dykes stock option agreements to provide for
(i) full acceleration of vesting of approximately
1.2 million of Mr. Dykes outstanding but
unvested stock options, which had a weighted average exercise
price of $13.65 per share, and (ii) extension of the
expiration date of approximately 1.5 million of
Mr. Dykes stock options to five years after his
employment termination date. These stock options would otherwise
have expired ninety days after the termination of his employment. |
The amounts set forth in the column entitled Value
Realized represent the fair market value of the ordinary
shares underlying the option on the date of exercise less the
aggregate exercise price of the option.
In addition, the table includes the number of shares covered by
both exercisable and unexercisable stock options as of
March 31, 2005. Also reported are values of
in-the-money options that represent the positive
spread between the respective exercise prices of outstanding
stock options and $12.04 per share, which was the closing
price per ordinary share as reported on the NASDAQ National
Market on March 31, 2005, the last
19
day of trading for fiscal year 2005. These values, unlike the
amounts set forth in the column entitled Value
Realized, have not been realized.
Employment Contracts and Termination of Employment and
Change-in-Control Arrangements.
|
|
|
Employment Agreement with Michael E. Marks |
On July 8, 2005, one of our U.S. subsidiaries,
Flextronics International USA, Inc., which we refer to as
Flextronics USA, entered into an employment agreement with
Mr. Marks. The employment agreement, which has an effective
date of July 8, 2005, generally provides that
Mr. Marks will (i) continue to serve as our Chief
Executive Officer until a transition date of January 31,
2006 or such earlier date mutually agreed upon by the parties
and (ii) subject to his re-election at the 2006 Annual
General Meeting of Shareholders and unless earlier terminated as
set forth in the employment agreement, serve as our Chairman of
the Board of Directors for a transition period from the
transition date until at least July 1, 2009, which we refer
to as the termination date. The employment agreement outlines
certain terms related to Mr. Markss continued service
to us, including terms providing that Mr. Marks is to
receive: (i) a salary at his current rate of pay until
July 1, 2007, (ii) no cash bonuses beginning on the
transition date, (iii) no director compensation for periods
prior to the termination date, (iv) payment of a salary of
$5,000 per month from July 1, 2007 until the
termination date, (v) health insurance until the
termination date and medical and dental benefits for the
remainder of Mr. Markss life following the
termination date, (vi) disability insurance until the
termination date, (vii) the right to continue to make
contributions to his 401(k) plan until the termination date,
(viii) personal use of our corporate jets beginning on the
termination date, subject to availability, and subject to
Mr. Markss reimbursement of our variable cost as
determined by Flextronics USA in its sole discretion,
(ix) no additional grants of stock options in
Mr. Markss capacity as an employee,
(x) acceleration of vesting of options if the termination
date occurs prior to July 1, 2009 as a result of a
resignation requested by the Board of Directors under certain
circumstances, and (xi) no director equity compensation for
periods prior to the termination date. Under the employment
agreement, Mr. Marks is bound by certain conflict of
interest and non-solicitation restrictions, and will remain
bound by an existing confidentiality agreement.
|
|
|
Supplemental Executive Retirement Plan for Michael E.
Marks |
On May 18, 2004, we established a supplemental executive
retirement plan for Mr. Marks under which potential cash
payments are made based on the increase in value, if any, under
a Contingent Share Award for 1,000,000 notional ordinary shares
of Flextronics based on a price of $17.40 per share (a 10%
premium above the $15.82 closing price of our ordinary shares on
the NASDAQ Stock Market on May 18, 2004). Under this plan,
once the 30-day average trading price of our share price at the
end of any quarter exceeds $17.40, a cash payment would be made
to a rabbi trust for the benefit of Mr. Marks in an amount
equal to the net increase in value over $17.40 multiplied by the
1,000,000 notional shares. At the end of each subsequent
quarter, if the 30-day average trading price of our share price
has further increased since the last quarter for which a cash
payment was made under the plan, an additional payment would be
made in an amount equal to the additional net increase in value
since such prior quarter multiplied by 1,000,000 notional
shares. On August 17, 2004, we entered into an amendment to
the supplemental retirement plan with Mr. Marks in which we
granted Mr. Marks an additional Supplemental Deferred
Contingent Stock Award for 500,000 notional shares at an
exercise price equal to $11.00 per share ($0.06 above the
closing price of our ordinary shares on the NASDAQ Stock Market
on August 17, 2004). Under this additional award, once the
30-day average trading price of our share price at the end of
any quarter exceeds $11.00, a cash payment would be made to the
rabbi trust in an amount equal to the net increase in value over
$11.00 multiplied by the 500,000 notional shares. At the end of
each subsequent quarter, if the 30-day average trading price of
our share price has further increased since the last quarter for
which a cash payment was made under the plan, an additional
payment would be made in an amount equal to the additional net
increase in value since such prior quarter multiplied by
500,000 notional shares. The total cash payments under the
plan, as amended, may not exceed $7,500,000 in the aggregate
over the life of the plan, and no payments will be made
following the termination of Mr. Markss employment.
Upon Mr. Markss death or disability or upon a change
of control of the company, the entire $7,500,000 will be
credited to the rabbi trust. All amounts credited to
Mr. Markss account will be made only
20
in cash (no shares will be issued under this plan), and all cash
contributions shall be fully vested and non-forfeitable.
|
|
|
Flextronics International USA, Inc. 2005 Senior Executive
Deferred Compensation Plan |
On July 7, 2005, the Compensation Committee approved the
Flextronics International USA, Inc. 2005 Senior Executive
Deferred Compensation Plan, which we refer to as the Senior
Executive Plan. Michael M. McNamara and Thomas J. Smach are the
Named Executive Officers who are initially designated as
eligible to participate in the Senior Executive Plan. Under the
Senior Executive Plan, a participant may defer all or a part of
his or her compensation in accordance with the applicable
deferral agreement executed by the participant. The deferred
compensation is credited to a deferral account established for
each participant under the Senior Executive Plan for
recordkeeping purposes. Amounts credited to a deferral account
are deemed to be invested in hypothetical investments selected
by an investment manager on behalf of each participant. Under
the Senior Executive Plan, which is an unfunded plan,
Flextronics USA established an irrevocable trust into which
Flextronics USA is required to deposit cash or other assets as
specified in the applicable deferral agreement, equal to the
aggregate amount required to be credited to the
participants deferral account, less any applicable taxes
required to be withheld.
On July 7, 2005, the Compensation Committee approved award
agreements providing for deferred long-term incentive bonuses in
return for services to be performed in the future to
Mr. McNamara, Mr. Smach and Mr. Tan. The deferred
bonuses will not be paid currently, but will be, in the case of
Mr. McNamara and Mr. Smach, credited to such
persons deferral account under the Senior Executive Plan,
and, in the case of Mr. Tan, credited to an account with a
mutually acceptable brokerage firm.
The amounts of the deferred bonuses are as follows:
|
|
|
|
|
Named Executive Officer |
|
Amount | |
|
|
| |
Michael M. McNamara
|
|
$ |
5,000,000 |
|
Thomas J. Smach
|
|
$ |
3,000,000 |
|
Peter Tan
|
|
$ |
3,200,000 |
|
The deferred bonuses for Mr. McNamara and Mr. Smach
vest as follows: (i) 10% will vest on April 1, 2006;
(ii) an additional 15% will vest on April 1, 2007;
(iii) an additional 20% will vest on April 1, 2008;
(iv) an additional 25% will vest on April 1, 2009; and
(v) an additional 30% will vest on April 1, 2010. The
deferred bonuses for Mr. McNamara and Mr. Smach will
be 100% vested upon a change of control (as defined in the
Senior Executive Plan) if they are employed at that time or if
their employment is terminated as a result of death or
disability.
The deferred bonus for Mr. Tan vests as follows:
(i) 0% will be paid if Mr. Tans employment is
terminated for any reason (other than death or disability)
before April 1, 2008; (ii) 50% will be paid if
Mr. Tans employment is terminated (other than as a
result of death or disability) on or after April 1, 2008;
and (iii) 100% will be paid if Mr. Tans
employment is terminated on or after April 1, 2009. 100% of
the deferred bonus will be paid to Mr. Tan if his
employment is terminated as a result of death or disability.
On July 7, 2005, the Compensation Committee approved the
payment of a $500,000 cash bonus to Mr. Nilsson as part of
the pending separation of his employment with us in connection
with the pending merger of our Flextronics Network Services
business with Telavie AS, a company wholly-owned by Altor, a
private equity firm focusing on investments in the Nordic region.
21
|
|
|
Amendment of Option Agreements with and Lump-Sum Cash
Payment to Robert R.B. Dykes |
In connection with Mr. Dykess resignation from his
position as our Chief Financial Officer and President, Systems
Group on December 14, 2004 and in view of the absence of
any provision of pension or similar post-retirement benefits for
Mr. Dykes, we agreed to amend certain of
Mr. Dykess stock option agreements to provide for:
(i) full acceleration of vesting of approximately
1.2 million of Mr. Dykess outstanding but
unvested stock options, which had a weighted average exercise
price of $13.65 per share; and (ii) the extension of
the expiration date of approximately 1.5 million of
Mr. Dykess stock options to five years after his
employment termination date. These options would otherwise have
expired ninety days after the termination of his employment. In
addition, we made a lump-sum cash payment of $2,033,739 to
Mr. Dykes in connection with his resignation.
|
|
|
Change in Control Arrangements Under Option
Agreements |
Our option agreements with our executive officers provide that
if the executive officer is terminated without cause or leaves
for good reason within the first 12 months following a
change in control of the company, the vesting of any unvested
portion of the option will be accelerated in full. If the
executive officer is still employed upon the first year
anniversary of such a change of control of the company, the
vesting of any unvested portion of the option will be
accelerated in full. Each option includes a limited stock
appreciation right pursuant to which the option will
automatically be cancelled upon the occurrence of certain
hostile tender offers, in return for a cash distribution from us
based on the tender offer price per share.
OTHER EQUITY COMPENSATION PLANS
As of March 31, 2005, we maintained the 2004 Award Plan for
New Employees, the 2002 Interim Incentive Plan, the 2001 Equity
Incentive Plan and the 1997 Employee Share Purchase Plan. The
2001 Equity Incentive Plan and 1997 Employee Share Purchase Plan
were approved by our shareholders. Neither the 2004 Award Plan
for New Employees nor the 2002 Interim Incentive Plan is subject
to shareholder approval.
The following table gives information about equity awards under
these plans as of March 31, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) | |
|
(B) | |
|
(C) | |
| |
|
|
Number of Ordinary Shares | |
|
|
Remaining Available for | |
|
|
Number of Ordinary | |
|
Weighted-Average | |
|
Future Issuance Under | |
|
|
Shares to be Issued | |
|
Exercise Price of | |
|
Equity Compensation Plans | |
|
|
Upon Exercise of | |
|
Outstanding | |
|
(Excluding Ordinary Shares | |
Plan Category |
|
Outstanding Options | |
|
Options | |
|
Reflected in Column (A)) | |
|
|
| |
|
| |
|
| |
Equity compensation plans approved by shareholders
|
|
|
29,824,395 |
|
|
$ |
15.06 |
|
|
|
23,071,462 |
(1) |
Equity compensation plans not approved by shareholders(2)(3)(4)
|
|
|
21,713,418 |
|
|
$ |
11.28 |
|
|
|
1,909,746 |
(5) |
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
51,537,813 |
|
|
$ |
13.47 |
|
|
|
24,981,208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Of these, 23,071,462 ordinary shares remained available for
grant under the 2001 Equity Incentive Plan. There are no
additional ordinary shares available for grant under the 1993
Equity Incentive Plan and the 1997, 1998 and 1999 Interim Option
Plans, which were consolidated into the 2001 Equity Incentive
Plan in September 2004. |
|
(2) |
The 2004 Award Plan for New Employees, which we refer to as the
2004 Plan, was established in October 2004. The purpose of the
2004 Plan is to provide incentives to attract, retain and
motivate eligible persons whose potential contributions are
important to our success by offering such persons an opportunity
to participate in our future performance through stock awards.
Grants under the 2004 Plan may be granted only to persons who:
(a) were not previously an employee or director of
Flextronics or any parent or subsidiary of Flextronics or
(b) have either (i) completed a period of bona fide |
22
|
|
|
non-employment by Flextronics, and any parent or subsidiary of
Flextronics, of at least 1 year, or (ii) are returning
to service as an employee of Flextronics, or any parent or
subsidiary of Flextronics, after a period of bona fide
non-employment of less than 1 year due to
Flextronicss acquisition of such persons employer;
and then only as an incentive to such persons entering into
employment with Flextronics or any parent or subsidiary of
Flextronics. We may only grant nonqualified stock options or
stock bonuses under the 2004 Plan. The 2004 Plan is administered
by the Compensation Committee, which is comprised of two
independent directors. The 2004 Plan provides for grants of up
to 7,500,000 shares. The exercise price of options granted
under the 2004 Plan is determined by the Compensation Committee
and may not be less than the fair market value of the underlying
stock on the date of grant. Options granted under the 2004 Plan
generally vest over four years and generally expire ten years
from the date of grant. |
|
(3) |
Our 2002 Interim Incentive Plan, which we refer to as the 2002
Plan, was adopted by our Board in May 2002. The adoption of the
2002 Plan was necessitated by our internal growth, our multiple
acquisitions and the requirement to provide equity compensation
for employees consistent with competitors and peer companies.
The Board reserved an aggregate of 20,000,000 ordinary shares
for issuance under the 2002 Plan. The 2002 Plan provides for the
grant to qualified persons of non-statutory stock options to
purchase our ordinary shares. Shares subject to options granted
pursuant to the 2002 Plan that expire or terminate for any
reason without being exercised will again become available for
grant and issuance pursuant to awards under the 2002 Plan.
Options granted under the 2002 Plan have an exercise price of
not less than 85% of the fair market value of the underlying
ordinary shares on the date of grant. Options issued under the
2002 Plan generally vest over a four-year period and expire ten
years from the date of grant. The other general terms of the
2002 Plan are similar to the 2001 Equity Incentive Plan. |
|
(4) |
Companies acquired by us have adopted option plans, which we
refer to as the Assumed Plans. Options to purchase a total of
6,040,588 ordinary shares under the Assumed Plans have been
assumed. These options have a weighted average exercise price of
$5.89 per share. These options have been converted into
options to purchase our ordinary shares on the terms specified
in the applicable acquisition agreement, but are otherwise
administered in accordance with terms of the Assumed Plans.
Options under the Assumed Plans generally vest over four years
and expire 10 years from the date of grant. No further
awards may be made under the Assumed Plans. Options outstanding
under the Assumed Plans are not included in the above table. |
|
(5) |
Of these, 459,021 ordinary shares remained available for grant
under the 2002 Plan and 1,450,725 ordinary shares remained
available for grant under the 2004 Plan. On May 12, 2005,
our Board of Directors approved an increase of 2.5 million
ordinary shares available for grant under the 2004 Plan. |
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Notwithstanding anything to the contrary set forth in any of
our previous filings under the Securities Act or the Exchange
Act which might incorporate this Proxy Statement by reference to
future filings under those statutes, the following Compensation
Committee Report on Executive Compensation will not be deemed to
be soliciting material or filed or
incorporated by reference into any of those previous filings,
nor will such report be incorporated by reference into any
future filings made by us under those statutes or subject to the
liabilities of Section 18 of the Exchange Act.
We comprise the Compensation Committee of the Board of Directors
of Flextronics International Ltd. Each member of the
Compensation Committee is a non-employee director within the
meaning of Rule 16b-3 under the Exchange Act and an outside
director within the meaning of Section 162(m) of the
U.S. Internal Revenue Code of 1986, as amended. In
addition, each of us is an independent director as
defined by the rules of the NASDAQ Stock Market. The
Compensation Committee makes determinations with respect to the
compensation of Flextronicss chief executive officer and
all other executive officers and supervises the administration
of Flextronicss equity incentive plans, including the
granting of stock options to eligible participants under those
plans.
23
The Compensation Committee held eight meetings during fiscal
year 2005. The Board has adopted a Compensation Committee
Charter that is available on Flextronicss website at
http://www.flextronics.com/
Investors/corporateGovernance.asp.
General Compensation Policy. The Compensation
Committees general compensation policy is that the
compensation of Flextronicss chief executive officer and
all other executive officers should be based on the performance
of such officers in light of the goals and objectives determined
by the Compensation Committee. In determining the long-term
incentive component of the compensation of these officers, the
Compensation Committee considers Flextronicss performance
and relative shareholder return, the value of similar incentive
awards to similarly situated officers at comparable companies
and the awards given to such officers in the past. The principal
factors taken into account in establishing each executive
officers compensation package are summarized below.
Additional factors may be taken into account to a lesser degree,
and the relative weight given to each factor varies with each
individual at the discretion of the Compensation Committee. The
Compensation Committee may, at its discretion, apply entirely
different factors, such as different measures of financial
performance, for future fiscal years.
Cash-Based Compensation. The Compensation Committee sets
base salary for executive officers on the basis of personal
performance and internal and industry comparability
considerations. The Committee has not found it practicable to
assign relative weights to specific factors in determining base
salary adjustments, and the specific factors used may vary among
individual executives.
The Compensation Committee awards quarterly bonuses generally
based upon the level of quarterly earnings growth. The
Committees practice is to set targeted bonus amounts based
upon a percentage of the executives base salary, which for
fiscal year 2005 was 150% for the Chief Executive Officer and
75% for the other Named Executive Officers. Actual bonuses may
range from 0% to 200% of the targeted bonus based upon
Flextronicss performance. In the cases of
Messrs. Nilsson and Tan, 50% of their awards are based upon
Flextronicss quarterly earnings growth and 50% of their
awards are based upon business unit quarterly financial results.
Based upon Flextronicss year over year quarterly earnings
growth in fiscal 2005 (and in the cases of Messrs. Nilsson
and Tan, also the quarterly financial results of their
respective business units), our Chief Executive Officer received
an annual bonus equal to 189% of his targeted annual bonus, and
the other Named Executive Officers (other than Mr. Dykes
who retired in December 2004) received annual bonuses ranging
between 121% and 194% of their targeted annual bonuses. In the
case of Mr. Dykes, he received quarterly bonuses for the
first three quarters equal to 192% of his targeted quarterly
bonuses. In connection with his resignation, Mr. Dykes also
received a lump-sum cash payment as described in the
Summary Compensation Table.
Flextronics also has a 401(k) retirement savings plan for
U.S. employees to which it can contribute a portion of
profits and such contribution is allocated to eligible
participants in proportion to their total compensation for the
year relative to the total aggregate compensation for all
eligible participants. Contributions made in fiscal 2005 are
shown in the Summary Compensation Table.
Long-Term Equity-Based Compensation. The Compensation
Committee grants stock options, which are designed to align the
interests of Flextronicss executive officers with those of
the shareholders and provide each individual with a significant
incentive to manage Flextronics from the perspective of an
owner, with an equity stake in the business. Generally, each
grant allows the officer to acquire Flextronicss ordinary
shares at a fixed price per share (the market price on the grant
date) over a period of up to ten years, thus providing a return
to the officer only if he or she remains in Flextronicss
employ and the market price of the shares appreciates over the
option term. The size of the option grant to each executive
officer generally is set at a level that is intended to create a
meaningful opportunity for share ownership based upon the
individuals current position with Flextronics, but also
taken into account are the individuals potential for
future responsibility and promotion over the option term, the
individuals personal performance in recent periods and the
number of options held by the individual at the time of grant.
The relative weight given to these factors varies with each
individual at the sole discretion of the Compensation Committee.
Chief Executive Officer Compensation.
Mr. Markss base salary is based on our expectation of
his personal performance and comparisons to the base salaries of
other Flextronicss executive officers and in the
24
industry. With respect to Mr. Markss base salary, the
Compensation Committee intended to provide him with a level of
stability and certainty each year and not have this particular
component of compensation affected to any significant degree by
short-term company performance factors. For fiscal year 2005,
Mr. Marks received a base salary of $985,000.
For fiscal year 2005, Mr. Marks received an annual bonus of
$2,795,350, which bonus was determined as described above under
Cash-Based Compensation. Mr. Marks also
received options for 2,375,000 shares during fiscal year
2005, which award was determined in accordance with the criteria
described above under Long-Term Equity-Based
Compensation. In addition, as described above under
Supplemental Executive Retirement Plan, Flextronics
established a supplemental executive retirement plan for
Mr. Marks under which potential cash payments are made
based on the increase in value, if any, under Contingent Share
Awards for notional shares of Flextronics. In fiscal 2005,
Flextronics contributed $1,554,286 to a rabbi trust established
to secure benefits under this plan.
Deduction Limit for Executive Compensation.
Section 162(m) of the Internal Revenue Code limits federal
income tax deductions for compensation paid to the chief
executive officer and the four other most highly compensated
officers of a public company to $1.0 million per year, but
contains an exception for performance-based compensation that
satisfies certain conditions. Compensation paid by Flextronics
to these executives is not subject to any material limitation on
deductibility.
|
|
|
Submitted by the Compensation Committee of the Board of
Directors: |
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|
Richard L. Sharp |
|
Michael J. Moritz |
25
AUDIT COMMITTEE REPORT
Notwithstanding anything to the contrary set forth in any of
our previous filings under the Securities Act or the Exchange
Act which might incorporate this Proxy Statement by reference to
future filings under those statutes, the following Audit
Committee Report will not be deemed to be soliciting
material or filed or incorporated by reference
into any of those previous filings, nor will such report be
incorporated by reference into any future filings made by us
under those statutes or subject to the liabilities of
Section 18 of the Exchange Act.
The Audit Committee assists the Board of Directors in overseeing
Flextronicss financial accounting and reporting processes
and systems of internal controls. The Audit Committee also
evaluates the performance and independence of Flextronicss
independent auditors. The Audit Committee operates under a
written charter, a copy of which was filed as Annex A to
our proxy statement filed on August 27, 2003 for our 2003
Annual General Meeting. Under the written charter, the Audit
Committee must consist of at least three directors, all of whom
must be independent as defined by the Exchange Act
and the rules of the SEC and the NASDAQ Stock Market. The
current members of the committee are Mr. Foley,
Mr. Moritz and Mr. Davidson. Each is an independent
director as defined by the applicable rules of the NASDAQ Stock
Market.
Flextronicss financial and senior management supervise its
systems of internal controls and the financial reporting
process. Flextronicss independent auditors perform an
independent audit of Flextronicss consolidated financial
statements in accordance with generally accepted auditing
standards and express opinions on these consolidated financial
statements and managements assessment of the effectiveness
of Flextronicss internal control over financial reporting.
In addition, Flextronicss independent auditors express its
own opinion on the effectiveness of Flextronicss internal
control over financial reporting. The Audit Committee monitors
these processes.
The Audit Committee has reviewed and discussed with both the
management of Flextronics and its independent auditors
Flextronicss audited consolidated financial statements for
the fiscal year ended March 31, 2005, managements
assessment of the effectiveness of Flextronicss internal
control over financial reporting and Flextronicss
independent auditors evaluation of Flextronicss
internal control over financial report. Flextronicss
management represented to the Audit Committee that its audited
consolidated financial statements were prepared in accordance
with accounting principles generally accepted in the United
States of America.
The Audit Committee also discussed with Flextronicss
independent auditors the matters required to be discussed by
Statement on Auditing Standards No. 61, Communication with
Audit Committees, as may be modified or supplemented. The Audit
Committee has also received from Flextronicss independent
auditors the written disclosures and letter required by
Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees, and has discussed with
Flextronicss independent auditors the independence of that
firm. The Audit Committee has also considered whether the
provision of non-audit services by Flextronicss
independent auditors is compatible with maintaining the
independence of the independent auditors. The Audit
Committees policy is to pre-approve all audit and
permissible non-audit services provided by the independent
auditors. All audit and permissible non-audit services performed
by the independent auditors during fiscal year 2005 and fiscal
year 2004 were pre-approved by the Audit Committee in accordance
with established procedures.
26
Based on the Audit Committees discussions with the
management of Flextronics and Flextronicss independent
auditors and based on the Audit Committees review of
Flextronicss audited consolidated financial statements
together with the reports of Flextronicss independent
auditors on the consolidated financial statements and the
representations of Flextronicss management with regard to
these consolidated financial statements, the Audit Committee
recommended to Flextronicss Board of Directors that the
audited consolidated financial statements be included in
Flextronicss Annual Report on Form 10-K for the
fiscal year ended March 31, 2005, which was filed with the
SEC on June 14, 2005.
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Submitted by the Audit Committee of the Board of Directors: |
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Patrick Foley |
|
Michael J. Moritz |
|
James A. Davidson |
27
STOCK PRICE PERFORMANCE GRAPH
The graph below compares the cumulative total shareholder return
on our ordinary shares, the Standard & Poors 500
Stock Index and a peer group comprised of Benchmark Electronics,
Inc., Celestica, Inc., Jabil Circuit, Inc., Sanmina-SCI
Corporation and Solectron Corporation.
The graph below assumes that $100 was invested in our ordinary
shares, in the Standard & Poors 500 Stock Index
and in the peer group described above on March 31, 2000 and
reflects the annual return through March 31, 2005, assuming
dividend reinvestment.
The comparisons in the graph below are based on historical data
and are not indicative of, or intended to forecast, the possible
future performances of our ordinary shares.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG FLEXTRONICS INTERNATIONAL LTD., THE S&P 500
INDEX
AND A PEER GROUP
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* |
$100 invested on 3/31/00 in stock or index, including
reinvestment of dividends. Fiscal year ending March 31. |
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2000 |
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2001 |
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2002 |
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2003 |
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2004 |
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2005 |
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Flextronics International Ltd.
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$ |
100.00 |
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$ |
42.59 |
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$ |
51.82 |
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$ |
24.76 |
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$ |
48.52 |
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$ |
34.19 |
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S&P 500 Index
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100.00 |
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78.32 |
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78.51 |
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59.07 |
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79.82 |
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85.16 |
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Peer Group
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100.00 |
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53.71 |
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40.46 |
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16.64 |
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29.75 |
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21.64 |
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28
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information as of May 15,
2005 regarding the beneficial ownership of our ordinary shares
by:
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each shareholder known to us to be the beneficial owner of more
than 5% of our ordinary shares outstanding as of May 15,
2005; |
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each Named Executive Officer (except for Robert R.B. Dykes, who
resigned on December 14, 2004); |
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each director; and |
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all Named Executive Officers (except for Robert R.B. Dykes, who
resigned on December 14, 2004) and directors as a group. |
Information in this table as to our directors and Named
Executive Officers is based upon information supplied by these
individuals. Information in this table as to our 5% shareholders
is based solely upon the Schedules 13G filed by these
shareholders with the SEC. Where information regarding
shareholders is based on Schedules 13G, the number of shares
owned is as of the date for which information was provided in
such schedules.
Beneficial ownership is determined in accordance with the rules
of the SEC that deem shares to be beneficially owned by any
person who has voting or investment power with respect to such
shares. Ordinary shares subject to options that are exercisable
within 60 days of May 15, 2005 are deemed to be
outstanding and to be beneficially owned by the person holding
such options for the purpose of computing the percentage
ownership of such person but are not treated as outstanding for
the purpose of computing the percentage ownership of any other
person. Unless otherwise indicated below, the persons and
entities named in the table have sole voting and sole investment
power with respect to all the shares beneficially owned, subject
to community property laws where applicable.
In the table below, percentage ownership is based on 569,157,694
ordinary shares outstanding as of May 15, 2005.
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Shares Beneficially Owned | |
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Name and Address of Beneficial Owner |
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Number of Shares | |
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Percent | |
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| |
5% Shareholders:
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Entities associated with AXA Financial, Inc.(1)
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78,149,958 |
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13.73 |
% |
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1290 Avenue of the Americas |
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New York, NY 10104 |
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Entities associated with FMR Corp.(2)
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58,948,750 |
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10.36 |
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82 Devonshire Street
Boston, MA 02109 |
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Entities associated with Capital Research and Management
Company(3)
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30,398,500 |
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5.34 |
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333 South Hope Street
Los Angeles, CA 90071 |
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Named Executive Officers and Directors:
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James A. Davidson(4)
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18,659,216 |
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3.17 |
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Michael E. Marks(5)
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8,170,059 |
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1.42 |
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Richard L. Sharp(6)
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2,479,400 |
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* |
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Michael M. McNamara(7)
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2,772,547 |
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* |
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Thomas J. Smach(8)
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1,438,878 |
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* |
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Ronny Nilsson(9)
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780,833 |
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* |
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Peter Tan(10)
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434,250 |
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* |
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Michael J. Moritz(11)
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460,880 |
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* |
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Patrick Foley(12)
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53,448 |
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* |
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Lip-Bu Tan(13)
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41,941 |
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* |
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All Named Executive Officers and directors as a group (10
persons)(14)
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35,291,452 |
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5.91 |
% |
29
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(1) |
Based on information supplied by AXA Financial, Inc. in an
amended Schedule 13G filed with the SEC on
February 14, 2005. Advest, Inc. is deemed to have shared
voting power and shared dispositive power for 34,111 of these
shares. Alliance Capital Management L.P. is deemed to have sole
voting power for 47,885,828 of these shares, shared voting power
for 6,345,783 of these shares and sole dispositive power for
78,103,347 of these shares. AXA Equitable Life Insurance Company
has sole dispositive power for 8,100 of these shares. A majority
of these shares are held by unaffiliated third-party client
accounts managed by Alliance Capital Management L.P., as
investment adviser. Each of Advest Inc., Alliance Capital
Management L.P. and AXA Equitable Life Insurance Company is a
subsidiary of AXA Financial, Inc. |
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(2) |
Based on information supplied by FMR Corp. in an amended
Schedule 13G filed with the SEC on February 14, 2005.
FMR Corp., as a result of acting as an investment adviser, is
deemed to beneficially own all of these shares. FMR Corp. is
deemed to have sole voting power for 4,103,180 of these shares
and sole dispositive power for 58,948,750 of these shares. |
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(3) |
Based on information supplied by Capital Research and Management
Company in an amended Schedule 13G filed with the SEC on
February 14, 2005. Capital Research and Management Company,
as a result of acting as an investment adviser, is deemed to
beneficially own all of these shares. |
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(4) |
Includes 18,571,427 shares issuable upon the conversion of
$195 million in aggregate principal amount of our
convertible junior subordinated notes due March 20, 2008,
based on the current conversion price of $10.50 per share,
45,740 shares held by the Davidson Revocable Trust of which
Mr. Davidson is a trustee, 5,000 shares held directly
by Mr. Davidson, 94 shares held by the John Alexander
Davidson Trust of which Mr. Davidson is a trustee and
36,955 shares subject to options exercisable within
60 days of May 15, 2005. Mr. Davidson received
these options in connection with his service as a member of our
Board. Under Mr. Davidsons arrangements with respect
to director compensation, these 35,638 shares issuable upon
exercise of options are expected to be assigned by
Mr. Davidson to Silver Lake Technology Management, L.L.C.
The 18,571,427 shares are issuable to a group of investment
funds as the holders of such notes in the following amounts:
(i) 18,013,107 shares issuable to Silver Lake Partners
Cayman, L.P.; (ii) 506,814 shares issuable to Silver
Lake Investors Cayman, L.P.; and (iii) 51,506 shares
issuable to Silver Lake Technology Investors Cayman, L.P. The
sole general partner of each of Silver Lake Partners Cayman,
L.P. and Silver Lake Investors Cayman, L.P. is Silver Lake
Technology Associates Cayman, L.P. The sole general partner of
each of Silver Lake Technology Associates Cayman, L.P. and
Silver Lake Technology Investors Cayman, L.P. is Silver Lake
(Offshore) AIV GP Ltd. Mr. Davidson is a director and
shareholder of Silver Lake (Offshore) AIV GP Ltd. As
such, Mr. Davidson could be deemed to have shared voting or
dispositive power over these shares. Mr. Davidson, however
disclaims beneficial ownership of these shares, except to the
extent of his pecuniary interest therein. |
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(5) |
Includes 2,296,059 shares held by Epping Investment
Holdings, LLC of which Mr. Marks and his spouse are
managing members, 1,250,000 shares held by the Marks Family
Trust, 24,000 shares held by a trust for
Mr. Markss minor children and 4,600,000 shares
subject to options exercisable within 60 days of
May 15, 2005. |
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(6) |
Includes 480,000 shares beneficially owned by Bethany, LLC
of which Mr. Sharp is a manager. Also includes
53,448 shares subject to options exercisable within
60 days of May 15, 2005. |
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(7) |
Includes 2,175,000 shares subject to options exercisable
within 60 days of May 15, 2005. |
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(8) |
Includes 1,320,000 shares subject to options exercisable
within 60 days of May 15, 2005. |
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(9) |
Includes 645,833 shares subject to options exercisable
within 60 days of May 15, 2005. |
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(10) |
Includes 418,250 shares subject to options exercisable
within 60 days of May 15, 2005. |
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(11) |
Includes 407,432 shares held directly by the Maximus Trust
of which Mr. Moritz is a co-trustee. Also includes
53,448 shares subject to options exercisable within
60 days of May 15, 2005. |
|
(12) |
Includes 53,448 shares subject to options exercisable
within 60 days of May 15, 2005. |
30
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(13) |
Includes 5,000 shares held by the Lip-Bu Tan and Ysa Loo,
TTEES of which Mr. Tan is a co-trustee and
36,761 shares subject to options exercisable within
60 days of May 15, 2005. |
|
(14) |
Includes 9,393,143 shares subject to options exercisable
within 60 days of May 15, 2005. Also includes
18,571,427 shares issuable upon the conversion of
$195 million in aggregate principal amount of our
convertible junior subordinated notes due March 20, 2008,
of which Mr. Davidson could be deemed to have shared voting
or dispositive power. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Other than compensation agreements and other arrangements, which
are described in Executive Compensation, and the
transactions described below, during fiscal year 2005, there was
not, nor is there currently proposed, any transaction or series
of similar transactions to which we were or will be a party:
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in which the amount involved exceeded or will exceed
$60,000; and |
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in which any director, nominee, executive officer, holder of
more than 5% of our ordinary shares or any member of their
immediate family had or will have a direct or indirect material
interest. |
Loans to Executive Officers
Michael M. McNamara. On December 12, 2001,
Flextronics USA loaned $6,000,000 to Mr. McNamara.
Mr. McNamara executed a promissory note in favor of
Flextronics USA that bears interest at a rate of 2.48% per
year and matures on December 12, 2004. The loan has been
fully repaid as of March 31, 2005.
Thomas J. Smach. On April 3, 2000, Flextronics USA
loaned $1,000,000 to Mr. Smach. Mr. Smach executed a
Loan and Security Agreement and a promissory note in favor of
Flextronics USA that did not bear interest and matured on
April 3, 2005. The loan has been fully repaid as of
March 31, 2005.
Other Loans to Executive Officers
In connection with an investment partnership of our executive
officers, Glouple Ventures LLC, one of our subsidiaries,
Flextronics International, NV, which we refer to in this section
as Flextronics NV, has loaned the following amounts to each of
Messrs. McNamara, Nilsson and Smach, pursuant to promissory
notes executed by each in favor of Flextronics NV, which bear
interest at the rates indicated below and mature on
August 15, 2010:
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Date |
|
Amount of Loan | |
|
Interest Rate | |
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| |
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| |
July 2000
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|
$ |
309,335 |
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6.40 |
% |
August 2000
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202,858 |
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6.22 |
|
November 2000
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997,336 |
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6.09 |
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August 2001
|
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151,107 |
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5.72 |
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November 2001
|
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117,269 |
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5.05 |
|
December 2001
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33,594 |
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5.05 |
|
As of March 31, 2005, the remaining aggregate outstanding
balance of the indebtedness of each executive was $1,811,499,
including accrued interest, which is the largest aggregate
amount of indebtedness outstanding during fiscal year 2005.
Investment by Silver Lake Partners
During fiscal 2003, we issued a $200.0 million zero coupon,
zero yield, convertible junior subordinated note maturing in
2008 in a private placement transaction to funds associated with
Silver Lake Partners. In connection with the issuance of the
notes, we appointed James A. Davidson, a founder and managing
member of Silver Lake Partners, to our Board of Directors in
March 2003 upon completion of the transaction.
31
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE
Section 16(a) of the Exchange Act requires our directors
and executive officers, and persons who own more than 10% of our
ordinary shares to file initial reports of ownership and reports
of changes in ownership with the SEC. Such persons are required
by SEC regulations to furnish us with copies of all
Section 16(a) forms that they file. Based solely on our
review of the copies of such forms furnished to us and written
representations from our executive officers and directors, we
believe that all Section 16(a) filing requirements for the
year ended March 31, 2005 were met, except that
Mr. McNamara failed to timely file a Form 4 in
November 2004 reporting the sale of 150,000 ordinary shares.
SHAREHOLDER PROPOSALS FOR THE 2006 ANNUAL GENERAL MEETING
Shareholder proposals intended to be considered at the 2006
Annual General Meeting must be received by us no later than
120 days prior to
August , 2006. Any
shareholder proposals must be mailed to our principal
U.S. offices located at 2090 Fortune Drive, San Jose,
California, 95131, U.S.A., Attention: Chief Executive Officer.
These shareholder proposals may be included in our proxy
statement for the 2006 Annual General Meeting so long as they
are provided to us on a timely basis and satisfy the other
conditions set forth in applicable rules and regulations
promulgated by the SEC.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We incorporate by reference the following sections of our Annual
Report on Form 10-K for the fiscal year ended
March 31, 2005:
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Item 8, Financial Statements and Supplementary
Data; |
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Item 7, Managements Discussion and Analysis of
Financial Condition and Results of Operations; and |
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Item 7A, Quantitative and Qualitative Disclosures
About Market Risk. |
SINGAPORE STATUTORY FINANCIAL STATEMENTS
Our Annual Report on Form 10-K for the fiscal year ended
March 31, 2005, which was filed with the SEC on
June 14, 2005, is enclosed with this Proxy Statement. The
Annual Report on Form 10-K includes our consolidated
financial statements, prepared in conformity with accounting
principles generally accepted in the United States of America,
or U.S. GAAP, together with the Independent Auditors
Report of Deloitte & Touche LLP, our independent
auditors for the fiscal year ended March 31, 2005. We
publish our U.S. GAAP financial statements in
U.S. dollars, which is the principal currency in which we
conduct our business.
Our Singapore statutory financial statements, prepared in
conformity with the provisions of the Companies Act, are also
enclosed with this Proxy Statement, as required under Singapore
law.
Our Singapore statutory financial statements include:
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our consolidated financial statements (which are identical to
those included in the Annual Report on Form 10-K, described
above); |
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supplementary financial statements (which reflect solely our
standalone financial results, with our subsidiaries accounted
for under the equity method rather than consolidated, and which
we refer to in this section as the Parent financial statements); |
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a Directors Report; and |
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|
the Auditors Report of Deloitte & Touche, our
Singapore statutory auditors for the fiscal year ended
March 31, 2005. |
32
OTHER MATTERS
Management does not know of any matters to be presented at the
2005 Annual General Meeting other than those set forth herein
and in the Notice accompanying this Proxy Statement.
It is important that your shares be represented at the meeting,
regardless of the number of shares which you hold. You are,
therefore, urged to execute promptly and return the accompanying
proxy card in the envelope which has been enclosed for your
convenience.
Shareholders who are present at the meeting may revoke their
proxies and vote in person or, if they prefer, may abstain from
voting in person and allow their proxies to be voted.
|
|
|
By Order of the Board of Directors |
|
|
Bernard Liew Jin Yang |
|
Yap Lune Teng |
|
Joint Secretaries |
August , 2005
Singapore
We will furnish without charge to each person to whom this
Proxy Statement is delivered, upon written or oral request of
such person, a copy of any exhibit listed in our Annual Report
on Form 10-K for the fiscal year ended March 31, 2005.
You may request a copy of this information at no cost, by
writing or telephoning us at:
Flextronics International Ltd.
2090 Fortune Drive
San Jose, California 95131 U.S.A.
Attention: Investor Relations
Telephone: (408) 576-7722
33
SINGAPORE STATUTORY FINANCIAL STATEMENTS
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARIES
(Incorporated in the Republic of Singapore)
(Company Registration Number 199002645H)
INDEX
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Page | |
|
|
| |
|
|
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S-2 |
|
|
|
|
S-6 |
|
|
|
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S-7 |
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|
|
|
S-8 |
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S-45 |
|
S-1
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARIES
REPORT OF THE DIRECTORS
MARCH 31, 2005
(US dollars in thousands unless otherwise designated as
Singapore dollars, S$)
The directors present their report together with the audited
financial statements of Flextronics International Ltd. (the
Parent) and the consolidated financial statements of
Flextronics International Ltd. and subsidiaries (the
Company) for the financial year ended March 31,
2005.
Directors
The directors of Flextronics International Ltd. in office
at the date of this report are:
|
|
|
Michael E. Marks |
|
Richard L. Sharp |
|
James A. Davidson |
|
Patrick Foley |
|
Michael J. Moritz |
|
Lip-Bu Tan |
Arrangements to Enable Directors to Acquire Benefits by Means
of the Acquisition of Shares and Debentures
Neither at the end of the financial year nor at any time during
the financial year did there subsist any arrangement whose
object is to enable the directors of the Parent to acquire
benefits by means of the acquisition of shares or debentures in
the Parent or any other body corporate except for the options
mentioned below.
Directors Interest in Shares and Debentures
The interest of the directors who held office at the end of the
current fiscal year (including those held by their spouses and
infant children) in the share capital or debentures of the
Parent and related corporations were as follows:
|
|
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|
|
|
|
|
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|
|
Interest Held | |
|
|
| |
|
|
As of | |
|
As of | |
Ordinary Shares, S$0.01 Each, in Flextronics International Ltd. |
|
March 31, 2004 | |
|
March 31, 2005 | |
|
|
| |
|
| |
Michael E. Marks
|
|
|
3,520,059 |
|
|
|
3,570,059 |
|
Richard L. Sharp
|
|
|
6,037,952 |
|
|
|
2,425,952 |
|
James A. Davidson
|
|
|
50,834 |
|
|
|
50,834 |
|
Michael J. Moritz
|
|
|
407,432 |
|
|
|
407,432 |
|
Lip-Bu Tan
|
|
|
5,000 |
|
|
|
5,000 |
|
Options to acquire ordinary shares, S$0.01 each, in
Flextronics International Ltd.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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As of | |
|
As of | |
|
|
|
|
|
|
March 31, 2004 | |
|
March 31, 2005 | |
|
Exercise Price | |
|
Exercisable Period | |
|
|
| |
|
| |
|
| |
|
| |
Michael E. Marks
|
|
|
600,000 |
|
|
|
|
|
|
|
14.5000 |
|
|
|
10.01.99 to 10.01.04 |
|
|
|
|
1,000,000 |
|
|
|
1,000,000 |
|
|
|
23.1875 |
|
|
|
12.20.00 to 12.20.10 |
|
|
|
|
200,000 |
|
|
|
200,000 |
|
|
|
13.9800 |
|
|
|
09.21.01 to 09.21.11 |
|
|
|
|
400,000 |
|
|
|
400,000 |
|
|
|
15.9000 |
|
|
|
10.01.01 to 10.01.11 |
|
|
|
|
5,000,000 |
|
|
|
5,000,000 |
|
|
|
7.9000 |
|
|
|
07.01.02 to 07.01.12 |
|
|
|
|
|
|
|
|
1,000,000 |
|
|
|
17.6900 |
|
|
|
04.21.04 to 04.21.14 |
|
|
|
|
|
|
|
|
1,375,000 |
|
|
|
11.5300 |
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|
08.23.04 to 08.23.14 |
|
S-2
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
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As of | |
|
As of | |
|
|
|
|
|
|
March 31, 2004 | |
|
March 31, 2005 | |
|
Exercise Price | |
|
Exercisable Period | |
|
|
| |
|
| |
|
| |
|
| |
Richard L. Sharp
|
|
|
24,000 |
|
|
|
|
|
|
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13.8750 |
|
|
|
08.27.99 to 08.27.04 |
|
|
|
|
6,000 |
|
|
|
6,000 |
|
|
|
42.0313 |
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|
|
09.21.00 to 09.21.05 |
|
|
|
|
6,000 |
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|
|
6,000 |
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|
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14.1000 |
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|
09.20.01 to 09.20.06 |
|
|
|
|
10,000 |
|
|
|
10,000 |
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|
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7.9000 |
|
|
|
07.01.02 to 07.01.07 |
|
|
|
|
12,500 |
|
|
|
12,500 |
|
|
|
9.5100 |
|
|
|
08.29.02 to 08.29.07 |
|
|
|
|
12,500 |
|
|
|
12,500 |
|
|
|
14.2200 |
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|
|
09.30.03 to 09.30.08 |
|
|
|
|
20,000 |
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|
|
20,000 |
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|
|
17.5000 |
|
|
|
01.22.04 to 01.22.09 |
|
|
|
|
|
|
|
|
20,000 |
|
|
|
10.0800 |
|
|
|
08.12.04 to 08.12.09 |
|
|
|
|
|
|
|
|
12,500 |
|
|
|
13.5300 |
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|
|
09.23.04 to 09.23.09 |
|
James A. Davidson
|
|
|
25,000 |
|
|
|
25,000 |
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|
|
9.3500 |
|
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|
03.20.03 to 03.20.08 |
|
|
|
|
6,610 |
|
|
|
6,610 |
|
|
|
14.2200 |
|
|
|
09.30.03 to 09.30.08 |
|
|
|
|
20,000 |
|
|
|
20,000 |
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|
|
17.5000 |
|
|
|
01.22.04 to 01.22.09 |
|
|
|
|
|
|
|
|
20,000 |
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|
|
10.0800 |
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|
|
08.12.04 to 08.12.09 |
|
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|
|
|
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12,500 |
|
|
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13.5300 |
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09.23.04 to 09.23.09 |
|
Patrick Foley
|
|
|
24,000 |
|
|
|
|
|
|
|
13.8750 |
|
|
|
08.27.99 to 08.27.04 |
|
|
|
|
6,000 |
|
|
|
6,000 |
|
|
|
42.0313 |
|
|
|
09.21.00 to 09.21.05 |
|
|
|
|
6,000 |
|
|
|
6,000 |
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|
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14.1000 |
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|
09.20.01 to 09.20.06 |
|
|
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10,000 |
|
|
|
10,000 |
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|
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7.9000 |
|
|
|
07.01.02 to 07.01.07 |
|
|
|
|
12,500 |
|
|
|
12,500 |
|
|
|
9.5100 |
|
|
|
08.29.02 to 08.29.07 |
|
|
|
|
12,500 |
|
|
|
12,500 |
|
|
|
14.2200 |
|
|
|
09.30.03 to 09.30.08 |
|
|
|
|
20,000 |
|
|
|
20,000 |
|
|
|
17.5000 |
|
|
|
01.22.04 to 01.22.09 |
|
|
|
|
|
|
|
|
20,000 |
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|
|
10.0800 |
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|
|
08.12.04 to 08.12.09 |
|
|
|
|
|
|
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12,500 |
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|
|
13.5300 |
|
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|
09.23.04 to 09.23.09 |
|
Michael J. Moritz
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|
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24,000 |
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|
|
|
|
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13.8750 |
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|
08.27.99 to 08.27.04 |
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|
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6,000 |
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|
|
6,000 |
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|
42.0313 |
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|
09.21.00 to 09.21.05 |
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|
|
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6,000 |
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|
|
6,000 |
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|
14.1000 |
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|
09.20.01 to 09.20.06 |
|
|
|
|
10,000 |
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|
10,000 |
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7.9000 |
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07.01.02 to 07.01.07 |
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12,500 |
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|
12,500 |
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9.5100 |
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08.29.02 to 08.29.07 |
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12,500 |
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|
12,500 |
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14.2200 |
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|
09.30.03 to 09.30.08 |
|
|
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20,000 |
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|
20,000 |
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17.5000 |
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|
01.22.04 to 01.22.09 |
|
|
|
|
|
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20,000 |
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|
|
10.0800 |
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|
|
08.12.04 to 08.12.09 |
|
|
|
|
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|
|
12,500 |
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|
13.5300 |
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09.23.04 to 09.23.09 |
|
Lip-Bu Tan
|
|
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25,000 |
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|
|
25,000 |
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9.0000 |
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|
04.03.03 to 04.03.08 |
|
|
|
|
6,165 |
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|
|
6,165 |
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|
|
14.2200 |
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|
09.30.03 to 09.30.08 |
|
|
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|
20,000 |
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|
20,000 |
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|
17.5000 |
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|
01.22.04 to 01.22.09 |
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|
|
|
|
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|
20,000 |
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|
10.0800 |
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|
08.12.04 to 08.12.09 |
|
|
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|
|
|
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|
12,500 |
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13.5300 |
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|
09.23.04 to 09.23.09 |
|
Other than as disclosed above, no other directors of the Parent
had an interest in any shares, debentures or share options of
the Parent or related corporations either at beginning or the
end of the year as recorded in the register of directors
shareholdings kept by the Parent under section 164 of the
Singapore Companies Act Chapter 50.
Directors Receipt and Entitlement to Contractual
Benefits
Since the end of the previous financial year, no director has
received or become entitled to receive a benefit which is
required to be disclosed under section 201(8) of the
Singapore Companies Act, by reason of a contract made by the
Parent or a related corporation with the director or with a firm
of which he is a member, or with a company in which he has a
substantial financial interest except for their employment
contracts.
S-3
Share Option Plans and Employee Share Purchase Plan
(Schemes)
|
|
|
2004 Award Plan (the 2004 Plan) |
During the financial year ended March 31, 2005, options for
a total of 3,617,400 Ordinary Shares in the Parent were granted
with an exercise price ranging from $12.40 to $13.35 and a
weighted average exercise price of $12.71 under the 2004 Plan.
No Ordinary Shares in the Parent were issued during the
financial year by virtue of the exercise of options granted
under the 2004 Plan. As at March 31, 2005, the number and
class of unissued shares under options granted under the 2004
Plan was 3,549,275 Ordinary Shares, net of cancellation of
options for 68,125 Ordinary Shares during financial year 2005.
The expiration dates range from November 2014 to February 2015.
|
|
|
2002 Interim Incentive Plan (the 2002
Plan) |
During the financial year ended March 31, 2005, options for
a total of 1,420,046 Ordinary Shares in the Parent were granted
with an exercise price ranging from $11.53 to $17.37 and a
weighted average exercise price of $16.26 under the 2002 Plan.
1,037,344 Ordinary Shares in the Parent were issued during the
financial year by virtue of the exercise of options granted
under the 2002 Plan. As at March 31, 2005, the number and
class of unissued shares under options granted under the 2002
Plan was 15,916,643 Ordinary Shares, net of cancellation of
options for 643,717 Ordinary Shares during financial year 2005.
The expiration dates range from July 2005 to August 2014.
|
|
|
2001 Equity Incentive Plan (the 2001
Plan) |
During the financial year ended March 31, 2005, options for
a total of 12,676,110 Ordinary Shares in the Parent were granted
under the 2001 Plan with an exercise price ranging from $10.08
to $18.19 and a weighted average exercise price of $14.18.
During financial year 2005, the Parent consolidated its 1999
Interim Option Plan (the 1999 Plan), 1998 Interim
Option Plan (the 1998 Plan), and 1997 Interim Option
Plan (the 1997 Plan) into the 2001 Plan. As such,
the remaining shares that were available under the 1999 Plan,
1998 Plan and 1997 Plan are available for grant under the 2001
Plan. No additional options will be granted under the 1999 Plan,
1998 Plan and 1997 Plan. Any options outstanding under these
plans will remain outstanding until exercised or until they
terminate or expire by their terms. Prior to the consolidation
of the above plans, options for a total of 213,500 and 534,000
Ordinary Shares in the Parent were granted under the 1998 Plan
and 1997 Plan, respectively, with an exercise price and weighted
average price of $11.53.
Pursuant to adoption of the 2001 Plan in August 2001, remaining
unissued shares under the 1993 Share Option Plan (the
1993 Plan) were made available for issuance under
the 2001 Plan, and no additional options will be granted under
the 1993 Plan.
The Parent has certain option plans and the underlying options
of companies, which the Parent has merged with or acquired (the
Assumed Plans). Options under the Assumed Plans have
been converted into the Parents options and adjusted to
effect the appropriate conversion ratio as specified by the
applicable acquisition agreement, but are otherwise administered
in accordance with the terms of the Assumed Plans. No further
option grants will be awarded under the Assumed Plans. The
Assumed Plans were consolidated into the 2001 Plan during
financial year 2005.
During financial year 2005, a total of 2,144,743 Ordinary Shares
in the Parent were issued by virtue of the exercise of options
granted under the 2001 Plan. As at March 31, 2005, the
number and class of unissued shares under options granted under
the 2001 Plan was 38,112,483 Ordinary Shares, net of
cancellation of options for 7,292,725 Ordinary Shares during
financial year 2005. The expiration dates ranges from April 2005
to February 2015.
|
|
|
Employee Share Purchase Plan (the ESPP) |
The ESPP was approved by the shareholders in October 1997. Under
the ESPP, employees may purchase, on a periodic basis, a limited
number of Ordinary Shares through payroll deductions over a
six-month period up to 10% of each participants
compensation. The per-share purchase price is 85% of the
S-4
fair market value of the shares at the beginning or end of the
offering period, whichever is lower. A total of 560,595 Ordinary
Shares were sold under the ESPP during the current financial
year. The per-share weighted average fair value of Ordinary
Shares sold under the ESPP in financial year 2005 was $11.92.
Auditors
The auditors, Deloitte & Touche, have expressed their
willingness to accept re-appointment.
|
|
|
On Behalf of the Board of Directors |
|
|
/s/ MICHAEL E. MARKS |
|
|
|
Director |
|
|
/s/ MICHAEL J. MORITZ |
|
|
|
Director |
Singapore
June 14, 2005
S-5
Statement of Directors
In the opinion of the directors, the accompanying financial
statements of Flextronics International Ltd. (the
Parent) and the consolidated financial statements of
Flextronics International Ltd. and subsidiaries (the
Company) are drawn up so as to give a true and fair
view of the state of affairs of the Parent and the Company as at
March 31, 2005, and of the results, changes in equity and
cash flows of the Company for the year then ended and at the
date of this statement there are reasonable grounds to believe
that the Parent will be able to pay its debts as and when they
fall due.
|
|
|
On Behalf of the Board of Directors |
|
|
/s/ MICHAEL E. MARKS |
|
|
|
Director |
|
|
/s/ MICHAEL J. MORITZ |
|
|
|
Director |
Singapore
June 14, 2005
S-6
Auditors Report to the Members of Flextronics
International Ltd.
We have audited the accompanying Consolidated Financial
Statements of Flextronics International Ltd. and its
subsidiaries (the Company) and the Supplementary
Financial Statements of Flextronics International Ltd. (the
Parent) for the financial year ended March 31,
2005, (collectively the statutory financial
statements). These statutory financial statements are the
responsibility of the Parents directors. Our
responsibility is to express an opinion on these statutory
financial statements based on our audit.
We conducted our audit in accordance with Singapore Standards on
Auditing. Those Standards require that we plan and perform the
audit to obtain reasonable assurance about whether the statutory
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the statutory financial statements.
An audit also includes assessing the accounting principles used
and significant estimates made by the directors, as well as
evaluating the overall financial statements presentation. We
believe that our audit provides a reasonable basis for our
opinion.
The Parent accounted for investments in subsidiaries using the
equity method. Under this method, the Parents investments
in subsidiaries are reported as a separate line in the
Parents balance sheet. Accounting principles generally
accepted in the United States of America require that these
investments be consolidated rather than reported using the
equity method.
Except for the foregoing, in our opinion:
|
|
|
a) the statutory financial statements are properly drawn up
in accordance with the provisions of the Singapore Companies
Act, Cap. 50 (Act) and accounting principles
generally accepted in the United States of America (the use
of which is approved by the Accounting and Corporate Regulatory
Authority in Singapore) so as to give a true and fair view of
the state of affairs of the Company and of the Parent as at
March 31, 2005, and of the results, changes in equity and
cash flows of the Company for the financial year then
ended; and |
|
|
b) the accounting and other records required by the Act to
be kept by the Parent and by those subsidiaries incorporated in
Singapore of which we are the auditors have been properly kept
in accordance with the provisions of the Act. |
The accompanying Consolidated Financial Statements of the
Company as of March 31, 2005, and for the year then ended,
have been audited by Deloitte & Touche LLP,
San Jose and have been included in the Annual Report for
the financial year ended March 31, 2005 filed with the
United States Securities and Exchange Commission. Together with
the Supplementary Financial Statements of the Parent, these
Consolidated Financial Statements have been reproduced for the
purposes of filing with the Accounting and Corporate Regulatory
Authority in Singapore.
/s/ DELOITTE & TOUCHE
Certified
Public Accountants
Singapore
June 14, 2005
S-7
FLEXTRONICS INTERNATIONAL LTD.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands, except | |
|
|
per share amounts) | |
ASSETS |
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
869,258 |
|
|
$ |
615,276 |
|
|
Accounts receivable, less allowance for doubtful accounts of
$31,166 and $38,736 as of March 31, 2005, and 2004,
respectively
|
|
|
1,842,010 |
|
|
|
1,871,637 |
|
|
Inventories
|
|
|
1,518,866 |
|
|
|
1,179,513 |
|
|
Deferred income taxes
|
|
|
12,117 |
|
|
|
14,244 |
|
|
Other current assets
|
|
|
544,914 |
|
|
|
581,063 |
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
4,787,165 |
|
|
|
4,261,733 |
|
Property and equipment, net
|
|
|
1,704,516 |
|
|
|
1,625,000 |
|
Deferred income taxes
|
|
|
684,952 |
|
|
|
604,785 |
|
Goodwill
|
|
|
3,359,477 |
|
|
|
2,653,372 |
|
Other intangible assets, net
|
|
|
142,712 |
|
|
|
68,060 |
|
Other assets
|
|
|
328,750 |
|
|
|
370,987 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
11,007,572 |
|
|
$ |
9,583,937 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
Bank borrowings and current portion of long-term debt
|
|
$ |
17,448 |
|
|
$ |
96,287 |
|
|
Current portion of capital lease obligations
|
|
|
8,718 |
|
|
|
8,203 |
|
|
Accounts payable
|
|
|
2,523,269 |
|
|
|
2,145,174 |
|
|
Accrued payroll
|
|
|
285,504 |
|
|
|
263,949 |
|
|
Other current liabilities
|
|
|
1,045,255 |
|
|
|
863,304 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
3,880,194 |
|
|
|
3,376,917 |
|
Long-term debt, net of current portion
|
|
|
1,700,429 |
|
|
|
1,609,177 |
|
Capital lease obligation, net of current portion
|
|
|
9,141 |
|
|
|
15,084 |
|
Other liabilities
|
|
|
193,760 |
|
|
|
215,546 |
|
Commitments and contingencies (Note 7)
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY:
|
|
|
|
|
|
|
|
|
|
Ordinary shares, S$0.01 par value; authorized
1,500,000,000 shares; issued and outstanding
568,329,662 and 529,944,282 shares as of March 31,
2005, and 2004, respectively
|
|
|
3,360 |
|
|
|
3,135 |
|
|
Additional paid-in capital
|
|
|
5,486,404 |
|
|
|
5,014,990 |
|
|
Accumulated deficit
|
|
|
(382,600 |
) |
|
|
(722,471 |
) |
|
Accumulated other comprehensive income (loss)
|
|
|
123,683 |
|
|
|
78,105 |
|
|
Deferred compensation
|
|
|
(6,799 |
) |
|
|
(6,546 |
) |
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
5,224,048 |
|
|
|
4,367,213 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$ |
11,007,572 |
|
|
$ |
9,583,937 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
S-8
FLEXTRONICS INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands, except per share amounts) | |
Net sales
|
|
$ |
15,908,223 |
|
|
$ |
14,530,416 |
|
|
$ |
13,378,699 |
|
Cost of sales
|
|
|
14,827,860 |
|
|
|
13,704,576 |
|
|
|
12,650,402 |
|
Restructuring charges
|
|
|
78,381 |
|
|
|
477,305 |
|
|
|
266,244 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,001,982 |
|
|
|
348,535 |
|
|
|
462,053 |
|
Selling, general and administrative expenses
|
|
|
568,533 |
|
|
|
487,287 |
|
|
|
456,199 |
|
Intangibles amortization
|
|
|
42,520 |
|
|
|
36,715 |
|
|
|
22,146 |
|
Restructuring charges
|
|
|
16,978 |
|
|
|
63,043 |
|
|
|
30,711 |
|
Other charges (income), net
|
|
|
(13,491 |
) |
|
|
|
|
|
|
7,456 |
|
Interest and other expense, net
|
|
|
94,205 |
|
|
|
77,700 |
|
|
|
92,780 |
|
Loss on early extinguishment of debt
|
|
|
16,328 |
|
|
|
103,909 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
276,909 |
|
|
|
(420,119 |
) |
|
|
(147,239 |
) |
Benefit from income taxes
|
|
|
(62,962 |
) |
|
|
(67,741 |
) |
|
|
(63,786 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
339,871 |
|
|
$ |
(352,378 |
) |
|
$ |
(83,453 |
) |
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.61 |
|
|
$ |
(0.67 |
) |
|
$ |
(0.16 |
) |
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$ |
0.58 |
|
|
$ |
(0.67 |
) |
|
$ |
(0.16 |
) |
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing per share amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
552,920 |
|
|
|
525,318 |
|
|
|
517,198 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
585,499 |
|
|
|
525,318 |
|
|
|
517,198 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
S-9
FLEXTRONICS INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Net income (loss)
|
|
$ |
339,871 |
|
|
$ |
(352,378 |
) |
|
$ |
(83,453 |
) |
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of taxes
|
|
|
56,255 |
|
|
|
105,963 |
|
|
|
127,518 |
|
|
Unrealized gain (loss) on investment and derivatives, net of
taxes
|
|
|
(10,667 |
) |
|
|
5,561 |
|
|
|
(1,223 |
) |
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$ |
385,449 |
|
|
$ |
(240,854 |
) |
|
$ |
42,842 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
S-10
FLEXTRONICS INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
|
|
|
|
Additional | |
|
|
|
Other | |
|
|
|
Total | |
|
|
|
|
|
|
Paid-In | |
|
Accumulated | |
|
Comprehensive | |
|
Deferred | |
|
Shareholders | |
|
|
Shares | |
|
Amount | |
|
Capital | |
|
Deficit | |
|
Income (Loss) | |
|
Compensation | |
|
Equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
BALANCE AT MARCH 31, 2002
|
|
|
513,012 |
|
|
$ |
3,043 |
|
|
$ |
4,898,807 |
|
|
$ |
(286,640 |
) |
|
$ |
(159,714 |
) |
|
$ |
|
|
|
$ |
4,455,496 |
|
Issuance of ordinary shares for acquisitions
|
|
|
1,639 |
|
|
|
3 |
|
|
|
14,709 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,712 |
|
Exercise of stock options
|
|
|
4,567 |
|
|
|
26 |
|
|
|
17,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,996 |
|
Ordinary shares issued under Employee Stock Purchase Plan
|
|
|
1,010 |
|
|
|
6 |
|
|
|
9,883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,889 |
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(83,453 |
) |
|
|
|
|
|
|
|
|
|
|
(83,453 |
) |
Deferred stock compensation
|
|
|
|
|
|
|
|
|
|
|
7,232 |
|
|
|
|
|
|
|
|
|
|
|
(7,232 |
) |
|
|
|
|
Amortization of deferred stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,085 |
|
|
|
1,085 |
|
Unrealized loss on derivative instruments, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,223 |
) |
|
|
|
|
|
|
(1,223 |
) |
Foreign currency translation adjustments, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127,518 |
|
|
|
|
|
|
|
127,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT MARCH 31, 2003
|
|
|
520,228 |
|
|
|
3,078 |
|
|
|
4,948,601 |
|
|
|
(370,093 |
) |
|
|
(33,419 |
) |
|
|
(6,147 |
) |
|
|
4,542,020 |
|
Issuance of ordinary shares for acquisitions
|
|
|
517 |
|
|
|
2 |
|
|
|
3,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,162 |
|
Exercise of stock options
|
|
|
8,235 |
|
|
|
49 |
|
|
|
54,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,825 |
|
Ordinary shares issued under Employee Stock Purchase Plan
|
|
|
718 |
|
|
|
5 |
|
|
|
6,283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,288 |
|
Issuance of restricted shares
|
|
|
246 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(352,378 |
) |
|
|
|
|
|
|
|
|
|
|
(352,378 |
) |
Deferred stock compensation
|
|
|
|
|
|
|
|
|
|
|
2,171 |
|
|
|
|
|
|
|
|
|
|
|
(2,171 |
) |
|
|
|
|
Amortization of deferred stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,772 |
|
|
|
1,772 |
|
Unrealized gain on investment and derivatives, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,561 |
|
|
|
|
|
|
|
5,561 |
|
Foreign currency translation adjustments, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105,963 |
|
|
|
|
|
|
|
105,963 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT MARCH 31, 2004
|
|
|
529,444 |
|
|
|
3,135 |
|
|
|
5,014,990 |
|
|
|
(722,471 |
) |
|
|
78,105 |
|
|
|
(6,546 |
) |
|
|
4,367,213 |
|
Issuance of ordinary shares for acquisitions
|
|
|
10,004 |
|
|
|
60 |
|
|
|
127,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127,226 |
|
Exercise of stock options
|
|
|
3,182 |
|
|
|
19 |
|
|
|
29,765 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,784 |
|
Modification of stock options grants (note 11)
|
|
|
|
|
|
|
|
|
|
|
5,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,575 |
|
Ordinary shares issued under Employee Stock Purchase Plan
|
|
|
561 |
|
|
|
3 |
|
|
|
6,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,817 |
|
Sales of ordinary shares in public offering, net of offering
costs of $4,636
|
|
|
24,331 |
|
|
|
142 |
|
|
|
299,358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
299,500 |
|
Issuance of restricted ordinary shares
|
|
|
308 |
|
|
|
1 |
|
|
|
328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
329 |
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
339,871 |
|
|
|
|
|
|
|
|
|
|
|
339,871 |
|
Deferred stock compensation
|
|
|
|
|
|
|
|
|
|
|
2,408 |
|
|
|
|
|
|
|
|
|
|
|
(2,408 |
) |
|
|
|
|
Amortization of deferred stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,155 |
|
|
|
2,155 |
|
Unrealized loss on investment and derivatives, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,677 |
) |
|
|
|
|
|
|
(10,677 |
) |
Foreign currency translation adjustments, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,255 |
|
|
|
|
|
|
|
56,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT MARCH 31, 2005
|
|
|
568,330 |
|
|
$ |
3,360 |
|
|
$ |
5,486,404 |
|
|
$ |
(382,600 |
) |
|
$ |
123,683 |
|
|
$ |
(6,799 |
) |
|
$ |
5,224,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
S-11
FLEXTRONICS INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
339,871 |
|
|
$ |
(352,378 |
) |
|
$ |
(83,453 |
) |
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization and impairment charges
|
|
|
373,670 |
|
|
|
662,798 |
|
|
|
419,086 |
|
|
Gain on sale of equipment
|
|
|
(1,752 |
) |
|
|
(2,206 |
) |
|
|
(1,200 |
) |
|
Provision for doubtful accounts
|
|
|
4,848 |
|
|
|
1,256 |
|
|
|
2,647 |
|
|
Equity in earnings (losses) of associated companies and other
charges
|
|
|
2,785 |
|
|
|
(181 |
) |
|
|
27,086 |
|
|
Amortization of deferred stock compensation
|
|
|
2,155 |
|
|
|
1,772 |
|
|
|
1,085 |
|
|
Deferred income taxes
|
|
|
(84,070 |
) |
|
|
(97,171 |
) |
|
|
(92,798 |
) |
|
Changes in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
110,907 |
|
|
|
(381,948 |
) |
|
|
496,193 |
|
|
|
Inventories
|
|
|
(105,126 |
) |
|
|
(40,302 |
) |
|
|
189,601 |
|
|
|
Other assets
|
|
|
61,341 |
|
|
|
(139,691 |
) |
|
|
127,535 |
|
|
|
Accounts payable and other current liabilities
|
|
|
19,636 |
|
|
|
535,749 |
|
|
|
(477,998 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
724,265 |
|
|
|
187,698 |
|
|
|
607,784 |
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment, net of disposition
|
|
|
(289,680 |
) |
|
|
(181,461 |
) |
|
|
(208,311 |
) |
|
Purchases of OEM facilities and related assets
|
|
|
|
|
|
|
|
|
|
|
(8,143 |
) |
|
Acquisition of businesses, net of cash acquired
|
|
|
(469,003 |
) |
|
|
(119,983 |
) |
|
|
(501,602 |
) |
|
Other investments and notes receivable
|
|
|
20,406 |
|
|
|
(102,323 |
) |
|
|
(94,990 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(738,277 |
) |
|
|
(403,767 |
) |
|
|
(813,046 |
) |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank borrowings and proceeds from long-term debt
|
|
|
1,793,969 |
|
|
|
1,446,592 |
|
|
|
892,961 |
|
|
Repayments of bank borrowings and long-term debt
|
|
|
(1,789,862 |
) |
|
|
(1,008,692 |
) |
|
|
(1,000,159 |
) |
|
Repayment of capital lease obligations
|
|
|
(10,672 |
) |
|
|
(12,613 |
) |
|
|
(24,231 |
) |
|
Payment for early extinguishment of debt
|
|
|
(13,201 |
) |
|
|
(91,647 |
) |
|
|
|
|
|
Proceeds from exercise of stock options and Employee Stock
Purchase Plan
|
|
|
36,601 |
|
|
|
61,113 |
|
|
|
27,885 |
|
|
Net proceeds from issuance of ordinary shares in public offering
|
|
|
299,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
316,335 |
|
|
|
394,753 |
|
|
|
(103,544 |
) |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate on cash
|
|
|
(48,341 |
) |
|
|
12,572 |
|
|
|
(12,298 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
253,982 |
|
|
|
191,256 |
|
|
|
(321,104 |
) |
|
Cash and cash equivalents, beginning of year
|
|
|
615,276 |
|
|
|
424,020 |
|
|
|
745,124 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$ |
869,258 |
|
|
$ |
615,276 |
|
|
$ |
424,020 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
S-12
|
|
1. |
ORGANIZATION OF THE COMPANY |
Flextronics International Ltd. (Flextronics or the
Company) was incorporated in the Republic of
Singapore in May 1990. The Company is a leading provider of
advanced electronics manufacturing services (EMS) to
original equipment manufacturers (OEMs) for a broad range of
products in the following industries: handheld devices,
computers and office automation, communications infrastructure,
consumer devices, information technology infrastructure,
industrial, automotive and medical. The Companys strategy
is to provide customers with a complete range of vertically
integrated global supply chain services through which the
Company designs, builds and ships a complete packaged product
for its OEM customers. The Companys OEM customers leverage
the Companys services to meet their product requirements
throughout the entire product life cycle. The Company also
provides after-market services such as repair and warranty
services as well as network and communications installation and
maintenance.
In addition to the assembly of printed circuit boards and
complete systems and products, the Companys manufacturing
services include the fabrication and assembly of plastic and
metal enclosures, the fabrication of printed circuit boards and
backplanes and the fabrication and assembly of photonics
components. The Company also provides contract design and
related engineering services offerings to its customers, from
full product development to system integration,
industrialization, product cost reduction and software
application development. These services include industrial and
mechanical design, hardware design, embedded and application
software development, semiconductor design, and system
validation and test development.
In addition, the Company offers a comprehensive range of
value-added design services for its customers that range from
contract design services (CDS), where the customer purchases
services on a time and materials, to original product design and
manufacturing services, where the customer purchases a product
that was designed, developed and manufactured by the Company
that the Company may customize to provide the customer with a
unique look and feel (commonly referred to as
original design manufacturing, or ODM). ODM products
are then sold by the Companys OEM customers under the
OEMs brand name.
|
|
2. |
SUMMARY OF ACCOUNTING POLICIES |
|
|
|
Basis of Presentation and Principles of
Consolidation |
The Companys fiscal year ends on March 31 of each
year. Interim quarterly reporting periods end on the Friday
closest to the last day of each fiscal quarter, except the third
and fourth fiscal quarters which end on December 31 and
March 31, respectively.
Amounts included in the financial statements are expressed in
U.S. dollars unless otherwise designated as Singapore
dollars (S$) or Euros
().
The accompanying consolidated financial statements include the
accounts of Flextronics and its wholly and majority-owned
subsidiaries, after elimination of all significant intercompany
accounts and transactions. For consolidated majority-owned
subsidiaries in which the Company owns less than 100%, the
Company records minority interest to account for the ownership
interest of the minority owner. The Company recorded
$40.8 million and $11.9 million as of March 31,
2005 and 2004, respectively, of minority interest, which are
included in other liabilities in the consolidated balance
sheets. The associated minority interest expense has not been
material to the Companys results of operations for fiscal
years 2005, 2004 and 2003, and was classified as interest and
other expense, net, in the consolidated statements of operations.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates and assumptions.
S-13
|
|
|
Translation of Foreign Currencies |
The financial position and results of operations of certain of
the Companys subsidiaries are measured using a currency
other than the U.S. dollar as their functional currency.
Accordingly, for these subsidiaries all assets and liabilities
are translated into U.S. dollars at the current exchange
rates as of the respective balance sheet date. Revenue and
expense items are translated at the average exchange rates
prevailing during the period. Cumulative gains and losses from
the translation of these subsidiaries financial statements
are reported as a separate component of shareholders
equity. During fiscal year 2005, the Company realized a foreign
exchange gain of $29.3 million from the liquidation of
certain international entities. This gain was classified as a
component of other charges (income), net, in the consolidated
statement of operations.
Manufacturing revenue is recognized when the goods are shipped
by the Company or received by its customer, title and risk of
ownership have been passed, the price to the buyer is fixed or
determinable and recoverability is reasonably assured. Service
revenue is recognized when the services have been performed.
|
|
|
Cash and Cash Equivalents |
All highly liquid investments with maturities of three months or
less from original dates of purchase are carried at fair market
value and considered to be cash equivalents. Cash and cash
equivalents consist of cash deposited in checking and money
market accounts and certificates of deposit.
Cash and cash equivalents consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Cash and bank balances
|
|
$ |
832,290 |
|
|
$ |
596,259 |
|
Money market funds
|
|
|
15,911 |
|
|
|
14,501 |
|
Certificates of deposits
|
|
|
21,057 |
|
|
|
4,516 |
|
|
|
|
|
|
|
|
|
|
$ |
869,258 |
|
|
$ |
615,276 |
|
|
|
|
|
|
|
|
The Company also has certain investments in non-publicly traded
technology companies. These investments are included within
other assets in the Companys consolidated balance sheet
and are carried at cost. As of March 31, 2005 and 2004, the
investments totaled $52.5 million and $41.9 million,
respectively. The Company continuously monitors these
investments for impairment and makes appropriate reductions in
carrying values when necessary. During fiscal year 2005 and
2003, the Company recorded charges of $8.2 million and
$7.4 million, respectively, for other than temporary
impairment of its investments in certain of these non-publicly
traded technology companies. No impairment charges were recorded
in fiscal year 2004.
|
|
|
Concentration of Credit Risk |
Financial instruments, which potentially subject the Company to
concentrations of credit risk, are primarily accounts
receivable, cash and cash equivalents, investments, and
derivative instruments.
The Company performs ongoing credit evaluations of its
customers financial condition and makes provisions for
doubtful accounts based on the outcome of its credit
evaluations. The Company generally does not require collateral
for sales on credit. Management believes that credit risks are
moderated by the financial stability of the Companys end
customers and the diverse geographic sales areas. In fiscal year
2005, Sony-Ericsson and Hewlett-Packard accounted for
approximately 14% and 10% of net sales, respectively. In fiscal
year 2004, Sony-Ericsson and Hewlett-Packard each accounted for
approximately 12% of the net sales. In fiscal year 2003,
Sony-Ericsson and Hewlett-Packard accounted for approximately
11% and 12% of net sales, respectively. No other customer
accounted for more than 10% of net sales in the periods ended
S-14
March 31, 2005, 2004 and 2003. The Companys ten
largest customers accounted for approximately 62%, 64% and 67%
of its net sales, in fiscal years 2005, 2004 and 2003,
respectively. At March 31, 2005, Sony-Ericsson and
Hewlett-Packard each accounted for approximately 10% of net
accounts receivable. At March 31, 2004, Hewlett-Packard
accounted for approximately 10% of net accounts receivable.
The Company maintains cash and cash equivalents with various
financial institutions that management believes to be of high
credit quality. These financial institutions are located in many
different locations throughout the world. The Companys
cash equivalents are comprised of cash deposited in money market
accounts and certificates of deposit. The Companys
investment policy limits the amount of credit exposure to 20% of
the total investment portfolio in any single issuer.
The amount subject to credit risk related to derivative
instruments are generally limited to the amount, if any, by
which a counterpartys obligations exceed the obligations
of the Company with that counterparty. To manage the
counterparty risk, the Company limits its derivative
transactions to those with recognized financial institutions.
Inventories are stated at the lower of cost (on a first-in,
first-out basis) or market value. Cost is comprised of direct
materials, labor and overhead. The components of inventories,
net of applicable lower of cost or market provisions, were as
follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Raw materials
|
|
$ |
711,251 |
|
|
$ |
622,905 |
|
Work-in-progress
|
|
|
306,833 |
|
|
|
242,435 |
|
Finished goods
|
|
|
500,782 |
|
|
|
314,173 |
|
|
|
|
|
|
|
|
|
|
$ |
1,518,866 |
|
|
$ |
1,179,513 |
|
|
|
|
|
|
|
|
Property and equipment are stated at cost. Depreciation and
amortization are provided on a straight-line basis over the
estimated useful lives of the related assets (three to thirty
years), with the exception of building leasehold improvements,
which are amortized over the term of the lease, if shorter.
Effective October 1, 2004, the estimated useful lives of
certain machinery and equipment were changed from five years to
seven years. The use of these assets and the advancement of the
associated technology have demonstrated that seven years is a
more reasonable and accurate economic useful life, so the
Company has aligned the depreciation expense associated with
these assets with their future economic benefit. As a result of
this change in estimated useful life, the Company recognized
lower depreciation expense of approximately $12.0 million
in fiscal year 2005 (than would have been recognized without the
change in useful life) and anticipates recognizing lower
depreciation expense of $20.7 million and
$11.5 million in fiscal years 2006 and 2007, respectively,
and higher depreciation expenses of $1.2 million,
$10.7 million, $17.1 million, $12.1 million and
$3.2 million in fiscal
S-15
years 2008, 2009, 2010, 2011 and 2012, respectively. Repairs and
maintenance costs are expensed as incurred. Property and
equipment was comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Machinery and equipment
|
|
$ |
1,451,083 |
|
|
$ |
1,333,578 |
|
Buildings
|
|
|
767,120 |
|
|
|
741,692 |
|
Leasehold improvements
|
|
|
100,218 |
|
|
|
86,133 |
|
Computer equipment and software
|
|
|
261,249 |
|
|
|
232,129 |
|
Land and other
|
|
|
370,063 |
|
|
|
358,646 |
|
|
|
|
|
|
|
|
|
|
|
2,949,733 |
|
|
|
2,752,178 |
|
Accumulated depreciation and amortization
|
|
|
(1,245,217 |
) |
|
|
(1,127,178 |
) |
|
|
|
|
|
|
|
Property and equipment, net
|
|
$ |
1,704,516 |
|
|
$ |
1,625,000 |
|
|
|
|
|
|
|
|
Total depreciation expense associated with property and
equipment amounted to approximately $309.0 million,
$311.4 million and $327.4 million in fiscal years
2005, 2004 and 2003, respectively.
The Company reviews property and equipment for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
Recoverability of property and equipment is measured by
comparing its carrying amount to the projected undiscounted cash
flows the property and equipment are expected to generate. An
impairment loss is recognized when the carrying amount of a
long-lived asset exceeds the fair value of the underlying asset.
The Company provides for income taxes in accordance with the
asset and liability method of accounting for income taxes. Under
this method, deferred income taxes are recognized for the tax
consequences of temporary differences by applying
the applicable statutory tax rate to such differences between
the financial statement carrying amounts and the tax basis of
existing assets and liabilities.
|
|
|
Goodwill and Other Intangibles |
Goodwill of the reporting units is tested for impairment on
January 31st and whenever events or changes in
circumstance indicate that the carrying amount of goodwill may
not be recoverable. Goodwill is tested for impairment at the
reporting unit level by comparing the reporting units
carrying amount, including goodwill, to the fair value of the
reporting unit. Reporting units represent components of the
Company for which discrete financial information is available to
management, and for which management regularly reviews the
operating results. For purposes of the annual goodwill
impairment evaluation, the Company has identified two separate
reporting units: Electronic Manufacturing Services and Network
Services. If the carrying amount of the reporting unit exceeds
its fair value, a second step is performed to measure the amount
of impairment loss, if any. Further, in the event that the
carrying amount of the Company as a whole is greater than its
market capitalization, there is a potential likelihood that some
or all of its goodwill would be considered impaired. The Company
completed the annual impairment test during its fourth quarter
of fiscal year 2005 and determined that no impairment existed as
of the date of the impairment test.
S-16
The following table summarizes the activity in the
Companys goodwill account during fiscal years 2005 and
2004:
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Balance, beginning of the year,
|
|
$ |
2,653,372 |
|
|
$ |
2,121,997 |
|
|
Additions
|
|
|
594,691 |
|
|
|
450,959 |
|
|
Reclassification to other intangibles*
|
|
|
(5,270 |
) |
|
|
(2,381 |
) |
|
Foreign currency translation adjustments
|
|
|
116,684 |
|
|
|
82,797 |
|
|
|
|
|
|
|
|
Balance, end of the year,
|
|
$ |
3,359,477 |
|
|
$ |
2,653,372 |
|
|
|
|
|
|
|
|
|
|
* |
Reclassification resulting from the completion of the final
allocation of the Companys intangible assets acquired
through certain business combinations in a period subsequent to
the respective period of acquisition, based on the completion of
third-party valuations. |
All of the Companys acquired intangible assets are subject
to amortization over their estimated useful lives. The
Companys intangible assets are reviewed for impairment
whenever events or changes in circumstance indicate that the
carrying amount of an intangible may not be recoverable.
Intangible assets are comprised of contractual agreements,
patents and trademarks, developed technologies, customer
relationships and other acquired intangibles. Contractual
agreements, patents and trademarks, and developed technologies
are amortized on a straight-line basis up to ten years. Other
acquired intangibles related to favorable leases and customer
relationships are amortized on a straight-line basis over three
to ten years. No residual value is estimated for the intangible
assets. During fiscal year 2005, there were approximately
$113.2 million of additions to intangible assets, primarily
related to certain customer relationships and certain
contractual agreements. During fiscal year 2004, there were
$27.1 million of additions to intangible assets, primarily
related to purchased patents, license agreements and certain
contractual agreements. The value of the Companys
intangible assets purchased through business combinations is
principally determined based on third-party valuations of the
net assets acquired. The Company is in the process of
determining the value of its intangible assets acquired from
certain acquisitions completed in fiscal year 2005 and expects
to complete this by the end of the first quarter of fiscal year
2006. The components of intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2005 | |
|
March 31, 2004 | |
|
|
| |
|
| |
|
|
Gross | |
|
|
|
Net | |
|
Gross | |
|
|
|
Net | |
|
|
Carrying | |
|
Accumulated | |
|
Carrying | |
|
Carrying | |
|
Accumulated | |
|
Carrying | |
|
|
Amount | |
|
Amortization | |
|
Amount | |
|
Amount | |
|
Amortization | |
|
Amount | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
|
(In thousands) | |
Intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual agreements
|
|
$ |
104,383 |
|
|
$ |
(58,221 |
) |
|
$ |
46,162 |
|
|
$ |
77,706 |
|
|
$ |
(31,584 |
) |
|
$ |
46,122 |
|
|
Patents and trademarks
|
|
|
8,082 |
|
|
|
(1,688 |
) |
|
|
6,394 |
|
|
|
2,611 |
|
|
|
(536 |
) |
|
|
2,075 |
|
|
Developed technologies
|
|
|
11,812 |
|
|
|
(1,231 |
) |
|
|
10,581 |
|
|
|
500 |
|
|
|
(84 |
) |
|
|
416 |
|
|
Customer relationships
|
|
|
71,353 |
|
|
|
(4,342 |
) |
|
|
67,011 |
|
|
|
3,286 |
|
|
|
(426 |
) |
|
|
2,860 |
|
|
Other acquired intangibles
|
|
|
32,619 |
|
|
|
(20,055 |
) |
|
|
12,564 |
|
|
|
28,234 |
|
|
|
(11,647 |
) |
|
|
16,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
228,249 |
|
|
$ |
(85,537 |
) |
|
$ |
142,712 |
|
|
$ |
112,337 |
|
|
$ |
(44,277 |
) |
|
$ |
68,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-17
Total intangible amortization expense recorded during fiscal
years 2005, 2004 and 2003 amounted to $42.5 million,
$36.7 million and $22.1 million, respectively.
Expected future estimated annual amortization expense is as
follows:
|
|
|
|
|
|
Fiscal Years Ending March 31, |
|
Amount | |
|
|
| |
|
|
(In thousands) | |
2006
|
|
$ |
37,547 |
|
2007
|
|
|
22,336 |
|
2008
|
|
|
19,082 |
|
2009
|
|
|
14,813 |
|
2010
|
|
|
13,876 |
|
|
Thereafter
|
|
|
35,058 |
|
|
|
|
|
|
Total amortization expenses
|
|
$ |
142,712 |
|
|
|
|
|
|
|
|
Derivative Instruments and Hedging Activities |
The Company accounts for derivative instruments and hedging
activities in accordance with SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities, as amended by SFAS No. 138,
Accounting for Certain Derivative Instruments and Hedging
Activities an Amendment of SFAS 133 and
No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. All
derivative instruments are recorded on the balance sheet at fair
value. If the derivative is designated as a cash flow hedge, the
effective portion of changes in the fair value of the derivative
is recorded in shareholders equity as a separate component
of accumulated other comprehensive income and is recognized in
the statement of operations when the hedged item affects
earnings. Ineffective portions of changes in the fair value of
cash flow hedges are immediately recognized in earnings. If the
derivative is designated as a fair value hedge, the changes in
the fair value of the derivative and of the hedged item
attributable to the hedged risk are recognized in earnings in
the current period.
|
|
|
Accounting for Stock-Based Compensation |
The Company currently maintains four stock-based employee
compensation plans, which are more fully described in
Note 9, Shareholders Equity. The Company
accounts for its stock option awards to employees under the
recognition and measurement principles of Accounting Principles
Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees and related interpretations. No
compensation expense is recorded for options granted in which
the exercise price equals or exceeds the market price of the
underlying stock on the date of grant in accordance with the
provisions of APB Opinion No. 25.
On December 16, 2004, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standard
No. 123 (revised 2004), Share-Based Payments
(SFAS 123R). SFAS 123R eliminates the
alternative of applying the intrinsic value measurement
provisions of Opinion 25 to stock compensation awards issued to
employees and requires companies to measure the cost of employee
services received in exchange for an award of equity instruments
based on the grant-date fair value of the award. That cost will
be recognized over the period during which an employee is
required to provide services in exchange for the award (usually
the vesting period).
SFAS 123(R) permits public companies to adopt its
requirements using one of two methods:
|
|
|
1. Modified Prospective Application Method: Under
this method SFAS 123R is applied to new awards and to
awards modified, repurchased, or cancelled after the effective
date. Compensation cost for the portion of awards for which
service has not been rendered (such as unvested options) that
are outstanding as of the date of adoption shall be recognized
as the remaining services are rendered. The compensation cost
relating to unvested awards at the date of adoption shall be
based on the grant-date fair value of those awards as calculated
for pro forma disclosures under the original SFAS 123. |
S-18
|
|
|
2. Modified Retrospective Application Method:
Companies may also use the Modified Retrospective Application
Method for all prior years for which the original SFAS 123
was effective or only to prior interim periods in the year of
initial adoption. If the Modified Retrospective Application
Method is applied, financial statements for prior periods shall
be adjusted to give effect to the fair-value-based method of
accounting for awards on a consistent basis with the pro forma
disclosures required for those periods under the original
SFAS 123. |
On April 14, 2005, the Securities and Exchange Commission
(or the SEC) adopted a rule amendment that delayed
the compliance dates for SFAS 123R such that the Company is
now allowed to adopt the new standard no later than
April 1, 2006. The Company has not yet quantified the
effects of the adoption of SFAS 123R, but it is expected
that it will result in significant stock-based compensation
expense. The pro forma effects on net income (loss) and earnings
(loss) per share if the Company had applied the fair value
recognition provisions of original SFAS 123 on stock
compensation awards (rather than applying the intrinsic value
measurement provisions of Opinion 25) are disclosed in the
following table. Although such pro forma effects of applying
original SFAS 123 may be indicative of the effects of
adopting SFAS 123R, the provisions of these two statements
differ in some important respects. The actual effects of
adopting SFAS 123R will be dependent on numerous factors
including, but not limited to, the valuation model chosen by the
Company to value stock-based awards; the assumed award
forfeiture rate; the accounting policies adopted concerning the
method of recognizing the fair value of awards over the service
period; and the transition method chosen for adopting
SFAS 123R. The Company is currently evaluating option
valuation methodologies and assumptions in light of
SFAS 123R.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Net income (loss), as reported
|
|
$ |
339,871 |
|
|
$ |
(352,378 |
) |
|
$ |
(83,453 |
) |
Add: Stock-based employee compensation expense included in
reported net income (loss), net of tax
|
|
$ |
2,155 |
|
|
$ |
1,772 |
|
|
$ |
1,085 |
|
Less: Fair value compensation costs, net of taxes
|
|
|
(175,981 |
) |
|
|
(54,623 |
) |
|
|
(72,911 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss)
|
|
$ |
166,045 |
|
|
$ |
(405,229 |
) |
|
$ |
(155,279 |
) |
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
0.61 |
|
|
$ |
(0.67 |
) |
|
$ |
(0.16 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
$ |
0.30 |
|
|
$ |
(0.77 |
) |
|
$ |
(0.30 |
) |
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
0.58 |
|
|
$ |
(0.67 |
) |
|
$ |
(0.16 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
$ |
0.29 |
|
|
$ |
(0.77 |
) |
|
$ |
(0.30 |
) |
|
|
|
|
|
|
|
|
|
|
On January 17, 2005, the Companys Board of Directors
approved accelerating the vesting of all out-of-the-money,
unvested options to purchase the Companys ordinary shares
held by current employees, including executive officers. No
options held by non-employee Directors were subject to the
acceleration. All options priced above $12.98, the closing price
of the Companys ordinary shares on January 17, 2005,
were considered to be out-of-the-money. The acceleration was
effective as of January 17, 2005, provided that holders of
incentive stock options (ISOs) within the meaning of
Section 422 of the Internal Revenue Code of 1986, as
amended, had the opportunity to decline the acceleration of ISO
options in order to prevent changing the status of the ISO
option for federal income tax purposes to a non-qualified stock
option.
The acceleration of these options was done primarily to
eliminate future compensation expense the Company would
otherwise recognize in its income statement with respect to
these options upon the adoption of SFAS 123R. In addition,
because these options have exercise prices in excess of current
market values and are not fully achieving their original
objectives of incentive compensation and employee retention,
management believes that the acceleration may have a positive
effect on employee morale and retention. The future
S-19
expense that was eliminated was approximately
$121.2 million (of which approximately $26.4 million
is attributable to options held by executive officers). This
amount is reflected in the pro forma footnote disclosure above.
In accordance with the disclosure provisions of
SFAS No. 123, the fair value of employee stock options
granted during fiscal years 2005, 2004 and 2003 were estimated
at the date of grant using the Black-Scholes model and the
following weighted average assumptions. The fiscal year 2003 pro
forma net loss and net loss per share presented above have been
revised. The changes did not impact the Companys
consolidated statements of operations in 2003.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Volatility
|
|
|
79.4 |
% |
|
|
84.8 |
% |
|
|
77.0 |
% |
Risk-free interest rate
|
|
|
3.0 |
% |
|
|
2.3 |
% |
|
|
3.8 |
% |
Dividend yield
|
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
Expected option lives
|
|
|
3.8 years |
|
|
|
3.8 years |
|
|
|
3.6 years |
|
In fiscal year 2003, 2004 and the first nine months of fiscal
year 2005, the Company used its historical volatility as its
basis to estimate expected volatility. In light of recent
accounting guidance related to stock options, the Company
reevaluated the volatility assumptions used to estimate the
value of employee stock options granted in the fourth quarter of
fiscal year 2005. Management determined that implied volatility
related to publicly traded options is more reflective of market
conditions and a better indicator of expected volatility than
historical volatility. As such, the volatility in fiscal year
2005 reflected a prospective change in volatility beginning in
the fourth quarter of fiscal year 2005.
The following weighted average assumptions are used in
estimating fair value related to shares issued under employee
stock purchase plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Volatility
|
|
|
41.3 |
% |
|
|
44.0 |
% |
|
|
44.0 |
% |
Risk-free interest rate
|
|
|
1.7 |
% |
|
|
1.4 |
% |
|
|
1.1 |
% |
Dividend yield
|
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
Expected option lives
|
|
|
0.5 years |
|
|
|
0.5 years |
|
|
|
0.5 years |
|
Due to the subjective nature of the assumptions used in the
Black-Scholes model, the pro forma net income (loss) and net
income (loss) per share disclosures may not reflect the
associated fair value of the outstanding options.
The Company provides restricted stock grants to key employees
under its 2002 Interim Incentive Plan. Shares awarded under the
plan vest in installments over a five-year period and unvested
shares are forfeited upon termination of employment. During
fiscal year 2005, 175,000 shares of restricted stock were
granted with a fair value on the date of grant of
$13.58 per share. During fiscal year 2004,
230,000 shares of restricted stock were granted with a fair
value on the date of grant of $10.88 per share. During
fiscal year 2003, 1,230,000 shares of restricted stock were
granted with a fair value on the date of grant of $5.88 per
share. The unearned compensation associated with the restricted
stock grants was $6.8 million and $6.5 million as of
March 31, 2005 and March 31, 2004, respectively. The
amounts are included in shareholders equity as a component
of additional paid-in capital. Grants of restricted stock are
recorded as compensation expense over the vesting period at the
fair market value of the stock at the date of grant. In fiscal
years 2005, 2004 and 2003, compensation expense related to the
restricted stock grants amounted to $2.2 million,
$1.8 million and $1.1 million, respectively.
|
|
|
Earnings (Loss) Per Share |
Basic earnings (loss) per share is computed using the weighted
average number of ordinary shares outstanding during the
applicable periods.
S-20
Diluted earnings (loss) 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, as well as shares issuable upon conversion of debt
instruments.
Earnings (loss) per share was computed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands, except per share amounts) | |
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
339,871 |
|
|
$ |
(352,378 |
) |
|
$ |
(83,453 |
) |
|
Shares used in computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average ordinary shares outstanding
|
|
|
552,920 |
|
|
|
525,318 |
|
|
|
517,198 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$ |
0.61 |
|
|
$ |
(0.67 |
) |
|
$ |
(0.16 |
) |
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
339,871 |
|
|
$ |
(352,378 |
) |
|
$ |
(83,453 |
) |
|
Shares used in computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average ordinary shares outstanding
|
|
|
552,920 |
|
|
|
525,318 |
|
|
|
517,198 |
|
|
|
Weighted average ordinary share equivalents from Stock options
and awards(1)
|
|
|
12,956 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average ordinary share equivalents from convertible
notes(2)
|
|
|
19,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average ordinary shares and ordinary share equivalents
outstanding
|
|
|
585,499 |
|
|
|
525,318 |
|
|
|
517,198 |
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$ |
0.58 |
|
|
$ |
(0.67 |
) |
|
$ |
(0.16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Due to the Companys reported net loss, the ordinary share
equivalents from stock options and restricted stock to
purchase 13,668,419 and 8,730,635 shares outstanding
were excluded from the computation of diluted earnings (loss)
per share during fiscal years 2004 and 2003, respectively,
because the inclusion would be anti- dilutive for the periods. |
|
|
|
Also, the ordinary share equivalents from stock options to
purchase 24,186,135, 14,750,432 and 26,010,567 shares
outstanding during fiscal years 2005, 2004 and 2003,
respectively, were excluded from the computation of diluted
earnings (loss) per share because the exercise price of these
options was greater than the average market price of the
Companys ordinary shares during the respective periods. |
|
|
(2) |
Ordinary share equivalents from the zero coupon convertible
junior subordinated notes of 19,047,619 and 809,772 shares
outstanding were anti-dilutive in fiscal years 2004 and 2003,
respectively. Therefore, these are not assumed to be converted
for diluted earnings (loss) per share computation. Such shares
were included as common stock equivalents during fiscal year
2005. |
|
|
|
In addition, the ordinary share equivalents from the principal
portion of the 1% convertible subordinated notes due August
2010 are excluded from the computation of diluted earnings
(loss) per share, as the Company has the positive intent and
ability to settle the principal amount of the notes in cash. The
Company intends to settle any conversion spread (excess of
conversion value over face value) in stock. Accordingly, 575,587
ordinary shares equivalents from the conversion spread have been
included in the shares used for computation of diluted earnings
per share during fiscal 2005. The ordinary shares equivalent of
851,274 from the conversion spread were anti-dilutive in fiscal
year 2004, and therefore, these were excluded from the
computation of diluted earnings (loss) per share during fiscal
year 2004. No such shares were outstanding during fiscal year
2003. |
S-21
|
|
|
Recent Accounting Pronouncements |
In November 2004, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards No. 151, Inventory Costs, an amendment of ARB
No. 43, Chapter 4 (SFAS 151).
This statement amends the guidance of ARB. No 43, Chapter 4
Inventory Pricing and requires that abnormal amounts
of idle facility expense, freight, handling costs, and wasted
material be recognized as current period charges. In addition,
this statement requires that allocation of fixed production
overheads to the costs of conversion be based on the normal
capacity of the production facilities. SFAS 151 is
effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. The Company does not
anticipate that the implementation of this standard will have a
material impact on its financial position, results of operations
or cash flows.
|
|
|
Accounting and Disclosure Guidance for the Foreign Earnings
Repatriation Provision within the American Jobs Creation Act of
2004 |
FASB Staff Position (FSP) No. 109-2,
Accounting and Disclosure Guidance for the Foreign
Earnings Repatriation Provision within the American Jobs
Creation Act of 2004 (FSP 109-2), provides
guidance under SFAS No. 109, Accounting for
Income Taxes, with respect to recording the potential
impact of the repatriation provisions of the American Jobs
Creation Act of 2004 (the Jobs Act) on income tax
expense and deferred tax liabilities. The Jobs Act was enacted
on October 22, 2004. FSP 109-2 states that an
enterprise is allowed time beyond the financial reporting period
of enactment to evaluate the effect of the Jobs Act on its plan
for reinvestment or repatriation of foreign earnings for
purposes of applying SFAS No. 109. The Company is
currently assessing the impact of this provision and has not
determined whether to elect to apply it. Any effect on the
Companys tax accounts will be reflected in the quarter in
which a decision is made to apply the provision.
See Note 2, Accounting for Stock-Based
Compensation.
|
|
|
Exchanges of Nonmonetary Assets |
On December 16, 2004, the FASB issued Statement
No. 153, Exchanges of Nonmonetary Assets, an
amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions. SFAS No. 153 addresses the
measurement of exchanges of nonmonetary assets and redefines the
scope of transactions that should be measured based on the fair
value of the assets exchanged. SFAS No. 153 is
effective for nonmonetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005. The Company does not
believe adoption of SFAS No. 153 will have a material
effect on its consolidated financial position, results of
operations or cash flows.
|
|
|
Implicit Variable Interests under FASB Interpretation
No. 46 (revised December 2003), Consolidation of Variable
Interest Entities |
In March 2005, the FASB issued FSP No. 46(R)-5,
Implicit Variable Interests under FASB Interpretation
No. 46 (revised December 2003), Consolidation of Variable
Interest Entities (FSP 46(R)-5), which
provides guidance for a reporting enterprise on whether it holds
an implicit variable interest in a variable interest entity
(VIE) or potential VIE when specific conditions exist. FSP
46(R)-5 is effective the first period beginning after
March 3, 2005. The Company is currently evaluating the
effect that the adoption of FSP 46(R)-5 will have on its
consolidated results of operations and financial condition but
does not expect it to have a material impact.
S-22
The Company has reclassified certain prior year information to
conform to the current years presentation.
|
|
3. |
SUPPLEMENTAL CASH FLOW DISCLOSURES |
The following table represents supplemental cash flow disclosure
and non-cash investing and financing activities during the
fiscal year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Net cash paid for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
76,060 |
|
|
$ |
89,244 |
|
|
$ |
107,395 |
|
|
Income taxes
|
|
$ |
24,246 |
|
|
$ |
36,356 |
|
|
$ |
11,348 |
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment acquired under capital lease obligations
|
|
$ |
6,091 |
|
|
$ |
18,713 |
|
|
$ |
|
|
|
Issuance of ordinary shares for acquisition of businesses
|
|
$ |
127,226 |
|
|
$ |
3,162 |
|
|
$ |
14,712 |
|
|
|
4. |
BANK BORROWINGS AND LONG-TERM DEBT |
Bank borrowings and long-term debt was comprised of the
following:
|
|
|
|
|
|
|
|
|
|
|
March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Short term bank borrowings
|
|
$ |
10,304 |
|
|
$ |
89,335 |
|
0.00% convertible junior subordinated notes
|
|
|
200,000 |
|
|
|
200,000 |
|
9.875% senior subordinated notes, net of discount
|
|
|
7,659 |
|
|
|
7,659 |
|
9.75% Euro senior subordinated notes
|
|
|
7,432 |
|
|
|
181,422 |
|
1.0% convertible subordinated notes
|
|
|
500,000 |
|
|
|
500,000 |
|
6.5% senior subordinated notes
|
|
|
399,650 |
|
|
|
399,650 |
|
6.25% senior subordinated notes
|
|
|
490,270 |
|
|
|
|
|
Outstanding under revolving lines of credit
|
|
|
|
|
|
|
220,000 |
|
Other
|
|
|
102,562 |
|
|
|
107,398 |
|
|
|
|
|
|
|
|
|
|
|
1,717,877 |
|
|
|
1,705,464 |
|
Current portion
|
|
|
(17,448 |
) |
|
|
(96,287 |
) |
|
|
|
|
|
|
|
Non-current portion
|
|
$ |
1,700,429 |
|
|
$ |
1,609,177 |
|
|
|
|
|
|
|
|
Maturities for the Companys bank borrowings and other
long-term debt are as follows:
|
|
|
|
|
|
Fiscal Years Ending March 31, |
|
Amount | |
|
|
| |
|
|
(In thousands) | |
2006
|
|
$ |
17,448 |
|
2007
|
|
|
28,417 |
|
2008
|
|
|
200,000 |
|
2009
|
|
|
|
|
2010
|
|
|
|
|
Thereafter
|
|
|
1,472,012 |
|
|
|
|
|
|
Total
|
|
$ |
1,717,877 |
|
|
|
|
|
S-23
|
|
|
Revolving Credit Facilities and Other Credit Lines |
The Company has a revolving credit facility, which as of
March 31, 2005, was in the amount of $1.1 billion, and
under which there were no borrowings outstanding as of
March 31, 2005. On May 27, 2005, the Company amended
the credit facility to increase the amount of the facility to
$1.35 billion and to make certain other changes. The
amended credit facility consists of two separate credit
agreements, one providing for up to $1.105 billion
principal amount of revolving credit loans to the Company and
its designated subsidiaries; and one providing for up to
$245.0 million principal amount of revolving credit loans
to a U.S. subsidiary of the Company. The amended credit
facility is a five-year facility expiring in May 2010.
Borrowings under the amended credit facility bear interest, at
the Companys option, either at (i) the base rate (the
greater of the agents prime rate or 0.50% plus the federal
funds rate) plus the applicable margin for base rate loans
ranging between 0.0% and 0.125%, based on the Companys
credit ratings; or (ii) the LIBOR rate plus the applicable
margin for LIBOR loans ranging between 0.625% and 1.125%, based
on the Companys credit ratings. The Company is required to
pay a quarterly commitment fee ranging from 0.125% to
0.250% per annum of the unutilized portion of the credit
facility and, if the utilized portion of the facility exceeds
33% of the total commitment, a quarterly utilization fee ranging
between 0.125% to 0.250% on such utilized portion, in each case
based on the Companys credit ratings. The Company is also
required to pay letter of credit usage fees ranging between
0.625% and 1.125% per annum (based on the Companys
credit ratings) on the amount of the daily average outstanding
letters of credit and issuance fees of 0.125% per annum on
the daily average undrawn amount of letters of credit.
The amended credit facility is unsecured, and contains certain
restrictions on the Companys and its subsidiaries
ability to (i) incur certain debt, (ii) make certain
investments, (iii) make certain acquisitions of other
entities, (iv) incur liens, (v) dispose of assets,
(vi) make non-cash distributions to shareholders, and
(vii) engage in transactions with affiliates. These
covenants are subject to a number of significant exceptions and
limitations. The amended credit facility also requires that the
Company maintain a maximum ratio of total indebtedness to EBITDA
(earnings before interest expense, taxes, depreciation and
amortization), and a minimum fixed charge coverage ratio, as
defined, during the term of the credit facility. Borrowings
under the credit facility are guaranteed by the Company and
certain of its subsidiaries.
Certain subsidiaries of the Company have various lines of credit
available with annual interest rates ranging from 3.97% to
15.0%. These lines of credit expire on various dates through
fiscal year 2006. The Company also has term loans with annual
interest rates ranging from 4.63% to 10.25%. These lines of
credit and term loans are primarily secured by assignment of
account receivables and assets.
|
|
|
9.75% Euro Senior Subordinated Notes |
In March 2005, the Company paid approximately
$190.1 million to redeem
144.2 million
of 9.75% euro senior subordinated notes due July 2010. In
connection with the redemption, the Company incurred a loss of
approximately $16.3 million in fiscal year 2005 associated
with the early extinguishment of the notes.
|
|
|
6.25% Senior Subordinated Notes |
In November 2004, the Company issued $500.0 million of
6.25% senior subordinated notes due in November 2014, for
net proceeds of $493.0 million, of which
$469.0 million was used to pay down the then outstanding
balance on the Companys existing revolving credit facility.
The Company may redeem the notes in whole or in part at
redemption prices of 103.125%, 102.083% and 101.042% of the
principal amount thereof if the redemption occurs during the
respective 12-month periods beginning on November 15 of the
years 2009, 2010 and 2011, and at a redemption price of 100% of
the principal amount thereof on and after November 15,
2012, in each case, plus any accrued and unpaid interest to the
redemption date. In addition, if the Company generates net cash
proceeds from certain equity offerings on or before
November 15, 2007, the Company may redeem up to 35% in
aggregate principal amount of the Notes at a redemption price of
106.25% of the principal amount of the Notes to be redeemed,
plus accrued and unpaid interest to the redemption date.
S-24
The indenture governing the Companys outstanding
6.25% senior subordinated notes contain certain covenants
that, among other things, limit the ability of the Company and
its restricted subsidiaries to (i) incur additional debt,
(ii) issue or sell stock of certain subsidiaries,
(iii) engage in certain asset sales, (iv) make
distributions or pay dividends, (v) purchase or redeem
capital stock, or (vi) engage in transactions with
affiliates. The covenants are subject to a number of significant
exceptions and limitations.
|
|
|
1.0% Convertible Subordinated Notes |
In August 2003, the Company issued $500.0 million aggregate
principal amount of 1.0% convertible subordinated notes due
August 2010. The notes are convertible at any time prior to
maturity into ordinary shares of the Company at a conversion
price of $15.525 (subject to certain adjustments). The Company
used a portion of the net proceeds from this issuance and other
cash sources to repurchase $492.3 million of its
9.875% senior subordinated notes due July 2010. In
connection with the repurchase, the Company incurred a loss of
approximately $95.2 million during second quarter of fiscal
year 2004 associated with the early extinguishment of the notes.
|
|
|
6.5% Senior Subordinated Notes |
In May 2003, the Company issued $400.0 million of
6.5% senior subordinated notes due May 2013. In June 2003,
the Company used $156.6 million of the net proceeds from
the issuance to redeem all of its outstanding 8.75% senior
subordinated notes due October 2007, of which
$150.0 million aggregate principal was outstanding. In
connection with the redemption, the Company incurred a loss of
approximately $8.7 million during first quarter of fiscal
year 2004 associated with the early extinguishment of the notes.
The Company may redeem the notes in whole or in part at
redemption prices of 103.250%, 102.167% and 101.083% of the
principal amount thereof if the redemption occurs during the
respective 12-month periods beginning on May 15 of the years
2008, 2009 and 2010, and at a redemption price of 100% of the
principal amount thereof on and after 2011, in each case, plus
any accrued and unpaid interest to the redemption date. In
addition, if the Company generates net cash proceeds from
certain equity offerings on or before May 15, 2006, the
Company may redeem up to 35% in aggregate principal amount of
the Notes at a redemption price of 106.5% of the principal
amount of the Notes to be redeemed, plus accrued and unpaid
interest to the redemption date.
The indenture governing the Companys outstanding
6.5% senior subordinated notes contain certain covenants
that, among other things, limit the ability of the Company and
its restricted subsidiaries to (i) incur additional debt,
(ii) issue or sell stock of certain subsidiaries,
(iii) engage in certain asset sales, (iv) make
distributions or pay dividends, (v) purchase or redeem
capital stock, or (vi) engage transactions with affiliates.
The covenants are subject to a number of significant exceptions
and limitations.
|
|
|
Zero Coupon Convertible Junior Subordinated Notes |
In March 2003, the Company issued $200.0 million, zero
coupon, zero yield, convertible junior subordinated notes
maturing in March 2008. The notes are callable by the Company
after three years and do not provide a put option prior to
maturity. The notes are convertible into ordinary shares at a
conversion price of $10.50 per share and are payable in
cash or stock at maturity, at the Companys option.
As of March 31, 2005, the approximate fair values of the
Companys 9.875% notes, 9.75% notes,
6.5% notes, 6.25% notes and 1% convertible notes
based on broker trading prices were 98.625%, 106.5%, 99.25%,
95.0% and 99.0% of the face values of the notes, respectively.
The value of the Companys cash and cash equivalents,
investments, accounts receivable and accounts payable carrying
amount approximates fair value. The fair value of the
Companys long-term debt is determined based on current
broker trading prices. The Companys cash equivalents are
comprised of cash deposited in money market accounts and
certificates of deposit (see Note 2, Summary of
Accounting
S-25
Policies). The Companys investment policy limits the
amount of credit exposure to 20% of the total investment
portfolio in any single issuer.
The Company is exposed to foreign currency exchange rate risk
inherent in forecasted sales, cost of sales, and assets and
liabilities denominated in non-functional currencies. The
Company has established currency risk management programs to
protect against reductions in value and volatility of future
cash flows caused by changes in foreign currency exchange rates.
The Company enters into short-term foreign currency forward
contracts to hedge only those currency exposures associated with
certain assets and liabilities, mainly accounts receivable and
accounts payable, and cash flows denominated in non-functional
currencies. The Company does not engage in foreign currency
speculation. The credit risk of these forward contracts is
minimized since the contracts are with large financial
institutions. The Company hedges committed exposures and these
forward contracts generally do not subject the Company to risk
of accounting losses. The gains and losses on forward contracts
generally offset the gains and losses on the assets, liabilities
and transactions hedged.
The aggregate notional amount of outstanding contracts was
$2.4 billion and $1.5 billion as of March 31,
2005 and 2004, respectively. The majority of these foreign
exchange contracts expire in less than one month and almost all
expire within six months. As of March 31, 2005 and 2004,
the fair value of these short-term foreign currency forward
contracts was recorded as other current assets amounting to
$13.4 million and $8.9 million respectively. As of
March 31, 2005 and 2004, the Company had recorded in other
comprehensive income (loss) deferred losses of $6.3 million
and deferred gains of $4.3 million, respectively, relating
to the Companys foreign currency forward contracts. These
amounts are expected to be recognized in earnings over the next
twelve months. The gains and losses recognized in earnings due
to hedge ineffectiveness were immaterial for all periods
presented.
On November 17, 2004, the Company issued
$500.0 million of 6.25% senior subordinated notes due
in November 2014. Interest is payable semiannually on May 15 and
November 15. The Company entered into interest rate swap
transactions to effectively convert a portion of the fixed
interest rate debt to a variable rate debt. The swaps, which
expire in 2014, are accounted for as fair value hedges under
SFAS 133. The notional amounts of the swaps total
$400.0 million. Under the terms of the swaps, the Company
will pay an interest rate equal to the six-month LIBOR rate, set
in arrears, plus a fixed spread of 1.37% to 1.52%. In exchange,
the Company will receive a payment based on a fixed rate of
6.25%. At March 31, 2005, $9.7 million has been
recorded in other current assets to record the fair value of the
interest rate swaps, with a corresponding decrease to the
carrying value of the 6.25% senior subordinated notes on
the Consolidated Balance Sheet.
|
|
6. |
TRADE RECEIVABLES SECURIZATION |
The Company continuously sells a designated pool of trade
receivables to a third party qualified special purpose entity,
which in turn sells an undivided ownership interest to a
conduit, administered by an unaffiliated financial institution.
In addition to this financial institution, the Company
participates in the securitization agreement as an investor in
the conduit. The Company continues to service, administer and
collect the receivables on behalf of the special purpose entity
and receives a servicing fee of 1.0% of serviced receivables per
annum. The Company pays annual facility and commitment fees of
up to 0.24% for unused amounts and program fees of up to 0.34%
of outstanding amounts. The securitization agreement allows the
operating subsidiaries participating in the securitization to
receive a cash payment for sold receivables, less a deferred
purchase price receivable. The Companys share of the total
investment varies depending on certain criteria, mainly the
collection performance on the sold receivables. The agreement,
which expires in March 2006, is subject to annual renewal.
At March 31, 2005, the unaffiliated financial
institutions maximum investment limit was
$250 million. The Company has sold $249.9 million and
$328.0 million of its accounts receivable as of
March 31, 2005 and 2004, respectively, which represent the
face amount of the total outstanding trade receivables on all
designated customer accounts on those dates. The Company
received net cash proceeds of $134.7 million and
$172.1 million from the unaffiliated financial institutions
for the sale of these receivables during fiscal years 2005
and 2004, respectively. The Company has a recourse obligation
that is limited to the deferred purchase price receivable, which
approximates 5% of the total sold receivables, and its own
investment
S-26
participation, the total of which was $123.1 million and
$161.6 million as of March 31, 2005 and 2004,
respectively.
Additionally, during fiscal year 2005, the Company sold
approximately $426.0 million of receivables to a banking
institution with limited recourse, which management believes is
nominal. The outstanding balance of sold receivables, not yet
collected, was $202.1 million as of March 31, 2005.
In accordance with Statement of Financial Accounting Standards
No. 140 (SFAS 140) Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liability, the accounts receivable balances that were sold
were removed from the consolidated balance sheet and are
reflected as cash provided by operating activities in the
consolidated statement of cash flows.
|
|
7. |
COMMITMENTS AND CONTINGENCIES |
As of March 31, 2005 and 2004, the gross carrying amount of
the Companys property and equipment financed under capital
leases amounted to approximately $41.8 million and
$38.3 million, respectively. Accumulated depreciation for
property and equipment under capital leases totaled
$23.9 million and $14.7 million at March 31, 2005
and 2004, respectively. These capital leases have interest rates
ranging from 2.5% to 12.7%. The Company also leases certain of
its facilities under non-cancelable operating leases. The
capital and operating leases expire in various years through
2059 and require the following minimum lease payments:
|
|
|
|
|
|
|
|
|
|
|
|
Capital | |
|
Operating | |
Fiscal Year Ending March 31, |
|
Lease | |
|
Lease | |
|
|
| |
|
| |
|
|
(In thousands) | |
2006
|
|
$ |
9,202 |
|
|
$ |
77,497 |
|
2007
|
|
|
5,764 |
|
|
|
54,496 |
|
2008
|
|
|
1,044 |
|
|
|
36,505 |
|
2009
|
|
|
972 |
|
|
|
24,969 |
|
2010
|
|
|
690 |
|
|
|
19,549 |
|
Thereafter
|
|
|
1,207 |
|
|
|
202,900 |
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
18,879 |
|
|
$ |
415,916 |
|
|
|
|
|
|
|
|
Amount representing interest
|
|
|
(1,020 |
) |
|
|
|
|
|
|
|
|
|
|
|
Present value of total minimum lease payments
|
|
|
17,859 |
|
|
|
|
|
|
Current portion
|
|
|
(8,718 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligation, net of current portion
|
|
$ |
9,141 |
|
|
|
|
|
|
|
|
|
|
|
|
Total rent expense amounted to $92.3 million,
$94.1 million, and $116.3 million in fiscal years
2005, 2004 and 2003, respectively.
Included in the above remaining operating lease payments
commitments are payments under two leases located in Mexico and
Texas. Refer to Note 15, Consolidation of Variable
Interest Entities for further discussion.
On June 29, 2004, the Company entered into an asset
purchase agreement with Nortel providing for Flextronicss
purchase of certain of Nortels optical, wireless, wireline
and enterprise manufacturing operations and optical design
operations. The purchase of these assets will occur in stages,
with the first and second stages completed in November 2004 and
February 2005, and further stages scheduled in multiple phases
during fiscal year 2006. Refer to Note 13, Business
Acquisitions for further discussion.
The Company is subject to legal proceedings, claims, and
litigation arising in the ordinary course of business. The
Company defends itself vigorously against any such claims.
Although the outcome of these matters is currently not
determinable, management does not expect that the ultimate costs
to resolve these
S-27
matters will have a material adverse effect on its consolidated
financial position, results of operations, or cash flows.
The domestic (Singapore) and foreign components of
income (loss) before income taxes were comprised of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Domestic
|
|
$ |
42,374 |
|
|
$ |
19,251 |
|
|
$ |
33,628 |
|
Foreign
|
|
|
234,535 |
|
|
|
(439,370 |
) |
|
|
(180,867 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
276,909 |
|
|
$ |
(420,119 |
) |
|
$ |
(147,239 |
) |
|
|
|
|
|
|
|
|
|
|
The benefit from income taxes consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$ |
2,088 |
|
|
$ |
3,388 |
|
|
$ |
4,095 |
|
|
Foreign
|
|
|
28,516 |
|
|
|
91,282 |
|
|
|
18,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,604 |
|
|
|
94,670 |
|
|
|
22,456 |
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
870 |
|
|
|
(599 |
) |
|
|
700 |
|
|
Foreign
|
|
|
(94,436 |
) |
|
|
(161,812 |
) |
|
|
(86,942 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(93,566 |
) |
|
|
(162,411 |
) |
|
|
(86,242 |
) |
|
|
|
|
|
|
|
|
|
|
|
Benefit from income taxes
|
|
$ |
(62,962 |
) |
|
$ |
(67,741 |
) |
|
$ |
(63,786 |
) |
|
|
|
|
|
|
|
|
|
|
The domestic statutory income tax rate was approximately 20.0%
in fiscal years 2005 and 2004 and 22.0% in fiscal year 2003. The
reconciliation of the income tax benefit expected based on
domestic statutory income tax rates to the benefit for income
taxes included in the consolidated statements of operations is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Income tax based on domestic statutory rates
|
|
$ |
55,382 |
|
|
$ |
(84,024 |
) |
|
$ |
(32,392 |
) |
Effect of tax rate differential
|
|
|
(318,256 |
) |
|
|
(114,143 |
) |
|
|
(128,969 |
) |
Goodwill and other intangibles amortization
|
|
|
4,252 |
|
|
|
3,672 |
|
|
|
4,872 |
|
Change in valuation allowance
|
|
|
202,463 |
|
|
|
142,556 |
|
|
|
117,894 |
|
Other
|
|
|
(6,803 |
) |
|
|
(15,802 |
) |
|
|
(25,191 |
) |
|
|
|
|
|
|
|
|
|
|
|
Benefit from income taxes
|
|
$ |
(62,962 |
) |
|
$ |
(67,741 |
) |
|
$ |
(63,786 |
) |
|
|
|
|
|
|
|
|
|
|
S-28
The components of deferred income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Fixed assets
|
|
$ |
(37,669 |
) |
|
$ |
(39,373 |
) |
|
Intangible assets
|
|
|
(26,633 |
) |
|
|
(27,540 |
) |
|
Others
|
|
|
(3,874 |
) |
|
|
(1,684 |
) |
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(68,176 |
) |
|
|
(68,597 |
) |
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Deferred compensation
|
|
|
4,710 |
|
|
|
8,229 |
|
|
Provision for inventory obsolescence
|
|
|
14,466 |
|
|
|
15,138 |
|
|
Provision for doubtful accounts
|
|
|
1,303 |
|
|
|
3,674 |
|
|
Net operating loss and other carryforwards
|
|
|
1,564,628 |
|
|
|
1,169,906 |
|
|
Others
|
|
|
68,730 |
|
|
|
64,245 |
|
|
|
|
|
|
|
|
|
|
|
1,653,837 |
|
|
|
1,261,193 |
|
Valuation allowances
|
|
|
(888,592 |
) |
|
|
(573,567 |
) |
|
|
|
|
|
|
|
|
|
Total deferred tax asset
|
|
|
765,245 |
|
|
|
687,626 |
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$ |
697,069 |
|
|
$ |
619,029 |
|
|
|
|
|
|
|
|
Classification of net deferred tax asset:
|
|
|
|
|
|
|
|
|
|
Current
|
|
$ |
12,117 |
|
|
$ |
14,244 |
|
|
Long-term
|
|
|
684,952 |
|
|
|
604,785 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
697,069 |
|
|
$ |
619,029 |
|
|
|
|
|
|
|
|
The Company has total tax loss carryforwards of approximately
$3.9 billion, a portion of which begin expiring in 2010.
Utilization of the tax loss carryforwards and other deferred tax
assets is limited by the future earnings of the Company in the
tax jurisdictions in which such deferred assets arose. As a
result, management is uncertain as to when or whether these
operations will generate sufficient profit to realize any
benefit from the deferred tax assets. The valuation allowance
provides a reserve against deferred tax assets that may not be
realized by the Company. However, management has determined that
it is more likely than not that the Company will realize certain
of these benefits and, accordingly, has recognized a deferred
tax asset from these benefits. The change in valuation allowance
is net of certain increases and decreases to prior year losses
and other carryforwards that have no current impact on the tax
provision. Approximately $32.5 million of the valuation
allowance relates to income tax benefits arising from the
exercise of stock options, which will be credited directly to
shareholders equity and will not be available to benefit
the income tax provision in any future period.
The amount of deferred tax assets considered realizable,
however, could be reduced or increased in the near-term if
facts, including the amount of taxable income or the mix of
taxable income between subsidiaries, differ from
managements estimates.
The Company does not provide for federal income taxes on the
undistributed earnings of its foreign subsidiaries, as such
earnings are not intended by management to be repatriated in the
foreseeable future. Determination of the amount of the
unrecognized deferred tax liability on these undistributed
earnings is not practicable.
S-29
On July 27, 2004, the Company completed a public offering
of 24,330,900 of its ordinary shares for which the Company
received net proceeds of approximately $299.5 million.
|
|
|
Stock Option and Incentive Plans |
At March 31, 2005, the Company had four stock-based
employee compensation plans: the 2004 Award Plan for New
Employees (the 2004 Plan), the 2002 Interim
Incentive Plan (the 2002 Plan), the 2001 Equity
Incentive Plan (the 2001 Plan) and the 1997 Employee
Stock Purchase Plan.
The 2001 Plan provides for grants of up to
27,000,000 shares. Additionally, upon adoption of the 2001
Plan, the remaining shares that were available under the
Companys 1993 Share Option Plan (the 1993
Plan), the 1999 Interim Option Plan, the 1998 Interim
Option Plan, the 1997 Interim Option Plan, and all assumed plans
and any shares issuable upon exercise of the options granted
under those plans that expire or become unexercisable for any
reason without having been exercised in full, are available for
grant under the 2001 Plan. The adoption of the 2001 Plan
mandated that no additional options be granted under the 1993
Plan, the 1999 Interim Option Plan, the 1998 Interim Option
Plan, the 1997 Interim Option Plan, or the assumed plans. Any
options outstanding under these plans will remain outstanding
until exercised or until they terminate or expire by their
terms. The 2001 Plan contains two separate equity incentive
programs including a discretionary option grant program and an
automatic option grant program. The discretionary option grant
program is administered by the Compensation Committee with
respect to officers and directors, and by the Chief Executive
Officer with respect to all other employees.
Options granted under the 2001 Plan, the 1993 Plan, the 1999
Interim Option Plan, the 1998 Interim Option Plan, and the 1997
Interim Option Plan generally vest over four years. Options
granted under the assumed plans have varying vesting schedules.
Options granted under the 2001 Plan generally expire ten years
from the date of grant. Pursuant to an amendment to the
provisions relating to the term of options provided under the
1993 Plan, options granted subsequent to October 1, 2000
expire ten years from the date of grant, rather than the
five-year term previously provided. Options granted under the
1999 Interim Option Plan expire five years from the date of
grant. Options granted prior to July 2002 under the 1998 and
1997 Interim Option Plans expire five years from the date of
grant and all subsequent option grants generally expire ten
years from the date of grant.
The 2002 Plan provides for grants of up to
20,000,000 shares. The plan provides grants of nonqualified
stock options to employees, officers and directors. The exercise
price of options granted under the 2002 Plan is determined by
the Companys Compensation Committee and may not be less
than the fair market value of the underlying stock on the date
of grant. Options granted under the 2002 Plan generally vest
over four years and generally expire ten years from the date of
grant.
The 2004 Plan provides for grants of up to
7,500,000 shares. The plan provides grants of nonqualified
stock options to new employees. The exercise price of options
granted under the 2004 Plan is determined by the Companys
Compensation Committee and may not be less than the fair market
value of the underlying stock on the date of grant. Options
granted under the 2004 Plan generally vest over four years and
generally expire ten years from the date of grant.
The Companys 1997 Employee Stock Purchase Plan (the
Purchase Plan) provides for issuance of up to
3,400,000 ordinary shares. The Purchase Plan was approved by the
shareholders in October 1997. Under the Purchase Plan, employees
may purchase, on a periodic basis, a limited number of ordinary
shares through payroll deductions over a six-month period up to
10% of each participants compensation. The per share
purchase price is 85% of the fair market value of the stock at
the beginning or end of the offering period, whichever is lower.
The ordinary shares sold under this plan in fiscal year 2005,
fiscal year 2004 and fiscal year 2003 amounted to 560,596,
717,595, and 1,009,692, respectively. The weighted-average fair
value of ordinary shares sold under this plan in fiscal years
2005, 2004 and 2003 was $14.31, $10.30 and $11.52 per
share, respectively.
S-30
The following table presents the activity for options
outstanding under all of the stock option plans
(Price reflects the weighted average exercise price):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2005 | |
|
March 31, 2004 | |
|
March 31, 2003 | |
|
|
| |
|
| |
|
| |
|
|
Options | |
|
Price | |
|
Options | |
|
Price | |
|
Options | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Outstanding, beginning of fiscal year
|
|
|
50,303,999 |
|
|
$ |
12.86 |
|
|
|
55,682,533 |
|
|
$ |
11.35 |
|
|
|
45,641,139 |
|
|
$ |
15.00 |
|
Granted
|
|
|
18,461,056 |
|
|
|
13.94 |
|
|
|
8,841,856 |
|
|
|
15.60 |
|
|
|
19,864,076 |
|
|
|
6.97 |
|
Exercised
|
|
|
(3,182,087 |
) |
|
|
9.34 |
|
|
|
(8,235,283 |
) |
|
|
6.66 |
|
|
|
(4,567,256 |
) |
|
|
4.05 |
|
Forfeited
|
|
|
(8,004,567 |
) |
|
|
17.99 |
|
|
|
(5,985,107 |
) |
|
|
11.39 |
|
|
|
(5,255,426 |
) |
|
|
21.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of fiscal year
|
|
|
57,578,401 |
|
|
$ |
12.67 |
|
|
|
50,303,999 |
|
|
$ |
12.86 |
|
|
|
55,682,533 |
|
|
$ |
11.35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, end of fiscal year
|
|
|
40,484,074 |
|
|
|
|
|
|
|
27,638,781 |
|
|
|
|
|
|
|
31,056,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value per option granted
|
|
$ |
7.99 |
|
|
|
|
|
|
$ |
9.47 |
|
|
|
|
|
|
$ |
4.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the composition of options
outstanding and exercisable as of March 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding | |
|
Options Exercisable | |
|
|
| |
|
| |
|
|
|
|
Weighted | |
|
Weighted | |
|
|
|
Weighted | |
|
|
|
|
Average | |
|
Average | |
|
|
|
Average | |
|
|
Number of | |
|
Contractual | |
|
Exercise | |
|
Number of | |
|
Exercise | |
Range of Exercise Prices |
|
Shares | |
|
Life | |
|
Price | |
|
Shares | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
$ 0.42 - $ 5.88
|
|
|
7,053,025 |
|
|
|
4.28 |
|
|
$ |
4.63 |
|
|
|
5,998,121 |
|
|
$ |
4.41 |
|
$ 5.96 - $ 6.23
|
|
|
644,644 |
|
|
|
3.75 |
|
|
|
6.17 |
|
|
|
641,311 |
|
|
|
6.17 |
|
$ 7.13 - $ 7.90
|
|
|
11,754,976 |
|
|
|
6.84 |
|
|
|
7.88 |
|
|
|
5,265,193 |
|
|
|
7.86 |
|
$ 8.01 - $11.53
|
|
|
5,836,848 |
|
|
|
7.64 |
|
|
|
10.20 |
|
|
|
2,245,515 |
|
|
|
8.88 |
|
$11.57 - $13.18
|
|
|
7,574,965 |
|
|
|
9.47 |
|
|
|
12.68 |
|
|
|
3,120,440 |
|
|
|
13.14 |
|
$13.35 - $15.90
|
|
|
8,219,876 |
|
|
|
7.19 |
|
|
|
14.70 |
|
|
|
6,721,552 |
|
|
|
14.99 |
|
$15.95 - $17.37
|
|
|
6,948,010 |
|
|
|
8.48 |
|
|
|
16.93 |
|
|
|
6,946,960 |
|
|
|
16.93 |
|
$17.38 - $23.19
|
|
|
7,474,801 |
|
|
|
6.90 |
|
|
|
19.71 |
|
|
|
7,473,726 |
|
|
|
19.71 |
|
$23.61 - $43.00
|
|
|
2,068,956 |
|
|
|
0.41 |
|
|
|
28.43 |
|
|
|
2,068,956 |
|
|
|
28.43 |
|
$44.13 - $44.13
|
|
|
2,300 |
|
|
|
0.44 |
|
|
|
44.13 |
|
|
|
2,300 |
|
|
|
44.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 0.42 - $44.13
|
|
|
57,578,401 |
|
|
|
6.94 |
|
|
$ |
12.67 |
|
|
|
40,484,074 |
|
|
$ |
13.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10. |
RESTRUCTURING CHARGES |
In recent years, the Company has initiated a series of
restructuring activities in light of the global economic
downturn. These activities, which are intended to realign the
Companys global capacity and infrastructure with demand by
its OEM customers and thereby improve operational efficiency,
include reducing excess workforce and capacity, and
consolidating and relocating certain manufacturing and
administrative facilities to lower cost regions.
The restructuring costs include employee severance, costs
related to leased facilities, owned facilities that are no
longer in use and are to be disposed of, leased equipment that
is no longer in use and will be disposed of, and other costs
associated with the exit of certain contractual agreements due
to facility closures. The overall impact of these activities is
that the Company has shifted its manufacturing capacity to
locations with higher efficiencies and, in some instances, lower
costs, and is better utilizing its overall existing
manufacturing capacity. This has enhanced the Companys
ability to provide cost-effective manufacturing service
offerings, which enables it to retain and expand the
Companys existing relationships with customers and attract
new
S-31
business. These restructuring activities were substantially
complete as of March 31, 2004, with some smaller-scale
activities occurring in fiscal year 2005. The facility closures
and activities related to the restructuring charges were
substantially completed within one year of the commitment dates
of the respective exit plans, except for certain long-term
contractual obligations.
The Company accounts for costs associated with restructuring
activities initiated after December 31, 2002 in accordance
with SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, which
supersedes previous accounting guidance, principally Emerging
Issues Task Force Issue (EITF) No. 94-3,
Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activities.
SFAS 146 requires that the liability for costs associated
with exit or disposal of activities be recognized when the
liability is incurred.
The Company recognized restructuring charges of approximately
$95.4 million during fiscal year 2005 related to severance,
the impairment of certain long-term assets and other costs
resulting from closures and consolidations of various
manufacturing facilities. The Company has classified
$78.4 million of the charges associated with facility
closures as a component of cost of sales during fiscal year
2005. The Company currently anticipates that the facility
closures and activities to which all of these charges relate
will be substantially completed within one year of the
commitment dates of the respective activities, except for
certain long-term contractual obligations. During fiscal year
2005, the Company recorded approximately $16.3 million of
other exit costs primarily associated with contractual
obligations. As of March 31, 2005, approximately
$1.9 million is classified as long-term obligations and
will be paid throughout the term of the terminated leases.
As of March 31, 2005, assets that were no longer in use and
held for sale totaled approximately $59.3 million,
primarily representing manufacturing facilities located in the
Americas that have been closed as part of the facility
consolidations. For assets held for sale, depreciation ceases
and an impairment loss is recognized if the carrying amount of
the asset exceeds its fair value less cost to sell. Assets held
for sale are included in other assets on the consolidated
balance sheet.
S-32
The components of the restructuring charges during the first,
second, third, and fourth quarters of fiscal year 2005 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First | |
|
Second | |
|
Third | |
|
Fourth | |
|
|
|
|
|
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Total | |
|
Nature | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
|
|
Americas:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
$ |
1,793 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,793 |
|
|
|
|
|
Long-lived asset impairment
|
|
|
365 |
|
|
|
125 |
|
|
|
|
|
|
|
5,300 |
|
|
|
5,790 |
|
|
|
|
|
Other exit costs
|
|
|
1,598 |
|
|
|
321 |
|
|
|
170 |
|
|
|
|
|
|
|
2,089 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charges
|
|
|
3,756 |
|
|
|
446 |
|
|
|
170 |
|
|
|
5,300 |
|
|
|
9,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
|
|
|
|
872 |
|
|
|
|
|
|
|
|
|
|
|
872 |
|
|
|
|
|
Long-lived asset impairment
|
|
|
|
|
|
|
267 |
|
|
|
|
|
|
|
|
|
|
|
267 |
|
|
|
|
|
Other exit costs
|
|
|
|
|
|
|
1,220 |
|
|
|
|
|
|
|
|
|
|
|
1,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charges
|
|
|
|
|
|
|
2,359 |
|
|
|
|
|
|
|
|
|
|
|
2,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
17,447 |
|
|
|
15,613 |
|
|
|
29,092 |
|
|
|
1,515 |
|
|
|
63,667 |
|
|
|
|
|
Long-lived asset impairment
|
|
|
100 |
|
|
|
5,743 |
|
|
|
|
|
|
|
795 |
|
|
|
6,638 |
|
|
|
|
|
Other exit costs
|
|
|
2,285 |
|
|
|
9,341 |
|
|
|
1,397 |
|
|
|
|
|
|
|
13,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charges
|
|
|
19,832 |
|
|
|
30,697 |
|
|
|
30,489 |
|
|
|
2,310 |
|
|
|
83,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
19,240 |
|
|
|
16,485 |
|
|
|
29,092 |
|
|
|
1,515 |
|
|
|
66,332 |
|
|
|
Cash |
|
Long-lived asset impairment
|
|
|
465 |
|
|
|
6,135 |
|
|
|
|
|
|
|
6,095 |
|
|
|
12,695 |
|
|
|
Non-cash |
|
Other exit costs
|
|
|
3,883 |
|
|
|
10,882 |
|
|
|
1,567 |
|
|
|
|
|
|
|
16,332 |
|
|
|
Cash & non-cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charges
|
|
$ |
23,588 |
|
|
$ |
33,502 |
|
|
$ |
30,659 |
|
|
$ |
7,610 |
|
|
$ |
95,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During fiscal year 2005 the Company recorded approximately
$66.3 million of employee termination costs associated with
the involuntary terminations of approximately 3,000 identified
employees in connection with the various facility closures and
consolidations. The identified involuntary employee terminations
by reportable geographic region amounted to approximately 300
for the Americas, 200 for Asia and 2,500 for Europe,
respectively. As of March 31, 2005, approximately 2,950
employees have been terminated under these plans, while
approximately 50 employees have been notified but not yet
terminated. Approximately $54.7 million of the charges were
classified as a component of cost of sales.
During fiscal year 2005 the Company also recorded approximately
$12.7 million for the write-down of property and equipment
and other assets associated with various manufacturing and
administrative facility closures. Approximately
$11.2 million of this amount was classified as a component
of cost of sales.
The restructuring charges recorded during fiscal year 2005 also
included approximately $16.3 million for other exit costs.
Approximately $12.5 million of the amount was classified as
a component of cost of sales. Of this amount, customer
disengagement costs amounted to approximately $5.5 million;
facility lease obligations accounted for approximately
$2.3 million and facility abandonment and refurbishment
costs accounted for approximately $3.7 million.
S-33
The following table summarizes the provisions, payments and the
accrual balance relating to restructuring costs incurred during
fiscal year ended March 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Lived | |
|
|
|
|
|
|
|
|
Asset | |
|
Other | |
|
|
|
|
Severance | |
|
Impairment | |
|
Exit Costs | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(In thousands) | |
|
|
Activities during the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
|
|
$ |
66,332 |
|
|
$ |
12,695 |
|
|
$ |
16,332 |
|
|
$ |
95,359 |
|
|
Cash payments
|
|
|
(57,758 |
) |
|
|
|
|
|
|
(6,977 |
) |
|
|
(64,735 |
) |
|
Non-cash charges
|
|
|
|
|
|
|
(12,695 |
) |
|
|
(6,624 |
) |
|
|
(19,319 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2005
|
|
|
8,574 |
|
|
|
|
|
|
|
2,731 |
|
|
|
11,305 |
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion (classified as other current liabilities)
|
|
|
(8,574 |
) |
|
|
|
|
|
|
(799 |
) |
|
|
(9,373 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued facility closure costs, net of current portion
(classified as other long-term liabilities)
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,932 |
|
|
$ |
1,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recognized restructuring charges of approximately
$540.3 million during fiscal year 2004 related to the
impairment of certain long-term assets and other costs resulting
from closures and consolidations of various manufacturing
facilities. The Company has classified $477.3 million of
the charges associated with facility closures as a component of
cost of sales during fiscal year 2004.
S-34
The Company anticipates that the facility closures 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 components of the restructuring
charges during the quarters of fiscal year 2004 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First | |
|
Second | |
|
Third | |
|
Fourth | |
|
|
|
|
|
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Total | |
|
Nature | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
|
|
Americas:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
$ |
3,691 |
|
|
$ |
14,072 |
|
|
$ |
5,023 |
|
|
$ |
3,623 |
|
|
$ |
26,409 |
|
|
|
|
|
Long-lived asset impairment
|
|
|
64,844 |
|
|
|
18,024 |
|
|
|
2,273 |
|
|
|
8,247 |
|
|
|
93,388 |
|
|
|
|
|
Other exit costs
|
|
|
17,736 |
|
|
|
18,492 |
|
|
|
18,978 |
|
|
|
25,772 |
|
|
|
80,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charges
|
|
|
86,271 |
|
|
|
50,588 |
|
|
|
26,274 |
|
|
|
37,642 |
|
|
|
200,775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived asset impairment
|
|
|
111,340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111,340 |
|
|
|
|
|
Other exit costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charges
|
|
|
111,340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111,340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
8,200 |
|
|
|
6,003 |
|
|
|
28,081 |
|
|
|
35,040 |
|
|
|
77,324 |
|
|
|
|
|
Long-lived asset impairment
|
|
|
114,388 |
|
|
|
1,497 |
|
|
|
8,008 |
|
|
|
2,539 |
|
|
|
126,432 |
|
|
|
|
|
Other exit costs
|
|
|
6,909 |
|
|
|
2,164 |
|
|
|
8,656 |
|
|
|
6,748 |
|
|
|
24,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charges
|
|
|
129,497 |
|
|
|
9,664 |
|
|
|
44,745 |
|
|
|
44,327 |
|
|
|
228,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
11,891 |
|
|
|
20,075 |
|
|
|
33,104 |
|
|
|
38,663 |
|
|
|
103,733 |
|
|
|
Cash |
|
Long-lived asset impairment
|
|
|
290,572 |
|
|
|
19,521 |
|
|
|
10,281 |
|
|
|
10,786 |
|
|
|
331,160 |
|
|
|
Non-cash |
|
Other exit costs
|
|
|
24,645 |
|
|
|
20,656 |
|
|
|
27,634 |
|
|
|
32,520 |
|
|
|
105,455 |
|
|
|
Cash & non-cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charges
|
|
$ |
327,108 |
|
|
$ |
60,252 |
|
|
$ |
71,019 |
|
|
$ |
81,969 |
|
|
$ |
540,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During fiscal year 2004, the Company recorded approximately
$103.7 million of employee termination costs associated
with the involuntary terminations of approximately 5,200
identified employees in connection with the various facility
closures and consolidations. The identified involuntary employee
terminations by reportable geographic region amounted to
approximately 2,100 and 3,100 for the Americas and Europe,
respectively. As of March 31, 2005, the total employees
terminated under these plans had reached approximately 5,110,
while approximately 90 employees have been notified but not yet
terminated. Approximately $84.6 million of the net charges
were classified as a component of cost of sales during fiscal
year 2004.
During fiscal year 2004 the Company also recorded approximately
$331.2 million for the write-down of property and equipment
associated with various manufacturing and administrative
facility closures. Approximately $317.4 million of this
amount was classified as a component of cost of sales in fiscal
year 2004. Certain assets will remain in service until their
anticipated disposal dates pursuant to the exit plans. For
assets being held for use, impairment is measured as the amount
by which the carrying amount exceeds the fair value of the
asset. This calculation is measured at the asset group level,
which is the lowest level for which there are identifiable cash
flows. The fair value of assets held for use was determined
based on projected discounted cash flows of the asset, plus
salvage value. Certain other assets are held for sale, as these
assets are no longer required in operations. For assets held for
sale, depreciation ceases and an impairment loss is recognized
if the carrying amount of the asset exceeds its fair value less
cost to sell. Assets held for sale are included in other assets
on the consolidated balance sheet.
S-35
The restructuring charges recorded during fiscal year 2004 also
included approximately $105.5 million for other exit costs.
Approximately $75.3 million of this amount was classified
as a component of cost of sales in fiscal year 2004. Other exit
costs included contractual obligations totaling
$59.1 million, which were incurred directly as a result of
the various exit plans. The contractual obligations consisted of
facility lease terminations amounting to $46.2 million,
equipment lease terminations amounting to $7.3 million and
payments to suppliers and third parties to terminate contractual
agreements amounting to $5.6 million. Expenses associated
with lease obligations are estimated based on future lease
payment, less any estimated sublease income. The Company expects
to make payments associated with its contractual obligations
with respect to facility and equipment leases through the end of
fiscal year 2024. Other exit costs also included charges of
$17.7 million relating to asset impairments resulting from
customer contracts that were terminated by the Company as a
result of various facility closures. The Company had disposed of
the impaired assets, primarily through scrapping and write-offs,
by the end of fiscal year 2004. Other exit costs also included
$4.1 million of net facility refurbishment and abandonment
costs related to certain building repair work necessary to
prepare the exited facilities for sale or to return the
facilities to their respective landlords. The remaining
$24.6 million primarily related to legal and consulting
costs, and various government obligations for which the Company
is liable as a direct result of its facility closures. The legal
costs mainly relate to a settlement reached in November 2003 in
the lawsuit with Beckman Coulter, Inc., relating to a contract
dispute involving a manufacturing relationship between the
companies. Pursuant to the terms of the settlement agreement,
Flextronics agreed to a $23.0 million cash payment to
Beckman Coulter to resolve the matter, and Beckman Coulter
agreed to dismiss all pending claims against the Company and
release the Company from any future claims relating to this
matter.
The following table summarizes the provisions, payments and the
accrual balance relating to restructuring costs initiated prior
to fiscal year ended March 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other | |
|
|
|
|
Severance | |
|
Exit Costs | |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Balance as of March 31, 2004
|
|
$ |
22,376 |
|
|
$ |
38,731 |
|
|
$ |
61,107 |
|
Activities during fiscal year 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments
|
|
|
(18,653 |
) |
|
|
(23,914 |
) |
|
|
(42,567 |
) |
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2005
|
|
|
3,723 |
|
|
|
14,817 |
|
|
|
18,540 |
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion (classified as other current liabilities)
|
|
|
(3,723 |
) |
|
|
(8,639 |
) |
|
|
(12,362 |
) |
|
|
|
|
|
|
|
|
|
|
Accrued facility closure costs, net of current portion
(classified as other long-term liabilities)
|
|
$ |
|
|
|
$ |
6,178 |
|
|
$ |
6,178 |
|
|
|
|
|
|
|
|
|
|
|
The Company accounted for costs associated with restructuring
activities initiated prior to December 31, 2002 in
accordance with EITF No. 94-3.
The Company recognized restructuring and other charges of
approximately $304.4 million during fiscal year 2003, of
which $297.0 million related to the closures and
consolidations of various manufacturing facilities and
$7.4 million related to the impairment of investments in
certain technology companies. As further discussed below,
$179.4 million and $86.9 million of the charges
relating to facility closures were classified as a component of
cost of sales in the first and third quarters of fiscal year
2003, respectively.
S-36
The components of the net restructuring and other charges
recorded during the first and third quarters of fiscal year 2003
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First | |
|
Third | |
|
|
|
|
|
|
Quarter | |
|
Quarter | |
|
Total | |
|
Nature | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
|
|
Americas:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
$ |
21,053 |
|
|
$ |
11,654 |
|
|
$ |
32,707 |
|
|
|
|
|
Long-lived asset impairment
|
|
|
31,061 |
|
|
|
30,017 |
|
|
|
61,078 |
|
|
|
|
|
Other exit costs
|
|
|
42,287 |
|
|
|
31,086 |
|
|
|
73,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charges
|
|
|
94,401 |
|
|
|
72,757 |
|
|
|
167,158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
2,306 |
|
|
|
183 |
|
|
|
2,489 |
|
|
|
|
|
Long-lived asset impairment
|
|
|
5,072 |
|
|
|
(5,397 |
) |
|
|
(325 |
) |
|
|
|
|
Other exit costs
|
|
|
1,349 |
|
|
|
(1,677 |
) |
|
|
(328 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charges
|
|
|
8,727 |
|
|
|
(6,891 |
) |
|
|
1,836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
53,542 |
|
|
|
29,737 |
|
|
|
83,279 |
|
|
|
|
|
Long-lived asset impairment
|
|
|
20,146 |
|
|
|
(10,335 |
) |
|
|
9,811 |
|
|
|
|
|
Other exit costs
|
|
|
23,551 |
|
|
|
11,320 |
|
|
|
34,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charges
|
|
|
97,239 |
|
|
|
30,722 |
|
|
|
127,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
76,901 |
|
|
|
41,574 |
|
|
|
118,475 |
|
|
|
Cash |
|
Long-lived asset impairment
|
|
|
56,279 |
|
|
|
14,285 |
|
|
|
70,564 |
|
|
|
Non-cash |
|
Other exit costs
|
|
|
67,187 |
|
|
|
40,729 |
|
|
|
107,916 |
|
|
|
Cash & non-cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charges
|
|
$ |
200,367 |
|
|
$ |
96,588 |
|
|
$ |
296,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with the facility closures, the Company developed
plans to exit certain activities and involuntarily terminate
employees. Managements plan to exit an activity included
the identification of duplicate manufacturing and administrative
facilities for closure or consolidation into other facilities.
During fiscal year 2003, the Company recorded approximately
$118.5 million of net employee termination costs associated
with the involuntary terminations of approximately 8,100
identified employees in connection with the various facility
closures and consolidations. The identified involuntary employee
terminations by reportable geographic region are as follows:
2,900 for the Americas, 4,900 for Asia and 300 for Europe. As of
March 31, 2005, all identified employees have been
terminated. Approximately $59.6 million and
$34.6 million of the net charges were classified as a
component of cost of sales in the first and third quarters of
fiscal year 2003, respectively. The third quarter charges
reflect a reversal of prior period termination costs of
approximately $5.8 million due to changes in estimated
severance payment amounts and a reduction in the number
employees that were previously identified for termination.
The restructuring charges recorded during fiscal year 2003
included $70.6 million for the net write-down of property,
plant and equipment associated with various manufacturing and
administrative facility closures from their carrying value of
$121.4 million. Approximately $55.3 million and
$9.5 million of this net amount were classified as a
component of cost of sales in the first and third quarters of
fiscal year 2003, respectively. Also included in long-lived
asset impairment is approximately $1.0 million for the
write-off of goodwill. The third quarter charges reflect a
reversal of prior period restructuring charges of approximately
$26.1 million due to changes in previously estimated fair
values of certain property, plant and equipment. Certain assets
were held for use and remained in service until their
anticipated disposal dates pursuant to the exit plans. For
assets being held for use, impairment is measured as the amount
by which the carrying amount exceeds the fair value of the
asset. The fair value of assets held for use was determined
based on projected discounted cash flows of
S-37
the asset, plus salvage value. Certain other assets were held
for sale, as these assets were no longer required in operations.
For assets being held for sale, depreciation ceases and an
impairment loss was recognized if the carrying amount of the
asset exceeds its fair value less cost to sell. Assets held for
sale were included in Other Assets on the consolidated balance
sheet.
The restructuring charges recorded during fiscal year 2003 also
included approximately $107.9 million for other exit costs.
Approximately $64.4 million and $42.8 million of this
amount were classified as a component of cost of sales in the
first and third quarters of fiscal year 2003, respectively. The
third quarter charges reflect a reversal of prior period
restructuring charges of approximately $7.3 million
relating to revisions of previous estimates, primarily related
to the companys ability to subsequently successfully
negotiate reductions in certain contractual obligations. Other
exit costs included contractual obligations totaling
$75.6 million, which were incurred directly as a result of
the various exit plans. The contractual obligations consisted of
facility lease terminations amounting to $49.9 million,
equipment lease terminations amounting to $14.4 million and
payments to suppliers and third parties to terminate contractual
agreements amounting to $11.3 million. Expenses associated
with lease obligations are estimated based on future lease
payment, less any estimated sublease income. The Company expects
to make payments associated with its contractual obligations
with respect to facility and equipment leases through the end of
fiscal year 2017. Other exit costs also included charges of
$19.7 million relating to asset impairments resulting from
customer contracts that were terminated by the Company as a
result of various facility closures. These asset impairments
were determined based on the difference between the carrying
amount and the realizable value of the impaired inventory and
accounts receivable. The Company disposed of the impaired
assets, primarily through scrapping and write-offs, by the end
of fiscal year 2003. Other exit costs also included
$11.0 million of net facility refurbishment and abandonment
costs related to certain building repair work necessary to
prepare the exited facilities for sale or to return the
facilities to their respective landlords. The remaining
$1.6 million primarily included incremental amounts of
legal and consulting costs, and various government obligations
for which the Company is liable as a direct result of its
facility closures.
The following table summarizes the provisions, payments and the
accrual balance relating to restructuring costs initiated prior
to March 31, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other | |
|
|
|
|
Severance | |
|
Exit Costs | |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Balance as of March 31, 2004
|
|
$ |
4,720 |
|
|
$ |
15,658 |
|
|
$ |
20,378 |
|
Activities during fiscal year 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments
|
|
|
(3,466 |
) |
|
|
(8,869 |
) |
|
|
(12,335 |
) |
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2005
|
|
|
1,254 |
|
|
|
6,789 |
|
|
|
8,043 |
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion (classified as other current liabilities)
|
|
|
(353 |
) |
|
|
(3,027 |
) |
|
|
(3,380 |
) |
|
|
|
|
|
|
|
|
|
|
Accrued facility closure costs, net of current portion
(classified as other long-term liabilities)
|
|
$ |
901 |
|
|
$ |
3,762 |
|
|
$ |
4,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
11. |
OTHER CHARGES (INCOME), NET |
During fiscal year 2005, the Company realized a foreign exchange
gain of $29.3 million from the liquidation of certain
international entities, offset by a loss of $8.2 million
for other than temporary impairment of its investments in
certain non-publicly traded technology companies and
$7.6 million of charges relating to the resignation of
Robert R.B. Dykes from his position as Chief Financial Officer.
In connection with his termination of employment, the Company
amended certain of Mr. Dykes stock option agreements
to provide for full acceleration of vesting of approximately
1.2 million of Mr. Dykes outstanding but
unvested stock options and extension of the expiration date of
approximately 1.5 million stock options to five years after
his employment termination date. Such options would otherwise
have expired ninety days after the termination of
S-38
employment. This resulted in a charge of approximately
$5.6 million. In addition, the Company made a lump-sum cash
payment of approximately $2.0 million to Mr. Dykes.
During fiscal year 2003, the Company recorded $7.4 million
related to the impairment of investments in certain non-publicly
traded technology companies.
|
|
12. |
RELATED PARTY TRANSACTIONS |
Since June 2003, neither the Company nor any of its subsidiaries
have made any loans to its executive officers. Prior to that
time, the Company extended loans to several of its executive
officers. Each loan was evidenced by a promissory note in favor
of the Company and was generally secured by a deed of trust on
property of the officer. Certain notes were non-interest bearing
and others had interest rates ranging from 1.49% to 5.85%. There
were no loans outstanding from the Companys executive
officers as of March 31, 2005. The outstanding balance of
the loans, including accrued interest was approximately
$9.5 million as of March 31, 2004. Additionally, in
connection with an investment partnership, one of the
Companys subsidiaries made loans to several of its
executive officers to fund their contributions to the investment
partnership. Each loan was evidenced by a full-recourse
promissory note in favor of the Company. Interest rates on the
notes range from 5.05% to 6.40%. The remaining balance of these
loans, including accrued interest, as of March 31, 2005 and
2004 was approximately $1.8 million and $2.2 million,
respectively.
|
|
13. |
BUSINESS COMBINATIONS |
The business acquisitions described below were accounted for
using the purchase method of accounting, and accordingly, the
fair value of the net assets acquired and the results of the
acquired businesses were included in the Companys
consolidated statements of operations from the acquisition dates
forward. Comparative pro forma information, with the exception
of Hughes Software Systems Limited (HSS), has not been
presented, as the results of the operations of the acquired
businesses were not material to the Companys consolidated
financial statements on either an individual or an aggregate
basis. The Company has not finalized the allocation of the
consideration for certain of its recently completed acquisitions
and expects to complete this by the end of the first quarter of
fiscal year 2006.
On June 29, 2004, the Company entered into an asset
purchase agreement with Nortel providing for Flextronicss
purchase of certain of Nortels optical, wireless, wireline
and enterprise manufacturing operations and optical design
operations. The assets to be acquired consist primarily of
inventory and capital equipment currently in use. The purchase
of these assets will occur in stages, with the first and second
stages completed in November 2004 and February 2005, and further
stages scheduled in multiple phases during fiscal year 2006.
Subject to closing the remaining asset acquisitions, Flextronics
will provide the majority of Nortels systems integration
activities, final assembly, testing and repair operations, along
with the management of the related supply chain and suppliers,
under a four-year manufacturing agreement. Additionally, under a
three-year design services agreement, Flextronics will provide
Nortel with design services for end-to-end, carrier grade
optical network products. As part of this transaction,
Flextronics anticipates hiring a total of approximately 2,350 of
Nortels manufacturing employees and design engineers. As
of March 31, 2005, the Company has hired approximately 920
manufacturing employees and 160 optical design engineers.
If any of the acquired inventories have not been used by the
first anniversary of the applicable closing date, the Company
will have a put right under which, subject to
certain closing conditions, it may then sell that inventory back
to Nortel. Similarly, if any of the acquired equipment is unused
at the first anniversary of the applicable closing date, then
subject to certain conditions, the Company will be entitled to
sell it back to Nortel. The Company intends to use its cash
balances and revolving line of credit to fund the remaining
purchase price for the assets yet to be acquired.
S-39
The Company anticipates that the aggregate purchase price for
the assets acquired from Nortel will be in the range of
approximately $650 million to $700 million. The
purchase price will be allocated to the fair value of the
acquired assets, which management currently estimates will be
approximately $415 million to $465 million for
inventory, approximately $35 million for fixed assets, and
the remaining $200 million for intangible assets. The
Company completed the closing of the optical design businesses
in Canada and Northern Ireland on November 1, 2004, which
resulted in the payment of $12.8 million to Nortel. On
February 8, 2005 the Company also completed the closing of
the manufacturing operations and related assets (including
product integration, testing, repair and logistics operations)
in Montreal, Quebec, which resulted in the payment of
$83.7 million to Nortel. In connection with these closings,
the Company entered into promissory notes amounting to
$185.7 million, which are due in three quarterly payments
in calendar year 2005. The promissory notes are classified
as other current liabilities as of March 31, 2005. The
purchases to date have resulted in purchased intangible assets
of $20.7 million and goodwill of $86.7 million, based
on third-party valuations.
The Company is currently in discussion with Nortel regarding the
timing of the cash payments associated with the remaining
factory transfers.
|
|
|
Hughes Software Systems Limited (now known as Flextronics
Software Systems Limited) |
In October 2004, the Company completed the acquisition of
approximately 70% of the total outstanding shares of Hughes
Software Systems Limited (HSS). Total purchase price, net of
cash acquired amounted to approximately $256.2 million
including acquisition costs. The fair value of the
Companys proportionate share of net assets acquired
amounted to approximately $8.0 million. The purchase price
resulted in purchased intangible assets of $31.8 million
and goodwill of $210.4 million, based on third-party
valuations.
The following unaudited pro forma financial information presents
the combined results of operations of Flextronics and HSS as if
the acquisition had occurred as of the beginning of fiscal years
2005 and 2004, after giving effect to certain adjustments and
related income tax effects:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands, except | |
|
|
per share data) | |
Net sales
|
|
$ |
15,957,695 |
|
|
$ |
14,617,250 |
|
Net income (loss)
|
|
|
344,345 |
|
|
|
(346,631 |
) |
Basic earnings (loss) per share
|
|
$ |
0.62 |
|
|
$ |
(0.66 |
) |
Diluted earnings (loss) per share
|
|
$ |
0.59 |
|
|
$ |
(0.66 |
) |
On May 4, 2005, the Company announced its proposal to
acquire the remaining 30% of the outstanding shares of HSS. See
Note 16, Subsequent Events for further
discussion.
During fiscal year 2005, the Company completed certain
acquisitions that were not individually significant to the
Companys results of operations and financial position. The
aggregate cash purchase price for the acquisitions amounted to
approximately $119.8 million, net of cash acquired. In
addition, the Company issued approximately 9.9 million
ordinary shares, which equated to approximately
$125.0 million, as part of the purchase price for the
acquisitions. The fair value of the ordinary shares issued was
determined based on the quoted market prices of the
Companys ordinary shares two days before and after the
date the terms of the acquisitions were agreed to and announced.
Goodwill and intangibles resulting from the acquisitions during
fiscal year 2005, as well as contingent purchase price
adjustments for certain historical acquisitions, totaled
approximately $348.3 million. The fair value of the net
liabilities acquired through these acquisitions totaled
approximately $201.1 million. The purchase prices of the
acquisitions have been allocated on the basis of the estimated
fair value of assets acquired and liabilities assumed. The
purchase price for certain of these acquisitions is subject to
adjustments for contingent consideration, based upon the
businesses achieving
S-40
specified levels of earnings through December 31, 2010. The
contingent consideration has not been recorded as part of the
purchase price, pending the outcome of the contingency.
During fiscal year 2005, the Company paid approximately
$2.5 million in cash, and issued approximately 136,000
ordinary shares for contingent purchase price adjustments
relating to certain historical acquisitions.
During fiscal year 2004, the Company completed certain
acquisitions that were not individually significant to the
Companys results of operations and financial position. The
aggregate cash purchase price for the acquisitions amounted to
$120.0 million, net of cash acquired. The fair value of the
net liabilities assumed in fiscal year 2004 amounted to
approximately $321.6 million. The costs of these
acquisitions have been allocated on the basis of the estimated
fair value of assets acquired and liabilities assumed. The
purchase price for certain of these acquisitions is subject to
adjustments for contingent consideration, based upon the
businesses achieving specified levels of earnings through
December 2006. The contingent consideration has not been
recorded as part of the purchase price, pending the outcome of
the contingency.
All of the above acquisitions were accounted for using the
purchase method of accounting, and accordingly, the results of
the acquired businesses were included in the Companys
consolidated statements of operations from the acquisition dates
forward. Comparative pro forma information has not been
presented, as the results of operations were not material to the
Companys consolidated financial statements on either an
individual or an aggregate basis. Goodwill and intangibles
resulting from the Companys fiscal year 2004 acquisitions
amounted to approximately $468.6 million.
During fiscal year 2003, the Company acquired Xeroxs
manufacturing operations in Aguascalientes, Mexico; El Segundo,
California; Mitcheldean, U.K.; Penang, Malaysia; Resende,
Brazil; Toronto, Canada; and Venray, Netherlands. The aggregate
purchase price for the acquisition amounted to approximately
$179.5 million, of which $14.4 million was paid in
fiscal year 2003. The fair value of the net assets acquired in
fiscal year 2003, amounted to approximately $9.4 million,
including estimated acquisition costs. In connection with the
acquisition of the operations, the Company entered into a
five-year agreement for the manufacture of certain Xerox office
equipment and components.
In August 2002, the Company acquired all of the outstanding
shares of NatSteel Broadway Ltd. for an aggregate purchase price
of approximately $356.9 million, net of cash acquired. The
fair value of the net assets acquired amounted to approximately
$41.5 million, including estimated acquisition costs.
NatSteel Broadways operations include manufacturing
facilities in China and Hungary.
During fiscal year 2003, the Company completed certain other
business acquisitions that were not individually significant to
the Companys results of operations and financial position.
The aggregate cash purchase price for these acquisitions
amounted to approximately $104.9 million, net of cash
acquired. The aggregate fair value of the net liabilities
acquired for these acquisitions amounted to approximately
$34.2 million, including estimated acquisition costs.
Additionally, approximately $25.4 million was paid and
approximately 1.6 million ordinary shares were issued
related to contingent purchase price adjustments for certain
historical acquisitions.
All of the above acquisitions were accounted for using the
purchase method of accounting, and accordingly, the results of
the acquired businesses were included in the Companys
consolidated statements of operations from the acquisition dates
forward. Comparative pro forma information has not been
presented, as the results of operations were not material to the
Companys consolidated financial statements on either an
S-41
individual or an aggregate basis. Goodwill and intangibles
resulting from the Companys fiscal year 2003 acquisitions,
as well as contingent purchase price adjustments for certain
historical acquisitions amounted to approximately
$557.3 million.
The Company operates and is managed internally by two operating
segments that have been combined for operating segment
disclosures, as they do not meet the quantitative thresholds for
separate disclosure established in SFAS No. 131,
Disclosures about Segments of an Enterprise and Related
Information. Operating segments are defined as components
of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating
decision maker, or decision making group, in deciding how to
allocate resources and in assessing performance. The
Companys chief operating decision maker is the Chief
Executive Officer.
Geographic information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Net Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia
|
|
$ |
8,190,470 |
|
|
$ |
6,878,458 |
|
|
$ |
5,060,085 |
|
|
Americas
|
|
|
2,698,093 |
|
|
|
2,099,713 |
|
|
|
3,101,589 |
|
|
Europe
|
|
|
5,779,337 |
|
|
|
6,202,207 |
|
|
|
5,933,859 |
|
|
Intercompany eliminations
|
|
|
(759,677 |
) |
|
|
(649,962 |
) |
|
|
(716,834 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
15,908,223 |
|
|
$ |
14,530,416 |
|
|
$ |
13,378,699 |
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia
|
|
$ |
312,406 |
|
|
$ |
152,117 |
|
|
$ |
187,785 |
|
|
Americas
|
|
|
4,667 |
|
|
|
(204,288 |
) |
|
|
(232,094 |
) |
|
Europe
|
|
|
5,981 |
|
|
|
(170,915 |
) |
|
|
(27,127 |
) |
|
Intercompany eliminations
|
|
|
(46,145 |
) |
|
|
(197,033 |
) |
|
|
(75,803 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
276,909 |
|
|
$ |
(420,119 |
) |
|
$ |
(147,239 |
) |
|
|
|
|
|
|
|
|
|
|
Long-Lived Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia
|
|
$ |
806,617 |
|
|
$ |
700,262 |
|
|
$ |
758,331 |
|
|
Americas
|
|
|
422,644 |
|
|
|
402,031 |
|
|
|
544,348 |
|
|
Europe
|
|
|
475,255 |
|
|
|
522,707 |
|
|
|
663,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,704,516 |
|
|
$ |
1,625,000 |
|
|
$ |
1,965,729 |
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization*:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia
|
|
$ |
137,482 |
|
|
$ |
112,357 |
|
|
$ |
110,485 |
|
|
Americas
|
|
|
73,815 |
|
|
|
80,650 |
|
|
|
97,433 |
|
|
Europe
|
|
|
140,214 |
|
|
|
155,082 |
|
|
|
141,599 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
351,511 |
|
|
$ |
348,089 |
|
|
$ |
349,517 |
|
|
|
|
|
|
|
|
|
|
|
Gross Capital Expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia
|
|
$ |
188,910 |
|
|
$ |
142,425 |
|
|
$ |
125,952 |
|
|
Americas
|
|
|
59,829 |
|
|
|
81,454 |
|
|
|
50,153 |
|
|
Europe
|
|
|
40,941 |
|
|
|
102,869 |
|
|
|
74,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
289,680 |
|
|
$ |
326,748 |
|
|
$ |
250,618 |
|
|
|
|
|
|
|
|
|
|
|
S-42
|
|
* |
Excludes restructuring charges related property and equipment
impairment charges of $12.7 million, $331.2 million,
and $70.6 million in fiscal years 2005, 2004, and 2003,
respectively. See Note 10, Restructuring
Charges, for additional information regarding those
charges. |
Revenues are attributable to the country in which the product is
manufactured.
For purposes of the preceding tables, Asia includes
China, Japan, India, Indonesia, Korea, Malaysia, Mauritius,
Singapore, Taiwan and Thailand; Americas includes
Argentina, Brazil, Canada, Colombia, Mexico, Venezuela, and the
United States; Europe includes Austria, the Czech
Republic, Denmark, Finland, France, Germany, Hungary, Ireland,
Israel, Italy, Netherlands, Norway, Poland, Portugal, Scotland,
South Africa, Sweden, Switzerland, Ukraine, and the United
Kingdom.
During fiscal year 2005, 2004 and 2003, net sales generated from
Singapore, the principal country of domicile, was
$216.5 million, $237.6 million and
$242.8 million, respectively.
China, Malaysia and Hungary accounted for approximately 29%, 20%
and 14% of the consolidated net sales, respectively, during
fiscal year 2005. No other foreign country accounted for more
than 10% of net sales in fiscal year 2005. As of March 31,
2005, China, Malaysia, US/ Canada and Hungary accounted for
approximately 30%, 12%, 12% and 10% of consolidated long-lived
assets, respectively. No other foreign country accounted for
more than 10% of long-lived assets as of March 31, 2005.
China, Hungary and Malaysia accounted for approximately 26%,
18%, and 14% of net sales, respectively, during fiscal year
2004. No other foreign country accounted for more than 10% of
net sales in fiscal year 2004. As of March 31, 2004, China,
Malaysia, US/ Canada and Hungary accounted for approximately
27%, 12%, 13%, and 12% of long-lived assets, respectively. No
other foreign country accounted for more than 10% of long-lived
assets at March 31, 2004.
China, Hungary, Malaysia and Mexico accounted for approximately
18%, 11%, 15% and 12% of net sales, respectively, during fiscal
year 2003. No other foreign country accounted for more than 10%
of net sales in fiscal year 2003. As of March 31, 2003,
China and Malaysia accounted for approximately 25% and 11% of
long-lived assets, respectively. No other foreign country
accounted for more than 10% of long-lived assets at
March 31, 2003.
|
|
15. |
CONSOLIDATION OF VARIABLE INTEREST ENTITIES |
Effective April 1, 2003, the Company adopted Financial
Accounting Standard Boards Interpretation No. 46
(FIN 46), Consolidation of Variable
Interest Entities, which expands upon and strengthens
existing accounting guidance concerning when a company should
include in its financial statements the assets, liabilities and
activities of another entity. Prior to the issuance of
FIN 46, a company generally included another entity in its
consolidated financial statements only if it controlled the
entity through voting interests. FIN 46 now requires a
variable interest entity, as defined in FIN 46, to be
consolidated by a company if that company is subject to a
majority of the risk of loss from the variable interest
entitys activities or entitled to receive a majority of
the entitys residual returns or both. FIN 46 also
requires disclosures about variable interest entities that the
company is not required to consolidate but in which it has a
significant variable interest.
The Company has variable interests in real estate assets subject
to operating lease arrangements located in Mexico and Texas. The
principal impact of the adoption of FIN 46 was the
recording of additions to land and building and long-term debt
in the amount of $89.9 million at March 31, 2004. The
cumulative effect of adopting FIN 46 was not material to
the Companys financial position, results of operations or
cash flows.
On May 4, 2005, the Company announced its proposal to
acquire all of the outstanding publicly-held shares
(approximately 10.4 million shares or 30%) of its
India-based subsidiary, Flextronics Software Systems Limited.
The Company offered to acquire the shares at Rs 575 per
share ($13.23 per share), subject to shareholder and
regulatory approvals, including the number of shares required
for delisting being offered at
S-43
this price. There is no obligation for shareholders to accept
this open offer and there is no assurance that any shares will
be offered for sale to the Company. The Company reserves the
right not to acquire the offered shares if the final price, as
determined by the Securities and Exchange Board of India, is
more than Rs 575 per share.
|
|
17. |
QUARTERLY FINANCIAL DATA (UNAUDITED) |
The following table contains selected unaudited quarterly
financial data for fiscal years 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, 2005 | |
|
Fiscal Year Ended March 31, 2004 | |
|
|
| |
|
| |
|
|
First | |
|
Second | |
|
Third | |
|
Fourth | |
|
First | |
|
Second | |
|
Third | |
|
Fourth | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except per share amounts) | |
Net sales
|
|
$ |
3,880,448 |
|
|
$ |
4,138,249 |
|
|
$ |
4,276,614 |
|
|
$ |
3,612,912 |
|
|
$ |
3,106,677 |
|
|
$ |
3,503,242 |
|
|
$ |
4,152,344 |
|
|
$ |
3,768,153 |
|
Cost of sales
|
|
|
3,633,516 |
|
|
|
3,867,385 |
|
|
|
3,976,832 |
|
|
|
3,350,127 |
|
|
|
2,941,636 |
|
|
|
3,320,772 |
|
|
|
3,912,912 |
|
|
|
3,529,256 |
|
Restructuring and other charges
|
|
|
20,991 |
|
|
|
25,704 |
|
|
|
24,076 |
|
|
|
7,610 |
|
|
|
308,835 |
|
|
|
42,362 |
|
|
|
50,553 |
|
|
|
75,555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
225,941 |
|
|
|
245,160 |
|
|
|
275,706 |
|
|
|
255,175 |
|
|
|
(143,794 |
) |
|
|
140,108 |
|
|
|
188,879 |
|
|
|
163,342 |
|
Selling, general and administrative
|
|
|
141,596 |
|
|
|
139,022 |
|
|
|
143,330 |
|
|
|
144,585 |
|
|
|
116,415 |
|
|
|
108,940 |
|
|
|
121,597 |
|
|
|
140,335 |
|
Intangibles amortization
|
|
|
8,661 |
|
|
|
8,683 |
|
|
|
9,201 |
|
|
|
15,975 |
|
|
|
8,817 |
|
|
|
8,573 |
|
|
|
9,553 |
|
|
|
9,772 |
|
Restructuring and other charges (income)
|
|
|
2,597 |
|
|
|
7,798 |
|
|
|
(8,323 |
) |
|
|
1,415 |
|
|
|
18,273 |
|
|
|
17,890 |
|
|
|
20,466 |
|
|
|
6,414 |
|
Interest and other expense, net
|
|
|
18,286 |
|
|
|
22,429 |
|
|
|
27,240 |
|
|
|
26,250 |
|
|
|
25,911 |
|
|
|
20,703 |
|
|
|
13,453 |
|
|
|
17,633 |
|
Loss on early extinguishment of debt, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,328 |
|
|
|
8,695 |
|
|
|
95,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
54,801 |
|
|
|
67,228 |
|
|
|
104,258 |
|
|
|
50,622 |
|
|
|
(321,905 |
) |
|
|
(111,212 |
) |
|
|
23,810 |
|
|
|
(10,812 |
) |
Provision for (benefit from) income taxes
|
|
|
(19,521 |
) |
|
|
(25,394 |
) |
|
|
5,575 |
|
|
|
(23,622 |
) |
|
|
(32,190 |
) |
|
|
(11,122 |
) |
|
|
2,381 |
|
|
|
(26,810 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
74,322 |
|
|
$ |
92,622 |
|
|
$ |
98,683 |
|
|
$ |
74,244 |
|
|
$ |
(289,715 |
) |
|
$ |
(100,090 |
) |
|
$ |
21,429 |
|
|
$ |
15,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.14 |
|
|
$ |
0.17 |
|
|
$ |
0.18 |
|
|
$ |
0.13 |
|
|
$ |
(0.56 |
) |
|
$ |
(0.19 |
) |
|
$ |
0.04 |
|
|
$ |
0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$ |
0.13 |
|
|
$ |
0.16 |
|
|
$ |
0.17 |
|
|
$ |
0.12 |
|
|
$ |
(0.56 |
) |
|
$ |
(0.19 |
) |
|
$ |
0.04 |
|
|
$ |
0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing per share amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|