def14a
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:
o Preliminary Proxy Statement
o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
þ Definitive Proxy Statement
o Definitive Additional Materials
o 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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No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and |
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state how it was determined): |
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2)
and identify the filing for which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the Form or Schedule and the date
of its filing. |
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Form, Schedule or Registration Statement No.: |
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FLEXTRONICS INTERNATIONAL LTD.
(Incorporated in the Republic of Singapore)
(Company Registration Number 199002645H)
NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS
To Be Held on October 4, 2006
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 10:00 a.m., Pacific Daylight
Time (PDT), on October 4, 2006, for the following purposes:
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To re-elect the following Directors: Michael E. Marks, Richard
L. Sharp, Michael M. McNamara, H. Raymond Bingham, Ajay B.
Shah and Rockwell A. Schnabel (Proposals 1 and 2); |
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To approve the re-appointment of Deloitte & Touche LLP
as our independent auditors for the 2007 fiscal year
(Proposal 3); |
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To approve the authorization for the Directors of the Company to
allot and issue ordinary shares (Proposal 4); |
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To approve the cash compensation payable to our non-employee
Directors (Proposal 5); |
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To approve the Companys Amended and Restated Articles of
Association (Proposal 6); |
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To approve the renewal of the Share Purchase Mandate relating to
acquisitions by the Company of its own issued ordinary shares
(Proposal 7); and |
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To approve amendments to our 2001 Equity Incentive Plan relating
to: (a) the elimination of the sub-limit on outstanding
stock bonus awards; (b) modification of the automatic
option grants to non-employee Directors; and (c) a
5,000,000-share increase in the share reserve
(Proposals 8, 9 and 10). |
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The full text of the resolutions proposed for adoption by our
shareholders is as follows:
As Ordinary Business
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. Michael E. Marks; and |
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(b) Mr. Richard L. Sharp. |
2. To re-elect the following Directors, who will cease to
hold office pursuant to Article 101 of our Articles of
Association, to the Board of Directors:
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(a) Mr. Michael M. McNamara; |
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(b) Mr. H. Raymond Bingham; |
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(c) Mr. Ajay B. Shah; and |
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(d) Mr. Rockwell A. Schnabel. |
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, 2007 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; and |
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(b) (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:
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RESOLVED THAT, approval be and is hereby given for us to
provide: |
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(a) Annual cash compensation of $40,000 to each of our
non-employee Directors for services rendered as a director; |
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(b) Additional annual cash compensation of $10,000 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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(c) Additional annual cash compensation of $5,000 to each
of our non-employee Directors for their participation on each
standing committee of the Board of Directors on which such
Director serves. |
6. To pass the following resolution as a Special
Resolution:
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The document attached as Annex B to the proxy statement as
attached hereto be and hereby is adopted as the Articles of
Association of the Company, in substitution for and to the
exclusion of the existing Articles of Association of the Company. |
ii
7. To pass the following resolution as an Ordinary
Resolution:
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(a) for the purposes of Sections 76C and 76E of the
Singapore Companies Act, Cap. 50 (the Companies
Act), the exercise by our Directors of all our powers to
purchase or otherwise acquire issued ordinary shares in the
capital of the Company, not exceeding in aggregate the number of
issued ordinary shares representing 10% of the total number of
issued ordinary shares in the capital of the Company as at the
date of the passing of this resolution (excluding any ordinary
shares which are held as treasury shares as at that date), 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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(i) market purchases on the NASDAQ Global 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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(ii) off-market purchases (if effected other than on the
NASDAQ Global 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 Global 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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(b) 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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(i) the date on which our next Annual General Meeting is
held; or |
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(ii) the date by which our next Annual General Meeting is
required by law to be held; |
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(c) the maximum purchase price (excluding brokerage,
commission, applicable goods and services tax and other related
expenses) which may 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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(i) in the case of a market purchase of an ordinary share,
the highest independent bid or the last independent transaction
price, whichever is higher, of our ordinary shares quoted or
reported on the NASDAQ Global Market at the time the purchase is
effected; and |
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(ii) in the case of an off-market purchase pursuant to an
equal access scheme, 150% of the Prior Day Close Price; |
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and for the above purposes, the term Prior Day Close Price means
the closing price of our ordinary shares as quoted on the NASDAQ
Global 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, on the day immediately preceding 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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(d) 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 |
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consider expedient or necessary to give effect to the
transactions contemplated and/or authorized by this
resolution. |
8. To pass the following resolution as an Ordinary
Resolution:
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Approval be and is hereby given for the amendment to our 2001
Equity Incentive Plan, which we refer to as the 2001 Plan, to
eliminate the 2 million share sub-limit on the number of
ordinary shares subject to stock bonus awards that may be
outstanding at any point during the term of the 2001 Plan. |
9. To pass the following resolution as an Ordinary
Resolution:
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Approval be and is hereby given to amend the 2001 Plan to
provide that the automatic option grant to non-employee
directors of 12,500 options following each Annual General
Meeting will not be pro-rated based on the service of the
director during the prior 12 months. |
10. To pass the following resolution as an Ordinary
Resolution:
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Approval be and is hereby given to amend the 2001 Plan to
increase the maximum number of ordinary shares authorized for
issuance under the 2001 Plan from 27,000,000 ordinary shares to
32,000,000 ordinary shares (not including shares available under
plans consolidated into the 2001 Plan, which shall continue to
be available) and that an additional 5,000,000 ordinary shares
be reserved for issuance under the 2001 Plan, and that such
ordinary shares, when issued and paid for in accordance with the
terms of the 2001 Plan, shall be validly issued, fully-paid and
non-assessable ordinary shares in our capital. |
11. To transact any other business as may properly be
transacted at any Annual General Meeting.
iv
Notes
Singapore Financial Statements. At the 2006 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, 2006, 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 2006
Annual General Meeting.
Eligibility to Vote at Annual General Meeting; Receipt of
Notice. The Board of Directors has fixed the close of
business on August 11, 2006 as the record date for
determining those shareholders who will be entitled to receive
copies of this Notice and accompanying proxy statement. However,
all shareholders of record on October 4, 2006 will be
entitled to vote at the 2006 Annual General Meeting.
Quorum. 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 2006 Annual
General Meeting.
Proxies. A shareholder entitled to attend and vote at the
2006 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. 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 by us c/o Proxy Services, c/o Computershare
Investor Services, PO Box 43101, Providence, RI 02940-5067
not less than 48 hours before the time appointed for
holding the 2006 Annual General Meeting. You may revoke your
proxy at any time prior to the time it is voted.
Disclosure regarding Share Purchase Mandate Funds. 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. 7. 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 and whether the
ordinary shares purchased or acquired are held in treasury or
cancelled. 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
and cancelled. 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 results of operations, financial condition and cash
flows.
Amendments to Articles of Association. The text of
Annex B is marked to show changes to the existing Articles
of Association of the Company, with proposed deletions shown by
strikethrough text and proposed additions shown by underlined
text. When adopted by shareholders, the text of the Articles of
Association will exclude these editorial functions.
By Order of the Board of Directors,
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Bernard Liew Jin Yang |
Yap Lune Teng |
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Joint Secretary |
Joint Secretary |
Singapore
July 31, 2006
You should read this entire proxy statement
carefully prior to returning your proxy cards.
v
TABLE OF CONTENTS
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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 filings under the U.S. Securities Act
of 1933, as amended, which we refer to as the Securities Act, or
under the U.S. Securities Exchange Act of 1934, as amended,
which we refer to as the Exchange Act, or be subject to the
liabilities of Section 18 of the Exchange Act, except to
the extent that we specifically incorporate this information by
reference into any such filing.
vi
PROXY STATEMENT FOR
THE 2006 ANNUAL GENERAL MEETING OF
SHAREHOLDERS OF
FLEXTRONICS INTERNATIONAL LTD.
To Be Held on October 4, 2006
10:00 a.m. (Pacific Daylight Time)
at our principal U.S. offices
2090 Fortune Drive
San Jose, California, 95131, U.S.A.
We are furnishing this Proxy Statement in connection with the
solicitation by the Board of Directors of Flextronics
International Ltd. of proxies to be voted at the 2006 Annual
General Meeting, or at any adjournments or postponements
thereof, for the purposes set forth in the accompanying Notice
of Annual General Meeting.
Proxy Mailing. This Proxy Statement and the enclosed
proxy card were first mailed on or about August 17, 2006 to
shareholders of record as of August 11, 2006.
Costs of Solicitation. 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, e-mail, fax 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 such
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 $10,000.00, plus reimbursement of reasonable
expenses.
Our Registered Office. The mailing address of our
registered office is One Marina Boulevard, #28-00,
Singapore 018989.
VOTING RIGHTS AND SOLICITATION OF PROXIES
The close of business on August 11, 2006 is the record date
for shareholders entitled to notice of the 2006 Annual General
Meeting. All of the ordinary shares issued and outstanding on
October 4, 2006 are entitled to be voted at the 2006 Annual
General Meeting, and shareholders of record on October 4,
2006 and 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. As of July 28, 2006, we had
578,775,915 ordinary shares issued and outstanding.
Proxies. Ordinary shares represented by proxies in the
accompanying form which are properly executed and returned to us
will be voted at the 2006 Annual General Meeting in accordance
with the shareholders instructions.
Quorum. Representation of at least
331/3%
of all issued and outstanding ordinary shares is required to
constitute a quorum.
Voting Rights.
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The affirmative vote by a show of hands of at least a majority
of the shareholders present and voting at the 2006 Annual
General Meeting, or, if a poll is demanded by the chair or by
holders of at least 10% of our outstanding shares in accordance
with our Articles of Association, a simple majority of the
shares voting at the 2006 Annual General Meeting, is required to
re-elect the Directors nominated pursuant to Proposals
Nos. 1 and 2, to re-appoint Deloitte & Touche
LLP as our independent auditors and to approve the ordinary
resolutions contained in Proposals Nos. 4, 5, and 7. |
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The affirmative vote by a show of hands of at least
three-fourths of the shareholders present and voting at the 2006
Annual General Meeting, or, if a poll is demanded in the manner
previously described, at |
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least three-fourths of the shares voting at the 2006 Annual
General Meeting, is required to approve our Amended and Restated
Articles of Association as set forth in Proposal No. 6. |
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The affirmative vote of the holders of a majority of all issued
and outstanding shares voting in person or by proxy at the 2006
Annual General Meeting is required to approve Proposals
Nos. 8, 9 and 10. |
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Abstentions and Broker Non-Votes. 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 2006 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 2006 Annual
General Meeting, other than Proposals Nos. 8, 9 and 10. 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
Nos. 1 and 2 and FOR Proposals Nos. 3 through 10.
Management does not know of any matters to be presented at the
2006 Annual General Meeting other than those set forth in this
Proxy Statement and in the Notice accompanying this Proxy
Statement, nor have we received notice of any matter by the
deadline prescribed by Rule 14a-4(c). 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 2006 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 NOS. 1 AND 2:
RE-ELECTION OF DIRECTORS
Article 95 of our Articles of Association requires that 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. Marks and Mr. Sharp are the
members of the Board of Directors who will retire by rotation at
our 2006 Annual General Meeting. They are both eligible for
re-election and have been nominated to stand for re-election at
the 2006 Annual General Meeting.
Article 101 of our Articles of Association requires that
any person appointed as a Director of the Company by the Board
of Directors shall hold office only until the next Annual
General Meeting of the Company, and will then be eligible for
re-election. Messrs. Bingham, McNamara, and Shah, who were
appointed to the Board of Directors on October 14, 2005,
and Mr. Schnabel, who was appointed to the Board of
Directors on February 7, 2006, are each eligible for
re-election and have been nominated to stand for re-election at
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 2006 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.
2
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
Richard L. Sharp (age 59) Mr. Sharp
has served as a member of our Board of Directors since July
1993, and served as Chairman of our Board from January 2003
until January 2006. Mr. Sharp is currently the Chairman of
the Board of CarMax, Inc. 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 also serves on the board of Crocs, Inc.
Michael E. Marks (age 55) Mr. Marks
has served as our Chairman of the Board since January 1,
2006, when he retired from his position as Chief Executive
Officer, a position he had held since January 1994.
Mr. Marks has been a member of our Board of Directors since
1991, and previously served as Chairman from July 1993 to
January 2003. Mr. Marks is currently a member of Kohlberg
Kravis Roberts & Co. Mr. Marks also serves on the
boards of Crocs, Inc., SanDisk Corporation and Schlumberger
Limited.
H. Raymond Bingham (age 60)
Mr. Bingham has served as a member of our Board of
Directors since October 2005. Mr. Bingham served in various
positions with Cadence Design Systems, Inc., a supplier of
electronic design automation software and services, from 1997
through 2005, most recently as its Executive Chairman from May
2004 to July 2005, Director from November 1997 to April 2004,
President and Chief Executive Officer from April 1999 to May
2004, and Executive Vice President and Chief Financial Officer
from April 1993 to April 1999. Mr. Bingham also serves on
the boards of Freescale Semiconductor, Inc., KLA-Tencor
Corporation, and Oracle Corporation.
Michael M. McNamara (age 49)
Mr. McNamara has served as a member of our Board of
Directors since October 2005, and as our Chief Executive Officer
since January 1, 2006. Prior to his appointment as Chief
Executive Officer, Mr. McNamara served as our Chief
Operating Officer from January 2002 through January 2006 and as
President, Americas Operations from April 1997 to December 2001,
and as Vice President, North American Operations from April 1994
to April 1997.
Ajay B. Shah (age 46) Mr. Shah has
served as a member of our Board of Directors since October 2005.
Mr. Shah is the Managing Partner of Shah Capital Partners,
a technology focused private equity firm. Previously, he served
as a director of Solectron Corporation from 2002 through 2003
and as its Executive Vice President and President and Chief
Executive Officer of its Technology Solutions business from 1999
until March 2002. Mr. Shah also serves on the board of
Moser Baer India.
Rockwell A. Schnabel (age 69)
Mr. Schnabel has served as a member of our Board of
Directors since February 2006. Mr. Schnabel is a partner
and co-founder of Trident Capital. From 2001 to 2005,
Mr. Schnabel served as the U.S. Representative to the
European Union. Prior to that time, he served at the
U.S. Department of Commerce as Undersecretary, Deputy
Secretary and Acting Secretary of Commerce in the administration
of President George H.W. Bush, and under President Reagan as
U.S. Ambassador to Finland.
Directors Not Standing for Re-election
James A. Davidson (age 47)
Mr. Davidson has served as a member of our Board of
Directors since March 2003. He is a co-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.
Mr. Davidson also serves on the board of Seagate Technology.
Lip-Bu Tan (age 46) Mr. Tan has
served as a member of our Board of Directors since April 2003.
In 1987, he founded and since that time has served as Chairman
of Walden International, a venture capital fund. Mr. Tan
also serves on the boards of Cadence Design Systems, Inc.,
Centillium Communications, Inc.,
3
Creative Technology Ltd., Integrated Silicon Solution, Inc.,
Leadis Technology, Inc., Semiconductor Manufacturing
International Corporation and SINA Corporation.
The Board recommends a vote FOR
the re-election of Messrs. Bingham, Marks, McNamara,
Schnabel, Shah and Sharp
to the Board of Directors.
CORPORATE GOVERNANCE
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.
Director Retirement Age
Under Section 153(2) of the Singapore Companies Act, Cap.
50, 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, and any
re-appointment of such director must be approved by our
shareholders by ordinary resolution.
Shareholder Communications With Our Board
Our shareholders may communicate with our Board by sending 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 Senior Vice President, Finance. The
e-mail correspondence
is regularly reviewed and summaries are provided to our Board.
Shareholder Nominations to Our Board
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 under Board Committees Nominating
and Corporate Governance Committee will be forwarded
to the Nominating and Corporate Governance Committee for review
and consideration. Shareholder recommendations for our 2007
Annual General Meeting should be made not later than
May 17, 2007 to ensure adequate time for meaningful
consideration by the Nominating and Corporate Governance
Committee.
Board of Directors
Our Articles of Association give our Board of Directors general
powers to manage our business. The Board oversees and provides
policy guidance on our strategic and business planning
processes, 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 Global Market other than Mr. McNamara, who currently
serves as our Chief Executive Officer, and Mr. Marks, who
served as our Chief Executive Officer until January 1, 2006.
4
Our Board of Directors held a total of 21 meetings during fiscal
year 2006, of which six were regularly scheduled meetings and 15
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. McNamara attended 75% of the total number of
administrative meetings of our Board (for Mr. McNamara,
counting only those meetings during which he was a member of our
Board). During fiscal year 2006, our non-employee Directors met
at regularly scheduled executive sessions without management
participation.
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 2005 Annual General
Meeting.
Board Committees
The standing committees of our Board of Directors are the Audit
Committee, Compensation Committee, Nominating and Corporate
Governance Committee and Finance Committee. The table below
provides current membership for each of these committees.
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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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Finance | |
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Committee | |
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Committee | |
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Committee | |
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H. Raymond Bingham
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X |
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James A. Davidson
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X |
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Michael E. Marks
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X |
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Michael M. McNamara
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Rockwell A. Schnabel
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Ajay B. Shah
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X |
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X |
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Richard L. Sharp
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X |
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Lip-Bu Tan
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X |
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X |
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The Audit Committee is currently composed of Mr. Davidson,
Mr. Tan and Mr. Shah, 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 Global 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 Global Market. The Audit
Committee held four meetings during fiscal year 2006. The Audit
Committees principal functions are to:
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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; |
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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 |
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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. A copy of the Charter is also
included as Annex A to this proxy statement.
5
The Compensation Committee is currently composed of
Mr. Bingham and Mr. Sharp, each of whom our Board has
determined to be an independent director under applicable NASDAQ
Global Market listing standards. The Compensation Committee
recommends compensation for our key employees to our Board and
administers our stock option plans. The Compensation Committee
held nine meetings during fiscal year 2006. Our Board has
adopted a Compensation Committee Charter that is available on
our website at http://www.flextronics.com/
Investors/corporateGovernance.asp.
Compensation Committee Interlocks and Insider
Participation. None of our executive officers serves on the
Compensation Committee. None of our Directors has interlocking
or other relationships with other boards, compensation
committees or our executive officers that require disclosure
under Item 402(j) of
Regulation S-K.
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Nominating and Corporate Governance Committee |
The Nominating and Corporate Governance Committee currently is
currently composed of Mr. Bingham and Mr. Tan each of
whom our Board has determined to be an independent director
under applicable NASDAQ Global Market listing standards. The
Nominating and Corporate Governance Committee held four meetings
during fiscal year 2006. 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 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.
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.
The Finance Committee is currently composed of Mr. Marks
and Mr. Shah. The Finance Committee reviews and approves
various financial matters that are not reserved for approval by
our Board.
Director Compensation
Under Singapore law, shareholders must approve all compensation
paid to our non-employee Directors. In addition to the
compensation provided to our non-employee directors detailed
below, each non-employee Director receives reimbursement of
reasonable
out-of-pocket expenses
incurred in connection with attending in-person meetings of the
Board of Directors and Board Committees as well as reimbursement
of fees incurred for attendance at continuing education courses
for directors. No Director who is our employee receives
compensation for services rendered as a director.
6
Initial Option Grants. 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. These options vest and are
exercisable as to 25% on the first anniversary of the grant date
and in 36 equal monthly installments thereafter. During fiscal
year 2006, Messrs. Bingham, Schnabel and Shah each received
stock options to purchase 25,000 ordinary shares under this
program.
Yearly Option Grants. 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. We are proposing an
amendment to our 2001 Plan that would eliminate a provision that
pro-rates the yearly
grant based on the service of the director during the prior 12
months. See Proposals Nos. 8, 9 and 10: Ordinary
Resolutions to Approve Amendments to our 2001 Equity Incentive
Plan. These options vest and are exercisable as to 25%
on the first anniversary of the grant date and in 36 equal
monthly installments thereafter. During fiscal year 2006,
Mr. Sharp, Mr. Davidson and Mr. Tan each received
stock options to purchase 12,500 ordinary shares under this
program.
Yearly Stock Bonus Awards. Under the terms of the
discretionary stock bonus grant provisions of the 2001 Plan and
as approved by the Compensation Committee, each non-employee
Director receives a yearly stock bonus consisting of such number
of shares having an aggregate fair market value of US$100,000 on
the date of grant. Under this program, during fiscal year 2006
Mr. Davidson and Mr. Tan each received a stock bonus
of 7,898 shares, and Mr. Sharp received a stock bonus
of 9,596 shares.
Discretionary Grants. 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 2006,
Mr. Davidson and Mr. Tan each received stock options
to purchase 25,000 ordinary shares and Mr. Sharp
received stock options to purchase 100,000 ordinary
shares. 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.
Cash Compensation. For the
12-month period since
the 2005 Annual General Meeting, each non-employee Director
except Mr. Marks was eligible to receive:
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annual cash compensation of $40,000, payable quarterly in
arrears to each non-employee Director, for services rendered as
a director; and |
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additional annual cash compensation of $10,000, payable
quarterly in arrears 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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additional annual cash compensation of $5,000, payable quarterly
in arrears to each non-employee Director for his or her
participation on each standing committee of the Board of
Directors on which he or she serves. |
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Under the terms of the Agreement entered into between the
Company and Michael E. Marks on November 30, 2005, pursuant
to which, among other things, Mr. Marks agreed to serve as
Chairman of our Board of Directors effective January 1,
2006, Mr. Marks is entitled to receive any cash
compensation paid to non-employee directors until
October 4, 2006, the date of our Annual General Meeting.
After the 2006 Annual General Meeting, Mr. Marks also will
be eligible to receive any equity compensation paid to
non-employee directors.
7
PROPOSAL NO. 3:
RE-APPOINTMENT OF INDEPENDENT AUDITORS FOR FISCAL YEAR 2007
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, 2007, and to perform other
appropriate services. We expect that a representative from
Deloitte & Touche LLP will be present at the 2006
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 aggregate fees paid for the services
performed by the Companys principal accounting firm,
Deloitte & Touche LLP, a member firm of Deloitte Touche
Tohmatsu, and their respective affiliates (collectively,
Deloitte & Touche) during fiscal years 2006
and 2005. 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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2006 | |
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2005 | |
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Audit Fees
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7.0 |
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7.6 |
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2.2 |
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Tax Fees
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1.1 |
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2.6 |
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Total:
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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 2006,
these fees related primarily to assurance services performed in
conjunction with the divestitures of our Network Services
division, Semiconductor division and our pending divestiture of
our Software Development and Solutions business.
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 years 2006 and 2005.
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
8
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.
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 2007
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 2006
Annual General Meeting until the earlier of (i) the
conclusion of the 2007 Annual General Meeting or (ii) the
expiration of the period within which the 2007 Annual General
Meeting is required by law to be held. The 2007 Annual General
Meeting is required to be held no later than 15 months
after the date of the 2006 Annual General Meeting and no later
than six months after the date of our 2007 fiscal year end
(Singapore law allows for a one-time application for an
extension of up to a maximum of three months to be made with the
Singapore Accounting and Corporate Regulatory Authority).
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 the following situations:
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in connection with strategic transactions and acquisitions; |
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pursuant to public and private offerings of our ordinary shares
as well as instruments convertible into our ordinary
shares; and |
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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 Global 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 and stock bonus awards 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
9
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.
As of March 31, 2006:
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578,621,330 ordinary shares were issued and outstanding; |
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55,524,248 ordinary shares were reserved for issuance upon the
exercise of outstanding options and pursuant to other awards
under our equity compensation plans; |
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22,537,149 ordinary shares were available for grant under our
equity compensation plans; and |
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50,777,547 shares were reserved for issuance upon
conversion of our outstanding convertible notes. |
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If this proposal is approved, our Directors would be authorized
to issue, during the period described above, ordinary shares
subject to applicable Singapore laws and the rules of the NASDAQ
Global Market. 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 Global 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 Board recommends a vote FOR the resolution
to authorize ordinary share issuances.
PROPOSAL NO. 5:
ORDINARY RESOLUTION TO APPROVE DIRECTOR
CASH COMPENSATION AND 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 the following annual cash compensation to our
Directors:
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annual cash compensation of $40,000, payable quarterly in
arrears, to each of our non-employee Directors for services
rendered as a director; |
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additional annual cash compensation of $10,000, payable
quarterly in arrears 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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additional annual cash compensation of $5,000, payable quarterly
in arrears to each non-employee Director for his or her
participation on each standing committee of the Board of
Directors on which he or she serves. |
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Our standing committees of the Board of Directors are currently
the Audit, Compensation, Nominating and Corporate
Governance and Finance Committees.
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.
The cash compensation for our non-employee directors is
unchanged from the amounts approved by our shareholders at the
2005 Annual General Meeting.
The Board recommends a vote FOR the resolution
to approve Directors cash compensation and cash
compensation
for the Chairman of the Audit Committee (if appointed) and
for committee participation.
PROPOSAL NO. 6:
SPECIAL RESOLUTION TO APPROVE THE AMENDED AND RESTATED
ARTICLES OF ASSOCIATION OF THE COMPANY
Background
Our shareholders are being asked to approve the amendment and
restatement of the Companys Articles of Association.
The Singapore Companies (Amendment) Act 2005, which became
effective on January 30, 2006, introduced key changes to
the Singapore Companies Act, Cap. 50 that included, among other
things:
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eliminating the concepts of par value and authorized share
capital, pursuant to which the ordinary shares of the Company no
longer have any par or nominal value; |
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eliminating the corresponding concepts of share premium and the
issuance of shares at a discount; |
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enabling a company to repurchase shares out of its capital, as
well as from distributable profits; and |
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allowing ordinary shares that are the subject of a share
repurchase by a company to be held as treasury shares instead of
being cancelled, as previously required. |
Our Articles of Association need to be amended as a result of
certain changes made by the Singapore Companies (Amendment) Act
2005, including the elimination of the concepts of par value,
share premium, shares issued at a discount and authorized share
capital. In addition, we are proposing that our shareholders
approve amendments to provide for the holding of treasury shares
and to modernize and streamline certain provisions to be more
consistent with, and take greater advantage of, the Singapore
Companies Act, as amended. Finally, the proposed amendment and
restatement of our Articles of Association includes the
re-wording of a number of provisions in order to improve clarity
and readability.
The full text of the Articles of Association, as amended, is set
forth as Annex B to this proxy statement. This text
is marked to show changes from our existing Articles of
Association of the Company. You are urged to read the text of
Annex B in its entirety.
Proposal
The following information summarizes the material modifications
to our Articles of Association relating to (i) the changes
made by the Singapore Companies (Amendment) Act 2005 and
(ii) other modifications consisting of a more general
nature.
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Changes Relating to the Singapore Companies (Amendment)
Act 2005 |
The proposed changes to our Articles of Association relating to
the changes made by the Singapore Companies (Amendment) Act 2005
include:
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modification of Article 2 (Interpretation) to clarify that
the term Members and references to
holders of shares or a class of shares shall
generally not include the Company in its holding of treasury
shares; |
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modification of or deletion of existing provisions to reflect
the elimination of the concepts of authorized share capital,
share premium, par or nominal value and shares issued at a
discount, in Articles 5, 7, 29, 32, 34, 44, 48 through
52, 59, 64(iv), 115, 123, and 133; |
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addition of a new provision in Article 5 and modification
of existing provisions in Articles 6(b), 64(iv), 70 and 73
to provide for the holding of treasury shares or to specify that
the Company may not deal with its treasury shares in any matter
that is not authorized by or prescribed pursuant to the
Singapore Companies Act; |
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modification of Article 11 (Power to Pay Commission and
Brokerage) to address a repeal of the Singapore Companies Act
provision relating to the powers to pay certain commissions by
providing that the Company may pay commissions or brokerage on
any issuance of shares at such rate or amount and in such manner
as the Directors may deem fit (Article 11 currently allows
for the payment of such commissions, but includes certain
limitations on amounts and other requirements intended to
conform to the repealed provision of the Singapore Companies
Act); |
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modification of Article 49 (Power to Reduce Capital) to
explain the effect of share buy backs on the share capital of
the Company when made out of the share capital of the Company; |
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modification of Articles 133 (Power to Capitalize Profits)
and 134 (Implementation of Resolution to Capitalize Profits) to
delete the references to the share premium account and the
capital redemption reserve fund because, under the Singapore
Companies (Amendment) Act 2005, any amounts standing to the
credit of the Companys share premium account and the
capital redemption reserve became part of its share
capital; and |
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modification of Articles 133 and 134 to permit the Company,
by an Ordinary Resolution of the Shareholders and recommendation
of the Board, to issue bonus shares to all of our shareholders
on a pro-rata basis without receiving any consideration for such
shares. The elimination of the concept of par value pursuant to
the Singapore Companies (Amendment) Act 2005 made the issuance
of such bonus shares permissible and is in addition to the
Companys current ability to issue bonus shares by
capitalizing our reserve accounts or any sum standing to our
profit and loss account to our shareholders and applying such
sum in paying up in full the bonus shares to be issued. |
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Other Substantive Changes |
Other proposed changes to our Articles of Association include:
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modification of Article 2 (Interpretation) to clarify that
any reference in the Articles of Association to any
enactment is a reference to that enactment as
amended or re-enacted from time to time; |
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modification of Article 19 (New Certificates may be Issued)
to delete the references to stamp duty payable on share
certificates since, under current law, no stamp duty is payable
on share certificates; |
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modification of Article 22 to provide that the Directors
may refuse to register any instrument of transfer of shares
unless such instrument is accompanied by a certificate of
payment of stamp duty (if any) since registering such an
instrument may be an offence under Section 66 of the
Singapore Stamp Duties Act, Cap. 312; |
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deletion of Article 46 (Issue of New Shares to Members),
which provides a form of pre-emptive rights to our shareholders,
in order to provide our Board with greater flexibility in
capital-raising activities; |
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modification of Article 49 (Power to Reduce Capital) to
clarify that the Company may reduce its share capital by a
Special Resolution of our shareholders, which is a restatement
of the Companys power to reduce its share capital under
the Singapore Companies Act; |
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modification of Article 58(ii) (Routine Business) to delete
the reference to the term adopting and replacing it
with the term laying so as to clarify that the
provision is limited to providing shareholders the opportunity
at the Annual General Meeting to read and ask questions in
connection with the presentation of the balance sheet, the
reports of the Directors and Auditors, and other accounts and
documents required to be annexed to the balance sheet; |
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modification of Article 63 (Adjournment) to clarify that an
Annual General Meeting may be adjourned without specifying a
particular day for reconvening; |
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modification of Article 64(ii) (Method of Voting) to
clarify that each of the three members required to demand a poll
must be entitled to vote at the meeting at which the resolution
is put to the vote; |
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modification of Article 79 (Form of Proxies) to clarify
that, as a procedural matter, an appointed proxy shall be deemed
to have the right to move any resolution and to speak at the
Annual General Meeting; |
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deletion of Article 83 (Directors), which identifies the
first directors of the Company, and which is no longer required
under the Singapore Companies Act; |
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modification of Articles 90 through 93 and 95 to replace
the term Managing Director with a broadened
reference to the Chief Executive Officer (or any person holding
an equivalent position) in order to clarify what is meant by the
term Managing Director, which the Articles permit
the Board to appoint from time to time; |
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modification of Articles 91 and 95 to provide that the
Board may decide whether or not to exempt the position currently
referred to as the Managing Director from retirement
by rotation (Articles 91 and 95 currently provide that such
position is automatically exempt from retirement by rotation); |
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modification of Article 95 to provide that the number of
directors subject to retirement by rotation at each Annual
General Meeting, if the number of directors taken into account
is not a multiple of three, shall be rounded down to the number
closest to, but not more than, one-third of the total number of
directors that are taken into account (Article 95 currently
provides that, if such number of directors is not a multiple of
three, the number of directors subject to retirement by rotation
shall be rounded up so that not less than one-third of the
directors taken into account must retire); |
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modification of Article 100 (Notice of Intention to Appoint
Director) to change the date prior to which shareholders must
notify the Company of their intent to nominate a person to be a
Director from 10 days before the Annual General Meeting to
45 days prior to the date on which the previous years
proxy statement was first mailed and to specify what information
is required in such notice; |
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modification of Articles 103 (Meetings of Directors) and
108 (Resolutions in Writing) to expand the permitted use of
electronic communications for meetings of the Board and written
resolutions of the Board, respectively, and to clarify the
requirements of such electronic communications; |
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modification of Article 112 (General Powers of Directors to
Manage Companys Business) to conform with
Section 157A of the Singapore Companies Act, which provides
that the powers of management of the Company reside with the
Directors of the Company, except for those powers which the
Singapore Companies Act or the Companys Memorandum of
Association or Articles of Association specify are to be
exercised by the Company in General Meeting; |
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modification of Article 115 (Directors Borrowing
Powers) to clarify that in borrowing or raising money the
Directors shall comply with any applicable provisions of the
Singapore Companies Act and every other applicable statute, and
the Articles of Association; and |
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modification of Articles 145 (Service of Notice) and 149
(When Service Effected) to permit the Company to use electronic
communications to give, send or serve on members, auditors and
officers any notice to be given by the Company. |
Although the proposed modification to Article 95 to provide
that the number of directors subject to retirement by rotation
at each Annual General Meeting shall be rounded down from
one-third of the total number of directors that are taken into
account (instead of rounded up) could, under certain
circumstances, be construed as having an anti-takeover effect
(for example, by making it more difficult for a person or group
to obtain a majority of the Board), the Board is not proposing
the modification in response to any effort known to them to
obtain control of the Company.
The Board recommends a vote FOR
the approval of the amendment and restatement of the
Companys Articles of Association.
PROPOSAL NO. 7:
ORDINARY RESOLUTION TO RENEW 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 Global
Market and such other laws and regulations as may from time to
time be applicable.
Singapore law requires us to obtain shareholder approval of a
general and unconditional share purchase mandate
given to our directors if we wish to purchase or otherwise
acquire our ordinary shares. We refer to this general and
unconditional mandate as the Share Purchase Mandate, and it
allows our directors to exercise all of our powers to purchase
or otherwise acquire our own shares. Although our shareholders
approved a renewal of the Share Purchase Mandate at the 2005
Annual General Meeting, our Directors have not exercised any of
our powers to purchase or otherwise acquire any of our ordinary
shares pursuant to the 2005 renewal of the Share Purchase
Mandate. The Share Purchase Mandate renewed at the 2005 Annual
General Meeting will expire on the date of the 2006 Annual
General Meeting. Accordingly, we are submitting this proposal to
seek approval from our shareholders at the 2006 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 powers to purchase or otherwise
acquire our issued ordinary shares on the terms of the Share
Purchase Mandate.
If renewed by shareholders at the 2006 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 until the earlier of the date of the
2007 Annual General Meeting or the date by which the 2007 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 2006 Annual General Meeting, are summarized below:
Limit on Allowed Purchases
We may purchase or acquire only ordinary shares that are issued
and fully paid up. We may not purchase or acquire more than 10%
of the total number of issued ordinary shares outstanding at the
date of the 2006 Annual General Meeting. Any of our ordinary
shares which are held as treasury shares will be disregarded for
purposes of computing this 10% limit.
Purely for illustrative purposes, on the basis of 578,775,915
issued ordinary shares outstanding as of July 28, 2006, and
assuming that no additional ordinary shares are issued on or
prior to the 2006 Annual General Meeting, and that no ordinary
shares are held as treasury shares, pursuant to the proposed
Share Purchase Mandate, we would be able to purchase not more
than 57,877,591 issued ordinary shares.
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Duration of Share Purchase Mandate
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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the date on which the authority conferred by the Share Purchase
Mandate is revoked or varied. |
Manner of Purchases or Acquisitions of Ordinary Shares
Purchases or acquisitions of ordinary shares may be made by way
of:
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market purchases on the NASDAQ Global 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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off-market purchases (if effected other than on the NASDAQ
Global 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 as
prescribed by the Companies Act. |
If we decide to purchase or acquire our ordinary shares in
accordance with an equal access scheme, our Directors may impose
any terms and conditions as they see fit and as are in our
interests, so long as the terms are consistent with the Share
Purchase Mandate, the applicable listing rules of the NASDAQ
Global Market, the rules of the Companies Act and other
applicable laws. In addition, an equal access scheme must
satisfy all of the following conditions:
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offers for the purchase or acquisition of ordinary shares must
be made to every person who holds ordinary shares to purchase or
acquire the same percentage of their ordinary shares; |
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all of those persons must be given a reasonable opportunity to
accept the offers made; and |
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the terms of all of the offers must be the same (except
differences in consideration that result from offers relating to
ordinary shares with different accrued dividend entitlements and
differences in the offers solely to ensure that each person is
left with a whole number of ordinary shares). |
Purchase Price
The purchase price (excluding brokerage commission, applicable
goods and services tax and other related expenses of the
purchase or acquisition) 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:
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in the case of a market purchase, the highest independent bid or
the last independent transaction price, whichever is higher, of
our ordinary shares quoted or reported on the NASDAQ Global
Market at the time the purchase is effected; and |
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in the case of an off-market purchase pursuant to an equal
access scheme, 150% of the Prior Day Close Price of
our ordinary shares. |
For the above purposes, the term Prior Day Close Price means the
closing price of an ordinary share as quoted on the NASDAQ
Global 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, on the day immediately preceding 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.
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Treasury Shares
Under the Companies Act, as amended by the Companies (Amendment)
Act 2005 of Singapore (effective January 30, 2006), which
we refer to as the Amendment Act, ordinary shares
purchased or acquired by us may be held as treasury shares. Some
of the provisions on treasury shares under the Companies Act, as
amended by the Amendment Act, are summarized below:
Maximum Holdings. The number of ordinary shares held as
treasury shares may not at any time exceed 10% of the total
number of issued ordinary shares.
Voting and Other Rights. We may not exercise any right in
respect of treasury shares. In particular, we may not exercise
any right to attend or vote at meetings and for the purposes of
the Companies Act, we shall be treated as having no right to
vote and the treasury shares shall be treated as having no
voting rights. In addition, no dividend may be paid, and no
other distribution of our assets may be made, to us in respect
of treasury shares. However, the allotment of ordinary shares as
fully paid bonus shares in respect of treasury shares is
allowed. A subdivision or consolidation of any treasury share
into treasury shares of a smaller amount is also allowed so long
as the total value of the treasury shares after the subdivision
or consolidation is the same as before.
Disposal and Cancellation. Where ordinary shares are held
as treasury shares, we may at any time:
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sell the treasury shares for cash; |
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transfer the treasury shares for the purposes of or pursuant to
an employees share scheme; |
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transfer the treasury shares as consideration for the
acquisition of shares in or assets of another company or assets
of a person; |
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cancel the treasury shares; or |
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sell, transfer or otherwise use the treasury shares for such
other purposes as may be prescribed by the Minister for Finance
of Singapore. |
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.
Previously, any payment made by us in consideration of the
purchase or acquisition of ordinary shares was required to be
made out of our distributable profits. The Amendment Act now
permits us to purchase and acquire our ordinary shares out of
our capital or profits. Acquisitions or purchases made out of
capital are permissible only so long as the company is solvent
for the purposes of section 76F(4) of the Companies 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
purchase or acquisition (or the acquisition of any right with
respect to the purchase or acquisition) of ordinary shares 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 the 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 that we purchase or acquire will be deemed
cancelled immediately on purchase or acquisition, and all rights
and privileges attached to the ordinary share will expire on
cancellation (unless such ordinary share is held by us as
treasury shares). The total number of issued shares will be
diminished by the number of ordinary shares purchased or
acquired by us and which are not held by us as treasury shares.
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We will cancel and destroy certificates in respect of purchased
or acquired ordinary shares not held by us as treasury shares as
soon as reasonably practicable following settlement of any
purchase or acquisition of such ordinary shares.
Financial Effects
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 and cancelled or held as
treasury stock. 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 results of operations, financial condition and cash
flows.
The financial effects on us and our group (including our
subsidiaries) arising from purchases or acquisitions of ordinary
shares which may be made pursuant to the Share Purchase Mandate
will depend on, among other things, whether the ordinary shares
are purchased or acquired out of our profits and/or capital, the
number of ordinary shares purchased or acquired, the price paid
for the ordinary shares and whether the ordinary shares
purchased or acquired are held in treasury or cancelled.
Under the Companies Act, as amended by the Amendment Act,
purchases or acquisitions of ordinary shares by us may be made
out of our profits and/or our capital. Where the consideration
paid by us for the purchase or acquisition of ordinary shares is
made out of our profits, such consideration (excluding
brokerage, commission, goods and services tax and other related
expenses) will correspondingly reduce the amount available for
the distribution of cash dividends by us. Where the
consideration that we pay for the purchase or acquisition of
ordinary shares is made out of our capital, the amount available
for the distribution of cash dividends by us will not be reduced.
Rationale for the Share Purchase Mandate
We believe that a renewal of the Share Purchase Mandate at the
2006 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.
The circumstances under which shareholders (including Directors
or a group of shareholders acting together) will incur an
obligation to make a
take-over offer under
Rule 14 of The Singapore Code on
Take-overs and Mergers,
Appendix 2. The effect of Appendix 2 is that, unless
exempted, shareholders 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 shareholders
would increase to 30% or more, or if such shareholders hold
between 30% and 50% of our voting rights, the voting rights of
such shareholders would increase by more than 1% in any period
of six months. 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.
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The Board recommends a vote FOR the resolution
to approve the proposed renewal of the Share Purchase
Mandate.
PROPOSALS NOS. 8, 9 AND 10:
ORDINARY RESOLUTIONS TO APPROVE AMENDMENTS TO OUR 2001
EQUITY INCENTIVE PLAN
Overview of Amendments
Our shareholders are being asked to approve amendments to our
2001 Equity Incentive Plan, which we refer to below as the 2001
Plan. The principal features of the 2001 Plan are summarized
below. However, this summary is not a complete description of
all of the provisions of the 2001 Plan. The full text of the
2001 Plan as proposed to be amended is attached to this
proxy statement as Annex C.
The amendments to the 2001 Plan provide for:
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(a) elimination of the two million share limit on the
number of ordinary shares subject to stock bonus awards that may
be outstanding at any time during the term of the 2001 Plan so
that stock bonus awards will be subject only to the existing
limitation that we may not issue more than an aggregate of
10 million shares under stock bonuses; |
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(b) modification of the automatic option grant to
non-employee directors of 12,500 options following each Annual
General Meeting to non-employee directors so that the option
grant will not be pro-rated based on the service of the director
during the prior 12 months; and |
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(c) an increase of the share reserve by 5,000,000 ordinary
shares to an aggregate of 32,000,000 ordinary shares (not
including shares available under plans consolidated into the
2001 Plan). |
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Reasons for Amendments
The Board believes these amendments are necessary for us to
continue to attract and retain the services of well-qualified
employees (including officers) and directors who will contribute
to the Companys success by their ability, ingenuity and
industry knowledge, and to provide incentives to such personnel
and Board members that are linked directly to increases in
shareholder value, and will therefore inure to the benefit of
all shareholders of the Company.
When our shareholders approved the addition of stock bonus
awards either an outright stock bonus or a type
of contingent stock award sometimes referred to as restricted
stock units as a form of award under the 2001 Plan
in 2004, we included two limitations on the award of stock
bonuses. One limitation is that we may not issue more than an
aggregate of 10 million shares under stock bonuses. The
second limitation, which we are proposing to eliminate, provides
that there may not be outstanding at any time, stock bonuses for
more than 2 million shares. We are proposing that the
2 million share limitation be eliminated so that we may
continue to award stock bonuses to attract and retain employees
and directors, subject only to the aggregate 10 million
share limitation on stock bonuses. As of July 19, 2006,
there were outstanding stock bonus awards under the 2001 Plan
covering 1,971,188 shares. Accordingly, unless our
shareholders approve the elimination of the 2 million share
limitation, we will be significantly limited in our ability to
make stock bonus awards.
The second amendment proposes that the automatic annual grants
of options for 12,500 shares received by our non-employee
director will no longer be pro-rated based on the prior service
of the non-employee director. We are proposing this modification
to the automatic option grants, which vest over a period of
4 years from the date of the grant, in order to better
reflect the intention of the grants as awards for future (and
not prior) service to the Company.
As of July 19, 2006, there were 16,463,399 ordinary shares
available for issuance pursuant to additional options and stock
bonus awards under the 2001 Plan. If Proposal No. 10 is passed,
21,463,399 ordinary shares will be available for issuance
pursuant to additional options and stock bonus awards under the
2001 Plan. We have used and intend to continue using stock
option and stock bonus awards as incentives to attract, retain
and motivate our directors and employees. With the growing
worldwide demand for talent, the appropriate use of equity
awards remains an essential component of our overall
compensation philosophy. Consequently, we
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believe the approval of the increase in the 2001 Plan share
reserve is important to our continued growth and success.
2001 Plan History
The Board of Directors adopted the 2001 Plan in August 2001 and
our shareholders approved our Boards adoption of the 2001
Plan in September 2001 with an initial reserve of 7,000,000
ordinary shares. On June 29, 2004, our Board adopted
amendments to the 2001 Plan that were approved by our
shareholders in September of 2004. Those amendments increased
the share reserve by 20,000,000 ordinary shares to 27,000,000
ordinary shares and added stock bonus awards as a type of award
under the 2001 Plan. In addition, the 2001 Plan consolidates
ordinary shares that were available for issuance under prior
company plans and certain assumed plans, and any ordinary shares
that were issuable upon exercise of options or other awards
granted under those plans that expire or become unexercisable
for any reason without having been exercised in full become
available for grant under the 2001 Plan.
Ordinary Shares Subject to the 2001 Plan
As of July 19, 2006, there were 40,952,931 ordinary shares
subject to outstanding options and other awards granted under
our 2001 Plan, which includes shares subject to outstanding
options and other awards that were previously granted under our
1993 Share Option Plan, the 1999 Interim Option Plan, the
1998 Interim Option Plan, the 1997 Interim Option Plan, and all
assumed plans. If Proposal No. 10 is passed, 21,463,399
ordinary shares will be available for issuance pursuant to
additional options and stock bonus awards under the 2001 Plan.
In addition, shares that are subject to issuance under
outstanding awards that cease to be subject to such awards for
any reason other than exercise or vesting of such awards, as
well as shares that cease to be subject to awards under prior
and assumed plans that were consolidated into the 2001 Plan,
will be available for grant under the 2001 Plan.
In the event any change is made to our outstanding ordinary
shares by reason of any recapitalization, bonus issue, stock
split, combination of shares, exchange of shares, spinoff or
other changes affecting the outstanding shares as a class,
appropriate adjustments will be made to the maximum number
and/or class of securities issuable under the 2001 Plan, the
maximum number and/or class of securities for which any
participant may be granted awards under the terms of the 2001
Plan or that may be granted generally under the terms of the
2001 Plan, the number and/or class of securities and price per
share in effect under each outstanding award, and the number
and/or class of securities for which automatic option grants are
to be subsequently made to newly-elected or continuing
non-employee directors.
Administration
The 2001 Plan contains two separate equity incentive programs: a
discretionary stock option/stock bonus program, and an automatic
stock option grant program. The discretionary program is
administered by the Compensation Committee with respect to
executive officers and directors and by our Chief Executive
Officer, Mr. Michael McNamara, with respect to all other
employees. The Compensation Committee and Mr. McNamara are
referred to in this section as the Plan Administrator. The Plan
Administrator has complete discretion, subject to the provisions
of the 2001 Plan, to authorize option grants and awards of stock
bonuses under the 2001 Plan (provided, however, that any grants
to our executive officers or directors must be approved by the
Compensation Committee). All grants under the automatic option
grant program must be made in strict compliance with the
provisions of that program, and no administrative discretion may
be exercised by the Plan Administrator with respect to the
automatic grants.
Eligibility
Our executive officers, members of our Board of Directors, and
all of our employees and those of our subsidiaries are eligible
to participate in the discretionary program. Non-employee
directors are also eligible to participate in the automatic
option grant program. Non-employee directors may not participate
in the
19
automatic option grant program if such participation is
prohibited or restricted, either absolutely or subject to
various securities requirements, whether legal or
administrative, then being complied with in the jurisdiction in
which such director is a resident. Non-employee directors may
not receive awards in excess of an aggregate of 100,000 ordinary
shares per calendar year. In no event may any one participant in
the 2001 Plan receive awards for more than 4,000,000 ordinary
shares in the aggregate per calendar year under the 2001 Plan.
As of March 31, 2006, five executive officers, six
non-employee directors and approximately 5,000 employees
were eligible to participate in the 2001 Plan, and six
non-employee directors were eligible to participate in the
automatic option grant program. (Pursuant to his agreement with
us, Michael E. Marks is not eligible to receive equity
compensation for his board service until after the 2006 Annual
General Meeting.)
Transferability
In general, awards granted under the 2001 Plan may not be
transferred in any manner other than by will or by the laws of
descent and distribution. Awards may be transferred to family
members through a gift or domestic relations order. Subject to
applicable laws, certain optionees who reside outside of the
United States and Singapore may assign their award to a
financial institution located outside of the United States and
Singapore.
Equity Incentive Programs
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Discretionary Stock Option/ Stock Bonus Program |
Options may be granted under the discretionary program at an
exercise price per share not less than 100% of the fair market
value per ordinary share on the option grant date. Each option
granted under this program generally is exercisable as
determined by the Plan Administrator. Options will not be
exercisable more than 10 years after the date of grant, and
options granted to non-employees will not be exercisable more
than five years after the date of grant.
Options granted under the 2001 Plan generally may be exercised
as to vested shares for a period of time after the termination
of the option holders service to us or a subsidiary.
Generally, the Plan Administrator has complete discretion to
extend the period following the optionees cessation of
service during which his or her outstanding options may be
exercised and/or to accelerate the exercisability or vesting of
such options in whole or in part. Such discretion may be
exercised at any time while the options remain outstanding,
whether before or after the optionees actual cessation of
service.
Singapore law prevents us from granting restricted stock. As a
result, we expanded our compensation program in 2004 by adding
stock bonus awards either an outright stock bonus or
a type of contingent stock award sometimes referred to as
restricted stock units as a type of award under the
2001 Plan. Stock bonuses may be granted outright or contingent
upon satisfaction of conditions determined by the Plan
Administrator and communicated to the potential recipient in
advance. As the conditions to issuance of shares must be met in
advance, the shares when issued are not subject to vesting and
no additional payment is required (satisfaction of the
condition(s) being viewed as a form of payment). The
condition(s) to issuances of shares under a stock bonus could be
a single requirement, such as remaining in our service for a
period of time, or many requirements, such as meeting individual
or company-wide performance goals.
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Automatic Option Grant Program |
Under the automatic option grant program, each individual who
initially becomes a non-employee director will automatically be
granted at that time options to purchase 25,000 ordinary
shares. In addition, on the date of each Annual General Meeting,
continuing non-employee directors automatically will be granted
options to purchase 12,500 ordinary shares.
Each option granted under this program must have an exercise
price per share equal to 100% of the fair market value per
ordinary share on the grant date and a maximum term of five
years. Each option becomes
20
exercisable as to 25% of the total shares one year after the
date of grant and as to
1/48
of the total shares each month thereafter.
Each automatic option grant will automatically accelerate upon
an acquisition of us by merger or asset sale or a hostile change
in control of us. In addition, upon the successful completion of
a hostile take-over, each automatic option grant which has been
outstanding for at least six months may be surrendered to us for
a cash distribution per surrendered option share in an amount
equal to the excess of (a) the take-over price per share
over (b) the exercise price payable for such share.
Valuation
The fair market value per ordinary share on any relevant date
under the 2001 Plan is the closing sales price per share on that
date on the Nasdaq Global Market. As of July 28, 2006, the
closing price of our ordinary shares on the Nasdaq Global Market
was $11.25 per share.
Acceleration
Except for grants made under the automatic option grant program
described above, in the event of a dissolution or liquidation or
if we are acquired by merger or asset sale, each outstanding
award under the discretionary program shall automatically
accelerate so that each such award shall, immediately prior to
the effective date of such transaction, become fully vested with
respect to the total number of shares then subject to such
award. However, subject to the specific terms of a given award,
vesting shall not so accelerate if, and to the extent, such
award is either to be assumed or replaced with a comparable
right covering shares of the capital stock of the successor
corporation or parent thereof, or is replaced with a cash
incentive program of the successor corporation which preserves
the inherent value existing at the time of such transaction or
the acceleration of vesting of such award is subject to other
limitations imposed by the Plan Administrator at the time of its
grant.
The acceleration of vesting in the event of a change in the
ownership or control of us may be seen as an anti-takeover
provision and may have the effect of discouraging a merger
proposal, a takeover attempt or other efforts to gain control of
us.
Payment for Shares
The consideration for shares to be issued under the 2001 Plan
may be paid in cash, by executing a same-day sale, by
cancellation of indebtedness, by conversion of a convertible
note issued by us or through waiver of compensation due.
Amendment and Termination
The Board of Directors may at any time amend or modify the 2001
Plan in any or all respects, except that any such amendment or
modification may not adversely affect the rights of any holder
of an award previously granted under the 2001 Plan unless such
holder consents. The Board may terminate the 2001 Plan at any
time. In addition, the automatic option grant program may not be
amended more frequently than once every six months, other than
to the extent necessary to comply with applicable
U.S. income tax laws and regulations. In addition, the
Board may not, without the approval of our shareholders:
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amend the 2001 Plan to materially increase the maximum number of
ordinary shares issuable under the 2001 Plan, the number of
ordinary shares for which options may be granted to
newly-elected or continuing non- employee directors, or the
maximum number of ordinary shares for which any one individual
participating in the 2001 Plan may be granted awards; |
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materially modify the eligibility requirements for participation
in the 2001 Plan; or |
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materially increase the benefits accruing to participants in the
2001 Plan. |
21
Term of the 2001 Plan
Unless terminated earlier, the 2001 Plan will continue until
August 2011, 10 years after the date the 2001 Plan was
adopted by the Board of Directors.
U.S. Federal Income Tax Consequences of Option Grants
and Stock Bonus Awards
The following is a general summary as of the date of this
proxy statement of the United States federal income tax
consequences to us and employees participating in the 2001 Plan.
Federal tax laws may change and the federal, state and local tax
consequences for any participating employee will depend upon his
or her individual circumstances. Each participating employee has
been and is encouraged to seek the advice of a qualified tax
adviser regarding the tax consequences of participation in the
2001 Plan. The following discussion does not purport to describe
state or local income tax consequences in the United States, nor
tax consequences for participants in other countries.
Options granted under the 2001 Plan may be either incentive
stock options which satisfy the requirements of Section 422
of the Internal Revenue Code or non-statutory options which are
not intended to meet such requirements. The United States
federal income tax treatment for the two types of options
differs as follows:
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Incentive Stock Options. No taxable income is recognized
by the optionee at the time of the option grant, and no taxable
income is generally recognized at the time the option is
exercised unless the optionee is subject to the alternative
minimum tax. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or
otherwise disposed of. For United States federal tax purposes,
dispositions are divided into either qualifying or
disqualifying. A qualifying disposition occurs if the sale or
other disposition is made after the optionee has held the shares
for more than two years after the option grant date and more
than one year after the exercise date. Upon a qualifying
disposition, any gain or loss, measured by the difference
between the option exercise price and amount realized on the
sale of shares, will be treated as capital gain or loss. If
either of these two holding periods is not satisfied, then a
disqualifying disposition results. Upon a disqualifying
disposition, any gain up to the difference between the option
exercise price and the fair market value of the shares on the
date of exercise, or, if less, the amount realized on the sale
of shares, will be treated as ordinary income. Any additional
gain will be capital gain. |
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If the optionee makes a disqualifying disposition of the
purchased shares, then we may be entitled to a deduction from
our income taxed by the United States for the taxable year in
which such disposition occurs, equal to the excess of the fair
market value of such shares on the option exercise date over the
exercise price paid for the shares. In no other instance will we
be allowed a deduction with respect to the optionees
disposition of the purchased shares. |
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Non-Statutory Options. No taxable income is recognized by
an optionee upon the grant of a non-statutory option. The
optionee will, in general, recognize ordinary income, in the
year in which the option is exercised, equal to the excess of
the fair market value of the purchased shares on the exercise
date over the exercise price paid for the shares, and we will be
entitled to a deduction with respect to, and be required to
satisfy the tax withholding requirements applicable to, such
income. |
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Stock Bonuses. Upon issuance of shares pursuant to a
stock bonus, the employee will have ordinary income in the
amount of the fair market value of the issued stock on the date
of issuance. Any further gain or loss upon disposition of the
stock will be short- or long-term capital gain or loss,
depending on the employees holding period as measured from
the date of issuance. We will generally have a withholding
obligation, and be entitled to a deduction, in the amount the
employee recognizes as ordinary income. |
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Section 162(m). Any United States income tax
deductions that would otherwise be available to us are subject
to a number of restrictions under the Internal Revenue Code,
including Section 162(m), which can limit the deduction for
compensation paid to our Chief Executive Officer and our other
four most highly compensated executive officers. |
22
New Plan Benefits Under 2001 Plan
Under the automatic option grant program for non-employee
directors described above, on the date of each Annual General
Meeting, continuing non-employee directors automatically will be
granted options to purchase 12,500 ordinary shares. The number
of shares to be issued under the 2001 Plan to the individuals
and groups listed below and the net values to be realized upon
such issuances are discretionary, and therefore, not
determinable:
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our Chief Executive Officer; |
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each of our four other most highly compensated executive
officers; |
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all current executive officers as a group; and |
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all employees, including all current officers who are not
executive officers, as a group. |
The Board recommends a vote FOR
the approval to amend the 2001 Equity Incentive Plan to
eliminate the 2 million share limit on the number of
ordinary shares subject to stock bonus awards that may be
outstanding at any point during the term of the 2001 Plan.
The Board recommends a vote FOR
the approval to amend the 2001 Equity Incentive Plan to
provide that the automatic option grant to
non-employee directors
of 12,500 options following each Annual General Meeting will not
be pro-rated based on the service of the director during the
prior 12 months.
The Board recommends a vote FOR
the approval of the increase in the number of ordinary shares
authorized for issuance under the 2001 Equity Incentive Plan.
EXECUTIVE OFFICERS
The names, ages and positions of our executive officers and
directors as of June 30, 2006 are as follows:
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Name |
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Age | |
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Position | |
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Michael M. McNamara
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49 |
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Chief Executive Officer |
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Thomas J. Smach
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46 |
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Chief Financial Officer |
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Nicholas Brathwaite
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47 |
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Chief Technology Officer |
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Peter Tan
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57 |
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President and Managing Director, Flextronics Asia |
Werner Widmann
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54 |
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President, Multek |
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Michael M. McNamara. Mr. McNamara has served as our
Chief Executive Officer since January 2006, and as a member of
our Board of Directors since October 2005. Prior to his
promotion, Mr. McNamara served as our Chief Operating
Officer from January 2002 through January 2006, 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.
Nicholas Brathwaite. Mr. Brathwaite has served as
our Chief Technology Officer since April 2002.
Mr. Brathwaite joined Flextronics with the acquisition by
Flextronics of nChip in 1995, where he held the
23
position of Vice President and General Manager of Operations.
Before joining nChip, Mr. Brathwaite spent six years with
Intel Corporation in various engineering management positions in
Technology Development and Manufacturing. He has a B.S. in
Applied Chemistry, an M.S. in Polymer Engineering, a BSc (Hons)
from McMaster University Canada and an MSc from the University
of Waterloo, Canada.
Peter Tan. Mr. Tan has served as President and
Managing Director, Flextronics Asia since March 2006. Prior to
his promotion, Mr. Tan served as Executive Vice President,
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.
Werner Widmann. Mr. Widmann has served as President,
Multek since January 2004. Prior to his promotion, he served as
General Manager of Multek Germany beginning in October 2002.
Prior to joining Multek, Mr. Widmann was Managing Director
of Inboard from 1999 to 2002 and held various technical and
managerial positions with STP, NPI, Siemens AG and IBM
Sindelfingen throughout his 25 year-career in the PCB
industry. Mr. Widmann received his degree in
mechanical/electrical engineering from the University for
Applied Sciences (Fachhochschule), Karlsruhe.
EXECUTIVE COMPENSATION
The following table presents information concerning the
compensation paid or accrued by us for services rendered during
fiscal year 2006, fiscal year 2005 and fiscal year 2004 by
(i) our Chief Executive Officer and (ii) each of our
four other most highly compensated executive officers. 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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Annual Compensation | |
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Securities | |
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Fiscal | |
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Underlying | |
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All Other | |
Name and Principal Position |
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Year | |
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Salary | |
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Bonus | |
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Options | |
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Compensation | |
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Michael E. Marks(1)
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2006 |
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$ |
738,750 |
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$ |
7,423,214 |
(2) |
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$ |
1,565,859 |
(3) |
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Chief Executive Officer |
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2005 |
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985,000 |
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2,795,350 |
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2,375,000 |
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1,567,595 |
(4) |
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2004 |
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785,442 |
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605,000 |
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17,599 |
(5) |
Michael M. McNamara(6)
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2006 |
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$ |
850,000 |
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$ |
1,100,000 |
(7) |
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3,000,000 |
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$ |
4,510,108 |
(8) |
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Chief Executive Officer |
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2005 |
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800,000 |
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1,143,860 |
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600,000 |
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6,780 |
(9) |
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2004 |
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700,110 |
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393,750 |
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17,183 |
(10) |
Thomas J. Smach(14)
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2006 |
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$ |
530,000 |
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$ |
667,500 |
(11) |
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500,000 |
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$ |
2,709,407 |
(12) |
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Chief Financial Officer |
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2005 |
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441,250 |
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642,750 |
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500,000 |
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12,075 |
(13) |
Nicholas E. Brathwaite(14)
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2006 |
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$ |
530,000 |
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$ |
967,500 |
(15) |
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$ |
2,409,832 |
(16) |
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Chief Technology Officer |
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Werner Widmann(14)
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2006 |
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$ |
358,545 |
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$ |
298,394 |
(17) |
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$ |
551,291 |
(18) |
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President, Multek |
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Peter Tan(14)
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2006 |
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$ |
350,000 |
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$ |
163,013 |
(19) |
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250,000 |
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$ |
3,225,524 |
(20) |
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President and Managing Director, Flextronics Asia |
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2005 |
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350,000 |
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251,628 |
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350,000 |
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24,640 |
(21) |
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(1) |
Mr. Marks retired from his position as Chief Executive
Officer and was appointed to serve as Chairman of our Board of
Directors beginning January 1, 2006. |
24
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(2) |
Bonus payments to Mr. Marks for fiscal year 2006 consist of
quarterly performance-based bonuses totaling $1,477,500 and an
acceleration of the balance outstanding under
Mr. Markss Contingent Share Award Agreement as of
November 30, 2006, which totaled $5,945,714 and was
deferred pursuant to such agreement. |
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(3) |
Consists of 401(k) plan contributions of $4,076, life insurance
premium payments of $600, disability insurance premium payments
of $3,282, health insurance premium payments of $3,228 and
imputed income for group term life insurance of $387. Also
includes lump sum payment of $1,554,286 made on July 3,
2006 pursuant to the terms of Mr. Markss agreement
with us dated November 30, 2005. |
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(4) |
Consists of contributions to Mr. Markss Special
Deferred Compensation Plan of $1,554,286, 401(k) plan
contributions 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. |
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(5) |
Consists of 401(k) plan contributions 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. |
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(6) |
Mr. McNamara was appointed to the position of Chief
Executive Officer on January 1, 2006. |
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(7) |
Bonus payment to Mr. McNamara for fiscal year 2006 consists
of quarterly performance-based bonuses totaling $600,000. Also
includes $500,000, the portion of Mr. McNamaras
deferred long-term incentive bonus which vested on April 1,
2006 under the terms of the Flextronics International USA, Inc.
Senior Executive Deferred Compensation Plan. |
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(8) |
Consists of 401(k) plan contributions of $8,450, life insurance
premium payments of $1,284, disability insurance premium
payments of $194 and imputed income for group term life
insurance of $180. Also includes $4,500,000, the unvested amount
of Mr. McNamaras deferred long-term incentive bonus
awarded on July 7, 2005 and deferred under the terms of the
Flextronics International USA, Inc. Senior Executive Deferred
Compensation Plan. |
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(9) |
Consists of 401(k) plan contributions of $6,600 and imputed
income for group term life insurance of $180. |
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(10) |
Consists of 401(k) plan contributions 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. |
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(11) |
Bonus payment to Mr. Smach for fiscal year 2006 consists of
quarterly performance-based bonuses totaling $367,500. Also
includes $300,000, the portion of Mr. Smachs deferred
long-term incentive bonus which vested on April 1, 2006
under the terms of the Flextronics International USA, Inc.
Senior Executive Deferred Compensation Plan. |
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(12) |
Consists of 401(k) plan contributions of $8,313, life insurance
premium payments of $720, disability insurance premium payments
of $194 and imputed income for group term life insurance of
$180. Also includes $2,700,000, the unvested amount of
Mr. Smachs deferred long-term incentive bonus awarded
on July 7, 2005 and deferred under the terms of the
Flextronics International USA, Inc. Senior Executive Deferred
Compensation Plan. |
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(13) |
Consists of 401(k) plan contributions 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. |
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(14) |
Mr. Brathwaite and Mr. Widmann were appointed as
Executive Officers on February 7, 2006. Mr. Smach was
appointed Chief Financial Officer during fiscal year 2005.
Mr. Tan was appointed as an Executive Officer during fiscal
year 2005. |
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(15) |
Bonus payment to Mr. Brathwaite for fiscal year 2006
consists of quarterly performance-based bonuses totaling
$367,500. Also includes $600,000, the portion of
Mr. Brathwaites deferred long-term incentive bonus
which vested on April 1, 2006 under the terms of the
Flextronics International USA, Inc. Senior Executive Deferred
Compensation Plan. |
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(16) |
Consists of 401(k) plan contributions of $8,738, life insurance
premium payments of $720, disability insurance premium payments
of $194 and imputed income for group term life insurance of
$180. Also includes $2,400,000, the unvested amount of
Mr. Brathwaites deferred long-term incentive bonus |
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awarded on July 7, 2005 and deferred under the terms of the
Flextronics International USA, Inc. Senior Executive Deferred
Compensation Plan. |
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(17) |
Bonus payment to Mr. Widmann for fiscal year 2006 consists
of quarterly performance-based bonuses totaling $298,394. |
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(18) |
Consists of German pension payments of $13,873, health insurance
premium payments of $3,917 and a vehicle allowance of $20,290.
Also includes Mr. Widmanns unvested long-term
incentive bonuses of $400,000 and
93,750 paid on
July 7, 2005 and deferred pursuant to
Mr. Widmanns Deferred Compensation Plan. For purposes
of this table, the
93,750 payment
was converted to US dollars based on the exchange rate on the
payment date. |
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(19) |
Bonus payment to Mr. Tan for fiscal year 2006 consists of
quarterly performance-based bonuses totaling $163,013. |
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(20) |
Consists of life insurance premium payments of $617, health
insurance premium payments of $457 and a vehicle allowance of
$24,450. Also includes Mr. Tans unvested long-term
incentive bonus of $3,200,000, paid in July 2005 and deferred
pursuant to Mr. Tans Deferred Compensation Plan. |
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(21) |
Consists of health insurance premium payments of $330,
disability insurance premium payments of $150 and a vehicle
allowance of $24,160. |
Option Grants During Fiscal Year 2006
The following table presents information regarding option grants
during fiscal year 2006 to each Named Executive Officer. Option
grants to our Named Executive Officers during fiscal year 2006
were awarded pursuant to our existing equity compensation plans.
As permitted by SEC rules, we have elected to calculate the
Grant Date Present Value of the options set forth in this table
using the Black-Scholes option-pricing model. Our use of this
model should not be construed as an endorsement of its accuracy
at valuing options. All stock option models require a prediction
about the future movement of stock price. The following
assumptions are made for purposes of calculating the Grant Date
Present Values: expected time to exercise of 4.0 years,
volatility of 39.0%, a risk-free interest rate of 3.75% and an
annual dividend of $0.00. The actual value of the options in
this table will depend on the actual market value of our stock
during the applicable term and on the date the options are
exercised. The dollar amounts in the Grant Date Present Value
column are not intended to forecast potential future
appreciation, if any, of our shares.
|
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|
Individual Grants | |
|
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| |
|
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|
|
|
Percent of | |
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|
|
|
|
|
|
|
Total | |
|
|
|
|
|
|
Number of | |
|
Options | |
|
|
|
|
|
|
Securities | |
|
Granted to | |
|
|
|
|
|
|
Underlying | |
|
Employees | |
|
Exercise | |
|
|
|
Grant Date | |
|
|
Options | |
|
in Fiscal | |
|
Price per | |
|
Expiration | |
|
Present | |
Name |
|
Granted | |
|
Year 2006 | |
|
Share | |
|
Date | |
|
Value($) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Michael E. Marks
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael M. McNamara
|
|
|
3,000,000 |
(1) |
|
|
25.98 |
% |
|
$ |
12.37 |
|
|
|
05/13/2015 |
|
|
$ |
11,772,300 |
|
Thomas J. Smach
|
|
|
500,000 |
(1) |
|
|
4.33 |
% |
|
$ |
12.37 |
|
|
|
05/13/2015 |
|
|
$ |
1,962,050 |
|
Nicholas E. Brathwaite
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Werner Widmann
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter Tan
|
|
|
250,000 |
(1) |
|
|
2.16 |
% |
|
$ |
12.37 |
|
|
|
05/13/2015 |
|
|
$ |
981,025 |
|
|
|
(1) |
The vesting of these options was accelerated to February 7,
2006. |
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.
Options granted to our executive officers expire 10 years
from the date of grant.
26
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 purchased shares. We granted
options to purchase an aggregate of 11,549,454 ordinary shares
to our employees during fiscal year 2006.
Aggregated Option Exercises During Fiscal Year 2006
and Option Values at March 31, 2006
The following table presents information concerning the exercise
of options during fiscal year 2006 by each Named Executive
Officer.
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|
Number of Securities | |
|
Value of Unexercised | |
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|
|
Underlying Unexercised | |
|
In-the-Money Options at | |
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|
Shares | |
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|
Options at March 31, 2006 | |
|
March 31, 2006 | |
|
|
Acquired | |
|
Value | |
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| |
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| |
Name |
|
on Exercise | |
|
Realized | |
|
Vested | |
|
Unvested | |
|
Vested | |
|
Unvested | |
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| |
|
| |
|
| |
|
| |
|
| |
|
| |
Michael E. Marks
|
|
|
1,000,000 |
|
|
$ |
5,513,300 |
|
|
|
3,975,000 |
|
|
|
3,000,000 |
|
|
$ |
2,450,000 |
|
|
$ |
7,350,000 |
|
Michael M. McNamara
|
|
|
|
|
|
|
|
|
|
|
5,279,167 |
|
|
|
1,320,833 |
|
|
|
2,866,000 |
|
|
|
2,940,000 |
|
Thomas J. Smach
|
|
|
|
|
|
|
|
|
|
|
2,067,917 |
|
|
|
327,083 |
|
|
|
1,580,250 |
|
|
|
61,250 |
|
Nicholas E. Brathwaite
|
|
|
250,625 |
|
|
|
1,360,126 |
|
|
|
1,996,465 |
|
|
|
29,167 |
|
|
|
172,010 |
|
|
|
71,459 |
|
Werner Widmann
|
|
|
5,000 |
|
|
|
34,130 |
|
|
|
206,959 |
|
|
|
96,041 |
|
|
|
7,508 |
|
|
|
6,832 |
|
Peter Tan
|
|
|
|
|
|
|
|
|
|
|
746,375 |
|
|
|
121,875 |
|
|
|
242,460 |
|
|
|
37,415 |
|
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, 2006. Also reported are values of
in-the-money
options that represent the positive spread between the
respective exercise prices of outstanding stock options and
$10.35 per share, which was the closing price per ordinary
share as reported on the NASDAQ National Market on
March 31, 2006, the last day of trading for fiscal year
2006. These values, unlike the amounts set forth in the column
entitled Value Realized, have not been realized.
Effective February 7, 2006, we accelerated the vesting for
all stock options outstanding as of that date with exercise
prices at or above $12.37 per share.
Employment Contracts and Termination of Employment and
Change-in-Control
Arrangements.
|
|
|
Agreement with Michael E. Marks |
On November 30, 2005, one of our U.S. subsidiaries,
Flextronics International USA, Inc., entered into an agreement
with Mr. Marks. The agreement generally provided for the
transition from Mr. Markss position as Chief
Executive Officer to his service in capacity as Chairman of the
Board of Directors, which transition occurred on January 1,
2006. The agreement also outlined terms relating to
Mr. Markss separation from us, including the
following:
|
|
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|
|
|
Acceleration of the balance outstanding under
Mr. Markss Contingent Share Award Agreement as of
November 30, 2005, which totaled $5,945,714 and which was
deferred pursuant to such agreement; |
|
|
|
|
Cash payment of $1,554,286, payable on July 3, 2006; |
|
|
|
Eligibility to receive all cash compensation paid to
non-employee directors from January 2, 2006 until the 2006
Annual General Meeting, at which time Mr. Marks will be
eligible to receive all cash and equity compensation paid to
non-employee directors; |
|
|
|
Provision by the Company of medical and dental benefits for the
remainder of Mr. Markss life for Mr. Marks and
his spouse (reduced to the extent Mr. Marks receives
comparable benefits from another employer); |
27
|
|
|
|
|
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; and |
|
|
|
Certain provisions relating to options to purchase our ordinary
shares held by Mr. Marks, including immediate vesting of
all options with an exercise price of $11.53 per share;
cancellation of an option to purchase 1,000,000 shares
and extension of the post-termination exercise period for all
outstanding options with an exercise price greater than
$10.56 per share. |
|
|
|
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 Global Market on May 18, 2004). On
August 17, 2004, we entered into an amendment to the
supplemental retirement plan with Mr. Marks in which we
granted him an additional Supplemental Deferred Contingent Stock
Award for 500,000 notional shares with an exercise price equal
to $11.00 per share ($0.06 above the closing price of our
ordinary shares on the NASDAQ Global Market on August 17,
2004). Under Mr. Markss agreement, described above,
the balance of the Total Award Amount of $7,500,000 was
accelerated as of November 30, 2005 and a cash payment of
$5,945,714 was made to a rabbi trust for the benefit of
Mr. Marks. All amounts under this plan are fully vested and
non-forfeitable.
|
|
|
Deferred Compensation Arrangements |
Senior Executive Plan. Messrs. McNamara,
Smach and Brathwaite participate in the Flextronics
International USA, Inc. 2006 Senior Executive Deferred
Compensation Plan (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. 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. Under the Senior Executive Plan, at the
Compensation Committees discretion, awards for deferred
long-term incentive bonuses may be awarded in return for
services to be performed in the future. During fiscal 2006, the
Compensation Committee approved deferred bonuses for
Mr. McNamara of $5,000,000, Mr. Smach of $3,000,000
and Mr. Brathwaite of $3,000,000. The deferred bonuses for
Mr. McNamara and Mr. Smach vest as follows:
(i) 10% vested 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
bonus for Mr. Brathwaite vests 20% per year beginning
on April 1, 2006. The deferred bonuses for
Messrs. McNamara, Smach and Brathwaite 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.
Peter Tan Arrangement. In fiscal 2006, the
Compensation Committee approved a deferred bonus for Peter Tan
of $3,200,000 in return for services to be performed in the
future. The deferred bonus for Mr. Tan was credited to a
brokerage account. 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.
28
Werner Widmann Arrangement. In fiscal 2006,
Mr. Widmann was awarded a deferred bonus in return for
services to be performed in the future. The bonus equals 30% of
Mr. Widmanns base salary in effect on
July 1st of each year. Before July 1 of each
year, the Compensation Committee determines
Mr. Widmanns eligibility for the bonus, and the
Compensation Committee may also make additional discretionary
contributions to Mr. Widmanns deferred compensation
account. Any contributions are credited to a brokerage account.
The deferred bonus for Mr. Widmann vests according to a
formula based on age and years of service with the company,
which results in vesting in three equal annual installments
beginning on July 1, 2009, provided Mr. Widmann
continues to be employed by the company. 100% of the deferred
bonus will be paid to Mr. Widmann if his employment is
terminated as a result of his death. In the event of a change of
control of the company, the percentage of the deferred bonus to
be paid for Mr. Widmann is calculated based on a formula
relating to his months of service with the company during the
six-year period from July 1, 2005 through July 1,
2011. In fiscal 2006, Mr. Widmann received a deferred bonus
of 93,750 plus a
discretionary contribution of $400,000.
|
|
|
Change in Control Arrangements Under Option
Agreements |
1993 Stock Option Plan. Our option agreements with our
executive officers for options issued pursuant to our 1993 Stock
Option Plan 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 Stock Option Plans. Our option agreements with our
executive officers for options issued under stock option plans
other than the 1993 Stock Option Plan provide that in the event
of a dissolution or liquidation of the Company or if we are
acquired by merger or asset sale, each outstanding option under
the discretionary program shall automatically accelerate so that
each such option or stock bonus award shall, immediately prior
to the effective date of such transaction, become fully vested
with respect to the total number of shares then subject to such
option or award and, in the case of options, may be exercised
for all or any portion of such shares. However, subject to the
specific terms of a given award, vesting shall not so accelerate
if, and to the extent, such award is either to be assumed or
replaced with a comparable right covering shares of the capital
stock of the successor corporation or parent thereof, or is
replaced with a cash incentive program of the successor
corporation which preserves the inherent value existing at the
time of such transaction or the acceleration of vesting of such
award is subject to other limitations imposed by the Plan
Administrator at the time of its grant.
April 2006 Option Grants to Messrs. McNamara, Smach and
Brathwaite. Our option agreements with
Messrs. McNamara, Smach and Brathwaite for 700,000, 400,000
and 650,000 options, respectively, issued on April 17, 2006
under the terms of the 2001 Equity Incentive Plan, vest
immediately in the event that, in the
18-month period
following a Corporate Transaction (as defined in the 2001 Plan)
the optionees service (as defined in the 2001 Plan) is
terminated or his duties are substantially reduced or changed.
OTHER EQUITY COMPENSATION PLANS
As of March 31, 2006, we maintained the 2004 Award Plan for
New Employees, the 2002 Interim Incentive Plan and the 2001
Equity Incentive Plan. The 2001 Equity Incentive Plan was
approved by our shareholders. Neither the 2004 Award Plan for
New Employees nor the 2002 Interim Incentive Plan has been
approved by our shareholders.
29
The following table gives information about equity awards under
these plans as of March 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) | |
|
(B) | |
|
(C) | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
|
Number of Ordinary Shares | |
|
|
|
|
|
|
Remaining Available for | |
|
|
Number of Ordinary | |
|
|
|
Future Issuance Under | |
|
|
Shares to be Issued | |
|
Weighted-Average | |
|
Equity Compensation Plans | |
|
|
Upon Exercise of | |
|
Exercise Price of | |
|
(Excluding Ordinary Shares | |
Plan Category |
|
Outstanding Options | |
|
Outstanding Options | |
|
Reflected in Column (A)) | |
|
|
| |
|
| |
|
| |
Equity compensation plans approved by shareholders
|
|
|
31,813,161 |
|
|
$ |
13.24 |
|
|
|
20,755,277 |
(1) |
Equity compensation plans not approved by shareholders(2)(3)(4 )
|
|
|
17,883,064 |
|
|
$ |
11.72 |
|
|
|
4,455,700 |
(5) |
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
49,696,225 |
|
|
$ |
12.69 |
|
|
|
25,210,977 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Consists of 20,755,277 ordinary shares available for grant under
the 2001 Equity Incentive Plan. There are no additional ordinary
shares available for grant under the 1993 Equity Incentive Plan. |
|
|
(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 a subsidiary of Flextronics or (b) have
either (i) completed a period of bona fide non-employment
by Flextronics, and any subsidiary of Flextronics, of at least
1 year, or (ii) are returning to service as an
employee of Flextronics, or any 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 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
10 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 and stock bonus awards. Shares
subject to options granted pursuant to the 2002 Plan that expire
or terminate for any reason without being exercised or stock
bonus awards that do not vest 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
10 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
5,346,331 ordinary shares under the Assumed Plans remained
outstanding. These options have a weighted-average exercise
price of $6.01 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. |
30
|
|
(5) |
Of these, 1,875,714 ordinary shares remained available for grant
under the 2002 Plan and 2,579,986 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
The Compensation Committee of the Board of Directors of
Flextronics is responsible for reviewing and approving the goals
and objectives relating to, and determining the compensation of,
the Chief Executive Officer and all other executive officers.
The Committee also oversees managements decisions
concerning the performance and compensation of other company
officers, administers the companys equity compensation
plans, and regularly evaluates the effectiveness of our overall
executive compensation program.
A more complete description of the Committees functions is
set forth in the Committee charter, a copy of which is published
on our website at
http://www.flextronics.com/Investors/corporateGovernance.asp.
Committee Composition and Meetings.
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 held nine
meetings during fiscal year 2006; each member attended 100% of
the meetings.
General Compensation Philosophy.
We believe that the quality, skills and dedication of our
executive officers are critical factors affecting our
companys performance and shareholder value. Our key
compensation goals are to attract superior executive talent;
retain and motivate our executives; reward past performance;
provide incentives for future performance; and align our
executives interests with those of our shareholders. We
use a variety of compensation elements to achieve these goals,
including base salary, annual bonuses, stock options and share
bonus awards, all of which we discuss in detail below.
In determining the amount and mix of compensation for our
executive officers, we consider Flextronicss performance,
the nature and scope of the executives responsibilities,
effective leadership, the value of incentive awards to similarly
situated officers at comparable companies and the
executives current and past compensation. We also consult
with an executive compensation expert and consider the
compensation levels and performances of the companies in our
industry and peer group, as these companies are most likely to
compete with us for the services of our executives.
Flextronics does not, in general, enter into employment
agreements with our executive officers. They serve at the will
of the Board. This enables Flextronics to remove an executive
officer, if necessary, prior to retirement or resignation
whenever it is in the best interests of the company, with full
discretion on any severance package (excluding vested benefits).
Similarly, Flextronics does not generally enter into severance
agreements with executive officers when they are hired or
promoted. When an executive officer retires or resigns, the
Committee exercises its business judgment in approving an
appropriate separation or severance arrangement in light of all
relevant circumstances, including the individuals term of
employment, past accomplishments and reasons for separation from
the company.
In connection with the resignation of Michael Marks as our Chief
Executive Officer effective January 1, 2006, the Committee
approved an agreement providing for, among other things, cash
payments to Mr. Marks in the aggregate of $7.5 million
and cancellation, accelerated vesting and continued
exercisability of certain stock options held by Mr. Marks.
These compensation arrangements were awarded to Mr. Marks
in recognition of his many years of outstanding service and his
extraordinary dedication to Flextronics, which began with his
appointment to our Board of Directors in 1991 and continued with
his 12-year tenure as
our Chief Executive Officer.
Option Vesting Acceleration.
We became subject to the Financial Accounting Standards Board
Rule 123R as of April 1, 2006, which requires
measurement of all employee equity compensation awards using a
fair-value method and the
31
recording of such expense in the Companys consolidated
financial statements (known as option expensing). To reduce the
impact of option expensing on the Companys financial
statements, on February 7, 2006, the Compensation Committee
approved the acceleration of vesting of stock options with
exercise prices at or above $12.37 per share previously
awarded to our employees, including our executive officers,
under our equity compensation plans. Options held by our
non-employee directors were not included in the acceleration.
The acceleration was effective as of February 7, 2006,
provided that holders of incentive stock option
(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 their ISO option for federal income tax
purposes to a non-qualified stock option.
Compensation Elements for Executive Officers.
Base Salary. Base salaries for our executive officers are
established based on the scope of their responsibilities, taking
into account competitive market compensation paid by other
companies for similar positions, as well as salaries paid to the
executives peers within the company. We typically review
base salaries every fiscal year and adjust the base salaries
from time to time to take into account outstanding individual
performance, promotions and competitive compensation levels. The
salaries we have paid to our CEO (including Michael Marks, who
resigned as CEO effective January 1, 2006) and our next
four most highly paid executive officers (the named
executive officers) are shown in the Summary Compensation
Table.
Cash Bonuses. We award bonuses to our executives to
provide an incentive for, and to reward, superior performance.
Bonus payments are based on Flextronicss financial
performance (for Messrs. McNamara and Smach) and, for
Messrs. Brathwaite, Tan and Widmann, also on the
performance of the executive officers business unit.
Bonuses are paid quarterly based upon year over year quarterly
performance for Flextronics and, as applicable, quarterly
financial performance of the executives business unit. We
set target bonus amounts based upon a percentage of the
executives base salary, and review bonus targets and
performance metrics at least annually. For fiscal year 2006, the
target bonus amounts were 150% for Mr. Marks, 75% for
Mr. McNamara, 75% for Mr. Smach, 75% for
Mr. Brathwaite, 50% for Mr. Tan and 50% for
Mr. Widmann. Actual bonuses awarded range from 0% to 200%
of the target bonus based upon Flextronicss corporate and
business unit performance, as applicable. The annual bonuses we
awarded to our named executive officers are shown in the Summary
Compensation Table. Based on Flextronicss year over year
quarterly performance in fiscal 2006 (and in the cases of
Messrs. Brathwaite, Tan and Widmann, also the quarterly
financial results of their respective business units),
Mr. McNamara received an annual bonus equal to 94% of his
target bonus, Mr. Marks received an annual bonus equal to
100% of his target bonus (not including payments made in
connection with his resignation as CEO effective January 1,
2006, which are further described in Employment Contracts
and Termination of Employment and
Change-in-Control
Arrangements) and the other named executive officers
received annual bonuses ranging between 92% and 166% of their
target bonuses.
Stock Options and Share Bonus Awards. The Compensation
Committee grants stock options and share bonus awards (the
equivalent of restricted stock units), 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, unvested stock options and share bonus awards are
forfeited if the executive voluntarily leaves Flextronics,
although we have the discretion to extend the life of an option
regardless of the employment status of the executive officer.
Each stock option allows the executive 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
10 years, thus providing a return to the officer only if
the market price of the shares appreciates over the option term.
Share bonus awards will convert into shares of Flextronics stock
only if the individual continues to be employed by Flextronics
when the performance criteria or restrictions, as applicable,
lapse. Before the share bonus award vests, the executive has no
ownership rights in our ordinary shares. The size of the option
grant or share bonus award 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 number of stock
options granted to our named executive officers during fiscal
2006 are shown in the Summary
32
Compensation Table and in the Option Grants In Last Fiscal
Year table. No share bonus awards were granted to the
named executive officers in fiscal 2006.
Deferred Compensation. Each of our named executive
officers is eligible to participate in a deferred compensation
plan or arrangement, pursuant to which bonuses awarded at the
discretion of the Committee are not paid currently but rather
are credited to a deferral account established for each
participant. The amounts in the deferral account then vest over
time, providing a long-term retention incentive. All or a
portion of the amounts in the deferral account may vest
immediately on a change of control of Flextronics, depending on
the participants individual arrangement. For more detail
on our deferred compensation arrangements with our named
executive officers, see Employment Contracts and
Termination of Employment and
Change-in-Control
Arrangements.
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. This
limitation does not apply to compensation that meets the
requirements under Section 162(m) for performance-based
compensation that satisfies certain conditions. Compensation
paid by Flextronics to our named executive officers is not
subject to any material limitation on deductibility.
Chief Executive Officer Compensation.
Mr. McNamara was appointed Flextronicss Chief
Executive Officer effective January 1, 2006.
Mr. McNamaras 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
industry. With respect to Mr. McNamaras 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. Effective
January 1, 2006, we increased Mr. McNamaras
annual base salary from $750,000 to $1,000,000. For fiscal year
2006, Mr. McNamara received an annual bonus of $600,000,
which bonus was determined as described above under
Cash Bonuses. We consider this level of
annual pay and bonus appropriate given Mr. McNamaras
many years of experience with Flextronics and his dedication and
vision for the future of the company.
Mr. McNamara also received options to
purchase 3,000,000 shares during fiscal 2006, which
award was determined in accordance with the criteria described
above under Stock Options and Share Bonus
Awards and was given in part in recognition of his
appointment as Chief Executive Officer effective January 1,
2006. In addition, as described above under Deferred
Compensation, during fiscal 2006 Flextronics
established a deferred compensation plan in which
Mr. McNamara, among others, participates. In fiscal 2006,
Flextronics contributed $5,000,000 to Mr. McNamaras
deferred compensation account. The deferred bonus for
Mr. McNamara vests as follows: 10% vested on April 1,
2006; an additional 15% will vest on April 1, 2007; an
additional 20% will vest on April 1, 2008; an additional
25% will vest on April 1, 2009; and an additional 30% will
vest on April 1, 2010.
Mr. Marks was our Chief Executive officer until
January 1, 2006. Other than payments made pursuant to his
agreement, described above under General Compensation
Philosophy and under Employment Contracts and
Termination of Employment and
Change-in-Control
Arrangements, Mr. Markss base salary was
$985,000, of which only $738,750 was paid to Mr. Marks
because he resigned prior to the end of the fiscal year. This
base salary was unchanged from fiscal year 2005. For fiscal year
2006, Mr. Marks received a bonus of $1,477,500, which bonus
was determined as described above under Cash
Bonuses. Mr. Marks did not receive any stock
options or share bonus awards during fiscal 2006.
Submitted by the Compensation Committee of the
Board of Directors:
Richard L. Sharp
H. Raymond Bingham
33
AUDIT COMMITTEE REPORT
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 is included as Annex A to
this proxy statement. 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. Shah, Mr. Tan
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
their 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, 2006, as well as
managements assessment and our independent auditors
evaluation of the effectiveness of Flextronicss internal
control over financial reporting. 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 2006 and fiscal
year 2005 were pre-approved by the Audit Committee in accordance
with established procedures.
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, 2006, which was filed with the
SEC on May 31, 2006.
Submitted by the Audit Committee of the Board of Directors:
James A. Davidson
Ajay B. Shah
Lip-Bu Tan
34
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, 2001 and
reflects the annual return through March 31, 2006, 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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* |
$100 invested on 3/31/01 in stock or index, including
reinvestment of dividends. Fiscal year ending March 31. |
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2001 |
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2002 |
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2003 |
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2004 |
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2005 |
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2006 |
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Flextronics International Ltd.
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$ |
100.00 |
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$ |
121.67 |
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$ |
58.13 |
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$ |
113.93 |
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$ |
80.27 |
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$ |
69.00 |
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S&P 500 Index
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100.00 |
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100.24 |
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75.42 |
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101.91 |
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108.73 |
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121.48 |
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Peer Group
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100.00 |
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75.33 |
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30.98 |
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55.38 |
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40.32 |
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46.69 |
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35
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information as of May 31,
2006, except as otherwise indicated, 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 outstanding ordinary shares; |
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each Named Executive Officer; |
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each director; and |
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all executive officers 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 greater than 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 31, 2006 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 578,571,111
ordinary shares outstanding as of May 31, 2006.
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Shares Beneficially | |
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Owned | |
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Number of | |
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Name and Address of Beneficial Owner |
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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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92,988,801 |
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16.07 |
% |
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1290 Avenue of the Americas
New York, NY 10104 |
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Entities associated with FMR Corp.(2)
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59,208,030 |
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10.23 |
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82 Devonshire Street
Boston, MA 02109 |
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Entities associated with Capital Group International, Inc.(3)
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42,843,810 |
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7.41 |
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11100 Santa Monica Boulevard
Los Angeles, CA 90025 |
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Capital Research and Management Company(4)
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38,915,000 |
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6.73 |
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333 South Hope Street
Los Angeles, CA 90071 |
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Wellington Management Company, LLP(5)
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31,961,259 |
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5.52 |
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75 State Street
Boston, MA 02109 |
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(table continued on following page)
36
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Shares Beneficially | |
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Owned | |
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Number of | |
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Name and Address of Beneficial Owner |
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Shares | |
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Percent | |
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Named Executive Officers and Directors:
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Michael E. Marks(6)
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8,193,959 |
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1.40 |
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Michael M. McNamara(7)
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5,283,380 |
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* |
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Richard L. Sharp(8)
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3,219,694 |
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* |
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Thomas J. Smach(9)
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1,629,673 |
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* |
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Nicholas E. Brathwaite(10)
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1,041,332 |
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* |
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Peter Tan(11)
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687,375 |
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* |
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Werner Widmann(12)
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173,625 |
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* |
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James A. Davidson(13)
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144,559 |
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* |
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Lip-Bu Tan(14)
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97,762 |
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* |
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Ajay B. Shah
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* |
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H. Raymond Bingham
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* |
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Rockwell A. Schnabel
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* |
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All executive officers and directors as a group (12 persons)(15)
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20,471,359 |
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3.46 |
% |
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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, 2006. Alliance Capital Management L.P. is
deemed to have sole voting power for 68,488,644 of these shares,
shared voting power for 7,988,010 of these shares, sole
dispositive power for 92,944,633 of these shares and shared
dispositive power for 38,468 of these shares. AXA Equitable Life
Insurance Company has sole dispositive power for 5,700 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 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, 2006.
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 1,909,190 of these shares
and sole dispositive power for 59,208,030 of these shares. |
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(3) |
Based on information supplied by Capital Group International,
Inc. in a Schedule 13G filed with the SEC on February 9,
2006. Capital Group International, Inc., as a result of being
the parent holding company of a group of investment management
companies, is deemed to have sole voting power for 35,621,610 of
these shares and sole dispositive power for 42,843,810 of these
shares. Capital Guardian Trust Company, a wholly owned
subsidiary of Capital Group International, Inc., is deemed to
have sole voting power for 22,914,910 of these shares and sole
dispositive power for 28,269,210 of these shares. |
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(4) |
Based on information supplied by Capital Research and Management
Company in an amended Schedule 13G filed with the SEC on
February 10, 2006. Capital Research and Management Company,
as a result of acting as an investment adviser, is deemed to
beneficially own all of these shares. Capital Research and
Management Company is deemed to have sole voting power for
22,850,000 of these shares and sole dispositive power for
38,915,000 of these shares. |
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(5) |
Based on information supplied by Wellington Management Company,
LLP in a Schedule 13G filed with the SEC on
February 14, 2006. Wellington Management Company, LLP, as a
result of acting as an investment adviser, is deemed to have
shared voting power for 18,869,737 of these shares and shared
dispositive power for 31,961,259 of these shares. |
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(6) |
Includes 2,561,626 shares held by Epping Investment
Holdings, LLC of which Mr. Marks and his spouse are
managing members, 633,333 shares held by the Marks Family
Trust, 24,000 shares held by a |
37
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trust for Mr. Markss minor children and
4,975,000 shares subject to options exercisable within
60 days of May 31, 2006. |
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(7) |
Includes 5,045,833 shares subject to options exercisable
within 60 days of May 31, 2006. |
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(8) |
Includes 480,000 shares beneficially owned by
Bethany Limited of which Mr. Sharp is a manager, and
in which Mr. Sharp owns a 1% interest. Mr. Sharp
disclaims beneficial ownership in the shares owned by
Bethany Limited except to the extent of his pecuniary
interest arising from his partnership interest in Bethany
Limited. Also includes 457,000 shares held directly by RLS
2000 Charitable Remainder Unitrust of which Mr. Sharp is a
co-trustee, and 155,000 shares held directly by RLS 1998
Charitable Remainder Unitrust, of which Mr. Sharp is a
co-trustee. Also includes 172,146 shares subject to options
exercisable within 60 days of May 31, 2006. |
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(9) |
Includes 1,509,583 shares subject to options exercisable
within 60 days of May 31, 2006. |
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(10) |
Includes 1,025,632 shares subject to options exercisable
within 60 days of May 31, 2006. |
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(11) |
Includes 671,375 shares subject to options exercisable
within 60 days of May 31, 2006. |
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(12) |
Includes 173,625 shares subject to options exercisable
within 60 days of May 31, 2006. |
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(13) |
Includes 45,740 shares held by the Davidson Living Trust of
which Mr. Davidson is a trustee, 7,898 shares held by
Silver Lake Technology Management, L.L.C. of which
Mr. Davidson is Managing Director, 5,000 shares held
directly by Mr. Davidson, 94 shares held by the John
Alexander Davidson 2000 Irrevocable Trust of which
Mr. Davidson is a trustee and 85,827 shares subject to
options exercisable within 60 days of May 31, 2006.
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
85,827 shares issuable upon exercise of options are
expected to be assigned by Mr. Davidson to Silver Lake
Technology Management, L.L.C. Does not include
18,571,427 shares previously issuable upon the conversion
of $195.0 million in aggregate principal amount of our
Convertible Junior Subordinated Notes due 2008 held by funds
affiliated with Silver Lake Partners, of which Mr. Davidson
is a co-founder and managing director. In July 2006, the Notes
were amended to, among other things, (i) extend the
maturity date of the Notes to July 31, 2009 and
(ii) provide for net share settlement of the Notes upon
maturity. The Notes may no longer be converted or redeemed prior
to maturity, other than in connection with certain change of
control transactions, and upon maturity will be net share
settled by the payment of cash equal to the face amount of the
Notes and the issuance of shares with a value equal to any
conversion value in excess of the face amount of the Notes.
Mr. Davidson disclaims beneficial ownership of the Notes
and any underlying shares, except to the extent of his pecuniary
interest therein. |
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(14) |
Includes 12,898 shares held by the Lip-Bu Tan and Ysa Loo,
TTEES of which Mr. Tan is a co-trustee and
84,864 shares subject to options exercisable within
60 days of May 31, 2006. |
|
(15) |
Includes 13,743,885 shares subject to options exercisable
within 60 days of May 31, 2006. |
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 2006, 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
Nicholas E. Brathwaite. On May 31, 2003, Flextronics
USA loaned $2,839,454 to Mr. Brathwaite prior to the time
Mr. Brathwaite became an executive officer.
Mr. Brathwaite executed a Secured Full Recourse Promissory
Note, a Second Deed of Trust and a Loan and Security Agreement
in favor of Flextronics USA
38
that bear interest at a rate of 1.49% per year. On
December 13, 2005, prior to the time that
Mr. Brathwaite became an executive officer, this loan was
amended to extend the maturity date from December 31, 2005
to December 31, 2007. The outstanding balance of this loan
as of March 31, 2006 was $2,961,089.12 (representing
$2,839,454 in principal and $121,635.12 in accrued interest).
Glouple. In connection with an investment partnership of
our executive officers, Glouple Ventures LLC, from July 2000
through December 2001, one of our subsidiaries, Flextronics
International, NV, loaned the following amounts to each of
Messrs. McNamara, Smach and Brathwaite:
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Amount of | |
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Interest | |
Date |
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Loan | |
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Rate | |
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| |
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| |
July 2000
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$ |
311,421 |
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6.40 |
% |
August 2000
|
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204,155 |
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6.22 |
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November 2000
|
|
|
1,001,831 |
|
|
|
6.09 |
|
August 2001
|
|
|
151,697 |
|
|
|
5.72 |
|
November 2001
|
|
|
117,611 |
|
|
|
5.05 |
|
December 2001
|
|
|
33,739 |
|
|
|
5.05 |
|
The loans were evidenced by promissory notes executed by each of
Messrs. McNamara, Smach and Brathwaite in favor of
Flextronics International, NV. The loans bear interest at the
rates indicated above and mature on August 15, 2010. As of
March 31, 2006, the remaining aggregate outstanding balance
of the indebtedness of each executive was $1,820,454, including
accrued interest, which is the largest aggregate amount of
indebtedness outstanding during fiscal year 2006.
Investment by Silver Lake Partners
In March 2003, we issued $195.0 million aggregate principal
amount of our Convertible Junior Subordinated Notes due 2008 to
funds affiliated with Silver Lake Partners. In connection with
the issuance of the Notes, we appointed James A. Davidson, a
co-founder and managing director of Silver Lake Partners, to our
Board of Directors. In July 2006, we entered into an agreement
with the Silver Lake noteholders to, among other things
(i) extend the maturity date of the Notes to July 31,
2009 and (ii) provide for net share settlement of the Notes
upon maturity. The Notes may no longer be converted or redeemed
prior to maturity, other than in connection with certain change
of control transactions, and upon maturity will be net share
settled by the payment of cash equal to the face amount of the
Notes and the issuance of shares with a value equal to any
conversion value in excess of the face amount of the Notes.
Sale of Software Development and Solutions Business
On April 13, 2006, we entered into a definitive agreement
to sell our Software Development and Solutions business to an
affiliate of Kohlberg Kravis Roberts & Co
(KKR). Upon closing of the transaction, we will
receive cash consideration which is expected to be in excess of
$600.0 million and a $250.0 million face value note
receivable with a 10.5%
paid-in-kind interest
coupon which matures in eight years, and we will retain a 15%
equity interest in the new company. Mr. Michael E. Marks,
the Chairman of the Companys Board of Directors, is a
member of KKR. The terms of the transaction were approved by an
Independent Committee of our Board of Directors as well as by
the Audit Committee of our Board of Directors. The Independent
Committee of our Board of Directors received fairness opinions
from certain independent third-party financial institutions.
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
39
representations from our executive officers and directors, we
believe that all Section 16(a) filing requirements for the
year ended March 31, 2006 were met, except that a
Form 4 relating to Mr. McNamaras settlement on
January 19, 2006 of a prepaid variable forward contract and
the deemed sale of 360,000 shares in connection with the
settlement was filed two days late (on January 25, 2006).
Mr. McNamaras prepaid variable forward contract,
including settlement terms, was initially reported to the SEC on
Form 4 on November 5, 2004.
SHAREHOLDER PROPOSALS FOR THE 2007 ANNUAL GENERAL MEETING
Shareholder proposals intended for inclusion in the proxy
statement for the 2007 Annual General Meeting must be received
by us no later than April 19, 2007. 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 2007
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.
In addition, under Section 183 of the Companies Act,
registered shareholders representing at least 5% of the total
outstanding voting rights or registered shareholders
representing not fewer than 100 registered shareholders
having an average paid up sum of at least S$500 each may,
at their expense, requisition that we include and give notice of
their proposal for the 2007 Annual General Meeting. Subject
to satisfaction of the requirements of Section 183 of the
Companies Act, any such requisition must be signed by all the
requisitionists and be deposited at our registered office in
Singapore, One Marina Boulevard, #28-00, Singapore 018989,
at least six weeks prior to the date of the 2007 Annual
General Meeting in the case of a requisition requiring notice of
a resolution, or at least one week prior to the date of the
2007 Annual General Meeting in the case of any other
requisition.
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, 2006:
|
|
|
|
|
Item 8, Financial Statements and Supplementary
Data; |
|
|
|
Item 7, Managements Discussion and Analysis of
Financial Condition and Results of Operations; and |
|
|
|
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, 2006 which was filed with the
SEC on May 31, 2006, 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, 2006. 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:
|
|
|
|
|
our consolidated financial statements (which are identical to
those included in the Annual Report on
Form 10-K,
described above); |
|
|
|
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); |
40
|
|
|
|
|
a Directors Report; and |
|
|
|
the Auditors Report of Deloitte & Touche, our
Singapore statutory auditors for the fiscal year ended
March 31, 2006. |
OTHER MATTERS
Management does not know of any matters to be presented at the
2006 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. We urge
you 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 Secretary |
Joint Secretary |
July 31, 2006
Singapore
Upon request, we will furnish without charge to each person
to whom this Proxy Statement is delivered a copy of any exhibit
listed in our Annual Report on
Form 10-K for the
fiscal year ended March 31, 2006. You may request a copy of
this information at no cost, by writing or telephoning us at our
principal U.S. offices at:
Flextronics International Ltd.
2090 Fortune Dr.
San Jose, California 95131 U.S.A.
Telephone: (408) 576-7722
41
SINGAPORE STATUTORY FINANCIAL STATEMENTS
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARIES
(Incorporated in the Republic of Singapore)
(Company Registration Number 199002645H)
INDEX
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|
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|
|
Page |
|
|
|
|
|
S-2 |
|
|
S-6 |
|
|
S-7 |
|
|
S-8 |
|
|
S-49 |
S-1
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARIES
Co. Rg. No. 199002645H
REPORT OF THE DIRECTORS
MARCH 31, 2006
(U.S. 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,
2006.
Directors
The directors of Flextronics International Ltd. in office at the
date of this report are:
|
|
|
H. Raymond Bingham |
|
James A. Davidson |
|
Michael E. Marks |
|
|
Michael M. McNamara |
|
|
Rockwell A. Schnabel |
|
Ajay B. Shah |
|
Richard L. Sharp |
|
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 Interests 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:
|
|
|
|
|
|
|
|
|
|
|
Interest Held | |
|
|
| |
|
|
As of March 31, | |
|
|
|
|
2005 or Date of | |
|
|
|
|
Appointment as | |
|
|
|
|
Director During | |
|
As of | |
Ordinary Shares, no Par Value, in Flextronics International Ltd. |
|
the Year | |
|
March 31, 2006 | |
|
|
| |
|
| |
H. Raymond Bingham *
|
|
|
|
|
|
|
|
|
James A. Davidson
|
|
|
50,834 |
|
|
|
50,834 |
|
Michael E. Marks
|
|
|
3,570,059 |
|
|
|
3,218,959 |
|
Michael M. McNamara *
|
|
|
597,547 |
|
|
|
237,547 |
|
Rockwell A. Schnabel **
|
|
|
|
|
|
|
|
|
Ajay B. Shah *
|
|
|
|
|
|
|
|
|
Richard L. Sharp
|
|
|
3,037,952 |
|
|
|
3,047,548 |
|
Lip-Bu Tan
|
|
|
5,000 |
|
|
|
12,898 |
|
|
|
* |
Messrs. Bingham, McNamara and Shah joined the Board of
Directors on October 14, 2005. |
|
|
** |
Mr. Schnabel joined the Board of Directors on
February 7, 2006. |
S-2
Options to acquire ordinary shares, no par value, in
Flextronics International Ltd.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, | |
|
|
|
|
|
|
|
|
2005 or Date of | |
|
|
|
|
|
|
|
|
Appointment as | |
|
|
|
|
|
|
|
|
Director During | |
|
As of | |
|
|
|
|
|
|
the Year | |
|
March 31, 2006 | |
|
Exercise Price | |
|
Exercisable Period | |
|
|
| |
|
| |
|
| |
|
| |
H. Raymond Bingham *
|
|
|
|
|
|
|
25,000 |
|
|
$ |
11.8200 |
|
|
|
10.14.05 to 10.14.10 |
|
James A. Davidson
|
|
|
25,000 |
|
|
|
25,000 |
|
|
$ |
9.3500 |
|
|
|
03.20.03 to 03.20.08 |
|
|
|
|
6,610 |
|
|
|
6,610 |
|
|
$ |
14.2200 |
|
|
|
09.30.03 to 09.30.08 |
|
|
|
|
20,000 |
|
|
|
20,000 |
|
|
$ |
17.5000 |
|
|
|
01.22.04 to 01.22.09 |
|
|
|
|
20,000 |
|
|
|
20,000 |
|
|
$ |
10.0800 |
|
|
|
08.12.04 to 08.12.09 |
|
|
|
|
12,500 |
|
|
|
12,500 |
|
|
$ |
13.5300 |
|
|
|
09.23.04 to 09.23.09 |
|
|
|
|
|
|
|
|
25,000 |
|
|
$ |
12.6200 |
|
|
|
05.17.05 to 05.17.10 |
|
|
|
|
|
|
|
|
12,500 |
|
|
$ |
12.6600 |
|
|
|
09.20.05 to 09.20.10 |
|
Michael E. Marks
|
|
|
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 |
|
|
|
4,000,000 |
|
|
$ |
7.9000 |
|
|
|
07.01.02 to 07.01.12 |
|
|
|
|
1,000,000 |
|
|
|
1,000,000 |
|
|
$ |
17.6900 |
|
|
|
04.21.04 to 04.21.14 |
|
|
|
|
1,375,000 |
|
|
|
1,375,000 |
|
|
$ |
11.5300 |
|
|
|
08.23.04 to 08.23.14 |
|
Michael M. McNamara *
|
|
|
150,000 |
|
|
|
150,000 |
|
|
$ |
13.9800 |
|
|
|
09.21.01 to 09.21.11 |
|
|
|
|
250,000 |
|
|
|
250,000 |
|
|
$ |
15.9000 |
|
|
|
10.01.01 to 10.01.11 |
|
|
|
|
2,000,000 |
|
|
|
2,000,000 |
|
|
$ |
7.9000 |
|
|
|
07.01.02 to 07.01.12 |
|
|
|
|
600,000 |
|
|
|
600,000 |
|
|
$ |
8.8400 |
|
|
|
09.03.02 to 09.03.12 |
|
|
|
|
400,000 |
|
|
|
400,000 |
|
|
$ |
16.0700 |
|
|
|
04.30.04 to 04.30.14 |
|
|
|
|
200,000 |
|
|
|
200,000 |
|
|
$ |
11.5300 |
|
|
|
08.23.04 to 08.23.14 |
|
|
|
|
3,000,000 |
|
|
|
3,000,000 |
|
|
$ |
12.3700 |
|
|
|
05.13.05 to 05.13.15 |
|
Rockwell A. Schnabel **
|
|
|
|
|
|
|
25,000 |
|
|
$ |
10.1700 |
|
|
|
02.07.06 to 02.07.11 |
|
Ajay B. Shah *
|
|
|
|
|
|
|
25,000 |
|
|
$ |
11.8200 |
|
|
|
10.14.05 to 10.14.10 |
|
Richard L. Sharp
|
|
|
6,000 |
|
|
|
|
|
|
$ |
42.0313 |
|
|
|
09.21.00 to 09.21.05 |
|
|
|
|
6,000 |
|
|
|
6,000 |
|
|
$ |
14.1000 |
|
|
|
09.20.01 to 09.20.06 |
|
|
|
|
10,000 |
|
|
|
10,000 |
|
|
$ |
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 |
|
|
|
20,000 |
|
|
$ |
10.0800 |
|
|
|
08.12.04 to 08.12.09 |
|
|
|
|
12,500 |
|
|
|
12,500 |
|
|
$ |
13.5300 |
|
|
|
09.23.04 to 09.23.09 |
|
|
|
|
|
|
|
|
100,000 |
|
|
$ |
12.6200 |
|
|
|
05.17.05 to 05.17.10 |
|
|
|
|
|
|
|
|
12,500 |
|
|
$ |
10.4200 |
|
|
|
01.03.06 to 01.03.11 |
|
Lip-Bu Tan
|
|
|
25,000 |
|
|
|
25,000 |
|
|
$ |
9.0000 |
|
|
|
04.03.03 to 04.03.08 |
|
|
|
|
6,165 |
|
|
|
6,165 |
|
|
$ |
14.2200 |
|
|
|
09.30.03 to 09.30.08 |
|
|
|
|
20,000 |
|
|
|
20,000 |
|
|
$ |
17.5000 |
|
|
|
01.22.04 to 01.22.09 |
|
|
|
|
20,000 |
|
|
|
20,000 |
|
|
$ |
10.0800 |
|
|
|
08.12.04 to 08.12.09 |
|
|
|
|
12,500 |
|
|
|
12,500 |
|
|
$ |
13.5300 |
|
|
|
09.23.04 to 09.23.09 |
|
|
|
|
|
|
|
|
25,000 |
|
|
$ |
12.6200 |
|
|
|
05.17.05 to 05.17.10 |
|
|
|
|
|
|
|
|
12,500 |
|
|
$ |
12.6600 |
|
|
|
09.20.05 to 09.20.10 |
|
|
|
* |
Messrs. Bingham, McNamara and Shah joined the Board of
Directors on October 14, 2005. |
|
|
** |
Mr. Schnabel joined the Board of Directors on
February 7, 2006. |
S-3
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 the 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
Other than as disclosed above, 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,
Chapter 50, 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.
Share Option Plans and Employee Share Purchase Plan
(Schemes)
|
|
|
2004 Award Plan (the 2004 Plan) |
During the financial year ended March 31, 2006, options for
a total of 2,200,175 Ordinary Shares in the Parent were granted
with exercise prices ranging from $10.32 to $13.32 and a
weighted-average exercise price of $11.09 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, 2006, the number and
class of unissued shares under options granted under the 2004
Plan was 4,919,845 Ordinary Shares, net of cancellation of
options for 812,005 Ordinary Shares during financial year 2006.
The expiration dates range from November 2014 to January 2016.
|
|
|
2002 Interim Incentive Plan (the 2002
Plan) |
During the financial year ended March 31, 2006, options for
a total of 49,400 Ordinary Shares in the Parent were granted
with an exercise price of $13.27 under the 2002 Plan. 3,824,173
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, 2006, the number and class of
unissued shares under options granted under the 2002 Plan was
10,753,219 Ordinary Shares, net of cancellation of options for
1,636,621 Ordinary Shares during financial year 2006. The
expiration dates range from January 2008 to July 2015.
|
|
|
2001 Equity Incentive Plan (the 2001
Plan) |
During the financial year ended March 31, 2006, options for
a total of 9,299,879 Ordinary Shares in the Parent were granted
under the 2001 Plan with an exercise price ranging from $10.17
to $13.27 and a weighted-average exercise price of $11.75.
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.
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 Plan. The
Assumed Plans were consolidated into the 2001 Plan during
financial year 2005.
S-4
During the financial year ended March 31, 2006, a total of
1,738,175 Ordinary Shares in the Parent were issued by virtue of
the exercise of options granted under the 2001 Plan. As at
March 31, 2006, the number and class of unissued shares
under options granted under the 2001 Plan was 39,369,492
Ordinary Shares, net of cancellation of options for 6,074,325
Ordinary Shares during financial year 2006. The expiration dates
range from May 2006 to January 2016.
|
|
|
Employee Share Purchase Plan (the ESPP) |
The ESPP was approved by the shareholders in October 1997 and
terminated by the Board of Directors in October 2005. Upon the
approval of termination, the Board of Directors decided that no
shares would be available for issuance subsequent to
March 31, 2006.
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 fair market value of the shares at the
beginning or end of the offering period, whichever is lower. A
total of 914,244 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
2006 was $11.51.
Auditors
The auditors, Deloitte & Touche, have expressed their
willingness to accept re-appointment.
On Behalf of the Board of Directors
|
|
|
/s/ MICHAEL E. MARKS
|
|
/s/ MICHAEL M. MCNAMARA |
|
|
|
Director
|
|
Director |
Singapore
May 30, 2006
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, 2006, 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
|
|
/s/ MICHAEL M. MCNAMARA |
|
|
|
Director
|
|
Director |
Singapore
May 30, 2006
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,
2006, (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 of 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, 2006, 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, 2006, 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, 2006 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.
Certified Public Accountants
Singapore
May 30, 2006
S-7
FLEXTRONICS INTERNATIONAL LTD.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(In thousands except | |
|
|
share amounts) | |
ASSETS |
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
942,859 |
|
|
$ |
869,258 |
|
|
Accounts receivable, net of allowance for doubtful accounts of
$17,749 and $26,641 as of March 31, 2006 and 2005,
respectively
|
|
|
1,496,520 |
|
|
|
1,787,006 |
|
|
Inventories
|
|
|
1,738,310 |
|
|
|
1,513,715 |
|
|
Deferred income taxes
|
|
|
9,643 |
|
|
|
11,614 |
|
|
Current assets of discontinued operations
|
|
|
89,509 |
|
|
|
79,053 |
|
|
Other current assets
|
|
|
620,095 |
|
|
|
526,519 |
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
4,896,936 |
|
|
|
4,787,165 |
|
Property and equipment, net
|
|
|
1,586,486 |
|
|
|
1,669,876 |
|
Deferred income taxes
|
|
|
646,431 |
|
|
|
687,146 |
|
Goodwill
|
|
|
2,676,727 |
|
|
|
2,965,867 |
|
Other intangible assets, net
|
|
|
115,064 |
|
|
|
81,644 |
|
Long-term assets of discontinued operations
|
|
|
574,384 |
|
|
|
494,019 |
|
Other assets
|
|
|
462,379 |
|
|
|
324,049 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
10,958,407 |
|
|
$ |
11,009,766 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Bank borrowings, current portion of long-term debt and capital
lease obligations
|
|
$ |
106,099 |
|
|
$ |
26,140 |
|
|
Accounts payable
|
|
|
2,758,019 |
|
|
|
2,505,719 |
|
|
Accrued payroll
|
|
|
184,483 |
|
|
|
269,532 |
|
|
Current liabilities of discontinued operations
|
|
|
57,213 |
|
|
|
66,669 |
|
|
Other current liabilities
|
|
|
852,490 |
|
|
|
1,012,134 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
3,958,304 |
|
|
|
3,880,194 |
|
Long-term debt and capital lease obligations, net of current
portion
|
|
|
1,488,975 |
|
|
|
1,709,011 |
|
Long-term liabilities of discontinued operations
|
|
|
30,578 |
|
|
|
53,189 |
|
Other liabilities
|
|
|
125,903 |
|
|
|
143,324 |
|
Commitments and contingencies (Note 7)
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
|
Ordinary shares, no par value; 578,141,566 and
568,329,662 shares issued and outstanding as of
March 31, 2006 and 2005, respectively
|
|
|
5,572,574 |
|
|
|
5,489,764 |
|
|
Accumulated deficit
|
|
|
(241,438 |
) |
|
|
(382,600 |
) |
|
Accumulated other comprehensive income
|
|
|
27,565 |
|
|
|
123,683 |
|
|
Deferred compensation
|
|
|
(4,054 |
) |
|
|
(6,799 |
) |
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
5,354,647 |
|
|
|
5,224,048 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$ |
10,958,407 |
|
|
$ |
11,009,766 |
|
|
|
|
|
|
|
|
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, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands, except per share amounts) | |
Net sales
|
|
$ |
15,287,976 |
|
|
$ |
15,730,717 |
|
|
$ |
14,479,262 |
|
Cost of sales
|
|
|
14,354,461 |
|
|
|
14,720,532 |
|
|
|
13,676,855 |
|
Restructuring charges
|
|
|
185,631 |
|
|
|
78,381 |
|
|
|
474,068 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
747,884 |
|
|
|
931,804 |
|
|
|
328,339 |
|
Selling, general and administrative expenses
|
|
|
463,946 |
|
|
|
525,607 |
|
|
|
469,229 |
|
Intangible amortization
|
|
|
37,160 |
|
|
|
33,541 |
|
|
|
34,543 |
|
Restructuring charges
|
|
|
30,110 |
|
|
|
16,978 |
|
|
|
54,785 |
|
Other income, net
|
|
|
(17,200 |
) |
|
|
(13,491 |
) |
|
|
|
|
Interest and other expense, net
|
|
|
92,951 |
|
|
|
89,996 |
|
|
|
77,241 |
|
Gain on divestiture of operations
|
|
|
(23,819 |
) |
|
|
|
|
|
|
|
|
Loss on early extinguishment of debt
|
|
|
|
|
|
|
16,328 |
|
|
|
103,909 |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
164,736 |
|
|
|
262,845 |
|
|
|
(411,368 |
) |
Provision for (benefit from) income taxes
|
|
|
54,218 |
|
|
|
(68,652 |
) |
|
|
(64,958 |
) |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$ |
110,518 |
|
|
$ |
331,497 |
|
|
$ |
(346,410 |
) |
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of tax
|
|
|
30,644 |
|
|
|
8,374 |
|
|
|
(5,968 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
141,162 |
|
|
$ |
339,871 |
|
|
$ |
(352,378 |
) |
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.19 |
|
|
$ |
0.60 |
|
|
$ |
(0.66 |
) |
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$ |
0.18 |
|
|
$ |
0.57 |
|
|
$ |
(0.66 |
) |
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.05 |
|
|
$ |
0.02 |
|
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$ |
0.05 |
|
|
$ |
0.01 |
|
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
Net income(loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.25 |
|
|
$ |
0.61 |
|
|
$ |
(0.67 |
) |
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$ |
0.24 |
|
|
$ |
0.58 |
|
|
$ |
(0.67 |
) |
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing per share amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
573,520 |
|
|
|
552,920 |
|
|
|
525,318 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
600,604 |
|
|
|
585,499 |
|
|
|
525,318 |
|
|
|
|
|
|
|
|
|
|
|
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, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Net income (loss)
|
|
$ |
141,162 |
|
|
$ |
339,871 |
|
|
$ |
(352,378 |
) |
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of taxes
|
|
|
(100,472 |
) |
|
|
56,255 |
|
|
|
105,963 |
|
|
Unrealized holding gain (loss) on investments and derivative
instruments, net of taxes
|
|
|
4,354 |
|
|
|
(10,677 |
) |
|
|
5,561 |
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$ |
45,044 |
|
|
$ |
385,449 |
|
|
$ |
(240,854 |
) |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
S-10
FLEXTRONICS INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
Ordinary Shares | |
|
|
|
Other | |
|
|
|
|
|
|
| |
|
|
|
Comprehensive | |
|
|
|
Total | |
|
|
Shares | |
|
|
|
Accumulated | |
|
Income | |
|
Deferred | |
|
Shareholders | |
|
|
Outstanding | |
|
Amount | |
|
Deficit | |
|
(Loss) | |
|
Compensation | |
|
Equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
BALANCE AT MARCH 31, 2003
|
|
|
520,228 |
|
|
$ |
4,951,679 |
|
|
$ |
(370,093 |
) |
|
$ |
(33,419 |
) |
|
$ |
(6,147 |
) |
|
$ |
4,542,020 |
|
Issuance of ordinary shares for acquisitions
|
|
|
517 |
|
|
|
3,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,162 |
|
Exercise of stock options
|
|
|
8,235 |
|
|
|
54,825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,825 |
|
Ordinary shares issued under Employee Stock Purchase Plan
|
|
|
718 |
|
|
|
6,288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,288 |
|
Issuance of restricted ordinary shares
|
|
|
246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(352,378 |
) |
|
|
|
|
|
|
|
|
|
|
(352,378 |
) |
Deferred stock compensation, net of cancellations
|
|
|
|
|
|
|
2,171 |
|
|
|
|
|
|
|
|
|
|
|
(2,171 |
) |
|
|
|
|
Amortization of deferred stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,772 |
|
|
|
1,772 |
|
Unrealized gain on investments and derivative instruments, net
of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,561 |
|
|
|
|
|
|
|
5,561 |
|
Foreign currency translation, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105,963 |
|
|
|
|
|
|
|
105,963 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT MARCH 31, 2004
|
|
|
529,944 |
|
|
|
5,018,125 |
|
|
|
(722,471 |
) |
|
|
78,105 |
|
|
|
(6,546 |
) |
|
|
4,367,213 |
|
Issuance of ordinary shares for acquisitions
|
|
|
10,004 |
|
|
|
127,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127,226 |
|
Exercise of stock options
|
|
|
3,182 |
|
|
|
29,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,784 |
|
Modification of stock option grants (Note 11)
|
|
|
|
|
|
|
5,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,575 |
|
Ordinary shares issued under Employee Stock Purchase Plan
|
|
|
561 |
|
|
|
6,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,817 |
|
Sales of ordinary shares in public offering, net of offering
costs of $4,636
|
|
|
24,331 |
|
|
|
299,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
299,500 |
|
Issuance of restricted ordinary shares
|
|
|
308 |
|
|
|
329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
329 |
|
Net income
|
|
|
|
|
|
|
|
|
|
|
339,871 |
|
|
|
|
|
|
|
|
|
|
|
339,871 |
|
Deferred stock compensation, net of cancellations
|
|
|
|
|
|
|
2,408 |
|
|
|
|
|
|
|
|
|
|
|
(2,408 |
) |
|
|
|
|
Amortization of deferred stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,155 |
|
|
|
2,155 |
|
Unrealized loss on investments and derivative instruments, net
of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,677 |
) |
|
|
|
|
|
|
(10,677 |
) |
Foreign currency translation, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,255 |
|
|
|
|
|
|
|
56,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT MARCH 31, 2005
|
|
|
568,330 |
|
|
|
5,489,764 |
|
|
|
(382,600 |
) |
|
|
123,683 |
|
|
|
(6,799 |
) |
|
|
5,224,048 |
|
Issuance of ordinary shares for acquisitions
|
|
|
2,526 |
|
|
|
27,907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,907 |
|
Exercise of stock options
|
|
|
5,562 |
|
|
|
41,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,052 |
|
Shares issued for debt conversion
|
|
|
476 |
|
|
|
5,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
Ordinary shares issued under Employee Stock Purchase Plan
|
|
|
914 |
|
|
|
8,934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,934 |
|
Issuance of restricted ordinary shares
|
|
|
293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for board of directors compensation
|
|
|
41 |
|
|
|
499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
499 |
|
Net income
|
|
|
|
|
|
|
|
|
|
|
141,162 |
|
|
|
|
|
|
|
|
|
|
|
141,162 |
|
Deferred stock compensation, net of cancellations
|
|
|
|
|
|
|
(582 |
) |
|
|
|
|
|
|
|
|
|
|
582 |
|
|
|
|
|
Amortization of deferred stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,163 |
|
|
|
2,163 |
|
Unrealized loss on investments and derivative instruments, net
of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,354 |
|
|
|
|
|
|
|
4,354 |
|
Foreign currency translation, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100,472 |
) |
|
|
|
|
|
|
(100,472 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT MARCH 31, 2006
|
|
|
578,142 |
|
|
$ |
5,572,574 |
|
|
$ |
(241,438 |
) |
|
$ |
27,565 |
|
|
$ |
(4,054 |
) |
|
$ |
5,354,647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
141,162 |
|
|
$ |
339,871 |
|
|
$ |
(352,378 |
) |
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization and impairment charges
|
|
|
390,828 |
|
|
|
373,670 |
|
|
|
662,798 |
|
|
Gain on sale of equipment
|
|
|
(8,473 |
) |
|
|
(1,752 |
) |
|
|
(2,206 |
) |
|
Provision for doubtful accounts
|
|
|
606 |
|
|
|
4,848 |
|
|
|
1,256 |
|
|
Equity in earnings (losses) of associated companies and other
charges, net
|
|
|
(16,831 |
) |
|
|
2,785 |
|
|
|
(181 |
) |
|
Stock compensation
|
|
|
2,662 |
|
|
|
2,155 |
|
|
|
1,772 |
|
|
Deferred income taxes
|
|
|
47,953 |
|
|
|
(84,070 |
) |
|
|
(97,171 |
) |
|
Gain on divestitures of operations
|
|
|
(67,569 |
) |
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
172,638 |
|
|
|
110,907 |
|
|
|
(381,948 |
) |
|
|
Inventories
|
|
|
(220,988 |
) |
|
|
(105,126 |
) |
|
|
(40,302 |
) |
|
|
Other assets
|
|
|
(171,460 |
) |
|
|
61,341 |
|
|
|
(139,691 |
) |
|
|
Accounts payable and other current liabilities
|
|
|
278,828 |
|
|
|
19,636 |
|
|
|
535,749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
549,356 |
|
|
|
724,265 |
|
|
|
187,698 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment, net of disposition
|
|
|
(251,174 |
) |
|
|
(289,680 |
) |
|
|
(181,461 |
) |
|
Acquisition of businesses, net of cash acquired
|
|
|
(649,160 |
) |
|
|
(469,003 |
) |
|
|
(119,983 |
) |
|
Proceeds from divestitures of operations, net of cash disposed
|
|
|
518,505 |
|
|
|
|
|
|
|
|
|
|
Other investments and notes receivable
|
|
|
(47,090 |
) |
|
|
20,406 |
|
|
|
(102,323 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(428,919 |
) |
|
|
(738,277 |
) |
|
|
(403,767 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from bank borrowings and long-term debt
|
|
|
3,420,583 |
|
|
|
1,793,969 |
|
|
|
1,446,592 |
|
|
Repayments of bank borrowings and long-term debt
|
|
|
(3,503,420 |
) |
|
|
(1,789,862 |
) |
|
|
(1,008,692 |
) |
|
Repayment of capital lease obligations and other
|
|
|
(11,457 |
) |
|
|
(10,672 |
) |
|
|
(12,613 |
) |
|
Payment for early extinguishment of debt
|
|
|
|
|
|
|
(13,201 |
) |
|
|
(91,647 |
) |
|
Proceeds from exercise of stock options and Employee Stock
Purchase Plan
|
|
|
49,986 |
|
|
|
36,601 |
|
|
|
61,113 |
|
|
Net proceeds from issuance of ordinary shares in public offering
|
|
|
|
|
|
|
299,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(44,308 |
) |
|
|
316,335 |
|
|
|
394,753 |
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash
|
|
|
(2,528 |
) |
|
|
(48,341 |
) |
|
|
12,572 |
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
73,601 |
|
|
|
253,982 |
|
|
|
191,256 |
|
|
Cash and cash equivalents, beginning of year
|
|
|
869,258 |
|
|
|
615,276 |
|
|
|
424,020 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$ |
942,859 |
|
|
$ |
869,258 |
|
|
$ |
615,276 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
S-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
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) in industries including
computing; mobile; consumer digital; industrial, semiconductor
and white goods; automotive, marine and aerospace;
infrastructure; and medical. The Companys strategy is to
provide customers with a full range of vertically-integrated
global supply chain services through which the Company designs,
builds and ships a complete packaged product for its OEM
customers. 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 logistics, repair and warranty services.
The Companys services include printed circuit board and
flexible circuit fabrication, systems assembly and manufacturing
(including enclosures, testing services, materials procurement
and inventory management), logistics and after-market services
(including product repair, re-manufacturing and maintenance).
Additionally, the Company provides market-specific design and
engineering services ranging from contract design services
(CDM), where the customer purchases services on a
time and materials basis, to original product design and
manufacturing services, where the customer purchases a product
that was designed, developed and manufactured by the Company
(commonly referred to as original design manufacturing, or
ODM). ODM products are then sold by the
Companys OEM customers under the OEMs brand name.
The Companys CDM and ODM services include user interface
and industrial design, mechanical engineering and tooling
design, electronic system design and printed circuit board
design.
During the second quarter of fiscal year 2006, the Company sold
its Semiconductor division to AMIS Holdings, Inc., the
parent company of AMI Semiconductor, Inc. The Company also
merged its Network Services division with Telavie AS, a company
wholly-owned by Altor Equity Partners, and retained a
35% ownership stake in the merged company, Relacom Holding
AB. On April 13, 2006, the Company entered into a
definitive agreement to sell its Software Development and
Solutions business to an affiliate of Kohlberg Kravis
Roberts & Co. The Software Development and Solutions
business and the Semiconductor division are being treated as
discontinued operations in the consolidated financial
statements, however, the divestiture of the Network Services
division does not meet the criteria for discontinued operations
treatment under accounting principals generally accepted in the
United States of America (U.S. GAAP) or
(GAAP), and as such, its historical results remain
included in the Companys continuing operations financial
results. Refer to Note 13, Business and Asset
Acquisitions and Divestitures and Note 16,
Discontinued Operations for further discussion of
these divestitures.
|
|
2. |
SUMMARY OF ACCOUNTING POLICIES |
|
|
|
Basis of Presentation and Principles of
Consolidation |
The Companys fiscal year ends on March 31 of each
year. The first and second fiscal quarters end on the Friday
closest to the last day of each respective calendar quarter. The
third and fourth fiscal quarters 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$), Euros
() or Indian
Rupees (Rs).
The accompanying consolidated financial statements include the
accounts of Flextronics and its majority-owned subsidiaries,
after elimination of all significant intercompany accounts and
transactions. The Company consolidates all majority-owned
subsidiaries and investments in entities in which the Company
has a controlling interest. For consolidated majority-owned
subsidiaries in which the Company owns less than 100%, the
Company recognizes a minority interest for the ownership
interest of the minority owners. As of March 31, 2006, this
minority interest totaled $23.4 million, of which
$10.8 million is included in other liabilities and
$12.6 million is included in long-term liabilities of
discontinued operations in the consolidated balance sheets.
S-13
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of March 31, 2005, minority interest totaled
$40.8 million, of which $33.8 million is included in
long-term liabilities of discontinued operations and
$7.0 million is 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 2006, 2005 and 2004, and has been
classified within income (loss) from discontinued operations or
as interest and other expense, net, in the consolidated
statements of operations. Non-majority-owned investments are
accounted for using the equity method when the Company has an
ownership percentage equal to or greater than 20%, or has the
ability to significantly influence the operating decisions of
the issuer, otherwise the cost method is used.
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. Estimates are used in
accounting for, among other things, allowances for doubtful
accounts, inventory allowances, useful lives of property,
equipment and intangible assets, asset impairments, fair values
of derivative instruments and the related hedged items,
restructuring charges, contingencies, capital leases, and the
fair values of options granted under the Companys
stock-based compensation plans. Actual results may differ from
previously estimated amounts, and such differences may be
material to the consolidated financial statements. Estimates and
assumptions are reviewed periodically, and the effects of
revisions are reflected in the period they occur.
|
|
|
Translation of Foreign Currencies |
The financial position and results of operations for certain of
the Companys subsidiaries are measured using a currency
other than the U.S. dollar as their functional currency.
Accordingly, all assets and liabilities for these subsidiaries
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. Foreign exchange gains and losses arising from
transactions denominated in a currency other than the functional
currency of the entity involved, and remeasurement adjustments
for foreign operations where the U.S. dollar is the
functional currency, are included in operating results. The
Company realized a net foreign exchange gain of
$20.6 million during fiscal year 2006, and a foreign
exchange gain of $29.3 million during 2005 from the
liquidation of certain international entities. These gains were
classified as a component of other income, net, in the
consolidated statement of operations.
The Company recognizes manufacturing revenue when it ships goods
or the goods are received by its customer, title and risk of
ownership have passed, the price to the buyer is fixed or
determinable and recoverability is reasonably assured.
Generally, there are no formal customer acceptance requirements
or further obligations related to manufacturing services. If
such requirements or obligations exist, then the Company
recognizes the related revenues at the time when such
requirements are completed and the obligations are fulfilled.
The Company makes provisions for estimated sales returns and
other adjustments at the time revenue is recognized based on its
analysis of historical returns, current economic trends and
changes in customer demand. These provisions were not material
to the consolidated financial statements for the 2006, 2005 and
2004 fiscal years.
The Company provides a comprehensive suite of services for its
customers that range from contract design to original product
design to repair services. The Company recognizes service
revenue when the services have been performed, and the related
costs are expensed as incurred. Net sales for services from
S-14
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
continuing operations were less than 10% of the Companys
total sales from continuing operations in the 2006, 2005 and
2004 fiscal years.
|
|
|
Allowance for Doubtful Accounts |
The Company performs ongoing credit evaluations of its
customers financial condition and makes provisions for
doubtful accounts based on the outcome of those credit
evaluations. The Company evaluates the collectibility of its
accounts receivable based on specific customer circumstances,
current economic trends, historical experience with collections
and the age of past due receivables. Unanticipated changes in
the liquidity or financial position of the Companys
customers may require additional provisions for doubtful
accounts.
|
|
|
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 related to continuing operations
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Cash and bank balances
|
|
$ |
870,140 |
|
|
$ |
832,290 |
|
Money market funds
|
|
|
64,787 |
|
|
|
15,911 |
|
Certificates of deposit
|
|
|
7,932 |
|
|
|
21,057 |
|
|
|
|
|
|
|
|
|
|
$ |
942,859 |
|
|
$ |
869,258 |
|
|
|
|
|
|
|
|
The Company also has certain investments in non-publicly traded
companies. These investments are included within other assets in
the Companys consolidated balance sheet. As of
March 31, 2006 and 2005, the investments totaled
$173.9 million and $73.8 million, respectively.
Non-majority-owned investments are accounted for using the
equity method when the Company has an ownership percentage equal
to or greater than 20%, or has the ability to significantly
influence the operating decisions of the issuer, otherwise the
cost method is used. The Company continuously monitors these
investments for impairment and makes appropriate reductions in
carrying values when necessary. During fiscal year 2005, the
Company recorded charges of $8.2 million for other than
temporary impairment of its investments in certain of these
non-publicly traded companies. Impairment charges for fiscal
years 2006 and 2004 were immaterial.
|
|
|
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. In fiscal year 2006, two customers accounted for
approximately 13% and 11% of net sales, respectively. In fiscal
year 2005, two customers accounted for approximately 14% and 10%
of net sales, respectively. In fiscal year 2004, two customers
accounted for approximately 12% of net sales. The Companys
ten largest customers accounted for approximately 63%, 62%, and
64% of its net sales, in fiscal years 2006, 2005, and 2004,
respectively. At March 31, 2006, one customer accounted for
approximately 16% of total accounts receivable. At
March 31, 2005, one customer accounted for approximately
10% of total accounts receivable.
S-15
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 primarily 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 is 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. The stated cost is comprised of direct
materials, labor and overhead. The components of inventories
related to continuing operations, net of applicable lower of
cost or market write-downs, were as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Raw materials
|
|
$ |
884,940 |
|
|
$ |
711,720 |
|
Work-in-progress
|
|
|
335,061 |
|
|
|
304,189 |
|
Finished goods
|
|
|
518,309 |
|
|
|
497,806 |
|
|
|
|
|
|
|
|
|
|
$ |
1,738,310 |
|
|
$ |
1,513,715 |
|
|
|
|
|
|
|
|
Property and equipment are stated at cost. Depreciation and
amortization is recognized 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 than otherwise would have been
recognized without the change in useful life of approximately
$20.7 million and $12.0 million in fiscal years 2006
and 2005, respectively. Repairs and maintenance costs are
expensed as incurred. Property and equipment related to
continuing operations was comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Machinery and equipment
|
|
$ |
1,426,987 |
|
|
$ |
1,432,673 |
|
Buildings
|
|
|
752,951 |
|
|
|
764,390 |
|
Leasehold improvements
|
|
|
116,955 |
|
|
|
92,880 |
|
Furniture, fixtures, computer equipment and software
|
|
|
303,075 |
|
|
|
364,810 |
|
Land and other
|
|
|
220,859 |
|
|
|
237,951 |
|
|
|
|
|
|
|
|
|
|
|
2,820,827 |
|
|
|
2,892,704 |
|
|
Accumulated depreciation and amortization
|
|
|
(1,234,341 |
) |
|
|
(1,222,828 |
) |
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$ |
1,586,486 |
|
|
$ |
1,669,876 |
|
|
|
|
|
|
|
|
S-16
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Total depreciation expense associated with property and
equipment of continuing operations amounted to approximately
$264.4 million, $303.1 million and $307.2 million
in fiscal years 2006, 2005 and 2004, 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 its fair value.
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 between the carrying
amount and the tax basis of existing assets and liabilities by
applying the applicable statutory tax rate to such differences.
|
|
|
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
that are and regularly reviewed by management. For purposes of
the annual goodwill impairment evaluation during fiscal years
2005 and 2004, the Company identified two separate reporting
units: Electronic Manufacturing Services and Network Services.
In fiscal year 2006, the Company divested its Network Services
division and subsequently identified its Software Development
and Solutions business as a new operating segment and reporting
unit, and identified its Printed Circuit Board division as a new
reporting unit. If the carrying amount of any reporting unit
exceeds its fair value, the amount of impairment loss
recognized, if any, is measured using a discounted cash flow
analysis. Further, to the extent the carrying amount of the
Company as a whole is greater than its market capitalization,
all, or a significant portion of its goodwill may be considered
impaired. The Company completed the annual impairment test
during its fourth quarter of fiscal year 2006 and determined
that no impairment existed as of the date of the impairment test.
The following table summarizes the activity in the
Companys goodwill account relating to continuing
operations during fiscal years 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
March 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Balance, beginning of the year
|
|
$ |
2,965,867 |
|
|
$ |
2,630,708 |
|
|
Additions
|
|
|
224,628 |
|
|
|
235,928 |
|
|
Goodwill related to divested operations(1)
|
|
|
(410,296 |
) |
|
|
|
|
|
Reclassification to other intangible assets(2)
|
|
|
(30,622 |
) |
|
|
(6,506 |
) |
|
Foreign currency translation adjustments
|
|
|
(72,850 |
) |
|
|
105,737 |
|
|
|
|
|
|
|
|
Balance, end of the year
|
|
$ |
2,676,727 |
|
|
$ |
2,965,867 |
|
|
|
|
|
|
|
|
|
|
(1) |
Refer to Note 13, Business and Asset Acquisitions and
Divestitures. |
|
(2) |
Reclassification resulting from final allocation of the
Companys intangible assets acquired through certain
business combinations completed in a period subsequent to the
respective period of acquisition, based on third-party
valuations. |
S-17
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Companys acquired intangible assets are subject to
amortization over their estimated useful lives and are reviewed
for impairment whenever events or changes in circumstance
indicate that the carrying amount of an intangible asset may not
be recoverable. An impairment loss is recognized when the
carrying amount of an intangible asset exceeds its fair value.
Intangible assets are primarily comprised of customer related
intangibles, which include contractual agreements and customer
relationships. Other acquired intangibles are primarily
comprised of patents and trademarks, and developed technologies.
Contractual agreements, patents and trademarks, and developed
technologies are amortized on a straight-line basis over a
period of up to ten years, and customer relationships on a
straight-line basis over three to ten years. No residual value
is estimated for any intangible assets. During fiscal year 2006
and 2005, there were approximately $81.1 million and
$45.3 million of additions to intangible assets,
respectively, primarily related to contractual agreements and
customer relationships as a result of acquisitions. 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 2006
and expects to complete the evaluation by the end of the first
quarter of fiscal year 2007. The components of acquired
intangible assets relating to continuing operations are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2006 | |
|
March 31, 2005 | |
|
|
| |
|
| |
|
|
Gross | |
|
|
|
Net | |
|
Gross | |
|
|
|
Net | |
|
|
Carrying | |
|
Accumulated | |
|
Carrying | |
|
Carrying | |
|
Accumulated | |
|
Carrying | |
|
|
Amount | |
|
Amortization | |
|
Amount | |
|
Amount | |
|
Amortization | |
|
Amount | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
|
(In thousands) | |
Intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer related intangibles
|
|
$ |
150,471 |
|
|
$ |
(36,086 |
) |
|
$ |
114,385 |
|
|
$ |
121,436 |
|
|
$ |
(54,508 |
) |
|
$ |
66,928 |
|
|
Other acquired intangibles
|
|
|
26,521 |
|
|
|
(25,842 |
) |
|
|
679 |
|
|
|
36,696 |
|
|
|
(21,980 |
) |
|
|
14,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
176,992 |
|
|
$ |
(61,928 |
) |
|
$ |
115,064 |
|
|
$ |
158,132 |
|
|
$ |
(76,488 |
) |
|
$ |
81,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In September 2005, the Company reduced intangible assets by
approximately $18.4 million, primarily related to
contractual agreements, developed technologies and customer
relationships, as a result of the divestiture of its Network
Services division (refer to Note 13, Business and
Asset Acquisitions and Divestitures). Total intangible
amortization expense recognized from continuing operations
during fiscal years 2006, 2005, and 2004 amounted to
$37.2 million, $33.5 million, and $34.5 million,
respectively. The estimated future annual amortization expense
related to acquired intangible assets from continuing operations
is as follows:
|
|
|
|
|
|
Fiscal Years Ending March 31, |
|
Amount | |
|
|
| |
|
|
(In thousands) | |
2007
|
|
$ |
26,243 |
|
2008
|
|
|
23,859 |
|
2009
|
|
|
19,646 |
|
2010
|
|
|
17,985 |
|
2011
|
|
|
13,825 |
|
Thereafter
|
|
|
13,506 |
|
|
|
|
|
|
Total amortization expenses
|
|
$ |
115,064 |
|
|
|
|
|
|
|
|
Derivative Instruments and Hedging Activities |
All derivative instruments are recorded on the balance sheet at
fair value. If the derivative instrument is designated as a cash
flow hedge, effectiveness is measured on a quarterly basis by
calculating the ratio of the cumulative change in the fair value
of the derivative instrument to the cumulative change in the
hedged item. The effective portion of changes in the fair value
of the derivative instrument is recorded in shareholders
S-18
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
equity as a separate component of accumulated other
comprehensive income, and 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
recognized in earnings immediately. If the derivative instrument
is designated as a fair value hedge, the changes in the fair
value of the derivative instrument and of the hedged item
attributable to the hedged risk are recognized in earnings in
the current period.
The Company recognizes restructuring charges related to its
plans to close or consolidate duplicate manufacturing and
administrative facilities. In connection with these activities,
the Company records restructuring charges for employee
termination costs, long-lived asset impairment and other
exit-related costs.
The recognition of restructuring charges requires the Company to
make certain judgments and estimates regarding the nature,
timing and amount of costs associated with the planned exit
activity. To the extent the Companys actual results differ
from its estimates and assumptions, the Company may be required
to revise the estimates of future liabilities, requiring the
recognition of additional restructuring charges or the reduction
of liabilities already recognized. Such changes to previously
estimated amounts may be material to the consolidated financial
statements. At the end of each reporting period, the Company
evaluates the remaining accrued balances to ensure that no
excess accruals are retained and the utilization of the
provisions are for their intended purpose in accordance with
developed exit plans.
|
|
|
Accounting for Stock-Based Compensation |
The Company applies the intrinsic value method of accounting for
stock-based employee compensation. As a result, generally no
compensation expense is recognized for options granted under
these stock incentive plans because typically the option terms
are fixed and the exercise price equals or exceeds the market
price of the underlying stock on the date of grant. The Company
applies the disclosure only provisions of Statement of Financial
Accounting Standards No. 123, Accounting for
Stock-Based Compensation (SFAS 123).
In December 2004, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123
(Revised 2004), Share Based Payment
(SFAS 123(R)) which (i) revises
SFAS 123 to eliminate the disclosure only provisions of
that statement and the alternative to follow the intrinsic value
method of accounting under APB 25 and related
interpretations, and (ii) requires a public entity to
measure the cost of employee services received in exchange for
an award of equity instruments, including grants of employee
stock options, based on the grant-date fair value of the award
and recognize that cost in its results of operations over the
period during which an employee is required to provide the
requisite service in exchange for that award. The Company is
required to adopt this statement beginning April 1, 2006.
Companies may elect to apply this statement either
prospectively, or on a modified version of retrospective
application under which financial statements for prior periods
are adjusted on a basis consistent with the pro forma
disclosures required for those periods under SFAS 123. The
Company has elected to apply the provisions of this statement
prospectively, and will continue using the Black-Scholes option
valuation model to estimate the fair value of its stock-based
awards, and will also continue to recognize the related expense
under the straight-line attribution method. Although the pro
forma effects below may be indicative of the Companys
adoption of SFAS 123(R), the actual expense will be
dependent on numerous factors including, but not limited to, the
selection of assumptions used to fair value stock-based awards
granted subsequent to April 1, 2006, the number of new
stock based awards granted to employees, policy decisions
regarding accounting for the tax effects of share-based awards,
and assumed award forfeiture rates. Unamortized compensation is
estimated to be approximately $41.1 million on
April 1, 2006, based on unvested stock-based awards
outstanding as of March 31, 2006.
In October 2005, the FASB issued FASB Staff Position
FAS 123(R)-2, Practical Accommodation to the
Application of Grant Date as Defined in
FAS 123(R) (FSP 123(R)-2). FSP
123(R)-2 provides guidance on the application of grant date as
defined in SFAS 123(R). In accordance with this standard a
S-19
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
grant date of an award exists if a) the award is a
unilateral grant and b) the key terms and conditions of the
award are expected to be communicated to an individual recipient
within a relatively short time period from the date of approval.
The Company will adopt this standard when it adopts
SFAS 123(R), and does not anticipate that the
implementation of this statement will have a significant impact
on the Companys results of operations.
In November 2005, the FASB issued FASB Staff Position
FAS 123(R)-3, Transition Election Related to
Accounting for the Tax Effects of Share-Based Payment
Awards (FSP 123(R)-3). FSP 123(R)-3
provides an elective alternative method that establishes a
computational component to arrive at the beginning balance of
the accumulated paid-in capital pool related to employee
compensation and a simplified method to determine the subsequent
impact on the accumulated paid-in capital pool of employee
awards that are fully vested and outstanding upon the adoption
of SFAS 123(R). The Company is currently evaluating this
transition method.
The following pro forma information reflects net income and
earnings per share as if the Company had accounted for its
stock-based compensation expense using the fair value method.
For purposes of pro forma disclosures, the estimated fair value
of the options is amortized to expense over the options
vesting period on a straight-line basis. Forfeitures are
recognized as they occur, and compensation previously recognized
is reversed for the forfeitures of unvested options.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Net income (loss), as reported
|
|
$ |
141,162 |
|
|
$ |
339,871 |
|
|
$ |
(352,378 |
) |
Add: Stock-based compensation expense included in
reported net income (loss), net of tax
|
|
|
2,662 |
|
|
|
2,155 |
|
|
|
1,772 |
|
Less: Fair value compensation costs, net of taxes
|
|
|
(67,195 |
) |
|
|
(175,981 |
) |
|
|
(54,623 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss)
|
|
$ |
76,629 |
|
|
$ |
166,045 |
|
|
$ |
(405,229 |
) |
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
0.25 |
|
|
$ |
0.61 |
|
|
$ |
(0.67 |
) |
|
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
$ |
0.13 |
|
|
$ |
0.30 |
|
|
$ |
(0.77 |
) |
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
0.24 |
|
|
$ |
0.58 |
|
|
$ |
(0.67 |
) |
|
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
$ |
0.13 |
|
|
$ |
0.29 |
|
|
$ |
(0.77 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma stock-based employee compensation expense determined
under the fair value method, net of tax, included
$11.3 million and $2.3 million of expense relating to
discontinued operations during fiscal years 2006 and 2005,
respectively. Pro forma stock-based employee compensation
expense relating to discontinued operations was not material
during fiscal year 2004.
On February 7, 2006 and January 17, 2005, the
Companys Board of Directors approved accelerating the
vesting of unvested options to purchase the Companys
ordinary shares held by current employees, including executive
officers, priced at or above $12.37 and $12.98, respectively. No
options held by non-employee directors were subject to the
acceleration. The accelerations were effective as of
February 7, 2006 and 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, have 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.
S-20
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The acceleration of these options was done primarily to
eliminate future compensation expense the Company would
otherwise recognize in its statement of operations with respect
to these options upon the adoption of SFAS 123(R). 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
expense that was eliminated from the February 2006 and January
2005 accelerations was approximately $35.3 million and
$121.2 million, respectively (of which approximately
$12.8 million and $26.4 million was attributable to
executive officers, respectively). The amounts are reflected in
the pro forma net income for the fiscal years ended
March 31, 2006 and 2005, respectively. The decrease in the
pro forma expense in fiscal year 2006 is primarily the result of
the acceleration of vesting during January 2005, offset by the
acceleration in February 2006, and, to a lesser extent, the
reduction in estimated volatility discussed below.
For purposes of the pro forma presentation, the fair value of
each option grant was estimated at the date of grant using a
Black-Scholes model with the following weighted-average
assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
Volatility
|
|
|
39 |
% |
|
|
79 |
% |
|
|
85 |
% |
Risk-free interest rate
|
|
|
3.8 |
% |
|
|
3.0 |
% |
|
|
2.3 |
% |
Dividend yield
|
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
Expected option lives
|
|
|
4.0 years |
|
|
|
3.8 years |
|
|
|
3.8 years |
|
The fair value related to shares issued under the Companys
employee stock purchase plan was estimated using the
Black-Scholes model with the following weighted-average
assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
Volatility
|
|
|
40 |
% |
|
|
41 |
% |
|
|
44 |
% |
Risk-free interest rate
|
|
|
2.1 |
% |
|
|
1.7 |
% |
|
|
1.4 |
% |
Dividend yield
|
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
Expected option lives
|
|
|
0.5 years |
|
|
|
0.5 years |
|
|
|
0.5 years |
|
The Company has never paid dividends on its ordinary shares and
currently does not intend to do so, and accordingly, the
dividend yield percentage is zero for all periods. Beginning on
January 1, 2005, in accordance with the guidance under
SFAS 123 for selecting assumptions to use in an option
pricing model, the Company reduced its estimate of expected
volatility based upon a re-evaluation of the variability in the
market price of its publicly traded stock. Prior to this date,
the historical variability in daily stock prices was used
exclusively to derive the estimate of expected volatility.
Management determined that a combination of implied volatility
related to publicly traded options together with historical
volatility is more reflective of current market conditions, and
a better indicator of expected volatility.
The Black-Scholes option valuation model was developed for use
in estimating the fair value of traded options which have no
vesting restrictions and are fully transferable. Consequently,
the Companys estimate of fair value may differ from other
valuation models. Further, the Black-Scholes model requires the
input of highly subjective assumptions and because changes in
the subjective input assumptions can materially affect the fair
value estimate, the existing models do not necessarily provide a
reliable single measure of the fair value of stock-based
compensation awards. Accordingly, pro forma net income and
earnings per share as disclosed above may not accurately depict
the associated fair value of the outstanding options.
The Company will continue to evaluate its assumptions used to
derive the estimated fair value of options granted under its
stock-based compensation plans as new events or changes in
circumstances become known.
The Company grants key employees rights to acquire a specified
number of ordinary shares for no cash consideration under its
2001 Equity Incentive Plan and its 2002 Interim Incentive Plan
(restricted stock
S-21
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
units) in exchange for continued service with the Company.
Restricted stock units awarded under the plan generally vest in
installments over a five-year period and unvested units are
forfeited upon termination of employment. During fiscal year
2006, 35,000 restricted stock units were granted with a weighted
average fair value on the date of grant of $9.37 per
ordinary share. During fiscal year 2005, 175,000 restricted
stock units were granted with a weighted average fair value on
the date of grant of $13.58 per ordinary share. During
fiscal year 2004, 230,000 restricted stock units were granted
with a weighted average fair value on the date of grant of
$10.88 per ordinary share. Grants of restricted stock units
are recorded as compensation expense over the vesting period at
the fair market value of the Companys ordinary shares at
the date of grant. During fiscal years 2006, 2005 and 2004,
compensation expense related to restricted stock units was
approximately $2.2 million, $2.2 million and
$1.8 million, respectively. Unearned compensation
associated with restricted stock units was $4.1 million and
$6.8 million as of March 31, 2006 and 2005,
respectively, and is included as a component of
shareholders equity in the consolidated balance sheets.
|
|
|
Earnings (Loss) Per Share |
SFAS No. 128, Earnings Per Share
(SFAS 128) requires entities to present
both basic and diluted earnings per share. Basic earnings per
share excludes dilution and is computed by dividing net income
by the weighted-average number of ordinary shares outstanding
during the applicable periods.
Diluted earnings per share reflects the potential dilution from
stock options, restricted stock units and convertible
securities. The potential dilution from stock options
exercisable into ordinary share equivalents and restricted stock
units was computed using the treasury stock method based on the
average fair market value of the Companys ordinary shares
for the period. The potential dilution from subordinated notes
convertible into ordinary share equivalents was computed using
the if-converted method.
The following table reflects the basic weighted-average ordinary
shares outstanding and diluted weighted-average ordinary share
equivalents used to calculate basic and diluted net income per
share from continuing operations. Earnings per share amounts for
all periods are presented below in accordance with the
requirements of SFAS 128:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands, except | |
|
|
per share amounts) | |
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
$ |
110,518 |
|
|
$ |
331,497 |
|
|
$ |
(346,410 |
) |
|
Shares used in computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average ordinary shares outstanding
|
|
|
573,520 |
|
|
|
552,920 |
|
|
|
525,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) from continuing operations per share
|
|
$ |
0.19 |
|
|
$ |
0.60 |
|
|
$ |
(0.66 |
) |
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) from continuing operations per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
$ |
110,518 |
|
|
$ |
331,497 |
|
|
$ |
(346,410 |
) |
|
Shares used in computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average ordinary shares outstanding
|
|
|
573,520 |
|
|
|
552,920 |
|
|
|
525,318 |
|
|
|
Weighted-average ordinary share equivalents from stock options
and awards(1)
|
|
|
8,358 |
|
|
|
12,956 |
|
|
|
|
|
|
|
Weighted-average ordinary share equivalents from convertible
notes(2)
|
|
|
18,726 |
|
|
|
19,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average ordinary shares and ordinary share equivalents
outstanding
|
|
|
600,604 |
|
|
|
585,499 |
|
|
|
525,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) from continuing operations per share
|
|
$ |
0.18 |
|
|
$ |
0.57 |
|
|
$ |
(0.66 |
) |
|
|
|
|
|
|
|
|
|
|
S-22
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(1) |
Due to the Companys reported net loss from continuing
operations, the ordinary share equivalents from stock options
and restricted stock to purchase 13,668,419 shares
outstanding were excluded from the computation of diluted
earnings (loss) per share during fiscal year 2004 because the
inclusion would be anti-dilutive for the period. |
|
|
|
Also, the ordinary share equivalents from stock options to
purchase 33,062,904, 24,186,135 and 14,750,432 shares
during fiscal years 2006, 2005 and 2004, respectively, were
excluded from the computation of diluted earnings (loss) per
share primarily because the exercise price of these options was
greater than the average market price of the Companys
ordinary shares during the respective periods. |
|
|
(2) |
During fiscal years 2006 and 2005, 18,725,798 and 19,047,619
ordinary share equivalents related to the zero coupon
convertible junior subordinated notes were included as ordinary
share equivalents, respectively. During fiscal year 2004,
19,047,619 ordinary share equivalent related to the zero coupon
convertible junior subordinated notes were anti-dilutive and
therefore, were not included as ordinary share equivalents. |
|
|
|
In addition, as the Company has the positive intent and ability
to settle the principal amount of its 1% convertible
subordinated notes due August 2010 in cash, 32,206,119 ordinary
share equivalents related to the principal portion of the notes
are excluded from the computation of diluted earnings per share.
The Company intends to settle any conversion spread (excess of
the conversion value over face value) in stock. During fiscal
year 2006, the conversion obligation was less than the principal
portion of the convertible notes and accordingly, no additional
shares were included as ordinary share equivalents. During
fiscal year 2005, 575,587 ordinary share equivalents from the
conversion spread have been included. During fiscal year 2004,
851,274 ordinary share equivalents from the conversion spread
were anti-dilutive and were excluded. |
Recent Accounting Pronouncements
In November 2004, the 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
and is required to be adopted by the Company in the first
quarter of fiscal year 2007. The Company does not expect that
the adoption of SFAS 151 will have a material impact on the
Companys consolidated results of operations, financial
condition and cash flows.
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 153).
SFAS 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 153 was effective for nonmonetary asset
exchanges occurring in fiscal periods beginning after
June 15, 2005. The adoption of SFAS 153 did not have a
material impact on the Companys consolidated results of
operations, financial condition and cash flows.
In May 2005, the FASB issued Statement No. 154,
Accounting Changes and Error Corrections
(SFAS 154). SFAS 154 is a replacement
of Accounting Principles Board Opinion No. 20
(APB 20) and FASB Statement No. 3.
SFAS 154 provides guidance on the accounting for and
reporting of accounting changes and error corrections. It
establishes retrospective application, or the latest practicable
date, as the required method for reporting a change in
accounting principle and the reporting of a correction of an
error. SFAS 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after
December 15, 2005 and is required to be adopted by the
Company in the first quarter of fiscal year 2007. The
S-23
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Company does not expect that the adoption of SFAS 154 will
have a material impact on its consolidated results of
operations, financial condition and cash flows.
In March 2006, the FASB issued Statement No. 156,
Accounting for Servicing of Financial Assets
(SFAS 156), which amends SFAS 140,
Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities.
SFAS 156 requires recognition of a servicing asset or
liability at fair value each time an obligation is undertaken to
service a financial asset by entering into a servicing contract.
SFAS 156 also provides guidance on subsequent measurement
methods for each class of servicing assets and liabilities and
specifies financial statement presentation and disclosure
requirements. SFAS 156 is effective for fiscal years
beginning after September 15, 2006 and is required to be
adopted by the Company in the first quarter of fiscal year 2008.
The Company does not expect the adoption of SFAS 156 will
have a material impact on its consolidated results of
operations, financial condition and cash flows.
In March 2005, the FASB issued Interpretation No. 47,
Accounting for Conditional Asset Retirement
Obligations (FIN 47) as an
interpretation of FASB Statement No. 143,
Accounting for Asset Retirement Obligations
(SFAS 143). This interpretation clarifies
that the term conditional asset retirement obligation as used in
SFAS 143, refers to a legal obligation to perform an asset
retirement activity in which the timing and/or method of
settlement are conditional on a future event that may or may not
be within the control of the entity. The obligation to perform
the asset retirement activity is unconditional even though
uncertainty exists about the timing and/or method of settlement.
Accordingly, an entity is required to recognize a liability for
the fair value of a conditional asset retirement obligation if
the fair value of the liability can be reasonably estimated.
This interpretation also clarifies when an entity would have
sufficient information to reasonably estimate the fair value of
an asset retirement obligation. FIN 47 is effective no
later than the end of fiscal years ending after
December 15, 2005. The adoption of FIN 47 did not have
a material impact on the Companys consolidated results of
operations, financial condition and cash flows.
|
|
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, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Net cash paid for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
65,052 |
|
|
$ |
76,060 |
|
|
$ |
89,244 |
|
|
Income taxes
|
|
$ |
25,197 |
|
|
$ |
24,246 |
|
|
$ |
36,356 |
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment acquired under capital lease obligations
|
|
$ |
1,577 |
|
|
$ |
6,091 |
|
|
$ |
18,713 |
|
|
Issuance of ordinary shares for acquisition of businesses
|
|
$ |
27,907 |
|
|
$ |
127,226 |
|
|
$ |
3,162 |
|
|
Issuance of ordinary shares upon conversion of debt
|
|
$ |
5,000 |
|
|
$ |
|
|
|
$ |
|
|
S-24
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
4. |
BANK BORROWINGS AND LONG-TERM DEBT |
Bank borrowings and long-term debt related to continuing
operations was comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Short term bank borrowings
|
|
$ |
105,732 |
|
|
$ |
10,301 |
|
0.00% convertible junior subordinated notes
|
|
|
195,000 |
|
|
|
200,000 |
|
1.00% convertible subordinated notes
|
|
|
500,000 |
|
|
|
500,000 |
|
6.50% senior subordinated notes
|
|
|
399,650 |
|
|
|
399,650 |
|
6.25% senior subordinated notes
|
|
|
384,879 |
|
|
|
490,270 |
|
Other
|
|
|
7,659 |
|
|
|
117,146 |
|
|
|
|
|
|
|
|
|
|
|
1,592,920 |
|
|
|
1,717,367 |
|
Current portion
|
|
|
(105,732 |
) |
|
|
(17,445 |
) |
|
|
|
|
|
|
|
Non-current portion
|
|
$ |
1,487,188 |
|
|
$ |
1,699,922 |
|
|
|
|
|
|
|
|
Maturities for the Companys bank borrowings and long-term
debt are as follows:
|
|
|
|
|
|
Fiscal Years Ending March 31, |
|
Amount | |
|
|
| |
|
|
(In thousands) | |
2007
|
|
$ |
105,732 |
|
2008
|
|
|
195,000 |
|
2009
|
|
|
|
|
2010
|
|
|
|
|
2011
|
|
|
507,659 |
|
Thereafter
|
|
|
784,529 |
|
|
|
|
|
|
Total
|
|
$ |
1,592,920 |
|
|
|
|
|
|
|
|
Revolving Credit Facilities and Other Credit Lines |
The Company has a revolving credit facility in the amount of
$1.35 billion, under which there were no borrowings
outstanding as of March 31, 2006. The 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 credit facility is a five-year facility expiring in May
2010. Borrowings under the 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 letter of credit.
The 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,
S-25
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(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 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. As of
March 31, 2006, the Company was in compliance with the
covenants under this 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 1.61% to
5.56%. These lines of credit expire on various dates through
fiscal year 2007. The Company also has term loans with annual
interest rates ranging from 5.30% to 5.58%. These lines of
credit and term loans are primarily secured by assignment of
account receivables. As of March 31, 2006,
$104.3 million was outstanding under these facilities.
|
|
|
6.25% Senior Subordinated Notes |
During fiscal year 2006, the Company repurchased approximately
$97.9 million principal amount of its 6.25% senior
subordinated notes which mature in November 2014. The loss
associated with the early extinguishment of the notes was not
material.
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.
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. As of March 31, 2006, the
Company was in compliance with the covenants under this
indenture.
|
|
|
1.0% Convertible Subordinated Notes |
The 1.0% convertible subordinated notes are due in August
2010 and 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 the issuance of these notes and other cash
sources to repurchase $492.3 million of other outstanding
senior subordinated notes. In connection with the repurchase,
the Company incurred a loss of approximately $95.2 million
during the second quarter of fiscal year 2004 associated with
the early extinguishment of the notes.
|
|
|
6.5% Senior Subordinated Notes |
The Company may redeem its 6.5% senior subordinated notes
that are due May 2013 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.
S-26
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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. As of March 31, 2006, the Company was in
compliance with the covenants under this indenture.
In June 2003, the Company used $156.6 million of the net
proceeds from the issuance of these notes to redeem
$150.0 million of other senior subordinated notes. In
connection with the redemption, the Company incurred a loss of
approximately $8.7 million during the first quarter of
fiscal year 2004 associated with the early extinguishment of the
notes.
|
|
|
Zero Coupon Convertible Junior Subordinated Notes |
The zero coupon, zero yield, convertible junior subordinated
notes are callable by the Company after three years and do not
provide a put option prior to maturity (March 2008). 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. In July 2005,
$5.0 million of the notes were converted into 476,190
ordinary shares of the Company at a conversion price of
$10.50 per share.
In March 2005, the Company paid approximately
$190.1 million to redeem
144.2 million
of its 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. In July
2005, the Company paid approximately $7.0 million to redeem
the remaining outstanding amount of
5.8 million
of 9.75% euro senior subordinated notes due July 2010. The loss
associated with the early extinguishment of the notes was not
material.
As of March 31, 2006, the approximate fair values of the
Companys 6.5% notes, 6.25% notes and
1% convertible notes based on broker trading prices were
99.375%, 98.375% and 91.25% of the face values of the notes,
respectively.
The carrying amount of the Companys cash and cash
equivalents, investments, accounts receivable and accounts
payable approximates fair value. 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 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, primarily accounts receivable
and accounts payable, and cash flows denominated in
non-functional currencies. Gains and losses on forward contracts
generally offset losses and gains on the assets, liabilities and
transactions hedged, and accordingly, generally do not subject
the Company to risk of significant accounting losses. The
Company hedges committed exposures and does not engage in
foreign currency speculation. The credit risk of these forward
contracts is minimized since the contracts are with large
financial institutions.
As of March 31, 2006, the fair value of these short-term
foreign currency forward contracts was not material. As of
March 31, 2005, the Company recognized $13.4 million
to reflect the fair value of these short-term foreign currency
forward contracts. As of March 31, 2006 and 2005, the
Company also recognized
S-27
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
deferred gains of approximately $292,000 and deferred losses of
approximately $6.3 million, respectively, in other
comprehensive income relating to changes in fair value of these
foreign currency forward contracts. These losses are expected to
be recognized in earnings over the twelve-month period
subsequent to recognition in other comprehensive income. 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 semi-annually on May 15
and November 15. The Company also entered into interest rate
swap transactions to effectively convert a portion of the fixed
interest rate debt to variable rate debt. The swaps, having
notional amounts totaling $400.0 million and which expire
in 2014, are accounted for as fair value hedges under Statement
of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging
Activities (SFAS 133). Under the
terms of the swaps, the Company pays an interest rate equal to
six month LIBOR, (estimated at 5.16% at March 31, 2006),
set in arrears, plus a fixed spread ranging from 1.37% to 1.52%,
and receives a fixed rate of 6.25%. The swap transaction
qualifies for the shortcut method of recognition under
SFAS 133, therefore no portion of the swap is treated as
ineffective. As of March 31, 2006 and 2005, the Company
recognized a $16.9 million and $9.7 million liability,
respectively, to reflect the fair value of the interest rate
swaps, with a corresponding decrease to the carrying value of
the 6.25% senior subordinated notes. These amounts were
included in other current liabilities and as a reduction of
other current assets, as of March 31, 2006 and 2005,
respectively.
|
|
6. |
TRADE RECEIVABLES SECURITIZATION |
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.
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
program 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. In
September 2005, the Company amended the securitization agreement
to increase the size of the program to $700.0 million and
to extend the expiration date to September 2006. The
unaffiliated financial institutions maximum investment
limit was increased to $500.0 million. The amended
securitization agreement also includes two Obligor Specific
Tranches (OST) which total $200.0 million. The OSTs
are part of the main facility and were incorporated in order to
minimize the impact of excess concentrations of two major
customers.
As of March 31, 2006 and 2005, approximately
$228.0 million and $249.9 million of the
Companys accounts receivable, respectively, had been sold
to the third-party qualified special purpose entity described
above 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 approximately
$156.6 million and $134.7 million from the
unaffiliated financial institutions for the sale of these
receivables during fiscal years 2006 and 2005, 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 participation,
the total of which was approximately $71.4 million and
$123.1 million as of March 31, 2006 and 2005,
respectively.
The Company also sells its accounts receivable to certain
third-party banking institutions with limited recourse, which
management believes is nominal. The outstanding balance of
receivables sold and not yet collected was approximately
$218.5 million and $202.1 million as of March 31,
2006 and 2005, respectively.
S-28
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In accordance with SFAS 140 Accounting for
Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities, 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, 2006 and 2005, the gross carrying amount of
the Companys property and equipment relating to continuing
operations financed under capital leases amounted to
approximately $5.2 million and $41.6 million,
respectively. Accumulated depreciation for property and
equipment relating to continuing operations under capital leases
totaled $1.7 million and $23.9 million at
March 31, 2006 and 2005, 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 Years Ending March 31, |
|
Lease | |
|
Lease | |
|
|
| |
|
| |
|
|
(In thousands) | |
2007
|
|
$ |
483 |
|
|
$ |
39,410 |
|
2008
|
|
|
348 |
|
|
|
30,932 |
|
2009
|
|
|
348 |
|
|
|
25,959 |
|
2010
|
|
|
307 |
|
|
|
19,079 |
|
2011
|
|
|
277 |
|
|
|
17,545 |
|
Thereafter
|
|
|
855 |
|
|
|
190,969 |
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
2,618 |
|
|
$ |
323,894 |
|
|
|
|
|
|
|
|
Amount representing interest
|
|
|
(464 |
) |
|
|
|
|
|
|
|
|
|
|
|
Present value of total minimum lease payments
|
|
|
2,154 |
|
|
|
|
|
|
Current portion
|
|
|
(367 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligation, net of current portion
|
|
$ |
1,787 |
|
|
|
|
|
|
|
|
|
|
|
|
Total rent expense from continuing operations amounted to
$60.9 million, $89.8 million, and $93.8 million
in fiscal years 2006, 2005 and 2004, respectively.
On June 29, 2004, the Company entered into an asset
purchase agreement with Nortel providing for Flextronics
purchase of certain of Nortels optical, wireless, wireline
and enterprise manufacturing operations and optical design
operations. The purchase of these assets has occurred in stages,
and in May 2006, the Company completed the transfer of
Nortels Calgary operations in the final stage of this
transaction. Refer to Note 13, Business and Asset
Acquisitions and Divestitures 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 matters will have a material adverse effect on
its consolidated financial position, results of operations, or
cash flows.
S-29
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The domestic (Singapore) and foreign components of
income (loss) from continuing operations before income taxes
were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Domestic
|
|
$ |
99,605 |
|
|
$ |
42,374 |
|
|
$ |
19,251 |
|
Foreign
|
|
|
65,131 |
|
|
|
220,471 |
|
|
|
(430,619 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
164,736 |
|
|
$ |
262,845 |
|
|
$ |
(411,368 |
) |
|
|
|
|
|
|
|
|
|
|
The provision for (benefit from) income taxes from continuing
operations consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$ |
503 |
|
|
$ |
2,088 |
|
|
$ |
3,388 |
|
|
Foreign
|
|
|
31,165 |
|
|
|
21,795 |
|
|
|
94,065 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,668 |
|
|
|
23,883 |
|
|
|
97,453 |
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
(409 |
) |
|
|
870 |
|
|
|
(599 |
) |
|
Foreign
|
|
|
22,959 |
|
|
|
(93,405 |
) |
|
|
(161,812 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
22,550 |
|
|
|
(92,535 |
) |
|
|
(162,411 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Provision for (benefit from) income taxes
|
|
$ |
54,218 |
|
|
$ |
(68,652 |
) |
|
$ |
(64,958 |
) |
|
|
|
|
|
|
|
|
|
|
The domestic statutory income tax rate was approximately 20.0%
in fiscal years 2006, 2005 and 2004. The reconciliation of the
income tax expense (benefit) expected based on domestic
statutory income tax rates to the expense (benefit) for income
taxes from continuing operations included in the consolidated
statements of operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Income tax based on domestic statutory rates
|
|
$ |
32,947 |
|
|
$ |
52,569 |
|
|
$ |
(82,274 |
) |
Effect of tax rate differential
|
|
|
(86,251 |
) |
|
|
(320,059 |
) |
|
|
(112,893 |
) |
Goodwill and other intangibles amortization
|
|
|
6,819 |
|
|
|
3,354 |
|
|
|
3,455 |
|
Change in valuation allowance
|
|
|
120,182 |
|
|
|
202,316 |
|
|
|
142,556 |
|
Other
|
|
|
(19,479 |
) |
|
|
(6,832 |
) |
|
|
(15,802 |
) |
|
|
|
|
|
|
|
|
|
|
|
Provision for (benefit from) income taxes
|
|
$ |
54,218 |
|
|
$ |
(68,652 |
) |
|
$ |
(64,958 |
) |
|
|
|
|
|
|
|
|
|
|
S-30
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components of deferred income taxes from continuing
operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Fixed assets
|
|
$ |
9,031 |
|
|
$ |
(37,703 |
) |
|
Intangible assets
|
|
|
(10,782 |
) |
|
|
(24,349 |
) |
|
Others
|
|
|
(6,762 |
) |
|
|
(3,874 |
) |
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(8,513 |
) |
|
|
(65,926 |
) |
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Deferred compensation
|
|
|
4,796 |
|
|
|
4,710 |
|
|
Provision for inventory obsolescence
|
|
|
14,327 |
|
|
|
14,466 |
|
|
Provision for doubtful accounts
|
|
|
1,338 |
|
|
|
1,274 |
|
|
Net operating loss and other carryforwards
|
|
|
1,600,614 |
|
|
|
1,564,410 |
|
|
Others
|
|
|
70,311 |
|
|
|
68,271 |
|
|
|
|
|
|
|
|
|
|
|
1,691,386 |
|
|
|
1,653,131 |
|
Valuation allowances
|
|
|
(1,026,799 |
) |
|
|
(888,445 |
) |
|
|
|
|
|
|
|
|
|
Total deferred tax asset
|
|
|
664,587 |
|
|
|
764,686 |
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$ |
656,074 |
|
|
$ |
698,760 |
|
|
|
|
|
|
|
|
The net deferred tax asset is classified as follows:
|
|
|
|
|
|
|
|
|
|
Current
|
|
$ |
9,643 |
|
|
$ |
11,614 |
|
|
Long-term
|
|
|
646,431 |
|
|
|
687,146 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
656,074 |
|
|
$ |
698,760 |
|
|
|
|
|
|
|
|
The Company has total tax loss carryforwards of approximately
$4.4 billion from continuing operations, 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 $34.0 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-31
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Effective January 30, 2006, the Singapore Companies Act,
Chapter 50 was amended to, among other things, allow
Singapore companies to repurchase outstanding ordinary shares
subject to certain requirements and eliminate the concepts of
par value, additional paid-in capital and authorized share
capital. As a result of the Companies (Amendment) Act 2005,
effective January 30, 2006, the outstanding shares of the
Company have no par value and the Company has combined the par
value of its ordinary shares together with additional
paid-in-capital into
one account for all periods presented.
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.
On April 7, 2006, the Companys Board of Directors
authorized the repurchase of up to $250.0 million of its
outstanding ordinary shares. Share repurchases, if any, will be
made in the open market at such time and in such amounts as
management deems appropriate and will be made pursuant to the
Share Purchase Mandate approved by the shareholders at the
Companys 2005 annual general meeting. Shares repurchased
under the program will be canceled.
|
|
|
Stock Option and Incentive Plans |
At March 31, 2006, the Company had three stock-based
employee compensation plans: the 2004 Award Plan for New
Employees (the 2004 Plan), the 2002 Interim
Incentive Plan (the 2002 Plan), and the 2001 Equity
Incentive Plan (the 2001 Plan). The Companys
1997 Employee Stock Purchase Plan was terminated by the Board of
Directors on October 14, 2005.
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 a discretionary option grant
program, an automatic option grant program, and a discretionary
share bonus award program. The discretionary option grant
program and share bonus award program is administered by the
Compensation Committee with respect to executive 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 and share bonus awards to employees, officers and
directors. The exercise price of options
S-32
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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
issued 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 and share bonus awards 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 issued 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) provided for issuance of up to
5,400,000 ordinary shares. The Purchase Plan was approved by the
shareholders in October 1997. Under the Purchase Plan, employees
were able to 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 was 85% of the fair market value of the
stock at the beginning or end of the offering period, whichever
was lower. The ordinary shares sold under this plan in fiscal
years 2006, 2005 and 2004 amounted to 914,244, 560,596, and
717,595, respectively. The weighted-average fair value of
ordinary shares sold under this plan in fiscal years 2006, 2005
and 2004 was $11.51, $14.31 and $10.30 per share,
respectively. On October 14, 2005, the Companys Board
of Directors approved the termination of the Purchase Plan and
no shares will be available for issuance subsequent to
March 31, 2006.
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, 2006 | |
|
March 31, 2005 | |
|
March 31, 2004 | |
|
|
| |
|
| |
|
| |
|
|
Options | |
|
Price | |
|
Options | |
|
Price | |
|
Options | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Outstanding, beginning of fiscal year
|
|
|
57,578,401 |
|
|
$ |
12.67 |
|
|
|
50,303,999 |
|
|
$ |
12.86 |
|
|
|
55,682,533 |
|
|
$ |
11.35 |
|
|
Granted
|
|
|
11,549,454 |
|
|
|
11.80 |
|
|
|
18,461,056 |
|
|
|
13.94 |
|
|
|
8,841,856 |
|
|
|
15.60 |
|
|
Exercised
|
|
|
(5,562,348 |
) |
|
|
7.38 |
|
|
|
(3,182,087 |
) |
|
|
9.34 |
|
|
|
(8,235,283 |
) |
|
|
6.66 |
|
|
Forfeited
|
|
|
(8,522,951 |
) |
|
|
18.83 |
|
|
|
(8,004,567 |
) |
|
|
17.99 |
|
|
|
(5,985,107 |
) |
|
|
11.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of fiscal year
|
|
|
55,042,556 |
|
|
$ |
12.04 |
|
|
|
57,578,401 |
|
|
$ |
12.67 |
|
|
|
50,303,999 |
|
|
$ |
12.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, end of fiscal year
|
|
|
42,475,818 |
|
|
|
|
|
|
|
40,484,074 |
|
|
|
|
|
|
|
27,638,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value per option granted
|
|
$ |
3.80 |
|
|
|
|
|
|
$ |
7.99 |
|
|
|
|
|
|
$ |
9.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-33
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents the composition of options
outstanding and exercisable as of March 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding | |
|
Options Exercisable | |
|
|
| |
|
| |
|
|
|
|
Weighted | |
|
Weighted | |
|
|
|
Weighted | |
|
|
|
|
Average | |
|
Average | |
|
|
|
Average | |
|
|
Number of | |
|
Contractual | |
|
Contractual | |
|
Number of | |
|
Exercise | |
Range of Exercise Prices |
|
Shares | |
|
Life | |
|
Price | |
|
Shares | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
$ 0.42 - $ 6.23
|
|
|
5,967,661 |
|
|
|
3.40 |
|
|
$ |
4.72 |
|
|
|
5,743,550 |
|
|
$ |
4.67 |
|
$ 7.13 - $ 7.90
|
|
|
7,808,424 |
|
|
|
6.16 |
|
|
|
7.87 |
|
|
|
3,439,392 |
|
|
|
7.84 |
|
$ 8.01 - $11.10
|
|
|
8,698,067 |
|
|
|
7.94 |
|
|
|
10.35 |
|
|
|
2,350,828 |
|
|
|
8.96 |
|
$11.32 - $12.37
|
|
|
7,648,453 |
|
|
|
8.71 |
|
|
|
12.03 |
|
|
|
6,082,591 |
|
|
|
12.09 |
|
$12.40 - $13.18
|
|
|
5,946,576 |
|
|
|
8.39 |
|
|
|
12.82 |
|
|
|
5,920,717 |
|
|
|
12.82 |
|
$13.27 - $15.90
|
|
|
7,572,482 |
|
|
|
6.56 |
|
|
|
14.59 |
|
|
|
7,538,003 |
|
|
|
14.59 |
|
$15.95 - $17.37
|
|
|
5,767,284 |
|
|
|
7.44 |
|
|
|
16.94 |
|
|
|
5,767,128 |
|
|
|
16.94 |
|
$17.38 - $23.19
|
|
|
5,548,827 |
|
|
|
6.22 |
|
|
|
18.87 |
|
|
|
5,548,827 |
|
|
|
18.87 |
|
$23.61 - $29.94
|
|
|
83,782 |
|
|
|
4.58 |
|
|
|
25.35 |
|
|
|
83,782 |
|
|
|
25.35 |
|
$30.00 - $30.00
|
|
|
1,000 |
|
|
|
4.90 |
|
|
|
30.00 |
|
|
|
1,000 |
|
|
|
30.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 0.42 - $30.00
|
|
|
55,042,556 |
|
|
|
6.93 |
|
|
$ |
12.04 |
|
|
|
42,475,818 |
|
|
$ |
12.69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10. |
RESTRUCTURING CHARGES |
In recent years, the Company has initiated a series of
restructuring activities intended to realign the Companys
global capacity and infrastructure with demand by its OEM
customers so as to optimize the operational efficiency, which
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 business.
Liabilities for costs associated with exit or disposal of
activities are recognized when the liabilities are incurred.
As of March 31, 2006 and 2005, assets that were no longer
in use and held for sale as a result of the restructuring
activities totaled approximately $40.6 million and
$59.3 million, respectively, 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.
The Company recognized restructuring charges of approximately
$215.7 million during fiscal year 2006 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
$185.6 million of the charges associated with facility
closures as a component of cost of sales during fiscal year 2006.
S-34
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 2006, the Company
recorded approximately $72.3 million of other exit costs
primarily associated with contractual obligations. As of
March 31, 2006, accrued facility closure costs related to
restructuring charges incurred in fiscal 2006 were approximately
$48.4 million, of which approximately $9.6 million is
classified as a long-term obligation.
The components of the restructuring charges during the first,
second, third and fourth quarters of fiscal year 2006 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First | |
|
Second | |
|
Third | |
|
Fourth | |
|
|
|
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Americas:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
$ |
2,442 |
|
|
$ |
6,546 |
|
|
$ |
1,719 |
|
|
$ |
4,626 |
|
|
$ |
15,333 |
|
Long-lived asset impairment
|
|
|
3,847 |
|
|
|
7,244 |
|
|
|
1,951 |
|
|
|
945 |
|
|
|
13,987 |
|
Other exit costs
|
|
|
6,421 |
|
|
|
836 |
|
|
|
10,957 |
|
|
|
439 |
|
|
|
18,653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charges
|
|
|
12,710 |
|
|
|
14,626 |
|
|
|
14,627 |
|
|
|
6,010 |
|
|
|
47,973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
|
|
|
|
|
|
|
|
1,312 |
|
|
|
|
|
|
|
1,312 |
|
Long-lived asset impairment
|
|
|
|
|
|
|
|
|
|
|
1,912 |
|
|
|
|
|
|
|
1,912 |
|
Other exit costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charges
|
|
|
|
|
|
|
|
|
|
|
3,224 |
|
|
|
|
|
|
|
3,224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
11,483 |
|
|
|
16,669 |
|
|
|
47,689 |
|
|
|
20,604 |
|
|
|
96,445 |
|
Long-lived asset impairment
|
|
|
456 |
|
|
|
7,125 |
|
|
|
2,497 |
|
|
|
4,327 |
|
|
|
14,405 |
|
Other exit costs
|
|
|
8,040 |
|
|
|
11,926 |
|
|
|
520 |
|
|
|
33,208 |
|
|
|
53,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charges
|
|
|
19,979 |
|
|
|
35,720 |
|
|
|
50,706 |
|
|
|
58,139 |
|
|
|
164,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
13,925 |
|
|
|
23,215 |
|
|
|
50,720 |
|
|
|
25,230 |
|
|
|
113,090 |
|
Long-lived asset impairment
|
|
|
4,303 |
|
|
|
14,369 |
|
|
|
6,360 |
|
|
|
5,272 |
|
|
|
30,304 |
|
Other exit costs
|
|
|
14,461 |
|
|
|
12,762 |
|
|
|
11,477 |
|
|
|
33,647 |
|
|
|
72,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charges
|
|
$ |
32,689 |
|
|
$ |
50,346 |
|
|
$ |
68,557 |
|
|
$ |
64,149 |
|
|
$ |
215,741 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During fiscal year 2006, the Company recorded approximately
$113.1 million of employee termination costs associated
with the involuntary terminations of 7,320 identified employees
in connection with the various facility closures and
consolidations. The identified involuntary employee terminations
by reportable geographic region amounted to approximately 1,400,
100 and 5,800 for Americas, Asia and Europe, respectively.
Approximately $96.2 million of the net charges was
classified as a component of cost of sales.
During fiscal year 2006, the Company recorded approximately
$30.3 million for the write-down of property and equipment
associated with various manufacturing and administrative
facility closures. Approximately $27.1 million of this
amount was classified as a component of cost of sales. The
restructuring charges recorded during fiscal year 2006 also
included approximately $72.3 million for other exit costs,
of which, $62.3 million was classified as a component of
cost of sales. This amount was primarily comprised of
contractual obligations of approximately $30.3 million and
customer disengagement costs of approximately $34.5 million.
S-35
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the provisions, the respective
payments, and the remaining accrued balance as of March 31,
2006 for restructuring charges incurred in the first, second,
third and fourth quarters of fiscal year 2006 and prior:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Lived | |
|
|
|
|
|
|
|
|
Asset | |
|
Other Exit | |
|
|
|
|
Severance | |
|
Impairment | |
|
Costs | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Balance as of March 31, 2005
|
|
$ |
13,551 |
|
|
$ |
|
|
|
$ |
24,337 |
|
|
$ |
37,888 |
|
Activities during the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for charges incurred during the year
|
|
|
113,090 |
|
|
|
30,304 |
|
|
|
72,347 |
|
|
|
215,741 |
|
|
Cash payments for charges incurred in fiscal year 2006
|
|
|
(74,507 |
) |
|
|
|
|
|
|
(27,183 |
) |
|
|
(101,690 |
) |
|
Cash payments for charges incurred in fiscal year 2005
|
|
|
(8,130 |
) |
|
|
|
|
|
|
(1,119 |
) |
|
|
(9,249 |
) |
|
Cash payments for charges incurred in fiscal year 2004
|
|
|
(2,481 |
) |
|
|
|
|
|
|
(7,023 |
) |
|
|
(9,504 |
) |
|
Cash payments for charges incurred in fiscal year 2003 and prior
|
|
|
(145 |
) |
|
|
|
|
|
|
(3,380 |
) |
|
|
(3,525 |
) |
|
Non-cash charges incurred during the year
|
|
|
|
|
|
|
(30,304 |
) |
|
|
(35,335 |
) |
|
|
(65,639 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2006
|
|
|
41,378 |
|
|
|
|
|
|
|
22,644 |
|
|
|
64,022 |
|
Less: Current portion (classified as other current
liabilities)
|
|
|
(36,567 |
) |
|
|
|
|
|
|
(10,605 |
) |
|
|
(47,172 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued facility closure costs, net of current portion
(classified as other long-term liabilities)
|
|
$ |
4,811 |
|
|
$ |
|
|
|
$ |
12,039 |
|
|
$ |
16,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, of which $78.4 million was
classified as a component of cost of sales during fiscal year
2005. The activities to which all of these charges related were
substantially completed within one year of the commitment dates
of the respective activities, except for certain long-term
contractual obligations.
S-36
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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. Approximately $54.7 million of the charges
were classified as a component of cost of sales. The identified
involuntary employee terminations by reportable geographic
region amounted to approximately 300, 200, and 2,500 for the
Americas, Asia and Europe, respectively. As of March 31,
2006, all employees have been terminated under these plans.
The Company also recorded approximately $12.7 million for
the write-down of property and equipment 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
recognized during fiscal year 2005 also included approximately
$16.3 million for other exit costs associated with
contractual obligations. Approximately $12.5 million of the
amount was classified as a component of cost of sales. Of this
amount, customer disengagement costs totaled approximately
$5.5 million; facility lease obligations totaled
approximately $2.3 million and facility abandonment and
refurbishment costs totaled approximately $3.7 million. As
of March 31, 2006, accrued facility closure costs related
to restructuring charges incurred in fiscal year 2005 were
approximately $2.0 million, of which approximately
$0.7 million was classified as a long-term obligation.
S-37
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the provisions, payments and the
accrual balance relating to restructuring costs incurred during
fiscal year ended March 31, 2005 (see above for cash
payments in fiscal year 2006):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Lived | |
|
|
|
|
|
|
|
|
Asset | |
|
Other | |
|
|
|
|
Severance | |
|
Impairment | |
|
Exit Costs | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Activities during fiscal year 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, of which $11.5 million related to discontinued
operations (refer to Note 16, Discontinued
Operations). The Company has classified
$474.1 million of the charges associated with facility
closures as a component of cost of sales during fiscal year 2004.
The facility closures and activities to which all of these
charges related were 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(1)
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-38
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(1) |
Included in the first quarter charges are $7.2 million
related to discontinued operations, of which $1.7 million
related to cost of sales. The charges included severance of
$0.4 million, long-lived asset impairment of
$2.7 million and other exit costs of $4.1 million.
Included in the second quarter charges are $4.3 million
related to discontinued operations, of which $1.5 million
related to cost of sales. The charges included severance of
$2.3 million, long-lived asset impairment of
$0.6 million and other exit costs of $1.4 million. |
During fiscal year 2004, the Company recorded approximately
$103.7 million of employee termination costs (of which
$2.7 million was attributable to discontinued operations)
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, 2006, all employees have been
terminated under these plans. Approximately $84.6 million
of the net charges were classified as a component of cost of
sales during fiscal year 2004, of which $0.3 million
related to discontinued operations. As of March 31, 2006
and 2005, accrued facility closure costs related to
restructuring charges incurred in fiscal year 2004 were
approximately $9.0 million and $18.5 million, of which
approximately $3.1 million and $6.2 million was
classified as a long-term obligation, respectively.
During fiscal year 2004, the Company also recorded approximately
$331.2 million for the write-down of property and equipment
(of which $3.3 million was attributable to discontinued
operations) 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, of which $0.4 million
related to discontinued operations. 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.
The restructuring charges recorded during fiscal year 2004 also
included approximately $105.5 million for other exit costs,
of which $5.5 million was attributable to discontinued
operations. Approximately $75.3 million of this amount
($2.5 million related to discontinued operations) 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 (of
which $2.4 million was attributable to discontinued
operations), 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 (of which $3.1 million related to discontinued
operations) 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 exit costs 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
S-39
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
|
|
|
Fiscal Year 2003 and Prior |
As of March 31, 2006 and 2005, accrued facility closure
costs related to restructuring charges incurred in fiscal year
2003 and prior were $4.5 million and $8.1 million, of
which approximately $3.4 million and $4.7 million was
classified as a long-term obligation, respectively.
During fiscal year 2006, the Company realized a net foreign
exchange gain of $20.6 million from the liquidation of
certain international entities and a net gain of
$4.3 million related to its investments in certain
non-publicly traded companies. These gains were offset by
approximately $7.7 million in compensation charges related
to the retirement of Michael E. Marks from his position as Chief
Executive Officer, of which approximately $5.9 million was
paid during fiscal year 2006, with the remaining amount due in
July 2006. In connection with his retirement and appointment to
serve as Chairman of the Companys Board of Directors
beginning January 1, 2006, the Company also accelerated the
vesting and continued the exercise period of certain stock
options held by Mr. Marks. The modifications to his stock
options did not result in any incremental non-cash stock-based
compensation expense under APB 25 because the exercise
price of the affected options was greater than the market price
of the underlying shares on the date of the modifications.
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 compensation 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 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.
|
|
12. |
RELATED PARTY TRANSACTIONS |
Since June 2003, neither the Company nor any of its subsidiaries
have made or will make any loans to its executive officers.
Prior to June 30, 2003, 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 is 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, 2006 and 2005 was approximately $1.8 million.
Additionally, the Company has a loan outstanding from an
executive officer of $3.0 million and $2.9 million,
including accrued interest, as of March 31, 2006 and 2005,
respectively. This loan was initially provided to the executive
officer prior to June 2003, and was last amended on
December 13, 2005, prior to the time the individual became
an executive officer. The loan is evidenced by a promissory note
in favor of the Company and the Company has the option to secure
the loan with a deed of trust on property of the officer. The
note bears interest at 1.49%. There were no other loans
outstanding from the Companys executive officers as of
March 31, 2006 and 2005.
On April 13, 2006, the Company entered into a definitive
agreement to sell its Software Development and Solutions
business to an affiliate of Kohlberg Kravis Roberts &
Co. Upon closing of the transaction, the Company expects to
receive in excess of $600.0 million in cash and a
$250.0 million face value note receivable with a 10.5%
paid-in-kind interest
coupon which matures in eight years, and retain a 15% equity
interest in the new company.
S-40
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Mr. Michael E. Marks, the Chairman of the Companys
Board of Directors, is a member of KKR. The terms of the
transaction were approved by an independent committee of the
Companys Board of Directors as well as by the Audit
Committee of the Companys Board of Directors. The
Independent Committee of the Companys Board of Directors
received fairness opinions from certain independent third-party
financial institutions.