UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
|
|
|
þ
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
For the quarterly period ended October 1, 2010
or
|
|
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from
to
Commission file number 0-23354
FLEXTRONICS INTERNATIONAL LTD.
(Exact name of registrant as specified in its charter)
|
|
|
Singapore
|
|
Not Applicable
|
(State or other jurisdiction of
|
|
(I.R.S. Employer
|
incorporation or organization)
|
|
Identification No.)
|
|
|
|
2 Changi South Lane,
|
|
486123
|
Singapore
|
|
(Zip Code)
|
(Address of registrants principal executive offices)
|
|
|
Registrants telephone number, including area code
(65) 6890 7188
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes
þ
No
o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
|
|
|
|
|
|
|
Large accelerated filer
þ
|
|
Accelerated filer
o
|
|
Non-accelerated filer
o
|
|
Smaller reporting company
o
|
|
|
|
|
(Do not check if a smaller reporting company)
|
|
|
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes
o
No
þ
Indicate the number of shares outstanding of each of the registrants classes of common stock,
as of the latest practicable date.
|
|
|
Class
|
|
Outstanding at October 28, 2010
|
|
|
|
Ordinary Shares, No Par Value
|
|
766,200,284
|
FLEXTRONICS INTERNATIONAL LTD.
INDEX
2
PART I. FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Flextronics International Ltd.
Singapore
We have reviewed the accompanying condensed consolidated balance sheet of Flextronics International
Ltd. and subsidiaries (the Company) as of October 1, 2010, and the related condensed consolidated
statements of operations for the three-month and six-month periods ended October 1, 2010 and
October 2, 2009, and of cash flows for the six-month periods ended October 1, 2010 and October 2,
2009. These interim financial statements are the responsibility of the Companys management.
We conducted our reviews in accordance with the standards of the Public Company Accounting
Oversight Board (United States). A review of interim financial information consists principally of
applying analytical procedures and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in accordance with
the standards of the Public Company Accounting Oversight Board (United States), the objective of
which is the expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to such
condensed consolidated interim financial statements for them to be in conformity with accounting
principles generally accepted in the United States of America.
As discussed in Notes 2 and 8 to the condensed consolidated financial statements, on April 1, 2010
the Company adopted new accounting standards related to the accounting for variable interest
entities and the transfers of financial assets.
We have previously audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet of Flextronics International Ltd.
and subsidiaries as of March 31, 2010, and the related consolidated statements of operations,
shareholders equity, and cash flows for the year then ended (not presented herein); and in our
report dated May 21, 2010, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying condensed consolidated
balance sheet as of March 31, 2010 is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
November 3, 2010
3
FLEXTRONICS INTERNATIONAL LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
October 1, 2010
|
|
|
March 31, 2010
|
|
|
|
(In thousands,
|
|
|
|
except share amounts)
|
|
|
|
(Unaudited)
|
|
ASSETS
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,788,196
|
|
|
$
|
1,927,556
|
|
Accounts receivable, net of allowance for doubtful accounts of $11,518 and
$13,163 as of October 1, 2010 and March 31, 2010, respectively
|
|
|
2,978,359
|
|
|
|
2,438,950
|
|
Inventories
|
|
|
3,638,637
|
|
|
|
2,875,819
|
|
Other current assets
|
|
|
964,970
|
|
|
|
747,676
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
9,370,162
|
|
|
|
7,990,001
|
|
Property and equipment, net
|
|
|
2,175,946
|
|
|
|
2,118,576
|
|
Goodwill and other intangible assets, net
|
|
|
226,824
|
|
|
|
254,717
|
|
Other assets
|
|
|
236,705
|
|
|
|
279,258
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
12,009,637
|
|
|
$
|
10,642,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Bank borrowings, current portion of long-term debt and capital lease obligations
|
|
$
|
19,881
|
|
|
$
|
266,551
|
|
Accounts payable
|
|
|
5,713,561
|
|
|
|
4,447,968
|
|
Accrued payroll
|
|
|
379,363
|
|
|
|
347,324
|
|
Other current liabilities
|
|
|
1,377,228
|
|
|
|
1,285,368
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
7,490,033
|
|
|
|
6,347,211
|
|
Long-term debt and capital lease obligations, net of current portion
|
|
|
2,212,727
|
|
|
|
1,990,258
|
|
Other liabilities
|
|
|
287,296
|
|
|
|
320,516
|
|
Commitments and contingencies (Note 10)
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
Ordinary shares, no par value; 846,818,714 and 843,208,876 shares issued, and
765,933,642 and 813,429,154 outstanding as of October 1, 2010 and
March 31, 2010, respectively
|
|
|
8,956,115
|
|
|
|
8,924,769
|
|
Treasury stock, at cost; 80,885,072 and 29,779,722 shares as of October 1, 2010
and March 31, 2010, respectively
|
|
|
(560,017
|
)
|
|
|
(260,074
|
)
|
Accumulated deficit
|
|
|
(6,402,129
|
)
|
|
|
(6,664,723
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
25,612
|
|
|
|
(15,405
|
)
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
2,019,581
|
|
|
|
1,984,567
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
12,009,637
|
|
|
$
|
10,642,552
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
FLEXTRONICS INTERNATIONAL LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended
|
|
|
Six-Month Periods Ended
|
|
|
|
October 1, 2010
|
|
|
October 2, 2009
|
|
|
October 1, 2010
|
|
|
October 2, 2009
|
|
|
|
(In thousands, except per share amounts)
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
7,422,338
|
|
|
$
|
5,831,761
|
|
|
$
|
13,988,218
|
|
|
$
|
11,614,440
|
|
Cost of sales
|
|
|
7,024,691
|
|
|
|
5,519,778
|
|
|
|
13,219,753
|
|
|
|
11,026,353
|
|
Restructuring charges
|
|
|
|
|
|
|
12,403
|
|
|
|
|
|
|
|
64,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
397,647
|
|
|
|
299,580
|
|
|
|
768,465
|
|
|
|
523,575
|
|
Selling, general and administrative expenses
|
|
|
198,954
|
|
|
|
176,246
|
|
|
|
394,672
|
|
|
|
377,938
|
|
Intangible amortization
|
|
|
21,439
|
|
|
|
22,710
|
|
|
|
39,429
|
|
|
|
46,044
|
|
Restructuring charges
|
|
|
|
|
|
|
187
|
|
|
|
|
|
|
|
12,917
|
|
Other charges, net
|
|
|
|
|
|
|
91,999
|
|
|
|
|
|
|
|
199,398
|
|
Interest and other expense, net
|
|
|
22,838
|
|
|
|
38,091
|
|
|
|
50,367
|
|
|
|
74,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
154,416
|
|
|
|
(29,653
|
)
|
|
|
283,997
|
|
|
|
(187,699
|
)
|
Provision for (benefit from) income taxes
|
|
|
10,000
|
|
|
|
(49,312
|
)
|
|
|
21,403
|
|
|
|
(53,315
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
144,416
|
|
|
$
|
19,659
|
|
|
$
|
262,594
|
|
|
$
|
(134,384
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.19
|
|
|
$
|
0.02
|
|
|
$
|
0.33
|
|
|
$
|
(0.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.18
|
|
|
$
|
0.02
|
|
|
$
|
0.33
|
|
|
$
|
(0.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used in computing per share amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
776,362
|
|
|
|
811,364
|
|
|
|
793,499
|
|
|
|
810,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
784,271
|
|
|
|
817,260
|
|
|
|
804,144
|
|
|
|
810,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
FLEXTRONICS INTERNATIONAL LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
Six-Month Periods Ended
|
|
|
|
October 1, 2010
|
|
|
October 2, 2009
|
|
|
|
(In thousands)
|
|
|
|
(Unaudited)
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
262,594
|
|
|
$
|
(134,384
|
)
|
Depreciation, amortization and other impairment charges
|
|
|
230,714
|
|
|
|
466,472
|
|
Changes in working capital and other
|
|
|
104,211
|
|
|
|
86,316
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
597,519
|
|
|
|
418,404
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchases of property and
equipment
|
|
|
(273,172
|
)
|
|
|
(95,891
|
)
|
Proceeds from the disposition of property and
equipment
|
|
|
51,438
|
|
|
|
15,728
|
|
Acquisition of businesses, net of cash acquired
|
|
|
(2,502
|
)
|
|
|
(59,055
|
)
|
Other investments and notes receivable, net
|
|
|
13,123
|
|
|
|
255,281
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(211,113
|
)
|
|
|
116,063
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from bank borrowings and long-term debt
|
|
|
1,249,515
|
|
|
|
786,909
|
|
Repayments of bank borrowings, long-term debt and capital lease obligations
|
|
|
(1,491,192
|
)
|
|
|
(992,449
|
)
|
Payments for repurchase of long-term debt
|
|
|
(7,029
|
)
|
|
|
(203,183
|
)
|
Payments for repurchase of ordinary
shares
|
|
|
(299,943
|
)
|
|
|
|
|
Net proceeds from issuance of ordinary shares
|
|
|
3,309
|
|
|
|
3,423
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(545,340
|
)
|
|
|
(405,300
|
)
|
|
|
|
|
|
|
|
Effect of exchange rates on cash
|
|
|
19,574
|
|
|
|
15,441
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(139,360
|
)
|
|
|
144,608
|
|
Cash and cash equivalents, beginning of period
|
|
|
1,927,556
|
|
|
|
1,821,886
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
1,788,196
|
|
|
$
|
1,966,494
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 design and
electronics manufacturing services (EMS) to original equipment manufacturers (OEMs) of a broad
range of products in the following markets: infrastructure; mobile communication devices;
computing; consumer digital devices; industrial, semiconductor capital equipment, clean technology,
aerospace and defense, and white goods; automotive and marine; and medical devices. The Companys
strategy is to provide customers with a full range of cost competitive, vertically-integrated
global supply chain services through which the Company designs, builds, ships and services 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 Companys service offerings include rigid printed circuit board and flexible circuit
fabrication, systems assembly and manufacturing (including enclosures, testing services, materials
procurement and inventory management), logistics, after-sales services (including product repair,
re-manufacturing and maintenance) and multiple component product offerings. 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 names. 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. The Company also provides after market services such as logistics, repair and warranty
services.
2. SUMMARY OF ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in
accordance with accounting principles generally accepted in the United States of America (U.S.
GAAP or GAAP) for interim financial information and in accordance with the requirements of Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes
required by U.S. GAAP for complete financial statements, and should be read in conjunction with the
Companys audited consolidated financial statements as of and for the fiscal year ended March 31,
2010 contained in the Companys Annual Report on Form 10-K. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for the three-month and six-month periods ended
October 1, 2010 are not necessarily indicative of the results that may be expected for the fiscal
year ended March 31, 2011.
The first fiscal quarters ended on July 2, 2010 and July 3, 2009, respectively, and the second
fiscal quarters ended on October 1, 2010 and October 2, 2009, respectively. The Companys third
fiscal quarter ends on December 31, and the fourth fiscal quarter and year ends on March 31 of each
year.
7
Inventories
The components of inventories, net of applicable lower of cost or market write-downs, were as
follows:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
October 1, 2010
|
|
|
March 31, 2010
|
|
|
|
(In thousands)
|
|
Raw materials
|
|
$
|
2,433,012
|
|
|
$
|
1,874,244
|
|
Work-in-progress
|
|
|
607,718
|
|
|
|
480,216
|
|
Finished goods
|
|
|
597,907
|
|
|
|
521,359
|
|
|
|
|
|
|
|
|
|
|
$
|
3,638,637
|
|
|
$
|
2,875,819
|
|
|
|
|
|
|
|
|
Property and Equipment
Depreciation expense associated with property and equipment amounted to approximately $97.8
million and $191.3 million for the three-month and six-month periods ended October 1, 2010,
respectively, and $91.5 million and $186.0 million for the three-month and six-month periods ended
October 2, 2009, respectively.
Goodwill and Other Intangibles
The following table summarizes the activity in the Companys goodwill account during the
six-month period ended October 1, 2010:
|
|
|
|
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
Balance, beginning of the year, net of accumulated impairment of $5,949,977
|
|
$
|
84,360
|
|
Acquisitions (1)
|
|
|
2,358
|
|
Purchase accounting adjustments (2)
|
|
|
1,170
|
|
Foreign currency translation adjustments
|
|
|
156
|
|
|
|
|
|
Balance, end of the quarter, net of accumulated impairment of $5,949,977
|
|
$
|
88,044
|
|
|
|
|
|
|
|
|
(1)
|
|
Balance is attributable to certain acquisitions that were not
individually, nor in the aggregate, significant to the Company. Refer
to the discussion of the Companys acquisitions in Note 11, Business
and Asset Acquisitions.
|
|
(2)
|
|
Includes adjustments and reclassifications resulting from managements
review of the valuation of assets and liabilities acquired through
certain business combinations completed in a period subsequent to the
respective acquisition, based on managements estimates. The amount
was attributable to purchase accounting adjustments for certain
historical acquisitions that were not individually, nor in the
aggregate, significant to the Company.
|
The components of acquired intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of October 1, 2010
|
|
|
As of March 31, 2010
|
|
|
|
Gross
|
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
|
Net
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer-related
|
|
$
|
485,154
|
|
|
$
|
(362,133
|
)
|
|
$
|
123,021
|
|
|
$
|
506,595
|
|
|
$
|
(355,409
|
)
|
|
$
|
151,186
|
|
Licenses and other
|
|
|
42,893
|
|
|
|
(27,134
|
)
|
|
|
15,759
|
|
|
|
54,792
|
|
|
|
(35,621
|
)
|
|
|
19,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
528,047
|
|
|
$
|
(389,267
|
)
|
|
$
|
138,780
|
|
|
$
|
561,387
|
|
|
$
|
(391,030
|
)
|
|
$
|
170,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
The gross carrying amounts of intangible assets are removed when the recorded amounts have
been fully
amortized. Total intangible amortization expense was $21.4 million and $39.4 million during
the three-month and six-month periods ended October 1, 2010, respectively, and $22.7 million and
$46.0 million during the three-month and six-month periods ended October 2, 2009, respectively.
The estimated future annual amortization expense for acquired intangible assets is as follows:
|
|
|
|
|
Fiscal Year Ending March 31,
|
|
Amount
|
|
|
|
(In thousands)
|
|
2011 (1)
|
|
$
|
30,583
|
|
2012
|
|
|
43,497
|
|
2013
|
|
|
29,448
|
|
2014
|
|
|
19,389
|
|
2015
|
|
|
9,506
|
|
Thereafter
|
|
|
6,357
|
|
|
|
|
|
Total amortization expense
|
|
$
|
138,780
|
|
|
|
|
|
|
|
|
(1)
|
|
Represents estimated amortization for the six-month period ending March 31, 2011.
|
Other Assets
The Company has certain equity investments in non-publicly traded companies which are included
within other assets in the Companys Condensed Consolidated Balance Sheets. As of October 1, 2010
and March 31, 2010, the Companys equity investments in these non-publicly traded companies totaled
$33.3 million and $27.3 million, respectively. The Company monitors these investments for
impairment and makes appropriate reductions in carrying values as required. Fair values of these
investments, when required, are estimated using unobservable inputs, which are primarily discounted
cash flow projections.
During the three-month and six-month periods ended October 1, 2010, the Company recognized a
gain of approximately $13.5 million and $18.6 million, respectively, associated with the sale of an
equity investment that was previously fully impaired and is included in Interest and other expense,
net, in the Condensed Consolidated Statement of Operations.
In August of 2009, the Company sold its interest in one of its non-majority owned investments
and related note receivable for approximately $252.2 million, net of closing costs and recognized
an impairment charge associated with the sale of $107.4 million in the three-month period ended
July 3, 2009. During the three-month period ended October 2, 2009, the Company recognized charges
totaling approximately $92.0 million associated with the impairment of notes receivable from one
affiliate and an equity investment in another affiliate. Total impairment charges related to the
Companys equity investments and notes receivables for the six-month period ended October 2, 2009
were approximately $199.4 million and are included in Other charges, net in the Condensed
Consolidated Statements of Operations.
Provision for income taxes
The Company has tax loss carryforwards attributable to operations for which the Company has
recognized deferred tax assets. The Companys policy is to provide a reserve against those
deferred tax assets that in managements estimate are not more likely than not to be realized.
Recent Accounting Pronouncements
In June 2009, a new accounting standard was issued which amends the consolidation guidance
applicable to variable interest entities (VIEs), the approach for determining the primary
beneficiary of a VIE, and disclosure requirements of a companys involvement with VIEs. Also in
June 2009, a new accounting standard was issued which removes the concept of a qualifying
special-purpose entity, creates more stringent conditions for reporting a transfer of a portion of
a financial asset as a sale, clarifies other sale-accounting criteria, and changes the initial
measurement of a transferors interest in transferred financial assets. These standards are
effective for fiscal years
beginning after November 15, 2009 and were adopted by the Company effective April 1, 2010.
The adoption of these standards did not impact the Companys consolidated statement of operations.
Upon adoption, accounts receivables sold in the Global Asset-Backed Securitization program were
consolidated by the Company and remained on its balance sheet; cash received from the program was
treated as a bank borrowing on the Companys balance sheet and as a financing activity in the
statement of cash flows. As a result of the adoption of these standards, the Company recorded
accounts receivables and related bank borrowings of $217.1 million as of April 1, 2010. In
September 2010 the securitization agreement was amended such that sales of accounts receivable from
this program are accounted for as sales of financial assets and are removed from the consolidated
balance sheets. Cash received from the sale of accounts receivables, under this program, including
amounts received for the beneficial interest that are paid upon collection of accounts receivables,
are reported as cash provided by operating activities in the statement of cash flows (see Note 8).
9
The North American Asset-Backed Securitization program and the accounts receivable factoring
program were amended effective in the quarter ended July 2, 2010, such that sales of accounts
receivable from these programs continue to be accounted for as sales of financial assets and are
removed from the consolidated balance sheets. Cash received from the sale of accounts receivables
under these programs, including amounts received for the beneficial interest that are paid upon
collection of accounts receivables, are reported as cash provided by operating activities in the
statement of cash flows (see Note 8).
3. STOCK-BASED COMPENSATION
The Company historically granted equity compensation awards to acquire the Companys ordinary
shares under four plans. Effective July 23, 2010, equity awards are granted under the Companys
2010 Equity Incentive Plan, which was approved by the Companys shareholders at the 2010 Annual
General Meeting. These plans collectively are referred to as the Companys equity compensation
plans below. For further discussion of the Companys four historical Plans, refer to Note 2,
Summary of Accounting Policies, of the Notes to Consolidated Financial Statements in the
Companys Annual Report on Form 10-K for the fiscal year ended March 31, 2010. Refer to the
Companys Definitive Proxy Statement, which was filed with the Securities and Exchange Commission
on June 7, 2010, for further discussion of the Companys 2010 Equity Incentive Plan.
Compensation expense for the Companys stock options and unvested share bonus awards was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended
|
|
|
Six-Month Periods Ended
|
|
|
|
October 1, 2010
|
|
|
October 2, 2009
|
|
|
October 1, 2010
|
|
|
October 2, 2009
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
Cost of sales
|
|
$
|
2,648
|
|
|
$
|
2,375
|
|
|
$
|
5,371
|
|
|
$
|
5,015
|
|
Selling, general and administrative expenses
|
|
|
11,282
|
|
|
|
10,620
|
|
|
|
23,049
|
|
|
|
23,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
13,930
|
|
|
$
|
12,995
|
|
|
$
|
28,420
|
|
|
$
|
28,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six-month period ended October 1, 2010, the Company granted 925,803 stock options, at
a weighted average fair value per option of $2.55. Total unrecognized compensation expense related
to stock options is $42.8 million, net of estimated forfeitures, and will be recognized over a
weighted average vesting period of 1.6 years. As of October 1, 2010, total unrecognized
compensation expense related to unvested share bonus awards is $78.4 million, net of estimated
forfeitures, and will be recognized over a weighted average vesting period of 2.7 years.
Approximately $22.7 million of the unrecognized compensation cost is related to awards where
vesting is contingent upon meeting both a service requirement and achievement of long-term
performance goals. As of October 1, 2010, management believes achievement of these goals is
probable for approximately 315,000 of these awards and approximately $1.6 million of compensation
expense is remaining to be recognized in fiscal year 2011.
The number of options outstanding and exercisable was 60.3 million and 34.1 million,
respectively, as of October 1, 2010, at weighted average exercise prices of $7.26 and $9.01,
respectively.
10
The following table summarizes share bonus award activity for the Companys equity
compensation plans during the six-month period ended October 1, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
|
Grant-Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
Unvested share bonus awards as of March 31, 2010
|
|
|
8,801,609
|
|
|
$
|
10.31
|
|
Granted
|
|
|
8,410,125
|
|
|
|
6.92
|
|
Vested
|
|
|
(2,270,952
|
)
|
|
|
10.86
|
|
Forfeited
|
|
|
(1,163,699
|
)
|
|
|
10.37
|
|
|
|
|
|
|
|
|
|
Unvested share bonus awards as of October 1, 2010
|
|
|
13,777,083
|
|
|
$
|
8.14
|
|
|
|
|
|
|
|
|
|
Of the 8.4 million share bonus awards granted during the six-month period ended October 1,
2010, approximately 1.2 million represents the target amount of grants made to certain key
employees whereby vesting is contingent on meeting a certain market condition. The number of shares
that ultimately will vest are based on a measurement of Flextronicss total shareholder return
against the Standard and Poors (S&P) 500 Composite Index. The actual number of shares issued can
range from zero to 1.8 million. These awards vest over a period of four years, subject to
achievement of total shareholder return levels relative to the S&P 500 Composite Index. The
grant-date fair value of these awards was estimated to be $7.32 per share and was calculated using
a Monte Carlo simulation.
4. EARNINGS PER SHARE
The following table reflects the basic and diluted weighted-average ordinary shares
outstanding used to calculate basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended
|
|
|
Six-Month Periods Ended
|
|
|
|
October 1, 2010
|
|
|
October 2, 2009
|
|
|
October 1, 2010
|
|
|
October 2, 2009
|
|
|
|
(In thousands, except per share amounts)
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
144,416
|
|
|
$
|
19,659
|
|
|
$
|
262,594
|
|
|
$
|
(134,384
|
)
|
Shares used in computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average ordinary shares outstanding
|
|
|
776,362
|
|
|
|
811,364
|
|
|
|
793,499
|
|
|
|
810,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
0.19
|
|
|
$
|
0.02
|
|
|
$
|
0.33
|
|
|
$
|
(0.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
144,416
|
|
|
$
|
19,659
|
|
|
$
|
262,594
|
|
|
$
|
(134,384
|
)
|
Shares used in computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average ordinary shares outstanding
|
|
|
776,362
|
|
|
|
811,364
|
|
|
|
793,499
|
|
|
|
810,769
|
|
Weighted-average ordinary share equivalents
from stock options and awards (1)
|
|
|
7,909
|
|
|
|
5,896
|
|
|
|
10,645
|
|
|
|
|
|
Weighted-average ordinary share equivalents
from convertible notes (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average ordinary shares and
ordinary share equivalents outstanding
|
|
|
784,271
|
|
|
|
817,260
|
|
|
|
804,144
|
|
|
|
810,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
0.18
|
|
|
$
|
0.02
|
|
|
$
|
0.33
|
|
|
$
|
(0.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Ordinary share equivalents from stock options to purchase
approximately 28.4 million and 27.0 million shares outstanding during
the three-month and six-month periods ended October 1, 2010,
respectively, and 41.1 million and 50.0 million share outstanding
during the three-month and six-month periods ended October 2, 2009,
respectively, were excluded from the computation of diluted earnings
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. As a result of the Companys net loss
for the six-month period ended October 2, 2009, ordinary share
equivalents from approximately 5.3 million options and share bonus
awards were excluded from the calculation of diluted earnings (loss)
per share.
|
|
(2)
|
|
On August 2, 2010 the Company paid approximately $240.0 million to
redeem its 1% Convertible Subordinated Notes upon maturity. The notes
carried conversion provisions to issue shares to settle any conversion
spread (excess of the conversion value over the conversion price) in
stock. The conversion price was $15.525 per share (subject to certain
adjustments). On the maturity date, the Companys stock price was
less than the conversion spread, and therefore no shares were issued.
During the three-month and six-month periods ended October 1, 2010 and
October 2, 2009, the conversion obligation was less than the principal
portion of these notes and accordingly, no additional shares were
included as ordinary share equivalents.
|
|
|
|
On July 31, 2009, the principal amount of the Companys Zero Coupon
Convertible Junior Subordinated Notes was settled in cash upon
maturity. These notes carried conversion provisions to issue shares
to settle any conversion spread (excess of the conversion value over
the conversion price) in stock. The conversion price was $10.50 per
share. On the maturity date, the Companys stock price was less than
the conversion price, and therefore no shares were issued.
|
11
5. OTHER COMPREHENSIVE INCOME
The following table summarizes the components of other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended
|
|
|
Six-Month Periods Ended
|
|
|
|
October 1, 2010
|
|
|
October 2, 2009
|
|
|
October 1, 2010
|
|
|
October 2, 2009
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
Net income
(loss)
|
|
$
|
144,416
|
|
|
$
|
19,659
|
|
|
$
|
262,594
|
|
|
$
|
(134,384
|
)
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
23,828
|
|
|
|
17,637
|
|
|
|
14,509
|
|
|
|
27,929
|
|
Unrealized gain on derivative instruments
and other income
|
|
|
29,700
|
|
|
|
2,558
|
|
|
|
26,508
|
|
|
|
13,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
197,944
|
|
|
$
|
39,854
|
|
|
$
|
303,611
|
|
|
$
|
(92,467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6. BANK BORROWINGS AND LONG-TERM DEBT
Bank borrowings and long-term debt are as follows:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
October 1, 2010
|
|
|
March 31, 2010
|
|
|
|
(In thousands)
|
|
Short-term bank borrowings
|
|
$
|
753
|
|
|
$
|
6,688
|
|
1.00% convertible subordinated notes due August 2010
|
|
|
|
|
|
|
234,240
|
|
6.25% senior subordinated notes due November 2014
|
|
|
302,172
|
|
|
|
302,172
|
|
Term Loan Agreement, including current portion, due in installments
through October 2014
|
|
|
1,683,105
|
|
|
|
1,691,775
|
|
Term loan, including current portion, due September 2013
|
|
|
50,000
|
|
|
|
|
|
Term loan, due September 2013
|
|
|
130,000
|
|
|
|
|
|
Outstanding under revolving lines of credit
|
|
|
60,000
|
|
|
|
|
|
Other
|
|
|
5,922
|
|
|
|
19,955
|
|
|
|
|
|
|
|
|
|
|
|
2,231,952
|
|
|
|
2,254,830
|
|
Current portion
|
|
|
(19,593
|
)
|
|
|
(265,954
|
)
|
|
|
|
|
|
|
|
Non-current portion
|
|
$
|
2,212,359
|
|
|
$
|
1,988,876
|
|
|
|
|
|
|
|
|
As of October 1, 2010, there were $60.0 million in borrowings outstanding under the Companys
$2.0 billion credit facility, and the Company was in compliance with the financial covenants under
this credit facility.
Asia Term Loans
On September 27, 2010, the Company entered into a $50.0 million term loan agreement with a
bank based in Asia, the entire amount of which was borrowed on the date the facility was entered
into. The term loan agreement matures on September 27, 2013. Borrowings under the term loan bear
interest at LIBOR plus 2.30%. The Company, at its election, may convert the loan (in whole or in
part) to bear interest at the higher of the Federal Funds rate plus 0.5% or the prime rate plus, in
each case 1.0%. Principal payments of $500,000 are due quarterly with the balance due on the
maturity date. The Company has the right to prepay any part of the loan without penalty.
Borrowings under the term loan agreement are guaranteed by certain subsidiaries of the Company.
On September 28, 2010, the Company entered into a $130.0 million term loan facility with a
bank in Asia, the entire amount of which was borrowed on the date the facility was entered into.
The term loan facility matures on September 28, 2013. Borrowings under the facility bear interest
at LIBOR plus a margin of 2.15%, and the Company paid a non-refundable fee of $1.4 million at the
inception of the loan. The Company has the right to prepay any part of the loan without penalty.
12
The term loan agreements are unsecured, and contain customary restrictions on the ability of
the Company and its subsidiaries to, among other things, (i) incur certain debt, (ii) make certain
investments, (iii) make certain acquisitions of other entities, (iv) incur liens, (v) dispose of
assets, (vi) make non-cash distributions to shareholders, and (vii) engage in transactions with
affiliates. These covenants are subject to a number of significant exceptions and limitations. The
term loan agreements also require the Company maintain a maximum ratio of total indebtedness to
EBITDA, during the term of the term loan agreement. As of October 1, 2010, the Company was in
compliance with the financial covenants under these facilities.
Redemption
During August 2010 the Company paid $240.0 million to redeem the 1% Convertible Subordinated
Notes at par upon maturity plus accrued interest. These notes carried conversion provisions to
issue shares to settle any conversion spread (excess of conversion value over the conversion price)
in stock. The conversion price was $15.525 per share (subject to certain adjustments). On the
maturity date, the Companys stock price was less than the conversion price, and therefore no
ordinary shares were issued.
Fair Values
As of October 1, 2010, the approximate fair values of the Companys 6.25% Senior Subordinated
Notes, and debt outstanding under its $1.7 billion Term Loan Agreement were 102.6% and 95.3% of
the face values of the debt obligations, respectively, based on broker trading prices. The
estimated fair value for the Asia Term Loans would approximate 95.3% of their carrying amount,
based on the broker trading prices for the Term Loan Agreement.
Interest Expense
During the three-month and six-month periods ended October 1, 2010, the Company recognized
interest expense of $27.0 million and $58.3 million, respectively, on its debt obligations
outstanding during the period. During the three-month and six-month periods ended October 2, 2009,
the Company recognized interest expense of $39.3 million and $85.5 million, respectively, on its
debt obligations.
13
7. FINANCIAL INSTRUMENTS
Foreign Currency Contracts
The Company enters into forward contracts and foreign currency swap contracts to manage the
foreign currency risk associated with monetary accounts and anticipated foreign currency
denominated transactions. The Company hedges committed exposures and does not engage in
speculative transactions. As of October 1, 2010, the aggregate notional amount of the Companys
outstanding foreign currency forward and swap contracts was $2.7 billion as summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
Notional
|
|
|
|
|
|
|
|
Currency
|
|
|
Contract Value
|
|
Currency
|
|
Buy/Sell
|
|
|
Amount
|
|
|
in USD
|
|
|
|
|
|
|
|
(In thousands)
|
|
Cash Flow Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
CNY
|
|
Buy
|
|
|
2,724,752
|
|
|
$
|
407,257
|
|
EUR
|
|
Sell
|
|
|
15,775
|
|
|
|
21,658
|
|
HUF
|
|
Buy
|
|
|
14,678,000
|
|
|
|
72,459
|
|
ILS
|
|
Buy
|
|
|
109,000
|
|
|
|
30,065
|
|
MXN
|
|
Buy
|
|
|
1,207,700
|
|
|
|
96,369
|
|
MYR
|
|
Buy
|
|
|
379,050
|
|
|
|
122,789
|
|
SGD
|
|
Buy
|
|
|
55,927
|
|
|
|
42,556
|
|
Other
|
|
Buy
|
|
|
N/A
|
|
|
|
62,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
855,603
|
|
Other Forward/Swap Contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
CAD
|
|
Buy
|
|
|
48,213
|
|
|
|
46,648
|
|
CAD
|
|
Sell
|
|
|
80,604
|
|
|
|
77,826
|
|
CNY
|
|
Buy
|
|
|
439,913
|
|
|
|
65,200
|
|
EUR
|
|
Buy
|
|
|
222,653
|
|
|
|
301,898
|
|
EUR
|
|
Sell
|
|
|
286,631
|
|
|
|
386,325
|
|
GBP
|
|
Buy
|
|
|
53,879
|
|
|
|
85,451
|
|
GBP
|
|
Sell
|
|
|
51,364
|
|
|
|
81,720
|
|
JPY
|
|
Buy
|
|
|
4,469,414
|
|
|
|
53,506
|
|
JPY
|
|
Sell
|
|
|
2,682,323
|
|
|
|
32,064
|
|
MXN
|
|
Buy
|
|
|
708,620
|
|
|
|
56,544
|
|
SEK
|
|
Buy
|
|
|
1,819,895
|
|
|
|
270,819
|
|
SEK
|
|
Sell
|
|
|
562,732
|
|
|
|
83,791
|
|
Other
|
|
Buy
|
|
|
N/A
|
|
|
|
149,977
|
|
Other
|
|
Sell
|
|
|
N/A
|
|
|
|
110,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,802,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Notional Contract Value in USD
|
|
|
|
|
|
|
|
|
|
$
|
2,658,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain of these contracts are designed to economically hedge the Companys exposure to
monetary assets and liabilities denominated in a non-functional currency and are not treated as
hedges under the accounting standards. Accordingly, changes in the fair value of these instruments
are recognized in earnings during the period of change as a component of Interest and other
expense, net in the Condensed Consolidated Statement of Operations. As of October 1, 2010 and
October 2, 2009 the amount recognized in earnings related to these contracts was not material. As
of October 1, 2010 and March 31, 2010, the Company also has included net deferred gains and losses,
respectively, in other comprehensive income, a component of shareholders equity in the Condensed
Consolidated Balance Sheet, relating to changes in fair value of its foreign currency contracts
that are accounted for as cash flow hedges. These deferred gains and losses were not material, and
the deferred gains as of October 1, 2010 are expected to be recognized as a component of gross
profit in the Condensed Consolidated Statement of Operations over the next twelve month period. The
gains and losses recognized in earnings due to hedge ineffectiveness were not material for all
fiscal periods presented and are included as a component of Interest and other expense, net in the
Condensed Consolidated Statement of Operations.
14
The following table presents the Companys assets and liabilities related to foreign currency
contracts measured at fair value on a recurring basis as of October 1, 2010, aggregated by level in
the fair-value hierarchy within which those measurements fall:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
$
|
|
|
|
$
|
41,182
|
|
|
$
|
|
|
|
$
|
41,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
|
|
|
|
|
(27,768
|
)
|
|
|
|
|
|
|
(27,768
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
$
|
|
|
|
$
|
13,414
|
|
|
$
|
|
|
|
$
|
13,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no transfers between levels in the fair value hierarchy during the six-month period
ended October 1, 2010. The Companys foreign currency forward contracts are measured on a
recurring basis at fair value based on foreign currency spot and forward rates quoted by banks or
foreign currency dealers.
The following table presents the fair value of the Companys derivative instruments located on
the Condensed Consolidated Balance Sheets utilized for foreign currency risk management purposes at
October 1, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Values of Derivative Information
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
Balance Sheet
|
|
Fair
|
|
|
Balance Sheet
|
|
Fair
|
|
|
|
Location
|
|
Value
|
|
|
Location
|
|
Value
|
|
|
|
(In thousands)
|
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
Other current assets
|
|
$
|
25,276
|
|
|
Other current liabilities
|
|
$
|
(471
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging
instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
Other current assets
|
|
$
|
15,906
|
|
|
Other current liabilities
|
|
$
|
(27,297
|
)
|
Interest Rate Swap Agreements
The Company is also exposed to variability in cash flows associated with changes in short-term
interest rates primarily on borrowings under its revolving credit facility and term loan agreement.
Swap contracts that were outstanding during the six-month period ended October 1, 2010, which were
entered into during fiscal years 2009 and 2008 to mitigate the exposure to interest rate risk
resulting from unfavorable changes in interest rates resulting from the term loan agreement, are
summarized below:
|
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
|
Fixed Interest
|
|
|
Interest Payment
|
|
|
|
|
(in millions)
|
|
Rate Payable
|
|
|
Received
|
|
Term
|
|
Expiration Date
|
Fiscal 2009
Contracts:
|
|
|
|
|
|
|
|
|
|
|
$100.0
|
|
|
1.00
|
%
|
|
1-Month Libor
|
|
12 month
|
|
April 2010
|
Fiscal 2008
Contracts:
|
|
|
|
|
|
|
|
|
|
|
$250.0
|
|
|
3.61
|
%
|
|
1-Month Libor
|
|
34 months
|
|
October 2010
|
$250.0
|
|
|
3.61
|
%
|
|
1-Month Libor
|
|
34 months
|
|
October 2010
|
$175.0
|
|
|
3.60
|
%
|
|
3-Month Libor
|
|
36 months
|
|
January 2011
|
$72.0
|
|
|
3.57
|
%
|
|
3-Month Libor
|
|
36 months
|
|
January 2011
|
In April 2010, a $100.0 million swap, with a fixed interest rate of 1% expired. In October
2010, two swaps totaling $500.0 million with fixed interest rates of 3.61% expired. The swap
contracts provide for the receipt of interest payments at rates equal to the terms of the
underlying borrowings outstanding under the term loan arrangement. As of November 1, 2010, the
Company had an aggregate notional amount of $247.0 million in swaps outstanding with a weighted
average fixed interest rate of 3.59%.
The Companys interest rate swap agreements are accounted for as cash flow hedges, and there
was no charge for ineffectiveness during the three-month and six-month periods ended October 1,
2010 and October 2, 2009. For the three-month and six-month periods ended October 1, 2010 and
October 2, 2009, the net amount recorded as interest expense from these swaps was not material. As
of October 1, 2010 and March 31, 2010, the fair value of the Companys interest rate swaps was not
material and is included in Other current liabilities in the Condensed Consolidated Balance Sheets,
with a corresponding decrease in other comprehensive income. The deferred losses included in other
comprehensive income will effectively be released through earnings as the Company makes fixed, and
receives variable, interest payments over the remaining term of the swaps through January 2011.
15
8. TRADE RECEIVABLES SECURITIZATION
The Company continuously sells designated pools of trade receivables under two asset backed
securitization programs and under an accounts receivable factoring program.
Global Asset-Backed Securitization Agreement
The Company continuously sells a designated pool of trade receivables to an affiliated special
purpose entity, which in turn sells an undivided ownership interest to an unaffiliated financial
institution. The Company continues to service, administer and collect the receivables on behalf of
the special purpose entity and receives a servicing fee of 1.00% of serviced receivables per annum.
Servicing fees recognized during the three-month and six-month periods ended October 1, 2010 and
October 2, 2009 were not material and are included in Interest and other expense, net within the
Condensed Consolidated Statements of Operations. As the Company estimates the fee it receives in
return for its obligation to service these receivables is at fair value, no servicing assets and
liabilities are recognized.
Effective April 1, 2010, the Company adopted two new accounting standards, the first of which
removed the concept of a qualifying special purpose entity and created more stringent conditions
for reporting the transfer of a financial asset as a sale. The second standard amended the
consolidation guidance for determining the primary beneficiary of a variable interest entity. As a
result of the adoption of the second standard, the Company is deemed
the primary beneficiary of the special purpose entity to which the pool of trade receivables
is sold and, as such, is required to consolidate the special purpose entity. Upon adoption of
these standards, the balance of receivables sold for cash as of March 31, 2010, totaling $217.1
million, was recorded as accounts receivables and short-term bank borrowings in the opening balance
sheet of fiscal 2011. Upon collection of these receivables the Company recorded cash from
operations offset by repayments of bank borrowings from financing activities in the Condensed
Consolidated Statements of Cash Flows during the six-month period ended October 1, 2010.
Effective September 29, 2010, the securitization agreement was amended to provide for the sale
by the special purpose entity of 100% of the eligible receivables to the unaffiliated financial
institution. Following the transfer of the receivables to the special purpose entity, the
transferred receivables are isolated from the Company and its affiliates, and effective control of
the transferred receivables is passed to the unaffiliated financial institution, which has the
right to pledge or sell the receivables. As a result, although the Company still consolidates the
special purpose entity, all of the receivables sold to the unaffiliated financial institution are
removed from the Condensed Consolidated Balance Sheet and the cash received is no longer accounted
for as a secured borrowing. A portion of the purchase price for the receivables is paid by the
unaffiliated financial institution in cash and the balance is a deferred purchase price receivable,
which is paid to the special purpose entity as payments on the receivables are collected from
account debtors. The deferred purchase price receivable represents a beneficial interest in the
transferred financial assets and is recognized at fair value as part of the sale transaction.
As of October 1, 2010, $313.5 million in receivables were sold to this special purpose entity
and the Company received $172.3 million in net cash proceeds for the sales. The deferred purchase
price receivable was approximately $141.2 million, and was recorded in Other current assets in the
Condensed Consolidated Balance Sheets. The deferred purchase price receivable was valued using
unobservable inputs (i.e., level three inputs), primarily discounted cash flow, and due to its high
credit quality and short maturity the fair value approximated book value. There were no transfers
between levels in the fair value hierarchy during the six-month period ended October 1, 2010. The
accounts receivable balances sold under this agreement were removed from the Condensed Consolidated
Balance Sheets and cash received from the sales were reflected as cash provided by operating
activities in the Condensed Consolidated Statements of Cash Flows. The amount of the Companys
deferred purchase price receivable will vary primarily depending on the financing requirements of
the Company and the performance of the receivables sold.
16
As of March 31, 2010, approximately $352.5 million of the Companys accounts receivable had
been sold to a third-party qualified special purpose entity. At that time, the third-party special
purpose entity was a qualifying special purpose entity, and accordingly, the Company did not
consolidate this entity. The amount of receivables sold represented the face amount of the total
outstanding trade receivables on all designated customer accounts on that date. The accounts
receivable balances that were sold under this agreement were removed from the Condensed
Consolidated Balance Sheet, and the net cash proceeds received by the Company were included as cash
provided by operating activities in the Condensed Consolidated Statements of Cash Flows. The
Company had a recourse obligation that was limited to the deferred purchase price receivable, which
approximated 5% of the total sold receivables, and its own investment participation, the total of
which was approximately $135.4 million as of March 31, 2010, which was recorded in Other current
assets in the Consolidated Balance Sheet. As the recoverability of the trade receivables
underlying the Companys own investment participation was determined in conjunction with the
Companys accounting policies for determining provisions for doubtful accounts prior to sale into
the third party qualified special purpose entity, the fair value of the Companys own investment
participation reflected the estimated recoverability of the underlying trade receivables.
North American Asset-Backed Securitization Agreement
The Company continuously sells a designated pool of trade receivables to an affiliated special
purpose entity, which in turn sells such receivables to an agent on behalf of two commercial paper
conduits administered by unaffiliated financial institutions. The Company continues to service,
administer and collect the receivables on behalf of the special purpose entity and receives a
servicing fee of 0.50% per annum on the outstanding balance of the serviced receivables. Servicing
fees recognized during the three-month and six-month periods ended October 1, 2010 and October 2,
2009 were not material and were included in Interest and other expense, net within the Condensed
Consolidated Statements of Operations. As the Company estimates that the fee it receives in return
for its obligation to service these receivables is at fair value, no servicing assets or
liabilities are recognized.
The maximum investment limit of the two commercial paper conduits is $300.0 million. During
September 2010, the securitization agreement was amended such that the Company pays commitment fees
of 0.55% per annum on the aggregate amount of the liquidity commitments of the financial
institutions under the facility (which approximates the maximum investment limit) and an additional
program fee of 0.55% on the aggregate amounts invested under the facility by the conduits to the
extent funded through the issuance of commercial paper.
The Company has the power to direct the activities of the special purpose entity and had the
obligation to absorb the majority of expected losses or the rights to receive benefits from
transfers of trade receivables into the special purpose entity and, as such, was deemed the primary
beneficiary of the special purpose entity. Accordingly, the Company consolidated the special
purpose entity and only those receivables sold to the two commercial paper conduits for cash have
been removed from the Condensed Consolidated Balance Sheet. Effective April 1, 2010, the
securitization agreement was amended to provide for the sale by the special purpose entity of 100%
of the eligible receivables to the commercial paper conduits. The transferred receivables are
isolated from the Company and its affiliates as a result of the special purpose entity, and
effective control is passed to the conduits, which have the right to pledge or sell the
receivables. As a result, although the Company still consolidates the special purpose entity, 100%
of the receivables sold to the commercial paper conduits are removed from the Condensed
Consolidated Balance Sheet beginning April 1, 2010.
A portion of the purchase price for the receivables is paid by the two commercial paper
conduits in cash and the balance is a deferred purchase price receivable, which is paid to the
special purpose entity as payments on the receivables are collected from account debtors. The
deferred purchase price receivable represents a beneficial interest in the transferred financial
assets and is recognized at fair value as part of the sale transaction. The
Company sold approximately $323.6 million of accounts receivable to the two commercial paper
conduits as of October 1, 2010, and received approximately $210.0 million in net cash proceeds for
the sales. The deferred purchase price receivable was approximately $112.9 million, and was
recorded in Other current assets in the Condensed Consolidated Balance Sheets. The deferred
purchase price receivable was valued using unobservable inputs (i.e., level three inputs),
primarily discounted cash flow, and due to its high credit quality and short maturity the fair
value approximated book value. There were no transfers between levels in the fair value hierarchy
during the six-month period ended October 1, 2010. The accounts receivable balances sold under this
agreement were removed from the Condensed Consolidated Balance Sheets and cash received from the
sales were reflected as cash provided by operating activities in the Condensed Consolidated
Statements of Cash Flows. The amount of the Companys deferred purchase price receivable will vary
primarily depending on the financing requirements of the Company and the performance of the
receivables sold.
17
As of March 31, 2010, the Company had transferred approximately $356.9 million of receivables
into the special purpose vehicle. The Company sold approximately $200.7 million of this $356.9
million to the two commercial paper conduits as of March 31, 2010, and received approximately
$200.0 million in net cash proceeds for the sales. The accounts receivable balances that were sold
to the two commercial paper conduits under this agreement were removed from the Condensed
Consolidated Balance Sheets and were reflected as cash provided by operating activities in the
Condensed Consolidated Statements of Cash Flows, and the difference between the amount sold and net
cash proceeds received was recognized as a loss on sale of the receivables, and was recorded in
Interest and other expense, net in the Condensed Consolidated Statements of Operations. The
remaining trade receivables transferred into the special purpose vehicle and not sold to the two
commercial paper conduits comprised the primary assets of that entity, and were included in trade
accounts receivable, net in the Condensed Consolidated Balance Sheets of the Company. The
recoverability of these trade receivables, both those included in the Condensed Consolidated
Balance Sheets and those sold but uncollected by the commercial paper conduits, were determined in
conjunction with the Companys accounting policies for determining provisions for doubtful
accounts. Although the special purpose vehicle is fully consolidated by the Company, it is a
separate corporate entity and its assets are available first to satisfy the claims of its
creditors.
Factored Accounts Receivable
Effective April 1, 2010, the Company amended its accounts receivable factoring program under
which the Company sells accounts receivables in their entirety to certain third-party banking
institutions. The outstanding
balance of receivables sold and not yet collected was approximately $225.3 million and
$164.2 million as of October 1, 2010 and March 31, 2010, respectively. These receivables that were
sold were removed from the Condensed Consolidated Balance Sheets and were reflected as cash
provided by operating activities in the Condensed Consolidated Statement of Cash Flows.
9. RESTRUCTURING CHARGES
The Company did not recognize restructuring charges during the three-month and six-month
periods ended October 1, 2010.
The Company recognized restructuring charges of approximately $12.6 million and $77.4 million
during the three-month and six-month periods ended October 2, 2009 as a part of its restructuring
plans announced in March 2009 in order to rationalize the Companys global manufacturing capacity
and infrastructure as a result of weak macroeconomic conditions. The Company classified
approximately $12.4 million and $64.5 million of these charges as a component of cost of sales
during the three-month and six-month periods ended October 2, 2009, respectively.
18
The following table summarizes the provisions, respective payments, and remaining accrued
balance as of October 1, 2010 for charges incurred in fiscal year 2010 and prior periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Severance
|
|
|
Exit Costs
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Balance as of March 31, 2010
|
|
$
|
28,216
|
|
|
$
|
36,029
|
|
|
$
|
64,245
|
|
Cash payments for charges incurred in fiscal year 2010
|
|
|
(6,692
|
)
|
|
|
(416
|
)
|
|
|
(7,108
|
)
|
Cash payments for charges incurred in fiscal year 2009 and
prior
|
|
|
(2,333
|
)
|
|
|
(4,535
|
)
|
|
|
(6,868
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance as of July 2, 2010
|
|
|
19,191
|
|
|
|
31,078
|
|
|
|
50,269
|
|
Cash payments for charges incurred in fiscal year 2010
|
|
|
(1,136
|
)
|
|
|
(389
|
)
|
|
|
(1,525
|
)
|
Cash payments for charges incurred in fiscal year 2009 and
prior
|
|
|
(2,771
|
)
|
|
|
(2,012
|
)
|
|
|
(4,783
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance as of October 1, 2010
|
|
|
15,284
|
|
|
|
28,677
|
|
|
|
43,961
|
|
Less: current portion (classified as other current liabilities)
|
|
|
(14,289
|
)
|
|
|
(13,588
|
)
|
|
|
(27,877
|
)
|
|
|
|
|
|
|
|
|
|
|
Accrued restructuring costs, net of current portion (classified as
other liabilities)
|
|
$
|
995
|
|
|
$
|
15,089
|
|
|
$
|
16,084
|
|
|
|
|
|
|
|
|
|
|
|
As of October 1, 2010 and March 31, 2010, the remaining accrued balance for restructuring
charges incurred during fiscal year 2010 were approximately $5.1 million and $13.7 million,
respectively, the entire amount of which was classified as current. As of October 1, 2010 and March
31, 2010, the remaining accrued balance for restructuring charges incurred during fiscal years 2009
and prior were approximately $38.9 million and $50.6 million, respectively, of which approximately
$16.1 million and $22.2 million, respectively, were classified as long-term obligations.
As of October 1, 2010 and March 31, 2010, assets that were no longer in use and held for sale,
totaled approximately $41.2 million and $46.9 million, respectively, primarily representing
manufacturing facilities that have been closed as part of the Companys historical facility
consolidations. These assets are recorded at the lesser of carrying value or fair value, which is
based on comparable sales from prevailing market data. 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 current assets in the Condensed
Consolidated Balance Sheets.
For further discussion of the Companys historical restructuring activities, refer to Note 9
Restructuring Charges to the Consolidated Financial Statements in the Companys Annual Report on
Form 10-K for the fiscal year ended March 31, 2010.
10. COMMITMENTS AND CONTINGENCIES
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 condensed
consolidated financial position, results of operations, or cash flows.
11. BUSINESS AND ASSET ACQUISITIONS AND DIVESTITURES
Business Acquisitions
During the six-month period ended October 1, 2010, the Company completed two acquisitions that
were not individually, or in the aggregate, significant to the Companys consolidated results of
operations and financial position. The aggregate cash paid for these acquisitions totaled
approximately $2.5 million, net of cash acquired.
During the six-month period ended October 2, 2009, the Company paid $59.1 million relating to
the contingent consideration or deferred purchase price payments related to four historical
acquisitions. The purchase price for certain historical acquisitions is subject to adjustments for
contingent consideration and generally has not been recorded as part of the purchase price, pending
the outcome of the contingency.
19
Divestitures
During the three-month and six-month periods ended October 1, 2010, the Company recognized a
loss of approximately $11.7 million in connection with the divestiture of certain international
entities. The results for these entities were not significant for any period presented.
12. SHARE REPURCHASE PLAN
On each of May 26, 2010 and August 12, 2010, the Companys Board of Directors authorized the
repurchase of up to $200.0 million, for a combined total of $400.0 million of the Companys
outstanding ordinary shares. Following shareholder approval at the Companys 2010 Extraordinary
General Meeting on July 23, 2010, the number of shares authorized for repurchase under the Share
Purchase Mandate is approximately 78.5 million shares (representing 10% of the outstanding shares
on the date of the 2010 Extraordinary General Meeting). The Company may not exceed in the
aggregate the $400.0 million repurchase authorized by the Board in May and August without further
Board action. Share repurchases will be made in the open market at such times and in such amounts
as management deems appropriate. The timing and actual number of shares repurchased will depend on
a variety of factors including price, market conditions and applicable legal requirements. The
share repurchase program does not obligate the Company to repurchase any specific number of shares
and may be suspended or terminated at any time without prior notice. During the three-month and
six-month periods ended October 1, 2010, the Company repurchased approximately 29.2 million and
51.1 million shares, respectively, under these plans for an aggregate purchase price of $164.1
million and $299.9 million, respectively.
20
ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless otherwise specifically stated, references in this report to Flextronics, the
Company, we, us, our and similar terms mean Flextronics International Ltd. and its
subsidiaries.
This report on Form 10-Q contains forward-looking statements within the meaning of Section 21E
of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933,
as amended. The words expects, anticipates, believes, intends, plans and similar
expressions identify forward-looking statements. In addition, any statements which refer to
expectations, projections or other characterizations of future events or circumstances are
forward-looking statements. We undertake no obligation to publicly disclose any revisions to these
forward-looking statements to reflect events or circumstances occurring subsequent to filing this
Form 10-Q with the Securities and Exchange Commission. These forward-looking statements are subject
to risks and uncertainties, including, without limitation, those discussed in this section, as well
as in Part II, Item 1A, Risk Factors of this report on Form 10-Q, and in Part I, Item 1A, Risk
Factors and in Part II, Item 7, Managements Discussion and Analysis of Financial Condition and
Results of Operations in our Annual Report on Form 10-K for the year ended March 31, 2010. In
addition, new risks emerge from time to time and it is not possible for management to predict all
such risk factors or to assess the impact of such risk factors on our business. Accordingly, our
future results may differ materially from historical results or from those discussed or implied by
these forward-looking statements. Given these risks and uncertainties, the reader should not place
undue reliance on these forward-looking statements.
OVERVIEW
We are a leading global provider of advanced design and electronics manufacturing services
(EMS) to original equipment manufacturers (OEMs) of a broad range of products in the following
markets: infrastructure; mobile communication devices; computing; consumer digital devices;
industrial, semiconductor capital equipment, clean technology, aerospace and defense, and white
goods; automotive and marine; and medical devices. We provide a full range of vertically-integrated
global supply chain services through which we can design, build, ship and service a complete
packaged product for our customers. Customers leverage our services to meet their product
requirements throughout the entire product life cycle. Our vertically-integrated service offerings
include: design; rigid printed circuit board and flexible circuit fabrication; systems assembly and
manufacturing; after-sales services; and multiple component product offerings, including camera
modules for consumer products such as mobile devices and power supplies for computing and other
electronic devices.
We are one of the worlds largest EMS providers, with revenues of $7.4 billion and $14.0
billion during the three-month and six-month periods ended October 1, 2010, and $24.1 billion in
fiscal year 2010. As of March 31, 2010, our total manufacturing capacity was approximately
26.6 million square feet. We help customers design, build, ship and service electronics products
through a network of facilities in 30 countries across four continents. The following tables set
forth net sales and net property and equipment, by country, based on the location of our
manufacturing site:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended
|
|
|
Six-Month Periods Ended
|
|
Net sales:
|
|
October 1, 2010
|
|
|
October 2, 2009
|
|
|
October 1, 2010
|
|
|
October 2, 2009
|
|
|
|
(In thousands)
|
|
China
|
|
$
|
2,919,610
|
|
|
$
|
2,008,055
|
|
|
$
|
5,194,939
|
|
|
$
|
3,903,051
|
|
Mexico
|
|
|
1,123,249
|
|
|
|
825,136
|
|
|
|
2,082,651
|
|
|
|
1,710,089
|
|
U.S.
|
|
|
774,670
|
|
|
|
857,714
|
|
|
|
1,581,910
|
|
|
|
1,730,836
|
|
Malaysia
|
|
|
679,196
|
|
|
|
598,983
|
|
|
|
1,327,110
|
|
|
|
1,088,084
|
|
Hungary
|
|
|
559,984
|
|
|
|
342,668
|
|
|
|
1,131,740
|
|
|
|
717,271
|
|
Other
|
|
|
1,365,629
|
|
|
|
1,199,205
|
|
|
|
2,669,868
|
|
|
|
2,465,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,422,338
|
|
|
$
|
5,831,761
|
|
|
$
|
13,988,218
|
|
|
$
|
11,614,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
Property and equipment, net:
|
|
October 1, 2010
|
|
|
March 31, 2010
|
|
|
|
(In thousands)
|
|
China
|
|
$
|
906,023
|
|
|
$
|
879,440
|
|
Mexico
|
|
|
363,651
|
|
|
|
361,492
|
|
Hungary
|
|
|
164,873
|
|
|
|
154,759
|
|
U.S.
|
|
|
156,679
|
|
|
|
165,029
|
|
Malaysia
|
|
|
154,608
|
|
|
|
131,606
|
|
Other
|
|
|
430,112
|
|
|
|
426,250
|
|
|
|
|
|
|
|
|
|
|
$
|
2,175,946
|
|
|
$
|
2,118,576
|
|
|
|
|
|
|
|
|
We believe that the combination of our extensive design and engineering services, significant
scale and global presence, vertically-integrated end-to-end services, advanced supply chain
management, industrial campuses in low-cost geographic areas and operational track record provide
us with a competitive advantage in the market for designing, manufacturing and servicing
electronics products for leading multinational OEMs. Through these services and facilities, we
offer our OEM customers the ability to simplify their global product development, their
manufacturing process, and their after sales services, and enable them to achieve meaningful time
to market and cost savings.
Our operating results are affected by a number of factors, including the following:
|
|
|
changes in the macroeconomic environment and related changes in consumer demand;
|
|
|
|
the mix of the manufacturing services we are providing, the number and size of new
manufacturing programs, the degree to which we utilize our manufacturing capacity, seasonal
demand, shortages of components and other factors;
|
|
|
|
the effects on our business when our customers are not successful in marketing their
products, or when their products do not gain widespread commercial acceptance;
|
|
|
|
our increased components offerings which have required that we make substantial
investments in the resources necessary to design and develop these products;
|
|
|
|
our ability to achieve commercially viable production yields and to manufacture
components in commercial quantities to the performance specifications demanded by our OEM
customers (difficulties in product ramping have adversely affected our ability to achieve
desired operating performance);
|
|
|
|
the effect on our business due to our customers products having short product life
cycles;
|
|
|
|
our customers ability to cancel or delay orders or change production quantities;
|
|
|
|
our customers decision to choose internal manufacturing instead of outsourcing for
their product requirements;
|
|
|
|
our exposure to financially troubled customers; and
|
|
|
|
integration of acquired businesses and facilities.
|
22
Historically, the EMS industry experienced significant change and growth as an increasing
number of companies elected to outsource some or all of their design, manufacturing, and logistics
requirements. We have seen an increase in the penetration of the global OEM manufacturing
requirements since the 2001 2002 technology downturn as more and more OEMs pursued the benefits
of outsourcing rather than internal manufacturing. In the second half of fiscal 2009, we
experienced dramatically deteriorating macroeconomic conditions and demand for our customers
products slowed in all of the industries we served. This global economic crisis, and related
decline in
demand for our customers products, put pressure on certain of our OEM customers cost
structures and caused them to reduce their manufacturing and supply chain outsourcing requirements.
In response, we announced in March 2009 restructuring plans intended to rationalize our global
manufacturing capacity and infrastructure with the intent to improve our operational efficiencies
by reducing excess workforce and capacity. We have recognized approximately $258.1 million of
associated charges since the announcement, with approximately $107.5 million and $150.6 million
recognized during fiscal years 2010 and 2009, respectively. We do not anticipate additional
material charges in future periods relating to these restructuring plans. Beginning in the second
half of fiscal year 2010, we began seeing some positive signs that demand for our OEM customers
end products was improving, and this trend of accelerated revenue continued in the quarter ended
October 1, 2010. We believe the long-term, future growth prospects for outsourcing of advanced
manufacturing capabilities, design and engineering services and after-market services remains
strong.
We procure a wide assortment of materials, including electronic components, plastics and
metals. We experienced shortages of numerous commodity components, such as capacitors, connectors,
semiconductor and power components, during the first quarter ended July 2, 2010. However, these
shortages began to abate during our second fiscal quarter, and we anticipate that they will
continue to become less significant in future quarters.
We have experienced significant volume increases in our component product solution services.
This steep growth is challenging due to the complexities of the products and processes involved.
We are encouraged by the increased demand for these product solutions and the successful
achievement of acceptance in the market, and we are intensely focused on improving our
manufacturing efficiencies for these component product offerings. Our component product solution
services, on a combined basis, were less than 10% of our consolidated revenue for the quarter and
year-to-date periods ended October 1, 2010.
Our cash provided by operations increased approximately $179.1 million to $597.5 million for
the six-month period ended October 1, 2010 as compared with $418.4 million for the six-month period
ended October 2, 2009. As discussed further in Liquidity and Capital Resources below, our cash
provided by working capital increased primarily as a result of an increase in our accounts payable,
partially offset by increases in accounts receivable and inventory, as a result of higher sales and
anticipated growth. We define net working capital as accounts receivable plus inventory less accounts
payable. Our net working capital as a percentage of sales was approximately 3% for the quarter
ended October 1, 2010 and is consistent with our last four quarter range of approximately 3% to 5%
of annualized sales. Our free cash flow, which we define as cash from operating activities less
net purchases of property and equipment, was $385.4 million for the quarter ended October 1, 2010.
We believe free cash flow is an important liquidity metric because it measures, during a given
period, the amount of cash generated that is available to repay debt obligations, make investments,
fund acquisitions and for certain other activities. Effective September 29, 2010 we amended our
Global Asset-Backed Securitization program and, as a result, all of the receivables sold to an
unaffiliated financial institution are removed from our Condensed Consolidated Balance Sheets and
cash received from the sale of the accounts receivables is no longer accounted for as a secured
borrowing.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We believe the accounting policies discussed under Item 7, Managements Discussion and
Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for
the fiscal year ended March 31, 2010, affect our more significant judgments and estimates used in
the preparation of the Condensed Consolidated Financial Statements.
Recent Accounting Pronouncements
Information regarding recent accounting pronouncements is provided in Note 2, Summary of
Accounting Policies of the Notes to Condensed Consolidated Financial Statements.
23
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain statements of operations
data expressed as a percentage of net sales. The financial information and the discussion below
should be read in conjunction with the Condensed Consolidated Financial Statements and notes
thereto included in this document. In addition, reference
should be made to our audited Consolidated Financial Statements and notes thereto and related
Managements Discussion and Analysis of Financial Condition and Results of Operations included in
our 2010 Annual Report on Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended
|
|
|
Six-Month Periods Ended
|
|
|
|
October 1, 2010
|
|
|
October 2, 2009
|
|
|
October 1, 2010
|
|
|
October 2, 2009
|
|
Net sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
94.6
|
|
|
|
94.7
|
|
|
|
94.5
|
|
|
|
94.9
|
|
Restructuring charges
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
5.4
|
|
|
|
5.1
|
|
|
|
5.5
|
|
|
|
4.5
|
|
Selling, general and administrative
expenses
|
|
|
2.7
|
|
|
|
3.0
|
|
|
|
2.8
|
|
|
|
3.3
|
|
Intangible amortization
|
|
|
0.3
|
|
|
|
0.4
|
|
|
|
0.3
|
|
|
|
0.4
|
|
Restructuring charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
Other charges, net
|
|
|
|
|
|
|
1.6
|
|
|
|
|
|
|
|
1.7
|
|
Interest and other expense, net
|
|
|
0.3
|
|
|
|
0.6
|
|
|
|
0.4
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
2.1
|
|
|
|
(0.5
|
)
|
|
|
2.0
|
|
|
|
(1.6
|
)
|
Provision for (benefit from) income
taxes
|
|
|
0.2
|
|
|
|
(0.8
|
)
|
|
|
0.1
|
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
1.9
|
%
|
|
|
0.3
|
%
|
|
|
1.9
|
%
|
|
|
(1.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
Net sales during the three-month period ended October 1, 2010 totaled $7.4 billion,
representing an increase of $1.6 billion, or 27%, from $5.8 billion during the three-month period
ended October 2, 2009, primarily due to an improved macroeconomic environment and market share
gains as we recognized increased sales from many of our major customers. Sales increased across all
of the markets we serve, consisting of: (i) $433.7 million in the mobile communications market,
(ii) $385.0 million in the infrastructure market, (iii) $336.0 million in the industrial,
automotive, medical and other markets, (iv) $232.0 million in the computing market, and (v) $203.9
million in the consumer digital market. Net sales increased across all of the geographic regions we
serve including increases of $995.5 million in Asia, $333.4 million in Europe, and $261.7 million
in the Americas.
Net sales during the six-month period ended October 1, 2010 totaled $14.0 billion,
representing an increase of $2.4 billion, or 20%, from $11.6 billion during the six-month period
ended October 2, 2009, primarily due to an improved macroeconomic environment as we recognized
increased sales from many of our major customers. Sales increased across all of the markets we
serve, consisting of: (i) $828.5 million in the industrial, automotive, medical and other markets,
(ii) $566.6 million in the mobile communications market, (iii) $384.3 million in the computing
market, (iv) $320.4 million in the infrastructure market, and (v) $274.1 million in the consumer
digital market. Net sales increased across all of the geographic regions we serve including
increases of $1.6 billion in Asia, $484.7 million in Europe, and $281.4 million in the Americas.
The following table sets forth net sales by market:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended
|
|
|
Six-Month Periods Ended
|
|
Market:
|
|
October 1, 2010
|
|
|
October 2, 2009
|
|
|
October 1, 2010
|
|
|
October 2, 2009
|
|
|
|
(In thousands)
|
|
Infrastructure
|
|
$
|
2,024,264
|
|
|
$
|
1,639,243
|
|
|
$
|
3,826,233
|
|
|
$
|
3,505,870
|
|
Industrial, Automotive, Medical and Other
|
|
|
1,466,851
|
|
|
|
1,130,837
|
|
|
|
2,924,029
|
|
|
|
2,095,512
|
|
Mobile
|
|
|
1,527,526
|
|
|
|
1,093,857
|
|
|
|
2,856,142
|
|
|
|
2,289,580
|
|
Computing
|
|
|
1,334,281
|
|
|
|
1,102,319
|
|
|
|
2,596,239
|
|
|
|
2,211,978
|
|
Consumer digital
|
|
|
1,069,416
|
|
|
|
865,505
|
|
|
|
1,785,575
|
|
|
|
1,511,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,422,338
|
|
|
$
|
5,831,761
|
|
|
$
|
13,988,218
|
|
|
$
|
11,614,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our ten largest customers during the three-month and six-month periods ended October 1, 2010
accounted for approximately 53% and 51% of net sales, respectively, with Research In Motion and
Hewlett-Packard each accounting for greater than 10% of our net sales in both periods. Our ten
largest customers during the three-month and six-month periods ended October 2, 2009 accounted for
approximately 47% of net sales in each period, respectively, with no customer accounting for
greater than 10% of net sales during either period.
24
Gross profit
Gross profit is affected by a number of factors, including the number and size of new
manufacturing programs, product mix, component costs and availability, product life cycles, unit
volumes, pricing, competition, new product introductions, product manufacturing yields, capacity
utilization and the expansion and consolidation of manufacturing facilities. Gross profit during
the three-month period ended October 1, 2010 increased $98.0 million to $397.6 million, or 5.4% of
net sales, from $299.6 million, or 5.1% of net sales, during the three-month period ended October
2, 2009. The increase in gross margin was primarily attributable to increased demand resulting in
improved capacity utilization driven by the 27% increase in our revenues, and in part, due to the
completion of our restructuring activities and there being no restructuring costs for the
three-month period ended October, 2010 versus restructuring costs of $12.4 million for the
three-month period ended October 2, 2009.
Gross profit during the six-month period ended October 1, 2010 increased $244.9 million to
$768.5 million, or 5.5% of net sales, from $523.6 million, or 4.5% of net sales, during the
six-month period ended October 2, 2009. The increase in gross margin was primarily attributable to
increased demand resulting in improved capacity utilization driven by the 20% increase in our
revenues, and in part, due to the completion of our restructuring activities and there being no
restructuring costs for the six-month period ended October 1, 2010 versus restructuring costs of
$64.5 million for the six-month period ended October 2, 2009.
Restructuring charges
We did not incur restructuring charges during the three-month and six-month periods ended
October 1, 2010 and have completed all activities associated with previously announced plans. We
recognized approximately $12.6 million and $77.4 million during the three-month and six-month
periods ended October 2, 2009, respectively, in connection with our restructuring plans announced
in March 2009 to rationalize our global manufacturing capacity and infrastructure as a result of
weak macroeconomic conditions. Our restructuring activities were intended to improve our
operational efficiencies by reducing excess workforce and capacity. The cost associated with these
restructuring activities included employee severance, costs related to owned and leased facilities
and equipment that is no longer in use and is to be disposed of, and costs associated with the exit
of certain contractual arrangements due to facility closures. As of October 1, 2010, there have
been no changes to these plans. See Note 9, Restructuring Charges in the Notes to the Condensed
Consolidated Financial Statements for a summary of the current quarter payments and remaining
accrued balance as of October 1, 2010 for charges incurred in fiscal year 2010 and prior periods.
The cost reductions associated with the restructuring activities, primarily reduced wages and
benefits due to employee terminations, decreased depreciation expense resulting from equipment
impairments and reduced costs associated with leased equipment and buildings have been achieved as
anticipated. The overall impact on future operating results and cash flows from these restructuring
activities is difficult to measure as there are offsetting reductions in
revenues at affected locations as well as increases in certain costs at other locations
related to transition activities for transferred programs or increased production ramp up costs.
We do not separately track all of the interrelated components of these activities.
Refer to Note 9, Restructuring Charges, of the Notes to Condensed Consolidated Financial
Statements for further discussion of our restructuring activities.
Selling, general and administrative expenses
Selling, general and administrative expenses, or SG&A, amounted to $199.0 million, or 2.7% of
net sales, during the three-month period ended October 1, 2010, increasing $22.8 million from
$176.2 million, or 3.0% of net sales, during the three-month period ended October 2, 2009. The
increase in absolute dollars was primarily the result of an increase in corporate support
activities, such as information technology and supply chain management, necessary to support the
growth of our operations. The overall decrease in SG&A as a percentage of sales during the
three-month period ended October 1, 2010 was primarily due to our significant increase in sales as
we were able to leverage our SG&A percentage down.
25
Selling, general and administrative expenses, or SG&A, amounted to $394.7 million, or 2.8% of
net sales, during the six-month period ended October 1, 2010, increasing $16.8 million from $377.9
million, or 3.3% of net sales, during the six-month period ended October 2, 2009. The increase in
absolute dollars was primarily the result of an increase in corporate support activities, such as
information technology and supply chain management, necessary to support the growth of our
operations. The overall decrease in SG&A as a percentage of sales during the three-month period
ended October 1, 2010 was primarily due to our significant increase in sales as we were able to
leverage our SG&A percentage down.
Intangible amortization
Amortization of intangible assets during the three-month period ended October 1, 2010
decreased by $1.3 million to $21.4 million from $22.7 million during the three-month period ended
October 2, 2009, primarily due to the use of the accelerated method of amortization for certain
customer related intangibles, which results in decreasing expense over time and was partially
offset by purchase accounting adjustments.
Amortization of intangible assets during the six-month period ended October 1, 2010 decreased
by $6.6 million to $39.4 million from $46.0 million during the six-month period ended October 2,
2009, primarily due to the use of the accelerated method of amortization for certain customer
related intangibles, which results in decreasing expense over time and was partially offset by
purchase accounting adjustments.
Other charges, net
During the three-month and six-month periods ended October 2, 2009, we recognized charges
totaling $92.0 million and $199.4 million, respectively, associated with the impairment of notes
receivable from one affiliate, an equity investment in another affiliate, and the sale of our
interest in one of our non-majority owned investments.
Interest and other expense, net
Interest and other expense, net was $22.8 million during the three-month period ended October
1, 2010 compared to $38.1 million during the three-month period ended October 2, 2009, a decrease
of $15.3 million. The decrease in interest expense is the result of less debt outstanding during
the period resulting from the approximate $240.0 million redemption of the 1% Convertible
Subordinated Notes, and the $300.0 million redemption of the 6.5% Senior Subordinated Notes.
Further reduction in interest expense was due to lower interest rates as a result of $400.0 million
in fixed rate debt associated with interest rate swaps expiring and converting to variable rate
debt, and a $1.7 million decrease in non-cash interest expense from the redemption of our Zero
Coupon Convertible Junior Subordinated Notes in July 2009. This decrease in interest expense was
partially offset by less interest income resulting from the reduction in other notes receivable
that were sold during the third quarter of fiscal year 2010. In addition, during the three-month
period ended October 1, 2010, we recognized a gain of approximately $13.5 million associated with
the sale of an equity investment and a loss of approximately $11.7 million in
connection with the divestiture of certain international entities.
Interest and other expense, net was $50.4 million during the six-month period ended October 1,
2010 compared to $75.0 million during the six-month period ended October 2, 2009, a decrease of
$24.6 million. The decrease in interest expense is the result of less debt outstanding during the
period resulting from the approximate $240.0 million redemption of the 1% Convertible Subordinated
Notes, $400.0 million tender and redemption of the 6.5% Senior Subordinated Notes and the $100.0
million tender of the 6.25% Senior Subordinated Notes. Further reduction in interest expense was
due to lower interest rates as a result of $400.0 million in fixed rate debt associated with
interest rate swaps expiring and converting to variable rate debt, and a $6.0 million decrease in
non-cash interest expense from the redemption of our Zero Coupon Convertible Junior Subordinated
Notes in July 2009. This decrease in interest expense was partially offset by less interest income
resulting from the reduction in other notes receivable that were sold during the third quarter of
fiscal year 2010. In addition, during the six-month period ended October 1, 2010, we recognized a
gain of approximately $18.6 million associated with the sale of an equity investment and a loss of
approximately $11.7 million in connection with the divestiture of certain international entities.
26
Income taxes
Certain of our subsidiaries have, at various times, been granted tax relief in their
respective countries, resulting in lower income taxes than would otherwise be the case under
ordinary tax rates. Refer to Note 8, Income Taxes, of the Notes to the Consolidated Financial
Statements in our Annual Report on Form 10-K for the fiscal year ended March 31, 2010 for further
discussion.
We have tax loss carryforwards attributable to operations for which we have recognized
deferred tax assets. Our policy is to provide a reserve against those deferred tax assets that in
managements estimate are not more likely than not to be realized.
The consolidated effective tax rate for a particular period varies depending on the amount of
earnings from different jurisdictions, operating loss carryforwards, income tax credits, changes in
previously established valuation allowances for deferred tax assets based upon our current analysis
of the realizability of these deferred tax assets, as well as certain tax holidays and incentives
granted to our subsidiaries primarily in China, Malaysia, Israel, Poland and Singapore.
LIQUIDITY AND CAPITAL RESOURCES
As of October 1, 2010, we had cash and cash equivalents of approximately $1.8 billion and bank
and other borrowings of approximately $2.2 billion. We also have a $2.0 billion credit facility,
under which we had $60.0 million in borrowings outstanding as of October 1, 2010, which is included
in the $2.2 billion of borrowings above. As of October 1, 2010, we were in compliance with the
covenants under the Companys indentures and credit facilities.
Cash provided by operating activities amounted to $597.5 million during the six-month period
ended October 1, 2010. This resulted primarily from $262.6 million of net income for the period
before adjustments to include approximately $230.7 million of non-cash expenses for depreciation
and amortization. Our working capital accounts decreased $69.4 million on a net basis, primarily
due to increases in accounts payable of $1.2 billion, partially offset by increases in inventory of
$768.1 million and accounts receivable of $448.5 million, as a result of higher sales and
anticipated growth. Changes in our other working capital accounts netted to an additional increase
in cash provided by working capital of $45.3 million.
Effective September 29, 2010, we amended our Global Asset-Backed Securitization program to
provide for the sale our eligible receivables to a special purpose entity, which in turn sells all
of the eligible receivables to an unaffiliated financial institution. Following the transfer of
the receivables to a special purpose entity, the transferred receivables are isolated from the
Company and its affiliates, and effective control of the transferred receivables is passed to the
unaffiliated financial institution, which has the right to pledge or sell the receivables. As a
result, although we still consolidate the special purpose entity, all of the receivables sold to
the unaffiliated financial institution are removed from our Condensed Consolidated Balance Sheets.
A portion of the purchase price for the
receivables is paid by the unaffiliated financial institution in cash and the balance is a
deferred purchase price receivable, which is paid to the special purpose entity as payments on the
receivables are collected from account debtors. The deferred purchase price receivable represents
a beneficial interest in the transferred financial assets, is recognized at fair value as part of
the sale transaction and does not impact cash from operations.
Accounts receivable sold under our Global Asset-Backed Securitization program totaling $313.5
million were removed from our Condensed Consolidated Balance Sheet and our deferred purchase price
receivable associated with the sale of $141.2 million was recorded in Other current assets in the
Condensed Consolidated Balance Sheet. The balance of receivables sold for cash as of March 31,
2010, totaling $217.1 million, was recorded as accounts receivables and short-term bank borrowings
in the opening balance sheet of fiscal 2011. Upon collection of these receivables the Company
recorded cash from operations offset by repayments of bank borrowings from financing activities in
the Condensed Consolidated Statements of Cash Flows during the six-month period ended October 1,
2010.
Accounts receivable sold under our North American Asset-Backed Securitization program totaling
$323.6 million were removed from our Condensed Consolidated Balance Sheet and our deferred purchase
price receivable associated with the sale of $112.9 million was recorded in Other current assets in
the Condensed Consolidated Balance Sheet. In addition, we sold $225.3 million of accounts
receivable under our accounts receivable factoring program which were removed from our Condensed
Consolidated Balance Sheet. For further information see Note 8 in our Notes to Condensed
Consolidated Financial Statements.
27
For the quarterly periods indicated, certain of managements key liquidity metrics were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended
|
|
|
October 1,
|
|
July 2,
|
|
March 31,
|
|
December 31,
|
|
October 2,
|
|
|
2010
|
|
2010
|
|
2010
|
|
2009
|
|
2009
|
|
|
|
|
|
|
|
|
|
Days in trade accounts receivable
|
|
36 days
|
|
37 days
|
|
37 days
|
|
33 days
|
|
34 days
|
Days in inventory
|
|
45 days
|
|
46 days
|
|
46 days
|
|
40 days
|
|
44 days
|
Days in accounts payable
|
|
69 days
|
|
69 days
|
|
72 days
|
|
62 days
|
|
63 days
|
Days in trade accounts receivable was calculated as the average accounts receivable for the
current and prior quarters divided by annualized sales for the current quarter by day. During the
three-month period ended October 1, 2010, days in trade accounts receivable increased by two days
to 36 days compared to the three-month period ended October 2, 2009. This increase in trade
accounts receivable was primarily attributable to higher sales. Trade receivables used to
calculate days in trade accounts receivable in the periods ended October 1, 2010 and July 2, 2010
excludes approximately $254.1 million and $111.2 million, respectively, of the deferred purchase
price receivable from the Global and North American Asset-Backed Securitization programs which was
recorded in Other current assets in the Condensed Consolidated Balance Sheet.
Days in inventory was calculated as the average inventory for the current and prior quarters
divided by annualized cost of sales for the current quarter by day. During the three-month period
ended October 1, 2010, days in inventory increased one day compared to the three-month period ended
October 2, 2009. The increase in days in inventory is primarily attributable to growth in
inventory to accommodate higher anticipated sales.
Days in accounts payable was calculated as the average accounts payable for the current and
prior quarters divided by annualized cost of sales for the current quarter by day. During the
three-month period ended October 1, 2010, days in accounts payable increased six days to 69 days
compared to the three-month period ended October 2, 2009 primarily due to the increase in inventory
as a result of anticipated growth.
Cash used by investing activities amounted to $211.1 million during the six-month period ended
October 1, 2010. This resulted primarily from $221.7 million in capital expenditures for property
and equipment, net of proceeds from the disposition of property and equipment, and was partially
offset by proceeds related to the sale of an equity
investment for $18.6 million.
Cash used in financing activities amounted to $545.3 million during the six-month period ended
October 1, 2010. During the six-month period ended October 1, 2010, we paid approximately $299.9
million to repurchase 51.1 million of our ordinary shares, $240.0 million to redeem our 1%
Convertible Subordinated Notes, and $217.1 million related to our Global Asset-Backed
Securitization program in connection with the adoption of new accounting standards, effective April
1, 2010, and an amendment to the program effective September 29, 2010. Cash was provided by $180.0
million in borrowings from term loans entered into during the period and $60.0 million from our
revolving lines of credit.
As of October 1, 2010, quarterly maturities of our bank borrowings and long-term debt were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
Fiscal Year
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Total
|
|
|
|
(In thousands)
|
|
2011
|
|
|
|
|
|
|
|
|
|
$
|
5,508
|
|
|
$
|
4,709
|
|
|
$
|
10,217
|
|
2012
|
|
$
|
4,709
|
|
|
$
|
4,667
|
|
|
|
4,667
|
|
|
|
4,667
|
|
|
|
18,710
|
|
2013
|
|
|
64,667
|
|
|
|
480,162
|
|
|
|
3,437
|
|
|
|
3,437
|
|
|
|
551,703
|
|
2014
|
|
|
3,437
|
|
|
|
177,937
|
|
|
|
305,079
|
|
|
|
2,907
|
|
|
|
489,360
|
|
2015
|
|
|
2,907
|
|
|
|
1,153,719
|
|
|
|
|
|
|
|
|
|
|
|
1,156,626
|
|
Thereafter (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,231,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Represents cumulative maturities for years subsequent to March 31, 2015.
|
28
We continue to assess our capital structure, and evaluate the merits of redeploying available
cash to reduce existing debt or repurchase shares.
During September 2010, we entered into two new three-year term loan agreements with certain
financial institutions based in Asia and borrowed $180.0 million in the aggregate. Borrowings
under the term loans bear interest at LIBOR plus margins ranging between 2.15% and 2.30% and we
paid a non-refundable fee of $1.4 million at the inception of one of the loans.
On August 2, 2010, we paid $240.0 million to redeem the entire principal amount of the 1%
Convertible Subordinated Notes at par plus accrued interest. On the maturity date, our stock price
was less than the conversion price, and therefore, no ordinary shares were issued in connection
with the redemption. The redemption of the 1% Convertible Subordinated Notes was financed
primarily by the Asia Term Loans discussed above and $60.0 million in borrowings under our $2.0
billion credit facility.
On each of May 26, 2010 and August 12, 2010, our Board of Directors authorized the repurchase
of up to $200.0 million, for a combined total of $400.0 million, of our outstanding ordinary
shares. During the six-month period ended October 1, 2010, we repurchased approximately 51.1
million shares at an aggregate purchase price of $299.9 million.
Liquidity is affected by many factors, some of which are based on normal ongoing operations of
our business and some of which arise from fluctuations related to global economics and markets.
Cash balances are generated and held in many locations throughout the world. Local government
regulations may restrict our ability to move cash balances to meet cash needs under certain
circumstances. We do not currently expect such regulations and restrictions to impact our ability
to pay vendors and conduct operations throughout our global organization. We believe that our
existing cash balances, together with anticipated cash flows from operations and borrowings
available under our existing credit facilities, will be sufficient to fund our operations through
at least the next twelve months.
Future liquidity needs will depend on fluctuations in levels of our working capital
requirements, the maturity profile of our existing debt, the timing of capital expenditures for new
equipment, the extent to which we utilize operating leases for new facilities and equipment, timing
of cash outlays associated with historical restructuring and integration activities, and levels of
shipments and changes in volumes of customer orders.
Historically, we have funded our operations from existing cash and cash equivalents, cash
generated from operations, proceeds from public offerings of equity and debt securities, bank debt
and lease financings. We also continuously sell a designated pool of trade receivables under
asset-backed securitization programs and sell certain trade receivables to certain third-party
banking institutions with limited recourse under our accounts receivable factoring program. Our
asset-backed securitization programs include certain limits on customer default rates. It is
possible that we will experience default rates in excess of those limits, which, if not waived by
the counterparty, could impair our ability to sell receivables under these arrangements in the
future.
We may enter into debt and equity financings, sales of accounts receivable and lease
transactions to fund acquisitions, future growth and the refinancing of existing indebtedness. The
sale or issuance of equity or convertible debt securities could result in dilution to current
shareholders. Additionally, we may issue debt securities that have rights and privileges senior to
those of holders of ordinary shares, and the terms of this debt could impose restrictions on
operations and could increase debt service obligations. This increased indebtedness could limit
our flexibility as a result of debt service requirements and restrictive covenants, potentially
affect our credit ratings, and may limit our ability to access additional capital or execute our
business strategy. Any downgrades in credit ratings could adversely affect our ability to borrow
by resulting in more restrictive borrowing terms.
29
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
Information regarding our long-term debt payments, operating lease payments, capital lease
payments and other commitments is provided in Item 7, Managements Discussion and Analysis of
Financial Condition and Results of Operations of our Annual Report on our Form 10-K for the fiscal
year ended March 31, 2010. Aside from the foregoing, there have been no material changes in our
contractual obligations since March 31, 2010.
OFF-BALANCE SHEET ARRANGEMENTS
At March 31, 2010, under our Global Asset-Backed Securitization program, we sold a designated
pool of receivables to a third-party qualified special purpose entity, which in turn sold an
undivided interest to an investment conduit administered by an unaffiliated financial institution.
We participated in this securitization arrangement as an investor in the conduit. The fair value
of our investment participation, together with our recourse obligation that approximated 5% of the
total receivables sold, was approximately $135.4 million.
Effective September 29, 2010, the securitization agreement was amended to provide for the sale
by the special purpose entity of 100% of the eligible receivables to an unaffiliated financial
institution. We continuously sell a designated pool of trade receivables to the unaffiliated
financial institution under this program, and in addition to cash, we receive a deferred purchase
price receivable for the receivables sold. The deferred purchase price receivable we retain serves
as additional credit support to the financial institution and is recorded at its estimated fair
value. The fair value of our deferred purchase price receivable was approximately $141.2 million
as of October 1, 2010.
As a result of new accounting guidance effective April 1, 2010 and an amendment to our North
American Asset-Backed Securitization program, 100% of the accounts receivable sold under this
program are removed from our balance sheet. We continuously sell a designated pool of trade
receivables to investment conduits administered by an unaffiliated financial institution under this
program, and in addition to cash, we receive a deferred purchase price receivable for the
receivables sold. The deferred purchase price receivable we retain serves as additional credit
support to the investment conduits and is recorded at its estimated fair value. The fair value of
our deferred purchase price receivable was approximately $112.9 million as of October 1, 2010.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no material changes in our exposure to market risk for changes in interest and
foreign currency exchange rates for the six-month period ended October 1, 2010 as compared to the
fiscal year ended March 31, 2010.
ITEM 4.
CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our
disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of October
1, 2010, the end of the quarterly fiscal period covered by this quarterly report. Based on that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of October
1, 2010, such disclosure controls and procedures were effective in ensuring that information
required to be disclosed by us in reports that we file or submit under the Securities Exchange Act
of 1934, as amended, is (i) recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commissions rules and forms and (ii) accumulated and
communicated to our management, including our principal executive officer and principal financial
officer, as appropriate to allow timely decisions regarding required disclosure.
(b) Changes in Internal Control Over Financial Reporting
There were no changes in our internal controls over financial reporting that occurred during
our second quarter of fiscal year 2011 that have materially affected, or are reasonably likely to
materially affect, our internal controls over financial reporting.
30
PART II. OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
We are subject to legal proceedings, claims, and litigation arising in the ordinary course of
business. We defend ourselves 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 our consolidated financial position,
results of operations, or cash flows.
ITEM 1A.
RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider
the factors discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the
year ended March 31, 2010, which could materially affect our business, financial condition or
future results. The risks described in our Annual Report on Form 10-K are not the only risks
facing our Company. Additional risks and uncertainties not currently known to us or that we
currently deem to be not material also may materially adversely affect our business, financial
condition and/or operating results.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
The following table provides information regarding purchases of our ordinary shares made by us
for the period from July 3, 2010 through October 1, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of Shares
|
|
|
Approximate Dollar Value
|
|
|
|
Total Number
|
|
|
|
|
|
|
Purchased as Part of
|
|
|
of Shares that May Yet
|
|
|
|
of Shares
|
|
|
Average Price
|
|
|
Publicly Announced
|
|
|
Be Purchased Under the
|
|
Period
|
|
Purchased (1)
|
|
|
Paid per Share
|
|
|
Plans or Programs (2)
|
|
|
Plans or Programs (2)
|
|
July 3 - August 2, 2010
|
|
|
10,596,295
|
|
|
$
|
6.09
|
|
|
|
10,596,295
|
|
|
$
|
|
|
August 3 - September 2, 2010
|
|
|
18,611,560
|
|
|
|
5.35
|
|
|
|
18,611,560
|
|
|
|
100,056,782
|
|
September 3 - October 1, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,056,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
29,207,855
|
|
|
|
5.62
|
|
|
|
29,207,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
During the period from July 3, 2010 through October 1, 2010 all
purchases were made pursuant to the program discussed below in open
market transactions. All purchases were made in accordance with Rule
10b-18 under the Securities Exchange Act of 1934.
|
|
(2)
|
|
On each of May 26, 2010 and August 12, 2010, our Board of Directors
authorized the repurchase of up to $200.0 million, for a combined
total of $400.0 million, of our outstanding ordinary shares.
|
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.
(REMOVED AND RESERVED)
ITEM 5.
OTHER INFORMATION
None.
ITEM 6.
EXHIBITS
Exhibits
See Index to Exhibits below.
31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
FLEXTRONICS INTERNATIONAL LTD.
(Registrant)
|
|
|
/s/ Michael M. McNamara
|
|
|
Michael M. McNamara
|
|
|
Chief Executive Officer
(Principal Executive Officer)
|
|
Date: November 3, 2010
|
|
|
|
|
|
/s/ Paul Read
|
|
|
Paul Read
|
|
|
Chief Financial Officer
(Principal Financial Officer)
|
|
Date: November 3, 2010
32
EXHIBIT INDEX
|
|
|
|
|
Exhibit No.
|
|
Exhibit
|
|
|
|
|
|
10.01
|
|
|
Francois Barbier Offer Letter, dated as of July 1, 2010*
|
|
10.02
|
|
|
Francois Barbier Relocation Expenses Addendum, dated as of July 1, 2010**
|
|
10.03
|
|
|
Francois Barbier Confirmation Date Letter, dated as of August 30, 2010***
|
|
10.04
|
|
|
2010 Flextronics International USA, Inc. Deferred Compensation Plan
|
|
15.01
|
|
|
Letter in lieu of consent of Deloitte & Touche LLP.
|
|
31.01
|
|
|
Certification of Principal Executive Officer pursuant to Rule 13a-14(a)
under the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31.02
|
|
|
Certification of Principal Financial Officer pursuant to Rule 13a-14(a)
under the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32.01
|
|
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(b)
under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.****
|
|
32.02
|
|
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(b)
under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.****
|
101.INS
|
|
XBRL Instance Document****
|
101.SCH
|
|
XBRL Taxonomy Extension Scheme Document****
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document****
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document****
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document****
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document****
|
|
|
|
*
|
|
Incorporated by reference to Exhibit 10.01 to the Companys Current Report on Form 8-K filed with
the Securities and Exchange Commission on September 3, 2010.
|
|
**
|
|
Incorporated by reference to Exhibit 10.02 to the Companys Current Report on Form 8-K filed with
the Securities and Exchange Commission on September 3, 2010.
|
|
***
|
|
Incorporated by reference to Exhibit 10.03 to the Companys Current Report on Form 8-K filed
with the Securities and Exchange Commission on September 3, 2010.
|
|
****
|
|
This exhibit is furnished with this Quarterly Report on Form 10-Q, is not deemed filed with
the Securities and Exchange Commission, and is not incorporated by reference into any filing of
Flextronics International Ltd. under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of
any general incorporation language contained in such filing.
|
33
Exhibit 10.04
FLEXTRONICS INTERNATIONAL USA, INC.
2010 DEFERRED COMPENSATION PLAN
1. Purpose.
Flextronics International USA, Inc. hereby adopts this 2010 Deferred Compensation Plan (the
Plan
). The Plan sets forth the terms of an unfunded deferred compensation plan for a
select group of management, highly compensated employees, directors and persons who have been part
of a select group of management, highly compensated employees or directors of the Company (as
defined below). It is intended that the Plan constitute an unfunded top hat plan for purposes of
the Employee Retirement Income Security Act of 1974, as amended (
ERISA
). Each
Participant who is an employee of the Company or its Affiliates shall participate in the Plan in
the Participants capacity as an employee whether or not the Participant also serves as a member of
the Companys board of directors; provided that a Participant who participates in the Plan pursuant
to both an employee arrangement and a director arrangement will be treated as participating in the
director arrangement in the Participants capacity as a director if the director arrangement is
substantially similar to arrangements providing benefits to non-employee directors.
2. Definitions
.
The following terms used in the Plan shall have the meanings set forth below:
(a)
Affiliate
means, with respect to the Company, any entity directly or indirectly
controlling, controlled by, or under common control with the Company or any other entity designated
by the Board in which the Company or an Affiliate has an interest.
(b)
Arbitrable Dispute
shall have the meaning set forth in Section 9(f).
(c)
Award Agreement
shall mean an agreement between the Company and a Participant
for the payment to the Participant of compensation that is deferred under this Plan.
(d)
Beneficiary
shall mean any person, persons, trust or other entity designated by
a Participant to receive benefits, if any, under the Plan upon such Participants death in
accordance with Section 6(g).
(e)
Board
shall mean the Board of Directors of FIL.
(f)
Change in Control
shall mean a change in the ownership or effective control of
the Company, or in the ownership of a substantial portion of its assets, within the meaning of Code
Section 409A(a)(2)(A)(v) and Treasury Regulations thereunder.
(g)
Claimant
shall have the meaning set forth in Section 9(a).
(h)
Code
shall mean the Internal Revenue Code of 1986, as amended, and Treasury
Regulations issued thereunder.
(i)
Committee
shall mean the Compensation Committee appointed by the Board.
(j)
Company
shall mean Flextronics International USA, Inc. and, for purposes of
determining the benefits provided under the Plan or as applicable under ERISA or the Code, any
successor to all or a major portion of the Companys assets or business that assumes the
obligations of the Company, and any other corporation or unincorporated trade or business that has
adopted the Plan with the approval of the Company, and is a member of the same controlled group of
corporations or the same group of trades or businesses under common control (within the meaning of
Code Sections 414(b) and 414(c) as modified by Code Section 415(h)) as the Company, or an
affiliated service group (as defined in Code Section 414(m)) which includes the Company, or any
other entity required to be aggregated with the Company pursuant to regulations under Code Sections
414(o) and 409A or any other affiliated entity that is designated by the Company as eligible to
adopt the Plan.
(k)
Deferral Account
shall mean the recordkeeping account, and any sub-accounts that
are determined by the Committee to be necessary or appropriate for the proper administration of the
Plan, that are established and maintained by the Company in the name of a Participant as provided
in Section 4(b) for compensation payable to a Participant pursuant to a Deferral Agreement. As the
context requires, a reference to a Deferral Account shall include, if applicable, any subaccount
thereof.
(l)
Deferral Agreement
shall mean an agreement executed by the Participant and the
Company, in such form as approved by the Committee, and as may be revised from time to time with
respect to any one or more Participants by or at the direction of the Committee, whereby (i) the
Participant (A) agrees to receive certain types of compensation in the future pursuant to the
provisions of this Plan, (B) elects to defer future compensation such Participant would otherwise
be entitled to receive in cash from the Company, expressed as an amount or percentage of
compensation to be deferred, and/or (C) makes such other elections as are permitted and provides
such other information as is required under the Plan, and (ii) the Participant specifies a time and
form of payment according to which the Participant will receive the payout of the compensation
subject to the Deferral Agreement. Each Deferral Agreement shall be consistent with this Plan and
shall incorporate by its terms the provisions of this Plan.
(m)
Deferral Day
shall mean, for each Participant, the day on which the Company is
required, by the terms of an applicable Deferral Agreement or any other agreement between the
Participant and the Company, to credit an amount to a Deferral Account under this Plan. In the
absence of any such requirement to the contrary, a Deferral Day for an amount deferred under the
Plan shall be a date as soon as practicable after such amount is deemed earned, or in the case of
elective deferrals, as soon as practicable after such amount would have been payable to the
Participant if the Participant had not elected to defer such amount, in each case as determined by
the Plan Administrator in its sole discretion.
(n)
Disabled
shall mean, with respect to a Participant, that the Social Security
Administration has determined that such Participant is totally disabled. This definition shall be
construed and administered in accordance with the requirements of Code Section 409A(a)(2)(C) and
Treasury Regulations thereunder.
(o)
ERISA
shall have the meaning set forth in Section 1.
2
(p)
Fair Market Value
shall mean, on a given date of valuation, (i) with respect to
any mutual fund, the closing net asset value as reported in The Wall Street Journal with respect to
the date of valuation and (ii) with respect to a security traded on a national securities exchange
or the NASDAQ National Market, the closing price on the date of valuation as reported in The Wall
Street Journal.
(q)
FIL
shall mean Flextronics International Ltd
(r)
For Cause
shall mean (i) Participant shall have committed a felony, fraud,
theft, embezzlement involving the assets of the Company; (ii) Participant willfully violates or
causes the Company to violate, in a material respect, any statute, law, ordinance, rule or
regulation relating to, or written policy of, the Company, which violation results in a material
adverse effect to Companys business or financial condition; (iii) Participant engages in any
activity which is outside the scope of Participants authority and can reasonably be expected to
have a material adverse effect on the Companys business.
(s)
Hypothetical Investments
shall have the meaning set forth in Section 4(c)
(t)
Involuntary Separation from Service
shall mean any Separation from Service that
is either an Involuntary Termination Without Cause or a Voluntary Termination for Good Reason.
(u)
Involuntary Termination Without Cause
shall mean a Separation from Service due
to the independent exercise of the unilateral authority of the Company to terminate a Participants
services other than For Cause. A termination by the Company shall be presumed to be an Involuntary
Termination Without Cause unless the Company sets forth in a written notice of termination the
grounds for such termination to be For Cause.
(v)
Manager
shall have the meaning set forth in Section 4(c).
(w)
Officers
shall have the meaning set forth in Section 8(b)(ii).
(x)
Participant
shall mean a present or former employee or director of the Company
who participates in this Plan and any other present or former employee or director designated to
participate in the Plan from time to time by the Committee.
(y)
Payment Subaccount
shall have the meaning set forth in Section 6(c)(ii).
(z)
Plan
has the meaning set forth in Section 1.
(aa)
Plan Administrator
shall mean the Plan Administrator, if any, appointed
pursuant to Section 3(c).
(bb)
Released Party
shall have the meaning set forth in Section 8(b)(iii).
(cc)
Relevant
shall have the meaning set forth in Section 9(c)(i).
(dd)
Separation from Service
shall mean a Participants separation from service from
the Company within the meaning of Code Section 409A(a)(2)(A)(i) and Treasury Regulations
thereunder.
3
(ee)
Specified Employee
shall mean a key employee (as defined in Code Section 416(i)
without regard to paragraph 5 thereof) of the Company, including all persons with whom the Company
would be treated as a single employer under Code Section 414(b) or 414(c), for so long as any of
the stock of any such person is publicly traded on an established securities market or otherwise.
This definition shall be construed and administered in accordance with the requirements of Code
Section 409A(a)(2)(B)(i) and Treasury Regulations thereunder. For purposes of applying this
definition, the Committee may, at its discretion, specify a specified employee effective date in
accordance with the requirements of Treasury Regulation § 1.409A-1(i).
(ff)
Trust
shall mean any trust or trusts established or designated by the Company
pursuant to Section 5(a) to hold assets in connection with the Plan.
(gg)
Trustee
shall have the meaning set forth in Section 5(a).
(hh)
Unforeseeable Emergency
shall mean a severe financial hardship to a Participant
resulting from an illness or accident of the Participant, the Participants Spouse, the
Participants beneficiary, or a dependent (as defined in Section 152(a) of the Code) of the
Participant, loss of the Participants property due to casualty, or other similar extraordinary and
unforeseeable circumstances arising as a result of events beyond the control of the Participant.
This definition shall be construed and administered in accordance with the requirements of Code
Section 409A(a)(2)(B)(ii) and Treasury Regulations thereunder.
(ii)
USERRA
shall mean the Uniformed Service Employment and Reemployment Rights Act
of 1994, as amended, 38 U.S.C. 4301-4334.
(jj)
Valuation Date
shall have the meaning set forth in Section 6(c)(ii)
(kk)
Voluntary Termination for Good Reason
shall mean a Separation from Service due
to the independent exercise of the unilateral authority of a Participant to terminate his or her
employment with the Company due to one the following conditions arising without the consent of the
Participant:
|
(i)
|
|
A material diminution in the authority, duties, or responsibilities of the
Participant or of the budget over which the Participant retains authority;
|
|
|
(ii)
|
|
A material reduction by the Company in the Participants base
salary or other compensation;
|
|
|
(iii)
|
|
A material diminution in the authority, duties, or
responsibilities of the supervisor to whom the Participant reports;
|
|
|
(iv)
|
|
A relocation of the Participants principal office to a
location more than 50 miles from the current location of the Participant
principal office; and,
|
|
|
(v)
|
|
Any other action or inaction of the Company that constitutes a
material breach by the Company of any provision of this Agreement or any other
agreement under which the Participant provides services to the Company.
|
Notwithstanding anything to the contrary in this Agreement, no Voluntary Termination for Good
Reason shall occur unless (i) Participant has given written notice to the Company of the existence
of a condition described in this Section 2(kk) within ninety (90) days of the initial existence of
such condition and such condition has not been remedied by the Company within thirty (30) days
after the receipt of such notice.
4
3. Authority and Administration of the Committee and Plan Administrator.
(a)
In General
. The Committee shall administer the Plan and may select one or more
persons to serve as the Plan Administrator. The Plan Administrator shall have authority to perform
any act that the Committee is entitled to perform under this Plan, except to the extent that the
Committee specifies limitations on the Plan Administrators authority. Any person selected to
serve as the Plan Administrator may, but need not, be a Committee member or an officer or employee
of the Company. However, if a person serving as Plan Administrator or a member of the Committee is
a Participant, such person may not decide or vote on a matter affecting his interest as a
Participant.
(b)
Administration by Committee or Plan Administrator
. The Committee or Plan
Administrator shall administer the Plan in accordance with its terms, and shall have all powers
necessary to accomplish such purpose, including the power and authority to reasonably construe and
interpret the Plan, to reasonably define the terms used herein, to reasonably prescribe, amend and
rescind rules and regulations, agreements, forms, and notices relating to the administration of the
Plan, and to make all other determinations reasonably necessary or advisable for the administration
of the Plan. The Committee or Plan Administrator may appoint additional agents and delegate
thereto powers and duties under the Plan
(c)
Designation of Plan Administrator
. The initial Plan Administrator shall be the
FILs Executive Vice President Worldwide HR and Management Systems. The Committee may from time to
time designate a different person to serve as Plan Administrator.
4. Deferral Agreements, Deferral Accounts and Share Award Deferrals
.
(a)
Deferral Agreement
. The Company and any Participant may agree to defer all or a
portion of his or her compensation by executing a completed Deferral Agreement in the form, and
within the time period, specified by the Committee. The Committee shall determine for each
Participant the amount and type of compensation that may or shall be deferred pursuant to the Plan
and such determination will be reflected on
a Deferral Agreement form presented to the Participant. The Committee may establish maximum
or minimum amounts of aggregate deferrals that may be elected by a Participant. A Participant
shall not be entitled to vary any term set forth in a Deferral Agreement form except to the extent
that the Deferral Agreement form itself permits variations. As permitted by the Committee,
different components of compensation payable for a single service period, and different tranches of
compensation payable for different service periods, may be subject to different Deferral Agreements
that provide for different times and forms of payment. Deferrals of compensation may be made under
the Plan only within the time periods permitted by Code Section 409A and Treasury Regulations
thereunder.
(b)
Establishment of Deferral Accounts
. The Committee shall establish a Deferral
Account for each Participant. Each Deferral Account shall be maintained for the Participant solely
as a bookkeeping entry by the Company to evidence unfunded obligations of the Company. The
Participant shall be vested in the Participants Deferral Account to the extent specified in an
applicable Award Agreement, Deferral Agreement or in any other agreement between the Company and
the Participant. The provisions with respect to vesting in any such Deferral Agreement or other
agreement shall be incorporated in this Plan and given effect as if fully set forth herein. The
Committee is authorized in its sole and absolute discretion to waive vesting conditions, or
accelerate vesting, with respect to any portion of a Participants Deferral
Account. A
Participants Deferral Account shall be credited with the amounts required to be credited to the
Participants Deferral Account pursuant to an Award Agreement, the Participants initial Deferral
Agreement, or pursuant to any subsequent Deferral Agreement entered into by that Participant and
the Company, in each case, less the amount of federal, state or local tax required by law to be
withheld with respect to such amounts, unless such withholding is provided from another source, and
shall be adjusted for Hypothetical Investment earnings or losses as described herein.
5
(c)
Hypothetical Investments and Managers
. The Committee shall select one or more
hypothetical investment options (
Hypothetical Investments
). Hypothetical Investments
shall be mutual funds or securities readily tradable on a U.S. securities exchange. At its sole
discretion, the Committee may (but shall not be required to) allow a Participant to designate one
or more investment managers approved by the Committee (each a
Manager
) and a Manager will
then select hypothetical investments that, if permitted by the Committee, may or may not be
Hypothetical Investments designated by the Committee, but which shall be mutual funds or securities
readily tradable on a U.S. securities exchange. Amounts invested with a Manager shall be deemed
Hypothetical Investments. The Committee may change or discontinue any Hypothetical Investment or
Manager if reasonably necessary to satisfy business objectives of the Company or its Affiliates;
provided that, following a Change in Control, the investment options existing immediately prior to
such Change in Control shall not be changed or modified in a manner that is reasonably likely to be
adverse to the Participants. The Committee may limit Hypothetical Investment choices to designated
alternative groups or portfolios of Hypothetical Investments. The Committee may designate
Hypothetical Investment (or groups or portfolios of Hypothetical Investments) as available only for
vested or unvested amounts in a Participants Deferral Account and
may require that any unvested amounts be invested only in Hypothetical Investments (or groups
or portfolios of Hypothetical Investments) of the Companys choosing.
(d)
Investment of Deferral Accounts
. As provided in Section 4(c), each Deferral
Account shall be deemed to be invested in one or more Hypothetical Investments as elected by the
Participant in the manner designated by the Committee for such election. The amounts of
hypothetical gains and losses in value of the Hypothetical Investments shall be credited and
debited to, or otherwise reflected in, such Deferral Account from time to time in accordance with
procedures established by the Committee. In the event that a Participant fails to specify a
Hypothetical Investment for any portion of his or her Deferral Account, such portion shall be
deemed invested in the manner determined by the Committee. As permitted by the Committee, a
Participant shall be allowed to change his or her investment election no less frequently than once
per month. Unless otherwise determined by the Committee, amounts credited to a Deferral Account
(or to a subaccount) shall be deemed invested in Hypothetical Investments as of the date such
amount is credited to a Participants Deferral Account pursuant to an Award Agreement or Deferral
Agreement.
(e)
No Actual Investment
. Notwithstanding any other provision of this Plan that may
be interpreted to the contrary, the Hypothetical Investments are to be used for measurement
purposes only. A Participants election of any Hypothetical Investment, the allocation of any
deferred amounts to Hypothetical Investments, the calculation of additional amounts and the
crediting or debiting of any amounts to a Participants Deferral Account shall not be considered or
construed in any manner as an actual investment of his or her Deferral Account in any such
Hypothetical Investment. In the event that the Company in its own discretion, decides to invest
(or to cause the Trustee to invest) funds in any or all of the Hypothetical Investments, no
Participant shall have any rights in or to such investments themselves. Without limiting the
foregoing, a Participants Deferral Account shall at all times be a bookkeeping entry only and
shall not represent any investment made on his or her behalf by the Company or the Trust. The
Participant shall at all times remain an unsecured creditor of the Company.
6
(f)
Forfeiture of Unvested Portions of Deferral Accounts Upon Separation from Service
.
Upon a Participants Separation from Service, any unvested portion of the Participants Deferral
Account (excluding the portion, if any, that vests as a result of such Separation from Service
pursuant to Section 4(g) or otherwise) shall be forfeited and terminated, except as otherwise
determined by the Committee in its sole and absolute discretion or as provided for in an applicable
Award Agreement.
(g)
Special Vesting Upon an Involuntary Separation from Service following a Change in
Control
. Notwithstanding Section 4(f), and unless the terms of this Section 4(g) are varied by
the terms of an applicable Award Agreement, any unvested portion of a Participants Deferral
Account shall vest immediately prior to an Involuntary Separation from Service within the two year
period that follows a Change in Control.
(h)
Change in Law
. If a future change in law would, in the judgment of the Committee, likely accelerate taxation to a Participant of amounts that would be credited to the
Participants Deferral Account in the future under the Participants
Deferral Agreement, the Company and the Participant will attempt to amend the Plan to satisfy
the requirements of the change in law and, unless and until such an amendment is agreed to, Company
shall cease deferrals under the Participants Deferral Agreement on the effective date of such
change in law; provided however, the Company shall not cease deferrals if such cessation would
violate the provisions of Code Section 409A.
(i)
Separate Maintenance of Vested Subaccounts
. Separate vested subaccounts shall be
established and maintained for each Participant with respect to each portion of the Participants
Deferral Account (a) that has vested, (b) that vests in accordance with a certain schedule, or (c)
that is payable to the Participant in accordance with a certain schedule. Except as otherwise
provided in an applicable Award Agreement or applicable Deferral Agreement, the entire amount of a
subaccount, as adjusted for Hypothetical Investment gains or losses immediately prior to vesting,
shall vest at the same time and pursuant to the same conditions as the amount initially credited to
the subaccount; and the amount of each vested subaccount, as adjusted for Hypothetical Investment
gains or losses, shall be subject to the same payout conditions as the amount initially credited to
the subaccount.
(j)
USSERA Rights
. The Committee shall make available to a Participant an initial
deferral election, and an election to change the time or form of payment of the Participants
Deferral Account, if and as required to satisfy the requirements of the USERRA and Treasury
Regulation 1.409-2(a)(15).
7
5. Establishment of Trust
.
(a)
The Trust Agreement
. The Company has entered or will enter into a Trust Agreement
for the Plan, providing for the establishment of a trust to be held and administered by a trustee
(the
Trustee
) designated in the Trust Agreement (the
Trust
). The Trustee shall
be the agent for purposes of such duties delegated to the Trustee by the Committee as set forth in
the Trust Agreement. The Trust shall be irrevocable; provided that, upon a Participants
Separation from Service, the Trustee Agreement shall require that the Trustee pay to the Company an
amount equal to the unvested portion of the Participants Deferral Account as determined under the
Plan.
(b)
Funding the Trust
. On each relevant Deferral Day, the Company shall deposit into
the Trust cash equal to the aggregate amount required to be credited to the Participants Deferral
Account for that Deferral Day, less applicable taxes withheld, if any. The assets of the Trust
shall remain subject to the claims of the general creditors of the Company in the event of an
insolvency of the Company. Assets of the Trust shall at all times be located within the United
States.
(c)
Taxes and Expenses of the Trust
. The Committee shall make all investment
decisions for the Trust, and no Participant shall be entitled to direct any investments of the
Trust. All taxes on any gains and losses from the investment of the assets of the Trust shall be
recognized by the Company and the taxes thereon shall be paid by the Company and shall not be
recovered from the Deferral Accounts or the Trust. The third-party administrative expenses of the
Plan and the Trust, including expenses charged by the Trustee to establish the Trust and the
Trustees annual fee per Deferral Account, shall be paid by the Company, and shall neither be
payable by Trustee from the Trust nor reduce any Deferral Accounts; provided that any Managers
fees or other
expenses incurred with respect to particular Hypothetical Investment or any asset of the Trust
which corresponds to a particular Hypothetical Investment shall be charged to the Deferral Account
that is deemed invested in such Hypothetical Investment. No part of the Companys internal
expenses to administer the Plan, including overhead expenses, shall be charged to the Trust or the
Deferral Accounts.
6. Settlement of Deferral Accounts
.
(a)
Payout Elections
. The Company shall pay or direct the Trustee to pay the net
amount of the Participants vested Deferral Account as elected by the Participant in the
Participants Deferral Agreement in accordance with the provisions of this Plan or as provided in
an Award Agreement. A Participant shall be required to select one of the payout alternatives set
forth in the form of Deferral Agreements provided to the Participant by the Committee from time to
time. Except for payouts due to the death, Disability, Unforeseeable Emergency or Separation from
Service of the Participant, no payout of amounts credited to a Participants Deferral Account shall
occur prior to the first anniversary of the Deferral Agreement. The Committee may, in its sole
discretion, allow a Participant to redefer the payout of his Deferral Account, or of one or more
subaccounts of the Participants Deferral Account, one or more times;
provided
, that (i)
such redeferral may not take effect until at least 12 months after the date on which such election
is made; (ii) in the case of an election related to any payment other than a payment that would be
made upon the Participants death, Disability, or the occurrence of an Unforeseeable Emergency, the
first payment with respect to which such election is made must be deferred for a period of not less
than 5 years from the date such payment would otherwise have been made; and (iii) any election that
would affect a scheduled payout may be made not less than 12 months prior to the date of the first
scheduled payout date. The preceding restrictions on redeferrals shall be construed and
administered in accordance with the requirements of Code Section 409A(a)(4)(C) and Treasury
Regulations thereunder. No Participant shall be entitled to accelerate the time or schedule of any
payment under the Plan, except where an acceleration would not result in the imposition of
additional tax under Code Section 409A.
8
(b)
Form of Payment
. Distributions from a Participants Deferral Account shall be
made in cash or, in the sole discretion of the Committee, in marketable securities selected by the
Committee, which shall be valued at their Fair Market Value on the date of such distribution. If a
Participant has elected a Hypothetical Investment that is in whole or in part not marketable or for
which a Fair Market Value cannot be determined, the actual security represented by such
Hypothetical Investment may be distributed to Participant in lieu of cash or marketable securities.
Any distributions to a Participant shall reduce the Companys obligations under the Plan to such
Participant. The Companys obligation under the Plan may be satisfied by distributions from the
Trust.
(c)
Timing of Payments
.
(i) Payments in settlement of a Participants Deferral Account shall be distributed no
earlier than the Participants Separation from Service, Disability, death, a specified time
(or pursuant to a fixed schedule) specified in the applicable Deferral Agreement, Change in
Control or the occurrence of an
Unforeseeable Emergency. If no date is specified for payment of a subaccount of a
Participant Deferral Account in an applicable Deferral Agreement, payment of such
subaccount shall made on the date that is six (6) months after the date of the Participants
Separation from Service (or, if earlier, the date of the Participants death). In the case
of a Participant who is a Specified Employee, a payment on account of Separation from
Service may not be made before the date which is 6 months after the date of Separation from
Service (or, if earlier, the date of the Participants death). In such event, any payment
(including a single lump sum payment or any installment payments) that otherwise would have
been payable within such six (6) month period will be accumulated and paid as soon as
administratively practicable after such six (6) month period, but no later than 90 days
after such 6 month period (with the Plan Administrator retaining discretion as to the
specific payment date within that 90 day period). Any payment election set forth in a
Participants Deferral Agreement shall be construed as prohibiting distributions that would
otherwise be payable within the six (6) month period following the Participants Separation
from Service to the extent, and only to the extent, required under the preceding two
sentences.
(ii) Payments in settlement of a Deferral Account shall be made as soon as practicable
after the date or dates (including upon the occurrence of specified events), but no later
than 90 days after the date or dates (with the Plan Administrator retaining discretion as to
the specific payment date within that 90 day period), and in such number of installments, as
directed by the Participant in the Participants Deferral Agreement, unless otherwise
provided in this Section 6. All amounts needed for a payment shall be deemed withdrawn from
the Hypothetical Investments on a date (a
Valuation Date
) that is prior to and
reasonably proximate to, but in no event shall be no more than 10 days prior to, the date of
a payment to a Participant and transferred to a separate subaccount (a
Payout
Subaccount
). Payout Subaccounts shall not be adjusted for any investment gains or
losses subsequent to the Valuation Date. If a Participant has elected to receive
installment payments, the amount of the distribution payable shall be based upon the value
of the Deferral Account on the Valuation Date, and Participants Hypothetical Investments
shall be reduced pro rata on the basis of the value of the Participants Hypothetical
Investments on the Valuation Date. If a Participant has elected to receive partial payments
of the amount in his or her Deferral Account, unpaid balances shall continue to be deemed to
be invested in the Hypothetical Investments as designated in the applicable Deferral
Agreement.
9
(iii) If a Participant fails to designate a Beneficiary or if all designated
Beneficiaries predecease the Participant or die prior to complete distribution of the
Participants benefits, the Participants designated Beneficiary shall be the executor or
personal representative of the Participants estate, if a probate proceeding is open at the
time for the distribution(s), and otherwise shall be the person(s) who would be entitled to
the distribution(s) under the Participants last will and /or revocable trust (if such will
distributes the residuary estate to such trust) and otherwise to the person(s) who would
inherit the Participants property under the law of the Participants last domicile. The
payment of benefits under the Plan to a Beneficiary shall fully and completely
discharge the Company from all further obligations under this Plan with respect to the
Participant, and such Participants interest in the Plan shall terminate upon such full
payment of benefits.
(iv) Irrespective of any elections made by a Participant, if the Committee, acting in
good faith, determines that a Participant is Disabled, the net vested amount credited to a
Participants Deferral Account shall be paid out in a single lump sum to the Participant as
soon as practicable after the date that that the Participant is determined to be Disabled,
but in no event later than the 90
th
day after such date.
(v) Whenever a payment in settlement or partial settlement of a Participants Deferral
Account is required to be made within a specified period of time, the Participant shall have
no right to designate the taxable year of the payment (other than pursuant to a redeferral
election made in accordance with the requirements of Section 6(a).
(vi) Each separately identifiable payment under the Plan shall be treated as a separate
payment for purposes of Code Section 409A to the fullest extent permitted by Code Section
409A. For purposes of this Plan, a right to receive installment payments shall be treated as
a right to receive a series of separate payments.
(vii) The Company may delay a payment to a Participant to the extent that the Company
reasonably anticipates that if the payment were made as scheduled under the Plan and the
applicable Deferral Agreement, the Companys deduction with respect to such payment would
not be permitted due to the application of Code Section 162(m), provided that the payment is
made either during the Companys first taxable year in which the Company reasonably
anticipates, or should reasonably anticipate, that if the payment is made during such year,
the deduction of such payment will not be barred by application of Code Section 162(m) or
during the period beginning with the date of the Participants Separation from Service and
ending on the later of the last day of the taxable year of Company in which the service
provider separates from service or the 15
th
day of the third month following the
Participants Separation from Service, and provided further that where any scheduled payment
to a Participant in the Companys taxable year is delayed in accordance with this paragraph,
all scheduled payments to that Participant that could be delayed in accordance with this
paragraph are also delayed. This paragraph shall be construed and administered in
accordance with the requirements of Treasury Regulation §1.409A-2(b)(7)(i).
10
(d)
Unforeseeable Emergency
. Other provisions of the Plan notwithstanding, if the
Committee, acting in good faith, determines that the Participant has an Unforeseeable Emergency,
the Committee shall direct the immediate lump sum payment to the Participant of vested amounts that
the Committee determines to be necessary to satisfy such Unforeseeable Emergency plus amounts
necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into
account the extent to which such Unforeseeable Emergency is or may be relieved through
reimbursement or
compensation by insurance, any additional compensation that is available due to the
cancellation of a deferral election upon a payment due to an unforeseeable emergency, or otherwise
or by liquidation of the Participants assets (to the extent the liquidation of such assets would
not itself cause severe financial hardship). The preceding sentence shall be construed and
administered in accordance with the requirements of Code Section 409A(a)(2)(B)(ii) and Treasury
Regulations thereunder. If the Committee determines that a Participant has an Unforeseeable
Emergency, the Committee shall authorize the cessation of deferrals by such Participant under the
Plan.
(e)
Distribution upon Income Inclusion under Code Section 409A or to Satisfy other Tax
Obligations
. If the Committee determines that the Plan fails to meet the requirements of Code
Section 409A and Treasury Regulations thereunder, the Trustee shall distribute to the Participant
the portion of the Participants Deferral Account that is required to be included in income as a
result of the failure of the Plan to comply with the requirements of Code Section 409A and Treasury
Regulations thereunder. If the Committee determines that state, local or foreign tax obligations
(including employment taxes and income tax withholding at source on wages) arise from a
Participants participation in the Plan with respect to an amount deferred under the Plan before
the amount is paid or made available to the Participant, the Participant may receive a distribution
from the Participants Deferral Account (either in the form of withholding that is paid over to a
governmental entity pursuant to provisions of applicable law or by distributions directly to the
Participant) to reflect such tax obligation, provided the amount so distributed shall not exceed
the amount of such taxes due as a result of participation in the Plan. Additionally, a Participant
may receive a distribution from the Participants Deferral Account to pay income tax at source on
wages imposed under Code Section 3401 attributable to additional Section 3401 wages and taxes. Any
distribution made to a Participant pursuant to this Section 6(e) shall be paid, to the extent
possible, out of the vested portion of the Participants Deferral Account. The provisions of this
Section 6(e) shall be construed and administered in accordance with the requirements of Treasury
Regulation § 1.409A-3(j)(4)(vi), (vii), and (xi), as applicable, so as to prevent, to the extent
possible, the imposition of any tax pursuant to Code Section 409A.
(f)
Effect on Deferral Account
. A Participants Deferral Account shall be debited to
the extent of any distributions to, or the tax withholding for the benefit of, the Participant
pursuant to this Section 6.
11
(g)
Designation of Beneficiary
. Each Participant may from time to time designate any
individual, trust, charity or other person or persons to whom the value (or a portion of the value)
of the
Participants
Deferral Account shall be paid if the Participant dies before
receiving the full value of his or her Deferral Account (the Participants
Beneficiary
).
A Beneficiary designation shall be made in the manner required by the Plan Administrator for this
purpose. Primary, secondary, or contingent Beneficiaries are permitted. A married participant
designating a Beneficiary other than his or her spouse must obtain the consent of his or her spouse
to such designation (in accordance with procedures determined by the Plan Administrator). Payments
to the Participants Beneficiary(ies) shall be made in accordance with applicable provisions of
the Plan after the Plan Administrator has received proper notification of the Participants
death.
A Beneficiary designation shall be effective only when the Beneficiary designation is filed
with the Plan Administrator while the Participant is alive, and a subsequent Beneficiary
designation will cancel all of the Participants Beneficiary designations previously filed with the
Plan Administrator. Once received and acknowledged by the Plan Administrator, a Beneficiary
designation shall be effective as of the date the designation was executed, but without prejudice
to the Plan Administrator on account of any payment made before the change is received and
acknowledged by the Plan Administrator. If a deceased Participant failed to designate a
Beneficiary, or if a designated Beneficiary predeceases the Participant, the value of the
Participants Deferral Accounts shall be payable to the Participants spouse or, if there is none,
to the Participants estate, or in accordance with such other equitable procedures as determined by
the Plan Administrator.
(h) Reemployment. If a
former
Participant is rehired by the Company, or any person
with whom the Company would be considered a single employer under Code Section 414(b) and (c), and
regardless
of whether such former Participant is designated as a Participant, or a former
Participant returns to service as a member of the Board, any payments being made to such former
Participant hereunder by reason of such former Participants previous Separation from Service shall
continue to be made without regard to such rehire or return to service.
7. Amendment and Termination
.
(a)
Amendment
. The Plan Administrator may, with prospective or retroactive effect,
amend or alter the Plan (i) if the Internal Revenue Service determines that any amounts deferred
under the Plan are includible in the Participants gross income prior to being paid out to the
Participant, (ii) any time, if determined to be necessary, appropriate or advisable in response to
administrative guidance issued under Code Section 409A or to comply with the provisions of Code
Section 409A, or (iii) if no Participant is materially adversely affected by such action with
respect to amounts required to be credited to the Participants Deferral Account under any
previously executed Deferral Agreement;
provided further that
, following a Change in
Control, the Plan will not be subject to amendment, alteration, suspension, discontinuation or
termination without the prior written consent of each Participant who would be reasonable expected
to be materially adversely affected by such action; and
provided further that
, in each
case, the Company may accelerate distributions under this Plan only to the extent (if any) that
doing so will not result in the imposition of additional tax or interest under Code Section 409A.
Following a Change in Control, the Company will use commercially reasonable efforts to amend the
Plan without detriment to a Participant whenever necessary to avoid the imposition of additional
tax and interest under Section 409A.
(b)
Termination
. Notwithstanding any other provision to the contrary and except as
may otherwise be provided by the Committee, the Plan shall terminate as
soon as possible following the payment of all amounts in respect of all Deferral Accounts.
12
8. General Provisions
.
(a)
Limits on Transfer of Awards
. Other than by will, the laws of descent and
distribution, or by appointing a Beneficiary, no right, title or interest of any kind in the Plan
shall be transferable or assignable by a Participant (or the Participants Beneficiary) or be
subject to alienation, anticipation, encumbrance, garnishment, attachment, levy, execution or other
legal or equitable process, nor subject to the debts, contracts, liabilities or engagements, or
torts of any Participant or the Participants Beneficiary. Any attempt to alienate, sell,
transfer, assign, pledge, garnish, attach or take any other action subject to legal or equitable
process or encumber or dispose of any interest in the Plan shall be void.
(b)
Waiver, Receipt and Release
.
(i) As between the Participant and the Company, a Participant and the Participants
Beneficiary shall assume all risk (other than for the gross negligence of the Company or the
Committee or Plan Administrator, or breach by the Company of the terms of this Plan) in
connection with the Plan, Trust design, implementation or administration, decisions made by
the Participants Manager and the resulting value of the Participants Deferral Account, the
selection and actions of the Trustee or any other third party providing services to the
Company or the Trust in connection with the Plan or Trust (including their administrative
and investment expenses), including any income taxes of the Participant or Participants
Beneficiary relating to or arising out of his or her participation in the Plan, and neither
the Company nor the Committee or Plan Administrator shall be liable or responsible therefor
other than as provided in Section 5(c). Notwithstanding the foregoing sentence, the Company
shall indemnify a Participant for any additional tax and interest imposed pursuant to Code
Section 409A as a result of any action of the Company in administering or operating the
Plan;
provided, however
, that the foregoing indemnity shall not apply to additional
tax and interest that could have been avoided by any action or inaction of the Participant
reasonably requested by the Company that would have had the effect of reducing such
additional tax or interest. In addition, the Company shall indemnify each Participant for
reasonable defense costs, including reasonable attorneys fees and other professional fees,
incurred by that Participant as a result of any audit by a taxing authority and subsequent
appeals and litigation with respect any matter for which the Participant is indemnified
pursuant to this Section 8(b)(i). An amount for which a Participant is indemnified under
the preceding two sentences (Indemnified Amount) shall be computed on an after-tax basis,
so that after the payment by the Participant of any and all taxes (including any interest on
such taxes, additions to tax, and penalties) and amounts payable pursuant to Code Section
409A(a)(1)(B)) with respect to matters for which Participant is indemnified, including any
Indemnified Amount, the Participant will retain an amount equal to the amount that the
Participant would have had if the Participant had not been subject to Code Section
409A(a)(1)(B) with respect to matters for which the Participant is indemnified hereunder.
Any
Indemnified Amount with respect to taxes, additions to tax or interest shall be paid no
later than the end of the Participants taxable year following the taxable year of the
Participant in which the Participant remits the related taxes; and any Indemnified Amount
with respect to fees, expenses or costs of conducting a tax controversy shall be paid no
later than the end of the Participants taxable year following the taxable year of the
Participant in which the taxes that are the subject of the audit or litigation are remitted
to the applicable taxing authority, or, where as a result of such audit or litigation no
taxes are remitted, no later than the end of the Participants taxable year following the
taxable year of the Participant in which the audit is completed or there is a final and
nonappealable settlement or other resolution of the audit or litigation.
13
(ii) As a condition of being a Participant in the Plan, each Participant must sign a
waiver (which may be a part of the Deferral Agreement) releasing the Company and its
Affiliates, the Committee, the Plan Administrator, officers of the Company or its Affiliates
(the
Officers
) and the Board from any claims and liabilities regarding the matters
to which the Participant has assumed the risk as set forth in this Section. Payments (in
any form) to any Participant or Beneficiary in accordance with the provisions of the Plan
shall, to the extent thereof, be in full satisfaction of all claims for compensation
deferred and relating to the Deferral Account to which the payments relate against the
Company or any Affiliate or the Committee or Plan Administrator, and the Committee or Plan
Administrator may require such Participant or Beneficiary, as a condition to such payments,
to execute a waiver, receipt and release to such effect.
(iii) As a condition of being a Participant in the Plan, each Participant must sign a
waiver releasing the Trustee and each of its Affiliates (each, a
Released Party
)
against any and all loss, claims, liability and expenses imposed on or incurred by any
Released Party as a result of any acts taken or any failure to act by the Trustee, where
such act or failure to act is in accordance with the directions from the Committee or Plan
Administrator or any designee of the Committee or Plan Administrator.
(iv) Subject to the Companys indemnification of Participants described in Section
8(b)(i), each Participant agrees to pay any taxes, penalties and interest such Participant
or Beneficiary may incur in connection with his or her participation in this Plan, and
further agrees to indemnify the Company and its Affiliates, the Committee, the Plan
Administrator, Officers, the Board and the Companys agents for such taxes, penalties and
interest the Participant or Participants Beneficiary incurs and fails to pay and for which
the Company is made liable by the appropriate tax authority.
(c)
Unfunded Status of Awards, Creation of Trusts
. The Plan is intended to constitute
an unfunded plan for deferred compensation and each Participant shall rely solely on the unsecured
promise of the Company for payment hereunder. With respect to any payment not yet made to a
Participant under the Plan, nothing contained in the Plan shall give a Participant any rights that
are greater than those of a general unsecured creditor of the Company.
(d)
Participant Rights
. No provision of the Plan or transaction hereunder shall
confer upon any Participant any right or impose upon any Participant any obligation to be employed
by the Company or an Affiliate, or to interfere in any way with the right of the Company or an
Affiliate to increase or decrease the amount of any compensation payable to such Participant.
Subject to the limitations set forth in Section 8(c) hereof, the Plan shall inure to the benefit
of, and be binding upon, the parties hereto and their successors and assigns.
14
(e)
Tax Withholding
. The Company shall have the right to deduct from amounts
otherwise credited to or paid from a Deferral Account any sums that federal, state, local or
foreign tax law requires to be withheld.
(f)
Governing Law
. The validity, construction, and effect of the Plan and any rules
and regulations relating to the Plan shall be determined in accordance with the laws of the State
of California, without giving effect to principles of conflicts of laws to the extent not
pre-empted by federal law.
(g)
Limitation
. A Participant and the Participants Beneficiary shall assume all risk
in connection with (i) the performance of the Managers, (ii) the performance of the Hypothetical
Investments, and (iii) the tax treatment of amounts deferred under or paid pursuant to the Plan,
and the Company, the Committee, the Plan Administrator, and the Board shall not be liable or
responsible therefor.
(h)
Construction
. The captions and numbers preceding the sections of the Plan are
included solely as a matter of convenience of reference and are not to be taken as limiting or
extending the meaning of any of the terms and provisions of the Plan. Whenever appropriate, words
used in the singular shall include the plural or the plural may be read as the singular.
(i)
Severability
. In the event that any provision of the Plan shall be declared
illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining
provisions of the Plan but shall be fully severable, and the Plan shall be construed and enforced
as if said illegal or invalid provision had never been inserted herein.
(j)
Status
. The establishment and maintenance of, or allocations and credits to, the
Deferral Account of any Participant shall not vest in any Participant any right, title or interest
in or to any Plan or Company assets or benefits except at the time or times and upon the terms and
conditions and to the extent expressly set forth in the Plan and in accordance with the terms of
any Trust.
(k)
Spouses Interest
. The interest in the benefits hereunder of a Participants
spouse who has predeceased the Participant shall automatically pass to the Participant and shall
not be transferable by such spouse in any manner, including but not limited to such spouses will,
nor shall such interest pass under the laws of intestate succession.
(l)
Successors
. The provisions of the Plan shall bind the Company and its successors.
15
9. Claims Procedures
.
The procedures for filing claims for payments under the Plan are described below:
(a)
Presentation of Claim
. It is the intent of the Company to make payments under the
Plan without the Participant having to complete or submit any claim forms. However, any
Participant or Beneficiary who believes he or she is entitled to a payment under the Plan may
submit a claim for payment to the Plan Administrator. Any claim for payments under the Plan must
be made by the Participant or his Beneficiary in writing and state the Claimants name and nature
of benefits payable under the Plan. The Claimants claim shall be deemed to be filed when
delivered to the Plan Administrator which shall make all determinations as to the right of any
person(s) to benefits hereunder. Claims for benefits under this Plan shall be made by the
Participant, his or her Beneficiary or a duly authorized representative thereof
(
Claimant
). If such a claim relates to the contents of a notice received by the Claimant,
the claim must be made within sixty (60) days after such notice was received by the Claimant. All
other claims must be made within one hundred eighty (180) days of the date on which the event that
caused the claim to arise occurred. The claim must state with particularity the benefit or other
determination desired by the Claimant. The claim must be accompanied with sufficient supporting
documentation for the benefit or other determination requested by the Claimant.
(b)
Notification of Decision
.
(i)
Claim for benefits other than upon Disability
. If the claim is wholly or
partially denied, the Plan Administrator shall provide written or electronic notice thereof to the
Claimant within a reasonable period of time, but not later than 90 days after receipt of the claim.
An extension of time for processing the claim for benefits is allowable if special circumstances
require an extension, but such an extension shall not extend beyond 180 days from the date the
claim for benefits is received by the Plan Administrator. Written notice of any extension of time
shall be delivered or mailed within 90 days after receipt of the claim and shall include an
explanation of the special circumstances requiring the extension and the date by which the Plan
Administrator expects to render the final decision.
(ii)
Claim for benefits upon Disability
. If the claim is wholly or partially denied,
the Plan Administrator shall provide written or electronic notice thereof to the Claimant within a
reasonable period of time, but not later than 45 days after receipt of the claim. An initial
extension of time for processing the claim for benefits is allowable if necessary due to
circumstances beyond the Plan Administrators control, but such an initial extension shall not
extend beyond 30 days from the date the claim for benefits is received by the Plan Administrator.
Written notice of the initial extension of time shall be delivered or mailed within 45 days after
receipt of the claim and shall include an explanation of the circumstances requiring the extension,
the date by which the Plan Administrator expects to render the final decision, the standards on
which entitlement to a benefit is based, unresolved issues that prevent a decision and any
additional information needed to resolve these issues. If prior to the end of the initial
extension, the Plan Administrator determines that, due to matters beyond its control, a decision
cannot be rendered within the first 30 day extension period, the period for
making the determination may be extended for up to an additional 30 days. Written notice of
the additional extension of time shall be delivered or mailed within the initial extension period
and shall include an explanation of the circumstances requiring the extension, the date by which
the Plan Administrator expects to render the final decision, the standards on which entitlement to
a benefit is based, unresolved issues that prevent a decision and any additional information needed
to resolve these issues. The Claimant shall have 45 days to provide such additional information.
(iii) Required content of the Notice of Adverse Benefit Determination.
|
(1)
|
|
In general. The notice of adverse benefit determination shall:
|
|
(A)
|
|
specify the reason or reasons the
claim was denied;
|
|
|
(B)
|
|
reference the pertinent Plan
provisions upon which the decision was based;
|
16
|
(C)
|
|
describe any additional material
or information necessary for the Claimant to perfect the claim,
and an explanation of why such material or information is
necessary;
|
|
|
(D)
|
|
indicate the steps to be taken by
the Claimant if a review of the denial is desired, including the
time limits applicable thereto; and
|
|
|
(E)
|
|
contain a statement of the
Claimants right to bring a civil action under ERISA in the
event of an adverse determination on review.
|
If notice of the adverse benefit determination is not furnished in
accordance with the preceding provisions of this Section, the claim shall be
deemed accepted and payment shall be made to the Claimant in accordance with
the claim.
(2)
Claim for disability benefits
. The notice of adverse benefit
determination shall, in addition to the information specified in (1) above,
disclose any internal rule, guidelines, protocol or similar criterion relied
on in making the adverse determination or a statement that such information
will be provided free of charge upon request.
(c) Review of a Denied Claim.
(i)
Claim for benefits other than upon disability
. If a claim is denied and a review
is desired, the Claimant shall notify the Committee in writing within 60 days after receipt of
written notice of a denial of a claim. In requesting a review, the Claimant may submit any written
comments, documents, records, and other information relating to the claim, the Claimant feels are
appropriate. The Claimant shall, upon request and free of charge, be provided reasonable access
to, and copies of, all documents, records and other information that, with respect to the
Claimants claim for benefits (A) was relied upon in making the benefit determination, (B) was
submitted, considered, or generated in the course of making the benefit determination, whether or
not actually relied upon in making the determination; or (C) demonstrates compliance with the
administrative processes and safeguards of this claims procedure (sometimes referred to for
purposes of this Section 9 as
Relevant
). The Committee shall review the claim taking
into account all comments, documents, records and other information submitted by the Claimant,
without regard to whether such information was submitted or considered in the initial benefit
determination.
(ii)
Claim for benefits upon disability
. The review procedures in Section 9(c)(i)
above shall apply, except the Claimant shall notify the Committee in writing within 180 days after
receipt of written notice of a denial of a claim, and no deference shall be given to the initial
benefit determination. The review shall be conducted by a different individual than the person who
made the initial benefit determination or a subordinate of that person. The following procedures
will apply to the review of an adverse benefit determination:
(1) In the case of a claim denied on the grounds of a medical judgment, the
Committee will consult with a health professional with appropriate training
and experience. The health care professional who is consulted on review
will not be the same individual who was consulted, if any, regarding the
initial benefit determination or a subordinate of that individual.
17
(2) A Claimant shall, on request and free of charge, be given reasonable
access to, and copies of, all documents, records, and other information
Relevant to the Claimants claim for benefits. If the advice of a medical
or vocational expert was obtained in connection with the initial benefit
determination, the names of each such expert shall be provided on request by
the Claimant, regardless of whether the advice was relied on by the Plan
Administrator.
(d) Decision on Review.
(i)
Claim for benefits other than upon disability
. The Committee shall provide the
Claimant with written notice of its decision on review within a reasonable period of time, but not
later than 60 days after receipt of a request for a review. An extension of time for making the
decision on the request for review is allowable if special circumstances shall occur, but such an
extension shall not extend beyond 120 days from the date the request for review is received by the
Committee.
Written notice of the extension of time shall be delivered or mailed within 60 days after
receipt of the request for review, indicating the special circumstances requiring an extension and
the date by which the Committee expects to render a determination.
(ii)
Claim for benefits upon disability
. The Committee shall provide the Claimant
with written notice of its decision on review within a reasonable period of time, but not later
than 45 days after receipt of a request for a review. An extension of time for making the decision
on the request for review is allowable if special circumstances shall occur, but such an extension
shall not extend beyond 90 days from the date the request for review is received by the Committee.
Written notice of the extension of time shall be delivered or mailed within 45 days after receipt
of the request for review, indicating the special circumstances requiring an extension and the date
by which the Committee expects to render a determination.
(iii) Required content of the Notice of Adverse Benefit Determination.
(1)
In general
. In the event of an adverse benefit determination on
review, the notice thereof shall (A) specify the reason or reasons for the
adverse determination; (B) reference the specific provisions of this Plan on
which the benefit determination is based; (C) contain a statement that the
Claimant is entitled to receive, upon request and free of charge, reasonable
access to, and copies of all records and other information Relevant to the
Claimants claim for benefits; (D) a statement describing any voluntary
appeal procedures offered by the Plan, including the arbitration procedures
in Section 9(f); and (E) inform the Claimant of the right to bring a civil
action under the provisions of ERISA. If notice of the adverse benefit
determination is not furnished in accordance with the preceding provisions
of this Section, the claim shall be deemed accepted and payment shall be
made to the Claimant in accordance with the claim.
18
(2)
Claim for disability benefits
. The notice of adverse benefit
determination shall, in addition to the information specified in (1) above,
(A) disclose any internal rule, guidelines, protocol or similar criterion
relied on in making the adverse determination or a statement that such
information will be provided free of charge upon request, and (B) include
the following statement: You and your Plan may have other voluntary
alternative dispute resolution options, such as mediation. One way to find
out what may be available is to contact your local U.S. Department of Labor
Office and your State insurance regulatory agency.
(e)
Preservation of Remedies
. After exhaustion of the claims procedure as provided
herein, nothing shall prevent the Claimant from pursuing any other legal or equitable remedy
otherwise available, including the right to bring a civil action under Section 502(a) of ERISA, if
applicable.
(f)
Elective Arbitration
. If a Claimants claim described in Section 9(a) is denied
pursuant to Sections 9(b) and 9(d) (an
Arbitrable Dispute
), the Claimant may, in lieu of
the Claimants right to bring a civil action under Section 502(a) of ERISA, and as the Claimants
only further recourse, submit the claim to final and binding arbitration in the city of San Jose,
State of California, before an experienced employment arbitrator selected in accordance with the
Employment Dispute Resolution Rules of the American Arbitration Association. Except as otherwise
provided in this Section 9(f) or Section 9(h), each party shall pay the fees of their respective
attorneys, the expenses of their witnesses and any other expenses connected with the arbitration,
but all other costs of the arbitration, including the fees of the arbitrator, costs of any record
or transcript of the arbitration, administrative fees and other fees and costs shall be paid in
equal shares by each party (or, if applicable, each group of parties) to the arbitration. In any
Arbitrable Dispute in which the Claimant prevails, the Company shall reimburse the Claimants
reasonable attorneys fees and related expenses. Related expenses shall include, but not be limited
to, witness expenses, fees of the arbitrator, costs of any record or transcript of the arbitration,
administrative fees and other fees and expenses connected with the arbitration. Arbitration in
this manner shall be the exclusive remedy for any Arbitrable Dispute for which an arbitration is
elected. The arbitrators decision or award shall be fully enforceable and subject to an entry of
judgment by a court of competent jurisdiction. Should any party attempt to resolve an Arbitrable
Dispute for which an arbitration is elected by any method other than arbitration pursuant to this
Section, the responding party shall be entitled to recover from the initiating party all damages,
expenses and attorneys fees incurred as a result.
(g)
Legal Action
. Prior to a Change in Control, except to enforce an arbitrators
award, no actions may be brought by a Claimant in any court with respect to an Arbitrable Dispute
that is arbitrated.
19
(h)
Following a Change in Control
. Upon the occurrence of a Change in Control, an
independent party selected jointly by the Participants in the Plan prior to the Change in Control
and the Committee or the Plan Administrator or other appropriate person shall assume all duties and
responsibilities of the Committee or Plan Administrator under this Section 9 and actions may be
brought by a Claimant in any appropriate court with respect to an Arbitrable Dispute that is
arbitrated. After a Change in Control, if any person or entity has failed to comply (or is
threatening not to comply) with any of its obligations under the Plan, or takes or threatens to
take any action to deny, diminish or to recover from any Participant the benefits intended to be
provided thereunder, the Company shall reimburse the Participant for reasonable attorneys fees and
related costs incurred in the pursuance or defense of the Participants rights. If the Participant
does not prevail, attorneys fees shall also be payable under the preceding sentence to the extent
the Participant had reasonable justification for pursuing its claim, but only to the extent that
the scope of such representation was reasonable.
10. Effective Date
.
The Plan shall be effective as of July 1, 2010.
|
|
|
|
|
Flextronics International USA, Inc.
|
|
|
|
|
|
|
|
By:
|
|
/s/ Paul J. Humphries
Paul J. Humphries
|
|
|
|
|
Executive VP WW HR & Management Systems
|
|
|
Date Signed: October 8, 2010
20