UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the quarterly period ended December 31, 2008
or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to
Commission file number 0-23354
FLEXTRONICS INTERNATIONAL LTD.
(Exact name of registrant as specified in its charter)
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Singapore
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Not Applicable
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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One Marina Boulevard, #28-00
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018989
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Singapore
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(Zip Code)
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(Address of registrants principal executive offices)
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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 is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer
þ
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
o
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(Do not check if a smaller reporting company)
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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
As of February 2, 2009, there were
809,557,387 shares of the Registrants ordinary shares
outstanding.
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.
One Marina Boulevard, #28-00
Singapore, 018989
We have reviewed the accompanying condensed consolidated balance sheet of Flextronics International
Ltd. and subsidiaries (the Company) as of December 31, 2008, and the related condensed
consolidated statements of operations for the three-month and nine-month periods ended December 31,
2008 and December 31, 2007, and of cash flows for the nine-month periods ended December 31, 2008
and December 31, 2007. 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.
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, 2008, 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 23, 2008 (June 23, 2008 as to the caption Relacom AB included in Note 2), we
expressed an unqualified opinion on those consolidated financial statements and included an
explanatory paragraph regarding the Companys adoption of Statement of Financial Accounting
Standards No. 123(R)
Share Based Payment
. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of March 31, 2008 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
February 5, 2009
3
FLEXTRONICS INTERNATIONAL LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
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As of
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As of
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December 31,
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March 31,
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2008
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2008
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(In thousands,
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except share amounts)
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(Unaudited)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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1,796,279
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$
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1,719,948
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Accounts receivable, net of allowance for doubtful accounts of $31,563 and
$16,732 as of December 31, 2008 and March 31, 2008, respectively
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2,907,353
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3,550,942
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Inventories
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3,500,955
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4,118,550
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Other current assets
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977,472
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923,497
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Total current assets
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9,182,059
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10,312,937
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Property and equipment, net
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2,474,235
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2,465,656
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Goodwill
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5,559,351
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Other intangible assets, net
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310,641
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317,390
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Other assets
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807,194
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869,581
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Total assets
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$
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12,774,129
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$
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19,524,915
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LIABILITIES AND SHAREHOLDERS EQUITY
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Current liabilities:
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Bank borrowings, current portion of long-term debt and capital lease obligations
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$
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213,227
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$
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28,591
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Accounts payable
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4,830,123
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5,311,337
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Accrued payroll
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379,059
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399,718
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Other current liabilities
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1,766,843
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1,661,369
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Total current liabilities
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7,189,252
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7,401,015
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Long-term debt and capital lease obligations, net of current portion
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2,959,740
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3,388,337
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Other liabilities
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573,765
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571,119
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Commitments and contingencies (Note 11)
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Shareholders equity
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Ordinary shares, no par value; 839,364,115 and 835,202,669 shares issued, and
809,584,393 and 835,202,669 shares outstanding as of December 31, 2008 and
March 31, 2008, respectively
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8,602,375
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8,538,723
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Accumulated deficit
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(6,218,520
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(372,170
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Accumulated other comprehensive loss
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(72,409
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(2,109
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Treasury stock, at cost; 29,779,722 shares as of December 31, 2008
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(260,074
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Total shareholders equity
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2,051,372
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8,164,444
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Total liabilities and shareholders equity
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$
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12,774,129
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$
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19,524,915
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
FLEXTRONICS INTERNATIONAL LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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Three-Month Periods Ended
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Nine-Month Periods Ended
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December 31,
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December 31,
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2008
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2007
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2008
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2007
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(In thousands, except per share amounts)
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(Unaudited)
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Net sales
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$
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8,153,289
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$
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9,068,658
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$
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25,366,051
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$
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19,782,783
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Cost of sales
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7,855,950
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8,538,958
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24,168,167
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18,648,730
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Restructuring charges
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211,780
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26,317
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221,533
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Gross profit
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297,339
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317,920
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1,171,567
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912,520
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Selling, general and administrative expenses
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275,922
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261,586
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783,235
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560,725
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Intangible amortization
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32,613
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21,058
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108,176
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51,444
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Goodwill impairment charge
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5,949,977
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5,949,977
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Restructuring charges
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34,052
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2,898
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34,973
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Other charges (income), net
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(2,627
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61,078
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9,310
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61,078
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Interest and other expense, net
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53,641
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36,921
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141,254
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59,349
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Income (loss) before income taxes
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(6,012,187
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(96,775
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(5,823,283
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144,951
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Provision for income taxes
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2,947
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677,636
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23,067
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691,477
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Net loss
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$
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(6,015,134
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$
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(774,411
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$
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(5,846,350
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$
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(546,526
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Basic and diluted loss per share
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$
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(7.43
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$
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(0.94
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$
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(7.09
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$
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(0.80
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Basic and diluted weighted average shares outstanding
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809,536
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828,147
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824,737
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682,024
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
FLEXTRONICS INTERNATIONAL LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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Nine-Month Periods Ended
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December 31,
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2008
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2007
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(In thousands)
(Unaudited)
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CASH FLOWS FROM OPERATING ACTIVITIES:
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Net loss
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$
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(5,846,350
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$
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(546,526
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Depreciation, amortization and other impairment charges
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435,467
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486,597
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Goodwill impairment charge
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5,949,977
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Deferred income taxes
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(19,145
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)
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640,375
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Gain on divestiture of operations
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(9,309
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Gain on repurchase of 1% Convertible Subordinated Notes
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(28,148
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Provision for doubtful accounts
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66,588
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1,164
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Non-cash other, net
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3,451
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11,243
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Changes in operating assets and liabilities, net of acquisitions:
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Accounts receivable
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486,341
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(371,529
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)
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Inventories
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631,966
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20,951
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Other assets
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62,583
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(121,421
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Accounts payable
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(505,430
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)
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858,593
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Other liabilities
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(206,065
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)
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110,289
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Net cash provided by operating activities
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1,031,235
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1,080,427
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CASH FLOWS FROM INVESTING ACTIVITIES:
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Purchases of property and equipment, net of dispositions
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(373,266
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)
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(210,435
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)
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Acquisition of businesses, net of cash acquired
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(199,584
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)
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(439,216
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)
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Proceeds from divestitures of operations
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5,269
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11,138
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Other investments and notes receivable, net
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(8,085
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)
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(62,798
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)
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Net cash used in investing activities
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(575,666
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)
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(701,311
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)
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CASH FLOWS FROM FINANCING ACTIVITIES:
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Proceeds from bank borrowings and long-term debt, net of issuance costs
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9,317,918
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4,596,822
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Repayments of bank borrowings, long-term debt and capital lease obligations
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(9,289,583
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)
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(3,893,594
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)
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Payments for repurchase of long-term debt
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(226,199
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)
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Payments for repurchases of ordinary shares
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(260,074
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)
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Net proceeds from issuance of ordinary shares
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12,842
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29,097
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Net cash provided by (used in) financing activities
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(445,096
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)
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732,325
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Effect of exchange rates on cash
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65,858
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(25,142
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)
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Net increase in cash and cash equivalents
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76,331
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1,086,299
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Cash and cash equivalents, beginning of period
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1,719,948
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714,525
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Cash and cash equivalents, end of period
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$
|
1,796,279
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$
|
1,800,824
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Supplemental disclosures of cash flow information:
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Non-cash investing and financing activities:
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Issuance of ordinary shares for acquisition of business
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$
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$
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2,519,670
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Fair value of vested options assumed in acquisition of business
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$
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$
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11,282
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|
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 and white goods; automotive, marine
and aerospace; and medical devices. The Companys strategy is to provide customers with a full
range of 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.
On October 1, 2007, the Company completed the acquisition of 100% of the outstanding common
stock of Solectron Corporation (Solectron). Refer to Note 12, Business and Asset Acquisitions
for further details.
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,
2008 contained in the Companys Annual Report on Form 10-K, as amended. 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 nine-month
periods ended December 31, 2008 are not necessarily indicative of the results that may be expected
for the fiscal year ending March 31, 2009.
The first fiscal quarter ended on June 27, 2008 and June 29, 2007, respectively, and the
second fiscal quarter ended on September 26, 2008 and September 28, 2007, respectively. The third
fiscal quarter ends on December 31 and the fourth fiscal quarter and year ends on March 31 of each
year.
Customer Credit Risk
The Company has an established customer credit policy, through which it manages customer
credit exposures through credit evaluations, credit limit setting, monitoring, and enforcement of
credit limits for new and existing customers. The Company performs ongoing credit evaluations of
its customers financial condition and makes provisions for doubtful accounts based on the outcome
of those credit evaluations. The Company evaluates the collectibility of its accounts receivable
based on specific customer circumstances, current economic trends, historical experience with
collections and the age of past due receivables.
7
To the extent the Company identifies exposures as
a result of credit or customer evaluations, the Company also reviews other customer related
exposures, including but not limited to inventory and related contractual obligations. During the
three-month and nine-month period ended
December 31, 2008 the Company incurred $145.3 million and $262.7 million of charges for Nortel
and other customers that filed for bankruptcy or restructuring protection or otherwise were experiencing significant financial and
liquidity difficulties. Of these charges, the Company classified approximately $98.0 million and
$194.7 million in cost of sales related to the write-down of inventory and associated contractual
obligations and $47.3 million and $68.0 million as selling, general and administrative expenses for
provisions for doubtful accounts during the three-month and nine-month periods ended December 31,
2008, respectively. In the case of Nortel, in developing the charge to cost of sales, the Company
considered its negotiated agreement requiring Nortel to purchase $120.0 million of existing
inventory by July 1, 2009. This agreement has received preliminary approval by the
Ontario Superior Court of Justice and $75.0 million has been collected under the arrangement as of January 31, 2009.
Based on all information available through December 31, 2008, including discussions with
Nortel and its financial advisors, the Company believed that payment of receivables from Nortel was
reasonably assured at the time of shipment, and accordingly, the Company recorded revenues on sales
to Nortel at the time of shipment during the period. As part of the contractual arrangement
discussed above, the Company also secured five day payment terms on all post-bankruptcy petition
and post-CCCA (Companies Creditors Arrangement Act) filing shipments for Nortel. The Company reclassified approximately $88.2 million of trade receivables
from Nortel, net of the $47.3 million reserve, to other assets as of December 31, 2008, as the
Company does not expect these amounts to be collected within one year. In developing the provision
for these receivables, the Company considered various mitigating factors including existing
provisions for Nortel, off-setting obligations from Nortel and amounts subject to administrative
priority claims. As it is early in the restructuring proceedings, these estimates required a
considerable amount of judgment and accordingly, the provisions are subject to change.
For all other customers experiencing significant financial and liquidity difficulties and for
which the Company recognized associated charges during the nine-month period ended December 31,
2008, the Company recognizes revenues from these customers only when it collects cash for the
services, assuming all other criteria for revenue recognition have been met.
Inventories
The components of inventories, net of applicable lower of cost or market write-downs, were as
follows:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2008
|
|
|
|
(In thousands)
|
|
Raw materials
|
|
$
|
2,290,727
|
|
|
$
|
2,435,066
|
|
Work-in-progress
|
|
|
630,628
|
|
|
|
764,860
|
|
Finished goods
|
|
|
579,600
|
|
|
|
918,624
|
|
|
|
|
|
|
|
|
|
|
$
|
3,500,955
|
|
|
$
|
4,118,550
|
|
|
|
|
|
|
|
|
Property and Equipment
Total depreciation expense associated with property and equipment amounted to approximately
$100.8 million and $284.6 million for the three-month and nine-month periods ended December 31,
2008, respectively, and $105.0 million and $246.1 million for the three-month and nine-month
periods ended December 31, 2007, respectively. Proceeds from the disposition of property and
equipment were $36.7 million and $76.3 million during the nine-month periods ended December 31,
2008 and December 31, 2007, respectively, and are presented net with purchases of property and
equipment within cash flows from investing activities in the condensed consolidated statements of
cash flows.
8
Goodwill and Other Intangibles
The Company tests goodwill for impairment annually as of January 31 and concluded that no
impairment existed as of January 31, 2008. The Company also evaluates goodwill for impairment
whenever events or changes in circumstances indicate that the carrying amount may not be
recoverable. Recoverability of goodwill is measured at the reporting unit level by comparing the
reporting units carrying amount, including goodwill, to the fair value of
the reporting unit, which is measured based upon, among other factors, market multiples for
comparable companies as well as a discounted cash flow analysis. The Company has one reporting
unit: Electronic Manufacturing Services. If the recorded value of the assets, including goodwill,
and liabilities (net book value) of the reporting unit exceeds its fair value, an impairment loss
may be required to be recognized. Further, to the extent the net book value of the Company as a
whole is greater than its market capitalization, all, or a significant portion of its goodwill may
be considered impaired.
During its third fiscal quarter ended December 31, 2008, the Company concluded that an interim
goodwill impairment analysis was required based on the significant decline in the Companys market
capitalization during the quarter. This decline in market capitalization was driven largely by
deteriorating macroeconomic conditions that contributed to a considerable decrease in market
multiples as well as a decline in the Companys estimated discounted cash flows.
Pursuant to the guidance in SFAS 142,
Goodwill and Other Intangible Assets
(SFAS 142), the
measurement of impairment of goodwill consists of two steps. In the first step, the fair value of
the Company is compared to its carrying value. In connection with the preparation of interim
financial statements for the three-month period ended December 31, 2008, management completed a
valuation of the Company, which incorporated existing market-based considerations as well as a
discounted cash flow methodology based on current results and projections, and concluded the
estimated fair value of the Company was less than its net book value. Accordingly the guidance in
SFAS 142 requires a second step to determine the implied fair value of the Companys goodwill, and
to compare it to the carrying value of the Companys goodwill. This second step includes valuing
all of the tangible and intangible assets and liabilities of the Company as if it had been acquired
in a business combination, including valuing all of the Companys intangible assets even if they
were not currently recorded to determine the implied fair value of goodwill. The result of this
assessment indicated that the implied fair value of goodwill was zero. As a result, the Company
recognized a non-cash impairment charge of approximately $5.9 billion for the three-month and
nine-month periods ended December 31, 2008, respectively, to write-off the entire carrying value of
its goodwill.
The following table summarizes the activity in the Companys goodwill account during the
nine-month period ended December 31, 2008:
|
|
|
|
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
Balance, beginning of the
year
|
|
$
|
5,559,351
|
|
Acquisitions
(1)
|
|
|
112,019
|
|
Impairment
losses
|
|
|
(5,949,978
|
)
|
Purchase accounting adjustments, net (2)
|
|
|
354,721
|
|
Foreign currency translation adjustments
|
|
|
(76,113
|
)
|
|
|
|
|
Balance, end of the quarter
|
|
$
|
|
|
|
|
|
|
|
|
|
(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 12, Business and Asset Acquisitions.
|
|
(2)
|
|
Includes adjustments and reclassifications resulting from managements review of the
valuation of tangible and identifiable intangible assets and liabilities acquired through
certain business combinations completed in a period subsequent to the respective acquisition,
based on managements estimates, of which approximately $362.5 million was attributable to the
Companys October 2007 acquisition of Solectron, offset by $7.8 million of other adjustments
that were not individually significant. Refer to the discussion of the Companys acquisitions
in Note 12, Business and Asset Acquisitions.
|
During the nine-month period ended December 31, 2008, there were approximately $83.4 million
of additions to intangible assets related to customer-related intangibles and approximately $15.8
million related to acquired licenses and other intangibles. The fair value of the Companys
intangible assets purchased through business combinations is principally determined based on
managements estimates of cash flow and recoverability. The Company is in the process of
determining the fair value of intangible assets acquired in certain historical business
combinations. Such valuations will be completed within one year of purchase.
9
The components of
acquired intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008
|
|
|
As of March 31, 2008
|
|
|
|
Gross
|
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
|
Net
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer-related
|
|
$
|
533,001
|
|
|
$
|
(255,023
|
)
|
|
$
|
277,978
|
|
|
$
|
449,623
|
|
|
$
|
(160,971
|
)
|
|
$
|
288,652
|
|
Licenses and other
|
|
|
55,586
|
|
|
|
(22,923
|
)
|
|
|
32,663
|
|
|
|
39,797
|
|
|
|
(11,059
|
)
|
|
|
28,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
588,587
|
|
|
$
|
(277,946
|
)
|
|
$
|
310,641
|
|
|
$
|
489,420
|
|
|
$
|
(172,030
|
)
|
|
$
|
317,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets are amortized over the period and pattern of economic benefit that is
expected to be obtained. See Note 12, Business and Asset Acquisitions regarding the finalization
of the allocation of purchase price in connection with the Solectron acquisition.
The estimated future annual amortization expense for acquired intangible assets is as follows:
|
|
|
|
|
|
|
|
|
Fiscal Year Ending March 31,
|
|
Amount
|
|
|
|
(In thousands)
|
|
2009 (1)
|
|
$
|
27,390
|
|
2010
|
|
|
101,193
|
|
2011
|
|
|
70,481
|
|
2012
|
|
|
45,943
|
|
2013
|
|
|
30,107
|
|
Thereafter
|
|
|
35,527
|
|
|
|
|
|
Total amortization expense
|
|
$
|
310,641
|
|
|
|
|
|
|
|
|
(1)
|
|
Represents estimated amortization for the three-month period ending March 31, 2009.
|
Provision for income taxes
The Company has tax loss carryforwards 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. During the nine-month period
ended December 31, 2008, the provision for income taxes includes a benefit of approximately $57.9
million for the reversal of valuation allowances and other tax reserves. The Company received no
tax benefit from the write-off of goodwill or distressed customer charges.
During the nine-month period ended December 31, 2007, the Company recognized tax expense of
approximately $661.3 million relating to a re-evaluation of previously recorded deferred tax assets
in the United States, which were primarily comprised of tax loss carryforwards. Management
believed that the likelihood certain deferred tax assets would be realized had decreased because
the Company expected future projected taxable income in the United States would be lower as a
result of increased interest expense resulting from the term loan entered into as part of the
acquisition of Solectron. There was no incremental cash expenditure relating to this increase in
tax expense.
A number of countries in which the Company is located allow for tax holidays or provide other
tax incentives to attract and retain business. In general, these holidays were secured based on the
nature, size and location of the Companys operations. The aggregate dollar effect on the Companys
income from continuing operations resulting from tax holidays and tax incentives to attract and
retain business for the fiscal years ended March 31, 2008, 2007 and 2006 were $118.0 million, $98.0
million, $61.0 million, respectively. The effect on basic and diluted earnings per share from
continuing operations for the fiscal years ended March 31, 2008, 2007 and 2006 were $0.16 and
$0.16, $0.17 and $0.16, and $0.11 and $0.10, respectively. Unless extended or otherwise
renegotiated, the Companys existing holidays will expire in the fiscal years ending March 31, 2010
through fiscal 2018.
10
Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157),
which defines fair value, establishes a framework for measuring fair value under generally accepted
accounting principles, and expands the requisite disclosures for fair value measurements. SFAS 157
was effective for the Company beginning April 1, 2008 for financial assets and liabilities, as well
as for any other assets and liabilities that are carried at fair value on a recurring basis. The
adoption of the provisions of SFAS 157 related to financial assets and liabilities, and
other assets and liabilities that are carried at fair value on a recurring basis did not
materially impact the Companys consolidated financial position, results of operations and cash
flows.
In May 2008, the FASB issued FASB Staff Position No. APB 14-1 (FSP APB 14-1), Accounting
for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial
Cash Settlement). FSP APB 14-1 requires that issuers of convertible debt instruments that may be
settled in cash upon conversion separately account for the liability and equity components in a
manner that will reflect the entitys nonconvertible debt borrowing rate when the interest cost is
recognized in subsequent periods. The Company is required to adopt FSP APB 14-1 retrospectively,
effective for fiscal years, and interim periods within those fiscal years, beginning after December
15, 2008. The Company will adopt FSP APB 14-1 beginning April 1, 2009 and is evaluating the impact
that the adoption of FSP APB 14-1 will have on its consolidated financial position, results of
operations and cash flows.
3. STOCK-BASED COMPENSATION
The Company grants equity compensation awards to acquire the Companys ordinary shares from
four plans, which collectively are referred to as the Companys equity compensation plans below.
On September 30, 2008, the Companys shareholders approved: (i) an increase in the shares available
under its 2001 Equity Incentive plan by 20.0 million ordinary shares to 62.0 million ordinary
shares, (ii) a 5.0 million share increase in the amount of such ordinary shares that may be issued
as share bonus awards to 20.0 million ordinary shares, and (iii) a 2.0 million share increase in
the amount of such ordinary shares subject to awards which may be granted to a person in any
calendar year to 6.0 million ordinary shares. For further discussion of these 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, as amended, for the fiscal year ended March 31, 2008.
Stock-Based Compensation Expense
The following table summarizes the Companys stock-based compensation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended
|
|
|
Nine-Month Periods Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
Cost of
sales
|
|
$
|
2,607
|
|
|
$
|
2,205
|
|
|
$
|
6,798
|
|
|
$
|
4,674
|
|
Selling, general and administrative expenses
|
|
|
15,179
|
|
|
|
12,139
|
|
|
|
42,500
|
|
|
|
28,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
17,786
|
|
|
$
|
14,344
|
|
|
$
|
49,298
|
|
|
$
|
33,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008, the total unrecognized compensation cost related to unvested stock
options granted to employees under the Companys equity compensation plans was approximately
$119.9 million, net of estimated forfeitures of $9.4 million. This cost will be amortized on a
straight-line basis over a weighted-average period of approximately 3.2 years, and will be adjusted
for subsequent changes in estimated forfeitures. As of December 31, 2008, the total unrecognized
compensation cost related to unvested share bonus awards granted to employees under the Companys
equity compensation plans was approximately $74.2 million, net of estimated forfeitures of
approximately $3.5 million. This cost will be amortized generally on a straight-line basis over a
weighted-average period of approximately 2.4 years, and will be adjusted for subsequent changes in
estimated forfeitures.
11
Determining Fair Value
The fair value of options granted to employees under the Companys equity compensation plans
during the three-month and nine-month periods ended December 31, 2008 and December 31, 2007 was
estimated using the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended
|
|
|
Nine-Month Periods Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Expected term
|
|
4.1 years
|
|
|
4.6 years
|
|
|
4.2 years
|
|
|
4.6 years
|
|
Expected volatility
|
|
|
62.4
|
%
|
|
|
37.0
|
%
|
|
|
50.2
|
%
|
|
|
36.1
|
%
|
Expected dividends
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Risk-free interest rate
|
|
|
1.5
|
%
|
|
|
3.8
|
%
|
|
|
2.2
|
%
|
|
|
4.2
|
%
|
Weighted-average fair value
|
|
$
|
1.10
|
|
|
$
|
4.54
|
|
|
$
|
2.29
|
|
|
$
|
4.33
|
|
Options issued during the three-month and nine-month periods ended December 31, 2008 have
contractual lives of seven years, respectively, and options issued during the three-month and
nine-month periods ended December 31, 2007 have contractual lives of ten years, respectively.
During the nine-month period ended December 31, 2008, 2.7 million options were granted to
certain key employees whereby vesting is contingent upon a service requirement over a period of
four years. These options expire seven years from the date of grant and are exercisable only when
the Companys stock price is $12.50 per share, or above. The fair value of these options was
estimated to be $4.25 per share and was calculated using a lattice model.
Stock-Based Awards Activity
The following is a summary of option activity for the Companys equity compensation plans,
excluding unvested share bonus awards, during the nine-month period ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
Number of Shares
|
|
|
Price
|
|
|
Term in Years
|
|
|
Intrinsic Value
|
|
Outstanding as of March 31, 2008
|
|
|
52,541,413
|
|
|
$
|
11.67
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
41,194,081
|
|
|
|
6.45
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(2,242,639
|
)
|
|
|
6.13
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(6,096,696
|
)
|
|
|
11.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2008
|
|
|
85,396,159
|
|
|
$
|
9.33
|
|
|
|
6.06
|
|
|
$
|
6,085,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest as of December 31, 2008
|
|
|
82,689,415
|
|
|
$
|
9.41
|
|
|
|
6.03
|
|
|
$
|
5,717,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of December 31, 2008
|
|
|
38,184,190
|
|
|
$
|
12.12
|
|
|
|
5.09
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value of options exercised (calculated as the difference between the
exercise price of the underlying award and the price of the Companys ordinary shares determined as
of the time of option exercise) under the Companys equity compensation plans was $0.4 million and
$6.3 million during the three-month and nine-month periods ended December 31, 2008, respectively,
and $6.3 million and $11.9 million during the three-month and nine-month periods ended December 31,
2007, respectively.
Cash received from option exercises under all equity compensation plans was $0.9 million and
$13.7 million for the three-month and nine-month periods ended December 31, 2008, respectively, and
$19.1 million and $29.1 million for the three-month and nine-month periods ended December 31, 2007,
respectively.
12
The following table summarizes share bonus award activity for the Companys equity
compensation plans during the nine-month period ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
|
Grant-Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
Unvested share bonus awards as of March 31, 2008
|
|
|
8,866,364
|
|
|
$
|
10.70
|
|
Granted
|
|
|
2,597,727
|
|
|
|
9.92
|
|
Vested
|
|
|
(1,776,102
|
)
|
|
|
9.36
|
|
Forfeited
|
|
|
(604,125
|
)
|
|
|
11.49
|
|
|
|
|
|
|
|
|
|
Unvested share bonus awards as of December 31, 2008
|
|
|
9,083,864
|
|
|
$
|
10.68
|
|
|
|
|
|
|
|
|
|
Of the 2.6 million unvested share bonus awards granted under the Companys equity compensation
plans during the nine-month period ended December 31, 2008, 700,000 were granted to certain key
employees whereby vesting is contingent upon both a service requirement and the Companys
achievement of certain longer-term goals over a
period of three years. As of December 31, 2008, management believed that the maximum number of
shares will be issued at the end of the performance period.
The total fair value of shares vested under the Companys equity compensation plans was $1.1
million and $16.6 million during the three-month and nine-month periods ended December 31, 2008,
respectively, and $3.2 million and $15.9 million during the three-month and nine-month periods
ended December 31, 2007, respectively.
4. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is measured as net income or loss divided by the weighted
average outstanding ordinary shares for the period. Diluted earnings (loss) per share includes the
potential dilution from stock options, share bonus awards and convertible securities. As a result
of the Companys net losses for the three-month and nine-month periods ended December 31, 2008 and
2007, the following ordinary share equivalents were excluded from the computation of diluted
earnings (loss) per share:
|
|
|
Ordinary share equivalents from equity compensation awards to acquire approximately
73.3 million and 68.2 million ordinary shares outstanding during the three-month and
nine-month periods ended December 31, 2008, respectively, and 46.1 million and 45.4
million shares outstanding during the three-month and nine-month periods ended December
31, 2007; and
|
|
|
|
|
Ordinary share equivalents from the conversion spread (excess of conversion value over
face value), of the Companys convertible notes totaling approximately 2.2 million and
1.6 million shares, respectively, during the three-month and nine-month periods ended
December 31, 2007. There were no ordinary share equivalents attributable to the
Companys convertible notes during the three-month and nine-month periods ended December
31, 2008 because the conversion price was greater than the average stock price during the
periods.
|
5. OTHER COMPREHENSIVE INCOME
The following table summarizes the components of other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended
|
|
|
Nine-Month Periods Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
Net
loss
|
|
$
|
(6,015,134
|
)
|
|
$
|
(774,411
|
)
|
|
$
|
(5,846,350
|
)
|
|
$
|
(546,526
|
)
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
(25,219
|
)
|
|
|
(1,289
|
)
|
|
|
(44,404
|
)
|
|
|
16,359
|
|
Unrealized gain (loss) on derivative instruments, and
other income (loss), net of taxes
|
|
|
(34,091
|
)
|
|
|
(5,216
|
)
|
|
|
(25,896
|
)
|
|
|
(4,536
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(6,074,444
|
)
|
|
$
|
(780,916
|
)
|
|
$
|
(5,916,650
|
)
|
|
$
|
(534,703
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
6. BANK BORROWINGS AND LONG-TERM DEBT
As of December 31, 2008 and March 31, 2008, there were $200.0 and $161.0 million,
respectively, in borrowings outstanding under the Companys $2.0 billion credit facility. As of
December 31, 2008, the Company was in compliance with the financial covenants under the $2.0
billion credit facility.
As of December 31, 2008, the $195.0 million aggregate principal amount of the Zero Coupon
Convertible Junior Subordinated Notes, due July 31, 2009, was reclassified to current liabilities
and included in Bank borrowings, current portion of long-term debt and capital lease obligations
in the Condensed Consolidated Balance Sheets.
During October 2008, the Company entered into two interest rate swap transactions to
effectively convert the floating interest rate on an additional $200.0 million outstanding under
its $1.7 billion Term Loan Agreement to a fixed interest rate. The swaps, having notional amounts
of $100.0 million each, become effective on January 2, 2009, expire on January 4, 2010 and are
accounted for as cash flow hedges under SFAS 133. The Company pays a
fixed interest rate of approximately 2.42% and 2.45% under each of the $100.0 million swaps,
respectively, and receives a floating rate equal to three-month LIBOR for both.
During December 2008, the Company paid approximately $226.2 million to purchase an aggregate
principal amount of $260.0 million of its outstanding 1% Convertible Subordinated Notes due August
1, 2010 (the Notes) in accordance with a modified Dutch auction procedure. The Company recognized
a gain of approximately $28.1 million during the three-month and nine-month periods ended December
31, 2008 associated with the partial extinguishment of the Notes net of approximately $5.7 million
for estimated transaction costs and the write-off of related debt issuance costs, which is recorded
in Other charges (income), net in the Condensed Consolidated Statements of Operations. As of
December 31, 2008, $240.0 million of the Notes remained outstanding.
7. TRADE RECEIVABLES SECURITIZATION
The Company continuously sells designated pools of trade receivables under two asset backed
securitization programs, including its new $300.0 million facility entered into by the Company on
September 25, 2008.
Global Asset-Backed Securitization Agreement
The Company continuously sells a designated pool of trade receivables to a third-party
qualified special purpose entity, which in turn sells an undivided
ownership interest to two commercial paper conduits, administered by an unaffiliated financial institution. In addition to
these commercial paper conduits, the Company participates in the securitization agreement as an investor
in the conduit. The securitization agreement allows the operating subsidiaries participating in the
securitization program to receive a cash payment for sold receivables, less a deferred purchase
price receivable. The 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 nine-month periods ended December
31, 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 or liabilities
are recognized.
The maximum investment limit of
the two commercial paper conduits is $700.0 million, inclusive of
$200.0 million attributable to two Obligor Specific Tranches, which were incorporated in order to
minimize the impact of excess concentrations of two major customers. The Company pays annual
facility and commitment fees ranging from 0.16% to 0.40% (averaging approximately 0.25%) for unused
amounts and an additional program fee of 0.10% on outstanding amounts.
The third-party special purpose entity is a qualifying special purpose entity as defined in
SFAS 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities
(SFAS 140)
,
and accordingly, the Company does not consolidate this entity pursuant to
FASB Interpretation No. 46 (revised December 2003),
Consolidation of Variable Interest Entities
(FIN 46(R)). As of December 31, 2008 and March 31, 2008, approximately $530.9 million and
$363.7 million of the Companys accounts receivable, respectively, had been sold to this
third-party qualified special purpose entity. The amounts represent the face amount of the total
outstanding trade receivables on all designated
customer accounts on those dates.
14
The accounts
receivable balances that were sold under this agreement were removed from the Condensed
Consolidated Balance Sheets and are reflected as cash provided by operating activities in the
Condensed Consolidated Statements of Cash Flows. The Company received net cash proceeds of
approximately $399.0 million and $274.3 million from the
commercial paper conduits for the sale of
these receivables as of December 31, 2008 and March 31, 2008, respectively. The difference between
the amount sold to the commercial paper conduits and net cash proceeds received from the commercial
paper conduits is recognized as a loss on sale of the receivables and recorded in Interest and other
expense, net in the Condensed Consolidated Statements of Operations. The Company has a recourse
obligation that is limited to the deferred purchase price receivable, which approximates 5% of the
total sold receivables, and its own investment participation, the total of which was approximately
$131.9 million and $89.4 million as of December 31, 2008 and March 31, 2008, respectively, and each
is recorded in Other current assets in the Condensed Consolidated Balance Sheet as of December 31,
2008. The amount of the Companys own investment participation varies depending on certain
criteria, mainly the collection performance on the sold receivables. As the recoverability of the
trade receivables underlying the Companys own investment participation is 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 reflects the estimated recoverability of the underlying trade receivables.
North American Asset-Backed Securitization Agreement
On September 25, 2008, the Company entered into a new agreement to continuously sell a
designated pool of trade receivables to an affiliated special purpose vehicle, which in turn sells
an undivided ownership interest 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 nine-month periods ended December 31, 2009 were not material and are 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. The
Company pays commitment fees of 0.50% per annum on the aggregate amount of the liquidity
commitments of the financial institutions under the facility (which is 102% of the maximum
investment limit) and an additional program fee of 0.45% on the aggregate amounts invested under
the facility by the conduits to the extent funded through the issuance of commercial paper.
The affiliated special purpose vehicle is not a qualifying special purpose entity as defined
in SFAS 140, since the Company, by design of the transaction, absorbs the majority of expected
losses from transfers of trade receivables into the special purpose vehicle and, as such, is deemed
the primary beneficiary of this entity. Accordingly, the Company consolidates the special purpose
vehicle pursuant to FIN 46(R). As of December 31, 2008, the Company transferred approximately
$592.6 million of receivables into the special purpose vehicle described above. In accordance with
SFAS 140, the Company is deemed to have sold approximately $239.2 million of this $592.6 million to
the two commercial paper conduits as of December 31, 2008, and received approximately $238.4
million in net cash proceeds for the sale. 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 are 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 is recorded in Interest
and other expense, net in the Condensed Consolidated Statements of Operations. Pursuant to SFAS
140, the remaining trade receivables transferred into the special purpose vehicle and not sold to
the two commercial paper conduits comprise the primary assets of that entity, and are included in
trade accounts receivable, net in the Condensed Consolidated Balance Sheets of the Company. The
recoverability of these trade receivables is 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.
15
The Company also sold accounts receivables to certain third-party banking institutions with
limited recourse, which management believes is nominal. The outstanding balance of receivables sold
and not yet collected was approximately $167.4 million and $478.4 million as of December 31, 2008
and March 31, 2008, respectively. In accordance with SFAS No. 140, these receivables that were
sold were removed from the Condensed Consolidated Balance Sheets and are reflected as cash provided
by operating activities in the Condensed Consolidated Statement of Cash Flows.
8. RESTRUCTURING CHARGES
The Company recognized restructuring charges of $29.2 million during the nine-month period
ended December 31, 2008 to realign workforce and capacity primarily related to the acquisition of
Solectron. These actions encompassed several manufacturing and design locations and were initiated
in an effort to consolidate and integrate our global capacity and infrastructure so as to optimize
the Companys operational efficiencies post-acquisition. The activities associated with these
charges involved multiple actions at each location, were completed in multiple steps and will be
substantially completed within one year of the commitment dates of the respective activities. The
restructuring
charges by reportable geographic region amounted to approximately $13.4 million, $10.5 million
and $5.3 million for Asia, the Americas and Europe, respectively. The Company classified
approximately $26.3 million of these charges as a component of cost of sales during the nine-month
period ended December 31, 2008.
The main component of the charge was severance related costs, amounting to approximately $28.3
million, associated with the involuntary terminations of 1,667 identified employees in connection
with the charges described above. The identified involuntary employee terminations by reportable
geographic region amounted to approximately, 825, 390 and 452 for Asia, the Americas and Europe,
respectively. Approximately $25.4 million of the charges were classified as a component of cost of
sales.
The following table summarizes the provisions, respective payments, and remaining accrued
balance as of December 31, 2008 for charges incurred in fiscal year 2009 and prior periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Lived
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
|
|
|
Other
|
|
|
|
|
|
|
Severance
|
|
|
Impairment
|
|
|
Exit Costs
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Balance as of March 31, 2008
|
|
$
|
178,769
|
|
|
$
|
|
|
|
$
|
106,924
|
|
|
$
|
285,693
|
|
Activities during the first quarter:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provisions incurred in fiscal year 2009
|
|
|
28,318
|
|
|
|
121
|
|
|
|
776
|
|
|
|
29,215
|
|
Cash payments for charges incurred in fiscal year 2009
|
|
|
(442
|
)
|
|
|
|
|
|
|
|
|
|
|
(442
|
)
|
Cash payments for charges incurred in fiscal year 2008
|
|
|
(42,097
|
)
|
|
|
|
|
|
|
(29,793
|
)
|
|
|
(71,890
|
)
|
Cash payments for charges incurred in fiscal year 2007 and prior
|
|
|
(1,856
|
)
|
|
|
|
|
|
|
(1,470
|
)
|
|
|
(3,326
|
)
|
Non-cash charges incurred during the first quarter
|
|
|
|
|
|
|
(121
|
)
|
|
|
(225
|
)
|
|
|
(346
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 27, 2008
|
|
|
162,692
|
|
|
|
|
|
|
|
76,212
|
|
|
|
238,904
|
|
Activities during the second quarter:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments for charges incurred in fiscal year 2009
|
|
|
(8,621
|
)
|
|
|
|
|
|
|
|
|
|
|
(8,621
|
)
|
Cash payments for charges incurred in fiscal year 2008
|
|
|
(51,142
|
)
|
|
|
|
|
|
|
(7,068
|
)
|
|
|
(58,210
|
)
|
Cash payments for charges incurred in fiscal year 2007 and prior
|
|
|
(1,569
|
)
|
|
|
|
|
|
|
(1,836
|
)
|
|
|
(3,405
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 26, 2008
|
|
|
101,360
|
|
|
|
|
|
|
|
67,308
|
|
|
|
168,668
|
|
Activities during the third quarter:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments for charges incurred in fiscal year 2009
|
|
|
(7,093
|
)
|
|
|
|
|
|
|
(222
|
)
|
|
|
(7,315
|
)
|
Cash payments for charges incurred in fiscal year 2008
|
|
|
(17,132
|
)
|
|
|
|
|
|
|
(22,831
|
)
|
|
|
(39,963
|
)
|
Cash payments for charges incurred in fiscal year 2007 and prior
|
|
|
(1,813
|
)
|
|
|
|
|
|
|
(2,444
|
)
|
|
|
(4,257
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
|
75,322
|
|
|
|
|
|
|
|
41,811
|
|
|
|
117,133
|
|
Less: current portion (classified as other current liabilities)
|
|
|
(71,850
|
)
|
|
|
|
|
|
|
(13,157
|
)
|
|
|
(85,007
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued restructuring costs, net of current portion (classified as
other liabilities)
|
|
$
|
3,472
|
|
|
$
|
|
|
|
$
|
28,654
|
|
|
$
|
32,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008, accrued costs related to restructuring charges incurred during fiscal
year 2009 were approximately $12.5 million, the entire amount of which was classified as current.
16
As of December 31, 2008 and March 31, 2008, accrued restructuring costs for charges incurred
during fiscal year 2008 were approximately $79.5 million and $249.6 million, respectively, of which
approximately $20.3 million and $50.0 million, respectively, was classified as a long-term
obligation. As of December 31, 2008 and March 31,
2008, accrued restructuring costs for charges incurred during fiscal years 2007 and prior were
approximately $25.0 million and $36.1 million, respectively, of which approximately $11.8 million
and $16.1 million, respectively, was classified as a long-term obligation.
The Company recognized restructuring charges of approximately $245.8 million and $256.5
million during the three-month and nine-month periods ended December 31, 2007. These costs were
principally incurred in connection with the Companys acquisition of Solectron, were related to
restructuring activities for operations that were associated with the Company prior to the
acquisition, and were initiated by the Company in an effort to consolidate and integrate the
Companys global capacity and infrastructure as a result of the acquisition. These activities,
which included closing, consolidating and relocating certain manufacturing and administrative
operations, eliminating redundant assets, and reducing excess workforce and capacity, encompass
over 25 different manufacturing locations and were intended to optimize the Companys operational
efficiencies post acquisition. The Company classified approximately $211.8 million and $221.5
million of these charges as a component of cost of sales during the three-month and nine-month
periods ended December 31, 2007.
As of December 31, 2008 and March 31, 2008, assets that were no longer in use and held for
sale as a result of restructuring activities totaled approximately $38.5 million and $14.3 million,
respectively, representing manufacturing facilities that have been closed as a part of the
Companys facility consolidations. During the period ended December 31, 2008, the increase in
assets held for sale of $24.2 million primarily related to site closures and facility
consolidations. For assets held for sale, depreciation ceases and an impairment loss is recognized
if the carrying amount of the asset exceeds its fair value less cost to sell. Assets held for sale
are included in other 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 2008 Annual
Report on Form 10-K, as amended, for the fiscal year ended March 31, 2008.
9. OTHER CHARGES (INCOME), NET
During the three-month and nine-month periods ended December 31, 2008 the Company recognized a
net gain of approximately $28.1 million associated with the partial extinguishment of its 1%
Convertible Subordinated Notes due August 1, 2010. Refer to Note 6, Bank Borrowings and Long-Term
Debt for additional information.
During the three-month and nine-month periods ended December 31, 2008, the Company recognized
$25.5 million and $37.5 million in charges for the other-than-temporary impairment of certain of
the Companys investments in companies that are experiencing significant financial and liquidity
difficulties. Of the amount recognized during the nine-month period ended December 31, 2008, $11.9
million was primarily associated with a financially distressed customer as discussed in Note 2,
Summary of Accounting Policies Customer Credit Risk.
During the three-month and nine-month periods ended December 31, 2007, the Company recognized
approximately $61.1 million in other charges related to the other-than-temporary impairment and
related charges on certain of the Companys investments. Of this amount, approximately $57.6
million was for the impairment loss and other related charges attributable to the Companys
divestiture of its equity interest in Relacom Holding AB (Relacom). In January 2008, the Company
liquidated all of its approximately 35% investment in the common stock of Relacom, which was
accounted for under the equity method. The Company received approximately $57.4 million of cash
proceeds in January 2008 in connection with the divestiture of this equity investment. The equity
in the earnings or losses of the Companys equity method investments was not material to its
condensed consolidated results of operations for the three-month and nine-month periods ended
December 31, 2007, and were classified as a component of interest and other expense, net in the
condensed consolidated statement of operations. Refer to Note 2, Summary of Accounting Policies
of the Notes to Consolidated Financial Statements of our Annual Report on our Form 10-K, as
amended, for the fiscal year ended March 31, 2008.
17
10. INTEREST AND OTHER EXPENSE, NET
During the three-month periods ended December 31, 2008 and December 31, 2007, the Company
recognized total interest expense of $51.9 million and $60.5 million, respectively, on its debt
obligations outstanding during the period. The Company recognized total interest expense of $163.5
million and $123.9 million during the nine-month periods ended December 31, 2008 and December 31,
2007, respectively.
During the nine-month period ended December 31, 2007 the Company recognized a gain of
approximately $9.3 million in connection with the divestiture of a certain international entity.
The results of operations for this entity were not significant.
11. 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.
12. BUSINESS AND ASSET ACQUISITIONS
The business and asset acquisitions described below were accounted for using the purchase
method of accounting pursuant to SFAS 141, and accordingly, the fair value of the net assets
acquired and the results of the acquired businesses were included in the Companys Condensed
Consolidated Financial Statements from the acquisition dates forward. The Company has not finalized
the allocation of the consideration for certain of its
recently completed acquisitions and expects to complete these allocations within one year of
the respective acquisition dates.
Solectron Acquisition
On October 1, 2007, the Company completed its acquisition of 100% of the outstanding common
stock of Solectron. The results of Solectrons operations were included in the Companys
consolidated financial results beginning on the acquisition date.
The Company issued approximately 221.8 million of its ordinary shares, paid approximately
$1.1 billion in cash and assumed approximately 7.4 million fully vested and unvested options to
acquire the Companys ordinary shares in connection with the acquisition. The total purchase price
for the acquisition is as follows (in thousands):
|
|
|
|
|
Fair value of Flextronics ordinary shares issued
|
|
$
|
2,518,664
|
|
Cash
|
|
|
1,060,943
|
|
Estimated fair value of vested options assumed
|
|
|
11,282
|
|
Direct transaction costs (1)
|
|
|
26,292
|
|
|
|
|
|
Total aggregate purchase price
|
|
$
|
3,617,181
|
|
|
|
|
|
|
|
|
(1)
|
|
Direct transaction costs consist of legal, accounting, financial advisory and other costs relating to the acquisition.
|
Purchase Price Allocation
The allocation of the purchase price to Solectrons tangible and identifiable intangible
assets acquired and liabilities assumed was based on their estimated fair values as of the date of
acquisition. The excess of the purchase price over the tangible and identifiable intangible assets
acquired and liabilities assumed has been allocated to goodwill.
18
The following represents the Companys final allocation of the total purchase price to the
acquired assets and liabilities assumed of Solectron (in thousands):
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
637,481
|
|
Accounts receivable
|
|
|
1,491,232
|
|
Inventories
|
|
|
1,716,055
|
|
Other current assets
|
|
|
255,704
|
|
|
|
|
|
Total current assets
|
|
|
4,100,472
|
|
Property and equipment
|
|
|
545,791
|
|
Goodwill
|
|
|
2,529,945
|
|
Other intangible assets
|
|
|
191,600
|
|
Other assets
|
|
|
129,723
|
|
|
|
|
|
Total assets
|
|
|
7,497,531
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Accounts payable
|
|
|
1,521,654
|
|
Other current liabilities
|
|
|
1,492,722
|
|
|
|
|
|
Total current liabilities
|
|
|
3,014,376
|
|
Long-term debt and capital lease obligations, net of current portion
|
|
|
630,837
|
|
Other liabilities
|
|
|
235,137
|
|
|
|
|
|
Total aggregate purchase price
|
|
$
|
3,617,181
|
|
|
|
|
|
During the nine-month period ended December 31, 2008, the Company allocated approximately
$180.3 million and $114.9 million to current liabilities and other liabilities, respectively,
primarily for certain liabilities assumed from Solectron and other liabilities assumed in
connection with restructuring activities accounted for in accordance with Emerging Issues Task
Force Issue No. 95-3
Recognition of Liabilities in Connection with a Purchase Business
Combination.
Goodwill related to the acquisition increased
$362.8 million during the nine-month
period ended December 31, 2008, as a result of the above and other fair value adjustments that were
not significant individually or in the aggregate. As a result of the finalization of the purchase
price allocation, cumulative catch-up adjustments
were recorded to the condensed consolidated statements of operations resulting in a decrease
to income before income taxes of approximately $4.6 million for the nine-month period ended
December 31, 2008. These adjustments primarily related to increased amortization expense of
approximately $9.3 million, offset by a reduction in cost of sales for losses on non-cancelable
customer contracts of approximately $4.7 million for the nine-month period ended December 31, 2008.
Refer to Note 12, Business and Asset Acquisitions and Divestitures, to the Consolidated Financial
Statements in the Companys 2008 Annual Report on Form 10-K, as amended, for the fiscal year ended
March 31, 2008 for further discussion regarding the Companys acquisition of Solectron.
Pro Forma Financial Information
The following table reflects the pro forma consolidated results of operations for the period
presented, as though the acquisition of Solectron had occurred as of the beginning of the period
being reported on, after giving effect to certain adjustments primarily related to the amortization
of acquired intangibles, stock-based compensation expense, and incremental interest expense,
including related income tax effects. The pro forma adjustments are based upon available
information and certain assumptions that the Company believes are reasonable. The pro forma
financial information presented is for illustrative purposes only and is not necessarily indicative
of the results of operations that would have been realized if the acquisition had been completed on
the dates indicated, nor is it indicative of future operating results.
The pro forma consolidated results of operations do not include the effects of:
|
|
|
synergies, which are expected to result from anticipated operating efficiencies and
cost savings, including expected gross margin improvement in future quarters due to
scale and leveraging of Flextronicss and Solectrons manufacturing platforms;
|
|
|
|
|
potential losses in gross profit due to revenue attrition resulting from combining
the two companies; and
|
|
|
|
|
any costs of restructuring, integration, and retention bonuses associated with the
closing of the acquisition.
|
19
|
|
|
|
|
|
|
|
|
|
|
Three-Month Period Ended
|
|
|
Nine-Month Period Ended
|
|
|
|
December 31, 2007
|
|
|
December 31, 2007
|
|
|
|
(In thousands, except per share amounts)
|
|
Net
sales
|
|
$
|
9,097,669
|
|
|
$
|
25,858,800
|
|
Income (loss) before income taxes
|
|
$
|
(96,355
|
)
|
|
$
|
110,455
|
|
Net
loss
|
|
$
|
(773,991
|
)
|
|
$
|
(586,470
|
)
|
Basic and diluted loss per share
|
|
$
|
(0.93
|
)
|
|
$
|
(0.71
|
)
|
Other Acquisitions
During the nine-month period ended December 31, 2008, the Company completed six acquisitions
that were not individually, or in the aggregate, significant to the Companys consolidated results
of operations and financial position. The acquired businesses complement the Companys design and
manufacturing capabilities for the computing, infrastructure, industrial and consumer digital
market segments, and expanded the Companys power supply capabilities. The aggregate cash paid for
these acquisitions totaled approximately $197.1 million, net of cash acquired. The Company recorded
goodwill of $112.0 million from these acquisitions. The purchase prices for these acquisitions have
been allocated on the basis of the estimated fair value of assets acquired and liabilities assumed.
The Company has not finalized the allocation of the consideration for certain of its recently
completed acquisitions pending the completion of valuations. The Company paid approximately $2.4
million relating to a contingent purchase price adjustment from a certain historical acquisition.
The purchase price for certain acquisitions is subject to adjustments for contingent consideration,
based upon the businesses achieving specified levels of earnings through fiscal year 2010.
Generally, the contingent consideration has not been recorded as part of the purchase price,
pending the outcome of the contingency.
13. SHARE REPURCHASE PLAN
On July 23, 2008, the Companys Board of Directors authorized the repurchase of up to ten
percent of the Companys outstanding ordinary shares. Until the Companys 2008 Annual General
Meeting, held on September 30, 2008, the Company was authorized to repurchase up to approximately
61.0 million shares. Following shareholder approval at the 2008 Annual General Meeting, the amount
authorized for repurchase was increased to
approximately 80.9 million shares. The impairment of the Companys goodwill limits its
ability to repurchase shares under the current provisions of its debt facilities. The Company did
not repurchase any shares under this plan during the three-month period ended December 31, 2008.
During the nine-month period ended December 31, 2008, the Company repurchased approximately 29.8
million shares under this plan for an aggregate purchase price of $260.1 million.
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, as amended, for the year ended March 31,
2008. 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 provider of advanced design and electronics manufacturing services (EMS) to
original equipment manufacturers (OEMs) of a broad range of products in the following market
segments: infrastructure; mobile communication devices; computing; consumer digital devices;
industrial, semiconductor and white goods; automotive, marine and aerospace; and medical devices.
We provide a full range of vertically-integrated global supply chain services through which we
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 services; rigid printed circuit board and
flexible circuit fabrication; systems assembly and manufacturing; logistics; after-sales services;
and multiple component product offerings.
We are one of the worlds largest EMS providers, with revenues of $8.2 billion and $25.4
billion during the three-month and nine-month periods ended December 31, 2008, respectively. As of
March 31, 2008, our total manufacturing capacity was approximately 27.0 million square feet in over
25 countries across four continents. We have established an extensive network of manufacturing
facilities in the worlds major electronics markets in order to serve the growing outsourcing needs
of both multinational and regional OEMs. For the nine-month period ended December 31, 2008, our net
sales in Asia, the Americas and Europe represented approximately 51%, 33% and 16%, respectively, of
our total net sales, based on the location of the manufacturing site.
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
simplify the global product development and manufacturing process and provide meaningful time to
market and cost savings for our OEM customers.
On October 1, 2007, we completed the acquisition of 100% of the outstanding common stock of
Solectron in a cash and stock transaction valued at approximately $3.6 billion, including estimated
transaction costs. We issued approximately 221.8 million shares of our ordinary stock and paid
approximately $1.1 billion in cash in connection with the acquisition. The acquisition of Solectron
broadened our service offerings, strengthened our capabilities in the high end computing,
communication and networking infrastructure market segments, increased the scale of our existing
operations and diversified our customer and product mix.
21
Our operating results are affected by a number of factors, including the following:
|
|
|
significant changes in the macroeconomic environment and related changes in consumer
demand;
|
|
|
|
|
exposure to financially troubled customers;
|
|
|
|
|
our customers may not be successful in marketing their products, their products may not
gain widespread commercial acceptance, and our customers products have short product life
cycles;
|
|
|
|
|
our customers may cancel or delay orders or change production quantities;
|
|
|
|
|
integration of acquired businesses and facilities;
|
|
|
|
|
our operating results vary significantly from period to period due to 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;
|
|
|
|
|
our increased design services and components offerings may reduce our profitability as
we are required to make substantial investments in the resources necessary to design and
develop these products without guarantee of cost recovery and margin generation;
|
|
|
|
|
our ability to achieve commercially viable production yields and to manufacture
components in commercial quantities to the performance specifications demanded by our OEM
customers; and
|
|
|
|
|
managing changes in our operations.
|
Historically,
the EMS industry experienced significant change and growth as an
increasing number of companies elected to outsource some or all of their design and manufacturing
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 recent months, due to the dramatically
deteriorating macroeconomic conditions, demand for our customers products has slowed in all of the
industries we serve. This global economic crisis, and related decline in demand for our customers
products, is putting pressure on certain of our OEM customers cost structures and causing them to reduce
their manufacturing and supply chain outsourcing and shift portions of their demand internally as
they attempt to leverage their internal capacity and fixed cost structure. This decline in demand
has and will continue to negatively affect our capacity utilization levels, and has and will
continue to have a negative impact on our operating results.
As a result of the current macroeconomic environment and associated credit market conditions,
both liquidity concerns and access to capital have negatively impacted many of our customers. We
have increased our efforts to proactively manage our credit exposure with our customers and are
re-assessing the financial condition of many of our customers and suppliers to anticipate exposures
and minimize our risk. We have identified situations where customers are filing for bankruptcy or restructuring protection or
otherwise experiencing severe cash and credit issues. As a result, during the three-month and
nine-month periods ended December 31, 2008 we incurred charges
of $145.3 million and $262.7 million, respectively,
for Nortel and other customers that filed for bankruptcy or restructuring protection or were experiencing
significant financial and liquidity difficulties. Of these charges, we classified approximately
$98.0 million and $194.7 million in cost of sales related to the write-down of inventory and
associated contractual obligations and $47.3 million and $68.0 million as selling, general and
administrative expenses for provisions for doubtful accounts during the three-month and nine-month
periods ended December 31, 2008, respectively. In the case of Nortel, in developing the charge to
cost of sales, the Company considered its negotiated agreement requiring Nortel to purchase $120.0
million of existing inventory by July 1, 2009. This agreement has received preliminary approval by
the Ontario Superior Court of Justice and $75.0 million has been collected under the arrangement as of
January 31, 2009. In developing the provision for receivables, we considered various mitigating
factors including existing provisions for Nortel, off-setting obligations from Nortel and amounts
subject to administrative priority claims. As it is early in the
restructuring proceedings, these estimates required a considerable amount of judgment and accordingly, the provisions are subject to
change. The Company reclassified approximately $88.2 million of trade receivables from Nortel, net
of the $47.3 million reserve, to other assets as of December 31, 2008, as we do not expect these
amounts to be collected within one year.
22
As a result of the significant decline in the Companys share value, which was driven largely
by deteriorating
macroeconomic conditions that contributed to a considerable decrease in market multiples as
well as a decline in the our estimated discounted cash flows, we recorded an impairment charge to
our goodwill of $5.9 billion in the third quarter of fiscal 2009. This non-cash charge did not
affect our financial covenants or cash flows from operations. See our discussion of goodwill
impairment in Results of Operations, below.
We are focused on managing the controllable aspects of business during this economic downturn.
We have, and will continue to seek ways to control and reduce costs as required to minimize the
impact on our profit level, and continue to attract new customer business.
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, as
amended, for the fiscal year ended March 31, 2008, 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.
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 2008 Annual Report on
Form 10-K, as amended.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended
|
|
|
Nine-Month Periods Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Net
sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
96.4
|
|
|
|
94.2
|
|
|
|
95.3
|
|
|
|
94.3
|
|
Restructuring charges
|
|
|
|
|
|
|
2.3
|
|
|
|
0.1
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
3.6
|
|
|
|
3.5
|
|
|
|
4.6
|
|
|
|
4.6
|
|
Selling, general and administrative expenses
|
|
|
3.3
|
|
|
|
2.9
|
|
|
|
3.1
|
|
|
|
2.8
|
|
Intangible amortization
|
|
|
0.4
|
|
|
|
0.2
|
|
|
|
0.4
|
|
|
|
0.3
|
|
Goodwill impairment charge
|
|
|
73.0
|
|
|
|
|
|
|
|
23.5
|
|
|
|
|
|
Restructuring charges
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
0.2
|
|
Other charges (income), net
|
|
|
|
|
|
|
0.7
|
|
|
|
|
|
|
|
0.3
|
|
Interest and other expense, net
|
|
|
0.6
|
|
|
|
0.4
|
|
|
|
0.5
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(73.7
|
)
|
|
|
(1.1
|
)
|
|
|
(22.9
|
)
|
|
|
0.7
|
|
Provision for income taxes
|
|
|
|
|
|
|
7.4
|
|
|
|
0.1
|
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(73.7
|
)%
|
|
|
(8.5
|
)%
|
|
|
(23.0
|
)%
|
|
|
(2.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
Net sales during the three-month period ended December 31, 2008 totaled $8.2 billion,
representing a decrease of $0.9 billion, or 10%, from $9.1 billion during the three-month period
ended December 31, 2007, primarily due to reduced customer demand resulting from a weakening
macroeconomic environment. Sales decreased across many of the markets we serve, consisting of $618
million in the infrastructure market, $381 million in the mobile communications market, and $72
million in the computing market. These decreases were offset, in part, by increased sales of $95
million in the consumer digital market and $61 million in the industrial, medical, automotive and
other markets. Net sales during the three-month period ended December 31, 2008 decreased by $986
million in Asia, which was offset, in part, by increases of $64 million in Europe and $7 million in
the Americas.
23
Net sales during the nine-month period ended December 31, 2008 totaled $25.4 billion,
representing an increase of $5.6 billion, or 28%, from $19.8 billion during the nine-month period
ended December 31, 2007, primarily due to the acquisition of Solectron and to new program wins from
various customers across multiple markets. Sales increased across nearly all of the markets we
serve, consisting of; (i) $2.2 billion in the infrastructure market, (ii) $1.8 billion in the
computing market, (iii) $1.4 billion in the industrial, medical, automotive and other markets,
and (iv) $279 million in the consumer digital market. Sales decreased by $39 million in the
mobile communications market. Net sales during the nine-month period ended December 31, 2008
increased by $3.2 billion in the Americas, $1.3 billion in Asia, and $1.0 billion in Europe.
Our ten largest customers during the three-month and nine-month periods ended December 31,
2008 accounted for approximately 48% and 52% of net sales, respectively, with Sony-Ericsson
accounting for greater than 10% of our net sales for the nine-month period. Our ten largest
customers during the three-month and nine-month periods ended December 31, 2007 accounted for
approximately 55% and 58% of net sales, respectively, with Sony-Ericsson accounting for greater
than 10% of our net sales for both periods.
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, capacity utilization and the expansion
and consolidation of manufacturing facilities. Typically, profitability lags revenue growth in new
programs due to product start-up costs, lower manufacturing program volumes in the start-up phase,
operational inefficiencies, and under-absorbed overhead. Gross margin often improves over time as
manufacturing program volumes increase, as our utilization rates and overhead absorption improves,
and as we increase the level of vertically-integrated manufacturing services content. As a result,
our gross margin varies from period to period.
Gross profit
during the three-month period ended December 31, 2008 decreased $20.6 million to $297.3 million, or 3.6% of net sales,
from $317.9 million, or 3.5% of net sales, during the three-month period ended December 31, 2007. The 10 basis point
period-over-period increase in gross margin was primarily attributable to a 230 basis point decrease in restructuring
costs compared to costs recognized during the three-month period ended December 31, 2007, which were incurred in
connection with the Solectron acquisition and were related to restructuring activities for operations that were
associated with the Company prior to the acquisition of Solectron. These decreases were offset in part by $98.0 million
or 120 basis points in charges for inventory write-downs related to financially distressed customers, and approximately
100 basis points that was primarily attributable to lower capacity utilization.
Gross profit
during the nine-month period ended December 31, 2008 increased $259.0 million to $1.2 billion, or 4.6% of net sales,
from $912.5 million, or 4.6% of net sales, during the nine-month period ended December 31, 2007. Gross margin was the
same in both periods due to a 100 basis point increase in cost of sales during the nine-months ended December 31, 2008
primarily resulting from $262.7 million in charges for financially distressed customers, offset by a 100 basis point
decrease in restructuring costs recognized during the nine-month period ended December 31, 2007, which were incurred in
connection with the Solectron acquisition.
24
Restructuring charges
We recognized $29.2
million of restructuring charges during the nine-month period ended December 31, 2008. Restructuring charges were due to
the Company realigning workforce and capacity, primarily related to the acquisition of Solectron. The activities associated
with these charges involved multiple actions at each location, were completed in multiple steps, and were completed within
one year of the commitment dates of the respective activities. We classified approximately $26.3 million of the charges as
a component of cost of sales during the nine-month period ended December 31, 2008.
As of December 31,
2008, accrued severance costs associated with the restructuring charges recognized during the nine-month period ended
December 31, 2008 was $12.5 million, which was all classified as a current liability.
We recognized
restructuring charges of approximately $245.8 million and $256.5 million during the three-month and nine-month periods
ended December 31, 2007. These costs were principally incurred in connection with the Companys acquisition of Solectron,
were primarily related to restructuring activities for operations that were associated with the Company prior to the
acquisition, and were initiated in an effort to consolidate and integrate our global capacity and infrastructure as a result
of the acquisition. These activities, which included closing, consolidating and relocating certain manufacturing and
administrative operations, elimination of redundant assets and reducing excess workforce and capacity, encompassed over 25
different manufacturing locations and were intended to optimize our operational efficiencies post acquisition.
We classified approximately $211.8 million and $221.5 million of these charges as a component of cost of sales during the
three-month and nine-month periods ended December 31, 2007.
Approximately
$130.6 million of the restructuring charges incurred during the three-month and nine-month periods ended December 31, 2007
were non-cash. As of December 31, 2008, accrued severance and facility closure costs related to restructuring charges
incurred during the nine-month period ended December 31, 2007 were approximately $27.7 million, of which approximately
$6.2 million was classified as a long-term obligation.
Refer to Note 8,
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 $275.9 million, or 3.3% of net sales, during the three-month period ended
December 31, 2008, compared to $261.6 million, or 2.9% of net sales, during the three-month period ended December 31, 2007.
The 40 basis point increase in SG&A was primarily the result of allowances for accounts receivable from financially
distressed customers of approximately 60 basis points, or $47.3 million, incurred during the three-month period ended
December 31, 2008 and a 10 basis point increase in stock-compensation expense, partially offset by a 20 basis point decrease
in integration costs recognized during the three-month period ended December 31, 2007, which were incurred in connection
with the Solectron acquisition and approximately 10 basis points for savings from a reduced number of employees resulting
from restructuring activities incurred during prior periods.
Selling, general
and administrative expenses, or SG&A, amounted to $783.2 million, or 3.1% of net sales, during the nine-month period ended
December 31, 2008, compared to $560.7 million, or 2.8% of net sales, during the nine-month period ended
December 31, 2007. The 30 basis point increase in SG&A was primarily the result of allowances for accounts receivable
from financially distressed customers of $68.0 million incurred during the nine-month period ended December 31, 2008.
The increase in absolute dollars of SG&A was primarily the result of our acquisition of Solectron as well as other
business and asset acquisitions over the past 12 months, continued investments in resources and investments in certain
technologies to enhance our overall design and engineering competencies, and the allowances for accounts receivable from
distressed customers.
25
Intangible amortization
Amortization of
intangible assets during the three-month period ended December 31, 2008 increased by $11.5 million to $32.6 million from
$21.1 million during the three-month period ended December 31, 2007. The increase in expense during the three-month period
ended December 31, 2008 was principally attributable to acquisitions completed subsequent to December 31, 2007 that were
individually not significant. The increase was offset, in part, by the write-off of certain intangible asset licenses,
due to technological obsolescence, during the fourth quarter of fiscal year 2008.
Amortization of
intangible assets during the nine-month period ended December 31, 2008 increased by $56.8 million to $108.2 million from
$51.4 million during the nine-month period ended December 31, 2007. The increase in expense during the nine-month period
ended December 31, 2008 was principally attributable to the increase in intangibles arising from the Companys acquisition
of Solectron on October 1, 2007, and to a lesser extent from other acquisitions completed subsequent to December 31, 2007
that were individually not significant. The increase was offset, in part, by the write-off of certain intangible asset
licenses, due to technological obsolescence, during the fourth quarter of fiscal year 2008.
Goodwill impairment
We test goodwill
for impairment annually as of January 31 and concluded that no impairment existed as of January 31, 2008. We also evaluate
goodwill for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Recoverability of goodwill is measured at the reporting unit level by comparing the reporting units carrying amount,
including goodwill, to the fair value of the reporting unit, which is measured based upon, among other factors, market
multiples for comparable companies as well as a discounted cash flow analysis. We have one reporting unit: Electronic
Manufacturing Services. If the recorded value of our assets, including goodwill, and liabilities (net book value)
exceeds our fair value, an impairment loss may be required to be recognized. Further, to the extent the net book
value of our company as a whole is greater than our market capitalization, all, or a significant portion of our
goodwill may be considered impaired.
During our third
fiscal quarter ended December 31, 2008, we concluded that an interim goodwill impairment was required. This conclusion
was reached based on the significant decline in the Companys market capitalization during the quarter, which was driven
largely by deteriorating macroeconomic conditions that contributed to a considerable decrease in market multiples as well
as a decline in the Companys estimated discounted cash flows. As a result of our analysis, we recorded a non-cash
impairment charge to goodwill in the amount of $5.9 billion for the three-month and nine-month periods ended December
31, 2008 to eliminate the carrying value of our goodwill. The non-cash goodwill impairment charge did not impact our
debt covenant compliance. For further discussion of goodwill impairment charges recorded, see Note 2, Summary of
Accounting Policies - Goodwill and Other Intangibles in the Notes to Condensed Consolidated Financial Statements.
Other charges (income), net
During the
three-month and nine-month periods ended December 31, 2008, we recognized a gain of $28.1 million resulting from the
partial extinguishment in the aggregate principal amount of $260.0 million of our outstanding 1% Convertible
Subordinated Notes due August 1, 2010. Refer to Note 6, Bank Borrowings and Long-Term Debt, of the Notes
to Condensed Consolidated Financial Statements for further discussion.
During the
three-month and nine-month periods ended December 31, 2008, we recognized $25.5 million and $37.5 million in charges
for the other-than-temporary impairment of certain of our investments in companies that are experiencing significant
financial and liquidity difficulties. Of the amount recognized during the nine-month period ended December 31, 2008,
$11.9 million was primarily associated with a financially distressed customer as discussed in Note 2, Summary of
Accounting Policies - Customer Credit Risk.
During the
three-month and nine-month periods ended December 31, 2007, the Company recognized approximately $61.1 million in other
charges related to the other-than-temporary impairment and related charges on certain of the Companys investments.
Of this amount, approximately $57.6 million was for the sale of its investment in Relacom Holding AB (Relacom),
which was liquidated in January 2008 for approximately $57.4 million of cash proceeds. Relacoms expansion geographically
into Eastern Europe and Latin America led Relacom to recognize significant restructuring charges and other costs and
resulted in continued losses and diminished cash flows, which reduced the fair value of the investment. Although
we believed this degradation in the fair value of our investment in Relacom was temporary, we decided to sell our
interest in this non core investment to the majority holder in December 2007 rather than participate in a new equity
round of financing by Relacom to support its need for additional capital. As a result, we recognized an impairment loss
of approximately $48.5 million in the quarter ended December 31, 2007 based on the price at which it was sold on
January 7, 2008. Refer to Note 2, Summary of Accounting Policies of the Notes to Consolidated Financial Statements of
our Annual Report on our Form 10-K, as amended, for the fiscal year ended March 31, 2008.
26
Interest and other expense, net
Interest and other
expense, net was $53.6 million during the three-month period ended December 31, 2008 compared to $36.9 million during the
three-month period ended December 31, 2007, an increase of $16.7 million. The increase in expense was primarily the result
of lower interest income on cash due to lower yields, losses on foreign exchange as a result of the U.S. dollar appreciating
against our primary foreign currencies and interest expense primarily attributable to our $1.7 billion in borrowings under
our term loan facility used to finance the acquisition of Solectron on October 1, 2007, as well as the refinancing of
certain Solectron outstanding debt obligations.
Interest and other
expense, net was $141.2 million during the nine-month period ended December 31, 2008 compared to $59.3 million during the
nine-month period ended December 31, 2007, an increase of $81.9 million. The increase in expense was
principally attributable to $53.2 million of incremental interest expense on
our $1.7 billion in borrowings under our term loan facility used to finance the acquisition of Solectron, as well as the
refinancing of certain Solectron outstanding debt obligations, losses on foreign exchange as a result of the U.S. dollar
appreciating against our primary foreign currencies and lower interest income on cash due to lower yields. During the
nine-month period ended December 31, 2007, we recognized a gain of approximately $9.3 million in connection with the
divestiture of a certain international entity, which also contributed to the current period increase in interest and
other expense, net.
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, as amended, for the fiscal year ended March 31, 2008
for further discussion.
The Company has
tax loss carryforwards 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. During the nine-month
period ended December 31, 2008, the provision for income taxes includes a benefit of approximately $57.9 million for
the reversal of valuation allowances and other tax reserves. The Company received no tax benefit for the write-off of
goodwill or distressed customer charges.
During the
nine-month period ended December 31, 2007, the Company recognized tax expense of approximately $661.3 million relating
to a re-evaluation of previously recorded deferred tax assets in the United States, which were primarily comprised of
tax loss carryforwards. Management believed that the likelihood certain deferred tax assets would be realized had
decreased because the Company expected future projected taxable income in the United States would be lower as a
result of increased interest expense resulting from the term loan entered into as part of the acquisition of Solectron.
There was no incremental cash expenditure relating to this increase in tax expense.
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. Refer
to Note 2, "Summary of Accounting Policies - Provision for Income Taxes" of the Notes to Condensed Consolidated
Financial Statements for further discussion of the impact of certain tax holidays and incentives.
LIQUIDITY AND CAPITAL RESOURCES
As of
December 31, 2008, we had cash and cash equivalents of approximately $1.8 billion and bank and other borrowings
of $3.2 billion. We also had a $2.0 billion credit facility, under which we had $200.0 million of borrowings outstanding
as of December 31, 2008, which is included in the $3.2 billion outstanding above.
Cash provided by
operating activities amounted to $1.0 billion during the nine-month period ended December 31, 2008. This resulted
primarily from a $5.8 billion net loss for the period before adjustments to include approximately $6.4 billion of
non-cash items consisting of the $5.9 billion goodwill impairment charge, depreciation, amortization, distressed
customer charges, stock-based compensation expense, and interest and other income. Working capital and other net
operating assets decreased $469.4 million primarily as a result of overall lower business volume, which also
contributed to cash provided by operating activities . Working capital as of December 31, 2008 and March 31, 2008
was approximately $2.0 billion and $2.9 billion, respectively.
27
Cash used in
investing activities during the nine-month period ended December 31, 2008 amounted to $575.7 million. This resulted
primarily from capital expenditures for equipment, and payments for the acquisitions of businesses including
contingent purchase price payments for historical acquisitions.
Cash used in
financing activities amounted to $445.1 million during the nine-month period ended December 31, 2008, which was primarily
from $260.1 million in payments for the repurchase of 29.8 million of our ordinary shares, and $226.2 million used to
repurchase an aggregate principal amount of $260.0 million of our outstanding 1% Convertible Subordinated Notes due
August 1, 2010.
We continue to assess our capital structure, and evaluate the merits of redeploying available
cash to reduce existing debt or repurchase ordinary shares. Effective with the quarter ended
September 26, 2008, we reclassified the $195.0 million aggregate principal amount of our Zero
Coupon Convertible Junior Subordinated Notes, due July 31, 2009 to a current obligation. On July
23, 2008, our Board of Directors authorized the repurchase of up to ten percent of the Companys
outstanding ordinary shares, and as of September 30, 2008, the amount authorized for repurchase was
increased to approximately 80.9 million shares. Refer to Note 13, Share Repurchase Plan of the
Notes to the Condensed Consolidated Financial Statements for further details. The impairment of our
goodwill limits our ability to repurchase shares under the current provisions of our debt
facilities. During the nine-month period ended December 31, 2008, the Company repurchased
approximately 29.8 million shares under this plan for an aggregate purchase price of $260.1
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. As
evidenced by the recent turmoil in the financial markets, credit has tightened. We are reviewing
our debt and capital structure to minimize any impact on the Company, and will attempt to mitigate
any reductions in cash flow as a result of an economic slowdown by reducing capital expenditures,
acquisitions, and other discretionary spending. Although cash balances are generated and held in
many locations throughout the world and 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 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 inventory, accounts receivable
and accounts payable, the timing of capital expenditures for new equipment, the extent to which we
utilize operating leases for new facilities and equipment, the extent of cash charges associated
with any future restructuring activities, timing of cash outlays associated with historical
restructuring and integration activities, including obligations assumed by the Company in
connection with its acquisition of Solectron, and levels of shipments and changes in volumes of
customer orders.
Historically, we have funded our operations from cash and cash equivalents 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, including a $300.0 million facility entered into by the Company on
September 25, 2008, and sell certain trade receivables, which are in addition to the trade
receivables sold in connection with these securitization agreements, to certain third-party banking
institutions with limited recourse. Our asset backed securitization programs include certain
limits on customer default rates. Given the current macroeconomic environment, it is possible that
we will experience default rates in excess of those limits. If not waived by the counterparty, our
ability to sell receivables under these arrangements in the future could be impaired.
28
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, as amended,
for the fiscal year ended March 31, 2008. There have been no material changes in our contractual
obligations since March 31, 2008.
OFF-BALANCE SHEET ARRANGEMENTS
We continuously sell a designated pool of trade receivables to a third-party qualified special
purpose entity, which
in turn sells an undivided ownership interest to an investment conduit administered by an
unaffiliated financial institution. In addition to this financial institution, we participate in
the securitization agreement as an investor in the conduit. The fair value of the Companys
investment participation, together with its recourse obligation that approximates 5% of the total
receivables sold, was approximately $131.9 million and $89.4 million as of December 31, 2008 and
March 31, 2008, respectively. The increase in the Companys investment participation was
attributable to an increase in receivables sold to the qualified special purpose entity during the
nine-month period ended December 31, 2008. Refer to Note 7, Trade Receivables Securitization of
the Notes to Condensed Consolidated Financial Statements for further discussion.
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 nine-month period ended December 31, 2008 as compared to
the fiscal year ended March 31, 2008.
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
December 31, 2008, 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
December 31, 2008, 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
the third quarter of fiscal year 2009 that have materially affected, or are reasonably likely to
materially affect, our internal controls over financial reporting.
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, as
amended, for the year ended March 31, 2008, which could materially affect our business, financial
condition or future results. The risks described in our Annual Report on Form 10-K, as amended, 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. Additional and updated risks are as follows:
29
Our exposure to financially troubled customers or suppliers may adversely affect our financial
results.
We provide EMS services to companies and industries that have in the past, and may in the
future, experience financial difficulty, particularly in light of conditions in the credit markets
and the overall economy. Our suppliers may also experience financial difficulty in this
environment. If our customers experience financial difficulty, we could have difficulty recovering
amounts owed to us from these customers, or demand for our products from these customers could
decline. Additionally, if our suppliers experience financial difficulty we could have difficulty
sourcing supply necessary to fulfill production requirements and meet scheduled shipments. These
conditions could adversely affect our financial position and results of operations. During the
three-month and nine month periods ended December 31, 2008, we recognized approximately $145.3
million and $262.7 million, respectively, in charges for provisions of accounts receivable, the
write-down of inventory and recognition of related obligations for certain distressed customers.
The conditions of the U.S. and international capital markets may adversely affect our ability to
draw on our current revolving credit facility.
If financial institutions that have extended credit commitments to us are adversely affected
by the conditions of the U.S. and international capital markets, they may become unable to fund
borrowings under their credit commitments to us, which could have an adverse impact on our
financial condition and our ability to borrow additional funds, if needed, for working capital,
capital expenditures, acquisitions, research and development and other corporate purposes.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5.
OTHER INFORMATION
None.
ITEM 6.
EXHIBITS
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Exhibit No.
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Exhibit
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10.01
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Flextronics International USA, Inc. Third Amended and Restated 2005 Senior
Executive Deferred Compensation Plan
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10.02
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Flextronics International USA, Inc. Third Amended and Restated 2005 Senior
Management Deferred Compensation Plan
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10.03
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Award Agreement for Paul Read under Senior Executive Deferred Compensation Plan
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10.04
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Summary of Modifications to Annual Incentive Bonus Plan for Fiscal 2009
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15.01
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Letter in lieu of consent of Deloitte & Touche LLP.
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31.01
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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.
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31.02
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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.
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32.01
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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.*
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32.02
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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.*
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*
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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.
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30
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.
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FLEXTRONICS INTERNATIONAL LTD.
(Registrant)
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/s/ Michael M. McNamara
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Michael M. McNamara
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Chief Executive Officer
(Principal Executive Officer)
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Date: February 5, 2009
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/s/ Paul Read
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Paul Read
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Chief Financial Officer
(Principal Financial Officer)
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Date: February 5, 2009
31
EXHIBIT INDEX
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Exhibit No.
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Exhibit
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10.01
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Flextronics International USA, Inc. Third Amended and Restated 2005 Senior
Executive Deferred Compensation Plan
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10.02
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Flextronics International USA, Inc. Third Amended and Restated 2005 Senior
Management Deferred Compensation Plan
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10.03
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Award Agreement for Paul Read under Senior Executive Deferred Compensation Plan
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10.04
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Summary of Modifications to Annual Incentive Bonus Plan for Fiscal 2009
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15.01
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Letter in lieu of consent of Deloitte & Touche LLP.
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|
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|
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31.01
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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.
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31.02
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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.
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32.01
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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.*
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32.02
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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.*
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*
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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.
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32
EXHIBIT 10.01
FLEXTRONICS INTERNATIONAL USA, INC. THIRD
AMENDED AND RESTATED 2005 SENIOR EXECUTIVE
DEFERRED COMPENSATION PLAN
1. Purpose.
Flextronics International USA, Inc. (the Company) hereby amends and restates in its entirety
the Flextronics International USA, Inc. Second Amended and Restated 2005 Senior Executive Deferred
Compensation Plan (as amended and restated herein, 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 who may agree, pursuant to the Deferral
Agreements, to defer certain compensation. 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). The Plan shall be administered and construed in accordance with Section 409A of the
Code and any administrative guidance issued thereunder.
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)
Award Agreement
shall mean any agreement between the Company and a Participant
for the payment to the Participant of compensation that is deferred under this Plan.
(c)
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. No
designation or change in designation of a Beneficiary shall be effective until received and
acknowledged in writing by the Committee or Plan Administrator.
(d)
Board
shall mean the Board of Directors of FIL
(e)
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.
(f)
Claimant
shall have the meaning set forth in Section 9(a).
(g)
Code
shall mean the Internal Revenue Code of 1986, as amended, and Treasury
Regulations issued thereunder.
(h)
Committee
shall mean the Compensation Committee appointed by the Board.
(i)
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.
(j)
Deferral Account
shall mean the recordkeeping account, and any sub-accounts if
determined by the Committee or the Plan Administrator to be necessary or appropriate for the proper
administration of the Plan, established and maintained by the Company in the name of a Participant
as provided in Section 4(c) for compensation payable to a Participant pursuant to a Deferral
Agreement.
(k)
Deferral Agreement
shall mean an agreement executed by the Participant and the
Company, in such form as approved by the Committee or the Plan Administrator, 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 or Plan Administrator, whereby (A) the Participant (i) agrees to receive certain types of
compensation in the future pursuant to the provisions of this Plan, (ii) elects to defer future
compensation such Participant would otherwise be entitled to receive in cash from the Company,
including an amount or percentage of compensation to be deferred, and/or (iii) makes such other
elections as are permitted and provides such other information as is required under the Plan, and
(B) the Participant specifies a schedule according to which the Participant will receive payout of
his or her compensation that is payable in the future under this Plan. Each Deferral Agreement
shall be consistent with this Plan and shall incorporate by its terms the provisions of this Plan.
(l)
Deferral Day
shall mean, for each Participant, the day on which the Company is
required, by the terms of the applicable Deferral Agreement form or any other agreement between the
Participant and the Company, to credit an amount to the Participants Deferral Account under this
Plan.
(m)
Disabled
shall mean a Participant who (i) is unable to engage in any substantial
gainful activity by reason of any medically determinable physical or mental impairment which can be
expected to result in death or can be expected to last for a continuous period of not less than 12
months; or (ii) is, by reason of any medically determinable physical or mental impairment which can
be expected to result in death or can be expected to last for a continuous period of not less than
12 months, receiving income replacement benefits for a period of not less than 3 months under an
accident and health plan covering employees of the Participants employer. This definition shall
be construed and administered in accordance with the requirements of Code Section 409A(a)(2)(C) and
Treasury Regulations thereunder.
(n)
ERISA
shall have the meaning set forth in Section 1.
(o)
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.
(p)
FIL
shall mean Flextronics International Ltd.
(q)
Hypothetical Investments
shall have the meaning set forth in Section 4(d).
(r)
Manager
shall have the meaning set forth in Section 4(d).
(s)
Officers
shall have the meaning set forth in Section 8(b)(ii).
(t)
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 from
time to time by the Committee.
(u)
Plan
shall mean this Flextronics International USA, Inc. Third Amended and
Restated 2005 Senior Executive Deferred Compensation Plan.
(v)
Plan Administrator
shall mean the Plan Administrator, if any, appointed pursuant
to Section 3(a).
(w)
Released Party
shall have the meaning set forth in Section 8(b)(iii).
(x)
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.
(y)
Share Award Deferral
shall have the meaning set forth in Section 4(l).
(z)
Specified Employee
shall mean a key employee (as defined in Code Section 416(i)
without regard to paragraph 5 thereof) of FIL, for so long as any of its stock 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.
(aa)
Stock Unit
shall mean compensation in the form of a vested or unvested right to
receive shares of FIL in the future.
(bb)
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.
(cc)
Trustee
shall have the meaning set forth in Section 5(a).
(dd)
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.
3. Authority and Administration of the Committee and Plan Administrator.
(a)
Authorization of Committee or Plan Administrator
. 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. The Plan Administrator shall be the Companys Executive Vice President
Worldwide HR and Management Systems. 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.
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, under the terms provided in any Deferral Agreement form
provided to the Participant in accordance with the Plan, by executing a completed Deferral
Agreement. An election to defer compensation for a taxable year pursuant to a Deferral Agreement
must be made not later than the close of the preceding taxable year, or at such other time provided
in Treasury Regulations issued under Code Section 409A (or earlier date specified in the applicable
Deferral Agreement form); provided that, in the case of the first year in which a Participant
becomes eligible to participate in the Plan within the meaning of Code Section 409A and applicable
administrative guidance, such election may be made with respect to compensation paid for services
to be performed subsequent to the election within 30 days after the date the Participant becomes
eligible to participate in the Plan (or earlier date specified in the applicable Deferral Agreement
form); and, in the case of any performance-based compensation based on services performed over a
period of at least 12 months, such election may be made no later than 6 months before the end of
the period (or the earliest of such date, the day immediately prior to the date such compensation
has become reasonably ascertainable, and
the date specified in the applicable Deferral Agreement form) provided that the Participant is
continuously employed from the date that the applicable performance criteria are established
through the date of the election. Different Deferral Agreements may be used for different
components of compensation payable for a single service period. Each Deferral Agreement form shall
establish for each Participant the amount and type of compensation (including bonuses and/or
salary) that may or shall be deferred pursuant to the Plan and such determination will be reflected
on the relevant Deferral Agreement form, and may establish maximum or minimum amounts of aggregate
deferrals that may be elected for a Participant. A Participant shall not be entitled to vary any
term that is set forth in a Deferral Agreement form except to the extent that the form of Deferral
Agreement itself permits variations.
(b)
Code Section 409A Transition Rules
. The Committee or Plan Administrator, in its
sole and absolute discretion, may offer to any Participant the option to make new elections in 2007
and/or 2008 as to time and form (but not medium) of payment for deferrals of compensation that
would not otherwise be payable under the Plan in 2007 or 2008 (as applicable), provided the
elections are consistent with the requirements of Code Section 409A. Any elections made under this
Section shall be administered by the Committee or the Plan Administrator in accordance with
applicable administrative guidance under Code Section 409A.
(c)
Establishment of Deferral Accounts
. The Committee or Plan Administrator 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 100% vested in the Participants Deferral Account at all
times, except to the extent otherwise specified in the applicable 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. A Participants Deferral Account shall be credited with the amounts
required to be credited to the Participants Deferral Account pursuant to 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 results as described herein.
(d)
Hypothetical Investments and Managers
. Subject to the provisions of Section 4(g),
amounts credited to a Deferral Account shall be deemed to be invested in one or more hypothetical
investments (Hypothetical Investments). Each Participant shall select an investment manager (a
Manager) from a list established by the Committee or Plan Administrator, and the Manager will
then select Hypothetical Investments on the Participants behalf. A Participant may select a
successor Manager from such list of Managers from time to time. For the unvested portion of a
Participants Deferral Account, a Manager may select Hypothetical Investments from a list of
investments selected from time to time by the Committee or Plan Administrator (the Unvested
Account List), and subject to any limitation on permissible allocations among groups of
Hypothetical Investments that the Committee or Plan Administrator may establish. For the vested
portion of a Participants Deferral Account (which shall be accounted for in a separate vested
subaccount pursuant to Section 4(k)), a Manager may
select Hypothetical Investments from a list of publicly available mutual funds, publicly
traded stock and bonds selected from time to time by the Committee or Plan Administrator (the
Vested Account List). The Committee or Plan Administrator shall consider requests from any
Participant to add to the list of Managers and/or to the Vested Account List, and shall satisfy
such requests if they are reasonably acceptable to the Committee or Plan Administrator. The
Committee or Plan Administrator 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, neither the Committee nor the Plan Administrator may change or
modify the investment options existing immediately prior to such Change in Control in any manner
that is adverse to the Participants. Except in accordance with Section 4(l), no Hypothetical
Investments may be made in any debt or equity issued by FIL or its Affiliates.
(e)
List of Hypothetical Investments and Managers
. An initial list of Managers, an
initial Unvested Account List, and an initial Vested Account List shall be established by the
Board, the Committee or the Plan Administrator and each such list shall be provided to each
Participant in connection with the initial Deferral Agreement.
(f)
Investment of Deferral Accounts
. As provided in Section 4(d), each Deferral
Account shall be deemed to be invested in one or more Hypothetical Investments as of the date of
the deferral or credit, as the case may be. The amounts of hypothetical income, appreciation and
depreciation 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 or Plan Administrator. Unless otherwise determined by the Committee
or Plan Administrator, amounts credited to a Deferral Account shall be deemed invested in
Hypothetical Investments as of the date so credited.
(g)
Allocation and Reallocation of Hypothetical Investments
. A Manager may allocate
and reallocate amounts credited to a Participants Deferral Account to one or more of the
Hypothetical Investments authorized under the Plan with such frequency as determined by the
Committee or the Plan Administrator. Subject to the rules established by the Committee or Plan
Administrator, a Manager may reallocate amounts credited to a Participants Deferral Account to
other Hypothetical Investments by filing with the Committee or Plan Administrator a notice, in such
form as may be specified by the Committee or Plan Administrator. No Participant shall have the
right, at any time, to direct a Manager to enter into specific transactions in connection with his
or her Deferral Account;
provided
that this provision shall not prohibit the Participant
from communicating with the Manager regarding Hypothetical Investments, including communication
regarding preferred Hypothetical Investment objectives. Each Manager shall have the power to
acquire and dispose of such Hypothetical Investments as the Manager determines necessary in
connection with its portfolio. The Committee or Plan Administrator may restrict or prohibit
reallocation of amounts deemed invested in specified Hypothetical Investments or invested by
specified Managers to comply with applicable law or regulation.
(h)
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 such Hypothetical Investments, the allocation of
such Hypothetical Investments to his or her Deferral Account, the calculation of
additional amounts and the crediting or debiting of such 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 Investments. In the event that the Company or the
Trustee, in its own discretion, decides 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.
(i)
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 termination) shall be
forfeited and terminated in accordance with the applicable Deferral Agreement, except as otherwise
determined by the Committee in its sole and absolute discretion.
(j)
Change in Law
. If a future change in law would, in the judgment of the Committee
or Plan Administrator, 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.
(k)
Separate Maintenance of Vested Subaccounts
. A separate vested subaccount shall be
established and maintained for each Participant who either (a) elects to defer amounts of salary
and/or cash bonus payments pursuant to a Deferral Agreement, or (b) becomes vested in a portion of
the unvested balance of the Participants Deferral Account (the Unvested Balance). A
Participants vested subaccount shall constitute part of the Participants Deferral Account.
Whenever a portion of a Participants Unvested Balance becomes vested, the portion that becomes
vested shall be transferred to the Participants separate vested subaccount as specified in the
Deferral Agreement or other agreement entered into between the Participant and the Company. If a
Participant elects to defer amounts of salary and cash bonus pursuant to a Deferral Agreement, the
deferral salary and cash bonus shall be accounted for in the Participants separate vested
subaccount. The amounts of hypothetical income, appreciation and depreciation in value of the
Hypothetical Investments of amounts in a vested subaccount shall be credited and debited to, or
otherwise reflected in, such vested subaccount from time to time in accordance with procedures
established by the Committee or Plan Administrator. Unless otherwise determined by the Committee
or Plan Administrator, amounts credited to a vested subaccount shall be deemed invested in
Hypothetical Investments as of the effective date of the credit.
(l)
Share Award Deferrals
. Pursuant to an applicable Award Agreement, compensation in
the form of a Stock Unit may be deferred under this Plan (any such deferral, a Share Award
Deferral). If a Share Award Deferral is made for a Participant, a separate subaccount of the
Participants Deferral Account shall be established and maintained in order to account for the
Participants rights under the Share Award Deferral, and any hypothetical earnings and losses
thereon shall be recorded in such separate subaccount. Any such subaccount
shall be unvested to the extent attributable to an unvested Stock Unit, and from the time that
the Stock Unit vests shall be deemed to be invested solely in shares of FIL stock. Notwithstanding
any other provision of the Plan to the contrary, a Participant shall not be entitled to reallocate
any portion of a subaccount that is deemed invested in a Stock Unit or FIL shares to another
Hypothetical Investment.
5. Establishment of Trust
.
(a)
The Trust Agreement
. The Company has entered 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 or Plan Administrator as set forth in the
Trust Agreement. The Trust shall be irrevocable.
(b)
Funding the Trust
. Except as otherwise provided in Section 5(d) with respect to
Share Award Deferrals, on the relevant Deferral Day, the Company shall deposit into the Trust cash
or other assets, as specified in the applicable Deferral Agreement, equal to the aggregate amount
required to be credited to the Participants Deferral Account for that Deferral Day, less
applicable taxes required to be 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 and the Plan Administrator 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.
(d)
Trust for Share Award Deferrals
. In connection with a Share Award Deferral, the
Company shall be required to deposit shares of FIL into trust only if required to do so under the
terms of the applicable Award Agreement, and in no event earlier than the time that the related
Stock Unit vests. If shares of FIL are to be transferred into trust under a Share Award Deferral,
the shares may be transferred either into the Trust (as may be amended to provide for such
transfer) or into another trust established for the benefit of the Participants. To the extent
practicable, the terms of any trust used or established for a Share Award Deferral shall resemble
the terms of the Trust Agreement as of the date hereof; provided that any FIL shares that FIL
contributes to the trust shall be subject to the claims of the general creditors of both the
Company and FIL and shall revert to FIL if they are not payable to a Participant upon termination
of the trust or (if earlier) at the time of the forfeiture of the corresponding deemed investment in
accordance with Section 4(i).
6. Settlement of Deferral Accounts
.
(a)
Payout Elections
. The Company shall pay or direct the Trustee to pay the net
amount credited to a 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 Agreement provided to the Participant by the Plan Administrator. 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 or Plan administer may, in its sole
discretion, allow a Participant to redefer the payout of his 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.
(b)
Payment in Cash or Securities
. The Company shall settle a Participants Deferral
Account, and discharge all of its obligations to pay deferred compensation under the Plan with
respect to such Deferral Account, by payment of cash in an amount equal to (or, at the option of
the Committee or Plan Administrator, in marketable securities selected by the Committee or Plan
Administrator with a Fair Market Value equal to) the net amount credited to the applicable Deferral
Account; provided that a Hypothetical Investment of a subaccount that is allocated to shares of
stock of FIL in accordance with Section 4(l) shall be settled only in shares of stock of FIL. Any
such 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 may 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. 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
effective as of the payment date. If a Participant has elected to receive installment payments,
the amount of the distribution payable is based upon the value of the Deferral Account at the time
of the installment payment date and shall act to reduce Hypothetical Investments in the following
order: (A) cash and money market accounts, and (B) each other Hypothetical Investment on a pro
rata basis, based on the value of the Participants Deferral Account. For purposes of a redeferral
election as permitted under this Section 6, a right to receive installment payments shall be
treated as a right to receive a series of separate payments. 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 that such Participants
Manager has designated pursuant to Section 4(d) or 4(g).
(iii)
In the event of a Participants death prior to the payment of all net amounts credited
to his or her Deferral Account, such amounts shall be paid to the Participants designated
Beneficiary in a single lump sum as soon as practicable after the Participants death. 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. If the Committee or Plan Administrator has any doubt as to the proper Beneficiary to
receive payments pursuant to this Plan, the Committee or Plan Administrator shall have the right,
exercisable in its discretion, to withhold such payments until this matter is resolved to the
Committees or Plan Administrators satisfaction. 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 or Plan
Administrator, acting in good faith, determines that a Participant has become
Disabled, the net vested amount credited to a Participants Deferral Account shall be paid out
in a single lump sum to the Participant.
(d)
Unforeseeable Emergency
. Other provisions of the Plan notwithstanding, if the
Committee or Plan Administrator, acting in good faith, determines that the Participant has an
Unforeseeable Emergency, the Committee or Plan Administrator shall direct the immediate lump sum
payment to the Participant of vested amounts that the Committee or Plan Administrator 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 or Plan Administrator determines that a Participant has suffered an Unforeseeable
Emergency, the Plan Administrator shall authorize the cessation of deferrals by such Participant
under the Plan.
(e)
Distribution upon Income Inclusion under Code Section 409A or to Satify other Tax
Obligations
. If, for any reason, it has been determined that the Plan fails to meet the
requirements of Code Section 409A and the regulations promulgated thereunder, the Committee or the
Plan Administrator 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 promulgated thereunder. If,
for any reason, it has been determined that state. local or foreign tax obligations (including
employment taxes and income tax 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 Committee or the Plan Administrator shall distribute an amount to the
Participant (either in the form of withholding pursuant to provisions of applicable law or by
distributions directly to the Participant) to reflect such tax obligation, provided the amount so
distributed may not exceed the amount of such taxes due as a result of participation in the Plan.
Any distribution made to a Participant pursuant to this Section shall be paid, to the extent
possible, out of the vested portion of the Participant Deferral Account.
(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.
7. Amendment and Termination
.
(a)
Amendment
. The Committee, Plan Administrator or the Board 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
that
, upon an event described in clause (i), the Company may accelerate distributions under
this Plan but may not otherwise alter any Participants rights under this Plan; 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 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 under Code Section 409A.
(b)
Termination
. Notwithstanding any other provision to the contrary and except as
may otherwise be provided by the Committee or Plan Administrator, the Plan shall terminate as soon
as possible following the payment of all amounts in respect of all Deferral Accounts.
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 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, Hypothetical Investment 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);
provided, however, that the Company shall indemnify each Participant for any additional 20% tax
imposed under Code Section 409A and any additional interest resulting from an inclusion in income
under Code Section 409A as a result of any actions of the Company in administering or carrying out
the purposes the Plan.
(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 only to the Companys indemnification of Participants provided 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.
(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.
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;
(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.
(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.
(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.
(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 the
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 (as amended and restated herein) shall be effective as of December 1, 2008.
Flextronics International USA, Inc.
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By:
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/s/ Paul Humphries
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Paul Humphries
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Executive Vice President, Worldwide HR and Management Systems
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EXHIBIT 10.02
FLEXTRONICS INTERNATIONAL USA, INC. THIRD
AMENDED AND RESTATED 2005 SENIOR MANAGEMENT
DEFERRED COMPENSATION PLAN
1. Purpose
.
Flextronics International USA, Inc. (the Company) hereby amends and restates in its entirety
the Flextronics International USA, Inc. Second Amended and Restated 2005 Senior Management Deferred
Compensation Plan (as amended and restated herein, 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 who may agree, pursuant to the Deferral
Agreements, to defer certain compensation. 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). The Plan shall be administered and construed in accordance with Section 409A of the
Code and any administrative guidance issued thereunder.
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)
Award Agreement
shall mean any agreement between the Company and a Participant
for the payment to the Participant of compensation that is deferred under this Plan.
(c)
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. No
designation or change in designation of a Beneficiary shall be effective until received and
acknowledged in writing by the Committee or Plan Administrator.
(d)
Board
shall mean the Board of Directors of FIL
(e)
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.
(f)
Claimant
shall have the meaning set forth in Section 9(a).
(g)
Code
shall mean the Internal Revenue Code of 1986, as amended, and Treasury
Regulations issued thereunder.
(h)
Committee
shall mean the Compensation Committee appointed by the Board.
(i)
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.
(j)
Deferral Account
shall mean the recordkeeping account, and any sub-accounts if
determined by the Committee or the Plan Administrator to be necessary or appropriate for the proper
administration of the Plan, established and maintained by the Company in the name of a Participant
as provided in Section 4(c) for compensation payable to a Participant pursuant to a Deferral
Agreement.
(k)
Deferral Agreement
shall mean an agreement executed by the Participant and the
Company, in such form as approved by the Committee or the Plan Administrator, 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 or Plan Administrator, whereby (A) the Participant (i) agrees to receive certain types of
compensation in the future pursuant to the provisions of this Plan, (ii) elects to defer future
compensation such Participant would otherwise be entitled to receive in cash from the Company,
including an amount or percentage of compensation to be deferred, and/or (iii) makes such other
elections as are permitted and provides such other information as is required under the Plan, and
(B) the Participant specifies a schedule according to which the Participant will receive payout of
his or her compensation that is payable in the future under this Plan. Each Deferral Agreement
shall be consistent with this Plan and shall incorporate by its terms the provisions of this Plan.
(l)
Deferral Day
shall mean, for each Participant, the day on which the Company is
required, by the terms of the applicable Deferral Agreement form or any other agreement between the
Participant and the Company, to credit an amount to the Participants Deferral Account under this
Plan.
(m)
Disabled
shall mean a Participant who (i) is unable to engage in any substantial
gainful activity by reason of any medically determinable physical or mental impairment which can be
expected to result in death or can be expected to last for a continuous period of not less than 12
months; or (ii) is, by reason of any medically determinable physical or mental impairment which can
be expected to result in death or can be expected to last for a continuous period of not less than
12 months, receiving income replacement benefits for a period of not less than 3 months under an
accident and health plan covering employees of the
Participants employer. This definition shall be construed and administered in accordance
with the requirements of Code Section 409A(a)(2)(C) and Treasury Regulations thereunder.
-2-
(n)
ERISA
shall have the meaning set forth in Section 1.
(o)
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.
(p)
FIL
shall mean Flextronics International Ltd.
(q)
Hypothetical Investments
shall have the meaning set forth in Section 4(d).
(r)
Manager
shall have the meaning set forth in Section 4(d).
(s)
Officers
shall have the meaning set forth in Section 8(b)(ii).
(t)
Participant
shall mean a present or former employee of the Company who
participates in this Plan and any other present or former employee designated from time to time by
the Committee.
(u)
Plan
shall mean this Flextronics International USA, Inc. Third Amended and
Restated 2005 Senior Management Deferred Compensation Plan.
(v)
Plan Administrator
shall mean the Plan Administrator, if any, appointed pursuant
to Section 3(a).
(w)
Released Party
shall have the meaning set forth in Section 8(b)(iii).
(x)
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.
(y)
Share Award Deferral
shall have the meaning set forth in Section 4(l).
(z)
(aa)
Specified Employee
shall mean a key employee (as defined in Code Section 416(i)
without regard to paragraph 5 thereof) of FIL, for so long as any of its stock 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.
(bb)
Stock Unit
shall mean compensation in the form of a vested or unvested right to
receive shares of FIL in the future.
-3-
(cc)
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.
(dd)
Trustee
shall have the meaning set forth in Section 5(a).
(ee)
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.
3. Authority and Administration of the Committee and Plan Administrator
.
(a)
Authorization of Committee or Plan Administrator
. 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. The initial Plan Administrator shall be the Companys Chief Financial
Officer. 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.
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, under the terms provided in any Deferral Agreement form
provided to the Participant in accordance with the Plan, by executing a completed Deferral
Agreement. An election to defer compensation for a taxable year pursuant to a Deferral Agreement
must be made not later than the close of the preceding taxable year, or at such other time provided
in Treasury Regulations issued under Code Section 409A (or earlier date specified in the applicable
Deferral Agreement form); provided that, in the case of the first year in which a Participant
becomes eligible to participate in the Plan within the meaning of Code Section 409A and applicable
administrative guidance, such election may be made with respect to compensation paid for services
to be performed subsequent to the election within 30 days after the date the Participant becomes
eligible to participate in the Plan (or earlier date
-4-
specified in the applicable Deferral Agreement form); and, in the case of any
performance-based compensation based on services performed over a period of at least 12 months,
such election may be made no later than 6 months before the end of the period (or the earliest of
such date, the day immediately prior to the date such compensation has become reasonably
ascertainable, and the date specified in the applicable Deferral Agreement form) provided that the
Participant is continuously employed from the date that the applicable performance criteria are
established through the date of the election. Different Deferral Agreements may be used for
different components of compensation payable for a single service period. Each Deferral Agreement
form shall establish 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 the relevant Deferral
Agreement form, and may establish maximum or minimum amounts of aggregate deferrals that may be
elected for a Participant. A Participant shall not be entitled to vary any term that is set forth
in the Deferral Agreement form except to the extent that the form of Deferral Agreement itself
permits variations.
(b)
Code Section 409A Transition Rules
. The Committee or Plan Administrator, in its
sole and absolute discretion, may offer to any Participant the option to make new elections in 2008
as to time and form (but not medium) of payment for deferrals of compensation that would not
otherwise be payable under the Plan in 2008 (as applicable), provided the elections are consistent
with the requirements of Code Section 409A. Any elections made under this Section shall be
administered by the Committee or the Plan Administrator in accordance with applicable
administrative guidance under Code Section 409A.
(c)
Establishment of Deferral Accounts
. The Committee or Plan Administrator 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 100% vested in the Participants Deferral Account at all
times, except to the extent otherwise specified in the applicable 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. A Participants Deferral Account shall be credited with the amounts
required to be credited to the Participants Deferral Account pursuant to 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 results as described herein.
(d)
Hypothetical Investments and Managers
. Subject to the provisions of Section 4(g),
amounts credited to a Deferral Account shall be deemed to be invested in one or more hypothetical
investments (Hypothetical Investments). Each Participant may select an investment manager from a
list selected from time to time by the Committee or Plan Administrator (a Manager), who will then
select Hypothetical Investments on the Participants behalf. A Participant who selects a Manager
may select a successor Manager from such list of Managers from time to time. Rather than appoint a
Manager, a Participant may select Hypothetical Investments on his or her own behalf. The Committee
or Plan Administrator may establish limitations on permissible allocations of Deferral Accounts
among groups of
Hypothetical Investments. Except in accordance with Section 4(l), no Hypothetical Investments
may be made in any debt or equity issued by FIL or its Affiliates.
-5-
(e)
List of Hypothetical Investments and Managers
. An initial list of Managers and
investments available for Hypothetical Investments shall be established by the Board, the Committee
or the Plan Administrator and each such list shall be provided to each Participant in connection
with the initial Deferral Agreement. The Committee or Plan Administrator shall consider requests
from any Participant to add to the list of Managers, and shall satisfy such requests if they are
reasonably acceptable to the Committee or Plan Administrator. The Committee or Plan Administrator
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,
neither the Committee nor the Plan Administrator may change or modify the investment options
existing immediately prior to such Change in Control in any manner that is adverse to the
Participants.
(f)
Investment of Deferral Accounts
. As provided in Section 4(d), each Deferral
Account shall be deemed to be invested in one or more Hypothetical Investments as of the date of
the deferral or credit, as the case may be. The amounts of hypothetical income, appreciation and
depreciation 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 or Plan Administrator. Unless otherwise determined by the Committee
or Plan Administrator, amounts credited to a Deferral Account shall be deemed invested in
Hypothetical Investments as of the effective date of the credit.
(g)
Allocation and Reallocation of Hypothetical Investments
. A Participant, or a
Manager who selects Hypothetical Investments for a Participant, may allocate and reallocate amounts
credited to a Participants Deferral Account to one or more of the Hypothetical Investments
authorized under the Plan with such frequency as permitted by the Committee or Plan Administrator.
Subject to the rules established by the Committee or Plan Administrator, a Participant or Manager
may reallocate amounts credited to a Participants Deferral Account to other Hypothetical
Investments by filing with the Committee or Plan Administrator a notice, in such form as may be
specified by the Committee or Plan Administrator. No Participant shall have the right, at any
time, to direct a Manager to enter into specific transactions in connection with his or her
Deferral Account;
provided
that this provision shall not prohibit the Participant from
communicating with the Manager regarding Hypothetical Investments, including communication
regarding preferred Hypothetical Investment objectives. Each Manager shall have the power to
acquire and dispose of such Hypothetical Investments as the Manager determines necessary in
connection with its portfolio. The Committee or Plan Administrator may restrict or prohibit
reallocation of amounts deemed invested in specified Hypothetical Investments or invested by
specified Managers to comply with applicable law or regulation.
(h)
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 such Hypothetical Investments, the allocation of
such Hypothetical Investments to his or her Deferral Account, the calculation of additional amounts
and the crediting or debiting of such amounts to a Participants Deferral Account shall not be
considered or construed in any manner as an actual investment of his or her
-6-
Deferral Account in any such Hypothetical Investments. In the event that the Company or the
Trustee, in its own discretion, decides 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.
(i)
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 termination) shall be
forfeited and terminated in accordance with the applicable Deferral Agreement except as otherwise
determined by the Committee in its sole and absolute discretion.
(j)
Change in Law
. If a future change in law would, in the judgment of the Committee
or Plan Administrator, 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.
(k)
Separate Maintenance of Vested Subaccounts
. The Committee or Plan Administrator
may, in its sole and absolute discretion, allow Participants to defer portions of their base salary
and/or cash bonuses to be earned after such election under the Plan. If and when such deferrals
are allowed and a Participant elects to defer amounts of salary and/or cash bonus pursuant to a
Deferral Agreement that are vested at the time of the deferral, and other amounts that are unvested
are also deferred in accordance with the Participants Deferral Agreement, a separate subaccount of
the Participants Deferral Account shall be established and maintained for the vested deferred
salary and cash bonus, and hypothetical earnings and losses thereon shall be recorded in such
separate subaccount.
(l)
Share Award Deferrals
. Pursuant to an applicable Award Agreement, compensation in
the form of a Stock Unit may be deferred under this Plan (any such deferral, a Share Award
Deferral). If a Share Award Deferral is made for a Participant, a separate subaccount of the
Participants Deferral Account shall be established and maintained in order to account for the
Participants rights under the Share Award Deferral, and any hypothetical earnings and losses
thereon shall be recorded in such separate subaccount. Any such subaccount shall be unvested to
the extent attributable to an unvested Stock Unit, and from the time the Stock Unit vests shall be
deemed to be invested solely in shares of FIL stock. Notwithstanding any other provision of the
Plan to the contrary, a Participant shall not be entitled to reallocate any portion of a subaccount
that is deemed invested in a Stock Unit or FIL shares to another Hypothetical Investment.
-7-
5. Establishment of Trust.
(a)
The Trust Agreement
. The Company has entered 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 or Plan Administrator as set forth in the
Trust Agreement. The Trust shall be irrevocable.
(b)
Funding the Trust
. Except as otherwise provided in Section 5(d) with respect to
Share Award Deferrals, on the relevant Deferral Day, the Company shall deposit into the Trust cash
or other assets, as specified in the applicable Deferral Agreement, equal to the aggregate amount
required to be credited to the Participants Deferral Account for that Deferral Day, less
applicable taxes required to be 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 and the Plan Administrator 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.
(d)
Trust for Share Award Deferrals
. In connection with a Share Award Deferral, the
Company shall be required to deposit shares of FIL into trust only if required to do so under the
terms of the applicable Award Agreement and in no event earlier than the time that the related
Stock Unit vests. If shares of FIL are to be transferred into trust under a Share Award Deferral,
the shares may be transferred either into the Trust (as may be amended to provide for such
transfer) or into another trust established for the benefit of the Participants. To the extent
practicable, the terms of any trust used or established for a Share Award Deferral shall resemble
the terms of the Trust Agreement as of the date hereof; provided that any FIL shares that FIL
contributes to the trust shall be subject to the claims of the general creditors of both the
Company and FIL and shall revert to FIL if they are not payable to a Participant upon termination
of the trust or (if earlier) at the time of the forfeiture of the corresponding deemed investment
in accordance with Section 4(i).
6. Settlement of Deferral Accounts.
(a)
Payout Elections
. The Company shall pay or direct the Trustee to pay the net
amount credited to a Deferral Account as specified in the Participants Deferral Agreement or
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in an Award Agreement. The Committee or Plan administer may, in its sole discretion, allow a
Participant to redefer the payout of his 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.
(b)
Payment in Cash or Securities
. The Company shall settle a Participants Deferral
Account, and discharge all of its obligations to pay deferred compensation under the Plan with
respect to such Deferral Account, by payment of cash in an amount equal to (or, at the option of
the Committee or Plan Administrator, in marketable securities selected by the Committee or Plan
Administrator with a Fair Market Value equal to) the net amount credited to the applicable Deferral
Account; provided that a Hypothetical Investment of a subaccount that is allocated to shares of
stock of FIL in accordance with Section 4(l) shall be settled only in shares of stock of FIL. Any
such 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 payable as set forth
in the applicable Deferral Agreement, and 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.
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 months 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 Participant 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
-9-
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 effective as of the payment date. If a Participant has elected to receive
installment payments, the amount of the distribution payable is based upon the value of the
Deferral Account at the time of the installment payment date and shall act to reduce Hypothetical
Investments in the following order: (A) cash and money market accounts, and (B) each other
Hypothetical Investment on a pro rata basis, based on the value of the Participants Deferral
Account. For purposes of a redeferral election as permitted under this Section 6, a right to
receive installment payments shall be treated as a right to receive a series of separate payments.
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
that such Participant or such Participants Manager has designated pursuant to Section 4(d) or
4(g).
(iii) In the event of a Participants death prior to the payment of all net amounts credited
to his or her Deferral Account, such amounts shall be paid to the Participants designated
Beneficiary in a single lump sum as soon as practicable after the Participants death. 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. If the Committee or Plan Administrator has any doubt as to the proper Beneficiary to
receive payments pursuant to this Plan, the Committee or Plan Administrator shall have the right,
exercisable in its discretion, to withhold such payments until this matter is resolved to the
Committees or Plan Administrators satisfaction. 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 or Plan
Administrator, acting in good faith, determines that a Participant has become Disabled, the net
vested amount credited to a Participants Deferral Account shall be paid out in a single lump sum
to the Participant.
(d)
Unforeseeable Emergency
. Other provisions of the Plan notwithstanding, if the
Committee or Plan Administrator, acting in good faith, determines that the Participant has an
Unforeseeable Emergency, the Committee or Plan Administrator shall direct the immediate lump sum
payment to the Participant of vested amounts that the Committee or Plan Administrator 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 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
-10-
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 a Participant has suffered an Unforeseeable Emergency, the Plan
Administrator 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, for any reason, it has been determined that the Plan fails to meet the
requirements of Code Section 409A and the regulations promulgated thereunder, the Committee or the
Plan Administrator 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 promulgated thereunder. If,
for any reason, it has been determined that state. local or foreign tax obligations (including
employment taxes and income tax 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 Committee or the Plan Administrator shall distribute an amount to the
Participant (either in the form of withholding pursuant to provisions of applicable law or by
distributions directly to the Participant) to reflect such tax obligation, provided the amount so
distributed may not exceed the amount of such taxes due as a result of participation in the Plan.
Any distribution made to a Participant pursuant to this Section shall be paid, to the extent
possible, out of the vested portion of the Participants Deferral Account.
(e)
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.
7. Amendment and Termination.
(a)
Amendment
. The Committee, Plan Administrator or the Board 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
that
, upon an event
described in clause (i), the Company may accelerate distributions under this Plan but may not
otherwise alter any Participants rights under this Plan; 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 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 under Code Section 409A.
(b)
Termination
. Notwithstanding any other provision to the contrary and except as
may otherwise be provided by the Committee or Plan Administrator, the Plan shall terminate as soon
as possible following the payment of all amounts in respect of all Deferral Accounts.
-11-
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 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, Hypothetical Investment decisions made by the
Participant or 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); provided, however, that the Company shall indemnify each Participant for any
additional 20% tax imposed under Code Section 409A and any additional interest resulting from an
inclusion in income under Code Section 409A as a result of any actions of the Company in
administering or carrying out the purposes of the Plan.
(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.
-12-
(iv) Subject only to the Companys indemnification of Participants provided 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.
(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.
-13-
(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.
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.
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(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;
(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.
-15-
(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.
(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.
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(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.
(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
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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.
(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 the
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 (as amended and restated herein) shall be effective as of December 1, 2008.
Flextronics International USA, Inc.
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By:
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/s/ Michael McNamara
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Michael McNamara
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President
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