UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2013
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 000-50812
MULTI-FINELINE ELECTRONIX, INC.
(Exact name of registrant as specified in its charter)
Delaware | 95-3947402 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
8659 Research Drive
Irvine, CA 92618
(Address of principal executive offices, Zip Code)
(949) 453-6800
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
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.
Large accelerated filer | ¨ | Accelerated filer | x | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ¨ No x
The number of outstanding shares of the registrants Common Stock, $0.0001 par value, as of April 30, 2013 was 23,846,656.
Multi-Fineline Electronix, Inc.
PART I. FINANCIAL INFORMATION | ||||||
Item 1. | 3 | |||||
3 | ||||||
4 | ||||||
5 | ||||||
6 | ||||||
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
15 | ||||
Item 3. | 21 | |||||
Item 4. | 22 | |||||
PART II. OTHER INFORMATION | ||||||
Item 1A. | 23 | |||||
Item 5. | 34 | |||||
Item 6. | 35 | |||||
36 |
Item 1. | Condensed Consolidated Financial Statements |
MULTI-FINELINE ELECTRONIX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
(unaudited)
March 31, 2013 | September 30, 2012 | |||||||
ASSETS | ||||||||
Cash and cash equivalents |
$ | 129,841 | $ | 82,322 | ||||
Accounts receivable, net of allowances of $2,938 and $2,254 at March 31, 2013 and September 30, 2012, respectively |
101,573 | 165,408 | ||||||
Inventories |
55,105 | 124,770 | ||||||
Deferred taxes |
6,100 | 6,100 | ||||||
Income taxes receivable |
5,174 | 2,586 | ||||||
Other current assets |
5,736 | 10,531 | ||||||
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Total current assets |
303,529 | 391,717 | ||||||
Property, plant and equipment, net |
255,900 | 274,886 | ||||||
Land use rights |
7,645 | 7,030 | ||||||
Deferred taxes |
8,728 | 8,622 | ||||||
Goodwill |
7,537 | 7,537 | ||||||
Other assets |
5,819 | 6,618 | ||||||
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Total assets |
$ | 589,158 | $ | 696,410 | ||||
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LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
Accounts payable |
$ | 119,081 | $ | 199,737 | ||||
Accrued liabilities |
20,655 | 33,718 | ||||||
Income taxes payable |
9 | 2,393 | ||||||
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Total current liabilities |
139,745 | 235,848 | ||||||
Other liabilities |
19,153 | 18,573 | ||||||
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Total liabilities |
158,898 | 254,421 | ||||||
Commitments and contingencies (Note 2) |
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Stockholders equity |
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Preferred stock, $0.0001 par value, 5,000,000 and 5,000,000 shares authorized at March 31, 2013 and September 30, 2012, respectively; 0 and 0 shares issued and outstanding at March 31, 2013 and September 30, 2012, respectively |
| | ||||||
Common stock, $0.0001 par value; 100,000,000 and 100,000,000 shares authorized at March 31, 2013 and September 30, 2012, respectively; 23,846,656 and 23,762,721 shares issued and outstanding at March 31, 2013 and September 30, 2012, respectively |
2 | 2 | ||||||
Additional paid-in capital |
83,774 | 82,847 | ||||||
Retained earnings |
302,656 | 318,187 | ||||||
Accumulated other comprehensive income |
43,828 | 40,953 | ||||||
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Total stockholders equity |
430,260 | 441,989 | ||||||
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Total liabilities and stockholders equity |
$ | 589,158 | $ | 696,410 | ||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
MULTI-FINELINE ELECTRONIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands, Except Share and Per Share Data)
(unaudited)
Three Months Ended March 31, |
Six Months Ended March 31, |
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2013 | 2012 | 2013 | 2012 | |||||||||||||
Net sales |
$ | 173,674 | $ | 207,963 | $ | 463,324 | $ | 447,306 | ||||||||
Cost of sales |
189,207 | 181,880 | 454,154 | 392,062 | ||||||||||||
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Gross (loss) profit |
(15,533 | ) | 26,083 | 9,170 | 55,244 | |||||||||||
Operating expenses: |
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Research and development |
1,782 | 2,231 | 3,815 | 4,310 | ||||||||||||
Sales and marketing |
4,712 | 6,503 | 11,249 | 12,890 | ||||||||||||
General and administrative |
4,295 | 5,484 | 9,967 | 11,112 | ||||||||||||
Impairment and restructuring |
| (1,171 | ) | | (1,736 | ) | ||||||||||
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Total operating expenses |
10,789 | 13,047 | 25,031 | 26,576 | ||||||||||||
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Operating (loss) income |
(26,322 | ) | 13,036 | (15,861 | ) | 28,668 | ||||||||||
Other income (expense), net: |
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Interest income |
86 | 353 | 156 | 646 | ||||||||||||
Interest expense |
(138 | ) | (81 | ) | (249 | ) | (235 | ) | ||||||||
Other income (expense), net |
170 | 1,333 | 155 | 1,804 | ||||||||||||
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(Loss) income before income taxes |
(26,204 | ) | 14,641 | (15,799 | ) | 30,883 | ||||||||||
Benefit from (provision for) income taxes |
2,325 | (2,537 | ) | 268 | (5,235 | ) | ||||||||||
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Net (loss) income |
(23,879 | ) | 12,104 | (15,531 | ) | 25,648 | ||||||||||
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Other comprehensive income, net of tax: |
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Foreign currency translation adjustment |
662 | 316 | 2,875 | 2,875 | ||||||||||||
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Total comprehensive (loss) income |
$ | (23,217 | ) | $ | 12,420 | $ | (12,656 | ) | $ | 28,523 | ||||||
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Net (loss) income per share: |
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Basic |
$ | (1.00 | ) | $ | 0.51 | $ | (0.65 | ) | $ | 1.08 | ||||||
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Diluted |
$ | (1.00 | ) | $ | 0.50 | $ | (0.65 | ) | $ | 1.06 | ||||||
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Shares used in computing net (loss) income per share: |
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Basic |
23,798,587 | 23,870,165 | 23,796,966 | 23,809,196 | ||||||||||||
Diluted |
23,798,587 | 24,104,076 | 23,796,966 | 24,113,189 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
MULTI-FINELINE ELECTRONIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(unaudited)
Six Months Ended March 31, |
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2013 | 2012 | |||||||
Cash flows from operating activities |
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Net (loss) income |
$ | (15,531 | ) | $ | 25,648 | |||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
29,158 | 26,663 | ||||||
Provision for doubtful accounts and allowances |
685 | 1,837 | ||||||
Deferred taxes |
(106 | ) | (74 | ) | ||||
Stock-based compensation expense |
2,548 | 2,888 | ||||||
Income tax benefit related to stock option exercises |
(29 | ) | (70 | ) | ||||
Restructuring asset recoveries |
| (1,736 | ) | |||||
(Gain) loss on disposal of equipment |
(124 | ) | 5 | |||||
Changes in operating assets and liabilities: |
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Accounts receivable |
63,213 | 14,124 | ||||||
Inventories |
71,655 | (4,341 | ) | |||||
Other current assets |
4,351 | 323 | ||||||
Other assets |
205 | (512 | ) | |||||
Accounts payable |
(56,422 | ) | 6,181 | |||||
Accrued liabilities |
(19,439 | ) | (5,137 | ) | ||||
Income taxes payable |
(4,626 | ) | 3,415 | |||||
Other liabilities |
477 | 1,464 | ||||||
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Net cash provided by operating activities |
76,015 | 70,678 | ||||||
Cash flows from investing activities |
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Purchases of property and equipment |
(26,792 | ) | (33,950 | ) | ||||
Proceeds from sale of equipment and assets held for sale |
136 | 8,532 | ||||||
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Net cash used in investing activities |
(26,656 | ) | (25,418 | ) | ||||
Cash flows from financing activities |
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Income tax benefit related to stock option exercises |
29 | 70 | ||||||
Tax withholdings for net share settlement of equity awards |
(803 | ) | (1,039 | ) | ||||
Proceeds from exercise of stock options |
597 | 149 | ||||||
Repurchase of common stock |
(1,444 | ) | (8,844 | ) | ||||
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Net cash used in financing activities |
(1,621 | ) | (9,664 | ) | ||||
Effect of exchange rate changes on cash |
(219 | ) | (446 | ) | ||||
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Net increase in cash |
47,519 | 35,150 | ||||||
Cash and cash equivalents at the beginning of the period |
82,322 | 97,890 | ||||||
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Cash and cash equivalents at the end of the period |
$ | 129,841 | $ | 133,040 | ||||
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Non-cash investing activities |
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Purchases of property and equipment |
$ | 5,500 | $ | 11,020 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
MULTI-FINELINE ELECTRONIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share and Per Share Data)
(unaudited)
1. Description of Business
Multi-Fineline Electronix, Inc. (MFLEX or the Company) was incorporated in 1984 in the State of California and reincorporated in the State of Delaware in June 2004. The Company is primarily engaged in the engineering, design and manufacture of flexible printed circuit boards along with related component assemblies.
Affiliates and subsidiaries of WBL Corporation Limited (collectively WBL), a Singapore company, beneficially owned approximately 62% of the Companys outstanding common stock as of each of March 31, 2013 and September 30, 2012, which provided WBL with control over the outcome of stockholder votes, except with respect to certain related-party transactions with WBL which require a separate vote of the non-WBL stockholders.
2. Basis of Presentation
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company has two wholly owned subsidiaries located in China: MFLEX Suzhou Co., Ltd., (MFC) formerly known as Multi-Fineline Electronix (Suzhou No. 2) Co., Ltd. (MFC2) and into which Multi-Fineline Electronix (Suzhou) Co., Ltd (MFC1) was merged in fiscal 2010, and MFLEX Chengdu Co., Ltd. (MFLEX Chengdu); one located in the Cayman Islands: M-Flex Cayman Islands, Inc. (MFCI); one located in Singapore: Multi-Fineline Electronix Singapore Pte. Ltd. (MFLEX Singapore); one located in Malaysia: Multi-Fineline Electronix Malaysia Sdn. Bhd. (MFM); one located in Cambridge, England: MFLEX UK Limited (MFE); and one located in Korea: MFLEX Korea, Ltd. (MKR). All significant intercompany transactions and balances have been eliminated in consolidation.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Companys 2012 Annual Report on Form 10-K. The financial information presented in the accompanying statements reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the periods indicated. All such adjustments are of a normal recurring nature. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. Operating results for the three and six months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2013. Unless otherwise indicated, the financial information in these notes is presented in thousands (except per share amounts).
Reclassifications
During the three months ended September 30, 2012, the Company effectively changed its accounting policy with regard to freight out costs. Freight out costs were previously classified as cost of sales but, going forward, will be classified as sales and marketing. Given the immateriality of these costs, the Company prospectively began reflecting freight out costs in sales and marketing beginning in the three months ended September 30, 2012. The Company evaluated the materiality of such change from both a quantitative and qualitative basis and concluded that reclassification of such costs on a prior or current year basis was immaterial and, accordingly, did not reclassify such costs that were previously included in cost of sales for periods previously reported prior to the change. For the three and six months ended March 31, 2013, freight out costs included in sales and marketing amounted to $552 and $1,416, respectively, and for the three and six months ended March 31, 2012, freight out costs included in cost of sales amounted to $874 and $1,522, respectively.
Fair Value Measurements
The carrying amounts of certain of the Companys financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximated fair value due to their short maturities. The fair value of the Companys money market funds of $1,940 and $12,037 were measured using Level 1 fair value inputs and were recorded as cash and cash equivalents in the condensed consolidated balance sheets as of March 31, 2013 and September 30, 2012, respectively. As of March 31, 2013, the fair value of the Companys derivative liabilities of $50 were measured using Level 2 fair value inputs, which consisted of observable market-based inputs of foreign currency sport and forward rates quoted by major financial institutions, and were recorded as other current liabilities in the condensed consolidated balance sheets. No derivative assets or liabilities were recorded on the Companys condensed consolidated balance sheet as of September 30, 2012.
6
Inventories
Inventories, net of related allowances, were comprised of the following:
March 31, 2013 |
September 30, 2012 |
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Raw materials and supplies |
$ | 15,154 | $ | 34,265 | ||||
Work-in-progress |
14,202 | 30,186 | ||||||
Finished goods |
25,749 | 60,319 | ||||||
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$ | 55,105 | $ | 124,770 | |||||
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During the three months ended March 31, 2013, the Company recorded inventory write-downs of $9,195 as a result of unusable components and $1,719 as a result of uncertainty in near-term demand forecasts.
Property, Plant and Equipment
Property, plant and equipment, net, were comprised of the following:
March 31, 2013 |
September 30, 2012 |
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Building |
$ | 69,135 | $ | 68,252 | ||||
Machinery and equipment |
393,870 | 379,046 | ||||||
Computers and capitalized software |
11,895 | 10,194 | ||||||
Leasehold improvements |
13,918 | 13,686 | ||||||
Construction-in-progress |
4,487 | 11,639 | ||||||
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$ | 493,305 | $ | 482,817 | |||||
Accumulated depreciation and amortization |
(237,405 | ) | (207,931 | ) | ||||
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$ | 255,900 | $ | 274,886 | |||||
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Product Warranty Accrual
Changes in the product warranty accrual for the three months ended March 31, 2013 and 2012 were as follows:
Balance at January 1 |
Warranty Expenditures |
Provision for Estimated Warranty Cost |
Balance at March 31 |
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Fiscal 2013 |
$ | 315 | $ | (425 | ) | $ | 333 | $ | 223 | |||||||
Fiscal 2012 |
$ | 474 | $ | (139 | ) | $ | (35 | ) | $ | 300 |
Changes in the product warranty accrual for the six months ended March 31, 2013 and 2012 were as follows:
Balance at October 1 |
Warranty Expenditures |
Provision for Estimated Warranty Cost |
Balance at March 31 |
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Fiscal 2013 |
$ | 346 | $ | (826 | ) | $ | 703 | $ | 223 | |||||||
Fiscal 2012 |
$ | 279 | $ | (651 | ) | $ | 672 | $ | 300 |
7
Net Income Per ShareBasic and Diluted
The following table presents a reconciliation of basic and diluted shares for the three and six months ended March 31, 2013 and 2012:
Three Months Ended March 31, |
Six Months Ended March 31, |
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2013 | 2012 | 2013 | 2012 | |||||||||||||
Basic weighted-average number of common shares outstanding |
23,798,587 | 23,870,165 | 23,796,966 | 23,809,196 | ||||||||||||
Dilutive effect of potential common shares |
| 233,911 | | 303,993 | ||||||||||||
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Diluted weighted-average number of common and potential common shares outstanding |
23,798,587 | 24,104,076 | 23,796,966 | 24,113,189 | ||||||||||||
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Potential common shares excluded from the per share computations as the effect of their inclusion would not be dilutive |
831,603 | 530,972 | 838,621 | 363,878 | ||||||||||||
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Commitments and Contingencies
Litigation
The Company is involved in litigation from time to time in the ordinary course of business. Management does not believe the outcome of any currently pending matters will have a material adverse effect on the Companys financial position, results of operations or cash flows.
Other Commitments
The Company has outstanding purchase and other commitments, which exclude amounts already recorded on the Condensed Consolidated Balance Sheets. The outstanding purchase and other commitments were primarily related to capital projects at the Companys various facilities and commitments for material purchases, which totaled $5,909 and $9,092 as of March 31, 2013 and September 30, 2012, respectively.
Pursuant to the laws applicable to the Peoples Republic of Chinas Foreign Investment Enterprises, the Companys two wholly owned subsidiaries in China, MFC and MFLEX Chengdu, are restricted from paying cash dividends on 10% of after-tax profit, subject to certain cumulative limits. These restrictions on net income as of March 31, 2013 and September 30, 2012 were $17,945 and $17,741, respectively.
Significant Concentrations
Net sales to the Companys largest Original Equipment Manufacturer (OEM) customers, inclusive of net sales made to their designated sub-contractors, as a percentage of total sales, are presented below:
Three Months Ended March 31, |
Six Months Ended March 31, |
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2013 | 2012 | 2013 | 2012 | |||||||||||||
OEM C |
77 | % | 75 | % | 81 | % | 70 | % | ||||||||
OEM D |
13 | % | 13 | % | 9 | % | 21 | % |
8
The Companys sales into its largest industry sectors, as a percentage of total sales, are presented below:
Three Months Ended March 31, |
Six Months Ended March 31, |
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2013 | 2012 | 2013 | 2012 | |||||||||||||
Smartphones |
65 | % | 71 | % | 67 | % | 76 | % | ||||||||
Tablets |
28 | % | 26 | % | 26 | % | 21 | % | ||||||||
Consumer electronics |
5 | % | 0 | % | 6 | % | 0 | % |
3. Lines of Credit
In March 2013, MFLEX Chengdu entered into a Line of Credit Agreement (the MCH Credit Line) with Bank of China Co., Ltd. Chengdu Development West Zone Sub-Branch (BC), providing for a line of credit to MFLEX Chengdu in an amount of $11,000. The MCH Credit Line will mature in February 2014. MFLEX Chengdu and BC have also entered into a Facility Offer Letter which sets forth the pricing negotiated by BC and MFLEX Chengdu. The loan interest rate shall be negotiated by the parties based on the lending cost in the Chinese market for US dollars on the day the loan is made.
In January 2012, MFLEX Singapore entered into a Facility Agreement (the Facility Agreement) with JPMorgan Chase Bank, N.A., Singapore Branch, as mandated lead arranger, the financial institutions from time to time party thereto, as lenders (the Lenders), and JPMorgan Chase Bank, N.A. acting through its Hong Kong Branch (JPM), as facility agent and as security agent. The Facility Agreement provides for a three-year, revolving credit facility, under which MFLEX Singapore may obtain loans and other financial accommodations in an aggregate principal amount of up to $50,000. All outstanding principal, and accrued and unpaid interest, under the Facility Agreement will be due and payable in January, 2015, the termination date of the Facility Agreement.
In July 2010, MFC entered into a credit line agreement with Agricultural Bank of China, Suzhou Wuzhong Sub-branch (ABC), which provides for a borrowing facility for 200,000 Chinese Renminbi (RMB) ($31,904 at March 31, 2013). The line of credit will mature in July 2013.
In March 2010, MFC1 and MFC2 entered into credit line agreements with China Construction Bank, Suzhou Industry Park Sub-Branch (CCB), which provide for two borrowing facilities for 150,000 RMB each ($23,928 each at March 31, 2013). The lines of credit matured in March 2013.
A summary of the lines of credit is as follows:
Amounts Available at | Amounts Outstanding at | |||||||||||||||
March 31, 2013 |
September 30, 2012 |
March 31, 2013 |
September 30, 2012 |
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Line of credit (BC) |
$ | 11,000 | $ | 11,000 | $ | | $ | | ||||||||
Line of credit (JPM) |
50,000 | 50,000 | | | ||||||||||||
Line of credit (ABC) |
31,904 | 31,541 | | | ||||||||||||
Line of credit (CCB) |
| 47,312 | | | ||||||||||||
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$ | 92,904 | $ | 139,853 | $ | | $ | | |||||||||
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As of March 31, 2013, the Company was in compliance with all covenants under the lines of credit.
9
4. Segment information
Based on the evaluation of the Companys internal financial information, management believes that the Company operates in one reportable segment. The Company is primarily engaged in the engineering, design and manufacture of flexible circuit boards along with related component assemblies. For the periods presented, the Company operated in four geographical areas: United States, China, Singapore and Other (which includes Malaysia, Korea and the United Kingdom). Net sales are presented based on the country in which the sales originate, which is where the legal entity is domiciled. The financial results of the Companys geographic segments are presented on a basis consistent with the condensed consolidated financial statements. Segment net sales and assets amounts include intra-company product sales transactions and subsidiary investment amounts, respectively, which are offset in the eliminations line.
Financial information by geographic segment is as follows:
Three Months Ended March 31, |
Six Months Ended March 31, |
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2013 | 2012 | 2013 | 2012 | |||||||||||||
Net sales |
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United States |
$ | 2,973 | $ | 3,855 | $ | 5,855 | $ | 13,722 | ||||||||
China |
138,704 | 210,460 | 441,160 | 424,665 | ||||||||||||
Singapore |
169,586 | 202,357 | 454,687 | 431,778 | ||||||||||||
Other |
411 | | 464 | 184 | ||||||||||||
Eliminations |
(138,000 | ) | (208,709 | ) | (438,842 | ) | (423,043 | ) | ||||||||
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Total |
$ | 173,674 | $ | 207,963 | $ | 463,324 | $ | 447,306 | ||||||||
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Operating (loss) income |
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United States |
$ | (1,599 | ) | $ | (949 | ) | $ | (4,194 | ) | $ | (2,122 | ) | ||||
China |
(12,963 | ) | 3,725 | (1,998 | ) | 7,414 | ||||||||||
Singapore |
(12,094 | ) | 14,149 | (11,461 | ) | 27,103 | ||||||||||
Other |
(718 | ) | (809 | ) | (1,534 | ) | (1,547 | ) | ||||||||
Eliminations |
1,052 | (3,080 | ) | 3,326 | (2,180 | ) | ||||||||||
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Total |
$ | (26,322 | ) | $ | 13,036 | $ | (15,861 | ) | $ | 28,668 | ||||||
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|
|||||||||
Depreciation and amortization |
||||||||||||||||
United States |
$ | 647 | $ | 633 | $ | 1,297 | $ | 1,361 | ||||||||
China |
14,015 | 13,248 | 27,717 | 25,156 | ||||||||||||
Singapore |
36 | 24 | 59 | 48 | ||||||||||||
Other |
42 | 49 | 85 | 98 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 14,740 | $ | 13,954 | $ | 29,158 | $ | 26,663 | ||||||||
|
|
|
|
|
|
|
|
March 31, 2013 |
September 30, 2012 |
|||||||
Total assets |
||||||||
United States |
$ | 131,707 | $ | 149,484 | ||||
China |
428,009 | 448,759 | ||||||
Singapore |
263,486 | 351,905 | ||||||
Other |
5,094 | 5,057 | ||||||
Eliminations |
(239,138 | ) | (258,795 | ) | ||||
|
|
|
|
|||||
Total |
$ | 589,158 | $ | 696,410 | ||||
|
|
|
|
10
5. Stock-Based Compensation
Stock Options
Stock option activity for the six months ended March 31, 2013 under the Companys 2004 Stock Incentive Plan (the 2004 Plan) is summarized as follows:
Number of Shares |
Weighted- Average Exercise Price |
Aggregate Intrinsic Value |
Weighted- Average Remaining Contractual Life |
|||||||||||||
Stock options outstanding at September 30, 2012 |
219,492 | $ | 10.74 | |||||||||||||
Granted |
| | ||||||||||||||
Exercised |
(53,840 | ) | 10.00 | |||||||||||||
Forfeited |
| | ||||||||||||||
Expired |
| | ||||||||||||||
|
|
|||||||||||||||
Stock options outstanding and exercisable at March 31, 2013 |
165,652 | $ | 10.98 | $ | 818 | 1.3 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Stock options vested and expected to vest at March 31, 2013 |
165,652 | $ | 10.98 | $ | 818 | 1.3 | ||||||||||
|
|
|
|
|
|
|
|
Stock option details for the three and six months ended March 31, 2013 and 2012 are summarized as follows:
Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Stock options granted |
| | | | ||||||||||||
Compensation cost recognized |
$ | | $ | | | | ||||||||||
Aggregate intrinsic value of stock options exercised |
$ | 272 | $ | 166 | $ | 272 | $ | 225 |
No unearned compensation existed as of March 31, 2013 related to stock options.
Service and Performance-Based Restricted Stock Units
The Company grants service-based restricted stock units (RSUs) under the 2004 Plan to certain employees (including executive officers) and directors at no cost to such individual. Each RSU represents one hypothetical share of the Companys common stock, without voting or dividend rights. The RSUs granted to employees generally vest over a period of three years with one-third vesting on each of the anniversary dates of the grant date. Total compensation cost related to RSUs is determined based on the fair value of the Companys common stock on the date of grant and is amortized into expense over the vesting period using the straight-line method.
The Company also grants performance-based RSUs to certain employees (including executive officers) from time to time, under the 2004 Plan. For such performance-based RSUs, the Company records share-based compensation cost based on the grant-date fair value and the probability that the performance metrics will be achieved. Management generally considers the probability that the performance metrics will be achieved to be a 70% chance or greater (Probability Threshold). At the end of each reporting period, the Company evaluates the awards to determine if the related performance metrics meet the Probability Threshold. If the Company determines that the vesting of any of the outstanding performance-based RSUs does not meet the Probability Threshold, the compensation expense related to those performance-based RSUs is reversed in the period in which this determination is made. However, if at a future date conditions have changed and the Probability Threshold is deemed to be met, the previously reversed stock compensation expense, as well as all subsequent projected stock compensation expense through the date of evaluation, is recognized in the period in which this new determination is made.
On December 18, 2012, the Company granted 72,031 performance-based RSUs (the December 2012 Awards). The December 2012 Awards vest upon the achievement of defined performance objectives pertaining to such grants, with vesting to occur on or about November 15, 2015. The December 2012 Awards contain performance conditions whereby the Company recorded share-based compensation cost based on the grant-date fair value and the probability that the performance metrics will be achieved. As of March 31, 2013, the Company considers the vesting of the December 2012 Awards to be probable.
11
RSU activity for the six months ended March 31, 2013 under the 2004 Plan is summarized as follows:
Number of Shares |
Weighted- Average Grant- Date Fair Value |
|||||||
Non-vested shares outstanding at September 30, 2012 |
605,673 | $ | 22.02 | |||||
Granted |
277,842 | 18.18 | ||||||
Vested |
(150,619 | ) | 22.99 | |||||
Forfeited |
(102,855 | ) | 25.14 | |||||
|
|
|||||||
Non-vested shares outstanding at March 31, 2013 |
630,041 | $ | 19.59 | |||||
|
|
RSU details for the three and six months ended March 31, 2013 and 2012 are summarized as follows:
Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Service-based RSUs granted |
26,620 | 23,054 | 205,811 | 183,083 | ||||||||||||
Performance-based RSUs granted |
| | 72,031 | 110,046 | ||||||||||||
Compensation cost recognized |
$ | 977 | $ | 1,202 | $ | 1,986 | $ | 2,359 | ||||||||
Weighted-average grant-date fair value of non-vested RSUs granted |
$ | 15.27 | $ | 26.30 | $ | 18.18 | $ | 19.69 | ||||||||
Weighted-average grant-date fair value of RSUs vested |
$ | 26.93 | $ | 23.56 | $ | 22.99 | $ | 15.74 | ||||||||
Aggregate intrinsic value of RSUs vested |
$ | 328 | $ | 996 | $ | 2,512 | $ | 3,604 |
Unearned compensation as of March 31, 2013 was $6,604 related to non-vested RSUs, which will be recognized into expense over the weighted-average remaining contractual life of the non-vested RSUs of 1.4 years.
Stock Appreciation Rights
From time to time, the Company grants stock appreciation rights to be settled in Company common stock (SSARs). These grants are made under the 2004 Plan to certain employees (including executive officers) at no cost to such individual. Each SSAR has a base appreciation amount that is equal to the closing price of a share of the Companys common stock on each applicable grant date as reported on the NASDAQ Global Select Market. The SSARs are treated as equity awards and are measured using the initial compensation element of the award at the time of grant and the expense is recognized over the requisite service period (the vesting period).
SSAR activity for the six months ended March 31, 2013 under the 2004 Plan is summarized as follows:
Number of Shares |
Weighted- Average Exercise Price |
Aggregate Intrinsic Value |
Weighted- Average Remaining Contractual Life |
|||||||||||||
SSARs outstanding at September 30, 2012 |
479,581 | $ | 20.88 | |||||||||||||
Granted |
216,092 | 17.90 | ||||||||||||||
Exercised |
| | ||||||||||||||
Forfeited |
| | ||||||||||||||
Expired |
| | ||||||||||||||
|
|
|||||||||||||||
SSARs outstanding at March 31, 2013 |
695,673 | $ | 19.96 | $ | 288 | 8.0 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
SSARs exercisable at March 31, 2013 |
349,189 | $ | 21.08 | $ | 288 | 6.9 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
SSARs vested and expected to vest at March 31, 2013 |
678,743 | $ | 20.00 | $ | 288 | 8.0 | ||||||||||
|
|
|
|
|
|
|
|
12
SSAR details for the three and six months ended March 31, 2013 and 2012 are summarized as follows:
Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
SSARs granted |
| | 216,092 | 141,107 | ||||||||||||
Compensation cost recognized |
$ | 264 | $ | 301 | $ | 562 | $ | 529 | ||||||||
Aggregate intrinsic value of SSARs exercised |
$ | | $ | 16 | $ | | $ | 69 |
Unearned compensation as of March 31, 2013 was $1,691 related to non-vested SSARs, which will be recognized into expense over a weighted-average period of 2.2 years.
Compensation Cost Summary
The following table shows a summary of the compensation cost included in the condensed consolidated statements of comprehensive income for the three and six months ended March 31, 2013 and 2012:
Three Months Ended March 31, |
Six Months Ended March 31, |
|||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Cost of sales |
$ | 133 | $ | 128 | $ | 266 | $ | 249 | ||||||||
Research and development |
151 | 88 | 306 | 195 | ||||||||||||
Sales and marketing |
179 | 291 | 392 | 493 | ||||||||||||
General and administrative |
778 | 996 | 1,584 | 1,951 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total compensation cost |
$ | 1,241 | $ | 1,503 | $ | 2,548 | $ | 2,888 | ||||||||
|
|
|
|
|
|
|
|
6. Share Repurchase Program
The Board has provided a committee with the discretion to execute a share repurchase program for up to 1,100,000 shares in the aggregate of the Companys common stock on the open market. These shares represented approximately five percent of the Companys common stock outstanding as of March 31, 2013. On September 2, 2011, the Company entered into a 10b5-1 Repurchase Plan Agreement, which expired on June 2, 2012 and provided for the repurchase of up to 500,000 of such shares. As of September 30, 2012, a total of 488,400 of such shares were repurchased under such 10b5-1 Repurchase Plan Agreement, at a weighted-average purchase price of $20.17 per share, for a total value of $9,853. On December 3, 2012, the Company entered into a new 10b5-1 Repurchase Plan Agreement, providing for the repurchase of up to an additional 200,000 of such shares. The new 10b5-1 Repurchase Plan Agreement expired on December 31, 2012 and a total of 76,194 of such shares were repurchased under such 10b5-1 Repurchase Plan Agreement at a weighted-average purchase price of $18.95 per share, for a total value of $1,444. The repurchased shares are generally retired during the quarter they are repurchased and the excess of the repurchase price over par value is booked as an adjustment to additional paid-in capital in the periods in which the respective shares are retired.
7. Income Taxes
The Internal Revenue Service (IRS) is currently examining the Companys income tax returns for fiscal years 2007 through 2010. On August 1, 2012, the Company received a Revenue Agent Report (the Original Report) from the IRS relating to its examination of the Companys income tax returns for fiscal years 2007 and 2008. On February 6, 2013, the IRS withdrew the Original Report and issued a revised Revenue Agent Report (the Revised Report). In the Revised Report, the IRS reduced its proposed adjustments. The remaining proposed adjustments would result in $32,363 of additional taxable income for those two years. Management believes there are numerous errors in the Revised Report, does not agree with the proposed adjustments and has contested the proposed adjustments with the IRS Appeals Office. After reviewing the Revised Report, management continues to believe that an adequate provision has been made for all of the Companys uncertain tax positions. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Companys tax audits are resolved in a manner not consistent with managements expectations, the Company could be required to adjust its provision for income tax in the period such resolution occurs. Any significant adjustments resulting from the IRS proposal could have a material adverse effect on the Companys results of operations, cash flows and financial position if not resolved favorably.
13
8. Derivative Financial Instruments
Foreign Currency Forward Contracts
The Company transacts business in various foreign countries and is therefore exposed to gains and losses resulting from fluctuations in foreign currency exchange rates relating to purchases, obligations, and monetary assets and liabilities that are denominated in currencies other than the Companys reporting currency. The Company has established foreign currency risk management programs to attempt to protect against short-term volatility in the value of non-U.S. dollar denominated monetary assets and liabilities, and of future cash flows caused by changes in foreign currency exchange rates. As a result, from time to time, the Company enters into foreign currency forward contracts to hedge its aforementioned currency exposures.
The Company accounts for all of its derivative instruments in accordance with the relevant Financial Accounting Standards Board (FASB) authoritative accounting guidance for derivatives and hedges. The guidance requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the condensed consolidated balance sheets. As of March 31, 2013, the aggregate notional amount of the Companys outstanding foreign currency forward contracts is summarized below:
Currency |
Buy/ Sell |
Foreign Currency Amount |
Notional Contract Value in USD |
|||||||||
Foreign currency non-hedge derivatives: |
||||||||||||
RMB |
Buy | ¥ | 250,906 | $ | 40,000 |
The changes in fair value of the Companys derivative instruments are recognized in earnings during the period of change as other income (expense), net in the condensed consolidated statements of comprehensive income. The Company recognized gains (losses) of ($50) and ($50) during the three and six months ended March 31, 2013 and $790 and $994 during the three and six months ended March 31, 2012, respectively, related to derivative financial instruments.
9. Subsequent Events
On May 6, 2013, MFC entered into a credit line agreement with China Construction Bank, Suzhou Industry Park Sub-Branch (CCB), which provides for a borrowing facility for 300,000 RMB ($47,816 at March 31, 2013). The line of credit will mature in May 2016. Interest on the credit line agreement for U.S. dollar lending will be negotiated and determined by both parties based on the lending cost in the market for U.S. dollar transactions on the day the loan is made. For RMB lending, the interest rate is based on the current rate set by the Peoples Bank of China at the time of borrowing.
14
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
This Quarterly Report on Form 10-Q (Quarterly Report) contains forward-looking statements that involve a number of risks and uncertainties. These forward-looking statements include, but are not limited to, statements and predictions as to our expectations regarding our revenues, sales, sales growth, net income, inventory levels, production build plans, operating expenses, research and development expenses, earnings, operations, gross margins, including without limitation, our targeted gross margin range, achievement of margins within or outside of such range and factors that could affect gross margins, yields, anticipated cash needs and uses of cash, capital requirements and capital expenditures, payment terms, expected tax rates, results of audits of us in China and the U.S., needs for additional financing, use of working capital, the benefits and risks of our China operations, anticipated growth strategies, ability to attract customers and diversify our customer base, our sources of net sales, anticipated trends and challenges in our business and the markets in which we operate, trends regarding the use of flex in smartphones, tablets and other consumer electronic devices, the adequacy and expansion of our facilities, capability, capacity and equipment, the impact of economic and industry conditions on our customers and our business, current and upcoming programs and product mix and the learning curves associated with our programs, market opportunities and the utilizations of flex and flex assemblies, customer demand, our competitive position, labor issues in the jurisdictions in which we operate, the commercial success of our customers and their products, critical accounting policies and the impact of recent accounting pronouncements. Additional forward-looking statements include, but are not limited to, statements pertaining to other financial items, plans, strategies or objectives of management for future operations, our financial condition or prospects, and any other statement that is not historical fact, including any statement which is preceded by the word may, might, will, intend, should, could, can, would, expect, believe, anticipate, estimate, predict, aim, potential, plan, or similar words. For all of the foregoing forward-looking statements, we claim the protection of the Private Securities Litigation Reform Act of 1995. Actual events or results may differ materially from our expectations. Important factors that could cause actual results to differ materially from those stated or implied by our forward-looking statements include, but are not limited to, the impact of changes in demand for our products, our success with new and current customers, our ability to maintain or grow our market share, our ability to diversify our customer base, the success of our customers and their products in the marketplace, our effectiveness in managing manufacturing processes, inventory levels and costs and expansion of our operations, the degree to which we are able to utilize available manufacturing capacity, achieve expected yields and obtain expected gross margins, the impact of competition, the economy and technological advances, and the other risks set forth below under Part II, Item 1A. Risk Factors. These forward-looking statements represent our judgment as of the date hereof. We disclaim any intent or obligation to update these forward-looking statements.
Overview
We are a global provider of high-quality, technologically advanced flexible printed circuits and value-added component assembly solutions to the electronics industry. We believe that we are one of a limited number of manufacturers that provide a seamless, integrated flexible printed circuit and assembly solution from design and application engineering and prototyping through high-volume fabrication, component assembly and testing. We target our solutions within the electronics market and, in particular, our solutions enable our customers to achieve a desired size, shape, weight or functionality of the device. Current examples of applications for our products include mobile phones, smartphones, tablets, consumer products, portable bar code scanners, computer/data storage and medical devices. We provide our solutions to original equipment manufacturers (OEMs) such as Apple Inc. and to electronic manufacturing services (EMS) providers such as Foxconn Electronics, Inc., Jabil Circuit, Inc., and Flextronics International Ltd. Our business model, and the way we approach the markets which we serve, is based on value added engineering and providing technology solutions to our customers facilitating the miniaturization of portable electronics. We currently rely on a core mobility end-market for nearly all of our revenue. We believe this dynamic market offers fewer, but larger, opportunities than other electronic markets do, and changes in market leadership can occur with little to no warning. Through early supplier involvement with customers, we look to assist in the development of new designs and processes for the manufacturing of their products and, through value added component assembly of components on flex, seek to provide a higher level of product within their supply chain structure. This approach is relatively unique and may or may not always fit with the operating practices of all OEMs. Our ability to add to our customer base may have a direct impact on the relative percentage of each customers revenue to total revenues during any reporting period.
15
We typically have numerous programs in production at any particular time, the life cycle for which is typically around one year. The programs prices are subject to intense negotiation and are determined on a program by program basis, dependent on a wide variety of factors, including without limitation, expected volumes, assumed yields, material costs, and the amount of third party components within the program. Our profitability is dependent upon how we perform against our targets and the assumptions on which we base our prices for each particular program. Our volumes, margins and yields also vary from program to program and, given various factors and assumptions on which we base our prices, are not necessarily indicative of our profitability. In fact, some lower-priced programs have higher margins while other higher-priced programs have lower margins. Given that the programs in production vary from period to period and the pricing and margins between programs vary widely, volumes are not necessarily indicative of our performance. For example, we could experience an increase in volumes for a particular program during a particular period, but depending on that programs margins and yields and the other programs in production during that period, those higher volumes may or may not result in an increase in overall profitability.
Critical Accounting Policies
Information with respect to our critical accounting policies which we believe have the most significant effect on our reported results and require subjective or complex judgments of management are contained on pages 32 to 35 in Managements Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended September 30, 2012.
Comparison of the Three Months Ended March 31, 2013 and 2012
The following table sets forth our Statement of Operations data expressed as a percentage of net sales for the periods indicated:
Three Months Ended March 31, |
||||||||
2013 | 2012 | |||||||
Net sales |
100.0 | % | 100.0 | % | ||||
Cost of sales |
108.9 | 87.5 | ||||||
|
|
|
|
|||||
Gross (loss) profit |
(8.9 | ) | 12.5 | |||||
Operating expenses: |
||||||||
Research and development |
1.0 | 1.1 | ||||||
Sales and marketing |
2.7 | 3.1 | ||||||
General and administrative |
2.5 | 2.6 | ||||||
Impairment and restructuring |
| (0.6 | ) | |||||
|
|
|
|
|||||
Total operating expenses |
6.2 | 6.2 | ||||||
|
|
|
|
|||||
Operating (loss) income |
(15.1 | ) | 6.3 | |||||
Other income (expense), net: |
||||||||
Interest income |
0.0 | 0.2 | ||||||
Interest expense |
(0.1 | ) | 0.0 | |||||
Other income (expense), net |
0.1 | 0.5 | ||||||
|
|
|
|
|||||
(Loss) income before income taxes |
(15.1 | ) | 7.0 | |||||
Benefit from (provision for) income taxes |
1.3 | (1.2 | ) | |||||
|
|
|
|
|||||
Net (loss) income |
(13.8 | )% | 5.8 | % | ||||
|
|
|
|
Net Sales. Net sales decreased to $173.7 million for the three months ended March 31, 2013, from $208.0 million for the three months ended March 31, 2012. The decrease of $34.3 million, or 16.5%, was primarily due to decreased sales into our smartphones and tablets sectors, partially offset by increased sales into our consumer electronics sector, as further quantified below.
Net sales into our smartphones sector decreased to $113.2 million for the three months ended March 31, 2013, from $147.0 million for the three months ended March 31, 2012. The decrease of $33.8 million, or 23.0%, was primarily due to decreased sales volumes as a result of product mix to one major customer in this sector by 16.4%. For the three months ended March 31, 2013 and 2012, our smartphones sector accounted for approximately 65% and 71% of total net sales, respectively.
16
Net sales into our tablets sector decreased to $49.0 million for the three months ended March 31, 2013, from $54.3 million for the three months ended March 31, 2012. The decrease of $5.3 million in sales into the tablets sector was due primarily to decreased sales volumes to one major customer in this sector of $14.1 million, or 26.0%, partially offset by additional sales of $8.8 million to a new customer in this sector. For the three months ended March 31, 2013, and 2012, the tablets sector accounted for approximately 28% and 26% of total net sales, respectively.
Net sales into our consumer electronics sector (which excludes net sales into our tablets sector) increased to $8.3 million for the three months ended March 31, 2013, from $0.5 million for the three months ended March 31, 2012. The increase of $7.8 million in sales into the consumer electronics sector was due to new program ramps for one of our key customers in this sector. Shipments into the consumer electronics sector accounted for approximately 5% and 0% of total net sales for the three months ended March 31, 2013 and 2012, respectively.
Cost of Sales and Gross Profit. Cost of sales as a percentage of net sales increased to 108.9% for the three months ended March 31, 2013 versus 87.5% for the three months ended March 31, 2012. The increase in cost of sales as a percentage of net sales of from 87.5% to 108.9% was primarily attributable to lower overhead absorption due to reduced production levels. Production levels were reduced due to the lower demand as well as to decrease inventory. In addition, cost of sales for the three months ended March 31, 2013 includes a $10.9 million write-down of inventory as a result of unusable components, including $1.7 million that was written-down as a result of uncertainty in near-term demand forecasts. Gross profit decreased to gross loss of $15.5 million for the three months ended March 31, 2013, versus gross profit of $26.1 million for the three months ended March 31, 2012, or 159.4%. As a percentage of net sales, gross profit decreased to (8.9%) for the three months ended March 31, 2013 from 12.5% for the three months ended March 31, 2012.
Research and Development. Research and development expense decreased by $0.4 million to $1.8 million for the three months ended March 31, 2013, from $2.2 million for the three months ended March 31, 2012. The decrease is primarily related to a reduction in facility costs as part of our continued effort to move research and development costs to China, where overall costs are lower. As a percentage of net sales, research and development expense decreased to 1.0% versus 1.1% in the comparable period of the prior year.
Sales and Marketing. Sales and marketing expense decreased by $1.8 million to $4.7 million for the three months ended March 31, 2013, from $6.5 million in the comparable period of the prior year, a decrease of 27.7%. The decrease is primarily the result of lower negotiated commission rates, coupled with lower sales volumes in the comparable periods. As a percentage of net sales, sales and marketing expense decreased to 2.7% versus 3.1% in the comparable period of the prior year.
General and Administrative. General and administrative expense decreased by $1.2 million to $4.3 million for the three months ended March 31, 2013 from $5.5 million in the comparable period of the prior year, which is a decrease of 21.8%. This decrease is primarily the result of reduced discretionary spending in order to reduce total operating expenses in periods of lower utilization. As a percentage of net sales, general and administrative expense decreased to 2.5% versus 2.6% in the comparable period of the prior year.
Impairment and Restructuring. No impairment and restructuring charges or recoveries were recorded during the three months ended March 31, 2013. For the three months ended March 31, 2012, impairment and restructuring consisted of recoveries of $1.2 million which was the result of a gain on sale of our former corporate headquarters building and certain of our previously impaired machinery and equipment in California.
Goodwill. We evaluate the carrying value of goodwill during the fourth quarter of each fiscal year and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. In the early portion of our second fiscal quarter of 2013, our market capitalization began to decline significantly, driven by a reduction in the trading price of our common stock, which we believe is principally a result of weaker than expected guidance for our second fiscal quarter of 2013. However, while our operating results in the second fiscal quarter of 2013 were weaker than expected, the majority of our net sales for fiscal 2013 are expected in the second half of the year. Management does not believe there were any impairment triggering events during the quarter ended March 31, 2013. If the market outlook and our operating performance does not recover to expected levels in future quarters, a triggering of a goodwill impairment assessment and a potential goodwill impairment charge may be warranted. At March 31, 2013, the carrying value of our goodwill was approximately $7.5 million. If forecasts and assumptions used to support the realizability of our long-lived assets change in the future, significant impairment charges could result that would adversely affect our results of operations and financial condition.
Other Income (Expense), Net. Other income, net decreased to $0.2 million for the three months ended March 31, 2013, from other income, net of $1.3 million for the three months ended March 31, 2012. This decrease was primarily the result of foreign exchange due to the movement of the U.S. dollar versus the RMB and other foreign currencies.
17
Income Taxes. The effective tax rate for three months ended March 31, 2013 and 2012 was a benefit of 8.9% and a provision of 17.3%, respectively. The variance in our effective tax rate is primarily the net result of our income and tax expense distribution by region. We expect future tax rates to vary if current tax regulations change.
18
Comparison of the Six Months Ended March 31, 2013 and 2012
The following table sets forth our Statement of Operations data expressed as a percentage of net sales for the periods indicated:
Six Months Ended March 31, |
||||||||
2013 | 2012 | |||||||
Net sales |
100.0 | % | 100.0 | % | ||||
Cost of sales |
98.0 | 87.6 | ||||||
|
|
|
|
|||||
Gross profit |
2.0 | 12.4 | ||||||
Operating expenses: |
||||||||
Research and development |
0.8 | 1.0 | ||||||
Sales and marketing |
2.4 | 2.9 | ||||||
General and administrative |
2.2 | 2.5 | ||||||
Impairment and restructuring |
| (0.4 | ) | |||||
|
|
|
|
|||||
Total operating expenses |
5.4 | 6.0 | ||||||
|
|
|
|
|||||
Operating (loss) income |
(3.4 | ) | 6.4 | |||||
Other income (expense), net: |
||||||||
Interest income |
0.0 | 0.1 | ||||||
Interest expense |
(0.1 | ) | (0.1 | ) | ||||
Other income (expense), net |
0.1 | 0.5 | ||||||
|
|
|
|
|||||
(Loss) income before income taxes |
(3.4 | ) | 6.9 | |||||
Benefit from (provision for) income taxes |
0.1 | (1.2 | ) | |||||
|
|
|
|
|||||
Net (loss) income |
(3.3 | )% | 5.7 | % | ||||
|
|
|
|
Net Sales. Net sales increased to $463.3 million for the six months ended March 31, 2013, from $447.3 million for the six months ended March 31, 2012. The increase of $16.0 million, or 3.6%, was primarily due to increased sales into our tablets and consumer electronics sectors, partially offset by decreased sales into our smartphone sector, as further quantified below.
Net sales into our smartphones sector decreased to $310.0 million for the six months ended March 31, 2013, from $341.3 million for the six months ended March 31, 2012. The decrease of $31.3 million, or 9.2%, was primarily due to decreased sales volumes to one major customer in this sector of 55.6%, partially offset by increased sales volumes to another major customer in this sector of 12.6%. For the six months ended March 31, 2013 and 2012, our smartphones sector accounted for approximately 67% and 71% of total net sales, respectively.
Net sales into our tablets sector increased to $119.7 million for the six months ended March 31, 2013, from $94.9 million for the six months ended March 31, 2012. The increase of $24.8 million in sales into the tablets sector was due primarily to higher sales volumes to two major customers in this sector, one of which is a new customer in fiscal 2013. For the six months ended March 31, 2013, and 2012, the tablets sector accounted for approximately 26% of total net sales.
Net sales into our consumer electronics sector (which excludes net sales into our tablets sector) increased to $29.4 million for the six months ended March 31, 2013, from $0.6 million for the six months ended March 31, 2012. The increase in sales into the consumer electronics sector was due to new program ramps for one of our key customers in this sector. Shipments into the consumer electronics sector accounted for approximately 6% and 0% of total net sales for the six months ended March 31, 2013 and 2012, respectively.
Cost of Sales and Gross Profit. Cost of sales as a percentage of net sales increased to 98.0% for the six months ended March 31, 2013 versus 87.6% for the six months ended March 31, 2012. The increase in cost of sales as a percentage of net sales from 87.6% to 98.0% was primarily attributable to lower overhead absorption due to reduced production levels. Production levels were reduced due to the lower demand as well as to decrease inventory. In addition, cost of sales for the six months ended March 31, 2013 includes a $10.9 million write-down of inventory as a result of unusable components, including $1.7 million that was written-down as a result of uncertainty in near-term demand forecasts. Gross profit decreased to $9.2 million for the six months ended March 31, 2013, versus $55.2 million for the six months ended March 31, 2012, or 83.3%. As a percentage of net sales, gross profit decreased to 2.0% for the six months ended March 31, 2013 from 12.4% for the six months ended March 31, 2012.
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Research and Development. Research and development expense decreased by $0.5 million to $3.8 million for the six months ended March 31, 2013, from $4.3 million for the six months ended March 31, 2012. The decrease is primarily related to a reduction in facility costs as part of our continued effort to move research and development costs to China, where overall costs are lower. As a percentage of net sales, research and development expense decreased to 0.8% versus 1.0% in the comparable period of the prior year.
Sales and Marketing. Sales and marketing expense decreased by $1.7 million to $11.2 million for the six months ended March 31, 2013, from $12.9 million in the comparable period of the prior year, a decrease of 13.2%. The decrease is primarily the result of lower negotiated commission rates, coupled with lower sales volumes in the comparable periods. As a percentage of net sales, sales and marketing expense decreased to 2.4% versus 2.9% in the comparable period of the prior year.
General and Administrative. General and administrative expense decreased by $1.1 million to $10.0 million for the six months ended March 31, 2013 from $11.1 million in the comparable period of the prior year, which is a decrease of 9.9%. This decrease is primarily the result of reduced discretionary spending in order to reduce total operating expenses in periods of lower utilization. As a percentage of net sales, general and administrative expense decreased to 2.2% versus 2.5% in the comparable period of the prior year.
Impairment and Restructuring. No impairment and restructuring charges or recoveries were recorded during the six months ended March 31, 2013. Impairment and restructuring consisted of recoveries of $1.7 million for the six months ended March 31, 2012, which was the result of a gain on sale of our former corporate headquarters building and certain of our previously impaired machinery and equipment in California.
Other Income (Expense), Net. Other income, net decreased to $0.2 million for the six months ended March 31, 2013, from other income, net of $1.8 million for the six months ended March 31, 2012. This decrease was primarily due to foreign exchange due to the movement of the U.S. dollar versus the RMB and other foreign currencies.
Income Taxes. The effective tax rate for six months ended March 31, 2013 and 2012 was a benefit of 1.7% and a provision of 17.0%, respectively. The variance in our effective tax rate is the net result of having taxable income in some foreign jurisdictions and losses in others. We expect future tax rates to vary if current tax regulations change.
Guidance
Net Sales. For our third quarter of fiscal 2013, we expect net sales to range between $155 and $185 million.
Cost of Sales and Gross Profit. For our third quarter of fiscal 2013, we expect gross margin to be approximately breakeven based on production build plans, projected sales volumes and anticipated product mix.
Operating Expenses. We expect operating expenses to be between approximately $10 million and $11 million during the third fiscal quarter of 2013.
Income Taxes. We expect the effective tax rate, on average, to be approximately 2% for fiscal 2013. We expect to return to a more normalized tax rate of approximately 20% in fiscal 2014.
Capital Expenditures. For fiscal 2013, we are anticipating approximately $40 to $45 million in capital expenditures.
These projections are based on several business assumptions and are therefore subject to uncertainty. See Item 1A of Part II, Risk Factors.
Liquidity and Capital Resources
Our principal sources of liquidity have been cash provided by operations and our ability to borrow under our various credit facilities. Our principal uses of cash have been to finance working capital, facility expansions, stock repurchases and other capital expenditures. We anticipate these uses will continue to be our principal uses of cash in the future. Global financial and credit markets have been volatile in recent years, and future adverse conditions of these markets could negatively affect our ability to secure funds or raise capital at a reasonable cost, if needed.
It is our policy to carefully monitor the state of our business, cash requirements and capital structure. We believe that funds generated from our operations and available from our borrowing facilities will be sufficient to fund current business operations as well as anticipated growth over at least the next twelve months, without the need to repatriate earnings.
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Changes in the principal components of operating cash flows during the six months ended March 31, 2013 were as follows:
| Our net accounts receivable balance decreased to $101.6 million as of March 31, 2013 from $165.4 million as of September 30, 2012, or 38.6%. Days sales outstanding on a quarterly basis decreased 21 days from September 30, 2012 to 53 days at March 31, 2013, primarily as the result of decreased sales coupled with improved collections. Our net inventory balance decreased to $55.1 million as of March 31, 2013 from $124.8 million as of September 30, 2012, a decrease of 55.8%. Days in inventory on a quarterly basis decreased 33 days from September 30, 2012 to 26 days at March 31, 2013 as a result of our planned scaled-back production to reduce inventory-on-hand at March 31, 2013. Our accounts payable balance decreased to $119.1 million as of March 31, 2013 from $199.7 million as of September 30, 2012, a decrease of 40.4% due to the lower production volume in our second fiscal quarter of 2013 as previously mentioned. Days payable on a quarterly basis decreased 38 days to 57 days, primarily as a result of the timing of inventory purchases and more favorable vendor payment terms. |
| Depreciation and amortization expense was $29.2 million for the six month ended March 31, 2013, versus $26.7 million for the comparable period of the prior year, primarily due to new machinery and equipment placed into service for production on new programs. |
Our principal investing and financing activities during the six months ended March 31, 2013 were as follows:
| Net cash used in investing activities was $26.7 million for the six months ended March 31, 2013 and consisted of cash purchases of capital equipment and other assets, which were primarily related to our manufacturing capacity expansion in China. |
| Net cash used in financing activities was approximately $1.6 million for the six months ended March 31, 2013 and consisted of repurchases of common stock of $1.4 million and tax withholdings for net share settlements of equity awards to employees of $0.8 million, partially offset by $0.6 million of proceeds from exercise of stock options. Our loans payable and borrowings outstanding against credit facilities were zero at March 31, 2013 and September 30, 2012. |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Market Risk
Market risk represents the risk of loss arising from adverse changes in liquidity, market rates and foreign exchange rates. At March 31, 2013, no amounts were outstanding under our loan agreements with Bank of China Co., Ltd, JPMorgan Chase Bank, N.A. or Agricultural Bank of China. The amounts outstanding under these loan agreements at any time may fluctuate and we may, from time to time, be subject to refinancing risk. We do not believe that a change of 100 basis points in interest would have a material effect on our results of operations or financial condition based on our current borrowing level.
Foreign Currency Risk
We derive a substantial portion of our sales outside of the U.S. Approximately $457.8 million, or 99%, of total shipments to these foreign manufacturers during the six months ended March 31, 2013 were made in U.S. dollars with the remaining balance of our net sales denominated in Chinese Renminbi (RMB). We currently have a significant portion of our expenses, more specifically cost of sales, denominated in RMB, whereby a significant appreciation or depreciation in the RMB could materially affect our reported expenses in U.S. dollars. The exchange rate for the RMB to the U.S. dollar has been an average of 6.29 RMB per U.S. dollar for the six months ended March 31, 2013. To date, we attempt to manage our working capital in a manner to minimize foreign currency exposure and from time to time, we may engage in currency hedging activities through use of forward contracts but such activities may not be able to limit the risks of currency fluctuations and we continue to be vulnerable to appreciation or depreciation of foreign currencies against the U.S. dollar. At March 31, 2013, we had outstanding forward contracts with notional amounts aggregating to approximately 250.9 million RMB (approximately U.S. $40.0 million) and the recorded fair value of the associated liabilities was not material.
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Liquidity Risk
We believe our anticipated cash flows from operations are sufficient to fund our operations, including capital expenditure requirements, through at least the next twelve months. If there was a need for additional cash to fund our operations, we would access our global credit lines.
Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Based on an evaluation carried out as of the end of the period covered by this Quarterly Report, under the supervision and with the participation of our management, including our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, our CEO and CFO have concluded that, as of the end of such period, our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) are effective.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended March 31, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Item 1A. | Risk Factors |
FACTORS THAT MAY AFFECT OUR OPERATING RESULTS
Our business, financial condition, operating results and cash flows can be impacted by a number of factors, including but not limited to those set forth below, any of which could cause our results to be adversely impacted and could result in a decline in the value or loss of an investment in our common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business.
Risks Related to Our Business
We are, and have historically been, heavily dependent upon the smartphone, tablet and consumer electronics industries, and any downturn in these sectors may reduce our net sales.
For the six months ended March 31, 2013, 2012 and 2011, approximately 67%, 76% and 91%, respectively, of our net sales were derived from sales to companies for products or services into our smartphone sector; approximately 26%, 21% and 4%, respectively, of our net sales derived from sales were to companies for products or services into our tablet sector; and approximately 6%, 0% and 1%, respectively, of our net sales were derived from sales to companies for products or services into our consumer electronics sector (excluding tablets). In general, these sectors are subject to economic cycles, changes in customer order patterns and periods of slowdown. Intense competition, relatively short product life cycles and significant fluctuations in product demand characterize these sectors, and these sectors are also generally subject to rapid technological change and product obsolescence. Fluctuations in demand for our products as a result of periods of slowdown in these markets (including the current economic downturn) or discontinuation of products or modifications developed in connection with next generation products could reduce our net sales.
We depend on a very limited number of key customers, and a limited number of programs from those customers, for significant portions of our net sales and if we lose business with any of these customers or if the products we are in are not commercially successful, our net sales could decline substantially.
For the past several years, a substantial portion of our net sales has been derived from products that are incorporated into programs manufactured by or on behalf of a very limited number of key customers and their subcontractors, including Apple Inc. and Research in Motion Limited. In addition, a substantial portion of our sales to each customer is often tied to only one program or a small number of programs. In the fiscal years ended September 30, 2012, 2011 and 2010, approximately 74%, 44% and 43%, respectively, of our net sales were to the same one customer and in the second quarter of fiscal 2013, approximately 77% of our sales were to one customer. Furthermore, in the fiscal years ended September 30, 2012, 2011 and 2010, approximately 90%, 86% and 85% of our net sales were to the same two customers, and approximately 94%, 94% and 94%, respectively, of our net sales were to only three customers in the aggregate. Our significant customer concentration increases the risk that our business terms with those customers may not be as favorable to us as those we might receive in a more competitive environment. The loss of a major customer or a significant reduction in sales to a major customer, including due to the lack of commercial success by such customer or one of its products, a product failure of a customers program or limited flex content in a program, would seriously harm our business. Although we are continuing our efforts to reduce dependence on a limited number of customers, net sales attributable to a limited number of customers and their subcontractors are expected to continue to represent a substantial portion of our business for the foreseeable future.
We will have difficulty selling our products if customers do not design flexible printed circuits and assemblies into their product offerings or our customers product offerings are not commercially successful.
We sell our flexible printed circuits and assemblies directly or indirectly to OEMs, who include our flexible circuits and component assemblies in their product offerings. We must continue to design our products into our customers product offerings in order to remain competitive. However, our OEM customers may decide not to design flexible printed circuits into their product offerings (or may reduce the amount of flex in a product offering), or may procure flexible printed circuits from one of our competitors. If an OEM selects one of our competitors to provide a product instead of us or switches to alternative technologies developed or manufactured by one or more of our competitors, it becomes significantly more difficult for us to sell our products to that OEM because changing component providers after the initial production runs begin involves significant cost, time, effort and risk for the OEM. Even if an OEM designs one of our products into its product offering, the product may not be commercially successful or may experience product failures, we may not receive any orders from that manufacturer, the OEM may qualify additional vendors for the product or we could be undercut by a competitors pricing. Additionally, if an OEM selects one or more of our competitors, they may rely upon such competitors for the life of specific offering and subsequent generations of similar offerings. Any of these events would result in fewer sales and reduced profits for us, and could adversely affect the accuracy of any forward-looking guidance we may give.
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Changes in the products our customers buy from us can significantly affect our capacity, net sales and profitability.
We sell our flexible printed circuits and flex assemblies to a very limited number of customers, who typically purchase these products from us for numerous programs at any particular time. Customer programs differ in design and material content and our products prices and profitability are dependent on a wide variety of factors, including without limitation, expected volumes, assumed yields, material costs, actual yields and the amount of third-party components within the program. If we lose sales for a program that has higher material content, we may have to replace it with sales for a program that has lower material content, thus requiring additional capacity to generate the same amount of net sales. We may not have such capacity available (or it may not be economically advantageous to acquire such capacity), which could then result in lower net sales. Furthermore, if we were unable to increase our capacity to match our customers requests, we may lose existing business from such customer, in addition to losing future sales. In addition, if we were to utilize our capacity to increase sales of bare flex (flex without assembly), this could also generate lower net sales at potentially different (higher or lower) profitability levels.
Our customers have in the past and likely will continue to cancel their orders, change production quantities, delay production or qualify additional vendors, any of which could reduce our net sales, increase our expenses and/or cause us to write down inventory.
Substantially all of our sales are made on a purchase order basis, and we are not always able to predict with certainty the number of orders we will receive or the timing or magnitude of the orders. Our customers may cancel, change or delay product purchase orders with little or no advance notice to us, and we believe customers are doing so with increased frequency. These changes may be for a variety of reasons, including changes in their prospects, the success of their products in the market, reliance on a new vendor and the overall economic forecast. In general, we do not have long-term contractual relationships with our customers that require them to order minimum quantities of our products, and our customers may decide to use another manufacturer or discontinue ordering from us in their discretion, potentially even after we have begun production on their program. In addition, many of our products are shipped to hubs, and we often have limited visibility and no control as to when our customers pull the inventory from the hub. We have recently seen an increase in the use of hubs by our customers, and our hub balances have been growing. We also have increased risks with respect to inventory control and potential inventory loss, and must rely on third parties for recordkeeping when our products are shipped to a hub. As a result of these factors, we are not always able to forecast accurately the net sales that we will make in a given period. Changes in orders can also result in layoffs and associated severance costs, which in any given financial period could materially adversely affect our financial results.
In addition, we are increasingly being required to purchase materials, components and equipment before a customer becomes contractually committed to an order so that we may timely deliver the expected order to the customer. We may increase our production capacity, working capital and overhead in expectation of orders that may never be placed, or, if placed, may be delayed, reduced or canceled. As a result, we may be unable to recover costs that we incur in anticipation of orders that are never placed, such as costs associated with purchased raw materials, components or equipment. Delayed, reduced or canceled orders could also result in write-offs of obsolete inventory. Although we estimate inventory reserve amounts, the amount reserved may not be sufficient for such write-offs. In addition, the underutilization of our manufacturing capacity if we decline other potential orders because we expect to use our capacity to produce orders that are later delayed, reduced or canceled.
Our industry is extremely competitive, and if we are unable to respond to competitive pressures we may lose sales and our market share could decline.
We compete primarily with large flexible printed circuit board manufacturers located throughout Asia, including Taiwan, China, Korea, Japan and Singapore. We believe that the number of companies producing flexible printed circuit boards has increased materially in recent years and may continue to increase. In addition, certain former competitors are in the process of re-instituting their flexible printed circuit production which will increase competition in our market. Certain EMS providers have developed or acquired their own flexible printed circuit manufacturing capabilities or have extensive experience in electronics assembly, and in the future may cease ordering products from us or even compete with us on OEM programs. In addition, the number of customers in the market has been decreasing through consolidation and otherwise and the smartphone and tablet markets continue to become more competitive in terms of pricing. Furthermore, many companies in our target customer base may move the design and manufacturing of their products to original design manufacturers in Asia. These factors, among others, make our industry extremely competitive. If we are not successful in addressing these competitive aspects of our business, including maintaining or establishing close relationships with customers in markets in which we compete, we may not be able to grow or maintain our market share or net sales.
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Our products and their terms of sale are subject to various pressures from our customers, competitors and market forces, any of which could harm our gross profits.
Our selling prices are affected by changes in overall demand for our products, changes in the specific products our customers buy, pricing of competitors products, our products life cycles and general economic conditions. In addition, from time to time we may elect to reduce the price of certain products we produce in order to gain additional orders on a particular program. A typical life cycle for one of our products has our selling price decrease as the program matures. To offset price decreases during a products life cycle, we rely primarily on higher sales volume and improving our manufacturing yield and productivity to reduce a products cost. If we cannot reduce our manufacturing costs as prices decline during a products life cycle, or if we are required to pay damages to a customer due to a breach of contract or other claim, including due to quality or delivery issues, our cost of sales may increase, which would harm our profitability and could affect our working capital levels.
In addition, our key customers and their subcontractors are able to exert significant pricing pressure on us and often require us to renegotiate the terms of our arrangements with them, including increasing or removing liability and indemnification thresholds and increasing the length of payment terms, among other terms. Increases in our labor costs, especially in China where we may have little or no advance notice of such increases, changes in contract terms and regular price reductions have historically resulted in lower gross margins for us and may continue to do so in future periods. Furthermore, our competitive position is dependent upon the yields and quality we are able to achieve on our products and our level of automation as compared to our competitors. These trends and factors may harm our business and make it more difficult to compete effectively.
Significant product failures or safety concerns about our or our customers products could harm our reputation and our business.
Continued improvement in manufacturing capabilities, quality control, material costs and successful product testing capabilities are critical to our growth. Our efforts to monitor, develop, modify and implement stringent testing and manufacturing processes for our products may not be sufficient. If any flaw in the design, production, assembly or testing of our or our customers products were to occur or if our, or our customers, products were believed to be unsafe, it could result in significant delays in product shipments by, or cancellation of orders or, substantial penalties from, our customers and their customers, substantial refund, recall, repair or replacement costs, an increased return rate for our products, potential damage to our reputation, or potential lawsuits which could prove to be time consuming and costly. Recent pronouncements by the World Health Organization listing mobile phone use as possibly carcinogenic may affect our customers sales and in turn affect our sales to our customers. Because we normally provide a warranty for our products, a significant claim for damages related to a breach of warranty could materially affect our financial results.
Problems with manufacturing yields and/or our inability to ramp up production could impair our ability to meet customer demand for our products.
We could experience low manufacturing yields due to, among other things, design errors, manufacturing failures in new or existing products, the inexperience of new employees, component defects, or the learning curve experienced during the initial and ramp up stages of new product introduction. If we cannot achieve expected yields in the manufacture of our products, this could result in higher operating costs, which could result in higher per unit costs, reduced product availability and may subject us to substantial penalties by our customers. Reduced yields or an inability to successfully ramp up products can significantly harm our gross margins, resulting in lower profitability or even losses. In addition, if we were unable to ramp up our production in order to meet customer demand, whether due to yield or other issues, it would impair our ability to meet customer demand for our products, and our net sales and profitability would be negatively affected.
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We must develop and adopt new technology and manufacture new products and product features in order to remain competitive, and we may not be able to do so successfully.
Our long-term strategy relies in part on timely adopting, developing and manufacturing technological advances and new products and product features to meet our customers needs, including advanced technologies such as high density interconnect. However, any new technology and products adopted or developed by us may not be selected by existing or potential customers. Our customers could decide to switch to alternative technologies or materials, adopt new or competing industry standards with which our products are incompatible or fail to adopt standards with which our products are compatible. If we choose to focus on new technology or a standard that is ultimately not accepted by the industry and/or does not become the industry standard, we may be unable to sell those products. If we are unable to obtain customer qualifications for new products or product features, cannot qualify our products for high-volume production quantities or do not execute our operational and strategic plans for new products or advanced technologies in a timely manner, our net sales may decrease. In addition, we may incur higher manufacturing costs in connection with new technology, materials, products or product features, as we may be required to replace, modify, design, build and install equipment, all of which would require additional capital expenditures.
We must continue to be able to procure raw materials and components on commercially reasonable terms to manufacture our products profitably.
Generally we do not maintain a large surplus stock of raw materials or components for our products because the specific assemblies are uniquely applicable to the products we produce for our customers; therefore, we rely on third-party suppliers to provide these raw materials and components in a timely fashion and on commercially reasonable terms. In addition, we are often required by our customers to seek components from a limited number of suppliers that have been pre-qualified by the customer. We, or our customers, may not be able to obtain the components or flex materials that are required for our customers programs, which in turn could forestall, delay, or halt our production or our customers programs. We expect that delays may occur in future periods for a variety of reasons, including but not limited to, natural disasters. Furthermore, the supply of certain precious metals required for our products is limited, and our suppliers could lose their export or import licenses on materials we require, any of which could limit or halt our ability to manufacture our products. We may not be successful in managing any shortage of raw materials or components that we may experience in the future, which could adversely affect our relationships with our customers and result in a decrease in our net sales. Component shortages could also increase our cost of goods sold because we may be required to pay higher prices for components in short supply. In addition, suppliers could go out of business, discontinue the supply of key materials, or consider us too small of a customer to sell to directly, and could require us to buy through distributors, increasing the cost of such components to us.
Our manufacturing and shipping costs may also be impacted by fluctuations in the cost of oil and gas. Any fluctuations in the supply or prices of these commodities could have an adverse effect on our profit margins and financial condition.
If we are unable to attract or retain personnel necessary to operate our business, our ability to develop and market our products successfully could be harmed.
We believe that our success is highly dependent on our current executive officers and management team. We do not have an employment contract with Reza Meshgin, our president and chief executive officer, or any of our other key personnel, and their knowledge of our business and industry would be extremely difficult to replace. The loss of any key employee or the inability to attract or retain qualified personnel, including engineers, sales and marketing personnel, management or finance personnel could delay the development and introduction of our products, harm our reputation or otherwise damage our business.
Furthermore, we have experienced very high employee turnover in our facilities in China, and are experiencing increased difficulty in recruiting employees for these facilities. In addition, we are noting the signs of wage inflation, labor unrest and increased unionization in China and expect these to be ongoing trends for the foreseeable future, which could cause employee issues, including work stoppages, excessive wage increases and increased activity of labor unions, at our China facilities. A large number of our employees work in our facilities in China, and our costs associated with hiring and retaining these employees have increased over the past several years. The high turnover rate, increasing wages, our difficulty in recruiting and retaining qualified employees and the other labor trends we are noting in China have resulted in an increase in our employee expenses and a continuation of any of these trends could result in even higher costs or production disruptions or delays or the inability to ramp up production to meet increased customer orders, resulting in order cancellation, imposition of customer penalties if we were unable to timely deliver product or a negative impact on net sales and profits for us.
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Our manufacturing capacity may be interrupted, limited or delayed if we cannot maintain sufficient sources of electricity in China.
The flexible printed circuit fabrication process requires a stable source of electricity. As our production capabilities increase in China and our business grows, our requirements for a stable source of electricity in China will grow substantially. We have periodically experienced and expect to continue to experience insufficient supplies of electrical power from time to time, especially during the warmer summer months in China. In addition, China has instituted energy conservation regulations which ration the amount of electricity that may be used by enterprises such as ours. Although we have purchased several generators, such generators do not produce sufficient electricity supply to run our manufacturing facilities and they are costly to operate. Power interruptions, electricity shortages, the cost of diesel fuel to run our back-up generators or government intervention, particularly in the form of rationing, are factors that could restrict our access to electricity at our Chinese manufacturing facilities, and affect our ability to manufacture and related costs. Any such shortages could result in delays in our shipments to our customers and, potentially, the loss of customer orders and penalties from such customers for the delay.
Our global operations expose us to additional risk and uncertainties.
We have operations in a number of countries, including the United States, China, Korea, Taiwan, the United Kingdom and Singapore. Our global operations may be subject to risks that may limit our ability to operate our business. We manufacture the bulk of our products in China and sell our products globally, which exposes us to a number of risks that can arise from international trade transactions, local business practices and cultural considerations, including:
| political unrest, terrorism and economic or financial instability; |
| restrictions on our ability to repatriate earnings; |
| unexpected changes in regulatory requirements and uncertainty related to developing legal and regulatory systems related to economic and business activities, real property ownership and application of contract rights; |
| nationalization programs that may be implemented by foreign governments; |
| import-export regulations; |
| difficulties in enforcing agreements and collecting receivables; |
| difficulties in ensuring compliance with the laws and regulations of multiple jurisdictions, including complying with local employment and overtime regulations, which regulations could affect our ability to quickly ramp production; |
| difficulties in ensuring that health, safety, environmental and other working conditions are properly implemented and/or maintained by the local office; |
| changes in labor practices, including wage inflation, frequent and extremely high increases in the minimum wage, labor unrest and unionization policies; |
| limited intellectual property protection; |
| longer payment cycles by international customers; |
| currency exchange fluctuations; |
| inadequate local infrastructure and disruptions of service from utilities or telecommunications providers, including electricity shortages; |
| transportation delays and difficulties in managing international distribution channels; |
| difficulties in staffing foreign subsidiaries and in managing an expatriate workforce; |
| potentially adverse tax consequences; |
| differing employment practices and labor issues; |
| the occurrence of natural disasters, such as earthquakes, floods or other acts of force majeure; and |
| public health emergencies such as SARS, avian flu and Swine flu. |
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We also face risks associated with currency exchange and convertibility, inflation and repatriation of earnings as a result of our foreign operations. In some countries, economic, monetary and regulatory factors could affect our ability to convert funds to U.S. dollars or move funds from accounts in these countries. We are also vulnerable to appreciation or depreciation of foreign currencies against the U.S. dollar. Although we have significant operations in Asia, a substantial portion of transactions are denominated in U.S. dollars, including approximately 97% of the total shipments made to foreign manufacturers during the fiscal year 2012. The balance of our net sales is denominated in RMB. As a result, as appreciation against the U.S. dollar increases, it will result in an increase in the cost of our business expenses in China. Further, downward fluctuations in the value of foreign currencies relative to the U.S. dollar may make our products less price competitive than local solutions. From time to time, we may engage in currency hedging activities, but such activities may not be able to limit the impact or risks of currency fluctuations.
In addition, our activities in China are subject to administrative review and approval by various national and local agencies of Chinas government. Given the changes occurring in Chinas legal and regulatory structure, we may not be able to secure required governmental approval for our activities or facilities or the government may not apply real property or contract rights in the same manner as one may expect in other jurisdictions.
During last year, the earthquake, tsunami and subsequent problems affecting nuclear power plants in Japan have dramatically impacted Japans manufacturing capacity. Japanese industry supplies a significant portion of certain items essential to the flexible circuit board manufacturing process and may be adversely affected by these issues. As a result, our ability to produce and deliver products to our customers could be adversely affected. In addition, shortages of key items may result in price increases, which our suppliers may seek to pass on to us. This could also affect our profitability.
From time to time, we increase our manufacturing capacity, and we may have difficulty managing these changes.
From time to time, we engage in a number of manufacturing expansion projects. In addition, we have been engaged in an international restructuring effort to first transition and then expand various business functions to our offices in Singapore, in order to better align these activities with our international operations and to transition certain production and process research and development to China in continuation of our cost reduction efforts. These efforts require significant investment by us, and have in the past and could continue to result in increased expenses and inefficiencies and reduced gross margins.
Our management team may have difficulty managing our manufacturing expansion and transition projects or otherwise managing any growth in our business that we may experience. Risks associated with managing expansion and growth may include those related to:
| managing multiple, concurrent major manufacturing expansion projects; |
| hiring and retaining employees, particularly in China; |
| accurately predicting any increases or decreases in demand for our products and managing our manufacturing capacity appropriately; |
| under-utilized capacity, particularly during the start-up phase of a new manufacturing facility and the effects on our gross margin of under-utilization; |
| managing increased employment costs and scrap rates often associated with periods of growth; |
| implementing, integrating and improving operational and financial systems, procedures and controls, including our computer systems; |
| construction delays, equipment delays or shortages, labor shortages and disputes and production start-up problems; |
| cost overruns and charges related to our expansion activities; and |
| managing expanding operations in multiple locations and multiple time zones. |
Our management team may not be effective in expanding our manufacturing facilities and operations, and our systems, procedures and controls may not be adequate to support such expansion. Any inability to manage our growth may harm our profitability and growth.
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If we encounter problems during the expansion and continuing expanded use of our operations management and information systems, we could experience a disruption of our operations and unanticipated increases in our costs.
We are in the process of expanding our information systems for certain of our China facilities. Any problems encountered in the expansion of these systems and continued use and reliance on such systems could result in material adverse consequences, including disruption of operations, loss of information and unanticipated increases in costs.
WBL Corporation Limited beneficially owns approximately 62% of our outstanding common stock and is able to exert influence over us and our major corporate decisions.
WBL Corporation Limited, together with its affiliates and subsidiaries (WBL) beneficially owns approximately 62% of our outstanding common stock. As a result of this ownership interest and the resulting influence over the composition of our board of directors, WBL has influence over our management, operations and potential significant corporate actions. WBLs board or executive management composition could change (including as a result of the potential offers being made to the stockholders of WBL Corporation Limited for their stock in WBL Corporation Limited), and such change could affect the strategic direction of WBL and the way WBL influences our corporate actions. For example, so long as WBL continues to control more than a majority of our outstanding common stock, it will have the ability to control who is elected to our board of directors each year. Furthermore, the strategic direction of WBL may influence how, when and if WBL elects to sell its stock in us under the Registration Statement on Form S-3 that has been filed by the Company to cover sales of WBLs stock in us.
In addition, for so long as WBL effectively owns at least one-third of our voting stock, it has the ability, through a stockholders agreement with us, to approve the appointment of any chief executive officer or the issuance of securities that would reduce WBLs effective ownership of us to a level that is below a majority of our outstanding shares of common stock, as determined on a fully diluted basis. As a result, WBL could preclude us from engaging in an acquisition or other strategic opportunity that we may want to pursue if such acquisition or opportunity required the issuance of our common stock. This concentration of ownership may also discourage, delay or prevent a change of control of our company, which could deprive our other stockholders of an opportunity to receive a premium for their stock as part of a sale of our company, could harm the market price of our common stock and could impede the growth of our company. WBL could also sell a controlling interest in us, or a portion of their shares, to a third party, including a participant in our industry, which could adversely affect our operations or our stock price.
WBL and its representatives on our board of directors may have interests that conflict with, or are different from, the interests of our other stockholders. These conflicts of interest could include potential competitive business activities, corporate opportunities, indemnity arrangements, debt covenants, sales or distributions by WBL of our common stock and the exercise by WBL of its ability to influence our management and affairs. In general, our certificate of incorporation does not contain any provision that is designed to facilitate resolution of actual or potential conflicts of interest. If any conflict of interest is not resolved in a manner favorable to our stockholders, it could adversely affect our operations and our stockholders interests may be substantially harmed.
WBL is currently unable to vote its shares on specified matters that require stockholder approval without obtaining its own stockholders and regulatory approval and it is possible that WBLs stockholders or the relevant regulators may not approve the proposed corporate action.
WBLs ordinary shares are listed on the Singapore Securities Exchange Trading Limited (the Singapore Exchange). Under the rules of the Singapore Exchange, to the extent that we constitute a principal subsidiary of WBL as defined by the rules of the Singapore Exchange at any time that we submit a matter for the approval of our stockholders, WBL may be required to obtain the approval of its own stockholders for such action before it can vote its shares with respect to our proposal or dispose of our shares of common stock. Examples of corporate actions we may seek to take that may require WBL to obtain its stockholders approval include an amendment of our certificate of incorporation, a sale of all or substantially all of our assets, a merger or reorganization transaction, and certain issuances of our capital stock.
To obtain stockholder approval, WBL must prepare a circular describing the proposal, obtain approval from the Singapore Exchange and send the circular to its stockholders, which may take several weeks or longer. In addition, WBL is required under its corporate rules to give its stockholders advance notice of the meeting. Consequently, if we need to obtain the approval of WBL at a time in which we qualify as a principal subsidiary (including this year), the process of seeking WBLs stockholder approval may delay our proposed action and it is possible that WBLs stockholders may not approve our proposed corporate action. It is also possible that we might not be able to establish a quorum at our stockholder meeting if WBL was unable to vote at the meeting as a result of the Singapore Exchange rules. The rules of the Singapore Exchange that govern WBL are subject to revision from time to time, and policy considerations may affect rule interpretation and application. It is possible that any change to or interpretation of existing or future rules may be more restrictive and complex than the existing rules and interpretations.
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Our business requires significant investments in capital equipment, facilities and technological improvements, and we may not be able to obtain sufficient funds to make such capital expenditures.
To remain competitive we must continue to make significant investments in capital equipment, facilities and technological improvements. We expect that substantial capital will be required to expand our manufacturing capacity and fund working capital requirements for our anticipated growth. In addition, we expect that new technology requirements may increase the capital intensity of our business. We may need to raise additional funds through further debt or equity financings in order to fund our anticipated growth and capital expenditures, and we may not be able to raise additional capital on reasonable terms, or at all, particularly given the current uncertainty in global credit markets. If we are unable to obtain sufficient capital in the future, we may have to curtail our capital expenditures. Any curtailment of our capital expenditures could result in a reduction in net sales, reduced quality of our products, increased manufacturing costs for our products, harm to our reputation, reduced manufacturing efficiencies or other harm to our business.
In addition, WBLs approval is required for the issuance of securities that would reduce its effective ownership of us to below a majority of the outstanding shares of our common stock as determined on a fully diluted basis. If WBLs approval is required for a proposed financing, it is possible that it may not approve the financing and we may not be able to complete the transaction, which could make it more difficult to obtain sufficient funds to operate and expand our business.
The uncertainty regarding the status of the global credit market and overall global economic stagnation may adversely affect our earnings, liquidity and financial condition.
In recent years, global financial and credit markets have been, and continue to be, unstable and unpredictable. In addition, worldwide economic conditions have been weak and have had an effect on consumer spending. The instability of the markets and weakness of the economy could affect the demand for our customers products, the amount, timing and stability of their orders to us, the financial strength of our customers and suppliers, their ability or willingness to do business with us, our willingness to do business with them, interest rates, and/or our suppliers and customers ability to fulfill their obligations to us. These factors could adversely affect our operations, earnings and financial condition.
Tax positions we have taken may be challenged and we are subject to the risk of changing income tax rates and laws.
From time to time, we may be subject to various types of tax audits, during which tax positions we have taken may be challenged and overturned. If this were to occur, our tax rates could significantly increase and we may be required to pay significant back taxes, interests and/or penalties. The outcome of tax audits cannot be predicted with certainty. If any issues addressed in our tax audits are resolved in a manner not consistent with managements expectations, we could be required to adjust our provision for income tax in the period such resolution occurs. Any significant proposed adjustments could have a material adverse effect on our results of operations, cash flows and financial position if not resolved favorably.
In addition, a change in tax laws, treaties or regulations, or their interpretation, of any country in which we operate could result in a higher tax rate. For example, there has been increased scrutiny by the U.S. government on tax positions taken and in February 2011, the United States Department of the Treasury issued a high-level outline of proposed modifications to international tax laws for fiscal year 2012. If any of these, or similar, proposals are passed, our statements of financial position and results of operations could be negatively impacted.
Also, a number of countries in which we are located allow for tax holidays or provide other tax incentives to attract and retain business. For example, we currently enjoy tax incentives for our facility in Singapore. However, any tax holiday or incentive we have could be challenged, modified or even eliminated by taxing authorities or changes in law. In addition, the tax laws and rates in certain jurisdictions in which we operate (China, for example) can change with little or no notice, and any such change may even apply retroactively. Any of such changes could adversely affect our effective tax rate.
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If we fail to secure or protect our intellectual property rights, competitors may be able to use our technologies, which could weaken our competitive position and harm our business.
We rely primarily on trade secrets and confidentiality procedures relating to our manufacturing processes to protect our proprietary rights. Despite our efforts, these measures can only provide limited protection. Unauthorized third parties may try to copy or reverse engineer portions of our products or otherwise obtain and use our intellectual property. If we fail to protect our proprietary rights adequately, our competitors could offer similar products using processes or technologies developed by us, potentially harming our competitive position. In addition, other parties may independently develop similar or competing technologies.
We also rely on patent protection for some of our intellectual property. Our patents may be expensive to obtain and there is no guarantee that either our current or future patents will provide us with any competitive advantages. A third party may challenge the validity of our patents, or circumvent our patents by developing competing products based on technology that does not infringe our patents. Further, patent protection is not available at all in certain countries and some countries that do allow registration of patents do not provide meaningful redress for patent violations. As a result, protecting intellectual property in those countries is difficult, and competitors could sell products in those countries that have functions and features that would otherwise infringe on our intellectual property. If we fail to protect our intellectual property rights adequately, our competitors may gain access to our technology and our business may be harmed.
We may be sued by third parties for alleged infringement of their proprietary rights.
From time to time, we have received, and expect to continue to receive, notices of claims of infringement, misappropriation or misuse of other parties proprietary rights. We could also be subject to claims arising from the allocation of intellectual property rights among us and our customers. Any claims brought against us or our customers, with or without merit, could be time-consuming and expensive to litigate or settle, and could divert management attention away from our business plan. Adverse determinations in litigation could subject us to significant liability and could result in the loss of our proprietary rights. A successful lawsuit against us could also force us to cease selling or require us to redesign any products or marks that incorporate the infringed intellectual property. In addition, we could be required to seek a license from the holder of the intellectual property to use the infringed technology, and it is possible that we may not be able to obtain a license on reasonable terms, or at all. If we fail to develop a non-infringing technology on a timely basis or to license the infringed technology on acceptable terms, our business, financial condition and results of operations could be harmed.
Complying with environmental laws and regulations or the environmental policies of our customers may increase our costs and reduce our profitability.
We are subject to a variety of environmental laws and regulations relating to the storage, discharge, handling, emission, generation, manufacture, use and disposal of chemicals, solid and hazardous waste and other toxic and hazardous materials used in the manufacture of flexible printed circuits and component assemblies in our facilities in the United States, Europe and Asia. In addition, certain of our customers have, or may in the future, have environmental policies with which we are required to comply that are more stringent than applicable laws and regulations. A significant portion of our manufacturing operations are located in China, where we are subject to constantly evolving environmental regulation. The costs of complying with any change in such regulations or customer policies and the costs of remedying potential violations or resolving enforcement actions that might be initiated by governmental entities could be substantial.
In the event of a violation, we may be required to halt one or more segments of our operations until such violation is cured or we may be fined by a customer. The costs of remedying violations or resolving enforcement actions that might be initiated by governmental authorities could be substantial. Any remediation of environmental contamination would involve substantial expense that could harm our results of operations. In addition, we cannot predict the nature, scope or effect of future regulatory or customer requirements to which our operations may be subject or the manner in which existing or future laws or customer policies will be administered or interpreted. Future regulations may be applied to materials, products or activities that have not been subject to regulation previously. The costs of complying with new or more stringent regulations or policies could be significant.
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Compliance with new regulations and customer demands regarding conflict minerals could significantly increase costs and affect the manufacturing and sale of our products.
Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2012 (the Dodd-Frank Act), required the SEC to establish new disclosure and reporting requirements regarding specified minerals originating in the Democratic Republic of the Congo or an adjoining country that are necessary to the functionality or production of products manufactured by companies required to file reports with the SEC. The final rules implementing these requirements, as released recently by the SEC could affect sourcing at competitive prices and availability in sufficient quantities of minerals used in the manufacture of our products. In addition, there will be costs associated with complying with the disclosure requirements, such as costs related to determining the source of such minerals used in our products. Also, because our supply chain is complex, we may face commercial challenges if we are unable to sufficiently verify the origins for all metals used in our products through the due diligence procedures that we implement and otherwise may become obliged to publicly disclose those efforts with regard to conflict minerals. Moreover, we may encounter challenges to satisfy those customers who require that all of the components of our products be certified as conflict free which could place us at a competitive disadvantage if we are unable to do so.
Potential future acquisitions or strategic partnerships or business alliances could be difficult to integrate, divert the attention of key management personnel, disrupt our business, dilute stockholder value and adversely affect our financial results.
As part of our business strategy, we intend to continue to consider acquisitions of, or partnerships or business alliances with, companies, technologies and products that we feel could enhance our capabilities, complement our current products or expand the breadth of our markets or customer base. We have limited experience in acquiring or partnering with other businesses and technologies. Potential and completed acquisitions and strategic alliances involve numerous risks, including:
| difficulties in integrating operations, technologies, accounting and personnel; |
| problems maintaining uniform standards, procedures, controls and policies; |
| difficulties in supporting and transitioning customers of our acquired companies; |
| diversion of financial and management resources from existing operations; |
| potential costs incurred in executing on such a transaction, including any necessary debt or equity financing; |
| risks associated with entering new markets in which we have no or limited prior experience; |
| potential loss of key employees; and |
| inability to generate sufficient revenues to offset acquisition or start-up costs. |
Acquisitions also frequently result in the recording of goodwill and other intangible assets which are subject to potential impairments in the future that could harm our financial results. In addition, if we finance acquisitions by issuing convertible debt or equity securities, our existing stockholders may be diluted, which could affect the market price of our stock. As a result, if we fail to properly evaluate acquisitions or partnerships, we may not achieve the anticipated benefits of any such acquisitions or partnerships, and we may incur costs in excess of what we anticipate.
We face potential risks associated with loss, theft or damage of our property or property of our customers.
Some of our customers have entrusted us with proprietary equipment or intellectual property to be used in the design, manufacture and testing of the products we make for them. In some instances, we face potentially millions of dollars in financial exposure to those customers if such equipment or intellectual property is lost, damaged or stolen. Although we take precautions against such loss, theft or damage and we may insure against a portion of these risks, such insurance is expensive, may not be applicable to any loss we may experience and, even if applicable, may not be sufficient to cover any such loss. Further, deductibles for such insurance may be substantial and may adversely affect our operations if we were to experience a loss, even if insured.
Litigation may distract us from operating our business.
Litigation that may be brought by or against us could cause us to incur significant expenditures and distract our management from the operations and conduct of our business. Furthermore, there can be no assurance that we would prevail in such litigation or resolve such litigation on terms favorable to us, which may adversely affect our operations.
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If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results.
Effective internal controls are necessary for us to provide reliable financial reports. This effort is made more challenging by our significant overseas operations. If we cannot provide reliable financial reports, our operating results could be misstated, current and potential stockholders could lose confidence in our financial reporting and the trading price of our stock could be negatively affected. There can be no assurance that our internal controls over financial processes and reporting will be effective in the future.
Risks Related to Our Common Stock
Sales of our common stock by WBL could depress the price of our common stock or weaken market confidence in our prospects.
Pursuant to a Registration Rights Agreement between us and WBL, we have filed a Registration Statement on Form S-3, covering the re-sale of all 14,817,052 of our shares held by WBL. WBL may sell all or part of the shares of our common stock that it owns (or distribute those shares to its shareholders). A large influx of shares of our common stock into the market as a result of sales by WBL, or the mere perception that these sales could occur, could cause the market price of our common stock to decline, perhaps substantially, and may weaken market confidence in us or our prospects, which could have an adverse effect on our financial condition, results of operation or stock price. Although WBL may not allow their aggregate
ownership of our outstanding common stock to drop below 50% without approval of their shareholders, even a sale of up to
12% of our outstanding common stock (which WBL may be able to effect without a shareholder vote) could impact the
market price of our common stock. Further, these sales, or the possibility that these sales may occur, also might make it more
difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
The trading price of our common stock is volatile.
The trading prices of the securities of technology companies, including the trading price of our common stock, have historically been highly volatile. During the twelve month period from April 1, 2012 through March 31, 2013, our common stock price closed between $14.43 and $29.51 per share. Factors that could affect the trading price of our common stock include, but are not limited to:
| fluctuations in our financial results; |
| the limited size of our public float; |
| announcements of technological innovations or events affecting companies in our industry; |
| changes in the estimates of our financial results; |
| changes in the recommendations of any securities analysts that elect to follow our common stock; and |
| market conditions in our industry, the industries of our customers and the economy as a whole. |
In addition, although we have approximately 23.8 million shares of common stock outstanding as of March 31, 2013, approximately 14.8 million of those shares are held by WBL. As a result, there is a limited public float in our common stock. If any of our significant stockholders were to decide to sell a substantial portion of its shares the trading price of our common stock could decline. See Risk Factors Sales of our common stock by WBL could depress the price of our common stock or weaken market confidence in our prospects for more information.
Delaware law and our corporate charter and bylaws contain anti-takeover provisions that could delay or discourage takeover attempts that stockholders may consider favorable.
Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management including, among other things, provisions providing for a classified board of directors, authorizing the board of directors to issue preferred stock and the elimination of stockholder voting by written consent. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which may discourage, delay or prevent certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These provisions in our charter, bylaws and under Delaware law could discourage delay or prevent potential takeover attempts that stockholders may consider favorable.
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Item 5. | Other Information |
On May 6, 2013, MFLEX Suzhou Co., Ltd. entered into a credit line agreement with China Construction Bank, Suzhou Industry Park Sub-Branch, which provides for a borrowing facility for 300,000 RMB ($47,816 at March 31, 2013). The line of credit will mature in May 2016. Interest on the credit line agreement for U.S. dollar lending will be negotiated and determined by both parties based on the lending cost in the market for U.S. dollar transactions on the day the loan is made. For RMB lending, the interest rate is based on the current rate set by the Peoples Bank of China at the time of borrowing.
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Item 6. | Exhibits |
The exhibit list required by this Item 6 is incorporated by reference to the Exhibit Index immediately following the signature page of this report.
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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.
Multi-Fineline Electronix, Inc., a Delaware corporation | ||||||
Date: May 8, 2013 | By: | /s/ Thomas Liguori | ||||
Thomas Liguori Chief Financial Officer and Executive Vice-President (Duly Authorized Officer and Principal Financial Officer of the Registrant) |
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MULTI-FINELINE ELECTRONIX, INC.
EXHIBIT INDEX
Incorporated by Reference | ||||||||||
Exhibit |
Exhibit Title |
Filed with this Form 10-Q |
Form | File No. | Date Filed | |||||
3.2 | Restated Certificate of Incorporation of the Company. | S-1 | 333-114510 | 6/24/2004 | ||||||
3.4 | Amended and Restated Bylaws of the Company. | 8-K | 000-50812 | 12/8/2009 | ||||||
4.1 | Form of Common Stock Certificate. | S-1 | 333-114510 | 6/24/2004 | ||||||
4.2 | Registration Rights Agreement dated November 30, 2012 among Multi-Fineline Electronix, Inc., Wearnes Technology (Private) Limited, United Wearnes Technology Pte Ltd, and WBL Corporation Limited. | 8-K (Exhibit 4.1) |
000-50812 | 12/3/2012 | ||||||
10.1* | Form of Indemnification Agreement between the Company and its officers, directors and agents. | S-1 | 333-114510 | 6/24/2004 | ||||||
10.20 | Amended and Restated Stockholders Agreement dated October 25, 2005 between Multi-Fineline Electronix, Inc., Wearnes Technology Pte. Ltd, United Wearnes Technology Pte. Ltd., and WBL Corporation Limited. | 8-K | 000-50812 | 10/25/2005 | ||||||
10.45* | Form of Stock Appreciation Rights Agreement. | 10-K | 000-50812 | 12/9/2008 | ||||||
10.57* | Form of Restricted Stock Unit Agreement. | 10-K | 000-50812 | 11/17/2009 | ||||||
10.60 | Line of Credit Agreement between Multi-Fineline Electronix (Suzhou) Co., Ltd., and China Construction Bank, Suzhou Industry Park Sub-Branch dated March 29, 2010. | 8-K | 000-50812 | 4/1/2010 | ||||||
10.61 | Facility Offer Letter between Multi-Fineline Electronix (Suzhou) Co., Ltd., and China Construction Bank, Suzhou Industry Park Sub-Branch dated March 29, 2010. | 8-K | 000-50812 | 4/1/2010 | ||||||
10.62 | Line of Credit Agreement between Multi-Fineline Electronix (Suzhou No. 2) Co., Ltd., and China Construction Bank, Suzhou Industry Park Sub-Branch dated March 29, 2010. | 8-K | 000-50812 | 4/1/2010 | ||||||
10.63 | Facility Offer Letter between Multi-Fineline Electronix (Suzhou No. 2) Co., Ltd., and China Construction Bank, Suzhou Industry Park Sub-Branch dated March 29, 2010. | 8-K | 000-50812 | 4/1/2010 |
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10.67 | Line of General Credit Agreement between MFLEX Suzhou Co., Ltd. and Agricultural Bank of China, Suzhou Wuzhong Sub-branch dated July 31, 2010. | 10-Q | 000-50812 | 8/5/2010 | ||||||||||||
10.68 | Facility Offer Letter between MFLEX Suzhou Co., Ltd., and Agricultural Bank of China, Suzhou Wuzhong Sub-branch dated July 31, 2010. | 10-Q | 000-50812 | 8/5/2010 | ||||||||||||
10.70 | Agreement for Sales of Buildings in Stock by and between Wearnes Global (Suzhou) Co., Ltd. and MFLEX Suzhou Co., Ltd. dated January 6, 2011. | 10-Q | 000-50812 | 2/3/2011 | ||||||||||||
10.71 | Supplemental Agreement to Agreement for Sales of Buildings in Stock by and between Wearnes Global (Suzhou) Co., Ltd. and MFLEX Suzhou Co., Ltd. dated January 6, 2011. | 10-Q | 000-50812 | 2/3/2011 | ||||||||||||
10.72 | Guarantee Letter by Wearnes Global (Suzhou) Co., Ltd. dated January 6, 2011. | 10-Q | 000-50812 | 2/3/2011 | ||||||||||||
10.73 | Agreement on the Escrow of Transaction Funds for Building Stock (Fund Trusteeship Agreement) by and among Wearnes Global (Suzhou) Co., Ltd., MFLEX Suzhou Co., Ltd. and Wuzhong District Real Estate Transaction Management Center executed January 19, 2011 and dated January 18, 2011. | 10-Q | 000-50812 | 2/3/2011 | ||||||||||||
10.74 | Second Supplemental Agreement to Agreement for Sales of Buildings in Stock by and between Wearnes Global (Suzhou) Co., Ltd and MFLEX Suzhou Co., Ltd. dated March 31, 2011. | 10-Q | 000-50812 | 5/5/2011 | ||||||||||||
10.76 | Facility Agreement, dated as of January 17, 2012, by and between Multi-Fineline Electronix Singapore Pte. Ltd., as borrower; JPMorgan Chase Bank, N.A., Singapore Branch, as mandated lead arranger; the financial institutions listed in Schedule 1, as original lenders; JPMorgan Chase Bank, N.A., acting through its Hong Kong Branch, as facility agent of the other Finance Parties; and JPMorgan Chase Bank, N.A. acting through its Hong Kong Branch, as security agent of the other Finance Parties. | 8-K | 000-50812 | 1/19/2012 | ||||||||||||
10.77 | Form of Parent Guaranty by Multi-Fineline Electronix, Inc., in favor of JPMorgan Chase Bank, N.A., acting through its Hong Kong Branch, as security agent, for the ratable benefit of the Holders of Guaranteed Obligations (as defined therein). | 8-K | 000-50812 | 1/19/2012 | ||||||||||||
10.78* | Change in Control Plan. | 8-K | 000-50812 | 1/19/2012 | ||||||||||||
10.79* | Amended and Restated 2004 Stock Incentive Plan. | 8-K | 000-50812 | 1/19/2012 | ||||||||||||
10.80 | Line of Credit Agreement between MFLEX Chengdu Co., Ltd. and Bank of China Co., Ltd. Chengdu Development West Zone Sub-Branch dated March 23, 2012. | 8-K | 000-50812 | 3/27/2012 | ||||||||||||
10.81 | Facility Offer Letter between MFLEX Chengdu Co., Ltd. and Bank of China Co., Ltd. Chengdu Development West Zone Sub-Branch dated March 23, 2012. | 8-K | 000-50812 | 3/27/2012 | ||||||||||||
10.82# | Master Development and Supply Agreement by and between Apple Computer, Inc. and Multi-Fineline Electronix, Inc. dated May 2, 2012. | 8-K | 000-50812 | 3/27/2012 | ||||||||||||
10.83* | Executive Officer Tax Audit Reimbursement Plan | 10-Q | 000-50812 | 8/3/2012 | ||||||||||||
10.84 | Line of Credit Agreement between MFLEX Chengdu Co., Ltd. and Bank of China Co., Ltd. Chengdu Development West Zone Sub-Branch dated March 1, 2013 | 8-K | 000-50812 | 3/7/2013 | ||||||||||||
10.85 | Facility Offer Letter between MFLEX Chengdu Co., Ltd, and Bank of China Co., Ltd. Chengdu Development West Zone Sub-Branch dated March 1, 2013 | 8-K | 000-50812 | 3/7/2013 | ||||||||||||
10.86 | Line of Credit Agreement between MFLEX Suzhou Co., Ltd., and China Construction Bank, Suzhou Industry Park Sub-Branch dated May 6, 2013. | X |
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10.87 | Facility Offer Letter Agreement between MFLEX Suzhou Co., Ltd., and China Construction Bank, Suzhou Industry Park Sub-Branch dated May 6, 2013. | X | ||||||||
31.1 | Section 302 Certification by the Companys chief executive officer. | X | ||||||||
31.2 | Section 302 Certification by the Companys principal financial officer. | X | ||||||||
32.1 | Section 906 Certification by the Companys chief executive officer and principal financial officer. | X | ||||||||
101.INS** | XBRL Instance Document. | |||||||||
101.SCH** | XBRL Taxonomy Extension Schema Document. | |||||||||
101.CAL** | XBRL Taxonomy Extension Calculation Linkbase Document. | |||||||||
101.DEF** | XBRL Taxonomy Definition Linkbase Document. | |||||||||
101.LAB** | XBRL Taxonomy Extension Label Linkbase Document. | |||||||||
101.PRE** | XBRL Taxonomy Extension Presentation Linkbase Document. |
* | Indicates management contract or compensatory plan. |
** | Furnished, not filed. |
# | Confidential treatment has been granted for certain portions of this agreement. |
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Exhibit 10.86
Line of Credit Agreement
Party A: MFLEX Suzhou Co., Ltd.
Business License number:3200738277671
Legal representative: GOW CHENG PAK
Principal office address: 68 Nanhu Road, Dongwu Industrial Park, Suzhou
Postal code: 215128
Telephone: 0512-65130088
Fax:
Party B: China Construction Bank Suzhou Industry Park Sub-Branch
Principal: WU NAN DAI
Principal office address: No. 158 Wang Dun Road, Suzhou Industry Park
Postal code: 215028
Telephone: 62781017
Fax: 62781022
In order to develop a friendly and reciprocal partnership, on the principle of voluntary, equality, mutual benefit and good faith, through negotiation, Party A and Party B enter into the following agreement.
Article 1 Scope of business
Party B shall grant a line of credit to Party A in accordance with this Agreement. Party A may apply to Party B for revolving use, use at its discretion or use in one lump sum of credit in accordance with this Agreement and applicable individual agreements for the purpose of processing RMB short-term loans, foreign exchange short term loans, foreign exchange long term loans up to two (2) years, trade financing, letter of guarantee and undertaking capital business and other financing businesses (collectively referred to as Individual Financing Business).
Trade financing business referred to under this Agreement shall include opening international letter of credit, opening domestic letter of credit, import bill advance, shipping guarantee, packing loan, export bill purchase, discount of acceptance draft under usance letter of credit, buyers negotiation of domestic letter of credit, sellers negotiation of domestic letter of credit, negotiation of domestic letter of credit and other international and domestic trade financing business.
The business of letter of guarantee referred to under this Agreement shall include opening letter of guarantee, standby letter of credit and other international and domestic business of letter of guarantee.
Article 2 Types and amount of line of credit
Party B agrees to grant Party A the following lines of credit:
Currency: | Chinese Currency RMB or equivalent USD |
Total Amount: | (in letters): RMB Three hundred millions |
(in figures): RMB 300 millions |
Type: | Including RMB short-term loans, foreign exchange short term loans, foreign exchange long term loans up to two (2) years, trade financing, letter of guarantee and undertaking capital business and so on. |
Line of Credit Agreement-CCB English 201303 (Clean) Page 1 of 6
Article 3 Use of line of credit
1. | Within the credit period as specified under this Agreement, Party A may use the line of credit by the revolving way within the scope for each individual financing business as provided under this Agreement: |
In case Party A needs to use the line of credit as specified under Article 1, it shall file an application with Party B in writing. Party B shall decide whether and how to use the line of credit at its discretion and inform Party A in writing.
2. | The balance of existing credit that Party B grants to Party A in accordance with effective Line of Credit Agreement or similar agreements and its individual agreements as of the effective date of this Agreement shall be deemed as the line of credit incurred under this Agreement. |
Among which, the balance of credit using the line of credit shall be deemed as the line of credit incurred under this Agreement.
3. | Unless otherwise provided for, the following businesses shall not occupy the line of credit: |
1) | Export bill purchase where the letter of credit is consistent with the documents; |
2) | Negotiation or financing based on the draft or money under the export letter of credit or domestic letter of credit accepted, honored, confirmed to pay or guaranteed to pay by the issuing bank or confirming bank and acceptable to Party B; |
3) | In case Party A can provide guarantee money, government bonds, deposit receipt issued by Party B or bank acceptance draft, letter of guarantee or standby letter of credit acceptable to Party B, then the amount of credit corresponding to the guarantee will not occupy the line of credit; |
4) | Other businesses that shall not occupy the line of credit separately agreed by the parties hereto in writing |
Businesses that dont occupy the line of credit and whose business agreements still belongs to the individual agreements under this Agreement shall be an integral part of this Agreement and bound by this Agreement, unless such business agreement provides otherwise.
Article 4 Agreement needs to be signed when undertaking individual credit business
In case Party A applies to Party B for undertaking individual credit business under this Agreement, it shall submit relevant application to Party B and/or sign a corresponding contract/ agreement with Party B (collectively referred to as Individual agreements). The specific individual credit business is based on the individual agreement.
Article 5 Terms of the Credit
The credit term as specified under Article 2 shall run from the effective date of this Agreement for three (3) years.
When the credit period as specified above expires, if Party B intends to grant a further line of credit to Party A, both parties shall, through consultations, sign a supplementary agreement in writing, specifying the new line of credit and its credit period. Such supplementary agreement shall be an integral part of this Agreement and have the same legal effect as this Agreement. Matters not covered therein shall be governed by this agreement.
The expiration of the credit period shall not affect the legal effect of this Agreement or cause the termination of this Agreement. Both parties shall continue to undertake the individual credit businesses undertaken under this Agreement before the expiration of the credit period subject to the provisions of this Agreement and applicable individual agreements and perform their obligations incurred before the expiration of the credit period.
Within the valid credit period, Party B will reexamine the credit business of Party A every year. If the credit business of Party A already have or may have some changes which may have bad effect on the liability, the Party B will grant a new line of credit and the new credit period to Party B on the base of both negotiation.
Line of Credit Agreement-CCB English 201303 (Clean) Page 2 of 6
Article 6 Preconditions for individual credit business
To undertake individual credit business, Party A shall meet the following conditions upon Party Bs request:
1. | Reserve and sign related documents, bills, seals, list of related personnel and sample of signature of the company with Party B and complete related documents; |
2. | Establish necessary account for undertaking individual credit business; |
3. | Have effectively furnished guarantee as provided by this Agreement and individual agreements; |
4. | Other preconditions for undertaking this business as provided by individual agreements; |
5. | Other conditions that Party B thinks Party A should meet. |
Article 7 Guarantees
Based on this agreement and individual agreement, Party A and Party B agree the guarantees. The specific information is as below:
Security: Clean
Article 8 Representations and warranties
Party A hereby makes the following representations:
1. | Party A is a company legally registered and validly existing and has the full capacity for civil right and capacity to execute and perform this Agreement; |
2. | Party A executes and performs this Agreement and individual agreements out of its own will. It has obtained legal and valid authorization in accordance with the requirement of its Articles of Association or other internal management documents and will not violate any other agreements, contracts or other legal documents binding on Party B by doing so. Party A has obtained or accomplished or will obtain or accomplish all related approval, permit, filing or registration necessary for the execution and performance of this Agreement; |
3. | All documents, financial statements, vouchers and other data provided to Party B by Party A under this Agreement and individual agreements are true, complete, accurate and effective; |
4. | The transaction background of the business that Party A applies to Party B for undertaking is true and legal and has not been used for money laundering and other illegal purposes; |
5. | Party A has not concealed any matters that may affect the financial position and capacity to perform this Agreement of Party A and the guarantor from Party B. |
Party A hereby warrants that:
1. | It will submit its financial statements (including annual reports, quarter reports and monthly reports ) and other related documents to Party B regularly or in a timely manner according to the requirements of Party B; |
2. | It will accept and coordinate with Party Bs examination(including annually and quarterly) and supervision on its use of the line of credit and related production, operation and financial activities; |
3. | If Party A signs a counter guarantee contract or similar contract with the guarantor of this Agreement on its obligation of guarantee, such contract will not impair any rights of Party B under this Agreement; |
4. | Party A will inform Party B in a timely manner in case of any circumstances that may affect the financial position and capacity to perform this Agreement of Party A and the guarantor, including but not limited to, any forms of division, merger, joint operation, joint venture or cooperation with foreign businessman, contracted management, restructuring, reform, IPO and any other changes in the mode of operation, reduction of registered capital, transfer of significant assets or shareholding, significant liabilities, any significant liabilities newly created upon the collateral, sealing up of the collateral, dissolution, cancellation, filing or being filed for bankruptcy or involving any significant suit or arbitration; |
5. | It will not mortgage its assets during the credit period; |
Line of Credit Agreement-CCB English 201303 (Clean) Page 3 of 6
Article 9 Related parties of Party A in its group and the disclosure of related transactions
The parties hereto agree that the following Section 2 will be applied:
1. | Party A is not a group client as specified by Party B subject to the Guidelines on the Management of Risks of Credits Granted by Commercial Banks to Group Clients (hereinafter referred to as Guidelines). |
2. | Party A is a group client as specified by Party B subject to the Guidelines. Party A shall, subject to the provisions of Article 17 of the Guidelines, report all related transactions accounting for more than 30% of its net assets to Party B in a timely manner, including the relationship between the parties to the transaction, item, nature, amount of the transaction or respective proportion and pricing policy (including transactions without any amount or only with negligible amount). |
Article 10 Breach of agreement and remedies
Any one of the following circumstances shall constitute or be deemed as breach of this Agreement and individual agreement by Party A:
1. | Party A fails to pay any sum or repay and debts to Party B according to the provisions of this Agreement and individual agreements; |
2. | Party A fails to use the loans for the purpose as specified in this Agreement and individual agreements; |
3. | The representations of Party A in this Agreement and individual agreements has any material falsehood or breaches its warranties made in this Agreement and individual agreements; |
4. | Any circumstances as specified in Article 2 Section 4 of this Agreement that may affect Party A or the guarantors financial position or its capacity to perform the Agreement in the view of Party B and that Party A fails to provide new guarantee or change the guarantor according the provisions of this Agreement; |
5. | Party A terminates its operation, dissolves, is cancelled or goes bankruptcy; |
6. | Party A breaches other provisions of this Agreement and individual agreements regarding the rights and obligations of related parties; |
7. | Party A breaches other contracts between it and Party B or other agencies of China construction Bank; |
8. | The guarantor breaches the guarantee contract or other contracts with Party B or other agencies of China Construction Bank. |
Under any of the events of breach as mentioned above, Party B is entitled to take the following measures respectively or at the same time according to actual circumstances:
1. | Request Party A and the guarantor to correct their breach within a fixed period of time; |
2. | Reduce, suspend or terminate the line of credit granted to Party A in whole or in part; |
3. | Suspend or terminate in whole or in part the acceptance of Party As business application under this Agreement and individual agreements or other agreements between Party A and Party B; to suspend or terminate in whole or in part the granting and processing any outstanding loans, trade financing and letter of guarantee; |
4. | Declare immediate expiration or maturity in whole or in part of this Agreement and individual agreements, the principal and interests of any outstanding loans, funds of trade financing and money advanced for the letter of guarantee and other accounts payable; |
5. | Terminate or cancel this Agreement, or terminate or cancel individual agreements or other agreements between Party A and Party B in whole or in part; |
6. | Claim compensation against Party A for the reasonable directly losses arising from Party As breach of this Agreement; |
7. | Deduct the amount from Party As account established in Party B to offset Party As debts to Party B in whole or in part by notice to Party B prior to or after such deduction. Any immature sum in such account shall be deemed to mature ahead of schedule; in case of difference between the currency of the account and Party Bs currency of account, the amount deducted shall be converted according to the rate for exchange settlement and sales then applicable to Party B; |
8. | Exercise its right to collateral; |
9. | Request the guarantor to bear the responsibility of guarantee; |
Line of Credit Agreement-CCB English 201303 (Clean) Page 4 of 6
Article 11 Reservation of rights
The failure of either party to exercise its right under this Agreement and individual agreements in whole or in part, or require the performance by the other party of its right and obligations in whole or in part, shall not constitute a waiver of such right, obligations or responsibilities by such party.
One partys consent to any allowance, grace or delay to exercise the right under this Agreement and individual agreements by the other party shall not affect any right that should be entitled to under this Agreement and individual agreements or any applicable laws and regulations and shall be deemed as its waiver of such right.
Article 12 Alteration, modification, termination and partial invalidity
Through mutual agreement, the parties hereto may alter or modify this Agreement in writing. Any alterations or modifications to this Agreement shall be an integral part of this Agreement.
Unless otherwise provided by the laws and regulations or the parties hereto, this Agreement shall not be terminated before all the rights and obligations under this Agreement and individual agreements have been fulfilled.
Unless otherwise provided by the laws and regulations or the parties hereto, the invalidity of any provisions of this Agreement shall not affect the legal effect of other provisions.
Article 13 Governing laws and settlement of disputes
Unless otherwise agreed by the parties hereto, this agreement and individual agreements shall be governed by the court of the Peoples Republic of China.
Unless otherwise agreed by the parties hereto, after this Agreement and individual agreements go into effect, all disputes arising in connection with or in the execution and performance of this Agreement and individual agreements shall be settled by both parties through negotiation. In case no settlement can be reached, either party may exercise rights and obligations subject to this Agreement and individual agreements or lawsuit Party B and settle the disputes in the Peoples Court where Party B or other agency under China Construction Bank.
During the period of the settlement of dispute, if such dispute doesnt affect the fulfillment of other clauses of this Agreement and individual agreements, such clauses shall continue to be fulfilled.
Article 14 Expenses
Unless otherwise provided by the laws or the parties hereto, Party A shall bear all the expenses arising from the execution and performance of this Agreement and individual agreements and the settlement of disputes (including legal expenses).
Article 15 Miscellaneous
1. | Without written consent of Party B, Party A shall not transfer any of its rights and obligations under this Agreement and individual agreements to any third party. |
2. | If, due to the business needs, Party B needs to entrust other agencies under China Construction Bank to perform its rights and obligations (no any variations) under this Agreement and individual agreements, Party A will agree to it. The agencies under China Construction Bank entrusted by Party B shall have the right to exercise all rights under this Agreement and individual agreements and to bring lawsuits in court or submit disputes to arbitration body for arbitration under this Agreement and individual agreements. |
3. | Without prejudice to other provisions of this Agreement and individual agreements, this Agreement shall be legally binding on the parties hereto and their successors and assignees by law. |
Line of Credit Agreement-CCB English 201303 (Clean) Page 5 of 6
4. | Unless otherwise agreed herein, the parties hereto specify the address provided herein is their respective mailing and contact address and promise to inform the other party in writing in a timely manner in case of any change in their mailing and contact address. |
5. | The headings and description of business contained herein are for convenience of reference only and are not to be used in the interpretation of the clauses of this Agreement and the rights and obligations of the parties hereto. |
Article 16 Effectiveness
This Agreement shall go into effect from the date of execution hereof by the legal representatives, principals or authorized representatives of the parties hereto.
This Agreement is made in two copies, each copy to be held by the parties hereto and the guarantor respectively with equal legal effect.
Party A: MFLEX Suzhou Co., Ltd. | Party B: China Construction Bank Suzhou Industry Park Sub-Branch | |
Authorized Representative (signature): | Authorized Representative (signature): | |
/s/ GOW CHENG PAK Sign Date |
/s/ WU NAN DAI Sign Date | |
May 6, 2013 | May 6, 2013 |
Line of Credit Agreement-CCB English 201303 (Clean) Page 6 of 6
Exhibit 10.87
Facility Offer Letter
To: MFLEX Suzhou Co., Ltd:
According to the application from MFLEX Suzhou Co., Ltd (Applicant), our bank agrees to issue this Facility Offer Letter (Letter) for the purpose of comprehensive credit line. The details of the Letter are listed as follows:
1. The total amount of credit line granted by the Letter should not exceed CNY 300,000,000.00 (revolving use; short-term loan; trade financing business and letter of guarantee business; undertaking capital business).
Of such credit line, the loan interest rate of US dollar should be negotiated and determined by both parties based on lending cost in the market of US dollar on actual loan day.
2. The purpose of such loan should comply with relevant laws and regulations, supervisory rules and policies.
3. Such loan will be approved to be granted after obtaining permission of verification procedures set by our bank and in compliance with loan conditions required by our bank.
4. The authoritative institution to approve such loan is China Construction Bank Suzhou Branch.
5. The Letter validates from the date of execution to May5, 2016.
6. Laws of PRC shall apply to the Letter.
China Construction Bank
Suzhou Industrial Park Sub-branch
President sign: /s/ WU NAN DAI
May 6, 2013
The Price of Financing Service
Business | Price Quoted In the Market | MFLEX Price | ||||
USD |
USD Loan | Negotiated by CCB and MFLEX according to the variation of market price | ||||
USD time deposit | Negotiated by CCB and MFLEX according to the variation of market price | |||||
USD Purchase | Selling Rate | Middle Rate | ||||
USD Sale | Buying Rate | Middle Rate | ||||
Account Fee | RMB 600.00 per year | Free | ||||
RMB |
Seven-day Call | 1.485% | ||||
Agreement Deposit | 1.15% | |||||
Account Fee | RMB 360.00 per year | Free | ||||
Receipts Management | RMB 200.00 per year | Free | ||||
Remit |
Outward Remittances(Overseas) Commission |
1 of amount, Min RMB50.00, Max RMB1000.00 |
Free | |||
Outward Remittances(Overseas) Cable Charges | RMB 80.00 | RMB 50.00 | ||||
Import L/C |
Opening |
1.5 of amount, Min RMB500.00;0.05% of amount for per season as the expiry extend for 3 months |
0.3 of amount, Min RMB200.00 | |||
Amendment | RMB 200.00 | |||||
Acceptance | 1 of amount per month, Min RMB150.00 | Free | ||||
Dishonor | Free | |||||
Buty-free Guarantee |
1 of amount for per season, Min RMB500.00 |
Free | ||||
DRAFT |
Issue Bank Acceptance Bill | 0.05 of amount | ||||
Online Banking |
USB-KEY | RMB 50.00 per person | Free | |||
Annual Charge | RMB 100.00 per person a year | Free |
EXHIBIT 31.1
CERTIFICATION
I, Reza Meshgin, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Multi-Fineline Electronix, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Dated: May 8, 2013 | By: | /s/ Reza Meshgin | ||||
Reza Meshgin Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION
I, Thomas Liguori, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Multi-Fineline Electronix, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Dated: May 8, 2013 | By: | /s/ Thomas Liguori | ||||
Thomas Liguori Chief Financial Officer and Executive Vice-President |
EXHIBIT 32.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q (the Report) of Multi-Fineline Electronix, Inc. (the Company) for the period ended March 31, 2013, as filed with the Securities and Exchange Commission on the date hereof, Reza Meshgin, as Chief Executive Officer of the Company, and Thomas Liguori, as Chief Financial Officer of the Company, each hereby certifies, to the best of his respective knowledge, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: May 8, 2013 | /s/ Reza Meshgin | /s/ Thomas Liguori | ||||
Chief Executive Officer | Chief Financial Officer and Executive Vice-President |
Stock-Based Compensation (Details 6) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Mar. 31, 2013
|
Mar. 31, 2012
|
Mar. 31, 2013
|
Mar. 31, 2012
|
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Summary of the compensation cost | ||||
Total compensation cost | $ 1,241 | $ 1,503 | $ 2,548 | $ 2,888 |
Cost of Sales [Member]
|
||||
Summary of the compensation cost | ||||
Total compensation cost | 133 | 128 | 266 | 249 |
Research and development [Member]
|
||||
Summary of the compensation cost | ||||
Total compensation cost | 151 | 88 | 306 | 195 |
Sales and marketing [Member]
|
||||
Summary of the compensation cost | ||||
Total compensation cost | 179 | 291 | 392 | 493 |
General and administrative [Member]
|
||||
Summary of the compensation cost | ||||
Total compensation cost | $ 778 | $ 996 | $ 1,584 | $ 1,951 |
Basis of Presentation (Details 3)
|
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Mar. 31, 2013
|
Mar. 31, 2012
|
Mar. 31, 2013
|
Mar. 31, 2012
|
|
Reconciliation of basic and diluted shares | ||||
Basic weighted-average number of common shares outstanding | 23,798,587 | 23,870,165 | 23,796,966 | 23,809,196 |
Dilutive effect of potential common shares | 233,911 | 303,993 | ||
Diluted weighted-average number of common and potential common shares outstanding | 23,798,587 | 24,104,076 | 23,796,966 | 24,113,189 |
Potential common shares excluded from the per share computations as the effect of their inclusion would not be dilutive | 831,603 | 530,972 | 838,621 | 363,878 |
Income Taxes (Details) (USD $)
In Thousands, unless otherwise specified |
6 Months Ended |
---|---|
Mar. 31, 2013
|
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Income Taxes (Textual) [Abstract] | |
Additional taxable income | $ 32,363 |
Segment Information
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Mar. 31, 2013
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Segment Information [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment information |
4. Segment information Based on the evaluation of the Company’s internal financial information, management believes that the Company operates in one reportable segment. The Company is primarily engaged in the engineering, design and manufacture of flexible circuit boards along with related component assemblies. For the periods presented, the Company operated in four geographical areas: United States, China, Singapore and Other (which includes Malaysia, Korea and the United Kingdom). Net sales are presented based on the country in which the sales originate, which is where the legal entity is domiciled. The financial results of the Company’s geographic segments are presented on a basis consistent with the condensed consolidated financial statements. Segment net sales and assets amounts include intra-company product sales transactions and subsidiary investment amounts, respectively, which are offset in the eliminations line. Financial information by geographic segment is as follows:
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