-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IwBnDUiQQWfcffJrdSj+Y9eNv/zNPiU36HoELkYLOucYS+ifjIB2Uc8tIUzyStEb gr+V8WmM4kFfaar9qBhRfQ== 0000891618-97-003607.txt : 19970828 0000891618-97-003607.hdr.sgml : 19970828 ACCESSION NUMBER: 0000891618-97-003607 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960202 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970827 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FLEXTRONICS INTERNATIONAL LTD CENTRAL INDEX KEY: 0000866374 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672] IRS NUMBER: 000000000 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-23354 FILM NUMBER: 97670416 BUSINESS ADDRESS: STREET 1: BLK 514 CHAI CHEE LANE #04-13 STREET 2: BODEK INDUSTRIAL ESTATE REPUBLIC OF SING CITY: SINGAPORE 1646 STATE: U0 BUSINESS PHONE: 0654495255 FORMER COMPANY: FORMER CONFORMED NAME: FLEX HOLDINGS PTE LTD DATE OF NAME CHANGE: 19940201 8-K/A 1 FORM 8-K/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): FEBRUARY 2, 1996 FLEXTRONICS INTERNATIONAL LTD. - -------------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) SINGAPORE ------------------------------------------------ (State or other jurisdiction of incorporation) 0-23354 NOT APPLICABLE - ------------------ ---------------------- (Commission (IRS Employer File Number) Identification No.) 514 CHAI CHEE LANE, #04-13, BEDOK INDUSTRIAL ESTATE, SINGAPORE 469029 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (65) 449-5255 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) NOT APPLICABLE - -------------------------------------------------------------------------------- (Former name or former address, if changed since last report) 2 Item 7. Financial Statements and Exhibits On February 2, 1996, Flextronics International Ltd. (the "Company") acquired (the "Acquisition") all of the issued share capital of Astron Group Limited, a private company limited by shares and incorporated in Hong Kong ("Astron"). This Form 8-K/A is being filed in response to comments by the SEC staff in letters dated March 7, 1997, March 14, 1997 and March 24, 1997 and in connection with the Company's revision of its accounting for the Acquisition. (a) financial statements of Astron Group Limited and Subsidiaries 3 ASTRON GROUP LIMITED AND SUBSIDIARIES Report and Financial Statements For the three years ended December 31, 1993, 1994 and 1995 4 INDEX TO FINANCIAL STATEMENTS
ASTRON GROUP LIMITED AND SUBSIDIARIES Auditors' Report...................................................... 1 Consolidated Statements of Income for the years ended December 31, 1993, 1994 and 1995.................................... 2 Consolidated Balance Sheets as of December 31, 1994 and 1995.......... 3 & 4 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1993, 1994 and 1995........................ 5 Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995.................................... 6 & 7 Notes to Consolidated Financial Statements............................ 8 - 23
5 [DELOITTE TOUCHE TOHMATSU LETTERHEAD] AUDITOR'S REPORT TO THE MEMBERS OF ASTRON GROUP LIMITED (incorporated in Hong Kong with limited liability) We have audited the financial statements on pages 2 to 23 which have been prepared in accordance with accounting principles generally accepted in Hong Kong. RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS The directors are required to prepare financial statements which give a true and fair view. In preparing financial statements which give a true and fair view it is fundamental that appropriate accounting policies are selected and applied consistently. It is our responsibility to form an independent opinion, based on our audit, on those statements and to report our opinion to you. BASIS OF OPINION We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Society of Accountants. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the financial statements are free from material misstatement. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit provides a reasonable basis for our opinion. OPINION In our opinion the financial statements give a true and fair view of the state of the Group's affairs as at December 31, 1995 and of its profit and cash flow for the three years ended December 31, 1995 and have been properly prepared in accordance with accounting principles generally accepted in Hong Kong. /s/ DELOITTE TOUCHE TOHMATSU Hong Kong March 12, 1997 [DELOITTE TOUCHE TOHMATSU INTERNATIONAL LOGO] 6 ASTRON GROUP LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands)
YEAR ENDED DECEMBER 31, --------------------------------------- 1993 1994 1995 ------- ------- ------- HK$ HK$ HK$ Net sales ..................................................... 88,969 138,849 160,268 Cost of sales.................................................. 62,021 82,790 101,223 ------- ------- ------- Gross profit................................................... 26,948 56,059 59,045 ------- ------- ------- Selling, general and administrative expenses................... 18,970 40,411 47,718 ------- ------- ------- Operating income............................................... 7,978 15,648 11,327 Interest expense............................................... (760) (816) (501) Other income (note 3).......................................... 2,979 6,567 10,308 Exceptional items (note 4)..................................... (2,793) (2,313) 6,900 ------- ------- ------- Income before income taxes..................................... 7,404 19,086 28,034 Income taxes (note 5).......................................... (2,022) (2,572) (3,560) ------- ------- ------- Net income..................................................... 5,382 16,514 24,474 ======= ======= =======
See accompanying notes to consolidated financial statements. -2- 7 ASTRON GROUP LIMITED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
DECEMBER 31, ----------------------- 1994 1995 ------- ------- HK$ HK$ Current assets: Cash ............................................ 24,021 10,921 Accounts receivable, net of allowance for doubtful accounts of HK$NIL in 1994 and HK$NIL in 1995 ................................ 29,918 27,501 Advances to related parties (note 13) ........... 4,029 16,007 Inventories (note 6) ............................ 9,188 15,884 Prepaid expenses and other current assets ....... 1,836 3,335 ------- ------- Total current assets ...................... 68,992 73,648 ------- ------- Property, plant and equipment, net (note 7) ....... 25,975 109,770 ------- ------- Intangible assets, (note 8) ....................... 459 1,955 ------- ------- Other investment (note 9) ......................... 8,740 4,887 ------- ------- Long term loan receivable (note 10) ............... 22,500 12,500 ------- ------- Total assets ...................................... 126,666 202,760 ======= =======
See accompanying notes to consolidated financial statements. - 3 - 8 ASTRON GROUP LIMITED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - continued (Dollars in thousands except per share data) LIABILITIES AND SHAREHOLDERS' EQUITY
December 31, ------------------------- 1994 1995 ------- ------- HK$ HK$ Current liabilities: Short-term borrowings (note 11)............................... 404 1,714 Current portion of long-term debt (note 12)................... 1,965 499 Accounts payable.............................................. 34,498 55,441 Advances from related parties (note 14)....................... 232 732 Income taxes payable.......................................... 2,929 928 Other accrued liabilities..................................... 2,613 - ------- ------- Total current liabilities................................... 42,641 59,314 ------- ------- Deferred income taxes (note 5).................................. 1,445 1,718 ------- ------- Long-term debt (note 12)........................................ 25,030 - ------- ------- Minority interests.............................................. 3,750 3,750 ------- ------- Commitments and contingencies (note 13) Shareholders' equity: Ordinary shares, HK$1 par value, 6,750 shares authorised, issued and outstanding.......................... 6,750 6,750 Additional paid-in capital................................... - 60,000 Retained earnings............................................. 38,310 62,784 Other reserves................................................ 8,740 8,444 ------- ------- 53,800 137,978 ------- ------- Total liabilities and shareholders' equity...................... 126,666 202,760 ======= =======
See accompanying notes to consolidated financial statements. -4- 9 ASTRON GROUP LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Dollars in thousands except share data)
ORDINARY SHARES ADDITIONAL TOTAL ----------------- PAID-IN RETAINED OTHER SHAREHOLDERS' SHARES AMOUNT CAPITAL EARNINGS RESERVES EQUITY ------ ------ ---------- -------- -------- ------------- HK$ HK$ HK$ HK$ HK$ Balance at December 31, 1992 ................... 2,000 2,000 - 19,064 9,377 30,441 Surplus arising from revaluation of investment property .......................... - - - - 15,488 15,488 Issue of ordinary shares ....................... 3,000 3,000 - - - 3,000 Net income ..................................... - - - 5,382 - 5,382 Proposed dividend .............................. - - - (900) - (900) ----- ----- ------ ------ ------- ------- Balance at December 31, 1993 ................... 5,000 5,000 - 23,546 24,865 53,411 Bonus shares issued ............................ 1,750 1,750 - (1,750) - - Eliminated on disposal of investment property ..................................... - - - - (21,458) (21,458) Revaluation of long term investment ............ - - - - 5,333 5,333 Net income ..................................... - - - 16,514 - 16,514 ----- ----- ------ ------ ------- ------- Balance at December 31, 1994 ................... 6,750 6,750 - 38,310 8,740 53,800 Capital contribution ........................... - - 60,000 - - 60,000 Revaluation of land ............................ - - - - 3,557 3,557 Revaluation of long-term investment ............ - - - - (3,853) (3,853) Net income ..................................... - - - 24,474 - 24,474 ----- ----- ------ ------ ------- ------- Balance at December 31, 1995 ................... 6,750 6,750 60,000 62,784 8,444 137,978 ===== ===== ====== ====== ======= =======
(Note: Other reserves represent net surplus on revaluation of land and buildings and other investments) See accompanying notes to consolidated financial statements. -5- 10 ASTRON GROUP LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
YEAR ENDED DECEMBER 31, --------------------------- 1993 1994 1995 ------ ------ ------ HK$ HK$ HK$ CASH FLOW FROM OPERATING ACTIVITIES Operating profit before taxation.................................... 7,405 19,086 28,035 Dividend income..................................................... - (108) - Interest income..................................................... (47) (816) (1,902) Interest expense.................................................... 563 644 405 Interest on obligations under finance leases and hire purchase contracts......................................................... 197 172 95 Depreciation and amortization....................................... 7,629 4,426 5,748 Loss (gain) on disposal of fixed assets............................. 178 (18,813) 34 Reinstatement of company loan due to a fellow subsidiary............ - 20,800 - Decrease (increase) in stocks and work in progress.................. 1,063 (1,807) (6,697) Decrease (increase) in debtors, deposits and prepayments............ (1,849) (17,401) 921 Decrease (increase) in amount due from holding company.............. (3,004) 207 2,699 Decrease (increase) in amount due from a fellow subsidiary company........................................................... (4) 4 (13,528) Decrease (increase) in amounts due from related companies........... (930) 860 51 Increase in amount due from a shareholder........................... - (1,162) (1,201) Increase in creditors and accrued charges........................... 3,713 22,895 20,943 (Decrease) increase in amount due to a fellow subsidiary company........................................................... - 99 (99) Increase in amount due to a related company......................... - - 84 Increase in amount due to a minority shareholder.................... - - 648 (Decrease) increase in amount due to a director..................... (88) 121 (133) (Decrease) increase in trust receipts............................... 195 999 (2,613) ------ ------ ------ NET CASH INFLOW FROM OPERATING ACTIVITIES........................... 15,021 30,206 33,490 ------ ------ ------ RETURNS ON INVESTMENT AND SERVICING OF FINANCE Dividend received................................................... - 108 - Interest received................................................... 47 816 1,902 Interest paid....................................................... (563) (644) (405) Interest on obligations under finance leases and hire purchase contracts....................................... (197) (171) (95) Dividend paid....................................................... - (900) - ------ ------ ------ NET CASH INFLOW (OUTFLOW) FROM RETURNS ON INVESTMENT AND SERVICING OF FINANCE............................ (713) (791) 1,402 ------ ------ ------ TAXATION Hong Kong Profits Tax paid.......................................... - (977) (5,290) ------ ------ ------ INVESTING ACTIVITIES Payments to acquire trademark....................................... - (315) - Purchase of fixed assets............................................ (522) (10,551) (85,970) Pre-operating costs................................................. - - (1,582) Proceeds on disposal of fixed assets................................ 10 333 36 Long-term loan receivable........................................... - - 10,000 ------ ------ ------
- 6 - 11 ASTRON GROUP LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - continued (Dollars in thousands)
YEAR ENDED DECEMBER 31, ------------------------------------- 1993 1994 1995 ---- ---- ---- HK$ HK$ HK$ NET CASH OUTFLOW FROM INVESTING ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . . . (512) (10,533) (77,516) ------ ------- ------- NET CASH (OUTFLOW) INFLOW BEFORE FINANCING . . . . . . . . . . . . . . . . . . . . . . . . 13,796 17,905 (47,914) ------ ------- ------- FINANCING (see note 14) Capital contribution . . . . . . . . . . . . . . . . . . . . - - 60,000 Issue of ordinary shares . . . . . . . . . . . . . . . . . . 3,000 - - New bank loans obtained . . . . . . . . . . . . . . . . . . 2,892 - - Repayment of obligations under finance leases and hire purchase contracts . . . . . . . . . . . . . . . (4,024) - (1,205) Repayment of bank loans . . . . . . . . . . . . . . . . . . (1,208) (2,032) (4,491) Repayment of loan from a fellow subsidiary company . . . . . - - (20,800) Repayment of loan from a shareholder . . . . . . . . . . . . (3,042) - - ------ ------- ------- NET CASH INFLOW (OUTFLOW) FROM FINANCING . . . . . . . . . . . . . . . . . . . . . . . . (2,382) (2,032) 33,504 ------ ------- ------- (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . 11,414 15,873 (14,410) CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR . . . . . . . . . . . . . . . . . . (3,670) 7,744 23,617 ------ ------- ------- CASH AND CASH EQUIVALENTS AT END OF THE YEAR . . . . . . . . . . . . . . . . . . . . . . . 7,744 23,617 9,207 ------ ------- ------- ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS Bank balances and cash . . . . . . . . . . . . . . . . . . . 8,932 24,021 10,921 Bank overdrafts . . . . . . . . . . . . . . . . . . . . . . (1,188) (404) (1,714) ------ ------- ------- 7,744 23,617 9,207 ====== ======= =======
See accompanying notes to consolidated financial statements. -7- 12 ASTRON GROUP LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) 1. ORGANIZATION AND BASIS OF FINANCIAL STATEMENTS The Company is a private limited company incorporated in Hong Kong. Its ultimate holding company is Alberton Holdings Limited, also incorporated in Hong Kong. The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in Hong Kong ("H.K. GAAP"), which differ from in certain material respects from accounting principles generally accepted in the United States ("U.S. GAAP") see Note 19. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of consolidation -- The consolidated financial statements include the assets, liabilities, revenues and expenses of all subsidiaries. All material intercompany transactions and balances have been eliminated. Cash equivalents -- cash equivalents represent short-term highly liquid investments which are readily convertible into known amounts of cash and which were within three months of maturity when acquired; less advances from banks repayable within three months from the date of the advance. Depreciation -- Depreciation is provided to write off the cost or revalued amount of fixed assets over their estimated useful lives using the straight line method, at the following rates per annum: Leasehold land and buildings Over the terms of the lease Office equipment 20% Furniture and fixtures 20% Computers 20% Electrical equipment 10% Production equipment 10%-20% Motor vehicles 20% Assets held under finance leases and hire purchase contracts are depreciated over their expected useful lives on the same basis as owned assets. Surplus arising on the revaluation of leasehold land and buildings is credited to the property revaluation reserve except that to the extent a revaluation surplus reverses a revaluation deficit of the same asset previsouly charged to the profit and loss account, the revaluation surplus is credited to the profit and loss account. Deficit arising on the revaluation of the leasehold land and buildings is charged to the profit and loss account except that to the extent a revaluation deficit relates to an amount held in the property revaluation reserve in respect of the same asset, the deficit is charged directly against the related property revaluation reserve. Revaluation surplus on the sale of revalued properties are credited to retained earnings. -8- 13 ASTRON GROUP LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- continued (Dollars in thousands) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (continued) Inventories -- Inventories are stated at the lower of cost determined by the first-in, first-out method, or market. Finished goods inventories consist of raw materials, direct labor and overhead associated with the manufacture of printed circuit boards. Construction in progress is stated at cost which comprised the manufacturing facilities and the related office building under construction. The Company did not incur a significant amount of borrowing costs in connection with the construction of property, therefore no interest has been capitalized. No depreciation is provided until the construction is completed. Intangible assets -- Intangible assets include trademarks which are capitalized and amortized over a period of ten years using the straight line method and pre-operating expenses which are amortized over five years from the date operations commence. Revenue recognition -- The Company recognized revenue at the time products are shipped to customers. Income taxes -- Deferred income taxes are provided at enacted statutory rates for temporary differences. Temporary differences result primarily from differences between the book and tax bases for depreciation expense. Foreign currency translation -- Assets and liabilities denominated in foreign currencies are translated at year end exchange rates, while revenues and expenses are translated at the approximate exchange rates ruling on the dates of the transactions. Gains or losses from foreign currency transactions are included in net income. On consolidation the financial statements of overseas subsidiaries are translated at the rates ruling on the balance sheet date. All exchange differences arising on consolidation are dealt with in reserves. The exchange rates adopted in the translation of Renminbi (the "RMB") to Hong Kong Dollars are the applicable foreign exchange adjustment centre rates quoted by the People's Bank of China. Employee benefits -- The Company does not provide any retirement or postretirement benefits and postemployment benefits, if any, are not significant. Investments -- Other listed investments are carried at market value. Unrealized gains or losses on long-term investments are recorded as component of shareholders' equity. Such treatment of long-term investments is consistent with U.S. Statement of Financial Accounting Standards No. 115 ("SFAS 115"), Accounting for Certain Investments in Debt and Equity Securities. Pursuant to SFAS 115 the long-term investments would be classified as available-for-sale. 14 ASTRON GROUP LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Dollars in thousands) 3. OTHER INCOME The components of other income are as follows:
YEAR ENDED DECEMBER 31, ----------------------- 1993 1994 1995 ---- ---- ---- HK$ HK$ HK$ Exchange gain . . . . . . . . . . . . . . 461 2,000 2,788 Interest income - bank . . . . . . . . . 47 816 2,594 - loan . . . . . . . . . - 1,475 1,041 Gain on disposal of fixed assets . . . . - 325 - Management fee received . . . . . . . . . 1,041 1,315 857 Compensation from client on cancellation of orders . . . . . . . . - 3 617 Sale of raw materials (scrap material, gold solution, laminate/frame) . . . . - 585 863 Others . . . . . . . . . . . . . . . . . 1,430 48 1,548 ----- ----- ------ 2,979 6,567 10,308 ===== ===== ======
4. EXCEPTIONAL ITEMS
YEAR ENDED DECEMBER 31, ----------------------- 1993 1994 1995 ---- ---- ---- HK$ HK$ HK$ Exceptional items comprise: Reinstatement of loan due to a fellow subsidiary company . . . . . . . . . . - (20,800) - Gain on dispoal of leasehold and buildings to a fellow subsidiary company . . . . . . . . . . . . . . . . - 18,487 - Gain on waiver of liabilities due to a shareholder . . . . . . . . . . . . . . - - 6,900 Provision for corporate restructure . . . (2,793) - - ------ ------- ----- (2,793) (2,313) 6,900 ====== ======= =====
-10- 15 ASTRON GROUP LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Dollars in thousands) 5. INCOME TAXES The components of income before income taxes are as follows:
YEAR ENDED DECEMBER 31, --------------------------------------- 1993 1994 1995 ------- ------- ------- HK$ HK$ HK$ Hong Kong ................................................ 7,404 10,832 24,011 British Virgin Islands.................................... - 8,254 8,030 The People's Republic of China ("PRC").................... - - (4,007) ------- ------- ------- 7,404 19,086 28,034 ======= ======= =======
Hong Kong companies are subject to Hong Kong taxation on their activities conducted in Hong Kong. Under the current Hong Kong laws, dividends and capital gains arising from the realization of investments are not subject to income taxes and no withholding tax is imposed on payments of dividends by the Hong Kong incorporated subsidiaries to the Company. The Company is not taxed in the British Virgin Islands where one of its subsidiaries is incorporated. The Company has a subsidiary which was incorporated in PRC in 1994 and operates in the special economic zone of Zhuhai. This company is subject to PRC income taxes at the applicable tax rate (currently 15%) on taxable income based on income tax laws applicable to foreign investment enterprises. Pursuant to the same income tax laws, the subsidiary, being a production-oriented enterprise, is entitled to a tax holiday and therefore is fully exempt from PRC income tax on their manufacturing operations for two years starting from the first profit-making year, followed by a 50% exemption for the next three years. The provision for income taxes consists of the following:
YEAR ENDED DECEMBER 31, --------------------------------------- 1993 1994 1995 ------- ------- ------- HK$ HK$ HK$ Hong Kong ................................................ 888 3,019 3,287 Deferred taxes (excess of tax allowances over accounting depreciation)........................... 1,134 (447) 273 ------- ------- ------- 2,022 2,572 3,560 ======= ======= =======
-11- 16 ASTRON GROUP LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Dollars in thousands) 5. INCOME TAXES - continued A reconciliation between the provision for income taxes computed by applying the Hong Kong statutory tax rate to income before taxes and the actual provision for income taxes is as follows:
YEAR ENDED DECEMBER 31, --------------------------------------- (In percentage) 1993 1994 1995 ------- ------- ------- Statutory tax rate in Hong Kong .......................... 17.5 17.5 16.5 Deferred taxation (excess of tax allowances over accounting depreciation)........................... 15.32 (2.33) 1.0 Other..................................................... (5.51) (1.69) (4.8) ----- ----- ----- Effective tax rate........................................ 27.31 13.48 12.70 ===== ===== =====
6. INVENTORIES Inventories by major categories are summarized as follows:
1994 1995 ----- ----- HK$ HK$ Raw materials.............................. 3,711 8,684 Work in progress........................... 4,353 5,582 Finished goods............................. 1,124 1,618 ----- ------ 9,188 15,884 ===== ======
-12- 17 ASTRON GROUP LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) 7. PROPERTY, PLANT AND EQUIPMENT
LEASEHOLD FURNITURE CONSTRUCTION LAND AND OFFICE AND ELECTRICAL PRODUCTION MOTOR IN BUILDINGS EQUIPMENT FIXTURES COMPUTERS EQUIPMENT EQUIPMENT VEHICLES PROCESS TOTAL --------- --------- --------- ---------- ---------- ---------- -------- ------------ ------- HK$ HK$ HK$ HK$ HK$ HK$ HK$ HK$ HK$ COST OR VALUATION At January 1, 1995 5,741 381 7,991 447 - 38,720 178 7,365 60,223 Additions 7,459 105 876 223 847 29,822 1,020 45,619 85,971 Reclassification 32,964 - - - - - - (32,964) - Revaluation 3,556 - - - - - - - 3,556 Disposals - (30) (52) - - (337) - - (419) ------ --- ----- --- --- ------ ----- ------- ------- At December 31, 1995 49,720 456 8,215 670 847 68,205 1,198 20,020 149,331 ------ --- ----- --- --- ------ ----- ------- ------- Comprising: At cost 190 456 8,215 670 847 68,205 1,198 20,020 99,801 At valuation 1995 49,530 - - - - - - - 49,530 ------ --- ----- --- --- ------ ----- ------- ------- 49,720 456 8,215 670 847 68,205 1,198 20,020 149,331 ------ --- ----- --- --- ------ ----- ------- ------- DEPRECIATION At January 1, 1995 25 261 6,523 274 - 27,122 43 - 34,248 Provided for the year 120 41 892 70 20 4,462 57 - 5,662 Eliminated on disposals - (18) (36) - - (295) - - (349) ------ --- ----- --- --- ------ ----- ------- ------- At December 31, 1995 145 284 7,379 344 20 31,289 100 - 39,561 ------ --- ----- --- --- ------ ----- ------- ------- NET BOOK VALUES At December 31, 1995 49,575 172 836 326 827 36,916 1,098 20,020 109,770 ------ --- ----- --- --- ------ ----- ------- ------- At December 31, 1994 5,716 120 868 173 - 11,598 135 7,365 25,975 ------ --- ----- --- --- ------ ----- ------- -------
The net book value of leasehold land and buildings shown above comprises:
1994 1995 ----- ------ HK$ HK$ Land and buildings in Hong Kong under a long term lease 165 152 Land and buildings outside Hong Kong under a medium term lease 5,550 49,424 ----- ------ 5,715 49,576 ===== ======
The leasehold land of the Group situated in PRC was revalued at December 31, 1995 by Messrs. Sallmanns, Chartered Surveyors, on an open market value basis subject to the obtaining of the land use right certificate and the realty title certificate. The surplus arising on revaluation has been credited to the property revaluation reserve. The Group is in the process of obtaining the land use right certificate and the realty title certificate. The net book value of fixed assets includes an amount of HK$2,079 (1994: HK$3,187) in respect of assets held under finance leases and hire purchase contracts. - 13 - 18 ASTRON GROUP LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) 8. INTANGIBLE ASSETS
Pre-operating Trademark expenses Total --------- ------------- ----- HK$ HK$ HK$ COST At January 1, 1995 315 144 459 Additions - 1,582 1,582 --- ----- ----- At December 31, 1995 315 1,726 2,041 --- ----- ----- AMORTISATION At January 1, 1995 - - - Provided for the year 32 54 86 --- ----- ----- At December 31, 1995 32 54 86 --- ----- ----- NET BOOK VALUES At December 31, 1995 283 1,672 1,955 --- ----- ----- At December 31, 1994 315 144 459 === ===== =====
9. OTHER INVESTMENT
1995 1994 ----- ----- HK$ HK$ Listed shares overseas At cost - - Surplus on revaluation 4,887 8,740 ----- ----- 4,887 8,740 ===== =====
The investment represents 157,500 ordinary shares in Hana Microelectric Company Limited, a company incorporated in Thailand and listed on the Securities Exchange of Thailand since January 12, 1994. These shares were assigned to the Company during 1991 at nil consideration. 10. LONG-TERM LOAN RECEIVABLE
December 31, ------------------ 1995 1995 ----- ----- HK$ HK$ Amount due from a fellow subsidiary company 22,500 12,500 ====== ======
The loan outstanding is repayable on February 4, 1999 and bears interest at 7.15%. The loan is secured by a corporate guarantee from the Company's ultimate holding company. -14- 19 ASTRON GROUP LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) 11. SHORT-TERM BORROWINGS Short-term borrowings consist primarily of bank overdrafts. Interest rates are generally based on the banks' prime lending rates and the credit lines are normally subject to annual review. The Company has pledged approximately HK$2,171 of cash to the bank to secure general banking facilities. 12. LONG-TERM DEBT
December 31, ------------------ 1994 1995 ------ ---- HK$ HK$ Long-term debt consists of: Bank loan bearing interest at 1/2% over Best Lending Rate ................................ 1,935 - Bank loan bearing interest at 1 1/2% over Best Lending Rate ................................ 2,556 - Capital lease obligations bearing interest at 7.69% to 9.00% per annum ...................... 1,704 499 Loan payable to a fellow subsidiary bearing interest at 7.15% ........................ 20,800 - ------ --- Total .............................................. 26,995 499 Current portion of long-term debt .................. 1,965 499 ------ --- Long-term debt, less current portion ............... 25,030 - ====== ===
There are no significant covenants or financial restrictions relating to the Company's long-term debt. -15- 20 ASTRON GROUP LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Dollars in thousands) 13. COMMITMENTS AND CONTINGENCIES At December 31, 1995, the Company and its subsidiaries had capital commitments for buildings and factories under construction totalling HK$46,935 which are expected to be disbursed during the year ending December 31, 1996. The Company leases premises under various operating leases which do not contain any renewal or escalation clauses. Rental expense under operating leases was HK$NIL in 1993, HK$1,647 in 1994 and HK$2,523 in 1995. As at December 31, 1995, the Company and its subsidiaries were obligated under capital leases and operating leases requiring minimum rentals as follows:
Capital Operating leases leases ------ ------ HK$ HK$ Year ending December 31, 1996............................................. 508 2,011 1997............................................. - 1,672 1998............................................. - 1,608 1999............................................. - 1,608 Thereafter....................................... - 5,517 --- ------ Total minimum lease payments....................... 508 12,416 ------ Less: amount representing interest................. 9 --- Present value of minimum lease payments............ 499 ===
At the balance sheet date, the Group had commitments under non- cancellable operating leases for land and building as follows:
1994 1995 ---- ---- HK$ HK$ Operating leases which expire: Within one year.................................... - 35 ----- ----- In the second to fifth years inclusive............. 1,608 1,976 ----- ----- 1,608 2,011 ===== =====
-16- 21 ASTRON GROUP LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Dollars in thousands) 14. RELATED PARTY TRANSACTIONS The Company rents the Hong Kong office from Mayfield International Ltd. ("Mayfield"), a fellow subsidiary of Alberton Holdings Ltd. Rentals charged by this party to the Company are summarized as follows:
DECEMBER 31, ------------------------- 1993 1994 1995 ---- ---- ---- HK$ HK$ HK$ Rent charged by Mayfield ................. - 1,206 1,608 ==== ===== =====
Prior to December 1995, the Company advanced amounts to, and borrowed amounts from, the holding company, shareholders, directors and companies under their control. All balances were lent on an interest-free basis and repayable on demand. The balances are summarized as follows: Interested directors: 1. Richard David Han 2. Stephen J.L. Rees 3. Janine Rees
DECEMBER 31, ----------------- 1994 1995 ---- ---- HK$ HK$ Advances to: Holding company Alberton Holdings Ltd .................. 2,797 98 Fellow subsidiary company Mayfield International Ltd ............. - 13,528 Related companies Hana Macroelectric Co. Ltd ............. 14 - Microsil Technology Ltd ................ - 2 HK PIM Co. Ltd ......................... 56 16 Shareholders OMAC Sales Ltd ......................... 1,162 2,363 ----- ------ 4,029 16,007 ===== ======
-17- 22 ASTRON GROUP LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Dollars in thousands) 14. RELATED PARTY TRANSACTIONS - continued
DECEMBER 31, ----------------- 1994 1995 ---- ---- HK$ HK$ Advances from: Fellow subsidiary company Mayfield International Ltd ............. 99 - Related companies OMAC (HK) Ltd .......................... - 84 Shareholders OMAC Sales Limited ..................... - 648 Director Stephen Rees ........................... 133 - ---- ---- 232 732 ==== ====
Details of profit and loss transactions with related parties:
DECEMBER 31, ------------------------------- 1993 1994 1995 ------ ------ ------ HK$ HK$ HK$ Interested director ...................... - 1 & 2 1 & 2 EXPENSES Management fee .......................... - 410 445 ==== ===== =====
-18- 23 ASTRON GROUP LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Dollars in thousands) 15. ANALYSIS OF CHANGES IN FINANCING
OBLIGATIONS UNDER FINANCE LOAN ORDINARY LEASES AND FROM LOAN SHARE HIRE PURCHASE BANK CAPITAL A RELATED FROM A CAPITAL CONTRACTS LOANS CONTRIBUTION COMPANY SHAREHOLDERS ------- ------------ ----- ------------ --------- ------------ HK$ HK$ HK$ HK$ HK$ HK$ At January 1, 1993........ 2,000 2,865 3,543 - - 3,042 New borrowings obtained... - 4,159 2,892 - - - Repayment of borrowings... - (4,024) (1,208) - - 3,042 Issue of ordinary share capital................ 3,000 - - - - - ----- ------ ----- ------ ------- ------ At January 1, 1994....... 5,000 3,000 5,227 - - - Repayment of borrowings.. - (1,296) (736) - - - Non-cash bonus issue..... 1,750 - - - - - ----- ------ ----- ------ ------- ------ At January 1, 1995....... 6,750 1,704 4,491 - 20,800 - Repayment of borrowings.. - (1,205) (4,491) - (20,800) - Capital contribution..... - - - 60,000 - - ----- ------ ------ ------ ------- ------ At December 31, 1995..... 6,750 499 - 60,000 - - ===== ====== ====== ====== ======= ======
16. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS In the years ended December 31, 1993, 1994 and 1995, the Company had sales of printed circuit boards which represent 10% or more of Sales to the following customers:
1993 1994 1995 ------ ------ ------ ETA S.A......................... 14.15% 14.85% - OMAC Sales Limited.............. - - 11.39% Samsung Semiconductor SDN, BHD.. 12.5% 10.60% 23.83% Siemens Semiconductor SDN, BHD.. 14.54% 13.49% 15.90% TMX (Hong Kong) Limited......... 12.11% 17.13% -
Details of the amounts receivable from the five customers with the largest receivable balances at December 31, 1993, 1994 and 1995 are as follows:
Percentage of accounts receivable December 31, --------------------------------------- 1993 1994 1995 ------ ------ ------ HK$ HK$ HK$ Five largest receivable balances..... 53% 57% 39.73%
The Company has not experienced any significant difficulty in collecting its accounts receivable in the past and is not aware of any financial difficulties being experienced by its major customers. -19- 24 ASTRON GROUP LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Dollars in thousands) 17. FAIR VALUE OF FINANCIAL INSTRUMENTS The following disclosure of the estimated value of financial instruments is made in accordance with the requirements of U.S. Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments". The estimated fair value amounts have been determined by the Company, using available market information and appropriate valuation methodologies. The estimates presented herein are not necessarily indicative of amounts that the Company could realize in a current market exercise. The carrying amounts of cash, accounts receivable, accounts payable, short-term borrowings and long-term debt are reasonable estimates of their fair value. The interest rates on the Company's short-term borrowings and long-term debt approximate those which would have been available at December 31, 1995 for debt of the same remaining maturities. Long-term loan receivable from a fellow subsidiary bears interest at 7.15%. 18. INFORMATION ABOUT FOREIGN AND DOMESTIC SALES All of the Company's sales of printed circuit boards are coordinated through the parent in Hong Kong and the breakdown by destination is as follows:
Year ended December 31, ----------------------- 1993 1994 1995 ------ ------- ------- HK$ HK$ HK$ Net sales: Hong Kong.................. 22,906 25,106 24,253 Export: Europe..................... 16,347 32,523 28,329 Other Asian countries...... 38,566 58,125 104,876 North America.............. 11,150 23,095 2,810 ------ ------- ------- 88,969 138,849 160,268 ====== ======= =======
The Company operates in Hong Kong, PRC and the British Virgin Islands. The location of the Company's identifiable assets is as follows:
Year ended December 31, ----------------------- 1993 1994 1995 ------ ------- ------- HK$ HK$ HK$ Hong Kong................... 79,735 102,153 82,707 PRC......................... - 15,338 112,424 British Virgin Islands...... - 9,175 7,629 ------ ------- ------- 79,735 126,666 202,760 ====== ======= =======
-20- 25 ASTRON GROUP LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- continued (Dollars in thousands) 19. SUBSEQUENT EVENT On February 2, 1996, Flextronics International Limited, a Singapore based company purchased 100% of the outstanding common stock of the Company. 20. SUMMARY OF DIFFERENCES BETWEEN HONG KONG AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES The Company's financial statements are prepared in accordance with H.K. GAAP, which differ in certain significant respects from U.S. GAAP. The significant differences relate principally to the following items and the adjustments necessary to restate net income and shareholders' equity in accordance with U.S. GAAP are shown in the tables set out below: (a) Proposed dividends The Company has included a proposed dividend in 1993 as a reconciliation item because under H.K. GAAP proposed dividend declared after the end of the accounting period is recorded as a liability incurred during such accounting period. Under U.S. GAAP, dividends are recorded as a liability on the books of the Company on the date of declaration. Under U.S. GAAP the dividend would be recorded as an adjustment to retained earnings. The dividend was declared and paid during 1994. (b) Exceptional income or loss Under H.K. GAAP, the amounts shown in note 4 are classified as exceptional income or loss. U.S. GAAP does not recognize such items as exceptional. (c) Waiver of liabilities due to a shareholder The exceptional items include an amount of waived liabilities due to a shareholder. Under U.S. GAAP such amount is not treated as income but as additional paid-in capital. Accordingly, an adjustment to net income is required to eliminate this difference. (d) Revaluation of leasehold land and investment properties The Company has revalued certain leasehold land and investment properties based on an independent valuation. This resulted in an increase on the carrying value of such assets with a corresponding increase in consolidated shareholders' equity. Such revaluations are not permitted under U.S. GAAP. Accordingly, an adjustment to shareholders' equity is required to eliminate these differences. In addition, the company has eliminated the related depreciation expense from net income for the respective years. -21- 26 ASTRON GROUP LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Dollars in thousands) 20. SUMMARY OF DIFFERENCES BETWEEN HONG KONG AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES - continued (e) Pre-operating expenses The Company has capitalised certain pre-operating expenses which is not permitted under U.S. GAAP. The amounts capitalised and the related amortisation expense have been adjusted in net income for the respective years. (f) Reinstatement of loan payable The reinstatement of the loan payable to a related company has been included in income. Under U.S. GAAP such amount is not treated as income but as additional paid-in capital. Accordingly, an adjustment to net income to eliminate this difference. (g) Consolidated Statement of Cash Flows The Consolidated Statement of Cash Flows presented on pages 6 and 7 has been prepared in accordance with generally accepted accounting principles in Hong Kong ("HK GAAP"). The presentation of certain items in the Consolidated Statement of Cash Flows pursuant to HK GAAP differs from the presentation in accordance with U.S. Statement of Financial Accounting Standards No. 95 "Statement of Cash Flows" ("SFAS95"). The net cash flow from operating, investing and financing would have been the following had the Consolidated Statement of Cash Flow been presented in accordance with SFAS95:
1993 1994 1995 ---- ---- ---- HK$ HK$ HK$ Net cash provided by operating activities . . . 18,250 8,301 41,081 ------ ------- ------- Net cash used in investing activities . . . . . (4,670) (10,424) (77,517) ------ ------- ------- Net cash (used in) provided by financing activities . . . . . . . . . . . . (4,830) 17,212 23,336 ------ ------- -------
The following table summarizes the effect on net income of differences between H.K. GAAP and U.S. GAAP.
YEAR ENDED DECEMBER 31, ------------------------- 1993 1994 1995 ---- ---- ---- HK$ HK$ HK$ Net income as reported under H.K. GAAP . . . . . . . . . . . . . . . . . 5,382 16,514 24,474 U.S. GAAP material adjustments: Waiver of liabilities due to a shareholder - - (6,900) Pre-operating expenses . . . . . . . . . . - (144) (1,582) Amortisation of pre-operating expenses . . 54 Depreciation relating to the revaluation of investment properties . . . . . . 715 119 - Reinstatement of loan payable to a related company reclassified as capital . . . - 20,800 Tax effects . . . . . . . . . . . . . . . . - - - ----- ------ ------ Net income under U.S. GAAP . . . . . . . . . 6,097 37,289 16,046 ===== ====== ======
-22- 27 ASTRON GROUP LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Dollars in thousands) 20. SUMMARY OF DIFFERENCES BETWEEN HONG KONG AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES - continued The following table summarizes the effect on shareholders' equity of the differences between H.K. GAAP and U.S. GAAP.
As of December 31, ----------------------- 1993 1994 1995 ---- ---- ---- HK$ HK$ HK$ Shareholders' equity as reported under H.K. GAAP...................... 53,411 53,800 137,978 Approximate U.S. GAAP adjustments: Proposed dividend.................... 900 (900) - Revaluation of leasehold land........ - - (3,557) Revaluation of investment properties. (21,458) - - Reverse waiver of loan payable....... (20,800) - - Eliminate revaluation of investment property sold........................ - 21,458 - Reclassification of liabilities waived by a shareholder to additional paid in capital.......................... - - 6,900 U.S. GAAP net income adjustments..... 715 20,775 (8,428) Cumulative U.S. GAAP adjustments to shareholders' equity............. - (40,643) 690 ------- ------ ------- Approximate shareholders' equity under U.S. GAAP...................... 12,768 54,490 133,583 ------- ------ -------
- ---------------------------------------------------------------------------- - 23 - 28 (b) Pro forma Financial Information FLEXTRONICS INTERNATIONAL LTD. AND ASTRON GROUP LIMITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION (unaudited) On February 2, 1996, Flextronics International Ltd. (the "Company") acquired (the "Acquisition") all of the issued capital of Astron Group Limited, a private company limited by shares and incorporated in Hong Kong ("Astron"). The following unaudited pro forma condensed consolidated financial information reflects this business combination which will be accounted for under the purchase method of accounting. The pro forma condensed consolidated statements of operations assumes the acquisition had taken place at the beginning of the fiscal year ended March 31, 1995, whereas the pro forma condensed consolidated balance sheet assumes the acquisition took place on December 31, 1995. The pro forma information is based on historical statements of the Company and Astron for the fiscal periods indicated, based on the Company's results of operations for the fiscal year ended March 31, 1995 (audited) and for the nine months ended December 31, 1995 (unaudited) and Astron's results of operations for the year ended December 31, 1994 (audited) and for the nine months ended December 31, 1995 (unaudited). As the fiscal year ends of the two companies are not co-terminuus, different fiscal periods were used for the preparation of the pro forma financial statements. In addition, for purposes of the pro forma condensed financial statements, the financial statements of Astron Group Limited translated from Hong Kong dollars into U.S. dollars in accordance with Statement of Financial Accounting Standards No. 52, "Foreign Currency Translation". Accordingly all of Astron's assets and liabilities have been translated at the exchange rate prevailing at the balance sheet date and all income and expenditure items have been translated at the average rates for each of the years. As the exchange rate between the Hong Kong dollar and the U.S. dollar has been fixed, an exchange rate of HK$7.73 to $1.00, being the approximate rate of exchange from commercial banks throughout the relevant periods, has been used and no exchange differences arise on translation. The unaudited pro forma financial information does not purport to represent what the results of operations and the financial position of the Company would have actually been if the acquisition described above had in fact occurred on such date or the beginning of such period. Neither do they purport to project the results of operation and the financial position of the Company for any future date or period. The pro forma condensed financial statements should be read in conjunction with the accompanying notes to the pro forma condensed financial statements included elsewhere herein. 29 FLEXTRONICS INTERNATIONAL LIMITED AND ASTRON GROUP LIMITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)(UNAUDITED)
Nine months Nine months ended ended December 31, December 31, 1995 1995 ------------- ------------ Pro forma Flextronics Astron Group adjustment Pro forma International Limited (see Note 1) Combined ------------- ------------ ------------ ---------- Net Sales $322,645 $15,450 $ $338,095 Cost of sales 293,461 10,655 304,116 -------- ------- ------- -------- Gross profit 29,184 4,795 0 33,979 Selling, general and administrative expenses 13,255 4,740 17,995 Goodwill amortization 542 0 199(3) 741 Intangible assets amortization 241 0 999(3) 1,240 In-process research and development 29,000(4) 29,000 --------- ------- -------- -------- Operating income 15,146 55 (30,198) (14,997) Interest Income (expense) and other, (1,121) 131 (300)(8) (1,290) net -------- ------- ------- -------- Income (loss) before income taxes 14,025 186 (30,498) (16,287) Provision (Benefit) for income taxes 2,399 292 (260)(5) 2,431 -------- ------- -------- -------- Net income $ 11,626 $ (106) $(30,238) $(18,718) ======== ======= ======== ======== Net income per share $ 0.89 $ (1.34) ======== ======== Weighted average outstanding Ordinary shares and equivalents 13,130 14,016 ======== ========
30 FLEXTRONICS INTERNATIONAL LIMITED AND ASTRON GROUP LIMITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
Year ended Year ended December 31, March 31, 1995 1994 Pro forma Flextronics Astron Group adjustment Pro forma International Limited (see Note 1&2) Combined ------------- ------- ------------- -------- Net Sales $237,386 $17,962 $ $255,348 Cost of sales 214,865 10,713 225,578 -------- ------- --------- -------- Gross profit 22,521 7,249 0 29,770 Selling, general and administrative expenses 11,468 5,228 16,696 Goodwill amortization 510 0 238(3) 748 Intangible assets amortization 245 0 1,332(3) 1,577 In-process rResearch and development 91 0 29,000(4) 29,091 -------- ------- --------- --------- Operating income (loss) 10,207 2,021 (30,570) (18,342) Interest income (expense) and other, net (1,043) 3,136 (363)(8) 1,730 Merger expenses (816) 0 (816) Income (loss) from joint venture (729) 0 (729) -------- ------- --------- --------- Income (loss) before income taxes 7,619 5,157 (30,933) (18,157) Provision for income taxes 1,463 333 (346)(5) 1,450 -------- ------- --------- --------- Net income (loss) $ 6,156 $ 4,824 $(30,587) $(19,607) ======== ======= ========= ========= Net income/(loss) per share $ 0.51 $ (1.51) ======== ========= Weighted average outstanding Ordinary shares and equivalents 12,103 12,989 ======== =========
31 FLEXTRONICS INTERNATIONAL LIMITED AND ASTRON GROUP LIMITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (IN THOUSANDS) (UNAUDITED)
Flextronics Astron Group Pro Forma International Limited Adjustment Pro Forma December 31, 1995 December 31, 1995 (See Note 1 & 2) Combined ----------------- ----------------- ---------------- --------- ASSETS Current assets: Cash $ 8,403 $ 1,413 $ (8,703) $ 1,113 Accounts Receivable, net 79,229 3,558 82,787 Other current assets 7,276 2,502 9,778 Inventories, net 48,572 2,055 (141) 50,486 -------- ------- -------- -------- Total current assets 143,480 9,528 (8,844) 144,164 Property and equipment, net 41,054 13,848 54,902 Investments and other non-current assets 835 2,034 2,869 Intangible assets 585 253 10,911 11,749 Goodwill net of amortization 8,828 0 4,559 13,387 -------- ------- -------- -------- Total assets $194,782 $25,663 $ 6,626 $227,071 ======== ======= ======== ========
32 FLEXTRONICS INTERNATIONAL LIMITED AND ASTRON GROUP LIMITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (IN THOUSANDS) (UNAUDITED) LIABILITIES AND SHAREHOLDERS' EQUITY
Flextronics Astron Group Pro Forma International Limited Adjustment Pro Forma December 31, 1995 December 31, 1995 (See Note 1 & 2) Combined ----------------- ----------------- ---------------- --------- Current liabilities: Bank borrowings $ 10,330 $ 222 $ $ 10,552 Current portion of capital lease 5,242 0 5,242 Current portion of long term debt 1,003 65 10,000(2) 11,068 Accounts payable 60,424 7,173 67,597 Other current liabilities 8,848 95 700(2) 9,643 Income tax payable 3,089 120 3,209 -------- ------- ---------- --------- Total current liabilities 88,936 7,675 10,700 107,311 Non-current liabilities: Bank borrowings -- -- 5,037(7) 5,037 Capital lease, less current portion 8,579 0 8,579 Long term debt, less current portion 2,817 0 5,000(2) 7,817 Notes Payable to shareholders 679 0 679 Other payable 24,124(6) 24,124 Deferred income tax 561 222 2,777 3,560 -------- ------- ---------- --------- Total liabilities 101,572 7,897 47,638 157,107 -------- ------- ---------- --------- Minority Interest 0 485 485 Shareholders equity: Ordinary shares 82 873 (871) 84 Additional paid-in capital 86,740 8,655 (2,150) 93,245 Retained earnings 6,388 7,121 (37,359) (23,830) Reserves 0 632 (632) 0 -------- ------- ---------- --------- Total shareholders' equity 93,210 17,281 (41,012) 69,479 -------- ------- ---------- --------- Total liabilities and shareholders' $194,782 $25,663 $ 6,626 $ 227,071 equity ======== ======= ========== =========
33 FLEXTRONICS INTERNATIONAL LTD. AND ASTRON GROUP LIMITED NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION (unaudited) 1. The accounts of the Astron Group Limited are presented in accordance with U.S. GAAP. Balance sheet accounts are translated into the U.S. dollar at the spot or historical rate as appropriate. Profit and loss accounts are translated at the average rate. 2. On February 2, 1996, the Company acquired Astron Group limited. The pro forma condensed consolidated balance sheet reflects the acquisition of Astron Group Limited by way of $13,440,605 in cash; issuance of 238,684 Ordinary Shares (these shares were valued based on the Company's average market share price during the 21 trading days immediately preceding the acquisition resulting in a value of $6,507,000); issuance of a $10 million promissory note due one year after acquisition date and issuance of a $5 million promissory note due two years after acquisition date. The promissory notes shall bear interest at the rate of 8% per annum. Additionally, the Company will issue $10 million of Ordinary Shares and pay approximately $14 million under the service agreement described below on June 30, 1998. Management has assessed the fair market value of Astron's identifiable assets and liabilities of $17.2 million and has recorded $11.9 million as identified intangible assets and $4.8 million as goodwill. Total costs to be incurred by the Company in connection with the acquisition are estimated at US$700,000. In connection with the Astron agreement, the Company has entered into a service agreement with the Chairman of Astron and an affiliated entity, which includes confidentiality provisions and a covenant not to compete. The agreement provides for a payment of approximately $14 million to be made on June 30, 1998. Of the $14 million, $5 million must be paid in cash. The remainder may be paid in either cash or Ordinary Shares at the discretion of the Company. The $14.0 million payment has been included in the calculation of Astron's purchase price. In addition, the Company will pay an earnout of up to $12.5 million contingent upon Astron Group Limited meeting certain pre-tax profit targets for calendar year 1996. The first $5 million of the earnout shall be paid in cash and the balance will be paid in cash or through the issuance of Ordinary Shares, at the discretion of the Company. In accordance with U.S. GAAP, the contingency will be recorded as purchase price when resolved. 3. Represents amortization of goodwill and identified intangible assets. In connection with the acquisition of Astron, and as if the acquisition was effected at the beginning of the period presented, the Company recorded $11.9 million of identified intangible assets and $4.8 of goodwill, and is amortizing these assets over their estimated useful lives of 7 to 25 years. 4. The Company engaged an independent valuation firm to aid in determining the fair market value of Astron Group Limited's research and development in process. ("In-Process R&D"). Based on this valuation and other factors, the Company determined that the fair value of the In-process R&D was $29 million. Accordingly, the Company wrote off $29 million of In-process R&D in fiscal 1996 and this amount was considered in the pro forma condensed income statement. 5. Reflects amortization of a deferred tax liability recognized by the Company in connection with the acquisition. 6. Other payable consists of $10.0 million in shares due to the former shareholders of Astron due June 30, 1998, and an accrued payment due to an affiliate of Stephen Rees, the Chairman and a former shareholder of Astron, of approximately $14 million, consisting of approximately $5.0 million in cash and $9.0 million payable in cash or the Company's Ordinary Shares, which the Company intends to pay in Ordinary Shares and has classified as a liability. 7. The proforma adjustments include additional bank borrowings of $5,037,000 assumed to be required to fund the acquisition. 8. Represents cash paid for interest on bank borrowings assumed to be required to fund the acquisition. See note 7. 34 (c) Exhibits 99.1 Letter dated August 18, 1997 of Deloitte Touche Tohmatsu 35 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant has duly caused this amendment to its report on Form 8-K to be signed on its behalf by the undersigned thereunto duly authorized. FLEXTRONICS INTERNATIONAL LTD. Date: August 26, 1997 By: /s/ Michael E. Marks ------------------------------------ Michael E. Marks Chairman and Chief Executive Officer EX-99.1 2 LETTER DATED AUGUST 18, 1997 OF DELOITTE TOUCHE 1 EXHIBIT 99.1 [DELOITTE TOUCHE TOHMATSU LETTERHEAD] August 18, 1997 Flextronics International Ltd. 514 Chai Chee Lane #04-13 Singapore 469029 Dear Sirs, Our audit report dated March 12, 1997 states that the audit of Astron Group Limited for the year ended December 31, 1995 was performed in accordance with generally accepted auditing standards in Hong Kong. Those standards do not differ from generally accepted auditing standards in the United States of America. Yours faithfully, /s/ DELOITTE TOUCHE TOHMATSU Deloitte Touche Tohmatsu Hong Kong -----END PRIVACY-ENHANCED MESSAGE-----