MULTI FINELINE ELECTRONIX INC - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - MULTI FINELINE ELECTRONIX INC	Financial_Report.xls
EX-32.1 - SECTION 906 CERTIFICATION BY THE COMPANY'S CEO AND PFO - MULTI FINELINE ELECTRONIX INC	d452160dex321.htm
EX-31.2 - SECTION 302 CERTIFICATION BY THE COMPANY'S PFO - MULTI FINELINE ELECTRONIX INC	d452160dex312.htm
EX-31.1 - SECTION 302 CERTIFICATION BY THE COMPANY'S CEO - MULTI FINELINE ELECTRONIX INC	d452160dex311.htm

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 December 31, 2012

¨	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

(Registrant’s 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.

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 registrant’s Common Stock, $0.0001 par value, as of January 31, 2013 was 23,779,841.

Multi-Fineline Electronix, Inc.

Index


PART I. FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Comprehensive Income	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17

Item 4.	Controls and Procedures	17

PART II. OTHER INFORMATION

Item 1A.	Risk Factors	18

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27

Item 6.	Exhibits	28

	Signatures	30

PART I. FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements

MULTI-FINELINE ELECTRONIX, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share Data)

(unaudited)


	December 31, 2012		September 30, 2012
ASSETS
Cash and cash equivalents	$	92,652	$	82,322
Accounts receivable, net of allowances of $2,639 and $2,254 at December 31, 2012 and September 30, 2012, respectively		215,169		165,408
Inventories		106,056		124,770
Deferred taxes		6,100		6,100
Income taxes receivable		2,428		2,586
Other current assets		14,886		10,531

Total current assets		437,291		391,717
Property, plant and equipment, net		267,470		274,886
Land use rights		7,670		7,030
Deferred taxes		8,671		8,622
Goodwill		7,537		7,537
Other assets		5,990		6,618

Total assets	$	734,629	$	696,410

LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	$	221,620	$	199,737
Accrued liabilities		39,218		33,718
Income taxes payable		2,819		2,393

Total current liabilities		263,657		235,848
Other liabilities		19,056		18,573

Total liabilities		282,713		254,421
Commitments and contingencies (Note 2)
Stockholders’ equity
Preferred stock, $0.0001 par value, 5,000,000 and 5,000,000 shares authorized at December 31, 2012 and September 30, 2012, respectively; 0 and 0 shares issued and outstanding at December 31, 2012 and September 30, 2012, respectively		—		—
Common stock, $0.0001 par value; 100,000,000 and 100,000,000 shares authorized at December 31, 2012 and September 30, 2012, respectively; 23,783,830 and 23,762,721 shares issued and outstanding at December 31, 2012 and September 30, 2012, respectively		2		2
Additional paid-in capital		82,213		82,847
Retained earnings		326,535		318,187
Accumulated other comprehensive income		43,166		40,953

Total stockholders’ equity		451,916		441,989

Total liabilities and stockholders’ equity	$	734,629	$	696,410

The accompanying notes are an integral part of these condensed consolidated financial statements.

MULTI-FINELINE ELECTRONIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands, Except Share and Per Share Data)

(unaudited)


	Three Months Ended December 31,
	2012			2011
Net sales	$	289,650		$	239,344
Cost of sales		264,947			210,182

Gross profit		24,703			29,162
Operating expenses:
Research and development		2,033			2,079
Sales and marketing		6,537			6,387
General and administrative		5,672			5,629
Impairment and restructuring		—			(565	)

Total operating expenses		14,242			13,530

Operating income		10,461			15,632
Other income (expense), net:
Interest income		70			292
Interest expense		(111	)		(154	)
Other income (expense), net		(15	)		471

Income before income taxes		10,405			16,241
Provision for income taxes		(2,057	)		(2,697	)

Net income	$	8,348		$	13,544

Other comprehensive income, net of tax:
Foreign currency translation adjustment		2,213			2,559

Total comprehensive income	$	10,561		$	16,103

Net income per share:
Basic	$	0.35		$	0.57

Diluted	$	0.35		$	0.56

Shares used in computing net income per share:
Basic		23,795,625			23,893,426
Diluted		24,027,518			24,151,979

The accompanying notes are an integral part of these condensed consolidated financial statements.

MULTI-FINELINE ELECTRONIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(unaudited)


	Three Months Ended December 31,
	2012			2011
Cash flows from operating activities
Net income	$	8,348		$	13,544
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		14,418			12,709
Provision for doubtful accounts and returns		1,932			1,799
Deferred taxes		(50	)		(3	)
Stock-based compensation expense		1,307			1,384
Income tax benefit related to stock option exercises		—			(17	)
Restructuring asset recoveries		—			(565	)
Loss on disposal of equipment		6			13
Changes in operating assets and liabilities:
Accounts receivable		(51,707	)		(42,525	)
Inventories		20,606			13,079
Other current assets		(4,473	)		(179	)
Other assets		22			742
Accounts payable		30,182			2,599
Accrued liabilities		6,674			(1,875	)
Income taxes payable		553			3,257
Other liabilities		639			1,777

Net cash provided by operating activities		28,457			5,739
Cash flows from investing activities
Purchases of property and equipment		(15,913	)		(20,346	)
Proceeds from sale of equipment		—			699

Net cash used in investing activities		(15,913	)		(19,647	)
Cash flows from financing activities
Income tax benefit related to stock option exercises		—			17
Tax withholdings for net share settlement of equity awards		(737	)		(800	)
Proceeds from exercise of stock options		29			35
Repurchase of common stock		(1,232	)		(7,860	)

Net cash used in financing activities		(1,940	)		(8,608	)
Effect of exchange rate changes on cash		(274	)		434

Net increase (decrease) in cash		10,330			(22,082	)
Cash and cash equivalents at the beginning of the period		82,322			97,890

Cash and cash equivalents at the end of the period	$	92,652		$	75,808

Non-cash investing activities
Purchases of property and equipment	$	6,056		$	7,147

The accompanying notes are an integral part of these condensed consolidated financial statements.

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 Company’s outstanding common stock as of each of December 31, 2012 and September 30, 2012, which provided WBL with control over the outcome of stockholder votes, except with respect to certain related-party transactions.

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”), formerly known as Pelikon Limited; 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 Company’s 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 months ended December 31, 2012 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).

Fair Value Measurements

The carrying amounts of certain of the Company’s 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 Company’s money market funds of $2,608 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 December 31, 2012 and September 30, 2012, respectively.

Inventories

Inventories, net of related allowances, were comprised of the following:


	December 31, 2012		September 30, 2012
Raw materials and supplies	$	25,486	$	34,265
Work-in-progress		18,653		30,186
Finished goods		61,917		60,319

	$	106,056	$	124,770

Property, Plant and Equipment

Property, plant and equipment, net, were comprised of the following:


	December 31, 2012			September 30, 2012
Building	$	68,908		$	68,252
Machinery and equipment		391,407			379,046
Computers and capitalized software		11,696			10,194
Leasehold improvements		13,887			13,686
Construction-in-progress		4,129			11,639

	$	490,027		$	482,817
Accumulated depreciation and amortization		(222,557	)		(207,931	)

	$	267,470		$	274,886

Product Warranty Accrual

Changes in the product warranty accrual for the three months ended December 31, 2012 and 2011 were as follows:


	Balance at October 1		Warranty Expenditures			Provision for Estimated Warranty Cost		Balance at December 31
Fiscal 2013	$	346	$	(401	)	$	370	$	315
Fiscal 2012	$	279	$	(512	)	$	707	$	474

Net Income Per Share—Basic and Diluted

The following table presents a reconciliation of basic and diluted shares for the three months ended December 31, 2012 and 2011:


	Three Months Ended December 31,
	2012		2011
Basic weighted-average number of common shares outstanding		23,795,625		23,893,426
Dilutive effect of potential common shares		231,893		258,553

Diluted weighted-average number of common and potential common shares outstanding		24,027,518		24,151,979

Potential common shares excluded from the per share computations as the effect of their inclusion would not be dilutive		543,245		401,242

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 Company’s 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 Company’s various facilities and commitments for material purchases, which totaled $8,697 and $9,092 as of December 31, 2012 and September 30, 2012, respectively.

Pursuant to the laws applicable to the Peoples’ Republic of China’s Foreign Investment Enterprises, the Company’s 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 December 31, 2012 and September 30, 2012 were $17,898 and $17,741, respectively.

Significant Concentrations

Net sales to the Company’s 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 December 31,
	2012			2011
OEM C		84	%		66	%
OEM D		7	%		27	%

The Company’s sales into its largest industry sectors, as a percentage of total sales, are presented below:


	Three Months Ended December 31,
	2012			2011
Smartphones		68	%		82	%
Tablets		24	%		17	%
Consumer electronics		7	%		0	%

3. Lines of Credit

In March 2012, 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 matured in October 2012.

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”) ($31,819 at December 31, 2012). 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 ($23,864 each at December 31, 2012). The lines of credit will mature in March 2013.

A summary of the lines of credit is as follows:


	Amounts Available at				Amounts Outstanding at
	December 31, 2012		September 30, 2012		December 31, 2012		September 30, 2012
Line of credit (BC)	$	—	$	11,000	$	—	$	—
Line of credit (JPM)		50,000		50,000		—		—
Line of credit (ABC)		31,819		31,541		—		—
Line of credit (CCB)		47,728		47,312		—		—

	$	129,547	$	139,853	$	—	$	—

As of December 31, 2012, the Company was in compliance with all covenants under the lines of credit.

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:


	Three Months Ended December 31,
	2012			2011
Net sales
United States	$	2,882		$	9,867
China		302,456			214,204
Singapore		285,101			229,422
Other		53			184
Eliminations		(300,842	)		(214,333	)

Total	$	289,650		$	239,344

Operating income (loss)
United States	$	(2,595	)	$	(1,214	)
China		10,965			3,730
Singapore		633			12,954
Other		(816	)		(737	)
Eliminations		2,274			899

Total	$	10,461		$	15,632

Depreciation and amortization
United States	$	650		$	728
China		13,702			11,908
Singapore		23			24
Other		43			49

Total	$	14,418		$	12,709


	December 31, 2012			September 30, 2012
Total assets
United States	$	129,760		$	149,484
China		441,814			448,759
Singapore		411,017			351,905
Other		5,131			5,057
Eliminations		(253,093	)		(258,795	)

Total	$	734,629		$	696,410

5. Stock-Based Compensation

Service and Performance-Based Restricted Stock Units

During the three months ended December 31, 2012 and 2011, the Company granted service-based restricted stock units (“RSUs”) under the Company’s Stock Incentive Plan (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 Company’s 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 Company’s 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 December 31, 2012, the Company considers the vesting of the December 2012 Awards to be probable.

On November 14, 2011, the Company granted 110,046 performance-based RSUs (the “November 2011 Awards”). The November 2011 Awards vest upon the achievement of defined performance objectives pertaining to such grants, with vesting to occur on or about November 15, 2014. During the fourth fiscal quarter of 2012, the Company determined that, while the performance conditions of the November 2011 Awards are still potentially achievable, the level of probability of achievement was deemed to be less than the Probability Threshold and as a result, the Company reversed $410 of compensation costs related to these awards.

RSU activity for the three months ended December 31, 2012 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		251,222			18.49
Vested		(128,544	)		22.31
Forfeited		(92,305	)		25.75

Non-vested shares outstanding at December 31, 2012		636,046		$	20.03

RSU details for the three months ended December 31, 2012 and 2011 are summarized as follows:


	Three Months Ended December 31,
	2012		2011
Service-based RSUs granted		179,191		160,029
Performance-based RSUs granted		72,031		110,046
Compensation cost recognized	$	1,009	$	1,156
Weighted-average grant-date fair value of non-vested RSUs granted	$	18.49	$	19.65
Weighted-average fair value of RSUs vested	$	22.31	$	20.25
Aggregate intrinsic value of RSUs vested	$	2,184	$	2,608

Unearned compensation as of December 31, 2012 was $7,310 related to non-vested RSUs, which will be recognized into expense over the weighted-average remaining contractual life of the non-vested RSUs of 1.6 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 Company’s 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).

The grant date fair values of the SSARs granted during each of the three months ended December 31, 2012 and 2011 were estimated using the Black-Scholes valuation pricing model with the following assumptions:


	Three Months Ended December 31,
	2012			2011
Risk-free interest rate		0.33	%		0.40	%
Expected dividends		—			—
Expected volatility		40.66	%		51.73	%
Expected term (in years)		3.43			3.40
Grant date fair value	$	5.32		$	7.25

SSAR activity for the three months ended December 31, 2012 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 December 31, 2012		695,673	$	19.96	$	1,230		8.3

SSARs exercisable at December 31, 2012		349,189	$	21.08	$	678		7.1

SSARs vested and expected to vest at December 31, 2012		676,081	$	20.00	$	1,192		8.2

SSARs details for the three months ended December 31, 2012 and 2011 are summarized as follows:


	Three Months Ended December 31,
	2012		2011
SSARs granted		216,092		141,107
Compensation cost recognized	$	298	$	228
Aggregate intrinsic value of SSARs exercised	$	—	$	—

Unearned compensation as of December 31, 2012 was $1,935 related to non-vested SSARs, which will be recognized into expense over a weighted-average period of 2.4 years.

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 Company’s common stock on the open market. These shares represented approximately five percent of the Company’s common stock outstanding as of December 31, 2012. 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 were retired.

7. Income Taxes

As of December 31, 2012, the liability for income taxes associated with uncertain tax positions increased to $15,550 from $15,423 as of September 30, 2012. As of December 31, 2012 and September 30, 2012, these liabilities can be reduced by $4,911 and $4,907, respectively, primarily from offsetting tax benefits associated with the correlative effects of potential transfer pricing adjustments. The resulting net amount of $10,639 at December 31, 2012 and $10,516 at September 30, 2012, if recognized, would favorably affect the Company’s effective tax rate. The Company anticipates that there will be changes to the unrecognized tax benefit associated with uncertain tax positions due to the expiration of statutes of limitation, payment of tax on amended returns, audit settlements and other changes in reserves. However, due to the uncertainty regarding the timing of these events, a current estimate of the range of changes that may occur within the next twelve months cannot be made.

The Company currently enjoys certain tax incentives for certain of its Asian operations. Certain Asian operations are subject to taxes at a rate lower than the statutory rates and for the three months ended December 31, 2012, the Company realized tax savings for these operations. However, these tax holidays and tax incentives may be challenged, modified or even eliminated by taxing authorities or change in law.

The Internal Revenue Service (“IRS”) is currently examining the Company’s income tax returns for fiscal years 2007 through 2010. On August 1, 2012, the Company received a Revenue Agent Report (the “Report”) from the IRS relating to its examination of the Company’s income tax returns for fiscal years 2007 and 2008. In the Report, the IRS has proposed adjustments primarily related to the Company’s valuation of intellectual property and intercompany cost sharing arrangement. The proposed adjustments would result in approximately $120 million of additional taxable income for those two years. Management believes there are numerous errors in the Report, does not agree with the proposed adjustments and has contested the proposed adjustments with the IRS Appeals Office. After reviewing the Report, management continues to believe that an adequate provision has been made for all of the Company’s uncertain tax positions. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with management’s 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 Company’s results of operations, cash flows and financial position if not resolved favorably.

8. Impairment and Restructuring

During the fourth fiscal quarter of 2011, the Company committed to a plan to relocate its corporate headquarters to a smaller location in Orange County, California (the “Relocation Plan”). As a result of the Relocation Plan, the Company completed the sale of certain of its machinery and equipment and incurred relocation costs. The Company recorded restructuring asset recoveries of $565 during the three months ended December 31, 2011. The recoveries related to the sale of certain of the Company’s machinery and equipment under the Relocation Plan were recorded as a reduction of impairment and restructuring in the condensed consolidated statements of comprehensive income.

No impairment or restructuring expenses or recoveries were recorded during the three months ended December 31, 2012.

Item 2.

Management’s 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, net 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 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 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 customer’s revenue to total revenues during any reporting period.

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 program’s 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 “Management’s 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 December 31, 2012 and 2011

The following table sets forth our Statement of Operations data expressed as a percentage of net sales for the periods indicated:


	Three Months Ended December 31,
	2012			2011
Net sales		100.0	%		100.0	%
Cost of sales		91.5			87.8

Gross profit		8.5			12.2
Operating expenses:
Research and development		0.7			0.9
Sales and marketing		2.2			2.7
General and administrative		2.0			2.3
Impairment and restructuring		—			(0.2	)

Total operating expenses		4.9			5.7

Operating income		3.6			6.5
Other income (expense), net:
Interest income		0.0			0.1
Interest expense		(0.0	)		(0.0	)
Other income (expense), net		0.0			0.1

Income before income taxes		3.6			6.7
Provision for income taxes		(0.7	)		(1.1	)

Net income		2.9	%		5.6	%

Net Sales. Net sales increased to $289.7 million for the three months ended December 31, 2012, from $239.3 million for the three months ended December 31, 2011. The increase of $50.4 million, or 21.1%, was primarily due to increased sales into our tablets and consumer electronics sectors, as further quantified below.

Net sales into our smartphones sector increased to $196.6 million for the three months ended December 31, 2012, from $195.1 million for the three months ended December 31, 2011. The increase of $1.5 million, or 0.8%, was primarily due to increased sales volumes to one major customer in this sector of 37.8%, partially offset by decreased sales volumes to another major customer in this sector of 70.5%. For the three months ended December 31, 2012 and 2011, our smartphones sector accounted for approximately 68% and 82% of total net sales, respectively.

Net sales into our tablets sector increased to $70.7 million for the three months ended December 31, 2012, from $39.8 million for the three months ended December 31, 2011. The increase of $30.9 million in sales into the tablets sector was due primarily to higher

unit sales volume of approximately 108%, partially offset by lower average sales prices of approximately 25% to one of our key customers in this sector. For the three months ended December 31, 2012, and 2011, the tablets sector accounted for approximately 24% and 17% of total net sales, respectively.

Net sales into our consumer electronics sector (which excludes net sales into our tablets sector) increased to $21.1 million for the three months ended December 31, 2012, versus less than $0.1 million for the three months ended December 31, 2011. 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 7% and 0% of total net sales for the three months ended December 31, 2012 and 2011, respectively.

Cost of Sales and Gross Profit. Cost of sales as a percentage of net sales increased to 91.5% for the three months ended December 31, 2012 versus 87.8% for the three months ended December 31, 2011. The increase in cost of sales as a percentage of net sales of 3.7% was primarily attributable to an increase of 220 basis points due to unfavorable product mix resulting from higher than expected sales of lower priced products during the quarter and an increase of 150 basis points from lower production volumes as factory build plans were substantially reduced in mid-December due to lower customer forecasts for our second fiscal quarter of 2013. Gross profit decreased to $24.7 million for the three months ended December 31, 2012, versus $29.2 million for the three months ended December 31, 2011, or 15.4%. As a percentage of net sales, gross profit decreased to 8.5% for the three months ended December 31, 2012 from 12.2% for the three months ended December 31, 2011.

Research and Development. Research and development expense decreased by $0.1 million to $2.0 million for the three months ended December 31, 2012, from $2.1 million for the three months ended December 31, 2011. As a percentage of net sales, research and development expense decreased to 0.7% versus 0.9% in the comparable period of the prior year.

Sales and Marketing. Sales and marketing expense increased by $0.1 million to $6.5 million for the three months ended December 31, 2012, from $6.4 million in the comparable period of the prior year, an increase of 1.6%. As a percentage of net sales, sales and marketing expense decreased to 2.2% versus 2.7% in the comparable period of the prior year.

General and Administrative. General and administrative expense increased by $0.1 million to $5.7 million for the three months ended December 31, 2012 from $5.6 million in the comparable period of the prior year, resulting in an increase of 1.8%. As a percentage of net sales, general and administrative expense decreased to 2.0% versus 2.3% in the comparable period of the prior year.

Impairment and Restructuring. Impairment and restructuring consisted of recoveries of $0.6 million for the three months ended December 31, 2011, which was the result of a gain on sale of certain of our previously impaired machinery and equipment in California.

Goodwill. Goodwill is tested for impairment annually during our fourth fiscal quarter unless a triggering event would require an expedited analysis. Adverse changes in operating results and/or unfavorable changes in economic factors used to estimate fair values could result in a non-cash impairment charge in the future. While management did not identify any triggering events through December 31, 2012 that would require an expedited impairment analysis, our current projections include assumptions regarding our future financial performance, which could negatively change and, which, in turn, could adversely impact the fair value of our goodwill and other long-lived assets. As a result, the reporting unit containing the goodwill could exceed its carrying value in future impairment tests.

Other Income (Expense), Net. Other income (expense), net decreased to an expense of less than $0.1 million for the three months ended December 31, 2012, from other income, net of $0.5 million for the three months ended December 31, 2011. This decrease was primarily due to no net gains from forward contracts as a result of our not entering into forward contracts in the first fiscal quarter of 2013, as well as 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 three months ended December 31, 2012 and 2011 was 19.8% and 16.6%, respectively. We expect future tax rates to vary if current tax regulations change.

Guidance

Net Sales. For our second quarter of fiscal 2013, we expect net sales to range between $180 and $200 million.

Cost of Sales and Gross Profit. For our second quarter of fiscal 2013, we expect gross margin to be slightly negative based on lower anticipated overhead absorption and unfavorable product mix.

Operating Expenses. We expect operating expenses to be approximately $12 million during the second fiscal quarter of 2013.

Income Taxes. We expect the effective tax rate, on average, to be approximately 20% for fiscal 2013.

Capital Expenditures. For fiscal 2013, we are anticipating approximately $80 to $85 million in capital expenditures for normal equipment replacement, investments in automation to reduce labor costs and program-specific equipment upgrades.

These projections are subject to substantial 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.

Changes in the principal components of operating cash flows during the three months ended December 31, 2012 were as follows:

•

Our net accounts receivable balance increased to $215.2 million as of December 31, 2012 from $165.4 million as of September 30, 2012, or 30.1%. Days sales outstanding on a quarterly basis decreased 7 days from September 30, 2012 to 67 days at December 31, 2012, primarily as the result of improved collections. Our net inventory balance decreased to $106.1 million as of December 31, 2012 from $124.8 million as of September 30, 2012, a decrease of 15.0%. Days in inventory on a quarterly basis decreased 23 days from September 30, 2012 to 36 days at December 31, 2012 as a result of increased pull-through of inventory from our hub locations from one of our major customers in December, coupled with decreased production at the end of December. Our accounts payable balance increased to $221.6 million as of December 31, 2012 from $199.7 million as of September 30, 2012, an increase of 11.0% due to the higher production volume in our first fiscal quarter of 2013. Days payable on a quarterly basis decreased 20 days to 75 days, primarily as a result of the timing of inventory purchases and more favorable vendor payment terms.

•

Depreciation and amortization expense was $14.4 million for the three month ended December 31, 2012, versus $12.7 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 three months ended December 31, 2012 were as follows:

•

Net cash used in investing activities was $15.9 million for the three months ended December 31, 2012 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 $1.9 million for the three months ended December 31, 2012 and consisted of repurchases of common stock of $1.2 million and $0.7 million of tax withholdings for net share settlements of equity awards to employees. Our loans payable and borrowings outstanding against credit facilities were zero at December 31, 2012 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 December 31, 2012, no amounts were outstanding under our loan agreements with JPMorgan Chase Bank, N.A., Agricultural Bank of China or China Construction Bank. 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 $286.9 million, or 99%, of total shipments to these foreign manufacturers during the three months ended December 31, 2012 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 6.30 RMB per U.S. dollar for the three months ended December 31, 2012. 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.

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 December 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

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 three months ended December 31, 2012, 2011 and 2010, approximately 68%, 82% and 93%, respectively, of our net sales were derived from sales to companies for products or services into our smartphone sector; approximately 24%, 17% and 2%, respectively, of our net sales derived from sales were to companies for products or services into our tablet sector; and approximately 7%, 0% and 4%, 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 first quarter of fiscal 2013, approximately 84% 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. 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 customer’s 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 competitor’s 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.

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 and/or increase our expenses.

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. 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 and 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.

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 product’s life cycle, we rely primarily on higher sales volume and improving our manufacturing yield and productivity to reduce a product’s cost. If we cannot reduce our manufacturing costs as prices decline during a product’s 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.

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.

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 recently 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:

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political unrest, terrorism and economic or financial instability;

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restrictions on our ability to repatriate earnings;

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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;

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nationalization programs that may be implemented by foreign governments;

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import-export regulations;

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difficulties in enforcing agreements and collecting receivables;

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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;

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difficulties in ensuring that health, safety, environmental and other working conditions are properly implemented and/or maintained by the local office;

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changes in labor practices, including wage inflation, frequent and extremely high increases in the minimum wage, labor unrest and unionization policies;

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limited intellectual property protection;

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longer payment cycles by international customers;

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currency exchange fluctuations;

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inadequate local infrastructure and disruptions of service from utilities or telecommunications providers, including electricity shortages;

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transportation delays and difficulties in managing international distribution channels;

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difficulties in staffing foreign subsidiaries and in managing an expatriate workforce;

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potentially adverse tax consequences;

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differing employment practices and labor issues;

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the occurrence of natural disasters, such as earthquakes, floods or other acts of force majeure; and

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public health emergencies such as SARS, avian flu and Swine flu.

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 China’s government. Given the changes occurring in China’s 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 Japan’s 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:

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managing multiple, concurrent major manufacturing expansion projects;

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hiring and retaining employees, particularly in China;

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accurately predicting any increases or decreases in demand for our products and managing our manufacturing capacity appropriately;

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under-utilized capacity, particularly during the start-up phase of a new manufacturing facility and the effects on our gross margin of under-utilization;

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managing increased employment costs and scrap rates often associated with periods of growth;

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implementing, integrating and improving operational and financial systems, procedures and controls, including our computer systems;

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construction delays, equipment delays or shortages, labor shortages and disputes and production start-up problems;

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cost overruns and charges related to our expansion activities; and

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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.

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. WBL’s 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 WBL’s 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 WBL’s 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 WBL’s stockholders or the relevant regulators may not approve the proposed corporate action.

WBL’s 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 WBL’s stockholder approval may delay our proposed action and it is possible that WBL’s 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.

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, WBL’s 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 WBL’s 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. For example, on August 1, 2012, we received a Revenue Agent Report (the “Report”) from the Internal Revenue Service (“IRS”) relating to its examination of our income tax returns for fiscal years 2007 and 2008. In the Report, the IRS proposed adjustments primarily related to our valuation of intellectual property and intercompany cost sharing arrangement. The proposed adjustments would result in approximately $120 million of additional taxable income for those two years. Management believes there are numerous errors in the Report, does not agree with the proposed adjustments and has vigorously contested the proposed adjustments. After reviewing the Report, management continues to believe that an adequate provision has been made for all of our uncertain tax positions. However, 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 management’s 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.

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.

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 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 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 partnerships involve numerous risks, including:

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difficulties in integrating operations, technologies, accounting and personnel;

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problems maintaining uniform standards, procedures, controls and policies;

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difficulties in supporting and transitioning customers of our acquired companies;

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diversion of financial and management resources from existing operations;

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potential costs incurred in executing on such a transaction, including any necessary debt or equity financing;

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risks associated with entering new markets in which we have no or limited prior experience;

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potential loss of key employees; and

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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.

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 January 1, 2012 through December 31, 2012, our common stock price closed between $15.31 and $29.51 per share. Factors that could affect the trading price of our common stock include, but are not limited to:

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fluctuations in our financial results;

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the limited size of our public float;

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announcements of technological innovations or events affecting companies in our industry;

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changes in the estimates of our financial results;

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changes in the recommendations of any securities analysts that elect to follow our common stock; and

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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 December 31, 2012, 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.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

The following table presents stock repurchases by month during the first quarter of fiscal 2013:


Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs⁽¹⁾
12/01/2012 – 12/31/2012		65,496	$	18.81		553,896		546,104

⁽¹⁾

Our Board of Directors has provided a committee with the discretion to execute a share repurchase program for up to 1,100,000 shares in the aggregate of our common stock on the open market. This amount represented approximately five percent of our common stock outstanding as of December 31, 2012. On December 3, 2012, we entered into a 10b5-1 Repurchase Plan Agreement, providing for the repurchase of up to 200,000 of such shares. 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 $1.4 million. The 10b5-1 Repurchase Plan Agreement expired on December 31, 2012.

Item 6.

Exhibits



3.2⁽¹⁾		Restated Certificate of Incorporation of the Company.

3.4⁽²⁾		Amended and Restated Bylaws of the Company.

4.1⁽¹⁾		Form of Common Stock Certificate.

4.2⁽¹⁵⁾		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.

10.1⁽¹⁾⁽³⁾		Form of Indemnification Agreement between the Company and its officers, directors and agents.

10.20⁽⁴⁾		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.

10.45⁽⁵⁾⁽³⁾		Form of Stock Appreciation Rights Agreement.

10.57⁽⁶⁾⁽³⁾		Form of Restricted Stock Unit Agreement.

10.60⁽⁷⁾		Line of Credit Agreement between Multi-Fineline Electronix (Suzhou) Co., Ltd., and China Construction Bank, Suzhou Industry Park Sub-Branch dated March 29, 2010.

10.61⁽⁷⁾		Facility Offer Letter between Multi-Fineline Electronix (Suzhou) Co., Ltd., and China Construction Bank, Suzhou Industry Park Sub-Branch dated March 29, 2010.

10.62⁽⁷⁾		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.

10.63⁽⁷⁾		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.

10.67⁽⁸⁾		Line of General Credit Agreement between MFLEX Suzhou Co., Ltd. and Agricultural Bank of China, Suzhou Wuzhong Sub-branch dated July 31, 2010.

10.68⁽⁸⁾		Facility Offer Letter between MFLEX Suzhou Co., Ltd., and Agricultural Bank of China, Suzhou Wuzhong Sub-branch dated July 31, 2010.³/₄

10.70⁽⁹⁾		Agreement for Sales of Buildings in Stock by and between Wearnes Global (Suzhou) Co., Ltd. and MFLEX Suzhou Co., Ltd. dated January 6, 2011.

10.71⁽⁹⁾		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.

10.72⁽⁹⁾		Guarantee Letter by Wearnes Global (Suzhou) Co., Ltd. dated January 6, 2011.

10.73⁽⁹⁾		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.

10.74⁽¹⁰⁾		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.

10.76⁽¹¹⁾		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.

10.77⁽¹¹⁾		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).

10.78^(11)(3)		Change in Control Plan.

10.79^(11)(3)		Amended and Restated 2004 Stock Incentive Plan.

10.80⁽¹²⁾		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.



10.81⁽¹²⁾		Facility Offer Letter between MFLEX Chengdu Co., Ltd. and Bank of China Co., Ltd. Chengdu Development West Zone Sub-Branch dated March 23, 2012.

10.82⁽¹²⁾		Master Development and Supply Agreement by and between Apple Computer, Inc. and Multi-Fineline Electronix, Inc. dated May 2, 2012.

10.83^(14)(3)		Executive Officer Tax Audit Reimbursement Plan

31.1*		Section 302 Certification by the Company’s chief executive officer.

31.2*		Section 302 Certification by the Company’s principal financial officer.

32.1*		Section 906 Certification by the Company’s chief executive officer and principal financial officer.

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.

*	Filed herewith

**	Furnished, not filed

⁽¹⁾	Incorporated by reference to exhibits (with same exhibit numbers) to the Company’s Registration Statement on Form S-1, as amended (File No. 333-114510) declared effective by the Securities and Exchange Commission (“SEC”), on June 24, 2004.

⁽²⁾	Incorporated by reference to an exhibit (with same exhibit number) to the Company’s Current Report on Form 8-K filed with the SEC on December 8, 2009.

⁽³⁾	Indicates management contract or compensatory plan.

⁽⁴⁾	Incorporated by reference to exhibit (with same exhibit number) to the Company’s Current Report on Form 8-K filed with the SEC on October 25, 2005 (File No. 000-50812).

⁽⁵⁾	Incorporated by reference to exhibit (with same exhibit number) to the Company’s Annual Report on Form 10-K filed with the SEC for the year ended September 30, 2008.

⁽⁶⁾	Incorporated by reference to exhibits (with same exhibit numbers) to the Company’s Annual Report on Form 10-K filed with the SEC for the year ended September 30, 2009.

⁽⁷⁾	Incorporated by reference to exhibits (with same exhibit numbers) to the Company’s Current Report on Form 8-K filed with the SEC on April 1, 2010.

⁽⁸⁾	Incorporated by reference to exhibits (with same exhibit numbers) to the Company’s Quarterly Report on Form 10-Q filed with the SEC for the quarter ended June 30, 2010.

⁽⁹⁾	Incorporated by reference to exhibits (with same exhibit numbers) to the Company’s Quarterly Report on Form 10-Q filed with the SEC for the quarter ended December 31, 2010.

⁽¹⁰⁾	Incorporated by reference to exhibits (with same exhibit numbers) to the Company’s Quarterly Report on Form 10-Q filed with the SEC for the quarter ended March 31, 2011.

⁽¹¹⁾	Incorporated by reference to exhibits to the Company’s Current Reports on Form 8-K filed with the SEC on January 19, 2012.

⁽¹²⁾	Incorporated by reference to exhibits (with same exhibit numbers) to the Company’s Current Report on Form 8-K filed with the SEC on March 27, 2012.

⁽¹³⁾	Incorporated by reference to exhibit (with same exhibit number) to the Company’s Quarterly Report on Form 10-Q filed with the SEC for the quarter ended March 31, 2012. Confidential treatment has been granted for certain portions of this agreement.

⁽¹⁴⁾	Incorporated by reference to exhibit (with same exhibit number) to the Company’s Quarterly Report on Form 10-Q filed with the SEC for the quarter ended June 30, 2012.

⁽¹⁵⁾	Incorporated by reference to exhibit number 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 3, 2012.

SIGNATURE

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.

EXHIBIT INDEX


3.2⁽¹⁾		Restated Certificate of Incorporation of the Company.

3.4⁽²⁾		Amended and Restated Bylaws of the Company.

4.1⁽¹⁾		Form of Common Stock Certificate.

4.2⁽¹⁵⁾		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.

10.1⁽¹⁾⁽³⁾		Form of Indemnification Agreement between the Company and its officers, directors and agents.

10.20⁽⁴⁾		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.

10.45⁽⁵⁾⁽³⁾		Form of Stock Appreciation Rights Agreement.

10.57⁽⁶⁾⁽³⁾		Form of Restricted Stock Unit Agreement.

10.60⁽⁷⁾		Line of Credit Agreement between Multi-Fineline Electronix (Suzhou) Co., Ltd., and China Construction Bank, Suzhou Industry Park Sub-Branch dated March 29, 2010.

10.61⁽⁷⁾		Facility Offer Letter between Multi-Fineline Electronix (Suzhou) Co., Ltd., and China Construction Bank, Suzhou Industry Park Sub-Branch dated March 29, 2010.

10.62⁽⁷⁾		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.

10.63⁽⁷⁾		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.

10.67⁽⁸⁾		Line of General Credit Agreement between MFLEX Suzhou Co., Ltd. and Agricultural Bank of China, Suzhou Wuzhong Sub-branch dated July 31, 2010.

10.68⁽⁸⁾		Facility Offer Letter between MFLEX Suzhou Co., Ltd., and Agricultural Bank of China, Suzhou Wuzhong Sub-branch dated July 31, 2010.

10.70⁽⁹⁾		Agreement for Sales of Buildings in Stock by and between Wearnes Global (Suzhou) Co., Ltd. and MFLEX Suzhou Co., Ltd. dated January 6, 2011.

10.71⁽⁹⁾		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.

10.72⁽⁹⁾		Guarantee Letter by Wearnes Global (Suzhou) Co., Ltd. dated January 6, 2011.

10.73⁽⁹⁾		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.

10.74⁽¹⁰⁾		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.

10.76⁽¹¹⁾		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.

10.77⁽¹¹⁾		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).

10.78^(11)(3)		Change in Control Plan.

10.79^(11)(3)		Amended and Restated 2004 Stock Incentive Plan.

10.80⁽¹²⁾		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.



10.81⁽¹²⁾		Facility Offer Letter between MFLEX Chengdu Co., Ltd. and Bank of China Co., Ltd. Chengdu Development West Zone Sub-Branch dated March 23, 2012.

10.82⁽¹³⁾		Master Development and Supply Agreement by and between Apple Computer, Inc. and Multi-Fineline Electronix, Inc. dated May 2, 2012.

10.83^(14)(3)		Executive Officer Tax Audit Reimbursement Plan

31.1*		Section 302 Certification by the Company’s chief executive officer.

31.2*		Section 302 Certification by the Company’s principal financial officer.

32.1*		Section 906 Certification by the Company’s chief executive officer and principal financial officer.

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.

*	Filed herewith

**	Furnished, not filed

(1)	Incorporated by reference to exhibits (with same exhibit numbers) to the Company’s Registration Statement on Form S-1, as amended (File No. 333-114510) declared effective by the Securities and Exchange Commission (“SEC”), on June 24, 2004.

(2)	Incorporated by reference to an exhibit (with same exhibit number) to the Company’s Current Report on Form 8-K filed with the SEC on December 8, 2009.

(3)	Indicates management contract or compensatory plan.

(4)	Incorporated by reference to exhibit (with same exhibit number) to the Company’s Current Report on Form 8-K filed with the SEC on October 25, 2005 (File No. 000-50812).

(5)	Incorporated by reference to exhibit (with same exhibit number) to the Company’s Annual Report on Form 10-K filed with the SEC for the year ended September 30, 2008.

(6)	Incorporated by reference to exhibits (with same exhibit numbers) to the Company’s Annual Report on Form 10-K filed with the SEC for the year ended September 30, 2009.

(7)	Incorporated by reference to exhibits (with same exhibit numbers) to the Company’s Current Report on Form 8-K filed with the SEC on April 1, 2010.

(8)	Incorporated by reference to exhibits (with same exhibit numbers) to the Company’s Quarterly Report on Form 10-Q filed with the SEC for the quarter ended June 30, 2010.

(9)	Incorporated by reference to exhibits (with same exhibit numbers) to the Company’s Quarterly Report on Form 10-Q filed with the SEC for the quarter ended December 31, 2010.

(10)	Incorporated by reference to exhibits (with same exhibit numbers) to the Company’s Quarterly Report on Form 10-Q filed with the SEC for the quarter ended March 31, 2011.

(11)	Incorporated by reference to exhibits to the Company’s Current Reports on Form 8-K filed with the SEC on January 19, 2012.

(12)	Incorporated by reference to exhibits (with same exhibit numbers) to the Company’s Current Report on Form 8-K filed with the SEC on March 27, 2012.

(13)	Incorporated by reference to exhibit (with same exhibit number) to the Company’s Quarterly Report on Form 10-Q filed with the SEC for the quarter ended March 31, 2012. Confidential treatment has been granted for certain portions of this agreement.

(14)	Incorporated by reference to exhibit (with same exhibit number) to the Company’s Quarterly Report on Form 10-Q filed with the SEC for the quarter ended June 30, 2012.

(15)	Incorporated by reference to exhibit number 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 3, 2012.

Large accelerated filer

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Smaller reporting company