Flextronics Reports First Quarter Fiscal 2016 Results

(US$ in millions, except EPS)

Three Month Periods Ended

June 26

March 31

June 27

2015

2015

2014

Net sales

$

5,566

$

5,952

$

6,643

Adjusted operating income

$

159

$

178

$

183

GAAP operating income

$

143

$

164

$

172

Adjusted net income

$

134

$

157

$

148

GAAP net income

$

111

$

135

$

174

Adjusted EPS

$

0.23

$

0.27

$

0.25

GAAP EPS

$

0.19

$

0.23

$

0.29

Renee Brotherton

Kevin Kessel

Corporate Communications

Investor Relations

(408) 576-7189

(408) 576-7985

[email protected]

[email protected]

SCHEDULE I

FLEXTRONICS INTERNATIONAL LTD.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

Three Month Periods Ended

June 26, 2015

March 31, 2015

June 27, 2014

GAAP:

Net sales

$

5,566,248

$

5,951,600

$

6,642,745

Cost of sales

5,213,907

5,572,783

6,261,960

      Gross profit

352,341

378,817

380,785

Selling, general and administrative expenses

209,385

214,613

209,277

      Operating income

142,956

164,204

171,508

Intangible amortization

7,671

8,807

6,951

Interest and other, net

16,505

11,232

18,637

Other charges (income), net

164

(11,707)

(44,009)

      Income before income taxes

118,616

155,872

189,929

Provision for income taxes

7,766

20,760

16,042

     Net income

$

110,850

$

135,112

$

173,887

EPS:

Net income:

GAAP

$

0.19

$

0.23

$

0.29

Non-GAAP

$

0.23

$

0.27

$

0.25

Diluted shares used in computing per share amounts

577,997

581,852

601,300

SCHEDULE II

FLEXTRONICS INTERNATIONAL LTD.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES ⁽¹⁾

(In thousands, except per share amounts)

Three Month Periods Ended

June 26,
2015

March 31,
2015

June 27,
2014

GAAP gross profit

$

352,341

$

378,817

$

380,785

     Stock-based compensation expense

2,018

1,941

1,611

Non-GAAP gross profit

$

354,359

$

380,758

$

382,396

GAAP SG&A Expenses

$

209,385

$

214,613

$

209,277

     Stock-based compensation expense

14,108

11,509

10,071

Non-GAAP SG&A Expenses

$

195,277

$

203,104

$

199,206

GAAP operating income

$

142,956

$

164,204

$

171,508

     Stock-based compensation expense

16,126

13,450

11,682

Non-GAAP operating income

$

159,082

$

177,654

$

183,190

GAAP provision for income taxes

$

7,766

$

20,760

$

16,042

     Intangible amortization benefit

258

215

167

Non-GAAP provision for income taxes

$

8,024

$

20,975

$

16,209

GAAP net income

$

110,850

$

135,112

$

173,887

     Stock-based compensation expense

16,126

13,450

11,682

     Intangible amortization

7,671

8,807

6,951

     Other charges (income), net (2)(3)

-

-

(44,009)

     Adjustments for taxes

(258)

(215)

(167)

Non-GAAP net income

$

134,389

$

157,154

$

148,344

EPS:

Net income:

GAAP

$

0.19

$

0.23

$

0.29

Non-GAAP

$

0.23

$

0.27

$

0.25

SCHEDULE III

FLEXTRONICS INTERNATIONAL LTD.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

June 26, 2015

March 31, 2015

ASSETS

Current Assets:

Cash and cash equivalents

$

2,331,411

$

1,628,408

Accounts receivable, net

2,137,255

2,337,515

Inventories

3,413,430

3,488,752

Other current assets

1,198,131

1,286,225

Total current assets

9,080,227

8,740,900

Property and equipment, net

2,143,221

2,092,167

Goodwill and other intangible assets, net

428,286

415,175

Other assets

448,446

417,382

Total assets

$

12,100,180

$

11,665,624

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:

Bank borrowings and current portion of  long-term debt

$

44,927

$

46,162

Accounts payable

4,336,913

4,561,194

Other current liabilities

2,114,388

2,148,867

Total current liabilities

6,496,228

6,756,223

Long-term debt, net of current portion:

Revolving credit facility

-

-

4.625% Notes (due 2020)

500,000

500,000

5.000% Notes (due 2023)

500,000

500,000

4.750% Notes (due 2025) (4)

595,278

-

Term Loans

1,027,500

1,027,500

Other long-term debt

9,360

10,071

Other liabilities

484,258

475,580

Total shareholders' equity

2,487,556

2,396,250

Total liabilities and shareholders' equity

$

12,100,180

$

11,665,624

SCHEDULE IV

FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARIES

NOTES TO SCHEDULES I, II, & III

(1)

To supplement Flextronics' unaudited selected financial data presented on a basis consistent with Generally Accepted Accounting Principles ("GAAP"), the Company discloses certain non-GAAP financial measures that exclude certain charges, including non-GAAP gross profit, non-GAAP selling, general and administrative expenses, non-GAAP operating income, non-GAAP net income and non-GAAP net income per diluted share.  These supplemental measures exclude stock-based compensation expense, intangible amortization, other discrete events as applicable and the related tax effects. These non-GAAP measures are not in accordance with or an alternative for GAAP, and may be different from non-GAAP measures used by other companies. We believe that these non-GAAP measures have limitations in that they do not reflect all of the amounts associated with Flextronics's results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate Flextronics' results of operations in conjunction with the corresponding GAAP measures. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP measures.  We compensate for the limitations of non-GAAP financial measures by relying upon GAAP results to gain a complete picture of the Company's performance. 

In calculating non-GAAP financial measures, we exclude certain items to facilitate a review of the comparability of the Company's operating performance on a period-to-period basis because such items are not, in our view, related to the Company's ongoing operational performance.  We use non-GAAP measures to evaluate the operating performance of our business, for comparison with forecasts and strategic plans, for calculating return on investment, and for benchmarking performance externally against competitors.  In addition, management's incentive compensation is determined using certain non-GAAP measures.  Also, when evaluating potential acquisitions, we exclude certain of the items described below from consideration of the target's performance and valuation.  Since we find these measures to be useful, we believe that investors benefit from seeing results "through the eyes" of management in addition to seeing GAAP results.  We believe that these non-GAAP measures, when read in conjunction with the Company's GAAP financials, provide useful information to investors by offering:

• the ability to make more meaningful period-to-period comparisons of the Company's on-going operating results;
• the ability to better identify trends in the Company's underlying business and perform related trend analyses;
• a better understanding of how management plans and measures the Company's underlying business; and
• an easier way to compare the Company's operating results against analyst financial models and operating results of competitors that supplement their GAAP results with non-GAAP financial measures.

The following are explanations of each of the adjustments that we incorporate into non-GAAP measures, as well as the reasons for excluding each of these individual items in the reconciliations of these non-GAAP financial measures:

Stock-based compensation expense consists of non-cash charges for the estimated fair value of stock options and unvested restricted share unit awards granted to employees and assumed in business acquisitions.  The Company believes that the exclusion of these charges provides for more accurate comparisons of its operating results to peer companies due to the varying available valuation methodologies, subjective assumptions and the variety of award types. In addition, the Company believes it is useful to investors to understand the specific impact stock-based compensation expense has on its operating results.

Intangible amortization consists primarily of non-cash charges that can be impacted by, among other things, the timing and magnitude of acquisitions.  The Company considers its operating results without these charges when evaluating its ongoing performance and forecasting its earnings trends, and therefore excludes such charges when presenting non-GAAP financial measures.  The Company believes that the assessment of its operations excluding these costs is relevant to its assessment of internal operations and comparisons to the performance of its competitors.

Adjustment for taxes relates to the tax effects of the various adjustments that we incorporate into non-GAAP measures in order to provide a more meaningful measure on non-GAAP net income and certain adjustments related to non-recurring settlements of tax contingencies.

For the first quarter ended June 26, 2015, Free Cash Flow was $225 million consisting of GAAP net cash flows from operating activities of $362 million less purchases of property and equipment, net of proceeds from dispositions, of $137 million. We believe Free Cash Flow is an important liquidity metric because it measures, during a given period, the amount of cash generated that is available to repay debt obligations, make investments, fund acquisitions and for certain other activities. Since Free Cash Flow includes investments in operating assets, we believe this non-GAAP liquidity measure is useful in addition to the most directly comparable GAAP measure – "net cash flows provided by operating activities."

(2)

In accordance with a manufacturing agreement, the Company recognized a $55 million charge for a contractual obligation during the quarter ended March 31, 2014. During the first quarter of fiscal 2015, an amendment was executed which included the removal of the $55 million obligation. Accordingly, the Company reversed this charge with a corresponding credit to other income, included in other (income) charges, net with no impact to cash.

(3)

During the first quarter of fiscal 2015, the Company recognized a loss of $11 million in connection with the disposition of a certain European manufacturing facility, which is included in other (income) charges, net.

(4)

During the first quarter of fiscal 2016, the Company issued $600 million of 4.750% Notes due in 2025 in a private offering pursuant to Rule 144A and Regulation S under the Securities Act, at a discount of 99.213%.