Flextronics Reports First Quarter Results

(US$ in millions, except EPS)

Three Month Periods Ended

June 28,

March 31,

June 29,

Continuing Operations:

2013

2013

2012

Net sales

$

5,791

$

5,295

$

5,976

Adjusted operating income

$

137

$

106

$

177

Restructuring charges

$

(41)

$

(125)

$

-

GAAP operating income (loss)

$

87

$

(27)

$

167

Adjusted income from continuing operations

$

112

$

86

$

154

GAAP income (loss) from continuing operations

$

59

$

(49)

$

137

Adjusted EPS

$

0.18

$

0.13

$

0.22

EPS impact from restructuring charges

$

(0.06)

$

(0.18)

$

-

GAAP EPS

$

0.09

$

(0.08)

$

0.20

WASO

640

664

688

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 28, 2013

March 31, 2013

June 29, 2012

GAAP:

Net sales

$

5,791,125

$

5,295,318

$

5,975,995

Cost of sales

5,444,964

4,982,142

5,618,638

Restructuring charges

35,126

117,519

-

      Gross profit

311,035

195,657

357,357

Selling, general and administrative expenses

217,985

215,484

190,344

Restructuring charges

5,634

7,224

-

      Operating income (loss)

87,416

(27,051)

167,013

Intangible amortization

8,202

8,318

7,809

Interest and other expense, net

19,684

7,823

10,785

      Income (loss) from continuing operations before income
      taxes

59,530

(43,192)

148,419

Provision for income taxes

273

6,124

11,650

     Income (loss) from continuing operations

59,257

136,769

     Loss from discontinued operations, net of tax

-

-

(8,297)

     Net income (loss)

$

59,257

$

(49,316)

$

128,472

EPS ⁽²⁾:

Income (loss) from continuing operations:

GAAP

$

0.09

$

(0.08)

$

0.20

Non-GAAP

$

0.18

$

0.13

$

0.22

Loss from discontinued operations:

GAAP

$

-

$

-

$

(0.01)

Non-GAAP

$

-

$

-

$

(0.01)

Net income (loss):

GAAP

$

0.09

$

(0.08)

$

0.19

Non-GAAP

$

0.18

$

0.13

$

0.21

Weighted-average basic shares used in computing per share
amounts

626,120

650,938

675,366

Weighted-average diluted shares used in computing per share
amounts

639,899

664,301

688,256

SCHEDULE II

FLEXTRONICS INTERNATIONAL LTD.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(In thousands, except per share amounts)

Three Month Periods Ended

June 28,

2013

March 31,

2013

June 29,

2012

GAAP gross profit

$

311,035

$

195,657

$

357,357

     Stock-based compensation expense

1,352

1,118

1,457

     Restructuring charges

35,126

117,519

-

Non-GAAP gross profit

$

347,513

$

314,294

$

358,814

GAAP SG&A Expenses

$

217,985

$

215,484

$

190,344

     Stock-based compensation expense

7,237

6,703

8,361

Non-GAAP SG&A Expenses

$

210,748

$

208,781

$

181,983

GAAP operating income (loss)

$

87,416

$

(27,051)

$

167,013

     Stock-based compensation expense

8,589

7,821

9,818

     Restructuring charges

40,760

124,743

-

Non-GAAP operating income

$

136,765

$

105,513

$

176,831

GAAP provision for income taxes

$

273

$

6,124

$

11,650

     Intangible amortization benefit

329

200

308

     Restructuring charges

4,048

5,083

-

Non-GAAP provision for income taxes

$

4,650

$

11,407

$

11,958

GAAP income (loss) from continuing operations

$

59,257

$

(49,316)

$

136,769

     Stock-based compensation expense

8,589

7,821

9,818

     Intangible amortization

8,202

8,318

7,809

     Restructuring charges

40,760

124,743

-

     Adjustments for taxes

(4,377)

(5,283)

(308)

Non-GAAP income from continuing operations

$

112,431

$

86,283

$

154,088

GAAP net income

$

59,257

$

(49,316)

$

128,472

     Stock-based compensation expense

8,589

7,821

9,818

     Intangible amortization

8,202

8,318

8,840

     Restructuring charges

40,760

124,743

-

     Adjustments for taxes

(4,377)

(5,283)

(308)

Non-GAAP net income

$

112,431

$

86,283

$

146,822

EPS ⁽²⁾:

Income (loss) from continuing operations:

GAAP

$

0.09

$

(0.08)

$

0.20

Non-GAAP

$

0.18

$

0.13

$

0.22

Loss from discontinued operations:

GAAP

$

-

$

-

$

(0.01)

Non-GAAP

$

-

$

-

$

(0.01)

Net income (loss):

GAAP

$

0.09

$

(0.08)

$

0.19

Non-GAAP

$

0.18

$

0.13

$

0.21

SCHEDULE III

FLEXTRONICS INTERNATIONAL LTD.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

June 28, 2013

March 31, 2013

ASSETS

Current Assets:

Cash and cash equivalents

$

1,279,574

$

1,587,087

Accounts receivable, net

2,480,022

2,111,996

Inventories

3,152,397

2,722,500

Other current assets

1,316,475

1,349,818

Total current assets

8,228,468

7,771,401

Property and equipment, net

2,278,266

2,174,588

Goodwill and other intangible assets, net

348,665

343,552

Other assets

313,525

302,014

Total assets

$

11,168,924

$

10,591,555

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:

Bank borrowings and current portion of  long-term debt

$

409,860

$

416,654

Accounts payable

4,323,873

3,705,297

Other current liabilities

2,213,993

2,050,834

Total current liabilities

6,947,726

6,172,785

Long-term debt, net of current portion:

4.625% Notes (due 2020)

500,000

500,000

5.000% Notes (due 2023)

500,000

500,000

Term loans

645,682

646,135

Other long-term debt

4,854

4,838

Other liabilities

482,054

521,039

Total shareholders' equity

2,088,608

2,246,758

Total liabilities and shareholders' equity

$

11,168,924

$

10,591,555

SCHEDULE IV

FLEXTRONICS INTERNATIONAL LTD.

NOTES TO SCHEDULES I, II, & III

(1)

To supplement Flextronics's 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 income from continuing operations, non-GAAP net income and non-GAAP net income per diluted share.  These supplemental measures exclude stock-based compensation expense, restructuring charges, intangible amortization 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's 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 Company 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.

Restructuring charges include severance, asset impairment, lease termination, contract and product exit costs and other charges primarily related to the closures and consolidations of various manufacturing facilities. These costs may vary in size based on the Company's restructuring activities, and are not directly related to ongoing or core business results, and do not reflect expected future operating expenses. These costs are excluded by the Company's management in assessing current operating performance and forecasting its earnings trends, and are therefore excluded by the Company from its non-GAAP measures.

Intangible amortization consists of non-cash charges that can be impacted by 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.

Free Cash Flow of $57 million for the first quarter ended June 28, 2013 consists of GAAP net cash flows from operating activities of $198 million less purchases of property and equipment net of dispositions of $141 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)

Weighted average ordinary shares used for calculating GAAP EPS were the same for basic and diluted due to the net loss for the quarter ended March 31, 2013.