Flextronics Reports Second Quarter Results

(US$ in millions, except WASO and EPS)

Three Month Periods Ended

September 26

June 27

September 27

2014

2014

2013

Net sales

$

6,529

$

6,643

$

6,410

Adjusted operating income

$

183

$

183

$

159

GAAP operating income

$

172

$

172

$

150

Adjusted income

$

157

$

148

$

134

GAAP income

$

139

$

174

$

118

Adjusted EPS

$

0.26

$

0.25

$

0.22

GAAP EPS

$

0.23

$

0.29

$

0.19

WASO (millions)

596

601

624

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

September 26, 2014

June 27, 2014

September 27, 2013

GAAP:

Net sales

$

6,528,517

$

6,642,745

$

6,410,106

Cost of sales

6,151,436

6,261,960

6,041,683

      Gross profit

377,081

380,785

368,423

Selling, general and administrative expenses

204,590

209,277

218,500

      Operating income

172,491

171,508

149,923

Intangible amortization

8,232

6,951

7,718

Interest and other, net

12,506

18,637

14,601

Other charges (income), net

(2,584)

(44,009)

(1,000)

      Income before income taxes

154,337

189,929

128,604

Provision for income taxes

15,434

16,042

10,399

     Net income

$

138,903

$

173,887

$

118,205

EPS:

Net income:

GAAP

$

0.23

$

0.29

$

0.19

Non-GAAP

$

0.26

$

0.25

$

0.22

Diluted shares used in computing per share amounts

595,871

601,300

623,620

SCHEDULE II

FLEXTRONICS INTERNATIONAL LTD.

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

(In thousands, except per share amounts)

Three Month Periods Ended

September 26, 2014

June 27, 2014

September 27, 2013

GAAP gross profit

$

377,081

$

380,785

$

368,423

     Stock-based compensation expense

1,868

1,611

1,866

Non-GAAP gross profit

$

378,949

$

382,396

$

370,289

GAAP SG&A Expenses

$

204,590

$

209,277

$

218,500

     Stock-based compensation expense

9,051

10,071

6,851

Non-GAAP SG&A Expenses

$

195,539

$

199,206

$

211,649

GAAP operating income

$

172,491

$

171,508

$

149,923

     Stock-based compensation expense

10,919

11,682

8,717

Non-GAAP operating income

$

183,410

$

183,190

$

158,640

GAAP provision for income taxes

$

15,434

$

16,042

$

10,399

     Intangible amortization benefit

1,177

167

329

Non-GAAP provision for income taxes

$

16,611

$

16,209

$

10,728

GAAP net income

$

138,903

$

173,887

$

118,205

     Stock-based compensation expense

10,919

11,682

8,717

     Intangible amortization

8,232

6,951

7,718

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

-

(44,009)

-

     Adjustments for taxes

(1,177)

(167)

(329)

Non-GAAP net income

$

156,877

$

148,344

$

134,311

EPS:

Net income:

GAAP

$

0.23

$

0.29

$

0.19

Non-GAAP

$

0.26

$

0.25

$

0.22

SCHEDULE III

FLEXTRONICS INTERNATIONAL LTD.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

September 26, 2014

March 31, 2014

ASSETS

Current Assets:

Cash and cash equivalents

$

1,514,352

$

1,593,728

Accounts receivable, net

2,526,880

2,697,985

Inventories

3,626,640

3,599,008

Other current assets

1,211,188

1,509,605

Total current assets

8,879,060

9,400,326

Property and equipment, net

2,193,966

2,288,656

Goodwill and other intangible assets, net

413,237

377,218

Other assets

433,610

433,950

Total assets

$

11,919,873

$

12,500,150

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:

Bank borrowings and current portion of  long-term debt

$

45,579

$

32,575

Accounts payable

4,693,526

4,747,779

Other current liabilities

2,317,170

2,876,333

Total current liabilities

7,056,275

7,656,687

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

Term Loans

1,053,750

1,067,500

Other long-term debt

9,176

2,520

Other liabilities

457,818

571,764

Total shareholders' equity

2,342,854

2,201,679

Total liabilities and shareholders' equity

$

11,919,873

$

12,500,150

SCHEDULE IV

FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARIES  

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 net income and non-GAAP net income per diluted share.  These supplemental measures exclude stock-based compensation expense, restructuring charges, 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'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 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 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.

Other charges (income), net – see notes (2) and (3) below

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 three-month period ended September 26, 2014, Free Cash Flow was $322 million consisting of GAAP net cash flows from operating activities of $387 million less purchases of property and equipment net of dispositions of $65 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 $55.0 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 $55.0 million obligation. Accordingly, the Company reversed this charge with a corresponding credit to other income, included in other charges (income), net with no impact to cash.

(3)

During the first quarter of fiscal 2015, the Company recognized a loss of $11.0 million in connection with the disposition of a certain manufacturing facility, which is included in other charges (income), net.