Flextronics Reports Third Quarter Results

(US$ in millions, except EPS)

Three Month Periods Ended

December 31,

December 31,

Y/Y

Continuing Operations:

2012

2011

Growth

Net sales

$             6,123

$             7,469

-18%

Adjusted operating income

$                146

$                153

-5%

Restructuring charges 

$               (103)

$                      -

GAAP operating income

$                  35

$                141

-75%

Adjusted net income

$                148

$                131

13%

GAAP net income

$                  32

$                106

-70%

Adjusted EPS 

$               0.22

$               0.18

22%

Adjusted EPS - restructuring charges 

$              (0.15)

$                      -

GAAP EPS 

$               0.05

$               0.15

-67%

An explanation and reconciliation of non-GAAP financial measures to GAAP financial measures
is presented in Schedule II attached to this press release.  

Renee Brotherton

Kevin Kessel

Corporate Communications

Investor Relations

(408) 576-7189

(408) 576-7985

[email protected] 

[email protected]

SCHEDULE I

FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

Three Month Periods Ended

December 31,
 2012

December 31,
 2011

GAAP:

Net sales

$     6,123,321

$     7,469,347

Cost of sales

5,778,544

7,083,600

Restructuring charges

98,315

-

      Gross profit 

246,462

385,747

Selling, general and administrative expenses

207,224

244,830

Restructuring charges

4,376

-

      Operating income 

34,862

140,917

Intangible amortization

6,137

12,901

Interest and other expense, net

(17,089)

7,695

      Income before income taxes

45,814

120,321

Provision for  income taxes

13,526

14,115

     Net income from continuing operations

$          32,288

$        106,206

     Loss from discontinued operations

(7,248)

(4,029)

     Net income 

$          25,040

$        102,177

EPS:

Net income from continuing operations:

GAAP

$              0.05

$              0.15

Non-GAAP

$              0.22

$              0.18

Loss from discontinued operations:

GAAP

$            (0.01)

$             (0.01)

Non-GAAP

$            (0.01)

$                     -

Net income:

GAAP

$              0.04

$              0.14

Non-GAAP

$              0.21

$              0.18

SCHEDULE II

FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES 

(In thousands, except per share amounts)

(unaudited)

Three Month Periods Ended 

December 31,
2012

% of Sales

December 31,
2011

% of Sales

Net Sales

$      6,123,321

$      7,469,347

GAAP gross profit

$         246,462

4.0%

$         385,747

5.2%

     Stock-based compensation expense

1,530

2,021

     Restructuring charges

98,315

-

Non-GAAP gross profit

$         346,307

5.7%

$         387,768

5.2%

GAAP SG&A Expenses

$         207,224

3.4%

$         244,830

3.3%

     Stock-based compensation expense

6,986

9,961

Non-GAAP SG&A Expenses

$         200,238

3.3%

$         234,869

3.1%

GAAP operating income

$           34,862

0.6%

$         140,917

1.9%

     Stock-based compensation expense

8,516

11,982

     Restructuring charges

102,691

-

Non-GAAP operating income

$         146,069

2.4%

$         152,899

2.0%

GAAP provision for income taxes

$           13,526

0.2%

$           14,115

0.2%

     Intangible amortization benefit

199

296

     Restructuring charges

1,280

-

Non-GAAP provision for income taxes

$           15,005

0.2%

$           14,411

0.2%

GAAP net income from continuing operations

$           32,288

0.5%

$         106,206

1.4%

     Stock-based compensation expense

8,516

11,982

     Intangible amortization

6,137

12,901

     Restructuring charges

102,691

-

     Adjustments for taxes

(1,479)

(296)

Non-GAAP net income from continuing operations

$         148,153

2.4%

$         130,793

1.8%

GAAP net income

$           25,040

0.4%

$         102,177

1.4%

     Stock-based compensation expense

8,516

11,982

     Intangible amortization

6,137

13,932

     Restructuring charges

102,691

-

     Adjustments for taxes

(1,479)

(296)

Non-GAAP net income

$         140,905

2.3%

$         127,795

1.7%

EPS:

Net income from continuing operations:

GAAP

$               0.05

$               0.15

Non-GAAP

$               0.22

$               0.18

Loss from discontinued operations:

GAAP

$             (0.01)

$             (0.01)

Non-GAAP

$             (0.01)

$                     -

Net income:

GAAP

$               0.04

$               0.14

Non-GAAP

$               0.21

$               0.18

SCHEDULE III

FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

December 31, 2012

March 31, 2012

ASSETS

Current Assets:

Cash and cash equivalents

$                 1,706,113

$                 1,518,329

Accounts receivable, net

2,372,706

2,593,829

Inventories

2,910,581

3,300,791

Current assets of  discontinued operations

-

21,642

Other current assets

1,288,643

1,099,959

Total current assets

8,278,043

8,534,550

Property and equipment, net

2,175,445

2,076,442

Goodwill and other intangibles, net

415,816

159,924

Non current assets of discontinued operations

-

41,417

Other assets

284,390

221,471

Total assets

$               11,153,694

$               11,033,804

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:

Bank borrowings, current portion of long-term debt and capital 

   lease obligations

$                    233,393

$                      42,467

Accounts payable

4,139,618

4,294,873

Current liabilities of discontinued operations

-

24,854

Other current liabilities

2,057,106

1,925,991

Total current liabilities

6,430,117

6,288,185

Long-term debt, net of current portion:

Revolving credit facility

-

140,000

Term loans

1,844,563

2,004,755

Other long-term debt and capital lease obligations

11,592

13,043

Other liabilities

464,812

303,842

Total shareholders' equity

2,402,610

2,283,979

Total liabilities and shareholders' equity

$               11,153,694

$               11,033,804

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, the related tax effects and non-recurring settlements of tax contingencies.  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 acquisition and restructuring activities, 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 $395 million for the third quarter ended December 31, 2012 consists of GAAP net cash flows from operating activities of $478 million less purchases of property and equipment net of dispositions of $83 million.  For the nine-month period ended December 31, 2012, Free Cash Flow was $678 million consisting of GAAP net cash flows from operating activities of $1.0 billion less purchases of property and equipment net of dispositions of $328 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)

During the third quarter we finalized the sale of a non-core business.  Proceeds received from the sale of this business were $3.2 million, net of cash sold.  The Company recognized a loss on sale of this business of $7.4 million, which is included in interest and other expense (income), net in the results from discontinued operations during the three month period ended December 31, 2012.  In the first quarter of fiscal 2013, the Company finalized the sale of certain assets of its camera modules business.  The Company has reported the results of operations and financial position of these businesses as discontinued operations within the condensed consolidated statements of operations and the condensed consolidated balance sheets for all periods presented as applicable.  Loss from discontinued operations, net of tax, was $7.2 million and $4.0 million for the  three-month periods ended December 31, 2012 and December 31, 2011, respectively.    

Three-Month Periods Ended

December 31,
2012

December 31,
2011

(In thousands)

Net sales

$                8,581

$              23,376

Cost of sales

8,487

27,269

Gross profit (loss)

94

(3,893)

Selling, general and administrative expenses

3

(920)

Intangibles amortization

-

1,031

Interest and other expense, net

7,333

80

Loss before income taxes

(7,242)

(4,084)

Provision for income taxes

6

(55)

Net loss of discontinued operations

$              (7,248)

$               (4,029)