Flextronics Reports Fourth Quarter Results

Adjusted EPS from Continuing Operations Increased 33% to $0.28
– GAAP EPS from Continuing Operations Increased 47% to $0.25
– Adjusted EPS of $0.26 and GAAP EPS of $0.22

SINGAPORE,May 1, 2012/PRNewswire/ — Flextronics(NASDAQ: FLEX) today announced results for its fourth quarter endedMarch 31, 2012as follows:

(US$ in millions, except EPS)
Three Month Periods Ended
March 31, March 31, Y/Y
2012 2011 Growth
Net sales $ 6,382 $ 6,789 -6%
Adjusted operating income (1) $ 190 $ 188 1%
GAAP operating income $ 180 $ 175 3%
Adjusted net income – continuing operations(1) $ 197 $ 162 22%
GAAP net income – continuing operations $ 173 $ 135 28%
Adjusted EPS – continuing operations (1) $ 0.28 $ 0.21 33%
GAAP EPS – continuing operations $ 0.25 $ 0.17 47%


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

Fourth Quarter Results

Net sales for the fourth quarter endedMarch 31, 2012decreased 6% to$6.4 billioncompared to net sales for the quarter endedMarch 31, 2011of$6.8 billion. Adjusted operating income increased$2 millionor 1% to$190 million, compared to adjusted operating income of$188 millionfor the same quarter last year.  Adjusted net income from continuing operations for the fourth quarter endedMarch 31, 2012was$197 million, an increase of$35 millionor 22%, and adjusted EPS from continuing operations increased$0.07or 33% to$0.28, compared to$162 millionand$0.21, respectively, for the same quarter last year. GAAP net income from continuing operations and EPS from continuing operations were all up significantly year-over-year.

“We have continued our transition towards a more stable, predictable, and diversified portfolio with longer product lifecycles that generate increasing operating margins and strong free cash flow,” saidMike McNamara, CEO of Flextronics.

“This quarter we realized a 100 basis point sequential operating margin improvement  as a result of our proactive management of our portfolio of businesses, which aided us in achieving a record fourth quarter GAAP EPS and adjusted EPS of$0.25and$0.28from continuing operations, respectively,” saidPaul Read, CFO of Flextronics.  “The record fourth quarter earnings translated into continued strong cash flow generation and marks the fifth consecutive fiscal year that we have generated in excess of$400 millionin free cash flow. Over this same timeframe, we have now generated greater than$3.0 billionin free cash flow.”

Read added, “We continue to use the cash generated in our business to drive shareholder value, doing so through reinvesting in the business, pursuing strategic opportunities and continuing our share repurchase program.  For fiscal year 2012, we repurchased approximately 82 million shares for approximately$510 million, thereby reducing our outstanding shares by almost 11%.”

Guidance

For the first quarter endingJune 29, 2012, revenue is expected to be in the range of$5.9­­­ billion to$6.3 billion. Adjusted EPS from continuing operations is expected to be in the range of$0.20 to $0.24per share.

GAAP earnings per share are expected to be lower than the guidance provided herein by approximately$0.04per diluted share for quarterly intangible amortization and stock-based compensation expense.

Conference Calls and Web Casts

A conference call hosted byFlextronics’s management will be held today at2:00 PM (PT)/5:00 PM (ET)to discuss the Company’s financial results for the fourth quarter endedMarch 31, 2012.

The conference call will be broadcast via the Internet and may be accessed by logging on to the Company’s website at www.flextronics.com. Additional information in the form of a slide presentation may also be found on the Company’s site.  A replay of the broadcast will remain available on the Company’s website afterwards.

About Flextronics

Headquartered in Singapore(Singapore Reg. No. 199002645H), Flextronicsis a leading Electronics Manufacturing Services (EMS) provider focused on delivering complete design, engineering and manufacturing services to aerospace and defense, automotive, computing, consumer, industrial, infrastructure, medical, clean tech and mobile OEMs. Flextronicshelps customers design, build, ship and service electronics products through a network of facilities in 30 countries on four continents. This global presence provides design and engineering solutions that are combined with core electronics manufacturing and logistics services, and are vertically integrated with components technologies, to optimize customer operations by lowering costs and reducing time to market. For more information, please visit www.flextronics.com.

This press release contains forward-looking statements within the meaning of U.S. securities laws, including statements related to future expected revenues and earnings per share. These forward-looking statements involve risks and uncertainties that could cause the actual results to differ materially from those anticipated by these forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements.  These risks include: that future revenues and earnings may not be achieved as expected; our dependence on industries that continually produce technologically advanced products with short life cycles; our ability to respond to changes in economic trends, to fluctuations in demand for customers’ products and to the short-term nature of customers’ commitments; competition in our industry, particularly from ODM suppliers inAsia; our dependence on a small number of customers for the majority of our sales; the challenges of effectively managing our operations, including our ability to manage manufacturing processes, utilize available manufacturing capacity, control costs and manage changes in our operations; production difficulties, especially with new products; the impact on our margins and profitability resulting from our increased components offerings; supply shortages of required electronic components; compliance with legal and regulatory requirements; the challenges of international operations, including fluctuations in exchange rates beyond hedge boundaries leading to unexpected charges; changes in government regulations and tax laws;  and the effects that the current macroeconomic environment could have on our business and demand for our products as well as the effects that current credit and market conditions could have on the liquidity and financial condition of our customers and suppliers, including any impact on their ability to meet their contractual obligations.  Additional information concerning these and other risks is described under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our reports on Form 10-K and 10-Q that we file with theU.S. Securities and Exchange Commission.  The forward-looking statements in this press release are based on current expectations andFlextronicsassumes no obligation to update these forward-looking statements.

Renee Brotherton Kevin Kessel
Corporate Communications Investor Relations
(408) 576-7189 (408) 576-7985
renee.brotherton@flextronics.com kevin.kessel@flextronics.com

 

SCHEDULE I
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Three Month Periods Ended Twelve Month Periods Ended
March 31,

2012

March 31,

2011

March 31,

2012

March 31,

2011

GAAP:
Net sales $      6,382,412 $      6,788,774 $    29,387,656 $    28,489,018
Cost of sales 6,019,605 6,409,293 27,866,315 26,903,049
      Gross profit 362,807 379,481 1,521,341 1,585,969
Selling, general and administrative expenses 183,189 204,081 852,636 804,890
      Operating income 179,618 175,400 668,705 781,079
Intangible amortization 14,122 14,913 55,896 70,913
Interest and other expense, net (15,331) 7,568 16,048 81,645
      Income before income taxes 180,827 152,919 596,761 628,521
Provision for  income taxes 7,405 18,232 54,116 22,176
     Net income from continuing operations $         173,422 $         134,687 $         542,645 $         606,345
     Income (loss) from discontinued operations, net of tax $         (16,689) $                648 $         (21,880) $         (10,126)
     Net income $         156,733 $         135,335 $         520,765 $         596,219
EPS:
Net income from continuing operations:
GAAP $               0.25 $               0.17 $               0.75 $               0.77
Non-GAAP $               0.28 $               0.21 $               0.89 $               0.88
Income (loss) from discontinued operations:
GAAP $             (0.02) $               0.00 $             (0.03) $             (0.01)
Non-GAAP $             (0.02) $               0.00 $             (0.03) $             (0.01)
Net income:
GAAP $               0.22 $               0.17 $               0.72 $               0.75
Non-GAAP $               0.26 $               0.21 $               0.86 $               0.87
Diluted Shares used in computing per share amounts 699,462 775,883 727,807 790,192
See Schedule II for the reconciliation of GAAP to non-GAAP financial measures.  See the accompanying notes on Schedule IV attached to this press release.
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  Twelve Month Periods Ended 
March 31,

2012

March 31,

2011

March 31,

2012

March 31,

2011

GAAP gross profit $         362,807 $         379,481 $     1,521,341 $     1,585,969
     Stock-based compensation expense 1,119 2,325 7,447 10,312
Non-GAAP gross profit $         363,926 $         381,806 $     1,528,788 $     1,596,281
GAAP SG&A Expenses $         183,189 $         204,081 $        852,636 $        804,890
     Stock-based compensation expense 8,829 10,673 41,008 44,996
Non-GAAP SG&A Expenses $         174,360 $         193,408 $        811,628 $        759,894
GAAP operating income $         179,618 $         175,400 $        668,705 $        781,079
     Stock-based compensation expense 9,948 12,998 48,455 55,308
Non-GAAP operating income $         189,566 $         188,398 $        717,160 $        836,387
GAAP provision for income taxes $             7,405 $           18,232 $          54,116 $          22,176
     Intangible amortization 296 822 1,766 5,348
     Settlement of tax contingencies 34,715
Non-GAAP provision for income taxes $             7,701 $           19,054 $          55,882 $          62,239
GAAP net income from continuing operations $         173,422 $         134,687 $        542,645 $        606,345
     Stock-based compensation expense 9,948 12,998 48,455 55,308
     Intangible amortization 14,122 14,913 55,896 70,913
     Non-cash convertible debt interest expense 5,617
     Adjustments for taxes (296) (822) (1,766) (40,063)
Non-GAAP net income from continuing operations $         197,196 $         161,776 $        645,230 $        698,120
GAAP net income $         156,733 $         135,335 $        520,765 $        596,219
     Stock-based compensation expense 9,948 12,998 48,455 55,308
     Intangible amortization 14,122 14,913 55,896 70,913
     Non-cash convertible debt interest expense 5,617
     Adjustments for taxes (296) (822) (1,766) (40,063)
Non-GAAP net income $         180,507 $         162,424 $        623,350 $        687,994
EPS:
Net income from continuing operations:
GAAP $               0.25 $               0.17 $              0.75 $              0.77
Non-GAAP $               0.28 $               0.21 $              0.89 $              0.88
Income (loss) from discontinued operations:
GAAP $             (0.02) $               0.00 $            (0.03) $            (0.01)
Non-GAAP $             (0.02) $               0.00 $            (0.03) $            (0.01)
Net income:
GAAP $               0.22 $               0.17 $              0.72 $              0.75
Non-GAAP $               0.26 $               0.21 $              0.86 $              0.87
See the accompanying notes on Schedule IV attached to this press release.
SCHEDULE III
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, 2012 March 31, 2011
ASSETS
Current Assets:
Cash and cash equivalents $        1,518,329 $         1,748,471
Accounts receivable, net 2,630,159 2,571,912
Inventories 3,312,070 3,517,026
Other current assets 1,110,929 1,216,790
Total Current Assets 8,571,487 9,054,199
Property and equipment, net 2,084,148 2,084,031
Goodwill and other intangibles, net 170,924 213,083
Other assets 239,210 281,839
Total assets $      11,065,769 $       11,633,152
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Bank borrowings, current portion of long-term debt and capital
   lease obligations $             42,467 $              21,179
Accounts payable 4,305,735 5,003,185
Other current liabilities 1,927,066 1,804,567
Total current liabilities 6,275,268 6,828,931
Long-term debt, net of current portion:
Revolving credit facility 140,000 160,000
Term loans 2,004,755 2,034,095
Other long-term debt and capital lease obligations 13,043 5,100
Other liabilities 316,724 310,330
Total shareholders’ equity 2,315,979 2,294,696
Total liabilities and shareholders’ equity $      11,065,769 $       11,633,152

 

See the accompanying notes on Schedule IV attached to this press release.  Certain amounts above include assets and liabilities of discontinued operations.
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, 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.
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 $80 million for the fourth quarter ended March 31, 2012 consists of GAAP net cash flows from operating activities of $138 million less purchases of property and equipment net of dispositions of $58 million. For the twelve-month period ended March 31, 2012, Free Cash Flow was $416 million consisting of GAAP net cash flows from operating activities of $804 million less purchases of property and equipment net of dispositions of $388 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 fourth quarter of fiscal 2012, the Company identified certain accounting errors in the statutory to US GAAP adjustments isolated to one of its foreign sites that originated in prior interim and annual periods.  These errors, which primarily understated cost of sales, totaled $0.8 million in the first nine months of fiscal 2012 and $10.4 million and $8.0 million for the fiscal years ended March 31, 2011 and 2010, and were corrected by the Company as an out-of-period adjustment in the fourth quarter of fiscal 2012. This fourth quarter adjustment was partially offset by the correction of an error identified in the fourth quarter of $4.2 million related to the provisions for income taxes in the prior fiscal 2012 interim periods.  Management believes the impact of these items, both individually and in the aggregate, to the fiscal year ended March 31, 2012 and to prior fiscal and interim periods presented was not material.  As a result of recording these adjustments in the fourth quarter, net income for the quarter and year ended March 31, 2012 were reduced by $21.5 million and $24.9 million, respectively.
(3) On March 2, 2012 the Company entered into a definitive agreement to sell certain assets of Flextronics’ Vista Point Technologies (“VPT”) camera module business including intellectual property and the China-based manufacturing operations. This transaction is expected to close in the first quarter of fiscal 2013 subject to certain closing conditions.
The divestiture of the VPT business qualifies as discontinued operations, and accordingly, the Company has recast prior period results from continuing operations and reported the results of operations and financial position of this business in discontinued operations within the statements of operations and the balance sheets for all periods presented.

 

The results from discontinued operations were as follows:
Fiscal Year Ended March 31, 
2012 2011
(In thousands, except per share amounts)
Net sales $          82,632 $        190,907
Cost of sales 100,167 191,950
Gross profit (loss) (17,535) (1,043)
Selling, general and administrative expenses 5,859 11,459
Interest and other income, net 32 422
Loss before income taxes (23,426) (12,924)
Benefit from income taxes (1,546) (2,798)
Net loss of discontinued operations $         (21,880) $         (10,126)

 

 

The current and non-current assets and liabilities of discontinued operations were as follows:
As of March 31,
2012 2011
(In thousands)
Account receivable, net $               892 $          57,720
Inventories 3,723 33,260
Other current assets 471 5,921
    Total current assets of discontinued operations $            5,086 $          96,901
Property and equipment, net $          22,671 $          57,032
    Total non-current assets of discontinued operations $          22,671 $          57,032
Accounts payable $            3,593 $          78,713
Other current liabilities 4,651 8,566
    Total current liabilities of discontinued operations $            8,244 $          87,279

 

SOURCEFlextronics