Flextronics Reports Fourth Quarter Results

May 1, 2012

- 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 ended March 31, 2012 as 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 ended March 31, 2012 decreased 6% to $6.4 billion compared to net sales for the quarter ended March 31, 2011 of $6.8 billion. Adjusted operating income increased $2 million or 1% to $190 million, compared to adjusted operating income of $188 million for the same quarter last year.  Adjusted net income from continuing operations for the fourth quarter ended March 31, 2012 was $197 million, an increase of $35 million or 22%, and adjusted EPS from continuing operations increased $0.07 or 33% to $0.28, compared to $162 million and $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," said Mike 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 $0.25 and $0.28 from continuing operations, respectively," said Paul 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 million in free cash flow. Over this same timeframe, we have now generated greater than $3.0 billion in 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 ending June 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 $0.24 per share.

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

Conference Calls and Web Casts

A conference call hosted by Flextronics's management will be held today at 2:00 PM (PT) / 5:00 PM (ET) to discuss the Company's financial results for the fourth quarter ended March 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), Flextronics is 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. Flextronics helps 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 in Asia; 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 the U.S. Securities and Exchange Commission.  The forward-looking statements in this press release are based on current expectations and Flextronics assumes 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

       

 

SOURCE Flextronics

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