Flextronics Announces Third Quarter Results
SINGAPORE, Jan. 31, 2006 -- Flextronics today announced results for its third quarter ended December 31, 2005 as follows:
(USD in millions, Three Months Ended Nine Months Ended
except EPS) December 31, December 31,
2005 2004 2005 2004
Net sales $4,187 $ 4,277 $11,969 $12,295
GAAP net income $42 $99 $98 $266
Net income, excluding
intangible amortization,
restructuring and
other charges (1) $118 $116 $319 $293
Diluted GAAP EPS $0.07 $0.17 $0.16 $0.46
Diluted EPS, excluding
intangible amortization,
restructuring and
other charges (1) $0.20 $0.20 $0.53 $0.50
(1) The non-GAAP financial measures disclosed in this press release
exclude certain amounts that are included in the most directly comparable
measures under Generally Accepted Accounting Principles ("GAAP"). Non-
GAAP results exclude after-tax intangible amortization, gains and losses
from divestitures, restructuring and other charges. The Company recorded
intangible amortization expense of $11.7 million and $40.9 million during
the three- and nine-month periods ended December 31, 2005, respectively,
and $9.2 million and $26.5 million during the three- and nine-month
periods ended December 31, 2004, respectively. Further, the Company's
equity in earnings of unconsolidated subsidiaries included $2.3 million
of intangible amortization during the quarter ended December 31, 2005.
The Company also recorded pre-tax restructuring charges of $68.7 million
and $151.7 million during the three- and nine-month periods ended
December 31, 2005, respectively, and $30.7 million and $87.8 million
during the three- and nine-month periods ended December 31, 2004,
respectively, which were primarily related to the closures and
consolidations of various manufacturing facilities. Further, the Company
recognized $7.7 million and $7.6 million in executive separation costs
during the quarters ended December 31, 2005 and 2004, respectively.
During the quarter ended December 31, 2005, the Company also reversed a
$15.0 million bad debt provision previously recorded in the quarter ended
September 30, 2005 for accounts receivable from Delphi, which filed for
bankruptcy in October 2005, as these receivables were collected during
the quarter ended December 31, 2005. Final sale price adjustments
related to the divestiture of the Network Services division resulted in a
pre-tax loss of $3.1 million for the quarter ended December 31, 2005, and
the divestiture of the Semiconductor and Network Services divisions
resulted in a pre-tax gain of $67.6 million for the nine months ended
December 31, 2005. In addition, during the three- and nine-month periods
ended December 31, 2004, the Company recorded a $29.3 million gain from
the liquidation of certain international entities, and a $6.8 million
loss for the other than temporary impairment of its investments in
certain non-publicly traded companies. The tax impacts related to all of
these items and other non-operational tax adjustments amounted to a tax
benefit of $2.0 million and tax expense of $86.2 million during the
three- and nine-month periods ended December 31, 2005, respectively, and
a tax benefit of $7.3 million and $71.9 million during the three- and
nine-month periods ended December 31, 2004, respectively. The
reconciliation of non-GAAP results to GAAP results is illustrated in
Schedules I and II attached to this press release.
Quarterly Results
Net revenue for the third quarter ended December 31, 2005 was $4.2 billion compared to $4.3 billion in the year ago quarter. Excluding revenues of $228 million in the third quarter ended December 31, 2004 from the Semiconductor and Network Services divisions that were divested by Flextronics in the September 2005 quarter, revenue grew 3% on a year-over-year basis in the third quarter ended December 31, 2005.
Excluding intangible amortization, restructuring and other charges, net income for the third quarter ended December 31, 2005 increased 2% to $118 million, or $0.20 per diluted share, compared with $116 million, or $0.20 per diluted share, in the year ago quarter. After-tax amortization, restructuring and other charges amounted to $76 million in the third quarter ended December 31, 2005, compared to $18 million in the year ago quarter. As a result, GAAP net income amounted to $42 million, or $0.07 earnings per diluted share, in the third quarter ended December 31, 2005, as compared to GAAP net income of $99 million, or $0.17 per diluted share, in the year ago quarter.
The Company ended the quarter with $1.1 billion in cash and $427 million in net debt. The Company has reduced its total debt by $79 million and $225 million in the three- and nine-month periods ended December 31, 2005, respectively. Cash flow from operations generated $214 million and $647 million in the three- and nine-month periods ended December 31, 2005, respectively.
With regard to the December 2005 quarter operating results, Mike McNamara, Chief Executive Officer of Flextronics stated, "We are extremely pleased with our working capital management and cash flows for the quarter. To this end, we are pleased that we were able to reduce our cash conversion cycle to a record low 8 days from 16 days in the previous sequential quarter."
McNamara concluded by saying, "We have enhanced our revenue growth strategy by organizing our Company into a focused market segment approach that is designed to bring more value and innovation to our customers, improve our competitiveness and to increase our market share with our customers. We have added senior executives to lead each one of our seven market segments and believe this focused approach, combined with strategic investments in design capabilities, component technologies and low cost manufacturing capacity will accelerate our future growth in revenue and return on invested capital."
Update on Nortel Transaction
The transfer of Nortel's manufacturing operation in Calgary has been rescheduled from the March 2006 quarter to the June 2006 quarter to allow for the completion of several major information systems changes that will simplify and improve the quality of the transition as well as its operations after the transition.
Guidance
Management provided guidance for earnings per diluted share (excluding amortization, restructuring and other charges) of $0.15 to $0.16 on revenues of $3.5 billion to $3.7 billion for the March 2006 quarter. This guidance reflects the delay in transferring the Nortel operations in Calgary to Flextronics. Quarterly GAAP earnings per diluted share are expected to be lower than the guidance provided herein by approximately $0.02 per diluted share reflecting quarterly amortization expense and by approximately $0.01 to $0.06 per diluted share reflecting restructuring and other charges.
2004 Award Plan for New Employees
On January 23, 2006, the Company granted options from its 2004 Award Plan for New Employees to purchase an aggregate of 646,750 ordinary shares to employees of recently acquired companies and other new employees. The options have an exercise price of $10.53 (equal to the closing price of our ordinary shares on January 23, 2006 as quoted on the NASDAQ National Market), will expire 10 years after the date of grant (or following termination of employment, if earlier), and will become exercisable over four years, with the first 25% becoming exercisable on the first anniversary of the date of grant and the remainder becoming exercisable in equal monthly installments thereafter.
Conference Call and Web Cast
A conference call hosted by Flextronics' management will be held today at 1:30 p.m. PDT to discuss the Company's financial results and its outlook. This 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 that summarizes the quarterly results may also be found on the Company's site. A replay of the broadcast will remain available on the Company's website after the call.
Minimum requirements to listen to the broadcast are Microsoft Windows Media Player software (free download at http://www.microsoft.com/windows/windowsmedia/download/default.asp ) and at least a 28.8 Kbps bandwidth connection to the Internet.
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, automotive, computing, consumer digital, industrial, infrastructure, medical and mobile OEMs. With fiscal year 2005 revenues of USD$15.9 billion, Flextronics helps customers design, build, ship, and service electronics products through a network of facilities in over 30 countries on five continents. This global presence provides design and engineering solutions that are combined with core electronics manufacturing and logistics services, and 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 federal securities laws. These forward-looking statements include statements related to revenue growth, anticipated benefits from our strategic investments in design capabilities and component technologies, and our working capital management and cash flows. 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. These risks include our dependence on industries that continually produce technologically advanced projects with short life cycles; our ability to respond to changes in economic trends and to fluctuations in demand for customers' products and the short-term nature of our customers' commitments; the challenges of effectively managing our operations; not obtaining new customer programs, or that if we do obtain them, the risk that they may not contribute to our revenue or profitability as expected or at all; the challenges of integrating acquired companies and assets; our dependence on a small number of customers for the majority of our sales and our reliance on strategic relationships with major customers; the impact on our margins and profitability resulting from substantial investments and start-up and integration costs in our components, design and ODM capabilities, including production difficulties, especially with new products; competition in our industry; changes in government regulations and tax laws; our exposure to potential litigation relating to intellectual property rights, product warranty and product liability; the challenges of international operations; the effects of customer bankruptcies; potential impairment of our intangible assets and the other risks described under "Business - Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our most recent Annual Report on Form 10-K and in our quarterly reports on Form 10-Q and current reports on Form 8-K, filed with the SEC. The forward-looking statements in this press release are based on current expectations and Flextronics assumes no obligation to update these forward- looking statements. Investors are cautioned not to place undue reliance on these forward-looking statements.
SCHEDULE 1
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Three Months Ended December 31, 2005
Required
Non-GAAP (1) Adjustments GAAP
Net sales $4,186,891 $4,186,891
Cost of sales 3,927,459 3,927,459
Restructuring and other
charges -- 63,115 63,115
Gross profit 259,432 (63,115) 196,317
Selling, general and
administrative expenses 124,816 (15,000) 109,816
Restructuring and other
charges (income) -- 13,147 13,147
Operating income 134,616 (61,262) 73,354
Intangible amortization -- 11,693 11,693
Interest and other
expense, net 20,367 2,325 22,692
Loss on divestiture
of operations -- 3,126 3,126
Income before income taxes 114,249 (78,406) 35,843
Provision for (benefit from)
income taxes (4,161) (1,950) (6,111)
Net income $118,410 $(76,456) $41,954
Earnings per share:
Basic $0.21 $0.07
Diluted $0.20 $0.07
Shares used in computing
per share amounts:
Basic 574,635 574,635
Diluted 599,761 599,761
Three Months Ended December 31, 2004
Required
Non-GAAP (1) Adjustments GAAP
Net sales $4,276,614 $4,276,614
Cost of sales 3,976,832 3,976,832
Restructuring and other
charges -- 24,076 24,076
Gross profit 299,782 (24,076) 275,706
Selling, general and
administrative expenses 143,330 143,330
Restructuring and other
charges (income) -- 14,192 14,192
Operating income 156,452 (38,268) 118,184
Intangible amortization -- 9,201 9,201
Interest and other
expense, net 27,240 (22,515) 4,725
Loss on divestiture of
operations -- --
Income before income taxes 129,212 (24,954) 104,258
Provision for (benefit from)
income taxes 12,922 (7,347) 5,575
Net income $116,290 $(17,607) $98,683
Earnings per share:
Basic $0.21 $0.18
Diluted $0.20 $0.17
Shares used in computing
per share amounts:
Basic 562,200 562,200
Diluted 594,081 594,081
(1) The non-GAAP financial measures exclude certain amounts that are
included in the most directly comparable measures under Generally
Accepted Accounting Principles ("GAAP"). Non-GAAP results exclude
after-tax intangible amortization, gains and losses from divestitures,
restructuring and other charges. The Company recorded intangible
amortization expense of $11.7 million and $9.2 million during the
quarters ended December 31, 2005 and 2004, respectively. Further, the
Company's equity in earnings of unconsolidated subsidiaries included
$2.3 million of intangible amortization during the quarter ended December
31, 2005. The Company also recorded pre-tax restructuring charges of
$68.7 million and $30.7 million during the quarters ended December 31,
2005 and 2004, respectively, which were primarily related to the closures
and consolidations of various manufacturing facilities. Further, the
Company recognized $7.7 million and $7.6 million in executive separation
costs during the quarters ended December 31, 2005 and 2004, respectively.
During the quarter ended December 31, 2005, the Company also reversed a
$15.0 million bad debt provision previously recorded in the quarter ended
September 30, 2005 for accounts receivable from Delphi, which filed for
bankruptcy in October 2005, as these receivables were collected during
the quarter ended December 31, 2005. Final sale price adjustments
related to the divestiture of the Network Services division resulted in a
pre-tax loss of $3.1 million for the quarter ended December 31, 2005. In
addition, during quarter ended December 31, 2004, the Company recorded a
$29.3 million gain from the liquidation of certain international
entities, and a $6.8 million loss for the other than temporary impairment
of its investments in certain non-publicly traded companies. The tax
impacts related to all of these items and other non-operational tax
adjustments amounted to a tax benefit of $2.0 million and $7.3 million in
the quarters ended December 31, 2005 and 2004, respectively.
SCHEDULE II
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Nine Months Ended December 31, 2005
Required
Non-GAAP (2) Adjustments GAAP
Net sales $11,968,653 $11,968,653
Cost of sales 11,167,801 11,167,801
Restructuring and other
charges -- 129,150 129,150
Gross profit 800,852 (129,150) 671,702
Selling, general and
administrative expenses 404,582 404,582
Restructuring and other
charges -- 30,147 30,147
Operating income 396,270 (159,297) 236,973
Intangible amortization -- 40,943 40,943
Interest and other expense, net 69,402 2,325 71,727
Gain on divestiture of
operations -- (67,569) (67,569)
Income before income taxes 326,868 (134,996) 191,872
Provision for (benefit from)
income taxes 7,494 86,164 93,658
Net income $319,374 $(221,160) $98,214
Earnings per share:
Basic $0.56 $0.17
Diluted $0.53 $0.16
Shares used in computing per
share amounts:
Basic 572,112 572,112
Diluted 600,068 600,068
Nine Months Ended December 31, 2004
Required
Non-GAAP (2) Adjustments GAAP
Net sales $12,295,311 $12,295,311
Cost of sales 11,477,733 11,477,733
Restructuring and other
charges -- 70,771 70,771
Gross profit 817,578 (70,771) 746,807
Selling, general and
administrative expenses 423,948 423,948
Restructuring and other
charges -- 24,587 24,587
Operating income 393,630 (95,358) 298,272
Intangible amortization -- 26,545 26,545
Interest and other expense,
net 67,955 (22,515) 45,440
Gain on divestiture of
operations -- --
Income before income taxes 325,675 (99,388) 226,287
Provision for (benefit from)
income taxes 32,568 (71,908) (39,340)
Net income $293,107 $(27,480) $265,627
Earnings per share:
Basic $0.53 $0.48
Diluted $0.50 $0.46
Shares used in computing per
share amounts:
Basic 548,234 548,234
Diluted 581,433 581,433
(2) The non-GAAP financial measures exclude certain amounts that are
included in the most directly comparable measures under Generally
Accepted Accounting Principles ("GAAP"). Non-GAAP results exclude
after-tax intangible amortization, gains and losses from divestitures,
restructuring and other charges. The Company recorded intangible
amortization expense of $40.9 million and $26.5 million during the nine
months ended December 31, 2005 and 2004, respectively. Further, the
Company's equity in earnings of unconsolidated subsidiaries included
$2.3 million of intangible amortization during the nine months ended
December 31, 2005. The Company also recorded pre-tax restructuring
charges of $151.7 million and $87.8 million during the nine months ended
December 31, 2005 and 2004, respectively, which were primarily related to
the closures and consolidations of various manufacturing facilities.
Further, the Company recognized $7.7 million and $7.6 million in
executive separation costs during the nine months ended December 31, 2005
and 2004, respectively. The divestiture of the Semiconductor and Network
Services division resulted in a pre-tax gain of $67.6 million for the
nine months ended December 31, 2005. In addition, during nine months
ended December 31, 2004, the Company recorded a $29.3 million gain from
the liquidation of certain international entities, and a $6.8 million
loss for the other than temporary impairment of its investments in
certain non-publicly traded companies. The tax impacts related to all of
these items and other non-operational tax adjustments amounted to a tax
benefit of $86.2 million and $71.9 million in the nine months ended
December 31, 2005 and 2004, respectively.
SCHEDULE III
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, 2005 March 31, 2005
ASSETS
Current Assets:
Cash and cash equivalents $1,083,637 $ 869,258
Accounts receivable, net 1,615,900 1,842,010
Inventories 1,659,050 1,518,866
Deferred income taxes 11,161 12,117
Other current assets 622,812 544,914
Total current assets 4,992,560 4,787,165
Property and equipment, net 1,600,999 1,704,516
Deferred income taxes 599,647 684,952
Goodwill and other intangibles, net 3,270,977 3,502,189
Other assets 466,847 328,750
Total assets $10,931,030 $11,007,572
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank borrowings, current portion of
long-term debt and capital lease
obligations $10,469 $26,166
Accounts payable 2,872,527 2,523,269
Other current liabilities 1,102,502 1,330,759
Total current liabilities 3,985,498 3,880,194
Long-term debt, net of current portion:
Zero Coupon Convertible Junior
Subordinated Notes due 2008 195,000 200,000
1 % Convertible Subordinated Notes
due 2010 500,000 500,000
6 1/2 % Senior Subordinated Notes
due 2013 399,650 399,650
6 1/4 % Senior Subordinate Notes
due 2014 396,366 490,270
Other long-term debt and capital
lease obligations 9,536 119,650
Other liabilities 131,185 193,760
Total shareholders' equity 5,313,795 5,224,048
Total liabilities and shareholders'
equity $10,931,030 $11,007,572