Flextronics Reports Third Quarter Results - Adjusted Net Income from Continuing Operations Increased 13% to $148 Million - Adjusted EPS from Continuing Operations Increased 22% to $0.22 - Free Cash Flow Generation of $395 Million PR Newswire SINGAPORE, Jan. 24, 2013 SINGAPORE, Jan. 24, 2013 /PRNewswire/ -- Flextronics (NASDAQ: FLEX) today announced results for its third quarter ended December 31, 2012 as follows: (US$ 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 $ $ -5% 146 153 Restructuring charges $ $ (103) - GAAP operating income $ $ -75% 35 141 Adjusted net income $ $ 13% 148 131 GAAP net income $ $ -70% 32 106 Adjusted EPS $ $ 22% 0.22 0.18 Adjusted EPS - restructuring $ $ charges (0.15) - GAAP EPS $ $ -67% 0.05 0.15 An explanation and reconciliation of non-GAAP financial measures to GAAP financial measures is presented in Schedule II attached to this press release. Third Quarter Results of Continuing Operations Net sales for the third quarter ended December 31, 2012 were $6.1 billion, above the midpoint of the Company's previously provided revenue guidance of $5.8 billion to $6.2 billion. For the third quarter ended December 31, 2012, adjusted net income increased 13% over the year ago quarter to $148 million, or $0.22 per diluted share, compared to $131 million, or $0.18 per diluted share, in the year ago quarter. The Company's adjusted earnings per diluted share of $0.22 in the third quarter ended December 31, 2012 is at the high end of the Company's previously provided guidance of $0.18 to $0.22. During the third quarter ended December 31, 2012, Flextronics recognized approximately $103 million of pre-tax restructuring charges comprised of $21 million of cash charges predominantly related to employee severance and benefits and $82 million of non-cash asset impairment charges. The Company's GAAP operating income and GAAP net income decreased 75% and 70%, respectively, compared to the same quarter last year, reflecting the impacts from the restructuring charges recognized during the third quarter ended December 31, 2012. The Company expects to recognize an additional $100 million to $125 million in pre-tax restructuring charges in the fourth quarter of fiscal 2013, comprised primarily of employee severance and benefit costs of approximately $90 million to $110 million and the remaining charges associated with other exit related costs. These restructuring activities are intended to improve our operational efficiencies in response to a macroeconomic environment that remains soft and uncertain. The Company believes that upon the completion of all the restructuring activities mentioned above, the potential savings achieved through reduced employee expenses and lower operating costs will yield annualized savings of $140 million to $160 million. "It is clear that the macroeconomic environment is challenging with limited visibility and many economic risks remain. We are aggressively optimizing our operating footprint and improving our cost structure to better position us for our multi-billion dollar pipeline of recent bookings, and the eventual improvement in the business environment," said Mike McNamara, CEO of Flextronics."We are pleased with our exceptional free cash flow generation of $395 million for the third quarter and $678 million year-to-date. Our strong free cash flow has enabled us to aggressively invest in our business through niche acquisitions and supporting our stock repurchase program," added Mr. McNamara. Guidance For the fourth quarter ending March 31, 2013, revenue is expected to be in the range of $5.0 billion to $5.3 billion and adjusted EPS from continuing operations is expected to be in the range of $0.11 to $0.15 per share. GAAP earnings per share from continuing operations are expected to be lower than the guidance provided herein by approximately $0.02 per diluted share for quarterly intangible amortization and stock-based compensation expense, and by approximately $0.15 to $0.18 per diluted share for the remaining restructuring charges. 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 third quarter ended December 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, energy, 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 the expected nature, timing, reductions, objectives, expected cost savings, and charges associated with restructuring actions, and 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; the Company's ability to implement the restructuring actions as planned; retention of key employees; the possibility that benefits of the restructuring actions may not materialize as expected; 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. The share repurchase program does not obligate the Company to repurchase a specific number of shares and may be suspended or terminated at any time without prior notice. Renee Brotherton Kevin Kessel Corporate Communications Investor Relations (408) 576-7189 (408) 576-7985 email@example.com firstname.lastname@example.org 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, December 31, 2012 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 207,224 244,830 administrative expenses Restructuring charges 4,376 - Operating income 34,862 140,917 Intangible amortization 6,137 12,901 Interest and other expense, (17,089) 7,695 net Income before income 45,814 120,321 taxes Provision for income taxes 13,526 14,115 Net income from $ 32,288 $ 106,206 continuing operations Loss from discontinued (7,248) (4,029) operations 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 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 December 31, % of December 31, % of 2012 Sales 2011 Sales Net Sales $ 6,123,321 $ 7,469,347 GAAP gross profit $ 4.0% $ 5.2% 246,462 385,747 Stock-based compensation 1,530 2,021 expense Restructuring charges 98,315 - Non-GAAP gross profit $ 5.7% $ 5.2% 346,307 387,768 GAAP SG&A Expenses $ 3.4% $ 3.3% 207,224 244,830 Stock-based compensation 6,986 9,961 expense Non-GAAP SG&A Expenses $ 3.3% $ 3.1% 200,238 234,869 GAAP operating income $ 0.6% $ 1.9% 34,862 140,917 Stock-based compensation 8,516 11,982 expense Restructuring charges 102,691 - Non-GAAP operating income $ 2.4% $ 2.0% 146,069 152,899 GAAP provision for income taxes $ 0.2% $ 0.2% 13,526 14,115 Intangible amortization 199 296 benefit Restructuring charges 1,280 - Non-GAAP provision for income $ 0.2% $ 0.2% taxes 15,005 14,411 GAAP net income from continuing $ 0.5% $ 1.4% operations 32,288 106,206 Stock-based compensation 8,516 11,982 expense Intangible amortization 6,137 12,901 Restructuring charges 102,691 - Adjustments for taxes (1,479) (296) Non-GAAP net income from $ 2.4% $ 1.8% continuing operations 148,153 130,793 GAAP net income $ 0.4% $ 1.4% 25,040 102,177 Stock-based compensation 8,516 11,982 expense Intangible amortization 6,137 13,932 Restructuring charges 102,691 - Adjustments for taxes (1,479) (296) Non-GAAP net income $ 2.3% $ 1.7% 140,905 127,795 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 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) 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 - 21,642 operations 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 - 41,417 discontinued operations 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 - 24,854 discontinued operations 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 11,592 13,043 lease obligations 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 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 (1) 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: othe ability to make more meaningful period-to-period comparisons of the Company's on-going operating results; othe ability to better identify trends in the Company's underlying business and perform related trend analyses; oa better understanding of how management plans and measures the Company's underlying business; and oan 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." 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 (2) 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. The results from discontinued operations were as follows: Three-Month Periods Ended December 31, December 31, 2012 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 3 (920) expenses 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) SOURCE Flextronics Website: http://www.flextronics.com
Flextronics Reports Third Quarter Results
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