Flextronics Announces Strong Third Quarter Results

Revenue increased 12% sequentially;

Adjusted EPS of $0.17, a 31% sequential increase, GAAP EPS $0.11;

Adjusted Operating Margin Expands 30 bps;

Adjusted ROIC increased 790 bps to 30.1%;

Cash flow from operations $331 million

Jan 27, 2010, 16:01 ET from Flextronics

SINGAPORE, Jan. 27 /PRNewswire-FirstCall/ -- Flextronics (Nasdaq: FLEX) today announced results for its third quarter ended December 31, 2009.

    
    
    (US$ in millions, except EPS)
                                                   Three Month Periods Ended
                                                   -------------------------
                                               December 31,       October 2,
                                                       2009              2009
                                                       ----              ----
    Net sales                                        $6,556            $5,832
    GAAP operating income                              $167              $123
    Adjusted operating income (1)                      $189              $149
    GAAP net income                                     $93               $20
    Adjusted net income (1)                            $138              $104
    GAAP EPS                                          $0.11             $0.02
    Adjusted EPS (1)                                  $0.17             $0.13
    
    (1) A reconciliation of non-GAAP financial measures to GAAP financial
        measures is presented in Schedule II attached to this press
        release.
    
    
    

Third Quarter Results

Net sales for the third quarter ended December 31, 2009 were $6.6 billion, an increase of 12%, compared to net sales for the second quarter ended October 2, 2009.  Adjusted operating income increased 27% to $189 million or 2.9% of net sales, compared to $149 million or 2.6% of net sales in the prior quarter.  Adjusted net income for the third quarter was $138 million and adjusted EPS was $0.17 compared to $104 million and $0.13, respectively, for the prior quarter.

“Our revenue increase of 12% for the quarter represents a broad and strong performance, with all of our market segments increasing sequentially.  Operating results improved with adjusted operating income at 2.9%, increasing 30 bps over the prior quarter and ROIC continued to strengthen to 30.1% in the quarter,” said Mike McNamara, CEO of Flextronics.

Cash and cash equivalents increased to a record $2.2 billion at December 31, 2009, an increase of $275 million from the prior quarter.  During the third quarter, Flextronics generated $331 million of operating cash flow and $291 million of free cash flow (defined as net cash provided by operating activities of $331 million, less purchases of property and equipment, net of dispositions).  Net debt, which is total debt less total cash, was further reduced in the current quarter by $278 million to $309 million.  Net debt has decreased by approximately $1 billion from one year ago.  Adjusted ROIC improved to 30.1% for the quarter, an increase of 790 bps compared to 22.2% for the prior quarter.

Paul Read, CFO of Flextronics added, "The third quarter represented a solid financial performance for the Company.  We continued to drive margin expansion and with our industry leading cash conversion cycle of 11 days, we generated substantial cash flow.  Cash flow from operations during the quarter was $331 million and for the fiscal year-to-date we have generated ~$750 million.  Our net debt has benefitted from the cash generation and ended the quarter at $309 million, down meaningfully from the $587 million in the prior quarter."

Guidance

For the fourth quarter ending March 31, 2010, revenue is expected to be in the range of $5.8 billion to $6.2 billion and adjusted EPS is expected to be in the range of $0.13 to $0.16 per share.

GAAP earnings per share are expected to be lower than the guidance provided herein by approximately $0.07 per diluted share for estimated restructuring activities, quarterly intangible amortization, stock-based compensation expense and non-cash interest expense.

Conference Calls and Web Casts

A conference call hosted by Flextronics's management will be held today at 5:00 p.m. EST / 2:00 p.m. PST to discuss the Company's financial results for the third quarter ended December 31, 2009.

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.

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 automotive, computing,  consumer, industrial, infrastructure, medical 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 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; the risks to our particular electronics and technology sector of economic instability and a slowdown in consumer spending, particularly given the current economic conditions; the effects of customer or supplier bankruptcies or insolvency; the effects that current credit and market conditions could have on the liquidity and financial condition of customers or suppliers, including any impact on their ability to meet contractual obligations to us on terms and conditions previously negotiated; the effects that the current macroeconomic environment could have on our liquidity and ability to access credit markets; 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 and our reliance on strategic relationships with major customers; the challenges of effectively managing our operations, including our ability to manage manufacturing processes, control costs and manage changes in our operations; the challenges of integrating acquired companies and assets; not obtaining anticipated new customer programs, or that if we do obtain them, that they may not contribute to our revenue or profitability as expected or at all; our ability to utilize available manufacturing capacity; the risk of future restructuring charges that could be material to our financial condition and results of operations; our ability to design and quickly introduce world-class components products that offer significant price and/or performance advantages over competitive products; the impact on our margins and profitability resulting from substantial investments and start-up and integration costs in our components, design and ODM businesses; production difficulties, especially with new products; changes in government regulations and tax laws, including any effects related to the expiration of tax holidays; our exposure to potential litigation relating to intellectual property rights, product warranty and product liability; our dependence on the continued trend of outsourcing by OEMs; supply shortages of required electronic components; the challenges of international operations, including fluctuations in exchange rates beyond hedged boundaries leading to unexpected charges; our dependence on our key personnel; and our ability to comply with environmental laws.  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.

    
    
                                                         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,              October 2,
                                  2009                   2009
                             ---------               --------
    GAAP:
      Net sales             $6,556,137             $5,831,761
      Cost of sales          6,173,461              5,519,778
      Restructuring
       charges                   9,624                 12,403
                                 -----                 ------
    
            Gross profit       373,052                299,580
    
      Selling, general
       and administrative
       expenses                205,614                176,246
      Restructuring charges        162                    187
                                   ---                    ---
    
            Operating income   167,276                123,147
    
      Intangible
       amortization             21,440                 22,710
      Other expense, net             -                 91,999
      Interest and
       other expense, net       40,555                 38,091
                                ------                 ------
    
            Income (loss)
             before income
             taxes             105,281                (29,653)
    
      Provision for
       (benefit from)
       income taxes             12,411                (49,312)
                                ------                -------
            Net income         $92,870                $19,659
                               =======                =======
    
    EPS:
      GAAP                       $0.11                  $0.02
                                 =====                  =====
      Non-GAAP                   $0.17                  $0.13
                                 =====                  =====
    
      Diluted Shares
       used in computing per
       share amounts           825,545                817,260
                               =======                =======
    
    See Schedule II for the reconciliation of GAAP to non-GAAP financial
    measures.
    
    
    
    
    
                                                         SCHEDULE II
               FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARIES
          RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (1)
               (In thousands, except per share amounts)
                             (unaudited)
    
    
                                   Three Month Periods Ended
                                   -------------------------
                             December 31,    % of   October 2,  % of
                                    2009    Sales        2009  Sales
                                    ----    -----        ----  -----
    
    Net Sales                 $6,556,137           $5,831,761
    
    
    GAAP gross profit           $373,052     5.7%    $299,580   5.1%
    
         Stock-based
          compensation
          expense                  2,733                2,440
    
         Distressed customer
          charges            (2) (26,439)                   -
    
         Restructuring
          charges            (3)   9,624               12,403
                                   -----               ------
    Non-GAAP gross
     profit                     $358,970     5.5%    $314,423   5.4%
                                ========             ========
    
    GAAP SG&A expenses          $205,614     3.1%    $176,246   3.0%
    
         Stock-based
          compensation
          expense                 11,381               10,962
    
         Distressed customer
          charges            (2)  24,093                    -
                                  ------                  ---
    Non-GAAP SG&A
     expenses                   $170,140     2.6%    $165,284   2.8%
                                ========             ========
    
    GAAP operating
     income                     $167,276     2.6%    $123,147   2.1%
    
         Stock-based
          compensation
          expense                 14,114               13,402
    
         Distressed customer
          charges            (2)  (2,346)                   -
    
         Restructuring
          charges            (3)   9,786               12,590
                                   -----               ------
    Non-GAAP operating
     income                     $188,830     2.9%    $149,139   2.6%
                                ========             ========
    
    GAAP net income              $92,870     1.4%     $19,659   0.3%
    
         Stock-based
          compensation
          expense                 14,114               13,402
    
         Distressed customer
          charges            (2)  (2,346)                   -
    
         Restructuring
          charges            (3)   9,786               12,590
    
         Investment and
          notes impairment   (4)       -               91,999
    
         Non-cash
          convertible debt
          interest expense   (5)   3,889                5,488
    
         Intangible
          amortization            21,440               22,710
    
         Adjustment for
          taxes                   (1,791)             (61,859)
                                  ------              -------
    Non-GAAP net income         $137,962     2.1%    $103,989   1.8%
                                ========             ========
    
    GAAP provision for
     income taxes                $12,411     0.2%    $(49,312) -0.8%
     
         Restructuring
          charges                    130                  351
    
         Settlement of tax
          contingencies      (6)       -               59,669
    
         Intangible
          amortization             1,661                1,839
                                   -----                -----
    Non-GAAP provision
     for income taxes            $14,202     0.2%     $12,547   0.2%
                                 =======              =======
    
    EPS:
    
         GAAP                      $0.11                $0.02
                                   =====                =====
         Non-GAAP                  $0.17                $0.13
                                   =====                =====
    
    GAAP net cash flows
     provided by
     operating
     activities                 $331,304            $311,538
         Purchase of
          property &
          equipment, net of
          dispositions           (40,236)           (41,528)
                                 -------             -------
    Non-GAAP free cash
     flow                       $291,068            $270,010
                                ========            ========
    
    See the accompanying notes on Schedule IV attached to this press release.
    
    
    
    
    
                                                                  SCHEDULE III
                        FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARIES
                     UNAUDITED GAAP CONDENSED CONSOLIDATED BALANCE SHEETS
                                      (In thousands)
    
                                         December 31, 2009  March 31, 2009 (5)
                                         -----------------  ------------------
    ASSETS
    
    
    Current Assets:
      Cash and cash equivalents                 $2,241,870       $1,821,886
      Accounts receivable, net                   2,416,812        2,316,939
      Inventories                                2,781,707        2,996,785
      Other current assets                         878,428          799,396
                                                   -------          -------
                                                 8,318,817        7,935,006
    
    
    Property and equipment, net                  2,139,380        2,333,781
    Goodwill and other intangibles, net            267,385          291,491
    Other assets                                   272,200          756,662
                                                   -------          -------
    Total assets                               $10,997,782      $11,316,940
                                               ===========      ===========
    
    
    
    
    LIABILITIES AND SHAREHOLDERS’ EQUITY
    
    Current Liabilities:
      Bank borrowings, current portion of
       long-term debt and capital
         lease obligations                         $25,781          $19,358
      Zero Coupon Convertible Junior
       Subordinated Notes due 2009                       -          189,045
      1% Convertible Subordinated Notes due
       2010                                        230,147                -
      Accounts payable                           4,428,427        4,049,534
      Other current liabilities                  1,808,929        2,150,834
                                                 ---------        ---------
      Total current liabilities                  6,493,284        6,408,771
    
    Long-term debt, net of current
     portion:
      Acquisition Term Loan due 2012 and
       2014                                      1,678,770        1,692,024
      6 1/2 % Senior Subordinated Notes due
       2013                                        299,806          399,622
      6 1/4 % Senior Subordinated Notes due
       2014                                        302,172          402,090
      1 % Convertible Subordinated Notes due
       2010                                              -          218,391
      Other long-term debt and capital
       lease obligations                            13,985           21,553
    Other liabilities                              307,605          313,321
    
    
    Total shareholders' equity                   1,902,160        1,861,168
                                                 ---------        ---------
    Total liabilities and shareholders'
     equity                                    $10,997,782      $11,316,940
                                               ===========      ===========
    
    See the accompanying notes on schedule IV attached to this press release.
    
    
    
    
    
                                                       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, among
          other items, stock-based compensation expense, restructuring 
         charges, intangible amortization, financially distressed customer 
         charges, non-cash convertible debt interest expense and certain other
         items.  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 share bonus 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, impairment, lease 
        termination, 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.  
    
        Distressed customer charges are comprised of additional provisions for 
        doubtful accounts receivable, inventory and other obligations for 
        customers that are experiencing significant financial difficulties. 
         These costs are excluded by the Company's management in assessing its 
        current operating performance and forecasting its earnings trends, and 
        accordingly, are 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.
    
        Other charges or gains consists of various other types of items that 
        are not directly related to ongoing or core business results, such as 
        impairment charges associated with non-core investments and notes 
        receivable and gains on the extinguishment of debt.  We exclude these 
        items because they are not related to the Company's ongoing operating 
        performance or do not affect core operations.  Excluding these amounts 
        provide investors with a basis to compare Company performance against 
        the performance of other companies without this variability.
    
        Non-cash convertible debt interest expense consists of interest 
        expense recorded as a result of new accounting for convertible debt 
        instruments that may be settled in cash upon conversion.  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 theses 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 tax contingencies. 
    
    (2)  During the three-month period ended December 31, 2008, the Company 
         incurred a $145.3 million charge as a result of the previously 
         announced Nortel bankruptcy.  In November 2009, the Company agreed to
         a settlement with Nortel primarily related to pre-bankruptcy petition
         claims.  As a result of this settlement, the Company revised its 
         estimates related to the recovery of Nortel accounts receivable, 
         certain retirement obligations and other claims.  In addition, the 
         Company has continued to recover amounts related to previously 
         reserved inventory as a result of continuing business with Nortel 
         post bankruptcy.  During the three-month period ended December 31,
         2009, we recorded a net $2.3 million reduction to the original 
         charge which included a reduction to cost of sales of $26.3 
         million net of an increase to selling general and administrative 
         expenses of $24 million.
    
    (3)  During the three month periods ended December 31, 2009 and October 2,
         2009, the Company recognized restructuring charges as a result of 
         the difficult macroeconomic conditions.  The global economic crisis 
         and related decline in the Company's customers' products across all 
         of the industries it serves, has caused the Company's OEM customers 
         to reduce their manufacturing and supply chain outsourcing negatively
         impacting the Company's capacity utilization levels.  The Company's
         restructuring activities, which include employee severance, costs 
         related to owned and leased facilities and equipment that are no 
         longer in use and are to be disposed of, and other costs associated 
         with the exit of certain contractual arrangements due to facility 
         closures, are intended to improve its operational efficiencies by 
         reducing excess workforce and capacity.  In addition to the cost 
         reductions, these activities will result in further shift of 
         manufacturing capacity to locations with higher efficiencies and, 
         in most instances, lower costs. 
    
    (4)  During the three month period ended October 2, 2009, the Company 
         impaired its carrying value in a certain non-core investment and 
         notes receivable due to a reduction in estimated recoverability.
    
    (5)  On April 1, 2009, the Company adopted new accounting for convertible 
         debt instruments that may be settled in cash upon conversion 
         (including partial cash settlement) which was required to be applied
         retrospectively. The adoption affected the accounting for the 
         Company's 1% Convertible Subordinated Notes and Zero Coupon 
         Convertible Junior Subordinated Notes by requiring the initial 
         proceeds from their sale to be allocated between a liability 
         component and an equity component in a manner that results in 
         interest expense on the debt component at the Company's 
         nonconvertible debt borrowing rate on the date of issuance.  Upon 
         adoption the Company recorded the change in accounting principle as 
         a cumulative effect adjustment to the opening balance of accumulated
         deficit as of March 31, 2009 totaling approximately $225 million 
         and a discount to the carrying value of the convertible debt notes 
         of $27.5 million.  The corresponding increase in the recorded value 
         of ordinary shares was approximately $252 million.  The adoption had 
         no impact on the Company's consolidated cash flows. Below is a 
         summary of the impacts to the financial statements and related 
         notes and interest expense for the respective periods presented.
    
    
    
    
                                     1% Convertible   Zero Coupon Convertible 
                                      Subordinated       Junior Subordinated 
                                          Notes                  Notes
                                          -----                  -----
    Balance Sheet:                  December     March     December    March 
                                    31, 2009    31, 2009   31, 2009  31, 2009
                                    --------    --------   --------  --------
                                                    (In thousands)
    
    Principal amount
     of Notes.....................   $239,993  $239,993          $-  $195,000
    Unamortized discount.............  (9,846)  (21,602)          -    (5,955)
                                       ------   -------         ---    ------
    Net carrying
     amount of Notes.........        $230,147  $218,391          $-  $189,045
                                     ========  ========         ===  ========
    
    
                                        Three-Month           Three-Month 
                                       Periods Ended         Periods Ended
                                       -------------         -------------
    Income Statement:               December   October     December   October
                                    31, 2009   2, 2009     31, 2009   2, 2009
                                    --------   -------     --------   -------
                                                  (In thousands)  
    
    Amortization of
     discount net of
    adjustments to
     deferred financing costs.....     $3,889    $3,829          $-    $1,659
                                       ======    ======         ===    ======
    
    The adoption of the new accounting for convertible debt had less than a 
    $0.01 negative impact on basic and diluted GAAP earnings per share in both
     the three-month periods ended December 31, 2009 and October 2, 2009.  
    
    (6)  During the three-month period ended October 2, 2009, the Company 
         recognized non-cash tax benefits as a result of settlements in 
         various tax jurisdictions, partially offset by certain charges 
         related to uncertain tax positions.
    
    
    
    
    
    Free Cash Flow consists of GAAP net cash flows from operating activities 
    less purchase of property and equipment, net of dispositions.  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."
    
    Return on Invested Capital (ROIC) is calculated by annualizing the 
    Company's current quarter after-tax non-GAAP operating income and 
    dividing that by a two quarter average net invested capital asset base.
    After-tax non-GAAP operating income excludes charges for financially 
    distressed customers, stock-based compensation expense, restructuring 
    and other charges. Net invested capital is defined as total assets less 
    current liabilities and other long-term liabilities further adjusted for 
    non-operating assets and liabilities.  Non-operating assets and 
    liabilities are not included in the net invested capital asset base 
    because they do not affect non-GAAP operating income.  Non-operating 
    assets and liabilities include, but are not limited to, cash and cash 
    equivalents, short-term investments, notes receivable, restructuring 
    liabilities, accrued interest, short-term bank borrowings and current 
    and non-current debt. We believe ROIC is a useful measure in providing 
    investors with information regarding our performance.  ROIC is a widely 
    accepted measure of earnings efficiency in relation to total capital 
    employed.  We believe that increasing the return on total capital 
    employed, as measured by ROIC, is an effective method to sustain and 
    increase shareholder value.  ROIC is not a measure of financial 
    performance under generally accepted accounting principles in the U.S., 
    and may not be defined and calculated by other companies in the same 
    manner.  ROIC should not be considered in isolation or as an alternative 
    to net income or loss as an indicator of performance. The following table 
    reconciles ROIC as calculated using after-tax non-GAAP operating income to
    the same performance measure calculated using the nearest GAAP measure, 
    which is GAAP operating income adjusted for taxes: 
    
    
    
    
    ROIC                                               Q3 FY 2010   Q2 FY 2010
                                                       ----------   ----------
    GAAP  ROIC.......................................        26.7%       18.0%
    Adjustments noted  above.......................           3.4%        4.2%
                                                              ---         ---
    Non-GAAP  ROIC.................................          30.1%       22.2%
                                                             ====        ====
    
    
    
    
    
    Cash Conversion Cycle (CCC) is defined as the sum of non-GAAP inventory 
    turns in days and days sales outstanding in accounts receivable less 
    non-GAAP days payable outstanding in accounts payable.  We calculate 
    non-GAAP inventory turns as annualized non-GAAP cost of sales (before 
    adjustments for financially distressed customers, stock-based 
    compensation expense, restructuring and other charges) divided by average 
    inventory for the quarter.  We calculate our days sales outstanding as 
    annualized revenues divided by average accounts receivable for the 
    quarter.  We calculate non-GAAP days payable outstanding as annualized 
    non-GAAP cost of sales (before adjustments for financially distressed 
    customers, stock-based compensation expense, restructuring and other 
    charges) divided by average accounts payable. 
    
    We believe the Cash Conversion Cycle is a useful measure in providing 
    investors with information regarding our cash management performance 
    and is a widely accepted measure of working capital management efficiency.
    These are measures of financial performance under generally accepted 
    accounting principles in the U.S. when calculated using GAAP operating 
    measures, but may not be defined and calculated by other companies in the
    same manner.  These should not be considered in isolation or as an 
    alternative to other GAAP metrics as an indicator of performance.  For 
    the Quarter ended December 31, 2009, Cash Conversion Cycle of 11 days 
    calculated using the non-GAAP measures described above was the same as 
    that calculated using cost of sales in accordance with GAAP.

SOURCE Flextronics



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