Flextronics Reports First Quarter Fiscal 2015 Results

(US$ in millions, except WASO and EPS)

Three Month Periods Ended

June 27

March 31

June 28

2014

2014

2013

Net sales

$

6,643

$

6,724

$

5,791

Adjusted operating income

$

183

$

182

$

137

GAAP operating income

$

172

$

137

$

87

Adjusted net  income

$

148

$

146

$

112

GAAP net income

$

174

$

43

$

59

Adjusted EPS

$

0.25

$

0.24

$

0.18

GAAP EPS

$

0.29

$

0.07

$

0.09

WASO (millions)

601

612

640

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

Renee Brotherton

Kevin Kessel

Corporate Communications

Investor Relations

(408) 576-7189

(408) 576-7985

[email protected] 

[email protected]

SCHEDULE I

FLEXTRONICS INTERNATIONAL LTD.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

Three Month Periods Ended

June 27, 2014

March 31, 2014

June 28, 2013

GAAP:

Net sales

$

6,642,745

$

6,723,934

$

5,791,125

Cost of sales

6,261,960

6,361,790

5,480,090

      Gross profit

380,785

362,144

311,035

Selling, general and administrative expenses

209,277

224,764

223,619

      Operating income

171,508

137,380

87,416

Intangible amortization

6,951

7,397

8,202

Interest and other, net

18,637

16,388

12,573

Other charges (income), net

(44,009)

55,000

7,111

      Income before income taxes

189,929

58,595

59,530

Provision for income taxes

16,042

15,620

273

     Net income

$

173,887

$

42,975

$

59,257

EPS:

Net income:

GAAP

$

0.29

$

0.07

$

0.09

Non-GAAP

$

0.25

$

0.24

$

0.18

Diluted shares used in computing per share amounts

601,300

611,719

639,899

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.

FLEXTRONICS INTERNATIONAL LTD.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES ⁽¹⁾

(In thousands, except per share amounts)

Three Month Periods Ended

June 27,
2014

March 31,
2013

June 28,
2013

GAAP gross profit

$

380,785

$

362,144

$

311,035

     Stock-based compensation expense

1,611

1,522

1,352

     Restructuring charges

-

23,522

35,126

Non-GAAP gross profit

$

382,396

$

387,188

$

347,513

GAAP SG&A Expenses

$

209,277

$

224,764

$

223,619

     Stock-based compensation expense

10,071

8,500

7,237

     Restructuring charges

-

11,029

5,634

Non-GAAP SG&A Expenses

$

199,206

$

205,235

$

210,748

GAAP operating income

$

171,508

$

137,380

$

87,416

     Stock-based compensation expense

11,682

10,022

8,589

     Restructuring charges

-

34,551

40,760

Non-GAAP operating income

$

183,190

$

181,953

$

136,765

GAAP provision for income taxes

$

16,042

$

15,620

$

273

     Intangible amortization benefit

167

291

329

     Restructuring charges

-

3,881

4,048

Non-GAAP provision for income taxes

$

16,209

$

19,792

$

4,650

GAAP net income

$

173,887

$

42,975

$

59,257

     Stock-based compensation expense

11,682

10,022

8,589

     Intangible amortization

6,951

7,397

8,202

     Restructuring charges

-

34,551

40,760

     Other charges (income), net ⁽²⁾⁽³⁾

(44,009)

55,000

-

     Adjustments for taxes

(167)

(4,172)

(4,377)

Non-GAAP net income

$

148,344

$

145,773

$

112,431

   EPS:

   Net income:

   GAAP

$

0.29

$

0.07

$

0.09

   Non-GAAP

$

0.25

$

0.24

$

0.18

SCHEDULE III

FLEXTRONICS INTERNATIONAL LTD.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

June 27, 2014

March 31, 2014

ASSETS

Current Assets:

Cash and cash equivalents

$

1,347,690

$

1,593,728

Accounts receivable, net

2,894,622

2,697,985

Inventories

3,510,163

3,599,008

Other current assets

1,236,948

1,509,605

Total current assets

8,989,423

9,400,326

Property and equipment, net

2,254,664

2,288,656

Goodwill and other intangible assets, net

389,369

377,218

Other assets

434,368

433,950

Total assets

$

12,067,824

$

12,500,150

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:

Bank borrowings and current portion of  long-term debt

$

55,338

$

32,575

Accounts payable

4,742,033

4,747,779

Other current liabilities

2,435,841

2,876,333

Total current liabilities

7,233,212

7,656,687

Long-term debt, net of current portion:

Revolving credit facility

-

-

4.625% Notes (due 2020)

500,000

500,000

5.000% Notes (due 2023)

500,000

500,000

Term Loans

1,067,500

1,067,500

Other long-term debt

6,354

2,520

Other liabilities

459,890

571,764

Total shareholders' equity

2,300,868

2,201,679

Total liabilities and shareholders' equity

$

12,067,824

$

12,500,150

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 income from operations, non-GAAP net income and non-GAAP net income per diluted share.  These supplemental measures exclude stock-based compensation expense, restructuring charges, intangible amortization, other discrete events as applicable and the related tax effects. 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 the Company's 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.

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 restructuring activities, and 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.

Other charges (income), net – see notes (2) and (3) below

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.

(2)

In accordance with a manufacturing agreement, the Company recognized a $55.0 million charge for a contractual obligation during the quarter ended March 31, 2014.  During the first quarter of fiscal 2015, an amendment was executed which included the removal of the $55.0 million obligation. Accordingly, the Company reversed this charge with a corresponding credit to other income, included in other charges (income), net with no impact to cash. 

(3)

During the first quarter of fiscal 2015, the Company recognized a loss of $11.0 million in connection with the disposition of a certain European manufacturing facility, which is included in other charges (income), net.