- Net Debt Reduced by $382 Million in Last 12 Months
(USD in millions, except EPS) Three Months Ended
June 30,
2005 2004
Net sales $3,897.5 $3,880.4
GAAP net income $58.7 $ 74.3
Net income, excluding intangibles
amortization, restructuring and other
charges (1) $99.6 $78.3
Diluted GAAP EPS $0.10 $0.13
Diluted EPS, excluding intangibles
amortization, restructuring and other
charges (1) $0.17 $ 0.14
(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 intangibles amortization, restructuring and
other charges, as applicable. The Company recorded intangibles
amortization expense of $14.6 million and $8.7 million during the three-
month periods ended June 30, 2005 and 2004, respectively. The Company
also recorded pre-tax restructuring charges of $32.7 million and $23.6
million during the three-month periods ended June 30, 2005 and 2004,
respectively, which were primarily related to the closures and
consolidations of various manufacturing facilities. The reconciliation of
non-GAAP results to GAAP results is illustrated in Schedule I attached to
this press release.
First Quarter 2006 Results
Net sales for the first quarter ended June 30, 2005 were $3.9 billion, which represents an increase of $17 million over the June 2004 quarter.
Excluding intangibles amortization, restructuring and other charges, net income for the first quarter increased 27% to $99.6 million, or $0.17 per diluted share, compared with $78.3 million, or $0.14 per diluted share in the year ago quarter. After-tax amortization, restructuring and other charges amounted to $41 million in the current quarter compared to $4 million in the year ago quarter. As a result, GAAP net income for the first quarter decreased by $15.6 million to $58.7 million, or $0.10 per diluted share, as compared to $74.3 million, or $0.13 per diluted share in the year ago quarter.
Return on Invested Tangible Capital ("ROITC") increased to 25% in the June 2005 quarter from 18% in the prior year comparable quarter while Return on Invested Capital ("ROIC") increased to 9% in the June 2005 quarter from 8% in the prior year comparable quarter. The Company's cash conversion cycle was 20 days in the quarter. Excluding restructuring charges, operating margin increased year-over-year for the seventh consecutive quarter to 3.4%.
The Company ended the quarter with $830 million in cash, an increase of $165 million from June 30, 2004 while total debt has decreased by $217 million over the same period. This represents a net debt reduction of $382 million during the last 12 months.
With regard to the June quarter operating results, Michael E. Marks, Chief Executive of Flextronics stated, "We remain focused on achieving our goal of Return on Invested Capital of 15% through improving profitability, asset utilization and cash flow. To this end, we are pleased that we were able to increase operating margins for the seventh consecutive quarter on a year-over- year basis. This improvement reflects the results of our vertically integrated EMS offering as well as our relentless effort to contain costs in the business. Our world-class working capital management combined with declining capital expenditures should also continue to drive cash flow improvements."
As previously announced, Flextronics has entered into a definitive agreement to merge its Network Services division with Telavie, a company wholly-owned by Altor 2003 Fund, a Nordic private equity firm. Flextronics will receive an upfront cash payment, deferred and contingent payments, and we will also retain a 30% ownership stake in the merged company. Flextronics has also entered into a separate agreement to sell its semiconductor division to AMIS Holdings, the parent company of AMI Semiconductor. Both divestitures are progressing according to plan and are expected to close during the September 2005 quarter. Flextronics expects to receive cash payments of approximately $550 million in the quarter for these divestitures.
Management plans to disclose the specific impact on the Company's balance sheet and income statement as a result of these divestitures when they announce financial results for the September 2005 quarter. "We expect to use our available cash to fund growth opportunities in the core EMS business, or redeploy it back into our capital structure. The use of proceeds will be finalized once these divestitures are complete, taking into account prevailing market conditions and a comprehensive analysis of our options to maximize earnings and long-term returns for shareholders," said Marks.
Guidance
Management provided guidance for quarterly earnings per diluted share (excluding amortization, restructuring and other charges) of $0.18 to $0.21 on revenues of $3.8 billion to $4.2 billion for the September 2005 quarter. Management also reiterated guidance for fiscal year earnings per diluted share (excluding amortization, restructuring and other items) of $0.80 to $0.90 on revenues of $16.4 billion to $17.5 billion for fiscal 2006. The quarterly and fiscal year guidance contemplate the variability in the timing of the divestiture sales and deployment of the proceeds.
Quarterly GAAP earnings per diluted share are expected to be lower than the guidance provided herein by approximately $0.02 to $0.03 per diluted share reflecting quarterly amortization expense. Restructuring and other charges cannot be estimated.
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 innovative design and manufacturing services to automotive, industrial, medical, and technology companies. 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 customers with complete design, engineering, and manufacturing resources that are vertically integrated with components to optimize their operations by lowering their costs and reducing their 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 anticipated increases in revenues and earnings, anticipated uses of available cash, expected reductions in capital expenditures, anticipated increases in cash flow and return on capital, new business opportunities and the expected impact of our pending divestitures of our Network Services and semiconductor divisions. 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 the challenges of effectively managing our operations; the risk that we may not obtain anticipated new customer programs, or that if we do, they may be delayed, and may not contribute to our revenue or profitability as expected, or at all; the possible need for future restructurings and impairments of assets; the risks that we may not obtain the benefits anticipated from acquisitions or succeed in integrating acquired companies, including integrations necessary pursuant to the Nortel transaction; our ability to respond to changes in economic trends and to fluctuations in demand for customers' products and changes in customers' orders; the risks that we may be unable to generate or support increased ODM and design activity; our dependence on a small number of large customers; our dependence on industries affected by rapid technological change; competition in our industry; risks of shortages of key components; 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.
SCHEDULE I
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended June 30, 2005
Required
Non-GAAP (1) Adjustments GAAP
Net sales $3,897,531 $3,897,531
Cost of sales 3,618,317 3,618,317
Restructuring charges -- 27,572 27,572
Gross profit 279,214 (27,572) 251,642
Selling, general and
administrative expenses 147,791 147,791
Restructuring charges -- 5,117 5,117
Operating income 131,423 (32,689) 98,734
Intangibles amortization -- 14,621 14,621
Interest and other expense,
net 26,017 -- 26,017
Income before income taxes 105,406 (47,310) 58,096
Provision for (benefit from)
income taxes 5,759 (6,370) (611)
Net income $99,647 $(40,940) $58,707
Earnings per share:
Basic $0.18 $0.10
Diluted $0.17 $0.10
Shares used in computing per
share amounts:
Basic 569,325 569,325
Diluted 598,298 598,298
Three Months Ended June 30, 2004
Required
Non-GAAP (1) Adjustments GAAP
Net sales $3,880,448 $3,880,448
Cost of sales 3,633,516 3,633,516
Restructuring charges -- 20,991 20,991
Gross profit 246,932 (20,991) 225,941
Selling, general and
administrative expenses 141,596 141,596
Restructuring charges -- 2,597 2,597
Operating income 105,336 (23,588) 81,748
Intangibles amortization -- 8,661 8,661
Interest and other expense,
net 18,286 18,286
Income before income taxes 87,050 (32,249) 54,801
Provision for (benefit from)
income taxes 8,705 (28,226) (19,521)
Net income $78,345 $(4,023) $74,322
Earnings per share:
Basic $0.15 $0.14
Diluted $0.14 $0.13
Shares used in computing
per share amounts:
Basic 530,626 530,626
Diluted 568,013 568,013
(1) The non-GAAP financial measures disclosed in this release exclude
certain amounts that are included in the most directly comparable GAAP
measures. Non-GAAP results exclude after-tax intangibles amortization,
restructuring and other charges, as applicable. The Company recorded
intangible amortization expense of $14.6 million and $8.7 million during
the quarters ended June 30, 2005 and 2004, respectively. The Company also
recorded restructuring charges of $32.7 million and $23.6 million during
the quarters ended June 30, 2005 and 2004, respectively, which were
primarily related to the closures and consolidations of various
manufacturing facilities. The tax benefit related to all of these items
and other non-operational tax adjustments amounted to $6.4 million and
$28.2 million during the quarters ended June 30, 2005 and 2004,
respectively.
SCHEDULE II
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
June 30, March 31,
2005 2005
ASSETS
Current Assets:
Cash and cash equivalents $830,207 $ 869,258
Accounts receivable, net 2,057,050 1,842,010
Inventories 1,511,004 1,518,866
Deferred income taxes 12,562 12,117
Other current assets 543,863 544,914
Total current assets 4,954,686 4,787,165
Property, plant and equipment, net 1,669,137 1,704,516
Deferred income taxes 690,950 684,952
Goodwill and other intangibles, net 3,461,484 3,502,189
Other assets 321,198 328,750
Total assets $11,097,455 $11,007,572
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank borrowings and current portion
of long-term debt $55,627 $17,448
Current portion of capital lease
obligations 8,332 8,718
Accounts payable 2,571,883 2,523,269
Other current liabilities 1,318,888 1,330,759
3,954,730 3,880,194
Long-term debt, net of current portion:
Capital lease obligations 7,156 9,141
Zero Coupon Convertible Junior
Subordinated Notes due 2008 200,000 200,000
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 507,487 490,270
Other 108,308 110,509
Other liabilities 179,080 193,760
Total shareholders' equity 5,241,044 5,224,048
Total liabilities and
shareholders' equity $11,097,455 $11,007,572
CONTACT: Thomas J. Smach, Chief Financial Officer, +1-408-576-7722, or
Email Contact, or Renee Brotherton, Senior Director of
Corporate Marketing, +1-408-576-7189, or
Email Contact,
both of Flextronics
Web site: http://www.flextronics.com/