Flextronics Reports Fourth Quarter And Fiscal 2014 Results

(US$ in millions, except WASO and EPS)

Three Month Periods Ended

Twelve Month Periods Ended

March 31

March 31

March 31

March 31

2014

2013

2014

2013

Net sales

$

6,724

$

5,295

$

26,109

$

23,569

Adjusted operating income

$

182

$

106

$

665

$

611

GAAP operating income (loss)

$

137

$

(27)

$

549

$

349

Adjusted income from continuing operations

$

146

$

86

$

556

$

564

GAAP income (loss) from continuing operations

$

43

$

(49)

$

366

$

303

Adjusted EPS

$

0.24

$

0.13

$

0.89

$

0.84

GAAP EPS

$

0.07

$

(0.08)

$

0.59

$

0.45

WASO (millions)

612

664

623

675

An explanation and reconciliation of non-GAAP financial measures to GAAP financial measures is presented in Schedule II attached to this press release. Weighted average ordinary shares used for calculating GAAP EPS for the three months ended March 31, 2013 were the same for basic and diluted, or 651 million shares, due to the net loss for the quarter ended March 31, 2013, see Schedule I.

Renee Brotherton

Kevin Kessel

Corporate Communications

Investor Relations

(408) 576-7189

(408) 576-7985

renee.brotherton@flextronics.com 

kevin.kessel@flextronics.com 

SCHEDULE I

FLEXTRONICS INTERNATIONAL LTD.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

Three Month Periods Ended

March 31, 2014

March 31, 2013

GAAP:

Net sales

$

6,723,934

$

5,295,318

Cost of sales

6,338,268

4,982,142

Restructuring charges

23,522

117,519

      Gross profit

362,144

195,657

Selling, general and administrative expenses

213,735

215,484

Restructuring charges

11,029

7,224

      Operating income (loss)

137,380

(27,051)

Intangible amortization

7,397

8,318

Other charges (income), net ⁽³⁾

55,000

(10,773)

Interest and other, net

16,388

18,596

      Income (loss) before income taxes

58,595

(43,192)

Provision for income taxes

15,620

6,124

     Net income (loss)

$

42,975

$

(49,316)

EPS:

Net income (loss):

GAAP ⁽²⁾:

$

0.07

$

(0.08)

Non-GAAP

$

0.24

$

0.13

Basic shares used in computing per share amounts

598,371

650,938

Diluted shares used in computing per share amounts

611,719

664,301

FLEXTRONICS INTERNATIONAL LTD.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

Twelve Month Periods Ended

March 31, 2014

March 31, 2013

GAAP:

Net sales

$

26,108,607

$

23,569,475

Cost of sales

24,609,738

22,187,393

Restructuring charges

58,648

215,834

      Gross profit

1,440,221

1,166,248

Selling, general and administrative expenses

874,796

805,235

Restructuring charges

16,663

11,600

      Operating income

548,762

349,413

Intangible amortization

28,892

29,529

Other charges (income), net ⁽³⁾

57,512

(65,190)

Interest and other, net

61,904

56,259

      Income before income taxes

400,454

328,815

Provision for income taxes

34,860

26,313

     Income from continuing operations

365,594

302,502

     Loss from discontinued operations, net of tax

-

(25,451)

     Net income

$

365,594

$

277,051

EPS:

Income from continuing operations:

GAAP

$

0.59

$

0.45

Non-GAAP

$

0.89

$

0.84

Loss from discontinued operations:

GAAP

$

-

$

(0.04)

Non-GAAP

$

-

$

(0.02)

Net income:

GAAP

$

0.59

$

0.41

Non-GAAP

$

0.89

$

0.81

Diluted shares used in computing per share amounts

623,479

675,033

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.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(In thousands, except per share amounts)

Three Month Periods Ended

March 31,
2014

March 31,
2013

GAAP gross profit

$

362,144

$

195,657

     Stock-based compensation expense

1,522

1,118

     Restructuring charges

23,522

117,519

Non-GAAP gross profit

$

387,188

$

314,294

GAAP SG&A Expenses

$

213,735

$

215,484

     Stock-based compensation expense

8,500

6,703

Non-GAAP SG&A Expenses

$

205,235

$

208,781

GAAP operating income (loss)

$

137,380

$

(27,051)

     Stock-based compensation expense

10,022

7,821

     Restructuring charges

34,551

124,743

Non-GAAP operating income

$

181,953

$

105,513

GAAP provision for income taxes

$

15,620

$

6,124

     Intangible amortization benefit

291

200

     Restructuring charges

3,881

5,083

Non-GAAP provision for income taxes

$

19,792

$

11,407

GAAP net income (loss)

$

42,975

$

(49,316)

     Stock-based compensation expense

10,022

7,821

     Intangible amortization

7,397

8,318

     Restructuring charges

34,551

124,743

     Other charges ⁽³⁾

55,000

-

     Adjustments for taxes

(4,172)

(5,283)

Non-GAAP net income

$

145,773

$

86,283

EPS:

Net income (loss):

GAAP ⁽²⁾:

$

0.07

$

(0.08)

Non-GAAP

$

0.24

$

0.13

FLEXTRONICS INTERNATIONAL LTD.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(In thousands, except per share amounts)

Twelve Month Periods Ended

March 31,
2014

March 31,
2013

GAAP gross profit

$

1,440,221

$

1,166,248

     Stock-based compensation expense

6,540

5,163

     Restructuring charges

58,648

215,834

Non-GAAP gross profit

$

1,505,409

$

1,387,245

GAAP SG&A Expenses

$

874,796

$

805,235

     Stock-based compensation expense

33,899

29,366

Non-GAAP SG&A Expenses

$

840,897

$

775,869

GAAP operating income

$

548,762

$

349,413

     Stock-based compensation expense

40,439

34,529

     Restructuring charges

75,311

227,434

Non-GAAP operating income

$

664,512

$

611,376

GAAP provision for income taxes

$

34,860

$

26,313

     Intangible amortization benefit

949

23,323

     Restructuring charges

7,929

6,363

Non-GAAP provision for income taxes

$

43,738

$

55,999

GAAP income from continuing operations

$

365,594

$

302,502

     Stock-based compensation expense

40,439

34,529

     Intangible amortization

28,892

29,529

     Restructuring charges

75,311

227,434

     Other charges ⁽³⁾

55,000

-

     Adjustments for taxes

(8,878)

(29,686)

Non-GAAP income from continuing operations

$

556,358

$

564,308

GAAP net income

$

365,594

$

277,051

     Stock-based compensation expense

40,439

34,529

     Intangible amortization

28,892

40,529

     Restructuring charges

75,311

227,434

     Other charges ⁽³⁾

55,000

-

     Adjustments for taxes

(8,878)

(29,686)

Non-GAAP net income

$

556,358

$

549,857

EPS:

Income from continuing operations:

GAAP

$

0.59

$

0.45

Non-GAAP

$

0.89

$

0.84

Loss from discontinued operations:

GAAP

$

-

$

(0.04)

Non-GAAP

$

-

$

(0.02)

Net income (loss):

GAAP

$

0.59

$

0.41

Non-GAAP

$

0.89

$

0.81

SCHEDULE III

FLEXTRONICS INTERNATIONAL LTD.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

March 31, 2014

March 31, 2013

ASSETS

Current Assets:

Cash and cash equivalents

$

1,593,728

$

1,587,087

Accounts receivable, net

2,697,985

2,111,996

Inventories

3,599,008

2,722,500

Other current assets

1,485,095

1,349,818

Total current assets

9,375,816

7,771,401

Property and equipment, net

2,288,656

2,174,588

Goodwill and other intangible assets, net

377,218

343,552

Other assets

433,950

302,014

Total assets

$

12,475,640

$

10,591,555

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:

Bank borrowings and current portion of  long-term debt

$

32,575

$

416,654

Accounts payable

4,747,779

3,705,297

Other current liabilities

2,851,823

2,050,834

Total current liabilities

7,632,177

6,172,785

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

646,135

Other long-term debt

2,520

4,838

Other liabilities

571,764

521,039

Total shareholders' equity

2,201,679

2,246,758

Total liabilities and shareholders' equity

$

12,475,640

$

10,591,555

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 continuing 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 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.

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.

Recognition of contractual obligation – see item (3) below.

For the twelve-month period ended March 31, 2014, Free Cash Flow was $701 million consisting of GAAP net cash flows from operating activities of $1.2 billion less purchases of property and equipment net of dispositions of $515 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."

(2)

Weighted average ordinary shares used for calculating GAAP EPS for the quarter ended March 31, 2013 were the same for basic and diluted due to the net loss recognized during the period.

(3)

In accordance with a manufacturing agreement the Company has recognized a $55 million charge for a contractual obligation.  The expense is included in other charges (income), net in the consolidated statements of operations for the quarter ended March 31, 2014.  The Company and the customer are finalizing an amendment to the manufacturing agreement, which is expected to include a waiver of the $55 million obligation.  The Company expects to amend the agreement in the first quarter of fiscal year 2015 and when it is executed, the Company will reverse this charge with no impact to cash.