SINGAPORE, April 26 /PRNewswire-FirstCall/ -- Flextronics today announced results for its fourth quarter and fiscal year ended March 31, 2007 as follows:
Three Months Twelve Months
(US$ in millions, except EPS) Ended Ended
March 31, March 31,
2007 2006 2007 2006
Net sales $4,677 $3,531 $18,854 $15,288
GAAP operating income $75 $40 $374 $246
Adjusted operating income (1) $141 $104 $570 $470
GAAP net income $121 $43 $509 $141
Adjusted net income (1) $122 $98 $478 $417
Diluted GAAP EPS $0.20 $0.07 $0.85 $0.24
Adjusted diluted EPS (1) $0.20 $0.16 $0.80 $0.69
(1) A reconciliation of non-GAAP financial measures to GAAP financial
measures is presented in Schedule III attached to this press release.
Fourth Quarter and Fiscal Year Results
Net sales for the fourth quarter ended March 31, 2007 were $4.7 billion, which represents an increase of $1.1 billion, or 32%, over the year ago quarter. Adjusted operating income for the fourth quarter ended March 31, 2007 increased 36% over the year ago quarter while adjusted net income increased 24% to $122 million, or $0.20 per diluted share, compared to $98 million, or $0.16 per diluted share, in the year ago quarter.
Net sales for fiscal year ended March 31, 2007 were a record high $18.9 billion, which represents an increase of $3.6 billion, or 23%, over fiscal year 2006. Adjusted operating income for fiscal 2007 increased 21% over the prior fiscal year while adjusted net income for fiscal year 2007 increased 15% to a record $478 million, or $0.80 per diluted share, compared to $417 million, or $0.69 per diluted share, in fiscal year 2006.
GAAP net income increased 181% to $121 million, or $0.20 per diluted share, for the fourth quarter ended March 31, 2007 compared to $43 million, or $0.07 per diluted share, in the year ago quarter. GAAP net income increased 261% to a fiscal year 2007 record $509 million, or $0.85 per diluted share, compared to $141 million, or $0.24 per diluted share, in fiscal year 2006.
"We are very pleased with our record-breaking fourth quarter and fiscal year results, which reflect our intense focus on growth acceleration, vertical integration and expanding our service offering to increase our market share and profitability. I wish to thank our employees, who have worked hard to achieve these revenue and profit results that are well in excess of the industry averages. We believe this exceptional growth is a validation of our strategy and results from our ability to add significant value to our customers. We will continue to be intensely focused on growing our market share with the appropriate return on capital, while enhancing our competitive position in the marketplace," said Mike McNamara, chief executive officer of Flextronics.
McNamara added, "We accomplished our growth objectives as revenues grew by 23% in fiscal 2007 to an all-time record high of $18.9 billion and adjusted annual operating profit grew by 21% while achieving our targeted annual adjusted operating margin of 3%. We are very pleased that we also met our adjusted earnings per share commitment of $0.80 for fiscal 2007. Despite a heavy investment cycle, the Company's return on invested capital increased by 60 basis points to 10.4% in fiscal 2007."
Guidance
For the first quarter ending June 29, 2007, revenue is expected to grow 18-23% on a year-over-year basis to a range of $4.8 billion to $5.0 billion and adjusted EPS is expected to grow 11-22% on a year-over-year basis to a range of $0.20-$0.22 per share.
For the 2008 fiscal year, revenue is expected to grow 10-15% on a year- over-year basis to a range of $20.7 billion to $21.7 billion and adjusted EPS is expected to grow 15-20% on a year-over-year basis to a range of $0.92-$0.96 per share.
GAAP earnings are expected to be lower than the guidance provided herein by approximately $0.03 per diluted share per quarter reflecting quarterly intangible amortization and stock-based compensation expense.
2004 Award Plan for New Employees
Options to purchase an aggregate of 741,200 ordinary shares were granted on April 24, 2007 from the 2004 Award Plan for New Employees. The options have an exercise price of $11.10 (equal to the closing price of our ordinary shares on the grant date, as quoted on the NASDAQ Global Select Market), and will expire 10 years after the date of grant (or upon termination of employment, if earlier), and generally become exercisable over four years.
Conference Call and Web Cast
A conference call hosted by Flextronics' management will be held today at 1:30 p.m. PST 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 http://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 complete design, engineering and manufacturing services to automotive, computing, consumer digital, industrial, infrastructure, medical and mobile OEMs. With fiscal year 2007 revenues from continuing operations of US$18.9 billion, Flextronics helps customers design, build, ship, and service electronics products through a network of facilities in over 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 http://www.flextronics.com.
This press release contains forward-looking statements within the meaning of U.S. securities laws, including statements related to revenue and earnings growth. 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 that revenue and earnings growth may not occur as expected or at all; 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 our customers' products and to the short-term nature of our 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; the challenges of integrating acquired companies or assets; our reliance on strategic relationships with major customers; the impact on our margins and profitability resulting from substantial investments and start-up and integration costs in our components, design and ODM capabilities; that we may not be able to obtain new customer programs, or that if we do obtain them, that theymay not contribute to our revenue or profitability as expected or at all; our ability to design and quickly introduce world-class components products that offer significant price and/or performance advantages over competitive products; production difficulties, especially with new products; our ability to utilize available and recently expanded manufacturing capacity; the risk of future restructuring charges that could be material to our financial condition and results of operations; not realizing expected returns from our retained interests in divested businesses; changes in government regulations and tax laws; our exposure to potential litigation relating to intellectual property rights, product warranty and product liability; potential impairment of our intangible assets; our dependence on the continued trend of outsourcing by OEMs; the effects of customer bankruptcies; and the other risks described under "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our reports on Form 10-K, 10-Q and 8-K 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 SELECTED FINANCIAL DATA (1)
(In thousands, except per share amounts)
Three Months Ended March 31, 2007
Non-GAAP (1) Required GAAP
Adjustments
Continuing Operations:
Net sales $4,676,752 $- $4,676,752
Gross profit 276,954 (51,472) 225,482
Selling, general and
administrative expenses 136,046 10,203 146,249
Operating income 140,908 (66,136) 74,772
Intangible amortization - 13,569 13,569
Interest and other expense, net 13,566 (78,314) (64,748)
Provision for (benefit from)
income taxes 5,414 (137) 5,277
Net income $121,928 $(1,254) $120,674
Diluted earnings per share $0.20 $0.20
Shares used in computing per share
amounts 615,428 615,428
Three Months Ended March 31, 2006
Non-GAAP (1) Required GAAP
Adjustments
Continuing Operations:
Net sales $3,530,889 $- $3,530,889
Gross profit 213,341 (56,481) 156,860
Selling, general and
administrative expenses 109,359 - 109,359
Operating income 103,982 (64,149) 39,833
Intangible amortization - 8,270 8,270
Interest and other expense, net 18,367 (18,013) 354
Provision for (benefit from)
income taxes (2,461) (3,233) (5,694)
Net income $97,965 $(55,017) $42,948
Diluted earnings per share $0.16 $0.07Shares used in computing per share
amounts 602,218 602,218
(1) See Schedule III for the reconciliation of non-GAAP financial
measures to GAAP financial measures.
SCHEDULE II
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARIES
UNAUDITED SELECTED FINANCIAL DATA (1)
(In thousands, except per share amounts)
Twelve Months Ended March 31, 2007
Non-GAAP (1) Required GAAP
Adjustments
Continuing Operations:
Net sales $18,853,688 $- $18,853,688
Gross profit 1,079,713 (150,715) 928,998
Selling, general and
administrative expenses 510,035 39,580 549,615
Operating income 569,678 (195,321) 374,357
Intangible amortization - 37,089 37,089
Interest and other expense, net 84,901 (72,586) 12,315
Provision for (benefit from)
income taxes 27,543 (23,490) 4,053
Net income $478,175 $30,463 $508,638
Diluted earnings per share $0.80 $0.85
Shares used in computing per share
amounts 596,851 596,851
Twelve Months Ended March 31, 2006
Non-GAAP (1) Required GAAP
Adjustments
Continuing Operations:
Net sales $15,287,976 $- $15,287,976
Gross profit 933,515 (185,631) 747,884
Selling, general and
administrative expenses 463,946 - 463,946
Operating income 469,569 (223,446) 246,123
Intangible amortization - 37,160 37,160
Interest and other expense, net 83,734 (15,688) 68,046
Provision for (benefit from)income taxes (402) 54,620 54,218
Net income $417,339 $(276,177) $141,162
Diluted earnings per share $0.69 $0.24
Shares used in computing per share
amounts 600,604 600,604
(1) See Schedule III for the reconciliation of non-GAAP financial
measures to GAAP financial measures.
SCHEDULE III
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (1)
(In thousands, except per share amounts)
Three Months Ended Twelve Months Ended
March 31, March 31,
2007 2006 2007 2006
GAAP gross profit $225,482 $156,860 $928,998 $747,884
Stock-based compensation
expense 324 - 3,884 -
Restructuring charges (2) 51,148 56,481 146,831 185,631
Non-GAAP gross profit $276,954 $213,341 $1,079,713 $933,515
GAAP SG&A expenses $146,249 $109,359 $549,615 $463,946
Stock-based compensation
expense 8,126 - 27,884 -
Restructuring and other
charges (2) 2,077 - 11,696 -
Non-GAAP SG&A expenses $136,046 $109,359 $510,035 $463,946
GAAP operating income $74,772 $39,833 $374,357 $246,123
Stock-based compensation
expense 8,450 - 31,768 -
Restructuring and other
charges (2) 57,686 64,149 163,553 215,741
Other - executive
separation costs (3) - - - 7,705
Non-GAAP operating income $140,908 $103,982 $569,678 $469,569
GAAP intangible amortization $13,569 $8,270 $37,089 $37,160
Intangible amortization 13,569 8,270 37,089 37,160
Non-GAAP intangible
amortization $- $- $- $-
GAAP interestand other
expense, net $(64,748) $354 $12,315 $68,046
Intangible amortization 1,530 2,583 7,258 4,908
Other - foreign currency
gain on liquidation (4) (79,844) (20,596) (79,844) (20,596)
Non-GAAP interest and other
expense, net $13,566 $18,367 $84,901 $83,734
GAAP provision for (benefit
from) income taxes $5,277 $(5,694) $4,053 $54,218
Intangible amortization (5) (137) (1,737) (478) (246)
Divestiture of
operations (5) - - - 68,652
Restructuring and other
charges (5) - (1,496) (23,012) (13,786)
Non-GAAP provision for taxes $5,414 $(2,461) $27,543 $(402)
GAAP net income $120,674 $42,948 $508,638 $141,162
Stock-based compensation
expense 8,450 - 32,324 -
Restructuring and other
charges (2) 57,686 64,149 163,553 215,741
Intangible amortization 15,099 15,441 49,549 58,708
Gain on divestiture of
operations - - (181,228) (67,569)
Other - foreign currency
gain on liquidation (4) (79,844) (20,596) (79,844) (20,596)
Other - executive
separation costs (3) - - - 7,705
Adjustment for taxes (5) (137) (3,977) (14,817) 82,188
Non-GAAP net income $121,928 $97,965 $478,175 $417,339
Diluted net income per share:
GAAP $0.20 $0.07 $0.85 $0.24
Non-GAAP $0.20 $0.16 $0.80 $0.69
See the accompanying Notes on Schedule V of this press release.
SCHEDULE IV
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, 2007 March 31, 2006
ASSETS
Current Assets:
Cash and cash equivalents $714,525 $942,859
Accountsreceivable, net 1,754,705 1,496,520
Inventories 2,562,303 1,738,310
Deferred income taxes 11,105 9,643
Current assets of discontinued
operations - 89,509
Other current assets 548,409 620,095
5,591,047 4,896,936
1,998,706 1,586,486
Property and equipment, net
Deferred income taxes 669,898 646,431
Goodwill and other intangibles, net 3,264,320 2,791,791
Non-current assets of discontinued
operations - 574,384
Other assets 817,403 462,379
$12,341,374 $10,958,407
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank borrowings, current portion
of long-term debt and capital
lease obligations $8,385 $106,099
Accounts payable 3,440,845 2,758,019
Current liabilities of
discontinued operations- 57,213
Other current liabilities 1,038,838 1,036,973
Total current liabilities 4,488,068 3,958,304
Long-term debt, net of current
portion:
Zero Coupon Convertible Junior
Subordinated Notes due 2009 195,000 195,000
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 Subordinated Notes
due 2014 389,119 384,879
Other long-term debt and capital
lease obligations 10,036 9,446
Non-current liabilities of
discontinued operations - 30,578
Other liabilities 182,842 125,903
Total shareholders' equity 6,176,659 5,354,647
$12,341,374 $10,958,407
SCHEDULE V
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(1) Non-GAAP Financial Measures -- To supplement Flextronics' 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 intangible amortization, non-GAAP interest and other expense, net, non-GAAP provision for (benefit from) income taxes, non- GAAP net income and non-GAAP net income per diluted share. These supplemental measures exclude, among other things, stock-based compensation expense, restructuring charges, intangible amortization, gains or losses on divestitures 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' results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate Flextronics' 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 our non-GAAP financial measures by relying upon our GAAP results to gain a complete picture of our performance.
In calculating our non-GAAP financial measures, we exclude certain items to facilitate our 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 our forecasts and strategic plans, for calculating return on investment, and for benchmarking performance externally against our competitors. In addition, our management's incentive compensation is determined using these non-GAAP measures. Also, when evaluating potential acquisitions, we exclude the items described below from our consideration of the target's performance and valuation. Since we find these measures to be useful, we believe that our investors benefit from seeing our results "through the eyes" of management in addition to seeing our 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 analysis;
-- 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 our competitors that supplement their GAAP results with non-GAAP financial measures.
The following are explanations of each of the adjustments that we incorporate into our non-GAAP measures, as well as the reasons for excluding each of these individual items in our reconciliations of these non-GAAP financial measures:
Stock-based compensation expense consists of non-cash charges incurred as a result of the Company's adoption of SFAS 123R relating to the fair value of stock options and restricted stock units awarded to employees. The Company believes that the exclusion of these non-cash charges provides for more accurate comparisons of our operating results to our 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 the application of SFAS 123R 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 restructuring activities, are not directly related to our 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 our 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.
Gains or losses on divestiture of operations relate to discrete and unusual events associated with the sale of a non-core business of the Company. These gains or losses can vary significantly in size and do not reflect expected future operating impacts; therefore, it is useful to investors to highlight the specific results of these items on its operating results. The Company's management excludes these items when evaluating its ongoing performance and forecasting its earnings trends, and therefore excludes such charges when presenting non-GAAP net income.
Other charges or gains consist of various other types of items that are not directly related to our ongoing or core business results, such as executive separation costs or reversals of bankruptcy bad debt provisions. We exclude these items because they do not affect our core operations. Excluding these amounts provide investors with a basis to compare our company performance against the performance of other companies without this variability.
Adjustment for taxes relates to the tax effects of the various adjustments that we incorporate into our non-GAAP measures in order to provide a more meaningful measure on non-GAAP net income.
With the exception of net income and diluted earnings per share, the Unaudited Selected Financial Data as presented in Schedules I and II, and the reconciliations as presented in Schedule III and discussed further below represent results from continuing operations. Net income and diluted earnings per share represent results for both continuing and discontinued operations.
(2) During the three-month period ended March 31, 2007 the Company
recognized restructuring charges primarily related to the closures and
consolidations of various manufacturing facilities. During the twelve-
month period ended March 31, 2007, the Company also recognized
restructuring charges for impairment, lease termination, exit costs and
other charges related primarily to the disposal and exit of certain real
estate owned and leased by the Company in order to reduce its investment
in property, plant and equipment.
During the three and twelve-month periods ended March 31, 2006 the
Company recognized restructuring charges primarily related to the
closures and consolidations of various manufacturing facilities.
(3) During the twelve-month period ended March 31, 2006, the Company
recognized executive separation costs related to the retirement of
Michael E. Marks from his position as Chief Executive Officer.
(4) During the three and twelve-month periods ended March 31, 2007 and
2006, the Company recognized net foreign exchange gains related to the
liquidation of certain international entities.
(5) The Company recognized $137,000 and $1.8 million (including $1.3
million attributable to discontinued operations) in tax benefits related
to the amortization of our intangible assets during the three and twelve-
month periods ended March 31, 2007, and a tax benefit of $23.0 million
related to its restructuring activities during the twelve-month period
ended March 31, 2007. The Company also recognized a $10.0 million tax
provision in discontinued operations related to the divestiture of its
Software Development and Solutions business during the twelve-month
period ended March 31, 2007.
The Company realized $1.4 million and $13.8 million in tax benefits
related to its restructuring activities during the three and twelve-month
periods ended March 31, 2006, a tax benefit of $2.5 million and $2.9
million (including $744,000 and $2.7 million attributable to discontinued
operations) related to the amortization of its intangible assets during
the three and twelve-month periods ended March 31, 2006, and a tax
provision of $98.9 million (including $30.3 million attributable to
discontinued operations) related to the divestiture of its Semiconductorand Network Services division during the twelve-month period ended March
31, 2006.
(6) Return on invested capital ("ROIC") divides after-tax non-GAAP
operating income by an average of net invested capital. After-tax non-
GAAP operating income includes after-tax operating income from divested
businesses, and excludes intangible amortization, stock-based
compensation expense, restructuring and other charges. Net invested
capital is defined as total assets less current liabilities and non-
operating assets. Non-operating assets include cash and cash
equivalents, short-term investments, notes receivable, deferred income
tax assets, net hedging assets, and other non-operating assets.
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 earnings 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 from continuing
operations adjusted for taxes:
Fiscal Years Ended
March 31,
ROIC 2007 2006
Non-GAAP 10.4% 9.8%
Restructuring and other charges -3.4% -4.2%
Discontinued operations -0.4% -0.9%
GAAP 6.6% 4.7%
ROITC
Non-GAAP 29.1% 31.5%
Restructuring and other charges -21.8% -13.6%
Discontinued operations-1.7% -2.2%
GAAP 5.6% 15.7%
Flextronics International Ltd.