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Electronics Production | October 26, 2009

Flextronics post solid financial progress in Q2

Net sales for the second quarter ended October 2, 2009 for the EMS provider were $5.8 billion, an increase of 1%, compared to net sales for the first quarter ended July 3, 2009.
Adjusted operating income for the second quarter was $149 million, an increase of 66%, compared to the first quarter adjusted operating income of $90 million. Adjusted operating margin for the second quarter was 2.6% compared to 1.6% for the first quarter. Adjusted net income for the second quarter was $104 million and adjusted EPS was $0.13 compared to $63 million and $0.08, respectively, for the prior quarter.

Cash and cash equivalents totaled $2.0 billion at October 2, 2009, an increase of $289 million from the prior quarter end. During the second quarter, Flextronics generated $312 million of operating cash flow and $270 million of free cash flow (defined as net cash provided by operating activities, less purchases of property & equipment, net of dispositions). Net debt, which is total debt less total cash, was further reduced in the current quarter by $483 million to $587 million. Net debt has decreased by approximately $1.1 billion from one year ago. Adjusted ROIC improved to 22.2% for the quarter.

"During the second quarter, Flextronics posted solid financial progress across all aspects of our business, reflecting our efforts to re-size our business to adapt to current market conditions. We are very pleased with the healthy expansion of our adjusted gross margin, which rose by 90 basis points sequentially," said Paul Read, chief financial officer of Flextronics. "In addition, we achieved a cash conversion cycle of 15 days, generated free cash flow of $270 million and our significantly reduced net debt position of $587 million is comparable with the period prior to our Solectron acquisition."

In connection with its previously announced restructuring plans, during the second quarter, Flextronics recognized $13 million of pretax restructuring charges comprised of $9 million of cash charges primarily related to employee severance costs and $4 million of non-cash asset impairment charges. The Company remains confident that it is on track to realize the expected annualized savings between $230 million and $260 million upon the completion of its restructuring activities, which will be completed by the end of Fiscal 2010.

During the second quarter the Company received proceeds of $255 million from the sale of a non-core investment and note receivable and recorded non-cash charges to impair certain other non-core investments and notes receivable amounting to $92 million. Also during the quarter, the Company recognized approximately $60 million of non-cash tax benefits as a result of settlements in various tax jurisdictions.

"The improvement of our financial performance this quarter was a real positive and we are seeing signs of strengthening in the economy and a general improvement in business conditions," said Mike McNamara, chief executive officer, Flextronics

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