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Electronics Production | January 28, 2009

Flextronics: net income down 50%

EMS-provider Flextronics has posted a 3Q/2008 net income of $127 million; down 50% compared to the same quarter in 2007 with $250 million.
Net sales for the third quarter ended December 31, 2008 were $8.2 billion compared to net sales for the third quarter ended December 31, 2007 of $9.1 billion. Adjusted operating income for the third quarter ended December 31, 2008 was $185.8 million with an adjusted operating margin of 2.3%, compared to adjusted operating income of $300.1 million and an adjusted operating margin of 3.3% one year ago. Adjusted net income for the third quarter ended December 31, 2008 was $126.8 million and adjusted EPS was $0.16, compared to $249.9 million and $0.30, respectively, for the year ago quarter.

Flextronics recorded a non-cash charge in the amount of $5.9 billion in the third quarter ended December 31, 2008, to write-off the entire carrying value of its goodwill. The impairment charge was driven by a significant decrease in the Company's valuation compared to the quarter ended September 27, 2008 primarily due to declines in the stock market and adverse macroeconomic conditions that contributed to an overall reduction in demand for the Company's offerings. These conditions resulted in a significant decrease in the Company's market capitalization and required management to perform an interim goodwill impairment test during the December quarter, which resulted in a determination that all of the Company's goodwill was impaired. This non-cash charge does not impact the Company's normal business operations, liquidity or availability under its credit facilities.

Additionally, during the quarter the Company recognized a distressed customer charge of approximately $145 million associated with the filing for bankruptcy by Nortel. This charge is comprised of $47 million of provisions for pre-bankruptcy accounts receivable and $98 million for the write-down of inventory. The bankruptcy proceedings are in the early stages and management will continue to monitor and re-evaluate the situation and will refine its estimates, if and when better information presents itself. Flextronics has been selected to serve as a member and Chairperson of the Official Committee of Unsecured Creditors in Nortel's U.S. Chapter 11 cases.

On December 30, 2008, Flextronics announced the results of its previously announced cash tender offer for up to $250.0 million in aggregate principal amount of its outstanding 1% convertible subordinated notes due August 1, 2010. The Company accepted for purchase approximately $259,999,000 in aggregate principal amount of notes validly tendered and not withdrawn at a purchase price of $870 per $1,000 principal amount, or $226.2 million. As a result of the tender offer, the Company recognized a net gain of approximately $28.1 million net of transaction costs and the write-off of related debt issuance costs. As of December 31, 2008 $240.0 million of these notes remain outstanding.
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