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Electronics Production | July 29, 2009

Flextronics posts Q1 loss

Flextronicss' net sales for the fiscal 1Q (ended July 3, 2009) were $5.8 billion compared to net sales for the quarter ended March 31, 2009 of $5.6 billion. The loss for the quarter was $154 million.

Adjusted operating income for the first quarter ended July 3, 2009 was $90.2 million with an adjusted operating margin of 1.6%, compared to adjusted operating income of $50.6 million and an adjusted operating margin of 0.9% for the prior quarter. Adjusted net income for the first quarter ended July 3, 2009 was $63.1 million and adjusted EPS was $0.08, compared to $21.7 million and $0.03, respectively, for the March 31, 2009 quarter. In connection with its previously announced restructuring plans, the Company expected to recognize between $220 million and $250 million of pre-tax restructuring charges, with total cash expenditures expected to be between $130 million and $150 million. During the first quarter ended July 3, 2009, Flextronics recognized $65 million of pretax restructuring charges comprised of $33 million of cash charges primarily related to employee severance costs and $32 million of non-cash asset impairment charges. As of the quarter ended July 3, 2009, the cumulative charges of the restructuring plans were $215 million comprised of $128 million in cash and $87 million in non-cash charges. The remaining charges are expected to be incurred over the course of fiscal year 2010. Additionally during the first quarter ended July 3, 2009, Flextronics recorded a $107 million non-cash charge to impair certain non-core investments and notes receivable to the estimated recoverable value. The Company anticipates monetizing select non-core assets during the remainder of fiscal 2010. Cash and cash equivalents totaled $1.7 billion at July 3, 2009. During the first quarter ended July 3, 2009, Flextronics generated $107 million of operating cash flow and $68 million of free cash flow (defined as net cash provided by operating activities, less purchases of property & equipment, net of dispositions). Also during the quarter ended July 3, 2009, Flextronics further strengthened its capital structure by repurchasing an aggregate principal amount of $100 million of its 6.5% Senior Subordinated Notes due 2013 and an aggregate principal amount of $100 million of its 6.25% Senior Subordinated Notes due 2014 and secured a consent to modify certain modifications of the indentures for both notes. "Flextronics exhibited strong execution and achieved our objectives for the quarter," said Mike McNamara, chief executive officer of Flextronics. "We have worked quickly to adapt to current market conditions and strategically position the Company for improving profitability. While stabilization of demand has improved, we expect a muted economic recovery in the near term. We will continue to focus on what we can control and influence, and believe that our vision, strategy and execution are producing results." "Our execution around restructuring and other discretionary spend control was excellent this quarter, and our operating margins benefited from our efforts in this area," said Paul Read, chief financial officer of Flextronics. "In addition, we further reduced inventory by $325 million, achieved a cash cycle of 19 days, generated free cash flow of $68 million, and strengthened our capital structure through our senior debt reduction of $200 million. We remain focused on positively impacting all areas within our control." Flextronics's guidance reflects the challenging demand environment and the anticipated benefits of the actions the company has taken to reduce costs and restructure the business. For the second quarter ending October 2, 2009, revenue is expected to be in the range of $5.2 billion to $6.0 billion and adjusted EPS is expected to be in the range of $0.07 to $0.11 per share. GAAP earnings per share are expected to be lower than the guidance provided herein by approximately $0.07 per diluted share for estimated restructuring activities, quarterly intangible amortization, stock-based compensation expense and non-cash interest expense.
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