Solectron announces Q4 results - sales down but profitable

Fiscal 2005 operating results improved over fiscal 2004

Solectron Corporation (NYSE:SLR) reported sales of $2.4 billion in the fourth quarter of fiscal 2005. Sales in the fourth quarter of fiscal 2004 were $3.0 billion, and sales in the third quarter of fiscal 2005 were $2.6 billion.
 
The company reported a GAAP profit after tax from continuing operations in the fourth quarter of $10.3 million, or one cent per share, compared with a GAAP loss after tax from continuing operations of $40.1 million, or 4 cents per share, in the fourth quarter of last year.

The company had non-GAAP profit after tax in the fourth quarter of $37 million, or 4 cents per share, excluding $6.7 million of charges for restructuring and a $20 million offset to revenue related to a premium for a recent contract win.

"Solectron ended fiscal 2005 in a position of strength," commented Mike Cannon, president and chief executive officer. "We are pleased that our operating performance improved significantly over last year, and that we generated approximately $945 million in operating cash flow in the year, giving us one of the strongest balance sheets in the industry."

"We believe we are well positioned for fiscal 2006, as we continue to grow our revenue pipeline by focusing on expanding our engagements with existing customers and winning new business in non-traditional markets," continued Cannon.

Quarterly Highlights: Improved Working Capital Metrics
The company made further improvements in working capital during the quarter. Days sales outstanding were 46 days and days payables outstanding improved to 54 days. Inventory turns were 7.9 and the company's cash conversion cycle was 38 days, an improvement of three days from the prior period.

Stock Repurchase Program Announced in July
On July 27, Solectron announced a program to purchase up to $250 million of common stock pursuant to a stock repurchase program. This repurchase program reflects management's commitment to improving shareholder value, and is supported by the company's strong operating cash flow and balance sheet position. During the quarter, the company repurchased $69.6 million of its common stock, or approximately 17 million shares, pursuant to this plan.

Fiscal 2005 Operating Results Improved Over Fiscal 2004
For the year, the company reported a GAAP net loss after tax from continuing operations of $12 million, or 1 cent per share, compared with a GAAP net loss after tax from continuing operations of $262.4 million, or 30 cents per share, in fiscal 2004.

In fiscal 2005, the company reported non-GAAP net income after tax from continuing operations of $163.3 million, or 17 cents per share, excluding impairment, restructuring, and other charges of $175.3 million, compared with non-GAAP net income after tax from continuing operations of $3.1 million, or zero cents per share, excluding impairment, restructuring, and other charges of $265.5 million in fiscal 2004.

Sales in fiscal 2005 were $10.4 billion, compared with $11.6 billion in fiscal 2004.

Key Comparisons: Q4 '04 vs. Q4 '05
-- Cash increased from $1.4 billion to $1.7 billion
-- Cash cycle improved from 48 days to 38 days
-- Debt decreased from $1.2 billion to $706.6 million
-- Debt-to-capital ratio improved from 34 percent to 22 percent
-- First-Quarter 2006 Guidance

Fiscal first-quarter guidance is for sales of $2.3 billion to $2.5 billion, and for non-GAAP EPS from continuing operations in a range from 2 cents to 4 cents, on a fully diluted basis.

Non-GAAP Information
In addition to disclosing results determined in accordance with generally accepted accounting principles (GAAP), Solectron also discloses non-GAAP results of operations that exclude certain items. By disclosing this non-GAAP information, management intends to provide investors with additional information to further analyze the company's performance, core results and underlying trends. Management utilizes a measure of net income and earnings per share on a non-GAAP basis that excludes certain charges to better assess operating performance. Earnings guidance is provided only on a non-GAAP basis due to the inherent difficulty in forecasting such charges. Consistent with industry practice, management has historically applied these non-GAAP measures when discussing earnings or earnings guidance and intends to continue doing so.

Non-GAAP information is not determined using GAAP; therefore, the information is not necessarily comparable to other companies and should not be used to compare the company's performance over different periods. Non-GAAP information should not be viewed as a substitute for, or superior to, net income or other data prepared in accordance with GAAP as measures of our profitability or liquidity. Users of this financial information should consider the types of events and transactions for which adjustments have been made. See the tables in the press release for a reconciliation of non-GAAP amounts to amounts reported under GAAP.

Webcast
At 4:30 p.m. ET yesterday, Solectron held a conference call to discuss the fourth quarter financial results. Supplemental financial information related to the conference call will also be available at this Web site location. Following the live broadcast, the archived webcast is available at www.solectron.com/investor/events.htm.