Flextronics announces Q4 and FY results

Flextronics (Nasdaq: FLEX) announced results for its fourth quarter and fiscal year ended March 31, 2006. As announced last week, Flextronics entered into a definitive agreement to sell its software development and solutions business to an affiliate of Kohlberg Kravis Roberts & Co. As such, the software business and the semiconductor division, which was divested by Flextronics in September 2005, are being treated as discontinued operations in the accompanying financial statements. The network services division that was also divested by Flextronics in September 2005 does not meet the criteria for discontinued operations treatment under generally accepted accounting principles (GAAP) and as such its historical results remain in continuing operations.

Quarterly and Fiscal Year Results
Net sales from continuing operations amounted to $3.5 billion in the fourth quarters ended March 31, 2006 and 2005. Excluding the net sales from the divested Network Services division of $207 million in the fourth quarter ended March 31, 2005, net sales from continuing operations grew 6% on a year-over-year basis in the fourth quarter ended March 31, 2006.

Net sales from continuing operations amounted to $15.3 billion in the year ended March 31, 2006 as compared to $15.7 billion in the year ended March 31, 2005. Excluding the net sales from the divested Network Services division of $275 million and $766 million in the years ended March 31, 2006 and 2005, respectively, net sales from continuing operations amounted to $15.0 billion in the years ended March 31, 2006 and 2005.

Excluding intangible amortization, restructuring and other charges, net income for the fourth quarter ended March 31, 2006 increased 3% to $98 million, or $0.16 per diluted share, compared with $95 million, or $0.16 per diluted share, in the year ago quarter. After-tax amortization, restructuring and other charges amounted to $55 million in the fourth quarter ended March 31, 2006, compared to $21 million in the year ago quarter. As a result, GAAP net income amounted to $43 million, or $0.07 earnings per diluted share, in the fourth quarter ended March 31, 2006, as compared to $74 million, or $0.12 per diluted share, in the year ago quarter.

Excluding intangible amortization, restructuring and other charges, net income for the year ended March 31, 2006 increased 7% to $417 million, or $0.69 per diluted share, compared with $388 million, or $0.66 per diluted share, for the year ended March 31, 2005. After-tax amortization, restructuring and other charges amounted to $276 million in the year ended March 31, 2006, compared to $49 million in the year ended March 31, 2005. As a result, GAAP net income amounted to $141 million, or $0.24 earnings per diluted share, in the year ended March 31, 2006, as compared to $340 million, or $0.58 per diluted share, in the year ended March 31, 2005.

During the current fiscal year, the Company increased its cash and certificates of deposit by $129 million to $1 billion as of March 31, 2006 and reduced its net debt by $270 million to $596 million. The Company generated cash flow from operations of $591 million in the year ended March 31, 2006.

Mike McNamara, Chief Executive Officer of Flextronics stated, "We are extremely pleased with our working capital management for the quarter, as we were able to reduce our cash conversion cycle to 10 days compared with 15 days in the year ago quarter. Overall, we feel fiscal 2006 was very successful for the Company as we executed on our plan to divest non-core assets and focus our efforts and resources on the reacceleration of the significant growth opportunities in our core EMS business. As a result, during the year we divested our network services and semiconductor businesses and recently announced a definitive agreement to sell our software business. By monetizing these non-core assets at substantial gains over carrying values, Flextronics will have generated cash proceeds in excess of $1.1 billion, assuming the software transaction closes as expected this summer."

McNamara concluded by saying, "Fiscal 2006 was a very strong year in terms of new business wins from both new and existing customers. We think this should start showing up in our revenue growth rates in the second half of calendar 2006."

Guidance
Management provided guidance for total earnings per diluted share of $0.16 to $0.17 (including discontinued operations but excluding amortization of intangibles and stock-based compensation expense) and revenues from continuing operations of $3.7 billion to $3.9 billion for the June 2006 quarter. Quarterly GAAP earnings per diluted share are expected to be lower than the guidance provided herein by approximately $0.03 per diluted share reflecting quarterly intangible amortization and stock-based compensation expense.