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Flextronics today announced results for its second quarter ended September 30, 2006.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
Net sales from continuing operations for the second quarter ended September 30, 2006 were a record high $4.7 billion, which represents an increase of $894 million, or 23%, over the year ago quarter.
Excluding after-tax gains and losses on divestitures, intangible amortization, stock-based compensation expense, restructuring and other charges, net income for the second quarter ended September 30, 2006 increased 15% to $117 million, or a September quarter record high $0.20 per diluted share, compared to $101 million, or $0.17 per diluted share, in the year ago quarter.
GAAP net income amounted to a record high $185 million, or $0.31 per diluted share, in the second quarter ended September 30, 2006, compared to a loss of $2 million, or nil earnings per diluted share in the year ago quarter. The reconciliation of non-GAAP results to GAAP results is illustrated in Schedules I & II attached to this press release.
Return on Invested Tangible Capital ("ROITC") improved to 29% in the second quarter ended September 30, 2006 from 27% in the year ago quarter, while Return on Invested Capital ("ROIC") improved to 11.0% from 9.5% in the year ago quarter.
The Company decreased its net debt by $220 million sequentially to $701 million at September 30, 2006. The Company ended the quarter with $1.04 billion in cash at September 30, 2006.
"There has been a reacceleration of significant growth in all elements of our business, including design, vertically-integrated manufacturing services, components and logistics," said Mike McNamara, chief executive officer of Flextronics. "Revenue from continuing operations was an all-time record high, increasing 23% on a year-over-year basis and 16% on a sequential basis. Operating margin improved in the core-EMS business by 10 basis points on a year-over-year basis and gross margin improved sequentially by 10 basis points."
As previously announced, the Company sold its software development and solutions business to an affiliate of Kohlberg Kravis Roberts & Co. ("KKR") in September 2006. The Company received in excess of $600 million in gross cash proceeds (subject to post-closing working capital adjustments) and an eight- year $250 million face value promissory note with a paid-in-kind interest coupon of 10.5% per annum through year two and 12.05% per annum thereafter. The Company also retained a 15% ownership stake in the divested business. The divestiture resulted in a pre-tax gain of approximately $181 million and an after-tax gain of approximately $171 million.
For the third quarter ending December 31, 2006, revenue from continuing operations is expected to grow 25-30% on a year-over-year basis to a range of $5.1 billion to $5.3 billion and earnings are expected to grow 10-15% on a year-over-year basis to a range of $0.22-$0.23 per diluted share. For the fiscal year ending March 31, 2007, revenue from continuing operations is expected to grow in the range of 25% on a year-over-year basis to approximately $19 billion and earnings are expected to grow in the range of 15% on a year-over-year basis to approximately $0.80 per diluted share. Management emphasized that there is a range around the fiscal 2007 guidance as demand trends and the economy are dynamic.
GAAP earnings per diluted share are expected to be lower than the December quarter guidance provided herein by approximately $0.03 per diluted share per quarter reflecting quarterly intangible amortization and stock-based compensation expense. GAAP earnings per diluted share are expected to be lower than the fiscal year guidance provided herein by approximately $0.12 per diluted share reflecting annual intangible amortization and stock-based compensation expense and by the after-tax gain on divestiture, restructuring and other charges described in footnote 3 on Schedule IV attached to this press release.
2004 Award Plan for New Employees
On October 16, 2006, options to purchase an aggregate of 1,006,200 ordinary shares were granted from the 2004 Award Plan for New Employees. The options have an exercise price of $13.13 (equal to the closing price of our ordinary shares on the grant date, as quoted on the NASDAQ Global Select Market), will expire 10 years after the date of grant (or upon termination of employment, if earlier), and will become exercisable over four years, with the first 25% becoming exercisable on the first anniversary of the date of grant and the remainder becoming exercisable in equal monthly installments thereafter. Also on October 16, 2006, 20,000 share bonus awards were granted from the 2004 Award Plan for New Employees. The share bonus awards will vest in five equal annual installments beginning on the first anniversary of the grant date, and any unvested awards will expire upon termination of employment. All options and share bonus awards were granted to new employees.
Headquartered in Singapore (Singapore Reg. No. 199002645H), Flextronics is a leading Electronics Manufacturing Services (EMS) provider focused on delivering complete design, engineering and manufacturing services to automotive, computing, consumer digital, industrial, infrastructure, medical and mobile OEMs. With fiscal year 2006 revenues from continuing operations of US$15.3 billion, Flextronics helps customers design, build, ship, and service electronics products through a network of facilities in over 30 countries on four continents. This global presence provides design and engineering solutions that are combined with core electronics manufacturing and logistics services, and vertically integrated with components technologies, to optimize customer operations by lowering costs and reducing time to market. For more information, please visit www.flextronics.com.