10-QPeriod: Q1 FY2007

FLEX LTD. Quarterly Report for Q1 Ended Jun 30, 2006

Filed August 8, 2006For Securities:FLEX

Summary

Flextronics International Ltd. reported $4.1 billion in net sales for the three months ended June 30, 2006, a notable increase driven by growth in the mobile and computing markets, and expansion in Asia and the Americas. Despite a decline in European sales, the company's overall revenue trajectory points towards continued expansion in key segments. The company's gross profit margin remained stable at 5.8%, though impacted by the divestiture of its higher-margin Network Services division and startup costs for new programs. However, the absence of significant restructuring charges compared to the prior year contributed positively to profitability. Financially, Flextronics utilized $97.9 million in operating activities during the quarter, primarily due to increases in accounts receivable and inventories, indicating robust business activity and anticipation of future growth. The company made significant investments in capital expenditures and acquisitions, including further payments towards the Nortel transaction. Management expresses confidence in the company's liquidity, supported by existing cash balances, operational cash flows, and available credit facilities, sufficient to meet obligations for at least the next twelve months. The company also announced a $250 million share repurchase program, signaling a commitment to returning value to shareholders.

Key Highlights

  • 1Net sales reached $4.1 billion for the three months ended June 30, 2006, an increase driven by mobile and computing segments and geographic expansion in Asia and the Americas.
  • 2Gross profit margin remained steady at 5.8% of net sales, benefiting from the absence of significant restructuring charges compared to the prior year.
  • 3Operating cash flow turned negative at ($97.9 million) due to increased investments in working capital, particularly accounts receivable and inventory.
  • 4The company made significant investing activities, including $82.5 million in capital expenditures and $90.9 million in business acquisitions.
  • 5Total debt stood at $1.8 billion, with cash and cash equivalents at $885.7 million, indicating a manageable liquidity position.
  • 6A $250 million share repurchase program was authorized, reflecting confidence in future financial performance and commitment to shareholder returns.
  • 7Key customers like Sony-Ericsson, Hewlett Packard, and Nortel accounted for approximately 66% of net sales, highlighting customer concentration.

Frequently Asked Questions

Revenue growth was primarily driven by an increase of $218.7 million in the mobile market due to new program ramp-ups, a $60.0 million increase in the computing market, and a $60.3 million increase across industrial, medical, automotive, and other markets. Geographic growth was particularly strong in Asia and the Americas.

Profitability was supported by a stable gross profit margin of 5.8%. While impacted by the divestiture of the higher-margin Network Services division and startup costs for new programs, this was offset by the absence of significant restructuring charges, which had negatively impacted the prior year's results. Selling, general, and administrative expenses also decreased as a percentage of net sales.

As of June 30, 2006, Flextronics had $885.7 million in cash and cash equivalents and $1.8 billion in borrowings. Management believes its current cash, anticipated operating cash flows, and available credit facilities are sufficient to fund operations and anticipated transactions for at least the next twelve months. The company anticipates continuing to use debt and equity financings, accounts receivable sales, and leases for future growth and acquisitions.

Yes, the company completed the final stage of its asset purchase from Nortel in May 2006, with remaining consideration of $153.0 million expected in fiscal year 2007. Additionally, Flextronics entered into an agreement to sell its Software Development and Solutions business to an affiliate of KKR for over $600 million in cash, a note receivable, and a retained 15% equity interest. The report also details an amendment to a Note Purchase Agreement with Silver Lake Partners to extend the maturity date of convertible notes.