Flextronic International is a leading provider of advanced electronics manufacturing services to OEMs primarily in the telecommunications and networking consumer electronics and computer industries. The company's strategy is to provide customers with the ability to outsource on a global basis a complete product wherethe company's take responsibility for engineering supply chain management assembly integration test andlogistics management. The company provides complete product design services including electrical and mechanical circuit and layout. Flextronics International Ltd. has a market cap of $2.07 billion; its shares were traded at around $2.89 with a P/E ratio of 2.7 and P/S ratio of 0.08.
Highlight of Business Operations:To the extent the Company identifies exposures as a result of credit or customer evaluations, the Company also reviews other customer related exposures, including but not limited to inventory and related contractual obligations. During the three-month and nine-month period ended December 31, 2008 the Company incurred $145.3 million and $262.7 million of charges for Nortel and other customers that filed for bankruptcy or restructuring protection or otherwise were experiencing significant financial and liquidity difficulties. Of these charges, the Company classified approximately $98.0 million and $194.7 million in cost of sales related to the write-down of inventory and associated contractual obligations and $47.3 million and $68.0 million as selling, general and administrative expenses for provisions for doubtful accounts during the three-month and nine-month periods ended December 31, 2008, respectively. In the case of Nortel, in developing the charge to cost of sales, the Company considered its negotiated agreement requiring Nortel to purchase $120.0 million of existing inventory by July 1, 2009. This agreement has received preliminary approval by the Ontario Superior Court of Justice and $75.0 million has been collected under the arrangement as of January 31, 2009.
Based on all information available through December 31, 2008, including discussions with Nortel and its financial advisors, the Company believed that payment of receivables from Nortel was reasonably assured at the time of shipment, and accordingly, the Company recorded revenues on sales to Nortel at the time of shipment during the period. As part of the contractual arrangement discussed above, the Company also secured five day payment terms on all post-bankruptcy petition and post-CCCA (Companies Creditors Arrangement Act) filing shipments for Nortel. The Company reclassified approximately $88.2 million of trade receivables from Nortel, net of the $47.3 million reserve, to other assets as of December 31, 2008, as the Company does not expect these amounts to be collected within one year. In developing the provision for these receivables, the Company considered various mitigating factors including existing provisions for Nortel, off-setting obligations from Nortel and amounts subject to administrative priority claims. As it is early in the restructuring proceedings, these estimates required a considerable amount of judgment and accordingly, the provisions are subject to change.
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