Recession wherefore: Flextronics to restructure for anticipated cash savings of $230M-$260M annually
Flextronics , a leading electronics manufacturing services (EMS) provider, says its newly reported restructuring plans are intended to rationalize the company's global manufacturing capacity and infrastructure as a result of current macroeconomic conditions and decline in demand from its OEM customers.
The current global economic crisis and related decline in demand for its customers' products across all of the industries served has caused Flextronics OEM customers to reduce their manufacturing and supply chain outsourcing, ultimately impacting the company's capacity utilization levels.
Flextronics's restructuring activities are intended to improve its operational efficiencies by reducing excess workforce and capacity. Additionally, the cost reductions and other activities will result in a further shift of manufacturing capacity to locations at the company with higher efficiencies and, in most instances, lower costs.
The costs associated with these restructuring activities include employee severance, costs related to owned and leased facilities and equipment that is no longer in use and is to be disposed of, and other costs associated with the exit of certain contractual arrangements due to facility closures. The exact timing of these charges and cash outflows, as well as the estimated cost ranges by category type, has not been finalized. Additionally, the amount and timing of the actual charges may vary due to several factors such as required consultation with the company's employees and their representatives and the compliance with statutory severance requirements in certain jurisdictions.
Flextronics expects to recognize between $220 million and $250 million in pre-tax restructuring and impairment costs over the course of the company's fiscal years 2009 and 2010. Approximately $190 million to $210 million of these costs are expected to be recorded in the company's operating results for the fiscal year ending March 31, 2009. Flextronics expects that a significant portion of the total restructuring costs will be related to employee benefit and severance arrangements. The charges related to the restructuring activities, excluding asset impairment charges, are expected to result in cash expenditures between $130 million and $150 million that will be payable primarily during fiscal year 2010.
Additionally, Flextronics anticipates that upon the completion of these restructuring activities, the potential savings in cost of goods sold achieved through lower depreciation, reduced employee expenses, reduced operating costs and improved operational efficiencies, as well as reduced selling, general and administrative operating expenses will yield annualized savings ranging from $230 million to $260 million.