Flex Reports Fourth Quarter And Fiscal 2017 Results

(US$ in millions, except EPS)

Three-Month Periods Ended

Twelve Month Periods Ended

March 31,
2017

March 31,
2016

March 31,
2017

March 31,
2016

Net sales

$

5,863

$

5,773

$

23,863

$

24,419

GAAP income before income taxes

$

99

$

69

$

371

$

455

Adjusted operating income

$

205

$

200

$

815

$

792

GAAP net income

$

87

$

61

$

320

$

444

Adjusted net income

$

156

$

161

$

640

$

645

GAAP EPS

$

0.16

$

0.11

$

0.59

$

0.79

Adjusted EPS

$

0.29

$

0.29

$

1.17

$

1.14

SCHEDULE I

FLEX

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

Three-Month Periods Ended

March 31, 2017

March 31, 2016

GAAP:

Net sales

$

5,862,597

$

5,772,698

Cost of sales

5,460,827

5,366,361

Restructuring charges 

16,966

-

      Gross profit

384,804

406,337

Selling, general and administrative expenses 

229,467

288,092

Restructuring charges 

3,469

-

Intangible amortization

19,078

22,848

Interest and other, net

27,663

24,687

Other charges, net

6,186

1,481

      Income before income taxes

98,941

69,229

Provision for income taxes

12,067

7,885

     Net income

$

86,874

$

61,344

Earnings per share:

GAAP

$

0.16

$

0.11

Non-GAAP

$

0.29

$

0.29

Diluted shares used in computing per share amounts

540,782

552,828

See Schedule II for the reconciliation of GAAP to non-GAAP financial measures. See the accompanying notes on Schedule V attached to this press release.

FLEX

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

Twelve-Month Periods Ended

March 31, 2017

March 31, 2016

GAAP:

Net sales

$

23,862,934

$

24,418,885

Cost of sales

22,303,231

22,810,824

Restructuring charges

38,758

-

      Gross profit

1,520,945

1,608,061

Selling, general and administrative expenses

937,339

954,890

Restructuring charges

10,637

-

Intangible amortization

81,396

65,965

Interest and other, net

99,532

84,793

Other charges, net

21,193

47,738

      Income before income taxes

370,848

454,675

Provision for income taxes

51,284

10,594

     Net income

$

319,564

$

444,081

Earnings per share:

GAAP

$

0.59

$

0.79

Non-GAAP

$

1.17

$

1.14

Diluted shares used in computing per share amounts

546,220

564,869

See Schedule II for the reconciliation of GAAP to non-GAAP financial measures. See the accompanying notes on Schedule V attached to this press release.

SCHEDULE II

FLEX

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES ⁽¹⁾

(In thousands, except per share amounts)

Three-Month Periods Ended

March 31, 2017

March 31, 2016

GAAP gross profit

$

384,804

$

406,337

     Stock-based compensation expense

2,517

2,546

     Restructuring and other ⁽²⁾

31,735

-

Non-GAAP gross profit

$

419,056

$

408,883

GAAP income before income taxes

$

98,941

$

69,229

     Stock-based compensation expense

14,956

21,021

     Restructuring and other ⁽²⁾

38,138

-

     Intangible amortization

19,078

22,848

     Interest and other, net

27,663

24,687

     Other charges, net

6,186

1,481

     SunEdison bankruptcy ⁽³⁾

-

61,006

Non-GAAP operating income

$

204,962

$

200,272

GAAP provision for income taxes

$

12,067

$

7,885

     Intangible amortization benefit

1,725

1,660

     Tax benefit on intangible assets 

-

3,705

     Tax benefit on restructuring and other

1,132

-

Non-GAAP provision for income taxes

$

14,924

$

13,250

GAAP net income

$

86,874

$

61,344

     Stock-based compensation expense

14,956

21,021

     Restructuring and other ⁽²⁾

38,138

-

     Intangible amortization

19,078

22,848

     Adjustments for taxes

(2,857)

(5,365)

     SunEdison bankruptcy ⁽³⁾

-

61,006

Non-GAAP net income

$

156,189

$

160,854

Diluted earnings per share:

GAAP 

$

0.16

$

0.11

Non-GAAP

$

0.29

$

0.29

FLEX

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES ⁽¹⁾

(In thousands, except per share amounts)

Twelve-Month Periods Ended

March 31, 2017

March 31, 2016

GAAP gross profit

$

1,520,945

$

1,608,061

     Stock-based compensation expense

10,023

8,986

     SunEdison bankruptcy ⁽³⁾

92,915

-

     Restructuring and other ⁽²⁾

53,527

-

Non-GAAP gross profit

$

1,677,410

$

1,617,047

GAAP income before income taxes

$

370,848

$

454,675

     Stock-based compensation expense

82,266

77,580

     Restructuring and other ⁽²⁾

67,099

-

     Intangible amortization

81,396

65,965

     Interest and other, net

99,532

84,793

     Other charges, net ⁽⁴⁾

21,193

47,738

     SunEdison bankruptcy ⁽³⁾

92,915

61,006

Non-GAAP operating income

$

815,249

$

791,757

GAAP provision for income taxes

$

51,284

$

10,594

     Intangible amortization benefit

7,176

5,404

     Tax benefit on intangible assets ⁽⁵⁾

638

43,029

     Tax benefit on restructuring and other

3,012

-

Non-GAAP provision for income taxes

$

62,110

$

59,027

GAAP net income

$

319,564

$

444,081

     Stock-based compensation expense

82,266

77,580

     Restructuring and other ⁽²⁾

67,099

-

     Intangible amortization

81,396

65,965

     SunEdison bankruptcy ⁽³⁾

92,915

61,006

     Other charges, net ⁽⁴⁾

7,388

44,415

     Adjustments for taxes ⁽⁵⁾

(10,826)

(48,433)

Non-GAAP net income

$

639,802

$

644,614

Diluted earnings per share:

GAAP 

$

0.59

$

0.79

Non-GAAP

$

1.17

$

1.14

SCHEDULE III

FLEX

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

As of March 31, 2017

As of March 31, 2016

ASSETS

Current Assets:

Cash and cash equivalents

$

1,830,675

$

1,607,570

Accounts receivable, net of allowance for doubtful accounts

2,192,704

2,044,757

Inventories

3,396,462

3,491,656

Other current assets

967,935

1,171,143

Total current assets

8,387,776

8,315,126

Property and equipment, net

2,317,026

2,257,633

Goodwill and other intangible assets, net

1,347,048

1,345,820

Other assets

541,513

466,402

Total assets

$

12,593,363

$

12,384,981

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:

Bank borrowings and current portion of long-term debt

$

61,534

$

65,166

Accounts payable

4,484,908

4,248,292

Accrued payroll

344,245

353,547

Other current liabilities

1,613,940

1,905,200

Total current liabilities

6,504,627

6,572,205

Long-term debt, net of current portion

2,890,609

2,709,389

Other liabilities

519,851

497,857

Total shareholders' equity

2,678,276

2,605,530

Total liabilities and shareholders' equity

$

12,593,363

$

12,384,981

SCHEDULE IV

FLEX

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Twelve-Months Periods Ended

March 31, 2017

March 31, 2016

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

319,564

$

444,081

Depreciation, amortization and other impairment charges

609,660

515,367

Changes in working capital and other

220,685

176,997

    Net cash provided by operating activities

1,149,909

1,136,445

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment

(525,111)

(510,634)

Proceeds from the disposition of property and equipment

35,606

13,676

Acquisition of businesses, net of cash acquired

(189,084)

(916,527)

Proceeds from divestiture of business, net of cash held in divested business

36,731

5,740

Other investing activities, net

(60,329)

11,369

    Net cash used in investing activities

(702,187)

(1,396,376)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from bank borrowings and long-term debt

312,741

884,702

Repayments of bank borrowings and long-term debt

(141,730)

(190,221)

Payments for repurchases of ordinary shares

(349,532)

(420,317)

Net proceeds from issuance of ordinary shares

12,438

61,278

Other financing activities, net

(76,024)

(85,800)

    Net cash (used in) provided by financing activities

(242,107)

249,642

Effect of exchange rates on cash and cash equivalents

17,490

(10,549)

Net increase in cash and cash equivalents

223,105

(20,838)

Cash and cash equivalents, beginning of period

1,607,570

1,628,408

Cash and cash equivalents, end of period

$

1,830,675

$

1,607,570

FLEX AND SUBSIDIARIES

NOTES TO SCHEDULES I, II, III, & IV

(1)

To supplement Flex's unaudited selected financial data presented on a basis consistent with Generally Accepted Accounting Principles ("GAAP"), the Company discloses certain non-GAAP financial measures that exclude certain charges, including non-GAAP gross profit, non-GAAP operating income, non-GAAP net income and non-GAAP net income per diluted share.  These supplemental measures exclude stock-based compensation expense, restructuring charges, intangible amortization, other discrete events as applicable and the related tax effects. These non-GAAP measures are not in accordance with or an alternative for GAAP, and may be different from non-GAAP measures used by other companies.  We believe that these non-GAAP measures have limitations in that they do not reflect all of the amounts associated with Flex's results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate Flex's results of operations in conjunction with the corresponding GAAP measures.  The presentation of this additional information is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP measures.  We compensate for the limitations of non-GAAP financial measures by relying upon GAAP results to gain a complete picture of the Company's performance. 

In calculating non-GAAP financial measures, we exclude certain items to facilitate a review of the comparability of the Company's operating performance on a period-to-period basis because such items are not, in our view, related to the Company's ongoing operational performance. We use non-GAAP measures to evaluate the operating performance of our business, for comparison with forecasts and strategic plans, for calculating return on investment, and for benchmarking performance externally against competitors. In addition, management's incentive compensation is determined using certain non-GAAP measures.  Also, when evaluating potential acquisitions, we exclude certain of the items described below from consideration of the target's performance and valuation.  Since we find these measures to be useful, we believe that investors benefit from seeing results "through the eyes" of management in addition to seeing GAAP results.  We believe that these non-GAAP measures, when read in conjunction with the Company's GAAP financials, provide useful information to investors by offering:

•

the ability to make more meaningful period-to-period comparisons of the Company's on-going operating results;

•

the ability to better identify trends in the Company's underlying business and perform related trend analyses;

•

a better understanding of how management plans and measures the Company's underlying business; and

•

an easier way to compare the Company's operating results against analyst financial models and operating results of competitors that supplement their GAAP results with non-GAAP financial measures.

The following are explanations of each of the adjustments that we incorporate into non-GAAP measures, as well as the reasons for excluding each of these individual items in the reconciliations of these non-GAAP financial measures:

Stock-based compensation expense consists of non-cash charges for the estimated fair value of stock options and unvested restricted share unit awards granted to employees and assumed in business acquisitions.  The Company believes that the exclusion of these charges provides for more accurate comparisons of its operating results to peer companies due to the varying available valuation methodologies, subjective assumptions and the variety of award types.  In addition, the Company believes it is useful to investors to understand the specific impact stock-based compensation expense has on its operating results.

Restructuring and other primarily includes severance for rationalization at existing sites and corporate SG&A functions as well as non-cash impairment of certain assets. These costs may vary in size based on the Company's initiatives, and are not directly related to ongoing or core business results, and do not reflect expected future operating expenses. These costs are excluded by the Company's management in assessing current operating performance and forecasting its earnings trends, and are therefore excluded by the Company from its non-GAAP measures. 

Inventory impairment and other consists primarily of non-cash impairment of certain solar panel inventory on hand to net realizable value. These costs are excluded by the Company's management in assessing current operating performance and forecasting its earnings trends, and are therefore excluded by the Company from its non-GAAP measures. 

Bad debt expense is comprised of additional provisions for doubtful accounts receivable for customers that are experiencing significant financial difficulties.  These costs are excluded by the Company's management in assessing its current operating performance and forecasting its earnings trends, and accordingly, are excluded by the Company from its non-GAAP measures.

Intangible amortization consists primarily of non-cash charges that can be impacted by, among other things, the timing and magnitude of acquisitions.  The Company considers its operating results without these charges when evaluating its ongoing performance and forecasting its earnings trends, and therefore excludes such charges when presenting non-GAAP financial measures.  The Company believes that the assessment of its operations excluding these costs is relevant to its assessment of internal operations and comparisons to the performance of its competitors.

Adjustment for taxes relates to the tax effects of the various adjustments that we incorporate into non-GAAP measures in order to provide a more meaningful measure on non-GAAP net income and certain adjustments related to non-recurring settlements of tax contingencies when applicable.

Other charges, net consists of various other types of items that are not directly related to ongoing or core business results, such as the non-cash foreign currency impact from certain divestitures and impairment charges associated with non-core investments.  We exclude these items because they are not related to the Company's ongoing operating performance or do not affect core operations.  Excluding these amounts provide investors with a basis to compare Company performance against the performance of other companies without this variability.

For the twelve-month period ended March 31, 2017, Free Cash Flow was $660 million consisting of GAAP net cash flows from operating activities of $1.1 billion less purchases of property and equipment net of proceeds from dispositions of $490 million. We believe Free Cash Flow is an important liquidity metric because it measures, during a given period, the amount of cash generated that is available to repay debt obligations, make investments, fund acquisitions and for certain other activities. Since Free Cash Flow includes investments in operating assets, we believe this non-GAAP liquidity measure is useful in addition to the most directly comparable GAAP measure – "net cash flows provided by operating activities."

(2)

During fiscal year 2017, the Company initiated a restructuring plan to accelerate its ability to support more Sketch-to-Scale™ efforts across the Company and reposition away from historical legacy programs and structures through rationalizing its current footprint at existing sites and at corporate SG&A functions. In addition, certain asset impairments were also recorded in three-month period ended March 31, 2017. Approximately $38.1 million was recognized in the quarter ended March 31, 2017 and $67.1 million was recognized for the twelve-month period ending March 31, 2017.

(3)

On April 21, 2016, SunEdison Inc. (together with certain of its subsidiaries, "SunEdison"), filed a petition for reorganization under bankruptcy law. During the fiscal year ended March 31, 2016, the Company recognized a bad debt reserve charge of $61.0 million associated with its outstanding SunEdison receivables and accepted return of previously shipped inventory of approximately $90.0 million according to the amount the Company originally invoiced. During the second quarter of fiscal year 2017, prices for solar panel modules declined significantly. The Company determined that certain solar panel inventory previously designated for SunEdison on hand at the end of the second quarter of fiscal year 2017 was not fully recoverable and recorded a charge of $60.0 million to reduce the carrying costs to market during fiscal year 2017. The Company also recognized a $16.0 million impairment charge for solar module equipment and $16.9 million primarily related to negative margin sales and other associated solar panel direct costs incurred during the same period. The total charge of $92.9 million for fiscal year 2017 is included in cost of sales.

(4)

The twelve months ended March 31, 2017 includes a $7.4 million loss attributable to a non-strategic facility sold during the second quarter of fiscal 2017.

The twelve months ended March 31, 2016 includes $25 million of non-cash foreign currency translation loss attributable to the sale of a non-strategic Western European manufacturing facility and a $22 million impairment of a non-core investment.

(5)

The twelve months ended March 31, 2017 includes a $0.6 million benefit for the release of valuation allowance on certain of our deferred tax assets resulting from an immaterial acquisition.

The twelve months ended March 31, 2016 includes a $42 million benefit for the release of valuation allowances on certain of our deferred tax assets resulting from our acquisition of the NEXTracker business in September 2015.

Renee Brotherton

Kevin Kessel

Corporate Communications

Investor Relations

(408) 576-7189

(408) 576-7985

[email protected]

[email protected]