Flex Reports Second Quarter Fiscal 2017 Results

Three Month Periods Ended

September 30, 2016

September 25, 2015

Net sales

$

6,009

$

6,317

GAAP income before income taxes

$

15

$

140

Adjusted operating income

$

197

$

196

GAAP net income (loss)

$

(3)

$

123

Adjusted net income

$

152

$

153

GAAP EPS

$

0.00

$

0.22

Adjusted EPS

$

0.28

$

0.27

SCHEDULE I

FLEX

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

Three Month Periods Ended

September 30, 2016

September 25, 2015

GAAP:

Net sales

$

6,008,525

$

6,316,762

Cost of sales

5,694,834

5,919,846

      Gross profit

313,691

396,916

Selling, general and administrative expenses

243,943

216,796

Intangible amortization

21,986

16,127

Interest and other, net

24,632

22,035

Other charges, net

8,388

1,678

      Income before income taxes

14,742

140,280

Provision for income taxes

17,250

17,303

     Net income (loss)

$

(2,508)

$

122,977

Earnings (losses) per share:

GAAP ⁽²⁾

$

0.00

$

0.22

Non-GAAP ⁽²⁾

$

0.28

$

0.27

Basic shares used in computing per share amounts

544,055

563,333

Diluted shares used in computing per share amounts

544,055

569,655

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)

Six Month Periods Ended

September 30, 2016

September 25, 2015

GAAP:

Net sales

$

11,885,338

$

11,883,010

Cost of sales

11,165,652

11,133,753

      Gross profit

719,686

749,257

Selling, general and administrative expenses

483,489

426,181

Intangible amortization

43,584

23,798

Interest and other, net

49,031

38,540

Other charges, net

11,917

1,842

      Income before income taxes

131,665

258,896

Provision for income taxes

28,444

25,069

     Net income

$

103,221

$

233,827

Earnings per share:

GAAP

$

0.19

$

0.41

Non-GAAP

$

0.55

$

0.50

Basic shares used in computing per share amounts

544,353

564,417

Diluted shares used in computing per share amounts

549,934

573,288

SCHEDULE II

FLEX

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

(In thousands, except per share amounts)

Three Month Periods Ended

September 30, 2016

September 25, 2015

GAAP gross profit

$

313,691

$

396,916

     Stock-based compensation expense

2,636

2,015

     Inventory impairment and other ⁽³⁾

92,915

-

     Restructuring ⁽⁴⁾

6,824

-

Non-GAAP gross profit

$

416,066

$

398,931

GAAP SG&A Expenses

$

243,943

$

216,796

     Stock-based compensation expense

(20,097)

(14,185)

     Restructuring ⁽⁴⁾

(4,715)

-

Non-GAAP SG&A Expenses

$

219,131

$

202,611

GAAP income before income taxes

$

14,742

$

140,280

     Stock-based compensation expense

22,733

16,200

     Inventory impairment and other ⁽³⁾

92,915

-

     Restructuring ⁽⁴⁾

11,539

-

     Intangible amortization

21,986

16,127

     Interest and other, net

24,632

22,035

     Other charges, net ⁽⁵⁾

8,388

1,678

Non-GAAP operating income

$

196,935

$

196,320

GAAP provision for income taxes

$

17,250

$

17,303

     Intangible amortization benefit

1,825

2,355

     Tax benefit on restructuring

196

-

Non-GAAP provision for income taxes

$

19,271

$

19,658

GAAP net income (loss)

$

(2,508)

$

122,977

     Stock-based compensation expense

22,733

16,200

     Inventory impairment and other ⁽³⁾

92,915

-

     Restructuring ⁽⁴⁾

11,539

-

     Intangible amortization

21,986

16,127

     Other charges, net ⁽⁵⁾

7,388

-

     Adjustments for taxes

(2,021)

(2,355)

Non-GAAP net income

$

152,032

$

152,949

Diluted earnings (losses) per share:

GAAP ⁽²⁾

$

0.00

$

0.22

Non-GAAP ⁽²⁾

$

0.28

$

0.27

FLEX

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

(In thousands, except per share amounts)

Six Month Periods Ended

September 30, 2016

September 25, 2015

GAAP gross profit

$

719,686

$

749,257

     Stock-based compensation expense

5,069

4,033

     Inventory impairment and other ⁽³⁾

92,915

-

     Restructuring ⁽⁴⁾

6,824

-

Non-GAAP gross profit

$

824,494

$

753,290

GAAP SG&A Expenses

$

483,489

$

426,181

     Stock-based compensation expense

(41,461)

(28,293)

     Restructuring ⁽⁴⁾

(4,715)

-

Non-GAAP SG&A Expenses

$

437,313

$

397,888

GAAP income before income taxes

$

131,665

$

258,896

     Stock-based compensation expense

46,530

32,326

     Inventory impairment and other ⁽³⁾

92,915

-

     Restructuring ⁽⁴⁾

11,539

-

     Intangible amortization

43,584

23,798

     Interest and other, net

49,031

38,540

     Other charges, net ⁽⁵⁾

11,917

1,842

Non-GAAP operating income

$

387,181

$

355,402

GAAP provision for income taxes

$

28,444

$

25,069

     Intangible amortization benefit

3,675

2,613

     Tax benefit on intangible assets

638

-

     Tax benefit on restructuring

196

-

Non-GAAP provision for income taxes

$

32,953

$

27,682

GAAP net income

$

103,221

$

233,827

     Stock-based compensation expense

46,530

32,326

     Inventory impairment and other ⁽³⁾

92,915

-

     Restructuring ⁽⁴⁾

11,539

-

     Intangible amortization

43,584

23,798

     Other charges, net ⁽⁵⁾

7,388

-

     Adjustments for taxes

(4,509)

(2,613)

Non-GAAP net income

$

300,668

$

287,338

Diluted earnings per share:

GAAP

$

0.19

$

0.41

Non-GAAP

$

0.55

$

0.50

SCHEDULE III

FLEX

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

As of September 30, 2016

As of March 31, 2016

ASSETS

Current Assets:

Cash and cash equivalents

$

1,537,056

$

1,607,570

Accounts receivable, net of allowance for doubtful accounts

2,341,393

2,044,757

Inventories

3,562,217

3,491,656

Other current assets

1,017,954

1,171,143

Total current assets

8,458,620

8,315,126

Property and equipment, net

2,335,959

2,257,633

Goodwill and other intangible assets, net

1,395,763

1,345,820

Other assets

470,792

466,402

Total assets

$

12,661,134

$

12,384,981

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:

Bank borrowings and current portion of long-term debt

$

65,969

$

65,166

Accounts payable

4,514,566

4,248,292

Accrued payroll

410,587

353,547

Other current liabilities

1,862,545

1,905,200

Total current liabilities

6,853,667

6,572,205

Long-term debt, net of current portion:

2,678,115

2,709,389

Other liabilities

525,044

497,857

Total shareholders' equity

2,604,308

2,605,530

Total liabilities and shareholders' equity

$

12,661,134

$

12,384,981

SCHEDULE IV

FLEX

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Six-Month Periods Ended

September 30,

 2016

September 25,
2015

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

103,221

$

233,827

Depreciation, amortization and other impairment charges

337,387

230,894

Changes in working capital and other

102,944

197,274

    Net cash provided by operating activities

543,552

661,995

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment

(305,936)

(296,401)

Proceeds from the disposition of property and equipment

26,561

2,383

Acquisition of businesses, net of cash acquired

(189,895)

(641,913)

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

36,073

-

Other investing activities, net

20,357

(10,516)

    Net cash used in investing activities

(412,840)

(946,447)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from bank borrowings and long-term debt

75,035

595,553

Repayments of bank borrowings and long-term debt

(110,592)

(21,090)

Payments for repurchases of ordinary shares

(184,698)

(241,978)

Net proceeds from issuance of ordinary shares

11,344

49,074

Other financing activities, net

(6,836)

(37,872)

    Net cash provided by (used in) financing activities

(215,747)

343,687

Effect of exchange rates on cash and cash equivalents

14,521

(19,216)

Net increase (decrease) in cash and cash equivalents

(70,514)

40,019

Cash and cash equivalents, beginning of period

1,607,570

1,628,408

Cash and cash equivalents, end of period

$

1,537,056

$

1,668,427

SCHEDULE V

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 selling, general and administrative expenses, 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 includes primarily severance related to the rationalization at existing sites and corporate SG&A functions. These costs may vary in size based on the Company's restructuring activities, 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 inventory impairment of certain solar panel inventory on hand no longer deemed recoverable. 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. 

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 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 three-month period ended September 30, 2016, Free Cash Flow was $144 million consisting of GAAP net cash flows from operating activities of $280 million less purchases of property and equipment net of proceeds from dispositions of $136 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)

Basic shares were used in calculating diluted GAAP EPS for the quarter ended September 30, 2016 due to the net loss recognized during the period. Diluted shares for Q2 fiscal 2017 were 548,358 thousand which were used in calculating diluted Non-GAAP EPS for the quarter.

(3)

On April 21, 2016, SunEdison, Inc. (SunEdison) filed a petition for reorganization under bankruptcy law, and as a result, the Company recognized a bad debt reserve of $61.0 million as of March 31, 2016, associated with its outstanding SunEdison receivables. As of the end of Fiscal 2016, the Company also retained solar panel module inventory and assets associated with our SunEdison production, which we had anticipated on selling.

During the three-month period ended September 30, 2016, prices for solar panel modules have declined significantly due to global oversupply and continued de-regulation. The Company determined that certain solar panel inventory on hand as of September 30, 2016 was not fully recoverable and recorded a charge of $60.0 million to reduce the carrying costs to market in the three and six month periods ended September 30, 2016. The Company also recognized a $16.0 million impairment charge for solar module equipment and $16.9 million of other associated solar panel direct costs incurred during the same periods. The total charge of $92.9 million is included in cost of sales for the three and six month periods ended September 30, 2016.

(4)

The Company has initiated a plan to rationalize the current footprint at existing sites including corporate SG&A functions and to continue to shift the talent base in support of our sketch to scale initiatives.  As part of this plan, approximately $11.5 million was recognized in the quarter ended September 30, 2016. The Company expects to finalize the plan by the end of fiscal 2017.

(5)

Includes $7.4 million of loss attributable to a non-strategic facility we sold in the second quarter of fiscal 2017.

Renee Brotherton

Kevin Kessel

Corporate Communications

Investor Relations

(408) 576-7189

(408) 576-7985

[email protected] 

[email protected]