Flex Reports First Quarter Fiscal 2017 Results

(US$ in millions, except EPS)

Three Month Periods Ended

July 01, 2016

June 26, 2015

Net sales

$

5,877

$

5,566

GAAP income before income taxes

$

117

$

119

Adjusted operating income

$

190

$

159

GAAP net income

$

106

$

111

Adjusted net income

$

149

$

134

GAAP EPS

$

0.19

$

0.19

Adjusted EPS

$

0.27

$

0.23

SCHEDULE I

FLEX

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

Three Month Periods Ended

July 01, 2016

June 26, 2015

GAAP:

Net sales

$

5,876,813

$

5,566,248

Cost of sales

5,470,818

5,213,907

      Gross profit

405,995

352,341

Selling, general and administrative expenses

239,546

209,385

Intangible amortization

21,598

7,671

Interest and other, net

24,399

16,505

Other charges, net

3,529

164

      Income before income taxes

116,923

118,616

Provision for income taxes

11,194

7,766

     Net income

$

105,729

$

110,850

EPS:

GAAP

$

0.19

$

0.19

Non-GAAP

$

0.27

$

0.23

Diluted shares used in computing per share amounts

551,029

577,997

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

July 01, 2016

June 26, 2015

GAAP gross profit

$

405,995

$

352,341

     Stock-based compensation expense

2,433

2,018

Non-GAAP gross profit

$

408,428

$

354,359

GAAP SG&A Expenses

$

239,546

$

209,385

     Stock-based compensation expense

(21,364)

(14,108)

Non-GAAP SG&A Expenses

$

218,182

$

195,277

GAAP income before income taxes

$

116,923

$

118,616

     Stock-based compensation expense

23,797

16,126

     Intangible amortization

21,598

7,671

     Interest and other, net

24,399

16,505

     Other charges, net

3,529

164

Non-GAAP operating income

$

190,246

$

159,082

GAAP provision for income taxes

$

11,194

$

7,766

     Intangible amortization benefit

1,850

258

     Tax benefit on intangible assets

638

-

Non-GAAP provision for income taxes

$

13,682

$

8,024

GAAP net income

$

105,729

$

110,850

     Stock-based compensation expense

23,797

16,126

     Intangible amortization

21,598

7,671

     Adjustments for taxes

(2,488)

(258)

Non-GAAP net income

$

148,636

$

134,389

EPS:

GAAP

$

0.19

$

0.19

Non-GAAP

$

0.27

$

0.23

SCHEDULE III

FLEX

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

As of July 01, 2016

As of March 31, 2016

ASSETS

Current Assets:

Cash and cash equivalents

$

1,679,335

$

1,607,570

Accounts receivable, net of allowance for doubtful accounts

2,057,943

2,044,757

Inventories

3,594,837

3,491,656

Other current assets

1,088,844

1,171,143

Total current assets

8,420,959

8,315,126

Property and equipment, net

2,296,445

2,257,633

Goodwill and other intangible assets, net

1,324,614

1,345,820

Other assets

466,506

466,402

Total assets

$

12,508,524

$

12,384,981

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:

Bank borrowings and current portion of long-term debt

$

66,020

$

65,166

Accounts payable

4,317,571

4,248,292

Accrued payroll

377,527

353,547

Other current liabilities

1,866,585

1,905,200

Total current liabilities

6,627,703

6,572,205

Long-term debt, net of current portion:

2,692,596

2,709,389

Other liabilities

521,631

497,857

Total shareholders' equity

2,666,594

2,605,530

Total liabilities and shareholders' equity

$

12,508,524

$

12,384,981

SCHEDULE IV

FLEX

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Three-Month Periods Ended

July 01, 2016

June 26, 2015

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

105,729

$

110,850

Depreciation, amortization and other impairment charges

129,500

110,119

Changes in working capital and other

28,703

141,307

    Net cash provided by operating activities

263,932

362,276

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment

(159,103)

(138,348)

Proceeds from the disposition of property and equipment

15,722

1,512

Acquisition of businesses, net of cash acquired

(9,492)

(18,580)

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

14,828

1,000

Other investing activities, net

26,261

(7,580)

    Net cash used in investing activities

(111,784)

(161,996)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from bank borrowings and long-term debt

75,018

595,548

Repayments of bank borrowings and long-term debt

(92,222)

(8,457)

Payments for repurchases of ordinary shares

(94,715)

(99,995)

Net proceeds from issuance of ordinary shares

3,966

44,602

Other financing activities, net

12,901

(25,252)

    Net cash (used in) provided by financing activities

(95,052)

506,446

Effect of exchange rates on cash and cash equivalents

14,669

(3,723)

Net increase in cash and cash equivalents

71,765

703,003

Cash and cash equivalents, beginning of period

1,607,570

1,628,408

Cash and cash equivalents, end of period

$

1,679,335

$

2,331,411

SCHEDULE V

FLEX AND SUBSIDIARIES

NOTES TO SCHEDULES I, II, III, & IV

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.

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.

For the three-month period ended July 1, 2016, Free Cash Flow was $121 million consisting of GAAP net cash flows from operating activities of $264 million less purchases of property and equipment net of proceeds from dispositions of $143 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."

Renee Brotherton

Kevin Kessel

Corporate Communications 

Investor Relations

(408) 576-7189 

(408) 576-7985

[email protected] 

[email protected]