Flex Reports Fourth Quarter And Fiscal 2016 Results

(US$ in millions, except EPS)

Three Month Periods Ended

Twelve Month Periods Ended

March 31

March 31

March 31

March 31

2016

2015

2016

2015

Net sales

$

5,773

$

5,952

$

24,419

$

26,148

Adjusted operating income

$

200

$

178

$

792

$

751

GAAP operating income

$

118

$

164

$

653

$

701

Adjusted net income

$

161

$

157

$

645

$

637

GAAP net income

$

61

$

135

$

444

$

601

Adjusted EPS

$

0.29

$

0.27

$

1.14

$

1.08

GAAP EPS

$

0.11

$

0.23

$

0.79

$

1.02

SCHEDULE I

FLEX

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

Three Month Periods Ended

March 31, 2016

March 31, 2015

GAAP:

Net sales

$

5,772,698

$

5,951,600

Cost of sales

5,366,361

5,572,783

      Gross profit

378,817

Selling, general and administrative expenses ⁽²⁾

288,092

214,613

      Operating income

118,245

164,204

Intangible amortization

22,848

8,807

Interest and other, net

24,687

11,232

Other charges (income), net

1,481

(11,707)

      Income before income taxes

69,229

155,872

Provision for income taxes

7,885

20,760

     Net income

$

61,344

$

135,112

EPS:

Net income:

GAAP

$

0.11

$

0.23

Non-GAAP

$

0.29

$

0.27

Diluted shares used in computing per share amounts

552,828

581,852

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, 2016

March 31, 2015

GAAP:

Net sales

$

24,418,885

$

26,147,916

Cost of sales

22,810,824

24,602,576

      Gross profit

1,608,061

1,545,340

Selling, general and administrative expenses ⁽²⁾

954,890

844,473

      Operating income

653,171

700,867

Intangible amortization

65,965

32,035

Interest and other, net

84,793

51,410

Other charges (income), net ⁽³⁾⁽⁴⁾

47,738

(53,233)

      Income before income taxes

454,675

670,655

Provision for income taxes

10,594

69,854

     Net income

$

444,081

$

600,801

EPS:

Net income:

GAAP

$

0.79

$

1.02

Non-GAAP

$

1.14

$

1.08

Diluted shares used in computing per share amounts

564,869

591,556

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, 2016

March 31, 2015

GAAP gross profit

$

406,337

$

378,817

     Stock-based compensation expense

2,546

1,941

Non-GAAP gross profit

$

408,883

$

380,758

GAAP SG&A Expenses

$

288,092

$

214,613

     Stock-based compensation expense

18,475

11,509

     Bad debt expense ⁽²⁾

61,006

-

Non-GAAP SG&A Expenses

$

208,611

$

203,104

GAAP operating income

$

118,245

$

164,204

     Stock-based compensation expense

21,021

13,450

     Bad debt expense ⁽²⁾

61,006

-

Non-GAAP operating income

$

200,272

$

177,654

GAAP provision for income taxes

$

7,885

$

20,760

     Intangible amortization benefit

1,660

215

     Tax benefit on intangible assets

3,705

-

Non-GAAP provision for income taxes

$

13,250

$

20,975

GAAP net income

$

61,344

$

135,112

     Stock-based compensation expense

21,021

13,450

     Intangible amortization

22,848

8,807

     Bad debt expense ⁽²⁾

61,006

-

     Adjustments for taxes

(5,365)

(215)

Non-GAAP net income

$

160,854

$

157,154

EPS:

Net income:

GAAP

$

0.11

$

0.23

Non-GAAP

$

0.29

$

0.27

FLEX

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

(In thousands, except per share amounts)

Twelve Month Periods Ended

March 31, 2016

March 31, 2015

GAAP gross profit

$

1,608,061

$

1,545,340

     Stock-based compensation expense

8,986

7,503

Non-GAAP gross profit

$

1,617,047

$

1,552,843

GAAP SG&A Expenses

$

954,890

$

844,473

     Stock-based compensation expense

68,594

42,767

     Bad debt expense ⁽²⁾

61,006

-

Non-GAAP SG&A Expenses

$

825,290

$

801,706

GAAP operating income

$

653,171

$

700,867

     Stock-based compensation expense

77,580

50,270

     Bad debt expense ⁽²⁾

61,006

-

Non-GAAP operating income

$

791,757

$

751,137

GAAP provision for income taxes

$

10,594

$

69,854

     Intangible amortization benefit

5,404

1,783

     Tax benefit on intangible assets ⁽⁵⁾

43,029

-

Non-GAAP provision for income taxes

$

59,027

$

71,637

GAAP net income

$

444,081

$

600,801

     Stock-based compensation expense

77,580

50,270

     Intangible amortization

65,965

32,035

     Bad debt expense ⁽²⁾

61,006

-

     Other (income) charges, net ⁽³⁾⁽⁴⁾

44,415

(44,009)

     Adjustments for taxes ⁽⁵⁾

(48,433)

(1,783)

Non-GAAP net income

$

644,614

$

637,314

EPS:

Net income:

GAAP

$

0.79

$

1.02

Non-GAAP

$

1.14

$

1.08

SCHEDULE III

FLEX

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

March 31, 2016

March 31, 2015⁽⁶⁾

ASSETS

Current Assets:

Cash and cash equivalents

$

1,607,570

$

1,628,408

Accounts receivable, net

2,044,757

2,337,515

Inventories

3,454,356

3,488,752

Other current assets

1,171,143

1,285,093

Total current assets

8,277,826

8,739,768

Property and equipment, net

2,257,633

2,092,167

Goodwill and other intangible assets, net

1,345,820

415,175

Other assets

466,402

405,781

Total assets

$

12,347,681

$

11,652,891

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:

Bank borrowings and current portion of long-term debt

$

65,166

$

45,030

Accounts payable

4,210,992

4,561,194

Accrued payroll

353,547

339,739

Other current liabilities

1,905,200

1,809,128

Total current liabilities

6,534,905

6,755,091

Long-term debt, net of current portion

2,709,389

2,025,970

Other liabilities

497,857

475,580

Total shareholders' equity

2,605,530

2,396,250

Total liabilities and shareholders' equity

$

12,347,681

$

11,652,891

SCHEDULE IV

FLEX

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Twelve-Month Periods Ended

March 31, 2016

March 31, 2015

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

444,081

$

600,801

Depreciation, amortization and other impairment charges

515,367

540,490

Changes in working capital and other

176,997

(347,257)

    Net cash provided by operating activities

1,136,445

794,034

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment

(510,634)

(347,413)

Proceeds from the disposition of property and equipment

13,676

107,689

Acquisition and divestiture of businesses, net of cash acquired and cash held in divested business

(910,787)

(66,854)

Other investing activities, net

11,369

64,362

    Net cash used in investing activities

(1,396,376)

(242,216)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from bank borrowings and long-term debt

884,702

319,542

Repayments of bank borrowings and long-term debt

(190,221)

(344,156)

Payments for repurchases of ordinary shares

(420,317)

(415,945)

Net proceeds from issuance of ordinary shares

61,278

23,508

Other financing activities, net

(85,800)

(98,966)

    Net cash provided by (used in) financing activities

249,642

(516,017)

Effect of exchange rates on cash and cash equivalents

(10,549)

(1,121)

Net change in cash and cash equivalents

(20,838)

34,680

Cash and cash equivalents, beginning of period

1,628,408

1,593,728

     Cash and cash equivalents, end of period

$

1,607,570

$

1,628,408

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.

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.

Other (income) 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 twelve-month period ended March 31, 2016, Free Cash Flow was $639 million consisting of GAAP net cash flows from operating activities of $1,136 million less purchases of property and equipment net of proceeds from dispositions of $497 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)

As was publicly announced on April 21^st, SunEdison had filed for chapter 11 bankruptcy protection.  As a result, the Company has recognized a bad debt reserve charge of $61 million associated with its outstanding SunEdison receivables.

(3)

Includes $25 million of non-cash foreign currency translation loss attributable to a non-strategic Western European manufacturing facility we sold and $22 million impairment of a non-core investment in the third quarter of fiscal 2016.

(4)

In accordance with a manufacturing agreement, the Company recognized a $55 million charge for a contractual obligation during the quarter ended March 31, 2014. During the first quarter of fiscal 2015, an amendment was executed which included the removal of the $55 million obligation. Accordingly, the Company reversed this charge with a corresponding credit to other income, included in other (income) charges, net with no impact to cash. In addition, during the first quarter of fiscal 2015, the Company recognized a loss of $11 million in connection with the disposition of a certain European manufacturing facility, which is included in other (income) charges, net.

(5)

Includes a $39 million benefit for the release of valuation allowances on certain of our deferred tax assets resulting from our acquisition of the NEXTracker business during the third quarter of fiscal 2016.

(6)

In April 2015, the FASB issued new guidance which changes the presentation of debt issuance costs in financial statements. As a result of the adoption, $12.7 million of debt issuance costs associated with the Company's bank borrowings and long-term debt as of March 31, 2015, were reclassified from other current and noncurrent assets, to short-term and long-term debt in the consolidated balance sheet.

Renee Brotherton                              

Kevin Kessel

Corporate Communications                         

Investor Relations

(408) 576-7189                                         

(408) 576-7985

[email protected]              

[email protected]