Flex Reports First Quarter Fiscal 2018 Results

(US$ in millions, except EPS)

Three-Month Periods Ended

June 30, 2017

July 01, 2016

Net sales

$

6,008

$

5,877

GAAP income before income taxes

$

146

$

117

Adjusted operating income

$

178

$

190

GAAP net income

$

125

$

106

Adjusted net income

$

128

$

149

GAAP EPS

$

0.23

$

0.19

Adjusted EPS

$

0.24

$

0.27

SCHEDULE I

FLEX

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

Three-Month Periods Ended

June 30, 2017

July 01, 2016

GAAP:

Net sales

$

6,008,272

$

5,876,813

Cost of sales

5,601,340

5,470,818

      Gross profit

406,932

405,995

Selling, general and administrative expenses 

250,811

239,546

Intangible amortization

19,901

21,598

Interest and other, net

26,876

24,399

Other charges (income), net ⁽²⁾

(36,165)

3,529

      Income before income taxes

145,509

116,923

Provision for income taxes

20,799

11,194

     Net income

$

124,710

$

105,729

Earnings per share:

GAAP

$

0.23

$

0.19

Non-GAAP

$

0.24

$

0.27

Diluted shares used in computing per share amounts

538,633

551,029

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

June 30, 2017

July 01, 2016

GAAP gross profit

$

406,932

$

405,995

     Stock-based compensation expense

3,319

2,433

Non-GAAP gross profit

$

410,251

$

408,428

GAAP income before income taxes

$

145,509

$

116,923

     Stock-based compensation expense

21,796

23,797

     Intangible amortization

19,901

21,598

     Interest and other, net

26,876

24,399

     Other charges (income), net ⁽²⁾

(36,165)

3,529

Non-GAAP operating income

$

177,917

$

190,246

GAAP provision for income taxes

$

20,799

$

11,194

     Intangible amortization benefit

1,766

1,850

     Tax benefit on intangible assets 

-

638

Non-GAAP provision for income taxes

$

22,565

$

13,682

GAAP net income

$

124,710

$

105,729

     Stock-based compensation expense

21,796

23,797

     Intangible amortization

19,901

21,598

     Adjustments for taxes

(1,766)

(2,488)

     Other charges (income), net ⁽²⁾

(36,165)

-

Non-GAAP net income

$

128,476

$

148,636

Diluted earnings per share:

GAAP 

$

0.23

$

0.19

Non-GAAP

$

0.24

$

0.27

SCHEDULE III

FLEX

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

As of June 30, 2017

As of March 31, 2017

ASSETS

Current Assets:

Cash and cash equivalents

$

1,582,197

$

1,830,675

Accounts receivable, net of allowance for doubtful accounts

2,325,845

2,192,704

Inventories

3,601,175

3,396,462

Other current assets

1,049,092

967,935

Total current assets

8,558,309

8,387,776

Property and equipment, net

2,346,440

2,317,026

Goodwill

1,039,069

984,867

Other intangible assets, net

453,957

362,181

Other assets

619,213

541,513

Total assets

$

13,016,988

$

12,593,363

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:

Bank borrowings and current portion of long-term debt

$

45,661

$

61,534

Accounts payable

4,781,036

4,484,908

Accrued payroll

359,353

344,245

Other current liabilities

1,572,198

1,613,940

Total current liabilities

6,758,248

6,504,627

Long-term debt, net of current portion

2,918,871

2,890,609

Other liabilities

530,091

519,851

Total shareholders' equity

2,809,778

2,678,276

Total liabilities and shareholders' equity

$

13,016,988

$

12,593,363

SCHEDULE IV

FLEX

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Three-Months Periods Ended

June 30, 2017

July 1, 2016

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

124,710

$

105,729

Depreciation, amortization and other impairment charges

131,396

129,500

Changes in working capital and other

(117,590)

28,703

    Net cash provided by operating activities

138,516

263,932

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment

(124,851)

(159,103)

Proceeds from the disposition of property and equipment

5,476

15,722

Acquisition of businesses, net of cash acquired

(213,718)

(9,492)

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

(616)

14,828

Other investing activities, net

(18,549)

26,261

    Net cash used in investing activities

(352,258)

(111,784)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from bank borrowings and long-term debt

—

75,018

Repayments of bank borrowings and long-term debt

(7,554)

(92,222)

Payments for repurchases of ordinary shares

(73,864)

(94,715)

Net proceeds from issuance of ordinary shares

696

3,966

Other financing activities, net

57,628

12,901

    Net cash used in financing activities

(23,094)

(95,052)

Effect of exchange rates on cash and cash equivalents

(11,642)

14,669

Net (decrease) increase in cash and cash equivalents

(248,478)

71,765

Cash and cash equivalents, beginning of period

1,830,675

1,607,570

Cash and cash equivalents, end of period

$

1,582,197

$

1,679,335

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 operating income, non-GAAP net income and non-GAAP net income per diluted share.  These supplemental measures exclude stock-based compensation expense, 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:

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 gain or loss 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 three-month period ended June 30, 2017, Free Cash Flow was $19 million consisting of GAAP net cash flows from operating activities of approximately $138 million less purchases of property and equipment net of proceeds from dispositions of $119 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 the three-month period ended June 30, 2017, the company sold its Wink business to an unrelated third-party venture backed company in exchange for contingent consideration fair valued at $59.0 million and recognized a gain on sale of $38.7 million, which is recorded in Other charges (income), net.

Renee Brotherton                                

Kevin Kessel

Corporate Communications                   

Investor Relations

(408) 576-7189                                      

(408) 576-7985                     

renee.brotherton@flex.com 

kevin.kessel@flex.com