BusinessWire

Flex Reports Fourth Quarter and Fiscal 2020 Results

SAN JOSE, Calif.--(BUSINESS WIRE)--Flex (NASDAQ: FLEX) today announced results for its fourth quarter and fiscal year ended March 31, 2020.


Fourth Quarter Fiscal Year 2020 Highlights:

  • Net Sales: $5.5 billion
  • GAAP Income Before Income Taxes: $45 million
  • Adjusted Operating Income: $207 million
  • GAAP Net Income: $48 million
  • Adjusted Net Income: $143 million
  • GAAP Earnings Per Share: $0.10
  • Adjusted Earnings Per Share: $0.28

Fiscal Year 2020 Results of Operations:

  • Net Sales: $24.2 billion
  • GAAP Income Before Income Taxes: $158 million
  • Adjusted Operating Income: $898 million
  • GAAP Net Income: $88 million
  • Adjusted Net Income: $632 million
  • GAAP Earnings Per Share: $0.17
  • Adjusted Earnings Per Share: $1.23

An explanation and reconciliation of non-GAAP financial measures to GAAP financial measures is presented in Schedules II and V attached to this press release.

We are pleased with our fourth quarter results despite the negative impact from the COVID-19 pandemic,” said Revathi Advaithi, Flex’s Chief Executive Officer. “Our Fiscal 2020 results demonstrate our progress on shifting our portfolio, operating with disciplined execution, managing our costs, focusing on generating free cash flow, and being prudent with our capital.”

Response to COVID-19

The Company’s fourth quarter results were negatively impacted by the ongoing COVID-19 global pandemic, and the resulting supply chain and demand disruptions. Since the last update at the Investor and Analyst webcast on March 11, 2020, the Company has continued to take proactive actions to protect employee safety, mitigate work stoppages, support customers and suppliers, and strengthen liquidity. These measures include:

  • Enforcing strict health and sanitation measures at global sites in compliance with governmental policies
  • Enacting work from home policies for workers that can safely and effectively do so
  • Reducing component shortages significantly from peak levels in February
  • Partnering with healthcare customers on products such as ventilators, oxygen concentrators, patient monitors, infusion pumps and ICU beds
  • Deploying a combination of graduated salary cuts and furloughs
  • Suspending capital expenditures for non-critical investments
  • Temporarily suspending share repurchases from mid-March

As always, our priority remains on the health and safety of our employees,” said Advaithi. “I am incredibly proud of our company’s response and ability to bring our customers’ life-saving products rapidly to market. I want to especially thank our Flex employees working in our factories who are delivering our customers’ essential products. I also want to thank our suppliers for their partnership and commitment to supporting us during this challenging time.”

We began the quarter with strong liquidity and acted quickly to further improve our financial position in this uncertain environment,” added Chris Collier, Flex’s Chief Financial Officer. “Our actions put us on good footing to meet the demands of operating our business through this downturn. We will continue to drive cost savings, improvements to inventory and working capital, and prudent capital management, to ensure the durability of our strong financial position.”

Looking Ahead

As a result of the material impact from the COVID-19 pandemic on our workforce and operations, as well as the lack of visibility as to the duration and potential outcomes of the pandemic, the Company is electing to suspend quarterly guidance for the June quarter and is unable to provide detailed fiscal year 2021 guidance at this time. However, the Company expects June quarter sales to decline by a high-single to low-double digits percentage sequentially, due to the ongoing impact of COVID-19.

Change in Reportable Segments

In March 2020, the Company announced a change in organization structure as part of its strategy to further drive efficiency and productivity with two focused delivery models. During the first quarter of fiscal year 2021, the Company’s chief operating decision maker (“CODM”) changed the information she regularly reviews to allocate resources and to assess performance. As a result, beginning in fiscal year 2021, the Company expects to report its financial performance based on two reportable segments (Flex Agility Solutions Group and Flex Reliability Solutions Group) and analyze operating income as the measure of segment profitability.

Webcast and Conference Call

The Flex management team will host a conference call today at 2:00 PM (PT) / 5:00 PM (ET), to review fourth quarter and fiscal 2020 results. A live webcast of the event and slides will be available on the Flex Investor Relations website at http://investors.flex.com. An audio replay and transcript will also be available after the event on the Flex Investor Relations website.

About Flex

Flex (Reg. No. 199002645H) is the manufacturing partner of choice that helps a diverse customer base design and build products that improve the world. Through the collective strength of a global workforce across 30 countries and responsible, sustainable operations, Flex delivers technology innovation, supply chain, and manufacturing solutions to diverse industries and end markets.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of U.S. securities laws, including statements related to future expected revenues and earnings per share and measures that we are taking to respond to the challenges presented by the COVID-19 pandemic and the resulting economic disruptions. These forward-looking statements involve risks and uncertainties that could cause the actual results to differ materially from those anticipated by these forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements. These risks include: the effects of the COVID-19 pandemic on our business, results of operations and financial condition; that future revenues and earnings may not be achieved as expected; the effects that the current macroeconomic environment could have on our business and demand for our products; the effects that current credit and market conditions could have on the liquidity and financial condition of our customers and suppliers, including any impact on their ability to meet their contractual obligations; the challenges of effectively managing our operations, including our ability to control costs and manage changes in our operations; litigation and regulatory investigations and proceedings; compliance with legal and regulatory requirements; the possibility that benefits of the Company’s restructuring actions may not materialize as expected; that the expected revenue and margins from recently launched programs may not be realized; our dependence on a small number of customers; the impact of component shortages, including their impact on our revenues; geopolitical risk, including the termination and renegotiation of international trade agreements and trade policies, including the impact of tariffs and related regulatory actions; and that recently proposed changes or future changes in tax laws in certain jurisdictions where we operate could materially impact our tax expense. In addition, the COVID-19 pandemic increases the likelihood and potential severity of many of the foregoing risks.

Additional information concerning these and other risks is described under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K for the fiscal year ended March 31, 2019 and our quarterly reports on Form 10-Q for the fiscal quarters ended September 27, 2019 and December 31, 2019, and in the risk factor included in our Current Report on Form 8-K dated May 7, 2020. The forward-looking statements in this press release are based on current expectations and Flex assumes no obligation to update these forward-looking statements. Our share repurchase program does not obligate the Company to repurchase a specific number of shares and may be suspended or terminated at any time without prior notice.

SCHEDULE I

FLEX

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

 

 

 

 

 

 

 

Three-Month Periods Ended

 

 

March 31, 2020

 

March 31, 2019

GAAP:

 

 

 

 

Net sales

$

5,484,490

 

 

$

6,226,124

 

 

Cost of sales

 

5,103,434

 

 

 

5,836,336

 

 

Restructuring charges

 

15,429

 

 

 

9,493

 

 

Gross profit

 

365,627

 

 

 

380,295

 

 

Selling, general and administrative expenses

 

201,267

 

 

 

230,469

 

 

Intangible amortization

 

15,203

 

 

 

17,337

 

 

Restructuring charges

 

1,855

 

 

 

3,387

 

 

Interest and other, net

 

28,077

 

 

 

46,565

 

 

Other charges, net

 

74,545

 

 

 

118,929

 

 

Income (loss) before income taxes

 

44,680

 

 

 

(36,392

)

 

Provision for (benefit from) income taxes

 

(3,579

)

 

 

27,960

 

 

Net income (loss)

$

48,259

 

 

$

(64,352

)

 

 

 

 

 

Earnings (loss) per share:

 

 

 

 

GAAP

$

0.10

 

 

$

(0.12

)

 

Non-GAAP

$

0.28

 

 

$

0.27

 

 

 

 

 

 

 

Basic shares used in computing per share amounts (2)

 

501,446

 

 

 

520,379

 

 

Diluted shares used in computing per share amounts (2)

 

505,593

 

 

520,379

 

 

 

 

 

 

 

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, 2020

 

March 31, 2019

GAAP:

 

 

 

Net sales

$

24,209,870

 

$

26,210,511

Cost of sales

 

22,681,490

 

 

24,593,731

Restructuring charges

 

190,424

 

 

99,005

 

Gross profit

 

1,337,956

 

 

1,517,775

 

Selling, general and administrative expenses

 

834,105

 

 

953,077

 

Intangible amortization

 

64,106

 

 

74,396

 

Restructuring charges

 

25,983

 

 

14,308

 

Interest and other, net

 

163,727

 

 

183,454

 

Other charges, net

 

91,550

 

 

110,414

 

Income before income taxes

 

158,485

 

 

182,126

 

Provision for income taxes

 

70,906

 

 

88,727

 

Net income

$

87,579

 

$

93,399

 

 

 

 

 

Earnings per share:

GAAP

$

0.17

$

0.18

Non-GAAP

$

1.23

$

1.14

 

Diluted shares used in computing per share amounts

 

512,437

 

530,070

 

 

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, 2020

March 31, 2019

GAAP gross profit

$

365,627

 

$

380,295

 

Stock-based compensation expense

 

3,747

 

 

4,614

 

Customer related asset impairments (3)

 

8,665

 

 

4,841

 

Restructuring charges (4)

 

15,429

 

 

9,493

 

Legal and other (5)

 

(1,859

)

 

8,714

 

Non-GAAP gross profit

$

391,609

 

$

407,957

 

 

 

GAAP income (loss) before income taxes

$

44,680

 

$

(36,392

)

Intangible amortization

 

15,203

 

 

17,337

 

Stock-based compensation expense

 

18,214

 

 

14,971

 

Customer related asset impairments (3)

 

10,730

 

 

19,576

 

Restructuring charges (4)

 

17,284

 

 

12,880

 

Legal and other (5)

 

(1,742

)

 

10,281

 

Other charges, net (6)

 

74,545

 

 

118,929

 

Interest and other, net (6)

 

28,077

 

 

46,565

 

Non-GAAP operating income

$

206,991

 

$

204,147

 

 

 

GAAP provision for (benefit from) income taxes

$

(3,579

)

$

27,960

 

Intangible amortization benefit

 

2,064

 

 

2,186

 

Other tax related adjustments (7)

 

(11,779

)

 

(15,640

)

Tax benefit on restructuring and other (7)

 

40,719

 

 

3,207

 

Non-GAAP provision for income taxes

$

27,425

 

$

17,713

 

 

 

GAAP net income (loss)

$

48,259

 

$

(64,352

)

Intangible amortization

 

15,203

 

 

17,337

 

Stock-based compensation expense

 

18,214

 

 

14,971

 

Restructuring charges (4)

 

17,284

 

 

12,880

 

Customer related asset impairments (3)

 

10,730

 

 

19,576

 

Legal and other (5)

 

(1,742

)

 

10,281

 

Other charges, interest and other, net (6)

 

66,217

 

 

120,293

 

Adjustments for taxes (7)

 

(31,004

)

 

10,247

 

Non-GAAP net income

$

143,161

 

$

141,233

 

Diluted earnings (loss) per share (2):

GAAP

$

0.10

 

$

(0.12

)

Non-GAAP

$

0.28

 

$

0.27

 

 

 

See the accompanying notes on Schedule V attached to this press release.

FLEX

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

(In thousands, except per share amounts)

 

Twelve-Month Periods Ended

 

 

March 31, 2020

 

March 31, 2019

GAAP gross profit

$

1,337,956

 

 

$

1,517,775

 

Stock-based compensation expense

 

15,174

 

 

19,554

 

Customer related asset impairments (3)

 

101,578

 

 

46,684

 

Restructuring charges (4)

 

190,424

 

 

99,005

 

New revenue standard adoption impact (8)

 

-

 

 

9,291

 

Legal and other (5)

 

22,701

 

 

15,123

 

Non-GAAP gross profit

$

1,667,833

 

 

$

1,707,432

 

 

 

 

 

 

GAAP income before income taxes

$

158,485

 

 

$

182,126

 

Intangible amortization

 

64,106

 

 

 

74,396

 

Stock-based compensation expense

 

71,546

 

 

 

76,032

 

Customer related asset impairments (3)

 

105,940

 

 

87,093

 

Restructuring charges (4)

 

216,407

 

 

113,313

 

New revenue standard adoption impact (8)

 

-

 

 

9,291

 

Legal and other (5)

 

26,270

 

 

35,644

 

Other charges, net (6)

 

91,550

 

 

110,414

 

Interest and other, net (6)

 

163,727

 

 

 

183,454

 

Non-GAAP operating income

$

898,031

 

 

$

871,763

 

 

 

 

 

GAAP provision for income taxes

$

70,906

 

 

$

88,727

 

Intangible amortization benefit

 

8,379

 

 

 

8,888

 

Other tax related adjustments (7)

 

(30,579

)

 

 

(20,439

)

Tax benefit on restructuring and other (7)

 

56,030

 

 

 

7,573

 

Non-GAAP provision for income taxes

$

104,736

 

 

$

84,749

 

 

 

 

 

 

GAAP net income

$

87,579

 

 

$

93,399

 

Intangible amortization

 

64,106

 

 

74,396

 

Stock-based compensation expense

 

71,546

 

 

76,032

 

Restructuring charges (4)

 

216,407

 

 

113,313

 

Customer related asset impairments (3)

 

105,940

 

 

87,093

 

New revenue standard adoption impact (8)

 

-

 

 

9,291

 

Legal and other (5)

 

26,453

 

 

35,644

 

Other charges, interest and other, net (6)

 

93,411

 

 

109,980

 

Adjustments for taxes (7)

 

(33,830

)

 

3,978

 

Non-GAAP net income

$

631,612

 

 

$

603,126

 

Diluted earnings per share:

 

 

 

GAAP

$

0.17

 

 

$

0.18

 

Non-GAAP

$

1.23

 

 

$

1.14

 

 

 

 

See the accompanying notes on Schedule V attached to this press release.

SCHEDULE III

FLEX

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 

 

 

 

 

 

 

As of March 31, 2020

As of March 31, 2019

ASSETS

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

$

1,922,686

 

$

1,696,625

 

Accounts receivable, net of allowance for doubtful accounts

 

2,435,982

 

 

2,612,961

 

Contract assets

 

282,444

 

 

216,202

 

Inventories

 

3,785,073

 

 

3,722,854

 

Other current assets

 

660,085

 

 

854,790

Total current assets

 

9,086,270

 

 

9,103,432

 

 

 

 

Property and equipment, net

 

2,215,991

 

 

2,336,213

Operating lease right-of-use assets, net (9)

 

605,070

 

Goodwill

 

1,064,553

 

 

1,073,055

Other intangible assets, net

 

262,418

 

 

330,995

Other assets

 

455,315

 

 

655,672

Total assets

$

13,689,617

 

$

13,499,367

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

Current liabilities:

 

 

 

 

Bank borrowings and current portion of long-term debt

$

149,130

 

$

632,611

 

Accounts payable

 

5,108,251

 

 

5,147,236

 

Accrued payroll

 

363,644

 

 

391,591

 

Other current liabilities (9)

 

1,590,060

 

 

1,426,075

Total current liabilities

 

7,211,085

 

 

7,597,513

 

 

 

 

 

Long-term debt, net of current portion

 

2,689,109

 

 

2,421,904

Operating lease liabilities, non-current (9)

 

528,967

 

Other liabilities

 

429,303

 

 

507,590

 

 

 

 

 

Total shareholders' equity

 

2,831,153

 

 

2,972,360

 

 

 

 

 

Total liabilities and shareholders' equity

$

13,689,617

 

$

13,499,367

 

 

 

 

 

 

See the accompanying notes on Schedule V attached to this press release.

SCHEDULE IV

FLEX

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

 

 

 

 

 

 

Twelve-Month Periods Ended

 

 

March 31, 2020

March 31, 2019

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

Net income

$

87,579

 

 

$

93,399

 

 

Depreciation, amortization and other impairment charges

 

748,050

 

 

 

764,952

 

Gain from deconsolidation of Bright Machines

 

 

(86,614

)

 

Changes in working capital and other

 

(2,368,905

)

 

 

(3,742,761

)

 

Net cash used in operating activities

 

(1,533,276

)

 

 

(2,971,024

)

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

Purchases of property and equipment

 

(461,745

)

 

 

(725,606

)

 

Proceeds from the disposition of property and equipment

 

105,750

 

 

 

94,219

 

 

Acquisition of businesses, net of cash acquired

 

(1,390

)

 

 

(12,796

)

 

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

 

3,402

 

 

 

267,147

 

 

Cash collections of deferred purchase price

 

2,565,555

 

 

 

3,585,901

 

 

Other investing activities, net

 

67,458

 

 

 

44,032

Net cash provided by investing activities

 

2,279,030

 

 

 

3,252,897

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

Proceeds from bank borrowings and long-term debt

 

1,069,578

 

 

3,199,460

 

 

Repayments of bank borrowings and long-term debt

 

(1,315,691

)

 

 

(3,059,828

)

 

Payments for repurchases of ordinary shares

 

(259,912

)

 

 

(188,979

)

 

Other financing activities, net

 

(2,435

)

 

 

19,643

 

 

Net cash used in financing activities

 

(508,460

)

 

 

(29,704

)

 

 

 

 

Effect of exchange rates on cash and cash equivalents

 

(11,233

)

 

 

(27,968

)

Net change in cash and cash equivalents

 

226,061

 

 

 

224,201

 

Cash and cash equivalents, beginning of period

 

1,696,625

 

 

 

1,472,424

 

Cash and cash equivalents, end of period

$

1,922,686

 

 

$

1,696,625

 

 

 

 

 

 

SCHEDULE V

FLEX AND SUBSIDIARIES

NOTES TO SCHEDULES I, II, III

 

(1)

To supplement Flex’s unaudited selected financial data presented consistent with Generally Accepted Accounting Principles (“GAAP”), the Company discloses certain non-GAAP financial measures that exclude certain charges and gains, 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 restructuring charges, customer-related asset impairments, 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:

 

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.

 

Customer related asset impairments consist of non-cash impairments of certain property and equipment to estimated fair value for customers we have disengaged or are in the process of disengaging as well as additional provisions for doubtful accounts receivable for customers that are experiencing financial difficulties. Certain inventory on hand was written down to net realizable value and other assets were written down to estimated recoverable value for these customers as well. In addition, it includes write down of inventory that will not be recovered due to significant reductions in future customer demand as the Company reduced its exposure to certain high volatility business in the second quarter of fiscal year 2020. 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.

 

Legal and other consists primarily of costs not directly related to ongoing or core business results such as (1) costs incurred relating to the independent investigation undertaken by the Audit Committee of the Company’s Board of Directors completed in June 2018, (2) certain charges related to Multek China that was divested in the second quarter of fiscal year 2019, (3) certain direct and incremental costs associated with the disengagement of a certain customer in the second, third, and fourth quarters of fiscal year 2020, and (4) certain gains resulting from the recognition of prior year expenses paid to the government now considered probable of recovery and reasonably estimable due to a favorable tax ruling received in fiscal year 2020. 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.

 

Restructuring charges include severance for rationalization at existing sites and corporate SG&A functions as well as asset impairment, and other charges related to the closures and consolidations of certain operating sites and targeted activities to restructure the business. 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.

 

Other charges (income), interest and other, 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, debt extinguishment costs and impairment charges associated with certain 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 provides investors with a basis to compare company performance against the performance of other companies without this variability.

 

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 or other non-recurring tax charges, when applicable.

 

Adjustment for free cash flow metrics. In the first quarter of fiscal year 2019, the adoption of the new cash flow accounting standard resulted in a reclassification of cash flows related to the collection of certain receivables sold through the Company’s asset-backed receivable securitization (“ABS”) program from operating activities to investing activities.

 

In the third quarter of fiscal year 2020, the Company amended the existing ABS program and removed the requirement for the deferred purchase price receivable. At the effective date of the amendment, approximately $1.3 billion representing the outstanding balance of sold receivables was repurchased by the Company by exchanging outstanding deferred purchase price receivable of $0.4 billion and re-investing $0.9 billion of trade account receivables into the new ABS Programs. Cash collections on repurchased deferred purchase price receivables are reported as investing activities in the condensed consolidated statements of cash flows and were approximately $0.1 billion and $0.4 billion for the three-month and twelve-month periods ended March 31, 2020.

 

The Company utilizes net cash flow from its various A/R sales programs as a low-cost source to fund operations and as a critical net working capital management tool. The Company views and manages all collections under the programs similarly without bifurcation and accordingly provides the adjustment to reflect adjusted free cash flow inclusive of all collections of receivables sold through the programs described above as well as collections on the repurchased receivables as part of the ABS program amendment. The Company also excludes the impact related to certain vendor programs that is required for GAAP. We define our adjusted free cash flow metric to be operating cash flows plus the impacts described above less purchases of property and equipment net of proceeds from dispositions and present cash flows on a consistent basis for investor transparency. We believe adjusted 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 adjusted 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 provided by (used in) operating activities.” See below for the three-month and twelve-month periods ended March 31, 2020 reconciliation of GAAP to Non-GAAP measures:


Contacts

Investors & Analysts
David Rubin
Vice President, Investor Relations
(408) 577-4632
David.Rubin@flex.com

Media & Press
Silvia Gianelli
Senior Director, Corporate Communications
(408) 797-7130
Silvia.gianelli@flex.com


Read full story here
BusinessWire

Flex Reports Fourth Quarter and Fiscal 2020 Results

SAN JOSE, Calif.--(BUSINESS WIRE)--Flex (NASDAQ: FLEX) today announced results for its fourth quarter and fiscal year ended March 31, 2020.


Fourth Quarter Fiscal Year 2020 Highlights:

  • Net Sales: $5.5 billion
  • GAAP Income Before Income Taxes: $45 million
  • Adjusted Operating Income: $207 million
  • GAAP Net Income: $48 million
  • Adjusted Net Income: $143 million
  • GAAP Earnings Per Share: $0.10
  • Adjusted Earnings Per Share: $0.28

Fiscal Year 2020 Results of Operations:

  • Net Sales: $24.2 billion
  • GAAP Income Before Income Taxes: $158 million
  • Adjusted Operating Income: $898 million
  • GAAP Net Income: $88 million
  • Adjusted Net Income: $632 million
  • GAAP Earnings Per Share: $0.17
  • Adjusted Earnings Per Share: $1.23

An explanation and reconciliation of non-GAAP financial measures to GAAP financial measures is presented in Schedules II and V attached to this press release.

We are pleased with our fourth quarter results despite the negative impact from the COVID-19 pandemic,” said Revathi Advaithi, Flex’s Chief Executive Officer. “Our Fiscal 2020 results demonstrate our progress on shifting our portfolio, operating with disciplined execution, managing our costs, focusing on generating free cash flow, and being prudent with our capital.”

Response to COVID-19

The Company’s fourth quarter results were negatively impacted by the ongoing COVID-19 global pandemic, and the resulting supply chain and demand disruptions. Since the last update at the Investor and Analyst webcast on March 11, 2020, the Company has continued to take proactive actions to protect employee safety, mitigate work stoppages, support customers and suppliers, and strengthen liquidity. These measures include:

  • Enforcing strict health and sanitation measures at global sites in compliance with governmental policies
  • Enacting work from home policies for workers that can safely and effectively do so
  • Reducing component shortages significantly from peak levels in February
  • Partnering with healthcare customers on products such as ventilators, oxygen concentrators, patient monitors, infusion pumps and ICU beds
  • Deploying a combination of graduated salary cuts and furloughs
  • Suspending capital expenditures for non-critical investments
  • Temporarily suspending share repurchases from mid-March

As always, our priority remains on the health and safety of our employees,” said Advaithi. “I am incredibly proud of our company’s response and ability to bring our customers’ life-saving products rapidly to market. I want to especially thank our Flex employees working in our factories who are delivering our customers’ essential products. I also want to thank our suppliers for their partnership and commitment to supporting us during this challenging time.”

We began the quarter with strong liquidity and acted quickly to further improve our financial position in this uncertain environment,” added Chris Collier, Flex’s Chief Financial Officer. “Our actions put us on good footing to meet the demands of operating our business through this downturn. We will continue to drive cost savings, improvements to inventory and working capital, and prudent capital management, to ensure the durability of our strong financial position.”

Looking Ahead

As a result of the material impact from the COVID-19 pandemic on our workforce and operations, as well as the lack of visibility as to the duration and potential outcomes of the pandemic, the Company is electing to suspend quarterly guidance for the June quarter and is unable to provide detailed fiscal year 2021 guidance at this time. However, the Company expects June quarter sales to decline by a high-single to low-double digits percentage sequentially, due to the ongoing impact of COVID-19.

Change in Reportable Segments

In March 2020, the Company announced a change in organization structure as part of its strategy to further drive efficiency and productivity with two focused delivery models. During the first quarter of fiscal year 2021, the Company’s chief operating decision maker (“CODM”) changed the information she regularly reviews to allocate resources and to assess performance. As a result, beginning in fiscal year 2021, the Company expects to report its financial performance based on two reportable segments (Flex Agility Solutions Group and Flex Reliability Solutions Group) and analyze operating income as the measure of segment profitability.

Webcast and Conference Call

The Flex management team will host a conference call today at 2:00 PM (PT) / 5:00 PM (ET), to review fourth quarter and fiscal 2020 results. A live webcast of the event and slides will be available on the Flex Investor Relations website at http://investors.flex.com. An audio replay and transcript will also be available after the event on the Flex Investor Relations website.

About Flex

Flex (Reg. No. 199002645H) is the manufacturing partner of choice that helps a diverse customer base design and build products that improve the world. Through the collective strength of a global workforce across 30 countries and responsible, sustainable operations, Flex delivers technology innovation, supply chain, and manufacturing solutions to diverse industries and end markets.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of U.S. securities laws, including statements related to future expected revenues and earnings per share and measures that we are taking to respond to the challenges presented by the COVID-19 pandemic and the resulting economic disruptions. These forward-looking statements involve risks and uncertainties that could cause the actual results to differ materially from those anticipated by these forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements. These risks include: the effects of the COVID-19 pandemic on our business, results of operations and financial condition; that future revenues and earnings may not be achieved as expected; the effects that the current macroeconomic environment could have on our business and demand for our products; the effects that current credit and market conditions could have on the liquidity and financial condition of our customers and suppliers, including any impact on their ability to meet their contractual obligations; the challenges of effectively managing our operations, including our ability to control costs and manage changes in our operations; litigation and regulatory investigations and proceedings; compliance with legal and regulatory requirements; the possibility that benefits of the Company’s restructuring actions may not materialize as expected; that the expected revenue and margins from recently launched programs may not be realized; our dependence on a small number of customers; the impact of component shortages, including their impact on our revenues; geopolitical risk, including the termination and renegotiation of international trade agreements and trade policies, including the impact of tariffs and related regulatory actions; and that recently proposed changes or future changes in tax laws in certain jurisdictions where we operate could materially impact our tax expense. In addition, the COVID-19 pandemic increases the likelihood and potential severity of many of the foregoing risks.

Additional information concerning these and other risks is described under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K for the fiscal year ended March 31, 2019 and our quarterly reports on Form 10-Q for the fiscal quarters ended September 27, 2019 and December 31, 2019, and in the risk factor included in our Current Report on Form 8-K dated May 7, 2020. The forward-looking statements in this press release are based on current expectations and Flex assumes no obligation to update these forward-looking statements. Our share repurchase program does not obligate the Company to repurchase a specific number of shares and may be suspended or terminated at any time without prior notice.

SCHEDULE I

FLEX

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

 

 

 

 

 

 

 

Three-Month Periods Ended

 

 

March 31, 2020

 

March 31, 2019

GAAP:

 

 

 

 

Net sales

$

5,484,490

 

 

$

6,226,124

 

 

Cost of sales

 

5,103,434

 

 

 

5,836,336

 

 

Restructuring charges

 

15,429

 

 

 

9,493

 

 

Gross profit

 

365,627

 

 

 

380,295

 

 

Selling, general and administrative expenses

 

201,267

 

 

 

230,469

 

 

Intangible amortization

 

15,203

 

 

 

17,337

 

 

Restructuring charges

 

1,855

 

 

 

3,387

 

 

Interest and other, net

 

28,077

 

 

 

46,565

 

 

Other charges, net

 

74,545

 

 

 

118,929

 

 

Income (loss) before income taxes

 

44,680

 

 

 

(36,392

)

 

Provision for (benefit from) income taxes

 

(3,579

)

 

 

27,960

 

 

Net income (loss)

$

48,259

 

 

$

(64,352

)

 

 

 

 

 

Earnings (loss) per share:

 

 

 

 

GAAP

$

0.10

 

 

$

(0.12

)

 

Non-GAAP

$

0.28

 

 

$

0.27

 

 

 

 

 

 

 

Basic shares used in computing per share amounts (2)

 

501,446

 

 

 

520,379

 

 

Diluted shares used in computing per share amounts (2)

 

505,593

 

 

520,379

 

 

 

 

 

 

 

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, 2020

 

March 31, 2019

GAAP:

 

 

 

Net sales

$

24,209,870

 

$

26,210,511

Cost of sales

 

22,681,490

 

 

24,593,731

Restructuring charges

 

190,424

 

 

99,005

 

Gross profit

 

1,337,956

 

 

1,517,775

 

Selling, general and administrative expenses

 

834,105

 

 

953,077

 

Intangible amortization

 

64,106

 

 

74,396

 

Restructuring charges

 

25,983

 

 

14,308

 

Interest and other, net

 

163,727

 

 

183,454

 

Other charges, net

 

91,550

 

 

110,414

 

Income before income taxes

 

158,485

 

 

182,126

 

Provision for income taxes

 

70,906

 

 

88,727

 

Net income

$

87,579

 

$

93,399

 

 

 

 

 

Earnings per share:

GAAP

$

0.17

$

0.18

Non-GAAP

$

1.23

$

1.14

 

Diluted shares used in computing per share amounts

 

512,437

 

530,070

 

 

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, 2020

March 31, 2019

GAAP gross profit

$

365,627

 

$

380,295

 

Stock-based compensation expense

 

3,747

 

 

4,614

 

Customer related asset impairments (3)

 

8,665

 

 

4,841

 

Restructuring charges (4)

 

15,429

 

 

9,493

 

Legal and other (5)

 

(1,859

)

 

8,714

 

Non-GAAP gross profit

$

391,609

 

$

407,957

 

 

 

GAAP income (loss) before income taxes

$

44,680

 

$

(36,392

)

Intangible amortization

 

15,203

 

 

17,337

 

Stock-based compensation expense

 

18,214

 

 

14,971

 

Customer related asset impairments (3)

 

10,730

 

 

19,576

 

Restructuring charges (4)

 

17,284

 

 

12,880

 

Legal and other (5)

 

(1,742

)

 

10,281

 

Other charges, net (6)

 

74,545

 

 

118,929

 

Interest and other, net (6)

 

28,077

 

 

46,565

 

Non-GAAP operating income

$

206,991

 

$

204,147

 

 

 

GAAP provision for (benefit from) income taxes

$

(3,579

)

$

27,960

 

Intangible amortization benefit

 

2,064

 

 

2,186

 

Other tax related adjustments (7)

 

(11,779

)

 

(15,640

)

Tax benefit on restructuring and other (7)

 

40,719

 

 

3,207

 

Non-GAAP provision for income taxes

$

27,425

 

$

17,713

 

 

 

GAAP net income (loss)

$

48,259

 

$

(64,352

)

Intangible amortization

 

15,203

 

 

17,337

 

Stock-based compensation expense

 

18,214

 

 

14,971

 

Restructuring charges (4)

 

17,284

 

 

12,880

 

Customer related asset impairments (3)

 

10,730

 

 

19,576

 

Legal and other (5)

 

(1,742

)

 

10,281

 

Other charges, interest and other, net (6)

 

66,217

 

 

120,293

 

Adjustments for taxes (7)

 

(31,004

)

 

10,247

 

Non-GAAP net income

$

143,161

 

$

141,233

 

Diluted earnings (loss) per share (2):

GAAP

$

0.10

 

$

(0.12

)

Non-GAAP

$

0.28

 

$

0.27

 

 

 

See the accompanying notes on Schedule V attached to this press release.

FLEX

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

(In thousands, except per share amounts)

 

Twelve-Month Periods Ended

 

 

March 31, 2020

 

March 31, 2019

GAAP gross profit

$

1,337,956

 

 

$

1,517,775

 

Stock-based compensation expense

 

15,174

 

 

19,554

 

Customer related asset impairments (3)

 

101,578

 

 

46,684

 

Restructuring charges (4)

 

190,424

 

 

99,005

 

New revenue standard adoption impact (8)

 

-

 

 

9,291

 

Legal and other (5)

 

22,701

 

 

15,123

 

Non-GAAP gross profit

$

1,667,833

 

 

$

1,707,432

 

 

 

 

 

 

GAAP income before income taxes

$

158,485

 

 

$

182,126

 

Intangible amortization

 

64,106

 

 

 

74,396

 

Stock-based compensation expense

 

71,546

 

 

 

76,032

 

Customer related asset impairments (3)

 

105,940

 

 

87,093

 

Restructuring charges (4)

 

216,407

 

 

113,313

 

New revenue standard adoption impact (8)

 

-

 

 

9,291

 

Legal and other (5)

 

26,270

 

 

35,644

 

Other charges, net (6)

 

91,550

 

 

110,414

 

Interest and other, net (6)

 

163,727

 

 

 

183,454

 

Non-GAAP operating income

$

898,031

 

 

$

871,763

 

 

 

 

 

GAAP provision for income taxes

$

70,906

 

 

$

88,727

 

Intangible amortization benefit

 

8,379

 

 

 

8,888

 

Other tax related adjustments (7)

 

(30,579

)

 

 

(20,439

)

Tax benefit on restructuring and other (7)

 

56,030

 

 

 

7,573

 

Non-GAAP provision for income taxes

$

104,736

 

 

$

84,749

 

 

 

 

 

 

GAAP net income

$

87,579

 

 

$

93,399

 

Intangible amortization

 

64,106

 

 

74,396

 

Stock-based compensation expense

 

71,546

 

 

76,032

 

Restructuring charges (4)

 

216,407

 

 

113,313

 

Customer related asset impairments (3)

 

105,940

 

 

87,093

 

New revenue standard adoption impact (8)

 

-

 

 

9,291

 

Legal and other (5)

 

26,453

 

 

35,644

 

Other charges, interest and other, net (6)

 

93,411

 

 

109,980

 

Adjustments for taxes (7)

 

(33,830

)

 

3,978

 

Non-GAAP net income

$

631,612

 

 

$

603,126

 

Diluted earnings per share:

 

 

 

GAAP

$

0.17

 

 

$

0.18

 

Non-GAAP

$

1.23

 

 

$

1.14

 

 

 

 

See the accompanying notes on Schedule V attached to this press release.

SCHEDULE III

FLEX

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 

 

 

 

 

 

 

As of March 31, 2020

As of March 31, 2019

ASSETS

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

$

1,922,686

 

$

1,696,625

 

Accounts receivable, net of allowance for doubtful accounts

 

2,435,982

 

 

2,612,961

 

Contract assets

 

282,444

 

 

216,202

 

Inventories

 

3,785,073

 

 

3,722,854

 

Other current assets

 

660,085

 

 

854,790

Total current assets

 

9,086,270

 

 

9,103,432

 

 

 

 

Property and equipment, net

 

2,215,991

 

 

2,336,213

Operating lease right-of-use assets, net (9)

 

605,070

 

Goodwill

 

1,064,553

 

 

1,073,055

Other intangible assets, net

 

262,418

 

 

330,995

Other assets

 

455,315

 

 

655,672

Total assets

$

13,689,617

 

$

13,499,367

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

Current liabilities:

 

 

 

 

Bank borrowings and current portion of long-term debt

$

149,130

 

$

632,611

 

Accounts payable

 

5,108,251

 

 

5,147,236

 

Accrued payroll

 

363,644

 

 

391,591

 

Other current liabilities (9)

 

1,590,060

 

 

1,426,075

Total current liabilities

 

7,211,085

 

 

7,597,513

 

 

 

 

 

Long-term debt, net of current portion

 

2,689,109

 

 

2,421,904

Operating lease liabilities, non-current (9)

 

528,967

 

Other liabilities

 

429,303

 

 

507,590

 

 

 

 

 

Total shareholders' equity

 

2,831,153

 

 

2,972,360

 

 

 

 

 

Total liabilities and shareholders' equity

$

13,689,617

 

$

13,499,367

 

 

 

 

 

 

See the accompanying notes on Schedule V attached to this press release.

SCHEDULE IV

FLEX

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

 

 

 

 

 

 

Twelve-Month Periods Ended

 

 

March 31, 2020

March 31, 2019

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

Net income

$

87,579

 

 

$

93,399

 

 

Depreciation, amortization and other impairment charges

 

748,050

 

 

 

764,952

 

Gain from deconsolidation of Bright Machines

 

 

(86,614

)

 

Changes in working capital and other

 

(2,368,905

)

 

 

(3,742,761

)

 

Net cash used in operating activities

 

(1,533,276

)

 

 

(2,971,024

)

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

Purchases of property and equipment

 

(461,745

)

 

 

(725,606

)

 

Proceeds from the disposition of property and equipment

 

105,750

 

 

 

94,219

 

 

Acquisition of businesses, net of cash acquired

 

(1,390

)

 

 

(12,796

)

 

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

 

3,402

 

 

 

267,147

 

 

Cash collections of deferred purchase price

 

2,565,555

 

 

 

3,585,901

 

 

Other investing activities, net

 

67,458

 

 

 

44,032

Net cash provided by investing activities

 

2,279,030

 

 

 

3,252,897

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

Proceeds from bank borrowings and long-term debt

 

1,069,578

 

 

3,199,460

 

 

Repayments of bank borrowings and long-term debt

 

(1,315,691

)

 

 

(3,059,828

)

 

Payments for repurchases of ordinary shares

 

(259,912

)

 

 

(188,979

)

 

Other financing activities, net

 

(2,435

)

 

 

19,643

 

 

Net cash used in financing activities

 

(508,460

)

 

 

(29,704

)

 

 

 

 

Effect of exchange rates on cash and cash equivalents

 

(11,233

)

 

 

(27,968

)

Net change in cash and cash equivalents

 

226,061

 

 

 

224,201

 

Cash and cash equivalents, beginning of period

 

1,696,625

 

 

 

1,472,424

 

Cash and cash equivalents, end of period

$

1,922,686

 

 

$

1,696,625

 

 

 

 

 

 

SCHEDULE V

FLEX AND SUBSIDIARIES

NOTES TO SCHEDULES I, II, III

 

(1)

To supplement Flex’s unaudited selected financial data presented consistent with Generally Accepted Accounting Principles (“GAAP”), the Company discloses certain non-GAAP financial measures that exclude certain charges and gains, 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 restructuring charges, customer-related asset impairments, 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:

 

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.

 

Customer related asset impairments consist of non-cash impairments of certain property and equipment to estimated fair value for customers we have disengaged or are in the process of disengaging as well as additional provisions for doubtful accounts receivable for customers that are experiencing financial difficulties. Certain inventory on hand was written down to net realizable value and other assets were written down to estimated recoverable value for these customers as well. In addition, it includes write down of inventory that will not be recovered due to significant reductions in future customer demand as the Company reduced its exposure to certain high volatility business in the second quarter of fiscal year 2020. 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.

 

Legal and other consists primarily of costs not directly related to ongoing or core business results such as (1) costs incurred relating to the independent investigation undertaken by the Audit Committee of the Company’s Board of Directors completed in June 2018, (2) certain charges related to Multek China that was divested in the second quarter of fiscal year 2019, (3) certain direct and incremental costs associated with the disengagement of a certain customer in the second, third, and fourth quarters of fiscal year 2020, and (4) certain gains resulting from the recognition of prior year expenses paid to the government now considered probable of recovery and reasonably estimable due to a favorable tax ruling received in fiscal year 2020. 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.

 

Restructuring charges include severance for rationalization at existing sites and corporate SG&A functions as well as asset impairment, and other charges related to the closures and consolidations of certain operating sites and targeted activities to restructure the business. 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.

 

Other charges (income), interest and other, 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, debt extinguishment costs and impairment charges associated with certain 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 provides investors with a basis to compare company performance against the performance of other companies without this variability.

 

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 or other non-recurring tax charges, when applicable.

 

Adjustment for free cash flow metrics. In the first quarter of fiscal year 2019, the adoption of the new cash flow accounting standard resulted in a reclassification of cash flows related to the collection of certain receivables sold through the Company’s asset-backed receivable securitization (“ABS”) program from operating activities to investing activities.

 

In the third quarter of fiscal year 2020, the Company amended the existing ABS program and removed the requirement for the deferred purchase price receivable. At the effective date of the amendment, approximately $1.3 billion representing the outstanding balance of sold receivables was repurchased by the Company by exchanging outstanding deferred purchase price receivable of $0.4 billion and re-investing $0.9 billion of trade account receivables into the new ABS Programs. Cash collections on repurchased deferred purchase price receivables are reported as investing activities in the condensed consolidated statements of cash flows and were approximately $0.1 billion and $0.4 billion for the three-month and twelve-month periods ended March 31, 2020.

 

The Company utilizes net cash flow from its various A/R sales programs as a low-cost source to fund operations and as a critical net working capital management tool. The Company views and manages all collections under the programs similarly without bifurcation and accordingly provides the adjustment to reflect adjusted free cash flow inclusive of all collections of receivables sold through the programs described above as well as collections on the repurchased receivables as part of the ABS program amendment. The Company also excludes the impact related to certain vendor programs that is required for GAAP. We define our adjusted free cash flow metric to be operating cash flows plus the impacts described above less purchases of property and equipment net of proceeds from dispositions and present cash flows on a consistent basis for investor transparency. We believe adjusted 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 adjusted 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 provided by (used in) operating activities.” See below for the three-month and twelve-month periods ended March 31, 2020 reconciliation of GAAP to Non-GAAP measures:


Contacts

Investors & Analysts
David Rubin
Vice President, Investor Relations
(408) 577-4632
David.Rubin@flex.com

Media & Press
Silvia Gianelli
Senior Director, Corporate Communications
(408) 797-7130
Silvia.gianelli@flex.com


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