UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 7, 2020
FLEX LTD.
(Exact Name of Registrant as Specified in Its Charter)
Singapore | 0-23354 | Not Applicable | ||
(State or other jurisdiction of
incorporation) |
(Commission File Number) | (IRS Employer Identification No.) |
2 Changi South Lane, Singapore | 486123 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (65) 6876-9899
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Ordinary Shares, No Par Value | FLEX | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company | ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ¨ |
Entity Address City Or Town | Singapore |
Item 2.02. Results of Operations and Financial Condition.
On May 7, 2020, Flex Ltd. (the “Company”) issued a press release announcing its financial results for the fourth quarter and fiscal year ended March 31, 2020. A copy of the press release is furnished with this report as Exhibit 99.1.
The information in Item 2.02 of this Current Report on Form 8-K and the Exhibit attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, regardless of any general incorporation language in such filing.
Item 8.01 Other Events.
The Company is providing the disclosure below regarding the impact of the COVID-19 pandemic on its business. This disclosure supersedes the disclosure included in the Company’s Current Report on Form 8-K dated March 9, 2020.
Impact of COVID-19 on Our Business
The COVID-19 pandemic has resulted in a widespread public health crisis and numerous disease control measures being taken to limit its spread, including travel bans and restrictions, quarantines, shelter-in-place orders, and shutdowns. These measures have materially impacted and are continuing to impact our workforce and operations, the operations of our customers, and those of our respective vendors and suppliers. We have significant operations worldwide, including in China, Mexico, the United States, Brazil, India, Malaysia and Europe, and each of these geographies has been affected by the outbreak and taken measures to try to contain it, resulting in disruptions at many of our manufacturing operations and facilities. The extent to which the COVID-19 pandemic will continue to impact our business and financial results going forward will be dependent on future developments such as the length and severity of the crisis, the potential resurgence of COVID-19 in the future, future government actions in response to the crisis and the overall impact of the COVID-19 pandemic on the global economy and capital markets, among many other factors, all of which remain highly uncertain and unpredictable.
In response to the outbreak, we deployed our contingency and resiliency plans that are encompassed in our business continuity programs. Our resiliency advisory and crisis management teams defined work streams and set up “war” rooms with hundreds of employees, organizing across our global footprint, and coordinating and communicating with our suppliers and customers. Our leadership teams initiated enhanced health and safety measures across all facilities, as our foremost focus has been the health and safety of our employees. We modified practices at our manufacturing locations and offices to require personal protective equipment, sanitization measures, temperature checks and social distancing well before these measures were mandated. Our protocols to protect employees and safely operate our facilities have been implemented in partnership with several governments, including in China, Mexico, Malaysia Brazil, and in Europe. These measures also have enabled us to continue to conduct operations which are considered to be essential services, including but not limited to the manufacture of critical health care products.
As one of the largest medical device manufacturers, we recognized that we had a responsibility to do our part to make a difference in the fight against this disease. With many of the products we make for our healthcare customers related to critical care quickly running in short supply, we ramped our efforts to expand delivery of critical products, including oxygen concentrators, patient monitors, infusion pumps, and ICU beds. We are also greatly increasing our testing equipment production for both point of care and large laboratory systems and are currently partnering with our customers to manufacture ventilators at six sites around the globe.
We are presently operating in the majority of our manufacturing facilities across the globe. Our China operations are now fully up and running. There are a few regions that were impacted by acute outbreaks, such as Italy, or have seen complete country shutdowns, including India and Malaysia. In these geographies, we remain in contact with the local and national governments, and have received or are in the process of receiving waivers to safely return factories to full capacity. In addition, we have also shut down our automotive facilities (including in Mexico and Europe) in line with shutdowns executed by the major North American and European auto makers. For those employees who are not working at our manufacturing facilities, including corporate and regional headquarters, we have been operating on a work-from-home basis. We do not believe that our work-from-home protocols have materially adversely impacted our internal controls, financial reporting systems or our operations.
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All of our business segments were impacted in the fourth quarter of our fiscal year 2020, with our High Reliability Solutions segment impacted by factory shutdowns by several of our large OEM customers of our automotive business, although our health solutions business has experienced a significant increased demand for critical health care products. Our Industrial and Emerging Industries segment was impacted by supply chain disruptions that impacted product ramps for various industrial and home and lifestyle customers. Our Communications & Enterprise Compute segment was impacted by production disruptions in certain of our Asian facilities and late quarter disruptions in our Mexican facilities. Finally, our Consumer Technologies Group segment was impacted by significant China-based supply chain constraints. Overall, we absorbed additional direct incremental costs of approximately $52 million primarily related to costs associated with enhanced health and safety infrastructure, labor incentives and incremental supply chain expenses. The facility and supply chain constraints, increased incremental costs, as well as lower customer demand for certain product categories have continued in the first quarter of our fiscal year 2021.
To ensure that we are prepared for an uncertain demand environment, we have aggressively cut costs and are preserving cash. Our goal is to maintain as many jobs as we can and maintain our ability to invest where we need to enable future business. To accomplish these objectives, we implemented a combination of graduated salary cuts, furloughs and other programs to cut costs, including aggressively reducing discretionary corporate spend. Though we have mitigated the majority of the initial supplier constraints and component shortages that we encountered early in the quarter, we continue to operate in an unusual and dynamic environment with respect to virus-related production limitations and fluctuating demand. As a result, we expect it will take a few quarters to adequately reduce our inventory levels to align with the current demand environment. We also made the decision to suspend our share repurchase program during the first quarter of our fiscal year 2021 and postponed all non-critical capital expenditures. We have established a robust contingency planning methodology and will adjust our actions based on how future events evolve.
Risk Factor Update
In addition, the Company is supplementing the risk factors described in Part I, “Item 1A. Risk Factors” in its Annual Report on Form 10-K for the fiscal year ended March 31, 2019 and Part II, “Item 1.A. Risk Factors” in its Quarterly Reports on Form 10-Q for the fiscal quarters ended September 27, 2019 and December 31, 2019 (the "Periodic Reports") with the following risk factor. The information in this Current Report on Form 8-K, including the risk factor disclosure below, should be read in conjunction with the other risk factors described in the Periodic Reports.
The COVID-19 pandemic has materially and adversely affected our business and results of operations. The duration and extent to which it will continue to adversely impact our business and results of operations remains uncertain and could be material.
The COVID-19 pandemic has resulted in a widespread public health crisis and numerous disease control measures being taken to limit its spread, including travel bans and restrictions, quarantines, shelter-in-place orders, and shutdowns. These measures have materially impacted and are continuing to impact our workforce and operations, the operations of our customers, and those of our respective vendors and suppliers. We have significant operations worldwide, including in China, Mexico, the United States, Brazil, India, Malaysia and Europe, and each of these geographies has been affected by the outbreak and has taken measures to try to contain it, resulting in disruptions at many of our manufacturing operations and facilities. Further measures may be implemented and there can be no assurance as to when any such restrictions may be eased or lifted. The impact of the pandemic on our business has included and could in the future include:
· | disruptions to or restrictions on our ability to ensure the continuous provision of our manufacturing services and solutions; |
· | temporary closures or reductions in operational capacity of our manufacturing facilities; |
· | reductions in our capacity utilization levels; |
· | temporary closures of our direct and indirect suppliers, resulting in adverse effects to our supply chain, and other supply chain disruptions, which adversely affect our ability to procure sufficient inventory to support customer orders; |
· | temporary shortages of skilled employees available to staff manufacturing facilities due to shelter-in-place orders and travel restrictions within as well as into and out of countries; |
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· | restrictions or disruptions of transportation, such as reduced availability of air transport, port closures, and increased border controls or closures; |
· | increases in operational expenses and other costs related to requirements implemented to mitigate the impact of the pandemic; |
· | delays or limitations on the ability of our customers to perform or make timely payments; |
· | reductions in short- and long-term demand for our manufacturing services and solutions, or other disruptions in technology buying patterns; |
· | workforce disruptions due to illness, quarantines, governmental actions, other restrictions, and/or the social distancing measures we have taken to mitigate the impact of COVID-19 at our locations around the world in an effort to protect the health and well-being of our employees, customers, suppliers and of the communities in which we operate (including working from home, restricting the number of employees attending events or meetings in person, limiting the number of people in our buildings and factories at any one time, further restricting access to our facilities and suspending employee travel); and |
· | our management team continuing to commit significant time, attention and resources to monitoring the COVID-19 pandemic and seeking to mitigate its effects on our business and workforce. |
The global spread of COVID-19 also has created significant macroeconomic uncertainty, volatility and disruption, which may adversely affect our and our customers’ and suppliers’ liquidity, cost of capital and ability to access the capital markets. As a result, the continued spread of COVID-19 could cause further disruptions in our supply chain and customer demand, and could adversely affect the ability of our customers to perform, including in making timely payments to us, which could further adversely impact our business, financial condition and results of operations. In addition, the COVID-19 pandemic has caused an economic slowdown that is likely to continue and is highly likely to cause a global recession. Even after the COVID-19 pandemic has subsided, we may continue to experience adverse impacts to our business as a result of the pandemic’s global economic impact, including any recession, economic downturn, government spending cuts, tightening of credit markets or increased unemployment that has occurred or may occur in the future, which could cause our customers and potential customers to postpone or reduce spending on our manufacturing services and solutions.
The extent to which the COVID-19 pandemic will continue to impact our business and financial results going forward will be dependent on future developments such as the length and severity of the crisis, the potential resurgence of COVID-19 in the future, future government actions in response to the crisis and the overall impact of the COVID-19 pandemic on the global economy and capital markets, among many other factors, all of which remain highly uncertain and unpredictable. We cannot at this time quantify or forecast the business impact of COVID-19, and there can be no assurance that the COVID-19 pandemic will not continue to have a material and adverse effect on our business, financial results and financial condition. In addition, the COVID-19 pandemic increases the likelihood and potential severity of other risks described in the section entitled Risk Factors” in our Annual Report on Form 10-K for the year ended March 31, 2019, as supplemented by the “Risk Factors” sections in our Quarterly Reports on Form 10-Q for the quarters ended September 27, 2019 and December 31, 2019.
Forward-Looking Statements
This Current Report on Form 8-K contains forward-looking statements within the meaning of U.S. securities laws, including statements related to 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.
4
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 this Current Report on Form 8-K. The forward-looking statements in this report are based on current expectations and we assume no obligation to update these forward-looking statements.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
Exhibit
99.1 | Press release, dated May 7, 2020, issued by Flex Ltd. | |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Flex Ltd. | ||
Date: May 7, 2020 | By: | /s/ Christopher Collier |
Name: | Christopher Collier | |
Title: | Chief Financial Officer |
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Exhibit 99.1
FLEX REPORTS FOURTH QUARTER AND FISCAL 2020 RESULTS
San Jose, Calif., May 7, 2020 – 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.
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
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.
P R E S S R E L E A S E
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. |
P R E S S R E L E A S E
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. |
P R E S S R E L E A S E
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:
Three-Month Period Ended | Twelve-Month Period Ended | |||||||
March 31, 2020 | March 31, 2020 | |||||||
Net cash provided by (used in) operating activities | $ | 166,030 | $ | (1,533,276 | ) | |||
Cash collections of ABS positions and other | 50,525 | 2,561,619 | ||||||
Net capital expenditures | (82,545 | ) | (355,995 | ) | ||||
Adjusted Free Cash Flow | $ | 134,010 | $ | 672,348 |
(2) Basic shares were used in calculating diluted GAAP EPS for the quarter ended March 31, 2019 due to the net loss recognized during that period. Diluted shares for Q4 fiscal 2019 was 522,460 thousand which was used in calculating diluted non-GAAP EPS for the quarter.
(3) Customer related asset impairments for the three-month and twelve-month periods ended March 31, 2020 and March 31, 2019 primarily relate to additional provision for doubtful accounts receivable, asset impairment, and reserves for excess and obsolete inventory for certain customers experiencing financial difficulties and/or related to inventory that will not be recovered due to significant reductions in future customer demand as the Company reduces its exposure to certain higher volatility businesses.
(4) During the first half of fiscal year 2020 in connection with the recent geopolitical developments and uncertainties, primarily impacting one customer in China, the Company experienced a reduction in demand for products assembled for that customer. As a result, the Company accelerated its strategic decision to reduce its exposure to certain high-volatility products in both China and India. The Company also initiated targeted activities to restructure its business to further reduce and streamline its cost structure. During fiscal year 2020, the Company recognized $216.4 million of restructuring charges. The Company incurred cash charges of approximately $159.3 million, that were predominantly for employee severance, in addition to non-cash charges of $57.1 million, primarily related to asset impairments.
During fiscal year 2019, the Company completed the wind-down of our Nike operations in Mexico and recognized in total $66 million for the fiscal year. The charge primarily consisted of non-cash asset impairments.
(5) Legal and other consists primarily of costs not directly related to the Company’s ongoing or core business results as described further in footnote 1.
(6) During fiscal year 2020, and in connection with the Company’s ongoing assessment of its investment portfolio strategy, the Company concluded that the carrying amounts of certain non-core investments were other than temporarily impaired and recognized a $97.7 million total impairment, of which $74.8 million was recorded in the fourth quarter. The impairments in the fourth quarter of fiscal year 2020 were primarily related to Elementum and certain other non-core investments, reflecting recent market valuation changes, in addition to capturing additional risks due to the economic challenges in light of COVID-19. This was offset by a $10.9 million realized gain from a distribution by one of our non-core investments in the fourth quarter of fiscal year 2020.
In addition, during fiscal year 2020, the Company incurred debt extinguishment costs of $7.2 million, related to full repayments of the Notes due February 2020 and Term Loan due November 2021.
During the last half of fiscal 2019, the Company reassessed its strategy with respect to its entire investment portfolio. As a result, the Company recognized an aggregate net charge related to investment impairments and dispositions of approximately $119 million and $193 million for the three-month and twelve-month periods ended March 31, 2019, respectively, primarily related to a non-core investment and Elementum.
During the first quarter of fiscal year 2019, the Company transferred primarily employees and equipment into Bright Machines which later received additional equity funding from third party investors upon which the Company deconsolidated the entity and recognized a gain of approximately $87 million in other income, net for the year ended March 31, 2019.
(7) During the third quarter of fiscal year 2020, the Company recorded $9.2 million related to the remeasurement of deferred tax positions with specific countries due to the change in their corporate income tax rates.
During the second quarter of fiscal year 2020, the Company recorded $8 million of withholding tax liabilities for future planned liquidations of certain legal entities.
During the fourth quarter of fiscal year 2019, the company incurred an expense of $15 million pertaining to initial implementation of advanced pricing arrangements finalized with the Mexican tax authorities during the fiscal year. The remaining balance is primarily related to adjustment for exchange rate fluctuation on income tax receivable position of an operating subsidiary recognized in a prior period.
In addition, the Company has included the tax effects of the various adjustments that are incorporated into Non-GAAP measures under tax benefits on restructuring and other.
(8) During the first quarter of fiscal year 2019, the Company amended certain non-substantive terms of its existing contracts for its smaller customers. The amendments removed the consideration regarding over-time recognition under ASC 606. Accordingly, these customer contracts are now accounted for consistent with prior accounting and revenue is recognized upon shipment of product.
(9) The Company adopted ASU No. 2016-02, Leases and subsequent updates (collectively, referred to as Accounting Standard Codification 842 or “ASC 842”) on April 1, 2019 using the optional transition method, by which companies may elect not to recast the comparative periods presented in financial statements in the period of adoption and recognize a cumulative effect adjustment in the period of adoption. As a result, the Company was not required to adjust its comparative period financial information for effects of the standard. ASC 842 requires a lessee to recognize a right of use (“ROU”) asset and lease liability. The Company’s ROU assets are $605 million and operating lease liabilities are $643 million (of which $114 million was current and recorded under other current liabilities and $529 million was non-current) as of March 31, 2020.