SAN JOSE, Calif.--(BUSINESS WIRE)--
Flex (NASDAQ: FLEX) today announced results for its third quarter ended
December 31, 2018.
“During the quarter, we grew revenues, improved the quality of our sales
mix, expanded margins, returned to free cash flow generation, and
streamlined our investment portfolio,” said Michael Capellas, Chairman
of Flex. “These results reflect our intense focus on execution in our
core businesses.”
Third Quarter Fiscal 2019 Highlights:
-
Net Sales: $6.9 billion, year over year growth of 3 percent
-
Communications and Enterprise Compute: year over year revenue growth
of 14 percent
-
Industrial and Emerging Industries: year over year revenue growth of
11 percent
-
High Reliability Solutions: year over year revenue down 1 percent with
strong growth in Health Solutions offset by weakness in Automotive
-
Consumer Technologies Group: year over year revenue down 12 percent
-
GAAP Loss Before Income Taxes: $32 million
-
Adjusted Operating Income: $256 million, year over year growth of 17
percent
-
GAAP Net Loss: $45 million
-
Adjusted Net Income: $181 million, year over year growth of 10 percent
-
GAAP Net Loss Per Share: $0.09
-
Adjusted EPS: $0.34
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.
Balance Sheet and Other Financial Highlights
Flex ended the quarter with approximately $1.5 billion of cash on hand
and total debt of approximately $2.9 billion.
Adjusted cash flow from operations and free cash flow was $274 million
and $119 million, respectively, for the three-month period ended
December 31, 2018, and $379 million and negative $126 million,
respectively, for the nine-month period ended December 31, 2018. Cash
flow from operations was negative $621 million and negative $2.3 billion
for the three-month and nine-month periods ended December 31, 2018,
respectively, as cash collections for certain receivables sold under our
ABS programs are reported as investing activities.
The Company remains committed to return over 50% of annual free cash
flow to its shareholders as it repurchased ordinary shares for
approximately $64 million and $124 million during the three-month and
nine-month periods ended December 31, 2018.
“We are pleased with the results of our third quarter, which exceeded
expectations on multiple levels. Our core business remains sound and is
performing very well, and our balance sheet is positioned to support the
business over the long term,” said Chris Collier, Chief Financial
Officer.
Fourth Quarter Fiscal 2019 Guidance
-
Revenue $6.2 billion to $6.6 billion
-
GAAP Income Before Income Taxes $110 million to $140 million
-
Adjusted Operating Income $195 million to $225 million
-
GAAP EPS $0.18 to $0.21 which includes stock-based compensation
expense and intangible amortization
-
Adjusted EPS $0.25 to $0.28
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 third quarter fiscal 2019 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 Ltd. (Reg. No. 199002645H) is the Sketch-to-Scale®
solutions provider that designs and builds Intelligent Products for a
Connected World®. With approximately 200,000
professionals across 30 countries, Flex provides innovative design,
engineering, manufacturing, real-time supply chain insight and logistics
services to companies of all sizes in various industries and
end-markets. For more information, visit flex.com or follow us on
Twitter @Flexintl. Flex – Live Smarter™
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. 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: that
future revenues and earnings may not be achieved as expected; 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; our identification of
material weaknesses in our internal control over financial reporting,
which could, if not remediated result in a material misstatement in our
financial statements; 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 capacity constraints on our
business in India; the impact of component shortages, including its
impact on our revenues; geopolitical risk, including the termination and
renegotiation of international trade agreements; that recently proposed
changes or future changes in tax laws in certain jurisdictions where we
operate could materially impact our tax expense; the effects that the
current macroeconomic environment could have on our business and demand
for our products; and 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.
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 reports on Forms
10-K and 10-Q that we file with the U.S. Securities and Exchange
Commission. 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
|
|
|
December 31, 2018
|
|
December 31, 2017
|
GAAP:
|
|
|
|
|
Net sales
|
|
$
|
6,944,827
|
|
$
|
6,751,552
|
Cost of sales
|
|
|
6,527,067
|
|
|
6,305,224
|
Restructuring charges
|
|
|
60,435
|
|
|
-
|
Gross profit
|
|
|
357,325
|
|
|
446,328
|
Selling, general and administrative expenses
|
|
|
237,556
|
|
|
247,365
|
Intangible amortization
|
|
|
20,308
|
|
|
19,588
|
Restructuring charges
|
|
|
5,408
|
|
|
-
|
Interest and other, net
|
|
|
54,087
|
|
|
31,350
|
Other charges, net
|
|
|
71,879
|
|
|
6,865
|
Income (loss) before income taxes
|
|
|
(31,913)
|
|
|
141,160
|
Provision for income taxes
|
|
|
13,256
|
|
|
22,827
|
Net income (loss)
|
|
$
|
(45,169)
|
|
$
|
118,333
|
|
|
|
|
|
Earnings (losses) per share:
|
|
|
|
|
GAAP
|
|
$
|
(0.09)
|
|
$
|
0.22
|
Non-GAAP
|
|
$
|
0.34
|
|
$
|
0.31
|
|
|
|
|
|
Basic shares used in computing per share amounts (2) |
|
|
524,876
|
|
|
528,405
|
Diluted shares used in computing per share amounts (2) |
|
|
524,876
|
|
|
534,352
|
|
|
|
|
|
See Schedule II for the reconciliation of GAAP to non-GAAP financial
measures.
|
|
|
FLEX
|
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
Nine-Month Periods Ended
|
|
|
December 31, 2018
|
|
December 31, 2017
|
GAAP:
|
|
|
|
|
Net sales
|
|
$
|
20,079,387
|
|
$
|
19,030,244
|
Cost of sales
|
|
|
18,852,395
|
|
|
17,775,678
|
Restructuring charges
|
|
|
89,512
|
|
|
7,981
|
Gross profit
|
|
|
1,137,480
|
|
|
1,246,585
|
Selling, general and administrative expenses
|
|
|
722,608
|
|
|
772,325
|
Intangible amortization
|
|
|
57,059
|
|
|
55,865
|
Restructuring charges
|
|
|
10,921
|
|
|
-
|
Interest and other, net
|
|
|
136,889
|
|
|
85,780
|
Other income, net
|
|
|
(8,515)
|
|
|
(172,467)
|
Income before income taxes
|
|
|
218,518
|
|
|
505,082
|
Provision for income taxes
|
|
|
60,767
|
|
|
56,953
|
Net income
|
|
$
|
157,751
|
|
$
|
448,129
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
GAAP
|
|
$
|
0.30
|
|
$
|
0.84
|
Non-GAAP
|
|
$
|
0.87
|
|
$
|
0.81
|
|
|
|
|
|
Diluted shares used in computing per share amounts
|
|
|
532,308
|
|
|
535,972
|
|
|
|
|
|
See Schedule II for the reconciliation of GAAP to non-GAAP financial
measures.
|
|
|
SCHEDULE II
|
|
FLEX
|
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(1)
|
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
Three-Month Periods Ended
|
|
|
December 31, 2018
|
|
December 31, 2017
|
GAAP gross profit
|
|
$
|
357,325
|
|
$
|
446,328
|
Stock-based compensation expense
|
|
|
4,769
|
|
|
5,358
|
Customer related asset impairments (3) |
|
|
29,491
|
|
|
-
|
Restructuring charges (4) |
|
|
60,435
|
|
|
-
|
Contingencies and other (5) |
|
|
1,174
|
|
|
-
|
Non-GAAP gross profit
|
|
$
|
453,194
|
|
$
|
451,686
|
|
|
|
|
|
GAAP income (loss) before income taxes
|
|
$
|
(31,913)
|
|
$
|
141,160
|
Intangible amortization
|
|
|
20,308
|
|
|
19,588
|
Stock-based compensation expense
|
|
|
21,027
|
|
|
20,758
|
Customer related asset impairments (3) |
|
|
50,153
|
|
|
-
|
Restructuring charges (4) |
|
|
65,843
|
|
|
-
|
Contingencies and other (5) |
|
|
4,994
|
|
|
-
|
Other charges, net (6) |
|
|
71,879
|
|
|
6,865
|
Interest and other, net
|
|
|
54,087
|
|
|
31,350
|
Non-GAAP operating income
|
|
$
|
256,378
|
|
$
|
219,721
|
|
|
|
|
|
GAAP provision for income taxes
|
|
$
|
13,256
|
|
$
|
22,827
|
Intangible amortization benefit
|
|
|
2,185
|
|
|
2,185
|
Tax impact on tax receivable, net (7) |
|
|
2,218
|
|
|
-
|
Other adjustments for taxes (7) |
|
|
5,058
|
|
|
-
|
Non-GAAP provision for income taxes
|
|
$
|
22,717
|
|
$
|
25,012
|
|
|
|
|
|
GAAP net income (loss)
|
|
$
|
(45,169)
|
|
$
|
118,333
|
Intangible amortization
|
|
|
20,308
|
|
|
19,588
|
Stock-based compensation expense
|
|
|
21,027
|
|
|
20,758
|
Restructuring charges (4) |
|
|
65,843
|
|
|
-
|
Customer related asset impairments (3) |
|
|
50,153
|
|
|
-
|
Contingencies and other (5) |
|
|
4,994
|
|
|
-
|
Other charges, interest and other, net (6) |
|
|
72,903
|
|
|
7,892
|
Adjustments for taxes (7) |
|
|
(9,461)
|
|
|
(2,185)
|
Non-GAAP net income
|
|
$
|
180,598
|
|
$
|
164,386
|
Diluted earnings (losses) per share
(2)
:
|
GAAP
|
|
$
|
(0.09)
|
|
$
|
0.22
|
Non-GAAP
|
|
$
|
0.34
|
|
$
|
0.31
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
|
Nine-Month Periods Ended
|
|
|
December 31, 2018
|
|
December 31, 2017
|
GAAP gross profit
|
|
$
|
1,137,480
|
|
$
|
1,246,585
|
Stock-based compensation expense
|
|
|
14,940
|
|
|
13,662
|
Customer related asset impairments (3) |
|
|
41,843
|
|
|
-
|
Restructuring charges (4) |
|
|
89,512
|
|
|
7,981
|
New revenue standard adoption impact (8) |
|
|
9,291
|
|
|
-
|
Contingencies and other (5) |
|
|
6,409
|
|
|
10,952
|
Non-GAAP gross profit
|
|
$
|
1,299,475
|
|
$
|
1,279,180
|
|
|
|
|
|
GAAP income before income taxes
|
|
$
|
218,518
|
|
$
|
505,082
|
Intangible amortization
|
|
|
57,059
|
|
|
55,865
|
Stock-based compensation expense
|
|
|
61,061
|
|
|
63,018
|
Customer related asset impairments (3) |
|
|
67,517
|
|
|
4,753
|
Restructuring charges (4) |
|
|
100,433
|
|
|
7,981
|
New revenue standard adoption impact (8) |
|
|
9,291
|
|
|
-
|
Contingencies and other (5) |
|
|
25,363
|
|
|
35,952
|
Other income, net (6) |
|
|
(8,515)
|
|
|
(172,467)
|
Interest and other, net
|
|
|
136,889
|
|
|
85,780
|
Non-GAAP operating income
|
|
$
|
667,616
|
|
$
|
585,964
|
|
|
|
|
|
GAAP provision for income taxes
|
|
$
|
60,767
|
|
$
|
56,953
|
Intangible amortization benefit
|
|
|
6,702
|
|
|
6,201
|
Tax impact on tax receivable, net (7) |
|
|
(4,799)
|
|
|
-
|
Other adjustments for taxes (7) |
|
|
4,366
|
|
|
2,738
|
Non-GAAP provision for income taxes
|
|
$
|
67,036
|
|
$
|
65,892
|
|
|
|
|
|
GAAP net income
|
|
$
|
157,751
|
|
$
|
448,129
|
Intangible amortization
|
|
|
57,059
|
|
|
55,865
|
Stock-based compensation expense
|
|
|
61,061
|
|
|
63,018
|
Restructuring charges (4) |
|
|
100,433
|
|
|
7,981
|
Customer related asset impairments (3) |
|
|
67,517
|
|
|
4,753
|
New revenue standard adoption impact (8) |
|
|
9,291
|
|
|
-
|
Contingencies and other (5) |
|
|
25,363
|
|
|
35,952
|
Other charges, interest and other, net (6) |
|
|
(10,313)
|
|
|
(171,440)
|
Adjustments for taxes (7) |
|
|
(6,269)
|
|
|
(8,939)
|
Non-GAAP net income
|
|
$
|
461,893
|
|
$
|
435,319
|
Diluted earnings per share:
|
|
|
|
|
GAAP
|
|
$
|
0.30
|
|
$
|
0.84
|
Non-GAAP
|
|
$
|
0.87
|
|
$
|
0.81
|
|
|
|
|
|
See the accompanying notes on Schedule V attached to this press
release.
|
|
|
SCHEDULE III
|
|
FLEX
|
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
|
(In thousands)
|
|
|
|
|
|
|
|
As of December 31, 2018
|
|
As of March 31, 2018
|
ASSETS
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,503,368
|
|
$
|
1,472,424
|
Accounts receivable, net of allowance for doubtful accounts
|
|
|
2,861,830
|
|
|
2,517,695
|
Contract assets
|
|
|
298,451
|
|
|
-
|
Inventories
|
|
|
3,897,891
|
|
|
3,799,829
|
Other current assets
|
|
|
930,376
|
|
|
1,380,466
|
Total current assets
|
|
|
9,491,916
|
|
|
9,170,414
|
|
|
|
|
|
Property and equipment, net
|
|
|
2,214,148
|
|
|
2,239,506
|
Goodwill
|
|
|
1,078,834
|
|
|
1,121,170
|
Other intangible assets, net
|
|
|
349,645
|
|
|
424,433
|
Other assets
|
|
|
840,542
|
|
|
760,332
|
Total assets
|
|
$
|
13,975,085
|
|
$
|
13,715,855
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
Current liabilities:
|
|
|
|
|
Bank borrowings and current portion of long-term debt
|
|
$
|
43,249
|
|
$
|
43,011
|
Accounts payable
|
|
|
5,543,349
|
|
|
5,122,303
|
Accrued payroll
|
|
|
389,746
|
|
|
383,332
|
Other current liabilities
|
|
|
1,527,276
|
|
|
1,719,418
|
Total current liabilities
|
|
|
7,503,620
|
|
|
7,268,064
|
|
|
|
|
|
Long-term debt, net of current portion
|
|
|
2,906,251
|
|
|
2,897,631
|
Other liabilities
|
|
|
486,886
|
|
|
531,587
|
|
|
|
|
|
Total shareholders' equity
|
|
|
3,078,328
|
|
|
3,018,573
|
|
|
|
|
|
Total liabilities and shareholders' equity
|
|
$
|
13,975,085
|
|
$
|
13,715,855
|
|
|
|
|
|
|
SCHEDULE IV
|
|
FLEX
|
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(In thousands)
|
|
|
|
|
|
|
|
Nine-Month Periods Ended
|
|
|
December 31, 2018
|
|
December 31, 2017
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
Net income
|
|
$
|
157,751
|
|
$
|
448,129
|
Depreciation, amortization and other impairment charges
|
|
|
507,164
|
|
|
400,015
|
Gain from deconsolidation of Bright Machines
|
|
|
(86,614)
|
|
|
—
|
Gain from deconsolidation of Elementum
|
|
|
—
|
|
|
(151,574)
|
Changes in working capital and other
|
|
|
(2,906,906)
|
|
|
(3,804,156)
|
Net cash used in operating activities
|
|
|
(2,328,605)
|
|
|
(3,107,586)
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
Purchases of property and equipment
|
|
|
(592,092)
|
|
|
(432,897)
|
Proceeds from the disposition of property and equipment
|
|
|
86,724
|
|
|
43,653
|
Acquisition of businesses, net of cash acquired
|
|
|
(12,796)
|
|
|
(269,724)
|
Proceeds from divestiture of businesses, net of cash held in
divested businesses
|
|
|
267,147
|
|
|
(2,949)
|
Cash collections of deferred purchase price
|
|
|
2,707,562
|
|
|
3,538,604
|
Other investing activities, net
|
|
|
14,687
|
|
|
(120,934)
|
Net cash provided by investing activities
|
|
|
2,471,232
|
|
|
2,755,753
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
Proceeds from bank borrowings and long-term debt
|
|
|
2,481,407
|
|
|
866,000
|
Repayments of bank borrowings and long-term debt
|
|
|
(2,447,873)
|
|
|
(907,930)
|
Payments for repurchases of ordinary shares
|
|
|
(123,979)
|
|
|
(180,050)
|
Net proceeds from issuance of ordinary shares
|
|
|
195
|
|
|
2,063
|
Other financing activities, net
|
|
|
9,689
|
|
|
46,482
|
Net cash used in financing activities
|
|
|
(80,561)
|
|
|
(173,435)
|
|
|
|
|
|
Effect of exchange rates on cash and cash equivalents
|
|
|
(31,122)
|
|
|
(14,224)
|
Net change in cash and cash equivalents
|
|
|
30,944
|
|
|
(539,492)
|
Cash and cash equivalents, beginning of period
|
|
|
1,472,424
|
|
|
1,830,675
|
Cash and cash equivalents, end of period
|
|
$
|
1,503,368
|
|
$
|
1,291,183
|
|
|
|
|
|
SCHEDULE V
FLEX AND SUBSIDIARIES
NOTES TO SCHEDULE II
(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, 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, 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 primarily of non-cash
impairments of certain property and equipment to estimated fair value
for customers we are in the process of disengaging as well as additional
provisions for doubtful accounts receivable for customers that are
experiencing significant financial difficulties. Certain inventory on
hand could be subject to impairment to net realizable value for these
customers as well. 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.
Contingencies 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) damages incurred from a typhoon
that impacted a China facility in the second quarter of fiscal year
2018, and (4) certain legal matters for which loss contingencies are
believed to be probable and estimable in the second quarter of fiscal
year 2018. 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,
lease termination, and other charges relate to the closures and
consolidations of certain operating sites. 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), 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, gain from
deconsolidation of certain entities, and impairment charges associated
with non-core investments. We exclude these items because they are not
related to the Company’s ongoing operating performance or do not affect
core operations. Excluding these amounts 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 operating cash flows and free cash flow metrics due to
a recently issued accounting standard. In Q1 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 program from operating activities to investing
activities. 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. Cash flow from operations is also a
critical metric that investors use to evaluate a company’s earnings
power. The Company views and manages all collections under the program
similarly without bifurcation and accordingly provides the adjustment to
reflect cash flows from operations inclusive of all collections of
receivables sold through the programs.
In addition, we define our free cash flow metric to be GAAP net cash
flows from operating activities, plus cash collection of deferred
purchase price, less purchases of property and equipment net of proceeds
from dispositions to reflect this change and present cash flows on a
consistent basis for investor transparency. We believe Free Cash Flow is
an important liquidity metric because it measures, during a given
period, the amount of cash generated that is available to repay debt
obligations, make investments, fund acquisitions and for certain other
activities. Since Free Cash Flow includes investments in operating
assets, we believe this non-GAAP liquidity measure is useful in addition
to the most directly comparable GAAP measure – “net cash used in
operating activities.” See below for the three and nine-month periods
ended December 31, 2018 reconciliation of GAAP to Non-GAAP measures:
|
|
|
|
|
|
|
Three-Month Period Ended
|
|
Nine-Month Period Ended
|
|
|
December 31, 2018
|
|
December 31, 2018
|
|
|
|
|
|
Net cash used in operating activities
|
|
$
|
(621,009)
|
|
$
|
(2,328,605)
|
Cash collections of deferred purchase price
|
|
|
894,617
|
|
|
2,707,562
|
Adjusted net cash provided by operating activities
|
|
|
273,608
|
|
|
378,957
|
Net Capital Expenditures
|
|
|
(154,968)
|
|
|
(505,368)
|
Free Cash Flow
|
|
$
|
118,640
|
|
$
|
(126,411)
|
|
|
|
|
|
(2) Basic shares were used in calculating diluted GAAP EPS for the
quarter ended December 31, 2018 due to the net loss recognized during
the period. Diluted shares for Q3 fiscal 2019 were 526,801 thousand
which were used in calculating diluted non-GAAP EPS for the quarter.
(3) Customer related asset impairments for the three-month and
nine-month periods ended December 31, 2018 primarily relate to
additional provisions for doubtful accounts receivable, inventory and
impairment of property and equipment for certain customers experiencing
significant financial difficulties and/or we are disengaging from.
(4) We completed the wind-down of our Nike operations in Mexico in Q3
fiscal year 2019 and recognized in total $36 million and $66 million for
the three-month and nine-month periods ended December 31, 2018. The
charge primarily consisted of non-cash asset impairments.
For the three-month period ended December 31, 2018, the Company also
incurred certain restructuring charges primarily related to severance
for rationalization at certain existing operating and design sites and
corporate functions as well as asset impairment charges related to exit
of certain immaterial businesses.
(5) Contingencies and otherduring the three and nine-month
periods ended December 31, 2018 primarily consist of costs incurred
relating to the independent investigation undertaken by the Audit
Committee of the Company’s Board of Directors which was completed in
June 2018. In addition, for the nine month period ended December 31,
2018, it also includes certain charges of the China based Multek
operation that was divested in the second quarter of fiscal year 2019.
During the second quarter of fiscal year 2018, the Company incurred
charges in connection with certain legal matters where it believed
losses were probable and estimable. Additionally, the Company incurred
various other charges predominately related to damages incurred from a
typhoon that impacted a China facility.
(6) During the third quarter of fiscal year 2019, the Company recorded a
$70 million impairment charge related to one of its non-core cost method
investments due to limited funding the investee has received and its
deteriorating operating performance.
During the first quarter of fiscal year 2019, the Company transferred
employees and equipment along with certain related software and IP, into
Bright Machines which later received additional equity funding from
third party investors and changed the composition of the Board of
directors removing Flex’s control. As such, we deconsolidated the entity
and recognized a gain of approximately $92 million in other income, net
for the quarter ended June 29, 2018. During the second quarter of fiscal
year 2019, the Company reduced the gain recognized in the first quarter
by $4 million based on the final fair value provided by an independent
valuation firm.
The Company sold its Wink business during the first quarter of fiscal
year 2018 to an unrelated third-party venture backed company in exchange
for contingent consideration fair valued at $59 million and recognized a
gain on sale of $38.7 million.
During the second quarter of fiscal year 2018, the Company and other
minority shareholders of Elementum amended certain agreements and as a
result, the Company concluded it no longer had majority control and
accordingly, deconsolidated the entity. As part of the deconsolidation,
the Company recognized a gain of $151.6 million.
(7) Primarily related to adjustment for exchange rate fluctuation on
income tax receivable position of an operating subsidiary recognized in
a prior period and tax effects of the various adjustments that we
incorporate into Non-GAAP measures.
(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.
View source version on businesswire.com:
https://www.businesswire.com/news/home/20190130005788/en/
Kevin Kessel, CFA
Vice President, Investor Relations
(408)
576-7985
kevin.kessel@flex.com
Source: Flex