SAN JOSE, Calif., Oct. 25, 2018 /PRNewswire/ -- Flex
(NASDAQ: FLEX), the Sketch-to-Scale® solutions
provider that designs and builds Intelligent Products for a
Connected World®, today announced results for its
second quarter ended September 28,
2018.
US$ in millions,
except earnings per share
|
Three-Month
Periods Ended
|
|
September 28,
2018
|
|
September 29,
2017
|
Net sales
|
$
6,711
|
|
$
6,270
|
GAAP income before
income taxes
|
109
|
|
218
|
Adjusted operating
income
|
224
|
|
188
|
GAAP net
income
|
87
|
|
205
|
Adjusted net
income
|
153
|
|
142
|
GAAP EPS
|
0.16
|
|
0.38
|
Adjusted
EPS
|
0.29
|
|
0.27
|
An explanation and reconciliation of non-GAAP financial measures
to GAAP financial measures is presented in Schedule II attached to
this press release.
Second Quarter Fiscal 2019 Results of Operations
Net sales for the second quarter ended September 28, 2018 were $6.7 billion, growing 7% year-over-year, and
within the guidance range of $6.6 to
$7.0 billion. GAAP income before
income taxes was $109 million for the
quarter and adjusted operating income was $224 million, above the midpoint of the guidance
range of $200 million to $230 million. GAAP net income was $87 million and adjusted net income for the
quarter was $153 million. GAAP net
income per share was $0.16 for the
quarter and adjusted EPS was $0.29
for the quarter.
NIKE Update
The Company has worked hard with NIKE to make the footwear
manufacturing operations in Mexico
technically and commercially successful. In recent weeks,
however, it became clear that the Company would be unable to reach
a commercially viable solution. Accordingly, Flex and NIKE have
mutually agreed to wind-down the footwear manufacturing operations
in Guadalajara by December 31, 2018. The Company is in the process
of finalizing the terms and details of the wind-down and is
striving hard to retain many of the affected employees and
repurpose the facility. In connection with the wind-down of the
operation, the Company recognized $30
million of exit costs primarily related to an estimated
impairment of fixed assets. The Company may incur additional costs
to complete the wind-down.
Balance Sheet and Cash Flow Highlights
Flex ended the quarter with approximately $1.38 billion of cash on hand and total debt of
approximately $2.9 billion. The
balance sheet remains well positioned to support the business over
the long term.
Flex's cash from operations was negative $764 million and negative $1.7 billion for the three and six-month periods
ended September 28, 2018,
respectively, and reflects the impacts due to cash collections
under our ABS programs of the deferred purchase price for
receivables sold of $885 million and
$1.8 billion for those respective
periods that due to a recent accounting change are now included as
investing cash activities. Adjusted to exclude the impacts from the
new accounting noted above, cash from operations was $120 million and $105
million for the three and six-month periods ended
September 28, 2018, respectively.
The Company remains committed to return over 50% of annual free
cash flow to its shareholders as it repurchased ordinary shares for
approximately $60 million during the
three-month period ended September 28,
2018.
Third Quarter Fiscal Year 2019 Guidance
For the third quarter ending December 31,
2018, revenue is expected to be in the range of $6.6 to $7.0
billion. Adjusted EPS is expected to be in the range of
$0.29 to $0.33 per diluted share. GAAP EPS is expected to
be in the range of $0.19 to
$0.23 and includes primarily
stock-based compensation expense and intangible amortization.
Updated Fiscal Year 2019 Guidance
The Company is updating its fiscal 2019 guidance originally
established at its May Investor and Analyst Day. This guidance has
been updated for impacts from component shortages and incremental
reductions from the India ramp due
to capacity constraints as well as incremental pressures in both
the automotive and industrial businesses. Our CTG performance has
severely impacted our forecast and accounts for the majority of the
downward guidance, which we are reducing to the following: revenue
is expected to be in the range of $26.0 to $27.0
billion. Adjusted EPS is expected to be in the range of
$1.05 to $1.15 per diluted share. GAAP EPS is expected to
be in the range of $0.75 to
$0.85 and includes stock-based
compensation expense, intangible amortization, and other
charges.
Retirement of CEO, Mike
McNamara
The Company has published a separate press release that
announced that Michael M. McNamara,
the Company's Chief Executive Officer and a member of the Company's
Board of Directors, has decided to retire as Chief Executive
Officer, effective December 31, 2018.
The Board has engaged Heidrick & Struggles International, Inc.
to conduct a search for a new Chief Executive Officer and will be
considering both internal and external candidates. Michael D. Capellas, Chairman of the Board, will
actively assist the Company's management with the Chief Executive
Officer transition.
Other Items
The Company continues to undertake measures to improve our
internal control over financial reporting to address and remediate
the material weaknesses described further in Item 9A "Controls and
Procedures" of our fiscal 2018 Form 10-K. Many of our
remediation efforts have been implemented already or are in the
process of implementation. Our initiatives are focused
on enhancing site level controls, designing and implementing
centralized reporting controls and enhancing the quality and
frequency of training. While our remediation plan is being
executed, we also have engaged and will continue to engage
additional resources to support and supplement the Company's
existing internal resources. We are working to have the material
weaknesses remediated as soon as possible.
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 second 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®
Contacts
Investors & Analysts
Kevin Kessel, CFA
(408) 576-7985
kevin.kessel@flex.com
Media & Press
Paul Brunato
(408) 576-7534
paul.brunato@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 the
Company's plan to remediate material weaknesses in the Company's
internal control over financial reporting. 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 relating to the previously-disclosed Audit Committee
independent investigation; 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
|
|
|
September 28,
2018
|
|
September 29,
2017
|
GAAP:
|
|
|
|
|
Net sales
|
$
6,710,604
|
|
$
6,270,420
|
|
Cost of
sales
|
6,308,303
|
|
5,877,095
|
|
Gross profit
|
402,301
|
|
393,325
|
|
Selling, general and
administrative expenses
|
227,683
|
|
274,149
|
|
Intangible
amortization
|
18,234
|
|
16,376
|
|
Interest and other,
net
|
41,060
|
|
27,554
|
|
Other charges
(income), net
|
6,530
|
|
(143,167)
|
|
Income before income
taxes
|
108,794
|
|
218,413
|
|
Provision for income
taxes
|
21,909
|
|
13,327
|
|
Net income
|
$
86,885
|
|
$
205,086
|
|
|
|
|
|
Earnings per
share:
|
|
|
|
|
GAAP
|
$
0.16
|
|
$
0.38
|
|
Non-GAAP
|
$
0.29
|
|
$
0.27
|
|
|
|
|
|
|
Diluted shares used
in computing per share amounts
|
534,458
|
|
536,019
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
|
Six-Month Periods
Ended
|
|
|
September 28,
2018
|
|
September 29,
2017
|
GAAP:
|
|
|
|
|
Net sales
|
$
13,134,560
|
|
$
12,278,692
|
|
Cost of
sales
|
12,354,405
|
|
11,478,435
|
|
Gross profit
|
780,155
|
|
800,257
|
|
Selling, general and
administrative expenses
|
490,565
|
|
524,960
|
|
Intangible
amortization
|
36,751
|
|
36,277
|
|
Interest and other,
net
|
82,802
|
|
54,430
|
|
Other income,
net
|
(80,394)
|
|
(179,332)
|
|
Income before income
taxes
|
250,431
|
|
363,922
|
|
Provision for income
taxes
|
47,511
|
|
34,126
|
|
Net income
|
$
202,920
|
|
$
329,796
|
|
|
|
|
|
Earnings per
share:
|
|
|
|
|
GAAP
|
$
0.38
|
|
$
0.61
|
|
Non-GAAP
|
$
0.53
|
|
$
0.51
|
|
|
|
|
|
|
Diluted shares used
in computing per share amounts
|
535,027
|
|
536,311
|
|
|
|
|
|
|
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
|
|
|
September 28,
2018
|
|
September 29,
2017
|
GAAP gross
profit
|
$
402,301
|
|
$
393,325
|
|
Stock-based
compensation expense
|
4,767
|
|
4,985
|
|
Customer related
asset impairments (2)
|
30,100
|
|
-
|
|
Contingencies and
other (4)
|
(3,679)
|
|
18,933
|
Non-GAAP gross
profit
|
$
433,489
|
|
$
417,243
|
|
|
|
|
|
GAAP income before
income taxes
|
$
108,794
|
|
$
218,413
|
|
Intangible
amortization
|
18,234
|
|
16,376
|
|
Stock-based
compensation expense
|
19,081
|
|
20,464
|
|
Customer related
asset impairments (2)
|
30,100
|
|
4,753
|
|
Contingencies and
other (4)
|
(269)
|
|
43,933
|
|
Other charges
(income), net (5)
|
6,530
|
|
(143,167)
|
|
Interest and other,
net
|
41,060
|
|
27,554
|
Non-GAAP operating
income
|
$
223,530
|
|
$
188,326
|
|
|
|
|
|
GAAP provision for
income taxes
|
$
21,909
|
|
$
13,327
|
|
Intangible
amortization benefit
|
2,225
|
|
2,250
|
|
Other adjustments for
taxes (6)
|
1,387
|
|
2,738
|
Non-GAAP provision
for income taxes
|
$
25,521
|
|
$
18,315
|
|
|
|
|
|
GAAP net
income
|
$
86,885
|
|
$
205,086
|
|
Intangible
amortization
|
18,234
|
|
16,376
|
|
Stock-based
compensation expense
|
19,081
|
|
20,464
|
|
Customer related
asset impairments (2)
|
30,100
|
|
4,753
|
|
Contingencies and
other (4)
|
(269)
|
|
43,933
|
|
Elementum
deconsolidation (5)
|
-
|
|
(151,574)
|
|
Other charges,
net
|
2,905
|
|
8,407
|
|
Adjustments for taxes
(6)
|
(3,612)
|
|
(4,988)
|
Non-GAAP net
income
|
$
153,324
|
|
$
142,457
|
Diluted earnings
per share:
|
|
GAAP
|
$
0.16
|
|
$
0.38
|
|
Non-GAAP
|
$
0.29
|
|
$
0.27
|
|
|
|
|
|
FLEX
|
RECONCILIATION OF
GAAP TO NON-GAAP FINANCIAL MEASURES (1)
|
(In thousands,
except per share amounts)
|
|
|
|
|
|
|
|
Six-Month Periods
Ended
|
|
|
September 28,
2018
|
|
September 29,
2017
|
GAAP gross
profit
|
$
780,155
|
|
$
800,257
|
|
Stock-based
compensation expense
|
10,171
|
|
8,304
|
|
Customer related
asset impairments (2)
|
42,452
|
|
-
|
|
New revenue standard
adoption impact (3)
|
9,291
|
|
-
|
|
Contingencies and
other (4)
|
4,212
|
|
18,933
|
Non-GAAP gross
profit
|
$
846,281
|
|
$
827,494
|
|
|
|
|
|
GAAP income before
income taxes
|
$
250,431
|
|
$
363,922
|
|
Intangible
amortization
|
36,751
|
|
36,277
|
|
Stock-based
compensation expense
|
40,034
|
|
42,260
|
|
Customer related
asset impairments (2)
|
47,464
|
|
4,753
|
|
New revenue standard
adoption impact (3)
|
9,291
|
|
-
|
|
Contingencies and
other (4)
|
24,859
|
|
43,933
|
|
Other income, net
(5)
|
(80,394)
|
|
(179,332)
|
|
Interest and other,
net
|
82,802
|
|
54,430
|
Non-GAAP operating
income
|
$
411,238
|
|
$
366,243
|
|
|
|
|
|
GAAP provision for
income taxes
|
$
47,511
|
|
$
34,126
|
|
Intangible
amortization benefit
|
4,517
|
|
4,016
|
|
Other adjustments for
taxes (6)
|
(7,709)
|
|
2,738
|
Non-GAAP provision
for income taxes
|
$
44,319
|
|
$
40,880
|
|
|
|
|
|
GAAP net
income
|
$
202,920
|
|
$
329,796
|
|
Intangible
amortization
|
36,751
|
|
36,277
|
|
Stock-based
compensation expense
|
40,034
|
|
42,260
|
|
Customer related
asset impairments (2)
|
47,464
|
|
4,753
|
|
New revenue standard
adoption impact (3)
|
9,291
|
|
-
|
|
Contingencies and
other (4)
|
24,859
|
|
43,933
|
|
Elementum
deconsolidation (5)
|
-
|
|
(151,574)
|
|
AutoLab
deconsolidation (5)
|
(87,348)
|
|
-
|
|
Other charges
(income), net (5)
|
4,132
|
|
(27,758)
|
|
Adjustments for taxes
(6)
|
3,192
|
|
(6,754)
|
Non-GAAP net
income
|
$
281,295
|
|
$
270,933
|
Diluted earnings
per share:
|
|
|
|
|
GAAP
|
$
0.38
|
|
$
0.61
|
|
Non-GAAP
|
$
0.53
|
|
$
0.51
|
|
|
|
|
|
SCHEDULE
III
|
|
FLEX
|
UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS
|
(In
thousands)
|
|
|
|
|
|
|
|
As of September
28, 2018
|
|
As of March 31,
2018
|
ASSETS
|
|
|
|
Current
Assets:
|
|
|
|
|
Cash and cash
equivalents
|
$
1,377,720
|
|
$
1,472,424
|
|
Accounts receivable,
net of allowance for doubtful accounts
|
2,859,409
|
|
2,517,695
|
|
Contract
assets
|
418,158
|
|
-
|
|
Inventories
|
4,442,855
|
|
3,799,829
|
|
Other current
assets
|
935,030
|
|
1,380,466
|
Total current
assets
|
10,033,172
|
|
9,170,414
|
|
|
|
|
Property and
equipment, net
|
2,277,885
|
|
2,239,506
|
Goodwill
|
1,082,523
|
|
1,121,170
|
Other intangible
assets, net
|
375,407
|
|
424,433
|
Other
assets
|
957,217
|
|
760,332
|
Total
assets
|
$
14,726,204
|
|
$
13,715,855
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
|
|
|
Current
Liabilities:
|
|
|
|
|
Bank borrowings and
current portion of long-term debt
|
$
55,640
|
|
$
43,011
|
|
Accounts
payable
|
6,236,018
|
|
5,122,303
|
|
Accrued
payroll
|
406,368
|
|
383,332
|
|
Other current
liabilities
|
1,456,519
|
|
1,719,418
|
Total current
liabilities
|
8,154,545
|
|
7,268,064
|
|
|
|
|
|
Long-term debt, net
of current portion
|
2,869,551
|
|
2,897,631
|
Other
liabilities
|
532,561
|
|
531,587
|
|
|
|
|
|
Total shareholders'
equity
|
3,169,547
|
|
3,018,573
|
|
|
|
|
|
Total liabilities and
shareholders' equity
|
$
14,726,204
|
|
$
13,715,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SCHEDULE
IV
|
|
|
|
FLEX
|
|
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
Six-Month Periods
Ended
|
|
|
|
September 28,
2018
|
|
September 29,
2017
|
|
CASH FLOWS FROM
OPERATING ACTIVITIES:
|
|
|
|
|
|
Net income
|
$
202,920
|
|
$
329,796
|
|
|
Depreciation,
amortization and other impairment charges
|
269,062
|
|
264,718
|
|
|
Gain from
deconsolidation of AutoLab
|
(86,614)
|
|
—
|
|
|
Gain from
deconsolidation of Elementum
|
—
|
|
(151,574)
|
|
|
Changes in working
capital and other
|
(2,092,964)
|
|
(2,614,917)
|
|
|
Net cash used in operating activities
|
(1,707,596)
|
|
(2,171,977)
|
|
|
|
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES:
|
|
|
|
|
|
Purchases of property
and equipment
|
(363,373)
|
|
(264,030)
|
|
|
Proceeds from the
disposition of property and equipment
|
12,973
|
|
36,123
|
|
|
Acquisition of
businesses, net of cash acquired
|
—
|
|
(273,167)
|
|
|
Proceeds from
divestiture of businesses, net of cash held in
divested businesses
|
264,438
|
|
(2,949)
|
|
|
Cash collections of
deferred purchase price
|
1,812,945
|
|
2,452,782
|
|
|
Other investing
activities, net
|
(24,411)
|
|
(114,063)
|
|
|
Net cash provided by investing activities
|
1,702,572
|
|
1,834,696
|
|
|
|
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES:
|
|
|
|
|
|
Proceeds from bank
borrowings and long-term debt
|
650,023
|
|
—
|
|
|
Repayments of bank
borrowings and long-term debt
|
(652,600)
|
|
(26,483)
|
|
|
Payments for
repurchases of ordinary shares
|
(59,980)
|
|
(145,005)
|
|
|
Net proceeds from
issuance of ordinary shares
|
131
|
|
1,211
|
|
|
Other financing
activities, net
|
—
|
|
60,591
|
|
|
Net cash provided used in financing activities
|
(62,426)
|
|
(109,686)
|
|
|
|
|
|
|
|
Effect of exchange
rates on cash and cash equivalents
|
(27,254)
|
|
(14,206)
|
|
|
Net change in cash
and cash equivalents
|
(94,704)
|
|
(461,173)
|
|
|
Cash and cash
equivalents, beginning of period
|
1,472,424
|
|
1,830,675
|
|
|
Cash and cash
equivalents, end of period
|
$
1,377,720
|
|
$
1,369,502
|
|
|
|
|
|
|
|
Reconciliation of
GAAP to Non-GAAP Financial Measures (1)
|
|
|
|
|
|
Net cash used in
operating activities
|
$
(1,707,596)
|
|
$
(2,171,977)
|
|
|
Cash collections of
deferred purchase price
|
1,812,945
|
|
2,452,782
|
|
|
Adjusted net cash provided by operating activities
|
105,349
|
|
280,805
|
|
|
Net Capital
Expenditures
|
(350,400)
|
|
(227,907)
|
|
|
Free Cash Flow
|
$
(245,051)
|
|
$
52,898
|
|
SCHEDULE V
FLEX AND SUBSIDIARIES
NOTES TO
SCHEDULES I, II, III, & IV
(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. It also
includes certain restructuring charges primarily related to
severance for rationalization at existing sites and corporate
functions. 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 and impairment charges associated with non-core
investments. We exclude these items because they are not related to
the Company's ongoing operating performance or do not affect core
operations. Excluding these amounts provide investors with a
basis to compare Company performance against the performance of
other companies without this variability.
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."
(2) Customer related asset impairments for the three-month and
six-month periods ended September 28,
2018 relate to additional provisions for doubtful accounts
receivable, inventory and impairment of other assets for certain
customers experiencing significant financial difficulties as well
as $30 million of exit costs
primarily related to our estimated impairment of fixed assets
considered not recoverable in conjunction with the wind-down of our
NIKE footwear manufacturing operations in Guadalajara.
(3) 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.
(4) Contingencies and other during the three and six-month
periods ended September 28, 2018
primarily consists 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 and 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.
During the six-month period ended September 29, 2017 and September 28, 2018, the Company also incurred
certain restructuring charges primarily related to severance for
rationalization at existing sites and corporate functions.
(5) During the first quarter of fiscal year 2019, the Company
transferred employees and equipment along with certain related
software and IP, into AutoLab AI 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.
(6) 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.
View original content to download
multimedia:http://www.prnewswire.com/news-releases/flex-reports-second-quarter-fiscal-2019-results-300738292.html
SOURCE Flex