Flex Ltd FLEX

SCHEDULE I

FLEX

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share amounts)

Three-Month Periods Ended

March 31, 2024

March 31, 2023

GAAP:

Net sales

$                  6,169

$                  6,984

Cost of sales

5,658

6,501

Restructuring charges

74

18

Gross profit

437

465

Selling, general and administrative expenses

261

218

Restructuring charges

1

4

Intangible amortization

16

20

Operating income

159

223

Interest expense

52

63

Interest income

12

13

Other charges (income), net

8

7

Equity in earnings (losses) of unconsolidated affiliates

6

(1)

Income from continuing operations before income taxes

117

165

Provision for (benefit from) income taxes

(278)

26

Net income from continuing operations

395

139

   Net income from discontinued operations, net of tax

—

224

Net income

395

363

Net income attributable to noncontrolling interest and redeemable noncontrolling interest

—

221

Net income attributable to Flex Ltd.

$                     395

$                     142

GAAP EPS:

Diluted earnings per share from continuing operations

$                    0.93

$                    0.30

Diluted earnings per share from discontinued operations

—

0.01

Diluted earnings per share attributable to the shareholders of Flex Ltd.

$                    0.93

$                    0.31

Diluted shares used in computing per share amounts

425

459

FLEX

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share amounts)

Twelve-Month Periods Ended

March 31, 2024

March 31, 2023

March 31, 2022

GAAP:

Net sales

$              26,415

$              28,502

$              24,633

Cost of sales

24,395

26,503

22,838

Restructuring charges

155

23

15

Gross profit

1,865

1,976

1,780

Selling, general and administrative expenses

922

874

830

Restructuring charges

20

4

—

Intangible amortization

70

81

60

Operating income

853

1,017

890

Interest expense

207

230

166

Interest income

56

30

14

Other charges (income), net

44

6

(165)

Equity in earnings (losses) of unconsolidated affiliates

8

(4)

61

Income from continuing operations before income taxes

666

807

964

Provision for (benefit from) income taxes

(206)

124

92

Net income from continuing operations

872

683

872

   Net income from discontinued operations, net of tax

373

350

68

Net income

1,245

1,033

940

Net income attributable to noncontrolling interest and redeemable noncontrolling interest

239

240

4

Net income attributable to Flex Ltd.

$                 1,006

$                    793

$                    936

GAAP EPS:

Diluted earnings per share from continuing operations

$                   1.98

$                   1.48

$                   1.81

Diluted earnings per share from discontinued operations

0.30

0.24

0.13

Diluted earnings per share attributable to the shareholders of Flex Ltd.

$                   2.28

$                   1.72

$                   1.94

Diluted shares used in computing per share amounts

441

462

483

SCHEDULE II

FLEX

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

(In millions, except per share amounts)

Three-Month Periods Ended

March 31, 2024

March 31, 2023

GAAP operating income

$                    159

$                    223

Intangible amortization

16

20

Stock-based compensation expense

27

25

Restructuring charges

75

22

Customer related asset impairment

14

—

Legal and other

42

3

Non-GAAP operating income

333

293

GAAP provision for (benefit from) income taxes

(278)

26

Intangible amortization benefit

2

3

Tax benefit on release of U.S. valuation allowance

461

—

Tax expense on foreign subsidiaries indefinite reinvestment assertion change

(135)

—

Other tax related adjustments

(9)

4

Non-GAAP provision for income taxes

41

33

GAAP net income from continuing operations

395

139

Intangible amortization

16

20

Stock-based compensation expense

27

25

Restructuring charges

75

22

Customer related asset impairment

14

—

Legal and other

42

3

Equity in earnings (losses) of unconsolidated affiliates

(6)

(1)

Adjustments for taxes

(319)

(7)

Non-GAAP net income from continuing operations

244

201

Diluted earnings per share from continuing operations:

GAAP 

$                   0.93

$                   0.30

Non-GAAP

$                   0.57

$                   0.44

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

FLEX

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

(In millions, except per share amounts)

Twelve-Month Periods Ended

March 31, 2024

March 31, 2023

March 31, 2022

GAAP operating income

853

1,017

890

Intangible amortization

70

81

60

Stock-based compensation expense

113

101

88

Restructuring charges

172

27

15

Customer related asset impairment

14

—

—

Legal and other

45

6

17

Non-GAAP operating income

$                 1,267

$                 1,232

$                 1,070

GAAP provision for (benefit from) income taxes

(206)

124

92

Intangible amortization benefit

11

12

10

Tax benefit on release of U.S. valuation allowance

461

—

—

Tax expense on foreign subsidiaries indefinite reinvestment assertion change

(135)

—

—

Other tax related adjustments

7

(1)

28

Non-GAAP provision for income taxes

$                    138

$                    135

$                    130

GAAP net income from continuing operations

872

683

872

Intangible amortization

70

81

60

Stock-based compensation expense

113

101

88

Restructuring charges

172

27

15

Customer related asset impairment

14

—

—

Legal and other

45

6

17

Interest and other, net

11

4

(135)

Equity in earnings (losses) of unconsolidated affiliates

(6)

(1)

(32)

Adjustments for taxes

(344)

(11)

(38)

Non-GAAP net income from continuing operations

$                    947

$                    890

$                    847

Diluted earnings per share from continuing operations:

GAAP 

$                   1.98

$                   1.48

$                   1.81

Non-GAAP

$                   2.15

$                   1.93

$                   1.75

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

SCHEDULE III

FLEX

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

As of March 31, 2024

As of March 31, 2023

ASSETS

Current assets:

Cash and cash equivalents

$                           2,474

$                           3,164

Accounts receivable, net of allowance for doubtful accounts

3,033

3,480

Contract assets

249

243

Inventories

6,205

7,388

Other current assets

1,031

875

Current assets of discontinued operations

—

883

Total current assets

12,992

16,033

Property and equipment, net

2,269

2,342

Operating lease right-of-use assets, net

601

605

Goodwill

1,135

1,139

Other intangible assets, net

245

315

Other non-current assets

1,015

490

Non-current assets of discontinued operations

—

483

Total assets

$                         18,257

$                         21,407

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Bank borrowings and current portion of long-term debt

$                                 —

$                              150

Accounts payable

4,468

5,724

Accrued payroll and benefits

488

506

Deferred revenue and customer working capital advances

2,615

2,955

Other current liabilities

968

1,019

Current liabilities of discontinued operations

—

513

Total current liabilities

8,539

10,867

Long-term debt, net of current portion

3,261

3,544

Operating lease liabilities, non-current

490

504

Other non-current liabilities

642

554

Non-current liabilities of discontinued operations

—

232

Total liabilities

12,932

15,701

Total Flex Ltd. shareholders' equity

5,325

5,351

Noncontrolling interest of discontinued operations

—

355

Total shareholders' equity

5,325

5,706

Total liabilities and shareholders' equity

$                         18,257

$                         21,407

SCHEDULE IV

FLEX

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

Twelve-Month Periods Ended

March 31, 2024

March 31, 2023

March 31, 2022

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$                 1,245

$                 1,033

$                    936

Depreciation, amortization and other impairment charges

537

501

484

Changes in working capital and other, net

(456)

(584)

(396)

Net cash provided by operating activities

1,326

950

1,024

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment

(530)

(635)

(443)

Proceeds from the disposition of property and equipment          

25

20

11

Acquisitions of businesses, net of cash acquired

—

2

(539)

Other investing activities, net

13

9

20

Net cash used in investing activities

(492)

(604)

(951)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from bank borrowings and long-term debt

2

718

759

Repayments of bank borrowings and long-term debt

(409)

(1,024)

(284)

Payments for repurchases of ordinary shares

(1,298)

(337)

(686)

Proceeds from issuances of Nextracker shares

552

694

—

Payment for pre-IPO dividend to redeemable noncontrolling interest

—

(22)

—

Payment for purchase of Nextracker LLC units from TPG

(57)

—

—

Capital reduction from Nextracker spin off

(368)

—

—

Proceeds from sale of subsidiary's redeemable preferred units

—

—

488

Other financing activities, net

(78)

(27)

3

Net cash provided by (used in) financing activities

(1,656)

2

280

Effect of exchange rates on cash and cash equivalents

2

(18)

(26)

Net increase in cash and cash equivalents

(820)

330

327

Cash and cash equivalents, beginning of year

3,294

2,964

2,637

Cash and cash equivalents, end of year

$                 2,474

$                 3,294

$                 2,964

FLEX AND SUBSIDIARIES

NOTES TO SCHEDULE II

(1)

To supplement Flex's unaudited selected financial data presented consistent with U.S. Generally Accepted Accounting Principles ("GAAP"), the Company discloses certain non-GAAP financial measures that exclude certain charges and gains, including non-GAAP operating income, non-GAAP net income and non-GAAP net income per diluted share. These supplemental measures exclude certain legal and other charges, restructuring charges, customer-related asset impairments (recoveries), 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 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 ongoing operating results;

• 

the ability to better identify trends in the Company's underlying business and perform related trend analysis;

• 

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 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.

Restructuring charges include severance charges 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, 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.

During the three and twelve-month periods ended March 31, 2024, the Company recognized approximately $75 million and $172 million of restructuring charges, respectively, most of which related to employee severance. During the three and twelve-month periods ended March 31, 2023, the Company recognized approximately $22 million and $27 million of restructuring charges, respectively, most of which related to employee severance. During the twelve-month period ended March 31, 2022, the Company recognized approximately $15 million of restructuring charges, most of which related to employee severance.

Customer related asset impairments may consist of non-cash impairments of property and equipment to estimated fair value for customers from whom 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 and inventory that is considered non-recoverable that is written down to net realizable value. In subsequent periods, the Company may recover a portion of the costs previously incurred related to assets impaired or reduced to net realizable value. During the three and twelve-month periods ended March 31, 2024, the Company recognized approximately $14 million of customer related asset impairments. 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 consist primarily of costs not directly related to core business results and may include matters relating to commercial disputes, government regulatory and compliance, intellectual property, antitrust, tax, employment or shareholder issues, product liability claims and other issues on a global basis as well as acquisition related costs. During the fourth quarter and for the fiscal years ended March 31, 2024, 2023, and 2022, the Company accrued for certain loss contingencies where losses were considered probable and estimable. During the fourth quarter of fiscal year 2024, the Company accrued $50 million related to a commercial dispute related to a construction matter with related production objectives. In the fiscal year ended March 31, 2022, the Company recognized a net $17 million loss accrual related to settled litigation claims partially offset by the successful settlement of certain supplier claims. 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.

Interest and other, net consist of various other types of items that are not directly related to ongoing or core business results, such as the gain or losses related to certain divestitures, currency translation reserve write-offs upon liquidation of certain legal entities, and debt extinguishment costs. The Company excludes 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.

In fiscal year 2022, the Company received approval from the relevant tax authorities in Brazil of the Credit Habilitation request related to certain federal operational tax credits and the Company recorded a total gain of 809.6 million Brazilian reals (approximately USD $149.3 million based on the exchange rate as of October 1, 2021) under other charges (income), net in the condensed statements of operations. The total gain recorded included credits from February 2003 to September 2021, net of additional taxes, as the Credit Habilitation received covering the period from February 2003 to December 2019 resolved any uncertainty regarding the Company's ability to claim such credits. This gain is non-cash and has been used to offset tax obligations.

Equity in earnings (losses) of unconsolidated affiliates consists of various other types of items that are not directly related to ongoing or core business results, such as gains (losses) associated with certain non-core investments. The Company excludes 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. In fiscal years 2022 and 2024, the Company recognized approximately $32 million and $6 million, respectively, equity in earnings from the value increases in certain non-core investment funds. No such significant events occurred in fiscal year 2023.

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. During the three and twelve-month periods ended March 31, 2024, the Company recorded $319 million and $344 million net benefits, respectively, of which the majority relates to a $461 million benefit from a release of a valuation allowance previously applied to the Company's U.S. deferred tax assets, partially offset by an expense of $135 million reflecting a change in the Company's assertion to indefinitely reinvest its earnings in China. During fiscal year 2022, the Company recorded a $19 million benefit for the release of valuation allowances on certain of its deferred tax assets due to its acquisition of the Anord Mardix business. No such significant events occurred in fiscal year 2023.