Flex Ltd 10-Q for FY2020 Q3

Flex Ltd. (FLEX)

10-Q 2020-01-31 For: 2019-12-31

Added on April 10, 2026

About this 10-Q

Flex Ltd filed this 10-Q on January 31, 2020, covering the quarter ended December 31, 2019 (FY2020 Q3).

Headline figures

Quarter ended December 31, 2019, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $6.46B; down 6.7% from $6.92B a year earlier
Net income: $111.39M; compared with a net loss of $45.17M a year earlier
Diluted EPS: $0.22; compared with -$0.09 a year earlier

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Singapore		Not Applicable
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)



2 Changi South Lane,
Singapore		486123
(Address of registrant’s principal executive offices)		(Zip Code)



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



Large Accelerated Filer	☒	Accelerated filer	☐	Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐



		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	3
	Report of Independent Registered Public Accounting Firm	3
	Condensed Consolidated Balance Sheets (unaudited) — December 31, 2019 and March 31, 2019	4
	Condensed Consolidated Statements of Operations (unaudited) — Three-Month and Nine-Month Periods Ended December 31, 2019 and December 31, 2018	5
	Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) — Three-Month and Nine-Month Periods Ended December 31, 2019 and December 31, 2018	6
	Condensed Consolidated Statements of Shareholders' Equity (unaudited) — Three-Month and Nine-Month Periods Ended December 31, 2019 and December 31, 2018	7
	Condensed Consolidated Statements of Cash Flows (unaudited) — Nine-Month Periods Ended December 31, 2019 and December 31, 2018	11
	Notes to Condensed Consolidated Financial Statements (unaudited)	12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44
Item 4.	Controls and Procedures	44

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	45
Item 1A.	Risk Factors	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48
Item 3.	Defaults Upon Senior Securities	49
Item 4.	Mine Safety Disclosures	49
Item 5.	Other Information	49
Item 6.	Exhibits	50
Signatures		51



/s/ DELOITTE & TOUCHE LLP
San Jose, California
January 31, 2020



	As of December 31, 2019			As of March 31, 2019
	(In thousands, except share amounts) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	1,789,164		$	1,696,625
Accounts receivable, net of allowance for doubtful accounts of $96,505 and $91,396 as of December 31, 2019 and March 31, 2019, respectively	3,004,174			2,612,961
Contract assets	199,682			216,202
Inventories	3,684,173			3,722,854
Other current assets	683,514			854,790
Total current assets	9,360,707			9,103,432
Property and equipment, net	2,205,967			2,336,213
Operating lease right-of-use assets, net	615,073			—
Goodwill	1,069,812			1,073,055
Other intangible assets, net	279,928			330,995
Other assets	603,930			655,672
Total assets	$	14,135,417		$	13,499,367

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Bank borrowings and current portion of long-term debt	$	88,869		$	632,611
Accounts payable	5,431,310			5,147,236
Accrued payroll	392,688			391,591
Other current liabilities	1,638,084			1,426,075
Total current liabilities	7,550,951			7,597,513
Long-term debt, net of current portion	2,701,112			2,421,904
Operating lease liabilities, non-current	540,007			—
Other liabilities	444,035			507,590
Shareholders’ equity
Ordinary shares, no par value; 554,481,851 and 566,787,620 issued, and 504,242,496 and 516,548,265 outstanding as of December 31, 2019 and March 31, 2019, respectively	6,404,721			6,523,750
Treasury stock, at cost; 50,239,355 shares as of December 31, 2019 and March 31, 2019	(388,215		)	(388,215		)
Accumulated deficit	(2,950,669		)	(3,012,012		)
Accumulated other comprehensive loss	(166,525		)	(151,163		)
Total shareholders’ equity	2,899,312			2,972,360
Total liabilities and shareholders’ equity	$	14,135,417		$	13,499,367



	Three-Month Periods Ended					Nine-Month Periods Ended
	December 31, 2019		December 31, 2018			December 31, 2019		December 31, 2018
	(In thousands, except per share amounts) (Unaudited)
Net sales	$	6,461,387	$	6,922,827		$	18,725,380	$	19,984,387
Cost of sales	6,017,278		6,505,067			17,578,056		18,757,395
Restructuring charges	13,632		60,435			174,995		89,512
Gross profit	430,477		357,325			972,329		1,137,480
Selling, general and administrative expenses	217,904		237,556			632,838		722,608
Intangible amortization	15,598		20,308			48,903		57,059
Restructuring charges	984		5,408			24,128		10,921
Interest and other, net	36,207		54,087			135,650		136,889
Other charges (income), net	14,395		71,879			17,005		(8,515		)
Income (loss) before income taxes	145,389		(31,913		)	113,805		218,518
Provision for income taxes	34,001		13,256			74,485		60,767
Net income (loss)	$	111,388	$	(45,169	)	$	39,320	$	157,751

Earnings (loss) per share:
Basic	$	0.22	$	(0.09	)	$	0.08	$	0.30
Diluted	$	0.22	$	(0.09	)	$	0.08	$	0.30
Weighted-average shares used in computing per share amounts:
Basic	506,938		524,876			511,198		528,528
Diluted	510,339		524,876			514,549		532,308



	Ordinary Shares								Accumulated Other Comprehensive Loss									Total
Three Months Ended December 31, 2019	Shares Outstanding		Amount			Accumulated Deficit			Unrealized Gain (Loss) on Derivative Instruments and Other			Foreign Currency Translation Adjustments			Total Accumulated Other Comprehensive Loss			Shareholders' Equity
	(In thousands) Unaudited
BALANCE AT SEPTEMBER 27, 2019	509,150		$	6,057,782		$	(3,062,057	)	$	(58,654	)	$	(131,110	)	$	(189,764	)	$	2,805,961
Repurchase of Flex Ltd. ordinary shares at cost	(5,285	)	(60,959		)	—			—			—			—			(60,959		)
Exercise of stock options	47		468			—			—			—			—			468
Issuance of Flex Ltd. vested shares under restricted share unit awards	330		—			—			—			—			—			—
Net income	—		—			111,388			—			—			—			111,388
Stock-based compensation, net of tax	—		19,215			—			—			—			—			19,215
Total other comprehensive income	—		—			—			13,242			9,997			23,239			23,239
BALANCE AT DECEMBER 31, 2019	504,242		$	6,016,506		$	(2,950,669	)	$	(45,412	)	$	(121,113	)	$	(166,525	)	$	2,899,312


•	High Reliability Solutions ("HRS"), which is comprised of our health solutions business, including surgical equipment, drug delivery, diagnostics, telemedicine, disposable devices, imaging and monitoring, patient mobility and ophthalmology; and our automotive business, including vehicle electrification, connectivity, autonomous, and smart technologies;


•	Industrial and Emerging Industries ("IEI"), which is comprised of energy including advanced metering infrastructure, energy storage, smart lighting, smart solar energy; and industrial, including semiconductor and capital equipment, office solutions, household industrial and lifestyle, industrial automation and kiosks;


•	Consumer Technologies Group ("CTG"), which includes our consumer-related businesses in IoT enabled devices, audio and consumer power electronics, mobile devices; and various supply chain solutions for consumer, computing and printing devices.



	As of December 31, 2019		As of March 31, 2019
	(In thousands)
Raw materials	$	2,723,041	$	2,922,101
Work-in-progress	382,881		366,135
Finished goods	578,251		434,618
	$	3,684,173	$	3,722,854



	HRS			IEI			CEC		CTG		Total
	(In thousands)
Balance, beginning of the year	$	507,209		$	333,257		$	129,325	$	103,264	$	1,073,055
Divestitures	(1,102		)	(137		)	—		—		(1,239		)
Foreign currency translation adjustments	(2,004		)	—			—		—		(2,004		)
Balance, end of the period	$	504,103		$	333,120		$	129,325	$	103,264	$	1,069,812



	As of December 31, 2019							As of March 31, 2019
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
	(In thousands)
Intangible assets:
Customer-related intangibles	$	277,422	$	(120,812	)	$	156,610	$	297,306	$	(113,627	)	$	183,679
Licenses and other intangibles	247,097		(123,779		)	123,318		274,604		(127,288		)	147,316
Total	$	524,519	$	(244,591	)	$	279,928	$	571,910	$	(240,915	)	$	330,995



	Nine-Month Periods Ended
	December 31, 2019			December 31, 2018
	(In thousands) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	39,320		$	157,751
Depreciation, amortization and other impairment charges	525,596			507,164
Gain from deconsolidation of Bright Machines	—			(86,614		)
Changes in working capital and other	(2,264,222		)	(2,906,906		)
Net cash used in operating activities	(1,699,306		)	(2,328,605		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	(375,774		)	(592,092		)
Proceeds from the disposition of property and equipment	102,324			86,724
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	2,510,633			2,707,562
Other investing activities, net	21,868			14,687
Net cash provided by investing activities	2,261,063			2,471,232
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowings and long-term debt	1,017,148			2,481,407
Repayments of bank borrowings and long-term debt	(1,307,611		)	(2,447,873		)
Payments for repurchases of ordinary shares	(173,117		)	(123,979		)
Net proceeds from issuance of ordinary shares	1,196			195
Other financing activities, net	461			9,689
Net cash used in financing activities	(461,923		)	(80,561		)
Effect of exchange rates on cash and cash equivalents	(7,295		)	(31,122		)
Net increase in cash and cash equivalents	92,539			30,944
Cash and cash equivalents, beginning of period	1,696,625			1,472,424
Cash and cash equivalents, end of period	$	1,789,164		$	1,503,368

Non-cash investing activities:
Unpaid purchases of property and equipment	$	64,115		$	94,592
Non-cash investment in Bright Machines	$	—		$	127,641



Fiscal Year Ending March 31,	Amount
	(In thousands)
2020 (1)	$	15,351
2021	60,289
2022	51,846
2023	44,193
2024	42,572
Thereafter	65,677
Total amortization expense	$	279,928


(1)	Represents estimated amortization for the remaining three-month period ending March 31, 2020.



Fiscal Year Ended March 31,	Operating Leases
2020 (1)	$	40,977
2021	132,642
2022	111,967
2023	99,453
2024	83,555
Thereafter	312,807
Total undiscounted lease payments	781,401
Less: imputed interest	120,367
Total lease liabilities	$	661,034



Lease cost	Three-Month Period Ended		Nine-Month Period Ended
	December 31, 2019		December 31, 2019
Operating lease cost	$	40,278	$	122,767



	As of December 31, 2019
Operating Leases:
Operating lease right of use assets	$	615,073
Operating lease liabilities	661,034

Weighted-average remaining lease term (In years)
Operating leases	7.5

Weighted-average discount rate
Operating leases	4.2		%



	Nine-Month Period Ended
	December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	106,748


(1)	Represents estimated lease payments for the remaining three-month period ending March 31, 2020.



	Three-Month Period Ended December 31, 2019
	HRS		IEI		CEC		CTG		Total
Timing of Transfer
Point in time	$	978,026	$	1,471,116	$	1,513,721	$	1,191,491	$	5,154,354
Over time	266,689		517,749		367,690		154,905		1,307,033
Total segment	$	1,244,715	$	1,988,865	$	1,881,411	$	1,346,396	$	6,461,387



	Nine-Month Period Ended December 31, 2019
	HRS		IEI		CEC		CTG		Total
Timing of Transfer
Point in time	$	2,843,866	$	3,734,151	$	4,263,144	$	3,319,972	$	14,161,133
Over time	767,523		1,677,196		1,205,713		913,815		4,564,247
Total segment	$	3,611,389	$	5,411,347	$	5,468,857	$	4,233,787	$	18,725,380


(1)	An immaterial number of options to purchase ordinary shares were excluded from the computation of diluted earnings (loss) per share during the three and nine-month periods ended December 31, 2019 and December 31, 2018, respectively, due to their anti-dilutive impact on the weighted-average ordinary share equivalents.


(1)	Represents estimated repayments for the remaining three-month period ending March 31, 2020.


(1)	Interest expense on debt obligations for the three and nine-month periods ended December 31, 2019 include debt extinguishment costs of $0.8 million and $7.2 million, respectively, related to the full repayments of the Notes due February 2020 and the Term Loan due November 2021. There were no debt extinguishment costs incurred during the fiscal year 2019.



	Foreign Currency Amount		Notional Contract Value in USD
Currency	Buy	Sell	Buy		Sell
	(In thousands)
Cash Flow Hedges
CNY	1,150,500	—	$	164,376	$	—
EUR	40,108	45,480	44,695		51,528
HUF	24,594,000	—	82,980		—
ILS	222,000	—	64,197		—
JPY	33,525,000	—	300,000		—
MXN	3,840,000	—	203,768		—
MYR	256,000	30,000	61,801		7,242
RON	177,000	—	41,309		—
Other	N/A	N/A	93,062		—
			1,056,188		58,770
Other Foreign Currency Contracts
BRL	—	1,030,000	—		253,982
CAD	61,635	35,624	47,100		27,223
CNY	3,531,534	140,048	500,586		20,000
EUR	1,891,736	2,090,728	2,109,548		2,329,869
GBP	48,512	63,795	63,479		83,458
HUF	60,687,931	58,055,222	204,760		195,877
ILS	111,600	47,600	32,272		13,765
INR	8,051,000	6,956,674	112,834		97,495
JPY	2,832,862	2,215,532	25,865		20,242
MXN	5,106,692	3,870,080	270,984		205,364
MYR	1,060,570	817,890	256,034		197,448
PLN	117,246	82,118	30,733		21,525
SEK	529,107	611,979	56,023		65,493
SGD	98,938	63,959	73,168		47,300
Other	N/A	N/A	41,622		26,027
			3,825,008		3,605,068

Total Notional Contract Value in USD			$	4,881,196	$	3,663,838



	Fair Values of Derivative Instruments
	Asset Derivatives					Liability Derivatives
		Fair Value					Fair Value
	Balance Sheet Location	December 31, 2019		March 31, 2019		Balance Sheet Location	December 31, 2019		March 31, 2019
	(In thousands)
Derivatives designated as hedging instruments
Foreign currency contracts	Other current assets	$	9,113	$	10,503	Other current liabilities	$	10,284	$	10,282
Foreign currency contracts	Other assets	$	9,782	$	—	Other liabilities	$	—	$	—

Derivatives not designated as hedging instruments
Foreign currency contracts	Other current assets	$	27,147	$	16,774	Other current liabilities	$	21,347	$	17,144



	Fair Value Measurements as of December 31, 2019
	Level 1		Level 2			Level 3		Total
	(In thousands)
Assets:
Money market funds and time deposits (included in cash and cash equivalents of the condensed consolidated balance sheet)	$	—	$	373,644		$	—	$	373,644
Foreign currency contracts (Note 10)	—		46,042			—		46,042
Deferred compensation plan assets:								0
Mutual funds, money market accounts and equity securities	—		58,204			—		58,204
Liabilities:								0.003
Foreign currency contracts (Note 10)	$	—	$	(31,631	)	$	—	$	(31,631	)

	Fair Value Measurements as of March 31, 2019
	Level 1		Level 2			Level 3		Total
	(In thousands)
Assets:
Money market funds and time deposits (included in cash and cash equivalents of the condensed consolidated balance sheet)	$	—	$	473,888		$	—	$	473,888
Foreign currency contracts (Note 10)	—		27,277			—		27,277
Deferred compensation plan assets:								0
Mutual funds, money market accounts and equity securities	2,845		76,852			—		79,697
Liabilities:								0
Foreign currency contracts (Note 10)	$	—	$	(27,426	)	$	—	$	(27,426	)



	As of December 31, 2019				As of March 31, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Fair Value Hierarchy
	(In thousands)
Term Loan, including current portion, due in installments through June 2022	439,688		441,337		458,531		457,958		Level 1
5.000% Notes due February 2023	500,000		534,733		500,000		499,950		Level 1
Term Loan due April 2024 - three-month Yen LIBOR plus 0.50%	305,927		305,927		—		—		Level 2
4.750% Notes due June 2025	597,150		647,854		596,815		599,940		Level 1
4.875% Notes due June 2029	662,205		717,955		—		—		Level 1
India Facilities	133,145		133,145		170,206		170,206		Level 2
Euro Term Loan due September 2020	51,281		51,281		52,746		52,746		Level 2
Euro Term Loan due January 2022	111,632		111,632		112,524		112,524		Level 2
Total	$	2,801,028	$	2,943,864	$	1,890,822	$	1,893,324


(2)	Legal and other during the three-month and nine-month periods ended December 31, 2019 primarily consists of direct and incremental costs associated with certain wind-down activities related to the disengagement of a certain customer primarily in China and India.



	Severance			Long-Lived Asset Impairment			Other Exit Costs			Total
	(In thousands)
Balance as of March 31, 2019	$	23,234		$	—		$	9,200		$	32,434
Provision for charges incurred during the nine-month period ended December 31, 2019	107,598			44,746			46,779			199,123
Cash payments for charges incurred in the fiscal year 2019 and prior	(13,267		)	—			(2,800		)	(16,067		)
Cash payments for charges incurred during the nine-month period ended December 31, 2019	(96,827		)	—			(34,125		)	(130,952		)
Non-cash charges incurred during the nine-month period ended December 31, 2019	—			(44,746		)	(12,344		)	(57,090		)
Balance as of December 31, 2019	20,738			—			6,710			27,448
Less: Current portion (classified as other current liabilities)	20,738			—			6,710			27,448
Accrued restructuring costs, net of current portion (classified as other liabilities)	$	—		$	—		$	—		$	—



	Three-Month Periods Ended								Nine-Month Periods Ended
Net sales:	December 31, 2019				December 31, 2018				December 31, 2019				December 31, 2018
	(In millions)
China	$	1,638	25	%	$	1,779	26	%	$	4,535	24	%	$	5,179	26	%
Mexico	1,171		18	%	1,187		17	%	3,408		18	%	3,477		17	%
U.S.	966		15	%	886		13	%	2,677		14	%	2,173		11	%
Brazil	480		7	%	512		7	%	1,524		8	%	1,632		8	%
Malaysia	398		6	%	541		8	%	1,233		7	%	1,559		8	%
India	298		5	%	448		6	%	1,091		6	%	1,333		7	%
Other	1,510		24	%	1,570		23	%	4,257		23	%	4,631		23	%
	$	6,461			$	6,923			$	18,725			$	19,984



	As of				As of
Property and equipment, net:	December 31, 2019				March 31, 2019
	(In millions)
Mexico	$	553	25	%	$	537	23	%
China	399		18	%	523		22	%
U.S.	375		17	%	361		15	%
India	209		9	%	219		9	%
Malaysia	120		5	%	138		6	%
Hungary	102		5	%	103		4	%
Other	448		21	%	454		21	%
	$	2,206			$	2,336


•	changes in the macro-economic environment and related changes in consumer demand;


•	the mix of the manufacturing services we are providing, the number, size, and complexity of new manufacturing programs, the degree to which we utilize our manufacturing capacity, seasonal demand, shortages of components and other factors;


•	the effects on our business when our customers are not successful in marketing their products, or when their products do not gain widespread commercial acceptance;