UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
For the quarterly period ended September 27, 2024
or
For the transition period from to
Commission file number 0-23354
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |||||||
| incorporation or organization) | Identification No.) | |||||||
(Address of principal executive offices) | (Zip Code) | |||||||
(65 ) 6876-9899
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||||||||
| Emerging growth company | |||||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of the registrant’s ordinary shares outstanding as of October 25, 2024 was 387,783,445 .
FLEX LTD.
INDEX
| Page | ||||||||
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Flex Ltd., Singapore
Results of Review of Interim Financial Information
We have reviewed the accompanying condensed consolidated balance sheet of Flex Ltd. and its subsidiaries (the “Company”) as of September 27, 2024, the related condensed consolidated statements of operations, comprehensive income, noncontrolling interest and shareholders’ equity for the three-month and six-month periods ended September 27, 2024 and September 29, 2023, the condensed consolidated statement of cash flows for the six-month periods ended September 27, 2024 and September 29, 2023, and the related notes (collectively referred to as the “interim financial information”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of March 31, 2024 and the related consolidated statements of operations, comprehensive income, redeemable noncontrolling interest and shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated May 17, 2024, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of March 31, 2024 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
This interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our reviews in accordance with standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
| /s/ DELOITTE & TOUCHE LLP | |||||
| San Jose, California | |||||
| October 31, 2024 | |||||
3
FLEX LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
| As of September 27, 2024 | As of March 31, 2024 | ||||||||||
| (In millions, except share amounts) (Unaudited) | |||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable, net of allowance of $ | |||||||||||
| Contract assets | |||||||||||
| Inventories | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Operating lease right-of-use assets, net | |||||||||||
| Goodwill | |||||||||||
| Other intangible assets, net | |||||||||||
| Other non-current assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Bank borrowings and current portion of long-term debt | $ | $ | |||||||||
| Accounts payable | |||||||||||
| Accrued payroll and benefits | |||||||||||
| Deferred revenue and customer working capital advances | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt, net of current portion | |||||||||||
| Operating lease liabilities, non-current | |||||||||||
| Other non-current liabilities | |||||||||||
| Total liabilities | |||||||||||
| Shareholders’ equity | |||||||||||
Ordinary shares, | |||||||||||
| Accumulated earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total shareholders’ equity | |||||||||||
| Total liabilities and shareholders' equity | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
FLEX LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| Three-Month Periods Ended | Six-Month Periods Ended | ||||||||||||||||||||||
| September 27, 2024 | September 29, 2023 | September 27, 2024 | September 29, 2023 | ||||||||||||||||||||
| (In millions, except per share amounts) (Unaudited) | |||||||||||||||||||||||
| Net sales | $ | $ | $ | $ | |||||||||||||||||||
| Cost of sales | |||||||||||||||||||||||
| Restructuring charges | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Restructuring charges | |||||||||||||||||||||||
| Intangible amortization | |||||||||||||||||||||||
| Operating income | |||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Interest income | |||||||||||||||||||||||
| Other charges (income), net | ( | ( | |||||||||||||||||||||
| Income from continuing operations before income taxes | |||||||||||||||||||||||
| Provision for (benefit from) income taxes | |||||||||||||||||||||||
| Net income from continuing operations | |||||||||||||||||||||||
| Net income from discontinued operations, net of tax | |||||||||||||||||||||||
| Net income | |||||||||||||||||||||||
| Net income attributable to noncontrolling interest | |||||||||||||||||||||||
| Net income attributable to Flex Ltd. | $ | $ | $ | $ | |||||||||||||||||||
| Basic earnings per share from continuing operations | $ | $ | $ | $ | |||||||||||||||||||
| Basic earnings per share from discontinued operations | |||||||||||||||||||||||
| Basic earnings per share attributable to the shareholders of Flex Ltd. | $ | $ | $ | $ | |||||||||||||||||||
| Diluted earnings per share from continuing operations | $ | $ | $ | $ | |||||||||||||||||||
| Diluted earnings per share from discontinued operations | |||||||||||||||||||||||
| Diluted earnings per share attributable to the shareholders of Flex Ltd. | $ | $ | $ | $ | |||||||||||||||||||
| Weighted-average shares used in computing per share amounts: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
FLEX LTD.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| Three-Month Periods Ended | Six-Month Periods Ended | ||||||||||||||||||||||
| September 27, 2024 | September 29, 2023 | September 27, 2024 | September 29, 2023 | ||||||||||||||||||||
| (In millions) (Unaudited) | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Foreign currency translation adjustments | ( | ( | |||||||||||||||||||||
Unrealized gain (loss) on derivative instruments and other | ( | ( | |||||||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | |||||||||||||||||||
| Comprehensive income attributable to noncontrolling interest | |||||||||||||||||||||||
| Comprehensive income attributable to Flex Ltd. | $ | $ | $ | $ | |||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
FLEX LTD.
CONDENSED CONSOLIDATED STATEMENTS OF NONCONTROLLING INTEREST AND SHAREHOLDERS' EQUITY
| Ordinary Shares | Accumulated Other Comprehensive Loss | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended September 27, 2024 | Shares Outstanding | Amount | Accumulated Earnings (Deficit) | Unrealized Gain (Loss) on Derivative Instruments and Other | Foreign Currency Translation Adjustments | Total Accumulated Other Comprehensive Gain (Loss) | Total Flex Ltd. Shareholders' Equity | Noncontrolling Interest | Shareholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) Unaudited | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE AT JUNE 28, 2024 | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of Flex Ltd. ordinary shares at cost | ( | ( | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Flex Ltd. vested shares under restricted share unit awards | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total other comprehensive income (loss) | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE AT SEPTEMBER 27, 2024 | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Ordinary Shares | Accumulated Other Comprehensive Loss | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended September 27, 2024 | Shares Outstanding | Amount | Accumulated Earnings (Deficit) | Unrealized Gain (Loss) on Derivative Instruments and Other | Foreign Currency Translation Adjustments | Total Accumulated Other Comprehensive Gain (Loss) | Total Flex Ltd. Shareholders' Equity | Noncontrolling Interest | Shareholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) Unaudited | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE AT MARCH 31, 2024 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of Flex Ltd. ordinary shares at cost | ( | ( | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Flex Ltd. vested shares under restricted share unit awards | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total other comprehensive income (loss) | — | — | — | ( | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE AT SEPTEMBER 27, 2024 | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
7
FLEX LTD.
CONDENSED CONSOLIDATED STATEMENTS OF NONCONTROLLING INTEREST AND SHAREHOLDERS' EQUITY (CONTINUED)
| Ordinary Shares | Accumulated Other Comprehensive Loss | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended September 29, 2023 | Shares Outstanding | Amount | Accumulated Earnings (Deficit) | Unrealized Gain (Loss) on Derivative Instruments and Other | Foreign Currency Translation Adjustments | Total Accumulated Other Comprehensive Gain (Loss) | Total Flex Ltd. Shareholders' Equity | Noncontrolling Interest | Shareholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) Unaudited | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE AT JUNE 30, 2023 | $ | $ | ( | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of Flex Ltd. ordinary shares at cost | ( | ( | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Nextracker follow on sales and related transactions | — | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total other comprehensive income (loss) | — | — | — | ( | ( | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE AT SEPTEMBER 29, 2023 | $ | $ | ( | $ | ( | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Ordinary Shares | Accumulated Other Comprehensive Loss | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended September 29, 2023 | Shares Outstanding | Amount | Accumulated Earnings (Deficit) | Unrealized Gain (Loss) on Derivative Instruments and Other | Foreign Currency Translation Adjustments | Total Accumulated Other Comprehensive Gain (Loss) | Total Flex Ltd. Shareholders' Equity | Noncontrolling Interest | Shareholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) Unaudited | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE AT MARCH 31, 2023 | $ | $ | ( | $ | ( | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of Flex Ltd. ordinary shares at cost | ( | ( | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Flex Ltd. vested shares under restricted share unit awards | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nextracker follow on sales and related transactions | — | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total other comprehensive income (loss) | — | — | — | ( | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE AT SEPTEMBER 29, 2023 | $ | $ | ( | $ | ( | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
FLEX LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Six-Month Periods Ended | |||||||||||
| September 27, 2024 | September 29, 2023 | ||||||||||
| (In millions) (Unaudited) | |||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
| Net income | $ | $ | |||||||||
| Depreciation, amortization and other impairment charges | |||||||||||
| Changes in working capital and other, net | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Proceeds from the disposition of property and equipment | |||||||||||
| Acquisition of businesses, net of cash acquired | ( | ||||||||||
| Other investing activities, net | |||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
| Proceeds from bank borrowings and long-term debt | |||||||||||
| Payments of bank borrowings, long-term debt and other financing liabilities | ( | ( | |||||||||
| Payments for repurchases of ordinary shares | ( | ( | |||||||||
| Proceeds from issuances of Nextracker shares | |||||||||||
| Payment for purchase of Nextracker LLC units from TPG | ( | ||||||||||
| Other, net | ( | ( | |||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Effect of exchange rates on cash and cash equivalents | ( | ||||||||||
| Net change in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents, beginning of period | |||||||||||
| Cash and cash equivalents, end of period | $ | $ | |||||||||
| Non-cash investing activities: | |||||||||||
| Unpaid purchases of property and equipment | $ | $ | |||||||||
| Right-of-use assets obtained in exchange of operating lease liabilities | |||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION OF THE COMPANY AND BASIS OF PRESENTATION
Organization of the Company
Flex Ltd. ("Flex" or the "Company") is the advanced, end-to-end manufacturing partner of choice that helps market-leading brands design, build, deliver and manage innovative products that improve the world. Through the collective strength of a global workforce across approximately 30 countries with responsible, sustainable operations, Flex supports our customers' entire product lifecycle with a broad array of services in every major region. The Company's full suite of specialized capabilities includes design and engineering, supply chain, manufacturing, post-production and post-sale services. Flex partners with customers across a diverse set of industries including cloud, communications, enterprise, automotive, industrial, consumer devices, lifestyle, healthcare, and energy. As of September 27, 2024, Flex's two
•Flex Agility Solutions ("FAS"), which is comprised of the following end markets:
◦Communications, Enterprise and Cloud, including data infrastructure, edge infrastructure and communications infrastructure
◦Lifestyle, including appliances, consumer packaging, floorcare, micro mobility and audio
◦Consumer Devices, including mobile and high velocity consumer devices.
•Flex Reliability Solutions ("FRS"), which is comprised of the following end markets:
◦Automotive, including next generation mobility, autonomous, connectivity, electrification, and smart technologies
◦Health Solutions, including medical devices, medical equipment and drug delivery
◦Industrial, including capital equipment, industrial devices, embedded and critical power offerings and renewables and grid edge.
The Company's service offerings include a comprehensive range of value-added design and engineering services that are tailored to the various markets and needs of its customers. Other focused service offerings relate to manufacturing (including enclosures, metals, plastic injection molding, precision plastics, machining, and mechanicals), system integration and assembly and test services, materials procurement, inventory management, logistics and after-sales services (including product repair, warranty services, re-manufacturing and maintenance), supply chain management software solutions and component product offerings (including flexible printed circuit boards and power adapters and chargers).
Basis of Presentation and Principles of Consolidation
The first quarters for fiscal years 2025 and 2024 ended on June 28, 2024, which is comprised of 89 days in the period, and June 30, 2023, which is comprised of 91 days, respectively. The second quarters for fiscal years 2025 and 2024 ended on September 27, 2024 and September 29, 2023, respectively, which are comprised of 91 days in both periods.
The accompanying unaudited condensed consolidated financial statements include the accounts of Flex and its subsidiaries, after elimination of intercompany accounts and transactions. The Company consolidates subsidiaries and investments in entities in which the Company has a controlling interest. For the consolidated subsidiaries in which the Company owns less than 100%, the Company recognizes a noncontrolling interest for the ownership of the noncontrolling owners.
On January 2, 2024, Flex completed its spin-off (the "Spin-off") of its remaining interest in Nextracker Inc. ("Nextracker"). After the Spin-off, Flex no longer consolidates the financial results of Nextracker within its financial results of continuing operations. For all the periods prior to the Spin-off, the financial results of Nextracker are presented as net earnings from
10
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates are used in accounting for, among other things: allowances for doubtful accounts; inventory write-downs; valuation allowances for deferred tax assets; uncertain tax positions; valuation and useful lives of long-lived assets including property, equipment, and intangible assets; valuation of goodwill; valuation of investments in privately held companies; asset impairments; fair values of financial instruments, notes receivable and derivative instruments; restructuring charges; contingencies; warranty provisions; incremental borrowing rates in determining the present value of lease payments; accruals for potential price adjustments arising from customer contracts; fair values of assets obtained and liabilities assumed in business combinations; and the fair values of restricted share unit awards granted under the Company's stock-based compensation plans. Due to geopolitical conflicts (including the Russian invasion of Ukraine, the Israel-Hamas war, and other geopolitical conflicts), there has been and will continue to be uncertainty and disruption in the global economy and financial markets. The Company has made estimates and assumptions taking into consideration certain possible impacts due to the Russian invasion of Ukraine and the Israel-Hamas war. These estimates may change, as new events occur, and additional information is obtained. Actual results may differ from previously estimated amounts, and such differences may be material to the consolidated financial statements. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the period they occur.
Supplier Finance Programs
The Company has four supplier finance programs, all of which have substantially similar characteristics, with various financial institutions that act as the paying agent for certain payables of the Company. The Company established these programs through agreements with the financial institutions to enable more efficient payment processing to our suppliers while also providing our suppliers a potential source of liquidity to the extent they choose to sell their receivables to the financial institutions in advance of the due dates. Our suppliers’ participation in the programs is voluntary, the Company is not involved in negotiations of the suppliers’ arrangements with the financial institutions to sell their receivables, and our rights and obligations to our suppliers are not impacted by our suppliers’ decisions to sell amounts under these programs. Under these supplier finance programs, the Company pays the financial institutions the stated amount of confirmed invoices from its participating suppliers on the original maturity dates of the invoices. All payment terms are short-term in nature and are not dependent on whether the suppliers participate in the supplier finance programs or if the suppliers elect to receive early payment from the financial institutions. No guarantees are provided by the Company under the supplier finance programs and the Company incurs no costs related to the programs. We have no economic interest in a supplier’s decision to participate in the supplier finance programs.
Obligations under these programs are classified within accounts payable on the condensed consolidated balance sheets, with the associated payments reflected in the operating activities section of the condensed consolidated statement of cash flows. The Company's outstanding obligations confirmed as valid under its supplier finance programs as of September 27, 2024 and March 31, 2024 were $133 million and $123 million, respectively.
Recently Issued Accounting Pronouncements
In December 2023, the FASB issued ASU 2023-09 "Income Taxes (Topic 740): Improvements to Income Tax Disclosures", which expands disclosures in an entity’s income tax rate reconciliation table and regarding cash taxes paid both in the U.S. and foreign jurisdictions. The guidance is effective for the Company beginning in the fourth quarter of fiscal year 2026. The Company expects the new guidance will have an immaterial impact on its consolidated financial statements, and intends to adopt the guidance prospectively when it becomes effective in the fourth quarter of fiscal year 2026.
In November 2023, the FASB issued ASU 2023-07 "Segment Reporting - Improvements to Reportable Segment Disclosures", which updates reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses and information used to assess segment performance. The guidance is effective for the Company beginning in the fourth quarter of fiscal year 2025, with early adoption permitted. The Company is currently assessing the impact of ASU 2023-07 on its consolidated financial statements, and intends to adopt the guidance retrospectively when it becomes effective in the fourth quarter of fiscal year 2025.
11
2. BALANCE SHEET ITEMS
Inventories
The components of inventories, net of applicable lower of cost and net realizable value write-downs, were as follows:
| As of September 27, 2024 | As of March 31, 2024 | ||||||||||
| (In millions) | |||||||||||
| Raw materials | $ | $ | |||||||||
| Work-in-progress | |||||||||||
| Finished goods | |||||||||||
| $ | $ | ||||||||||
Goodwill and Other Intangible Assets
During the six-month period ended September 27, 2024, the activity in the Company's goodwill account included approximately $3 million of foreign currency translation and an approximately $8 million goodwill addition from an acquisition in the first quarter of fiscal year 2025.
The components of acquired intangible assets are as follows:
| As of September 27, 2024 | As of March 31, 2024 | ||||||||||||||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||
| Intangible assets: | |||||||||||||||||||||||||||||||||||
| Customer-related intangibles | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Licenses and other intangibles | ( | ( | |||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
The gross carrying amounts of intangible assets are removed when fully amortized.
The estimated future annual amortization expense for intangible assets is as follows:
| Fiscal Year Ending March 31, | Amount | |||||||
| (In millions) | ||||||||
| 2025 (1) | $ | |||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| 2029 | ||||||||
| Thereafter | ||||||||
| Total amortization expense | $ | |||||||
____________________________________________________________
Customer Working Capital Advances
Customer working capital advances were $1.8 billion and $2.2 billion as of September 27, 2024 and March 31, 2024, respectively. The customer working capital advances are not interest-bearing, do not generally have fixed repayment dates and are generally reduced as the underlying working capital is consumed in production or the customer working capital advance agreement is terminated.
Other Non-Current Assets
Other non-current assets include deferred tax assets of $657 million and $644 million as of September 27, 2024 and March 31, 2024, respectively.
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Other Current Liabilities
Other current liabilities include customer-related accruals of $245 million and $277 million as of September 27, 2024 and March 31, 2024, respectively.
3. REVENUE
Contract Balances
A contract asset is recognized when the Company has recognized revenue, but not issued an invoice for payment. Contract assets are classified separately on the condensed consolidated balance sheets and transferred to receivables when rights to payment become unconditional and invoiced.
A contract liability is recognized when the Company receives payments in advance of the satisfaction of performance. Contract liabilities, identified as deferred revenue, were $372 million and $490 million as of September 27, 2024 and March 31, 2024, respectively, of which $334 million and $449 million, respectively, is included in deferred revenue and customer working capital advances under current liabilities.
Disaggregation of Revenue
The following table presents the Company’s revenue disaggregated based on timing of transfer, point in time or over time, for the three and six-month periods ended September 27, 2024 and September 29, 2023, respectively.
| Three-Month Periods Ended | Six-Month Periods Ended | ||||||||||||||||||||||
| September 27, 2024 | September 29, 2023 | September 27, 2024 | September 29, 2023 | ||||||||||||||||||||
| Timing of Transfer | (In millions) | ||||||||||||||||||||||
| FAS | |||||||||||||||||||||||
| Point in time | $ | $ | $ | $ | |||||||||||||||||||
| Over time | |||||||||||||||||||||||
| Total | |||||||||||||||||||||||
| FRS | |||||||||||||||||||||||
| Point in time | |||||||||||||||||||||||
| Over time | |||||||||||||||||||||||
| Total | |||||||||||||||||||||||
| Flex | |||||||||||||||||||||||
| Point in time | |||||||||||||||||||||||
| Over time | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
4. STOCK-BASED COMPENSATION
Flex historically maintains stock-based compensation plans at a corporate level. The Company grants equity compensation awards under its 2017 Equity Incentive Plan (the "2017 Plan").
Stock-Based Compensation Expense
The following table summarizes the Company’s share-based compensation expense for the 2017 Plan:
| Three-Month Periods Ended | Six-Month Periods Ended | ||||||||||||||||||||||
| September 27, 2024 | September 29, 2023 | September 27, 2024 | September 29, 2023 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Cost of sales | $ | $ | $ | $ | |||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Total share-based compensation expense | $ | $ | $ | $ | |||||||||||||||||||
The 2017 Plan
During the six-month period ended September 27, 2024, the Company granted approximately 4.6 million restricted share unit ("RSU") awards. Of this amount, approximately 2.9 million are plain-vanilla unvested RSU awards that vest over a period
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of three years , with no performance or market conditions, and with an average grant date price of $31.86 per award. In addition, approximately 0.7 million unvested shares represent the target amount of grants made to certain key employees whereby vesting is contingent on certain performance conditions, and with an average grant date price of $31.04 per award. These performance-based RSUs include awards tied to the Company's adjusted earnings per share growth and awards tied to operating profit goals. The number of shares that will ultimately vest will range from zero up to a maximum of approximately 1.2 million based on the level of achievement of these performance conditions. The awards will cliff vest after a period of to three years , depending on the specific performance metrics, to the extent such performance conditions have been met. Further, approximately 0.3 million unvested shares represent the target amount of grants made to certain key employees whereby vesting is contingent on certain market conditions. The average grant date fair value of these awards contingent on certain market conditions was estimated to be $42.36 per award and was calculated using a Monte Carlo simulation. The number of shares contingent on market conditions that ultimately will vest will range from zero up to a maximum of approximately 0.6 million based on a measurement of the percentile rank of the Company’s total shareholder return over certain specified periods against the Company's peer companies, and will cliff vest after a period of three years , to the extent such market conditions have been met. Finally, the remaining balance of approximately 0.7 million represents the number of shares issued upon the vesting of RSU awards above target levels based on the achievement of certain market and performance conditions for awards granted in fiscal year 2022. These awards were issued and immediately vested in accordance with the terms and conditions of the underlying awards.
As of September 27, 2024, approximately 12.4 million unvested RSU awards under the 2017 Plan were outstanding, of which vesting for a targeted amount of approximately 1.2 million shares is contingent on meeting certain market conditions, and vesting for a targeted amount of approximately 1.6 million shares is contingent on meeting certain performance conditions. The number of shares tied to market conditions that will ultimately be issued can range from zero to approximately 2.4 million based on the achievement levels. The number of shares tied to performance conditions that will ultimately be issued can range from zero to approximately 3.0 million based on the achievement levels. During the six-month period ended September 27, 2024, approximately 1.6 million shares vested in connection with the awards with market and performance conditions granted in fiscal year 2022.
As of September 27, 2024, total unrecognized compensation expense related to unvested RSU awards under the 2017 Plan was approximately $221 million, and will be recognized over a weighted-average remaining vesting period of 2.0 years.
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5. EARNINGS PER SHARE
The following table reflects basic weighted-average ordinary shares outstanding and diluted weighted-average ordinary share equivalents used to calculate basic and diluted earnings per share attributable to the shareholders of Flex:
| Three-Month Periods Ended | Six-Month Periods Ended | ||||||||||||||||||||||
| September 27, 2024 | September 29, 2023 | September 27, 2024 | September 29, 2023 | ||||||||||||||||||||
| (In millions, except per share amounts) | |||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income from continuing operations | $ | $ | $ | $ | |||||||||||||||||||
| Net income from discontinued operations, net of tax | |||||||||||||||||||||||
| Less: Net income attributable to noncontrolling interest | |||||||||||||||||||||||
| Net income from discontinued operations attributable to Flex Ltd. | |||||||||||||||||||||||
| Total net income attributable to Flex Ltd. | $ | $ | $ | $ | |||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted-average ordinary shares outstanding - basic | |||||||||||||||||||||||
| Weighted-average ordinary share equivalents from RSU awards (1) | |||||||||||||||||||||||
| Weighted-average ordinary shares and ordinary share equivalents outstanding - diluted | |||||||||||||||||||||||
| Earnings per share - basic | |||||||||||||||||||||||
| Continuing operations | $ | $ | $ | $ | |||||||||||||||||||
| Discontinued operations, net of tax | |||||||||||||||||||||||
| Total attributable to the shareholders of Flex Ltd. | $ | $ | $ | $ | |||||||||||||||||||
| Earnings per share - diluted | |||||||||||||||||||||||
| Continuing operations | $ | $ | $ | $ | |||||||||||||||||||
| Discontinued operations, net of tax | |||||||||||||||||||||||
| Total attributable to the shareholders of Flex Ltd. | $ | $ | $ | $ | |||||||||||||||||||
____________________________________________________________
(1)An immaterial amount of RSU awards and 1.9 million RSU awards for the three and six-month periods ended September 27, 2024, respectively, and an immaterial amount of RSU awards and 2.1 million RSU awards for the three and six-month periods ended September 29, 2023, respectively, were excluded from the computation of diluted earnings per share due to their anti-dilutive impact on the weighted-average ordinary share equivalents.
6. DISCONTINUED OPERATIONS
On January 2, 2024, the Company completed the Spin-off of its remaining interests in Nextracker. For additional details on the Spin-off, refer to Part I, Item 1, “Business” and note 1, "Organization of The Company" and note 7, “Discontinued Operations” of the notes to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended March 31, 2024. Nextracker's financial results for periods prior to the Spin-off have been reflected in our condensed consolidated statement of operations, retrospectively, as discontinued operations.
The key components of net income from discontinued operations for the three and six-month periods ended September 29, 2023 were as follows:
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| Three-month period ended | Six-month period ended | |||||||||||||
| September 29, 2023 | September 29, 2023 | |||||||||||||
| (In millions) | ||||||||||||||
| Net sales (1) | $ | $ | ||||||||||||
| Cost of sales (1) | ||||||||||||||
| Gross Profit | ||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||
| Operating income | ||||||||||||||
| Interest and other, net | ||||||||||||||
| Income before income taxes | ||||||||||||||
| Provision for income taxes | ( | ( | ||||||||||||
| Net income from discontinued operations | ||||||||||||||
| Net income from discontinued operations attributable to noncontrolling interest (2) | ||||||||||||||
| Net income from discontinued operations attributable to Flex Ltd. | $ | $ | ||||||||||||
(1) Both net sales and cost of sales from discontinued operations includes the effect of intercompany transactions that were eliminated from Flex's condensed consolidated statements of operations of approximately $34 million and $70 million for the three and six-month periods ended September 29, 2023, respectively.
(2) Net income from discontinued operations attributable to noncontrolling interest represented a share of pre-tax income of $40 million and $69 million and of income tax expense of $2 million and $6 million for the three and six-month periods ended September 29, 2023. As such, pre-tax income attributable to Flex Ltd. from discontinued operations was $52 million and $98 million for the same periods. In addition, during the three-month period ended September 29, 2023, a $140 million deferred tax asset was recorded, with an offsetting entry to income tax benefit fully attributable to noncontrolling interest in connection with Nextracker's follow-on public offering.
Details of cash flows from discontinued operations for the six-month period ended September 29, 2023 were as follows:
| Six-month period ended | ||||||||
| September 29, 2023 | ||||||||
| (In millions) | ||||||||
| Net cash provided by discontinued operations operating activities (1) | $ | |||||||
| Net cash used in discontinued operations investing activities | ( | |||||||
(1) Cash flows from discontinued operations operating activities includes an inflow from intercompany transactions that were eliminated from Flex's consolidated operations of $(4 ) million for the six-month period ended September 29, 2023.
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7. BANK BORROWINGS AND LONG-TERM DEBT
Bank borrowings and long-term debt as of September 27, 2024 and March 31, 2024 are as follows:
| Maturity Date | As of September 27, 2024 | As of March 31, 2024 | |||||||||||||||
| (In millions) | |||||||||||||||||
| June 2025 | $ | $ | |||||||||||||||
| February 2026 | |||||||||||||||||
| January 2028 | |||||||||||||||||
| June 2029 | |||||||||||||||||
| May 2030 | |||||||||||||||||
| January 2032 | |||||||||||||||||
| December 2031 | |||||||||||||||||
| Other | |||||||||||||||||
| Debt issuance costs | ( | ( | |||||||||||||||
| Current portion, net of debt issuance costs | ( | ||||||||||||||||
| Non-current portion | $ | $ | |||||||||||||||
(1)The notes are carried at the principal amount of each note, less any unamortized discount or premium and unamortized debt issuance costs. The notes are the Company’s senior unsecured obligations and rank equally with all other existing and future senior unsecured debt obligations.
The weighted-average interest rate for the Company's long-term debt was 4.6 % and 4.5 % as of September 27, 2024 and March 31, 2024, respectively.
Scheduled repayments of the Company's bank borrowings and long-term debt as of September 27, 2024 are as follows:
| Fiscal Year Ending March 31, | Amount | |||||||
| (In millions) | ||||||||
| 2025 (1) | $ | |||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| 2029 | ||||||||
| Thereafter | ||||||||
| Total | $ | |||||||
(1)Represents estimated repayments for the remaining fiscal six-month period ending March 31, 2025.
Notes due January 2032
In August 2024, the Company issued $500 million of 5.250 % Notes due 2032 (the “Notes”). The Company received proceeds of approximately $496 million, net of discount and certain issuance costs. The Company incurred and capitalized as a direct reduction to the carrying amount of the Notes presented on the balance sheet of approximately $5 million of costs incurred in conjunction with the Notes issuance. Interest on the Notes is payable on January 15 and July 15 of each year, beginning on January 15, 2025.
The indenture governing the Notes contains covenants that, among other things, restrict the ability of the Company and certain of the Company's subsidiaries to create liens; enter into sale-leaseback transactions; and consolidate or merge with, or convey, transfer or lease all or substantially all of the Company's assets to, another person, or permit any other person to consolidate, merge, combine or amalgamate with or into the Company. These covenants are subject to a number of significant limitations and exceptions set forth in the indenture. The indenture also provides for customary events of default, including, but not limited to, cross defaults to certain specified other debt of the Company and its subsidiaries.
17
In the case of an event of default arising from specified events of bankruptcy or insolvency, all outstanding Notes will become due and payable immediately without further action or notice. If any other event of default under the indenture occurs or is continuing, the trustee or holders of at least 25 % in aggregate principal amount of the then outstanding Notes may declare the entire principal of Notes, together with all accrued and unpaid interest, if any, to be due and payable immediately, but upon certain conditions such declaration and its consequences may be rescinded and annulled by the holders of a majority in principal amount of the Notes. As of September 27, 2024, the Company was in compliance with the covenants in the indenture governing the Notes.
8. INTEREST EXPENSE AND INTEREST INCOME
Interest expense and interest income for the three and six-month periods ended September 27, 2024 and September 29, 2023 are composed of the following:
| Three-Month Periods Ended | Six-Month Periods Ended | ||||||||||||||||||||||
| September 27, 2024 | September 29, 2023 | September 27, 2024 | September 29, 2023 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Interest expenses on debt obligations | $ | $ | $ | $ | |||||||||||||||||||
| AR sale program related expenses | |||||||||||||||||||||||
| Interest income | ( | ( | ( | ( | |||||||||||||||||||
9. FINANCIAL INSTRUMENTS
Foreign Currency Contracts
The Company enters into short-term and long-term foreign currency derivative contracts, including forward, swap, and options contracts, to hedge only those currency exposures associated with certain assets and liabilities, primarily accounts receivable, accounts payable, debt, and cash flows denominated in non-functional currencies. Gains and losses on the Company's derivative contracts are designed to offset losses and gains on the assets, liabilities and transactions hedged, and accordingly, generally do not subject the Company to risk of significant accounting losses. The Company hedges committed exposures and does not engage in speculative transactions. The credit risk of these derivative contracts is minimized since the contracts are with large financial institutions and, accordingly, fair value adjustments related to the credit risk of the counterparty financial institutions were not material.
As of September 27, 2024, the aggregate notional amount of the Company’s outstanding foreign currency derivative contracts was $8.1 billion as summarized below:
| Notional Contract Value in USD | ||||||||||||||
| Currency | Buy | Sell | ||||||||||||
| (In millions) | ||||||||||||||
| Cash Flow Hedges | p | |||||||||||||
| HUF | $ | $ | ||||||||||||
| MXN | ||||||||||||||
| Other | ||||||||||||||
| Other Foreign Currency Contracts | ||||||||||||||
| CNY | ||||||||||||||
| EUR | ||||||||||||||
| JPY | ||||||||||||||
| MXN | ||||||||||||||
| MYR | ||||||||||||||
| Other | ||||||||||||||
| Total Notional Contract Value in USD | $ | $ | ||||||||||||
As of September 27, 2024, the fair value of the Company’s short-term foreign currency contracts was included in other current assets or other current liabilities, as applicable, in the condensed consolidated balance sheets. Certain of these contracts
18
are designed to economically hedge the Company’s exposure to monetary assets and liabilities denominated in a non-functional currency and are not accounted for as hedges under the accounting standards. Accordingly, changes in the fair value of these instruments are recognized in earnings during the period of change as a component of other charges (income), net in the condensed consolidated statements of operations. As of September 27, 2024 and March 31, 2024, the Company also has included net deferred gains and losses in accumulated other comprehensive loss, a component of shareholders’ equity in the condensed consolidated balance sheets, relating to changes in fair value of its foreign currency contracts that are accounted for as cash flow hedges. Deferred loss was immaterial as of September 27, 2024, and is expected to be recognized primarily as a component of cost of sales in the condensed consolidated statements of operations over the next twelve-month period, except for the USD HUF cross currency swaps.
The Company entered into USD HUF cross currency swaps in December 2021 to hedge the foreign currency risk on the HUF bonds due December 2031. The fair value of the cross currency swaps was included in other current liabilities and other non-current liabilities as of September 27, 2024, and in other current assets and other non-current liabilities as of March 31, 2024. The changes in fair value of the USD HUF cross currency swaps are reported in accumulated other comprehensive loss. In addition, corresponding amounts are reclassified out of accumulated other comprehensive loss to other charges (income), net to offset the remeasurement of the underlying HUF bond principal, which also impacts the same line.
The following table presents the fair value of the Company’s derivative instruments utilized for foreign currency risk management purposes:
| Fair Values of Derivative Instruments | |||||||||||||||||||||||||||||||||||
| Asset Derivatives | Liability Derivatives | ||||||||||||||||||||||||||||||||||
| Fair Value | Fair Value | ||||||||||||||||||||||||||||||||||
| Balance Sheet Location | September 27, 2024 | March 31, 2024 | Balance Sheet Location | September 27, 2024 | March 31, 2024 | ||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||
| Derivatives designated as hedging instruments | |||||||||||||||||||||||||||||||||||
| Foreign currency contracts | Other current assets | $ | $ | Other current liabilities | $ | ( | $ | ( | |||||||||||||||||||||||||||
| Foreign currency contracts | Other non-current assets | $ | $ | Other liabilities | $ | ( | $ | ( | |||||||||||||||||||||||||||
| Derivatives not designated as hedging instruments | |||||||||||||||||||||||||||||||||||
| Foreign currency contracts | Other current assets | $ | $ | Other current liabilities | $ | ( | $ | ( | |||||||||||||||||||||||||||
10. ACCUMULATED OTHER COMPREHENSIVE LOSS
The changes in accumulated other comprehensive loss by component, net of tax, are as follows:
19
| Three-Month Periods Ended | |||||||||||||||||||||||||||||||||||
| September 27, 2024 | September 29, 2023 | ||||||||||||||||||||||||||||||||||
| Unrealized gain (loss) on derivative instruments and other | Foreign currency translation adjustments | Total | Unrealized gain (loss) on derivative instruments and other | Foreign currency translation adjustments | Total | ||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||
| Beginning balance | $ | ( | $ | ( | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||||||||||
| Other comprehensive gain (loss) before reclassifications | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Net (gain) loss reclassified from accumulated other comprehensive loss | |||||||||||||||||||||||||||||||||||
| Net current-period other comprehensive gain (loss) | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Ending balance | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||
| Six-Month Periods Ended | |||||||||||||||||||||||||||||||||||
| September 27, 2024 | September 29, 2023 | ||||||||||||||||||||||||||||||||||
| Unrealized gain (loss) on derivative instruments and other | Foreign currency translation adjustments | Total | Unrealized gain (loss) on derivative instruments and other | Foreign currency translation adjustments | Total | ||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||
| Beginning balance | $ | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||
| Other comprehensive gain (loss) before reclassifications | ( | ( | |||||||||||||||||||||||||||||||||
| Net (gain) loss reclassified from accumulated other comprehensive loss | ( | ( | |||||||||||||||||||||||||||||||||
| Net current-period other comprehensive gain (loss) | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Ending balance | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||
11. TRADE RECEIVABLES SALES PROGRAMS
12. FAIR VALUE MEASUREMENT OF ASSETS AND LIABILITIES
Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact, and it considers assumptions that market participants would use when pricing the asset or liability. The accounting guidance for fair value establishes a fair value hierarchy based on the level of independent, objective evidence
20
surrounding the inputs used to measure fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is as follows:
Level 1 - Applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. There were no balances classified as level 1 in the fair value hierarchy as of September 27, 2024 and March 31, 2024.
Level 2 - Applies to assets or liabilities for which there are inputs other than quoted prices included within level 1 that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets) such as cash and cash equivalents and money market funds; or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
The Company values foreign exchange forward contracts using level 2 observable inputs which primarily consist of an income approach based on the present value of the forward rate less the contract rate multiplied by the notional amount.
The Company’s cash equivalents include bank time deposits and money market funds, which are valued using level 2 inputs, such as interest rates and maturity periods. Due to their short-term nature, their carrying amount approximates fair value.
The Company has deferred compensation plans for its officers and certain other employees. Amounts deferred under the plans are invested in hypothetical investments selected by the participant or the participant's investment manager. The Company's deferred compensation plan assets are included in other non-current assets on the consolidated balance sheets and include money market funds, mutual funds, corporate and government bonds and certain convertible securities that are valued using prices obtained from various pricing sources. These sources price these investments using certain market indices and the performance of these investments in relation to these indices. As a result, the Company has classified these investments as level 2 in the fair value hierarchy.
There were no transfers between levels in the fair value hierarchy during the six-month periods ended September 27, 2024 and September 29, 2023.
21
Financial Instruments Measured at Fair Value on a Recurring Basis
The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis as of September 27, 2024 and March 31, 2024:
| Fair Value Measurements as of September 27, 2024 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Money market funds and time deposits (included in cash and cash equivalents of the condensed consolidated balance sheet) | $ | $ | $ | $ | |||||||||||||||||||
| Foreign currency contracts (Note 9) | |||||||||||||||||||||||
| Deferred compensation plan assets: | 0 | ||||||||||||||||||||||
| Mutual funds, money market accounts and equity securities | |||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Foreign currency contracts (Note 9) | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Fair Value Measurements as of March 31, 2024 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Money market funds and time deposits (included in cash and cash equivalents of the condensed consolidated balance sheet) | $ | $ | $ | $ | |||||||||||||||||||
| Foreign currency contracts (Note 9) | |||||||||||||||||||||||
| Deferred compensation plan assets: | 0 | ||||||||||||||||||||||
| Mutual funds, money market accounts and equity securities | |||||||||||||||||||||||
| Liabilities: | 0 | ||||||||||||||||||||||
| Foreign currency contracts (Note 9) | $ | $ | ( | $ | $ | ( | |||||||||||||||||
Other financial instruments
The following table presents the Company’s major debts not carried at fair value:
| As of September 27, 2024 | As of March 31, 2024 | ||||||||||||||||||||||||||||
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | Fair Value Hierarchy | |||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||
| $ | $ | $ | $ | Level 1 | |||||||||||||||||||||||||
| Level 1 | |||||||||||||||||||||||||||||
| Level 1 | |||||||||||||||||||||||||||||
| Level 1 | |||||||||||||||||||||||||||||
| Level 1 | |||||||||||||||||||||||||||||
| Level 1 | |||||||||||||||||||||||||||||
| Level 2 | |||||||||||||||||||||||||||||
The Notes due June 2025, February 2026, January 2028, June 2029, May 2030 and January 2032 are valued based on broker trading prices in active markets. HUF Bonds are valued based on the broker trading prices in an inactive market.
13. COMMITMENTS AND CONTINGENCIES
Litigation and other legal matters
In connection with the matters described below, the Company has accrued for loss contingencies where it believes that losses are probable and estimable. Although it is reasonably possible that actual losses could be in excess of the Company’s accrual, the Company is unable to estimate a reasonably possible loss or range of loss in excess of its accrual, due to various reasons, including, among others, that: (i) the proceedings are in early stages or no claims have been asserted, (ii) specific damages have not been sought in all of these matters, (iii) damages, if asserted, are considered unsupported and/or exaggerated,
22
(iv) there is uncertainty as to the outcome of pending appeals, motions, or settlements, (v) there are significant factual issues to be resolved, and/or (vi) there are novel legal issues or unsettled legal theories presented. Any such excess loss could have a material effect on the Company’s results of operations or cash flows for a particular period or on the Company’s financial condition.
The Company is currently involved in a commercial dispute related to a construction matter with related production objectives. Management assessed the potential outcomes of this dispute, considered available information, and consulted with legal counsel and as a result of this assessment recognized $50 million in Selling, general and administrative expenses in the fourth quarter of the fiscal year ended March 31, 2024 as an accrual. The ultimate resolution of this dispute is uncertain, and the actual outcome may differ from the estimates made by management. Changes in circumstances or additional information may impact the Company’s assessment of its loss and could result in adjustments to the $50 million accrual, however, management currently believes that the resolution of this dispute will not have a material effect on the Company’s financial position, results of operations or cash flows. The Company will continue to monitor developments related to this matter and will adjust its accrual and disclosures accordingly in future reporting periods as additional information becomes available.
One of the Company's Brazilian subsidiaries received six assessments for certain sales and import taxes. Four of the assessments have been successfully definitively defeated. Two remain, where the Company was unsuccessful at the administrative level and filed annulment actions in federal court in Brasilia, Brazil. The first annulment action was filed on March 23, 2020; the updated value of that assessment inclusive of interest and penalties is 36 million Brazilian reals (approximately USD $7 million). The second annulment action was filed on September 19, 2023; the updated value of that assessment inclusive of interest and penalties is 59 million Brazilian reals (approximately USD $11 million). The Company believes that it has meritorious defenses to these assessments and will continue to vigorously oppose them, as well as any future assessments. The Company does not expect final judicial determination on any of these claims in the near future.
A foreign Tax Authority (“Tax Authority”) had assessed a cumulative total of approximately $285 million in taxes owed for multiple Flex legal entities within its jurisdiction for various fiscal years ranging from fiscal year 2010 through fiscal year 2020. The assessed amounts related to the denial of certain deductible intercompany payments and taxability of income earned outside such jurisdiction. Subsequent to the quarter ended September 27, 2024, approximately $118 million of the approximate $285 million assessment was abated by the Tax Authority, leaving approximately $167 million remaining. The Company disagrees with the Tax Authority’s remaining assessments and is actively contesting the assessments through the administrative and judicial processes.
As the final resolution of the above outstanding tax item remains uncertain, the Company continues to provide for the uncertain tax positions based on the more likely than not standard. While the resolution of the issues may result in tax liabilities, interest and penalties, which may be significantly higher than the amounts accrued for these matters, management currently believes that the resolution will not have a material effect on the Company’s financial position, results of operations or cash flows.
In addition to the matters discussed above, from time to time, the Company is subject to legal proceedings, claims, and litigation arising in the ordinary course of business. The Company defends itself vigorously against any such claims. Although the outcome of these matters is currently not determinable, management expects that any losses that are probable or reasonably possible of being incurred as a result of these matters, which are in excess of amounts already accrued in the Company’s consolidated balance sheets, would not be material to the financial statements as a whole.
14. SHARE REPURCHASES
During the three and six-month periods ended September 27, 2024, the Company repurchased 9.8 million and 25.1 million shares at an aggregate purchase price of $300 million and $757 million, respectively, and retired all of these shares.
Under the Company’s current share repurchase program, the Board of Directors authorized repurchases of its outstanding ordinary shares for up to $1.7 billion in accordance with the share repurchase mandate approved by the Company’s shareholders at the date of the most recent Annual General Meeting held on August 8, 2024. As of September 27, 2024, shares in the aggregate amount of $1.5 billion were available to be repurchased under the current plan.
15. SEGMENT REPORTING
The Company reports its financial performance based on two
An operating segment's performance is evaluated based on its pre-tax operating contribution, or segment income. Segment income is defined as net sales less cost of sales, and segment selling, general and administrative expenses, and does not include
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intangible amortization, stock-based compensation, restructuring charges, legal and other, and interest, net and other charges, net. A portion of depreciation is allocated to the respective segments, together with other general corporate research and development and administrative expenses.
Selected financial information by segment is in the table below.
| Three-Month Periods Ended | Six-Month Periods Ended | ||||||||||||||||||||||
| September 27, 2024 | September 29, 2023 | September 27, 2024 | September 29, 2023 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Net sales: | |||||||||||||||||||||||
| Flex Agility Solutions | $ | $ | $ | $ | |||||||||||||||||||
| Flex Reliability Solutions | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| Segment income and reconciliation of income from continuing operations before income taxes: | |||||||||||||||||||||||
| Flex Agility Solutions | $ | $ | $ | $ | |||||||||||||||||||
| Flex Reliability Solutions | |||||||||||||||||||||||
| Corporate and Other | ( | ( | ( | ( | |||||||||||||||||||
| Total segment income | |||||||||||||||||||||||
| Reconciling items: | |||||||||||||||||||||||
| Intangible amortization | |||||||||||||||||||||||
| Stock-based compensation | |||||||||||||||||||||||
| Restructuring charges | |||||||||||||||||||||||
| Legal and other (1) | |||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Interest income | |||||||||||||||||||||||
| Other charges (income), net | ( | ( | |||||||||||||||||||||
| Income from continuing operations before income taxes | $ | $ | $ | $ | |||||||||||||||||||
(1)Legal and other consists of costs not directly related to core business results and including 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 and customer related asset recoveries. During the first half of fiscal year 2024, the Company accrued for certain loss contingencies where losses are considered probable and estimable.
Corporate and other primarily includes corporate service costs that are not included in the chief operating decision maker's ("CODM") assessment of the performance of each of the identified reportable segments.
The Company provides an overall platform of assets and services, which the segments utilize for the benefit of their various customers. The shared assets and services are contained within the Company's global manufacturing and design operations and include manufacturing and design facilities. Most of the underlying manufacturing and design assets are co-mingled in the operating campuses and are compatible to operate across segments and highly interchangeable throughout the platform. Given the highly interchangeable nature of the assets, they are not separately identified by segment nor reported by segment to the Company's CODM.
16. RESTRUCTURING CHARGES
During the three and six-month periods ended September 27, 2024, the Company recognized approximately $18 million and $43 million of restructuring charges, respectively, most of which related to employee severance.
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The following table summarizes the provisions, respective payments, and remaining accrued balance as of September 27, 2024 for charges incurred during the six-month period ended September 27, 2024:
| Severance | Long-Lived Asset Impairment | Other Exit Costs | Total | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
Balance as of March 31, 2024 | $ | $ | $ | $ | |||||||||||||||||||
Provision for charges incurred during the six-month period ended September 27, 2024 | |||||||||||||||||||||||
Cash payments during the six-month period ended September 27, 2024 | ( | ( | |||||||||||||||||||||
Non-cash reductions during the six-month period ended September 27, 2024 | ( | ( | |||||||||||||||||||||
| Other adjustments | ( | ( | |||||||||||||||||||||
Balance as of September 27, 2024 | |||||||||||||||||||||||
| Less: Current portion (classified as other current liabilities) | |||||||||||||||||||||||
| Accrued restructuring costs, net of current portion (classified as other liabilities) | $ | $ | $ | $ | |||||||||||||||||||
17. SUBSEQUENT EVENTS
On October 16, 2024, the Company entered into a definitive agreement to acquire 100 % ownership of Crown Technical Systems (“Crown”), a U.S. leader in critical power solutions for $325 million in an all-cash transaction. The acquisition will add to the Company' portfolio of power products and expand its offering in the utility and data center markets and is expected to close in the third quarter of fiscal year 2025, subject to customary closing conditions, including regulatory approval. For reporting purposes, Crown will be included in the Industrial reporting unit within the FRS segment.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless otherwise specifically stated, references in this report to “Flex,” “the Company,” “we,” “us,” “our” and similar terms mean Flex Ltd. and its subsidiaries.
This report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. The words “expects,” “anticipates,” “believes,” “intends,” “plans” and similar expressions identify forward-looking statements. In addition, any statements which refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. We undertake no obligation to publicly disclose any revisions to these forward-looking statements to reflect events or circumstances occurring subsequent to filing this Form 10-Q with the Securities and Exchange Commission. These forward-looking statements are subject to risks and uncertainties, including, without limitation, those risks and uncertainties discussed in this section, as well as any risks and uncertainties discussed in Part I, Item 1A, “Risk Factors” and in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2024. In addition, new risks emerge from time to time and it is not possible for management to predict all such risk factors or to assess the impact of such risk factors on our business. Accordingly, our future results may differ materially from historical results or from those discussed or implied by these forward-looking statements. Given these risks and uncertainties, the reader should not place undue reliance on these forward-looking statements.
OVERVIEW
We are the advanced, end-to-end manufacturing partner of choice that helps market-leading brands design, build, deliver and manage innovative products that improve the world. Through the collective strength of a global workforce across approximately 30 countries with responsible, sustainable operations, we support our customers' entire product lifecycle with a broad array of services in every major region. Our full suite of specialized capabilities includes design and engineering, supply chain, manufacturing, post-production and post-sale services. We partner with customers across a diverse set of industries including cloud, communications, enterprise, automotive, industrial, consumer devices, lifestyle, healthcare, and energy. As of September 27, 2024, our two operating and reportable segments were as follows:
•Flex Agility Solutions ("FAS"), which is comprised of the following end markets:
◦Communications, Enterprise and Cloud, including data infrastructure, edge infrastructure and communications infrastructure
◦Lifestyle, including appliances, consumer packaging, floorcare, micro mobility and audio
◦Consumer Devices, including mobile and high velocity consumer devices.
•Flex Reliability Solutions ("FRS"), which is comprised of the following end markets:
◦Automotive, including next generation mobility, autonomous, connectivity, electrification, and smart technologies
◦Health Solutions, including medical devices, medical equipment and drug delivery
◦Industrial, including capital equipment, industrial devices, embedded and critical power offerings and renewables and grid edge.
Our strategy is to provide customers with a full range of cost competitive, vertically-integrated global supply chain solutions through which we can design, build, ship and service a complete packaged product for our customers. This enables our customers to leverage our supply chain solutions to meet their product requirements throughout the entire product lifecycle.
Over the past few years, we have seen an increased level of diversification by many companies, primarily in the technology sector. Some companies that have historically identified themselves as software providers, Internet service providers or e-commerce retailers have entered the highly competitive and rapidly evolving technology hardware markets, such as mobile devices, home entertainment and wearable devices. This trend has resulted in a significant change in the manufacturing and supply chain solution requirements of such companies. While the products have become more complex, the supply chain solutions required by such companies have become more customized and demanding, and it has changed the manufacturing and supply chain landscape significantly.
We use a portfolio approach to manage our extensive service offerings. As our customers change the way they go to market, we have the capability to reorganize and rebalance our business portfolio in order to align with our customers' needs and requirements in an effort to optimize operating results. The objective of our business model is to allow us to be flexible and redeploy and reposition our assets and resources as necessary to meet specific customers' supply chain solution needs across all the markets we serve and earn a return on our invested capital above the weighted average cost of that capital.
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We believe that our strategy is positioning us to take advantage of the long-term, future growth prospects for outsourcing of advanced manufacturing capabilities, design and engineering services and after-market services.
We are continuously evaluating our capital structure in response to the current environment and expect that our current financial condition, including our liquidity sources are adequate to fund future commitments. See additional discussion in the Liquidity and Capital Resources section below.
Update on Component Shortages and Logistical Constraints on our Business
Component shortages experienced in the recent past have largely subsided, however, logistical constraints exist which have increased freight costs. We continue to monitor potential supply chain disruptions, including disruptions in international commerce as a result of attacks on shipping vessels in the Red Sea and other emerging and evolving geopolitical conflicts and tensions. Refer to “Risk Factors - Supply chain disruptions, manufacturing interruptions or delays, or the failure to accurately forecast customer demand, have in the past affected, and may in the future affect, our ability to meet customer demand, lead to higher costs, or result in excess or obsolete inventory.” as disclosed in Part I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended March 31, 2024.
Russian Invasion of Ukraine and Israel-Hamas War
We continue to monitor and respond to the conflict in Ukraine and the associated sanctions and other restrictions. We also are monitoring and responding to the ongoing conflicts in the Middle East, including Israel-Hamas war. As of the date of this report, there is no material impact to our business operations and financial performance in Ukraine and Israel. The full impact of the conflicts on our business operations and financial performance remains uncertain and will depend on future developments, including the severity and duration of the conflicts and their impact on regional and global economic conditions. We will continue to monitor the conflicts and assess the related restrictions and other effects and pursue prudent decisions for our team members, customers, and business.
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Business Overview
We are one of the world's largest providers of global supply chain solutions, with revenues of $12.9 billion for the six-month period ended September 27, 2024 and $26.4 billion in the fiscal year ended March 31, 2024. We have established an extensive network of manufacturing facilities in the world's major consumer and enterprise markets (Asia, the Americas, and Europe) to serve the growing outsourcing needs of both multinational and regional customers. We design, build, ship, and service consumer and enterprise products for our customers through a network of approximately 100 facilities in approximately 30 countries across four continents. The following tables set forth the relative percentages and dollar amounts of net sales by region and by country, and net property and equipment by country, based on the location of our manufacturing sites:
| Three-Month Periods Ended | Six-Month Periods Ended | ||||||||||||||||||||||||||||||||||||||||||||||
| September 27, 2024 | September 29, 2023 | September 27, 2024 | September 29, 2023 | ||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Net sales by region: | |||||||||||||||||||||||||||||||||||||||||||||||
| Americas | $ | 3,147 | 48 | % | $ | 3,141 | 45 | % | $ | 6,165 | 48 | % | $ | 6,174 | 45 | % | |||||||||||||||||||||||||||||||
| Asia | 2,020 | 31 | % | 2,377 | 34 | % | 3,927 | 31 | % | 4,699 | 34 | % | |||||||||||||||||||||||||||||||||||
| Europe | 1,378 | 21 | % | 1,415 | 21 | % | 2,767 | 21 | % | 2,952 | 21 | % | |||||||||||||||||||||||||||||||||||
| $ | 6,545 | $ | 6,933 | $ | 12,859 | $ | 13,825 | ||||||||||||||||||||||||||||||||||||||||
| Net sales by country: | |||||||||||||||||||||||||||||||||||||||||||||||
| Mexico | $ | 1,734 | 26 | % | $ | 1,824 | 26 | % | $ | 3,321 | 26 | % | $ | 3,579 | 26 | % | |||||||||||||||||||||||||||||||
| China | 1,109 | 17 | % | 1,375 | 20 | % | 2,177 | 17 | % | 2,794 | 20 | % | |||||||||||||||||||||||||||||||||||
| U.S. | 978 | 15 | % | 931 | 13 | % | 1,982 | 15 | % | 1,823 | 13 | % | |||||||||||||||||||||||||||||||||||
| Malaysia | 608 | 9 | % | 555 | 8 | % | 1,199 | 9 | % | 1,101 | 8 | % | |||||||||||||||||||||||||||||||||||
| Brazil | 412 | 6 | % | 375 | 5 | % | 812 | 6 | % | 737 | 5 | % | |||||||||||||||||||||||||||||||||||
| Hungary | 328 | 5 | % | 363 | 5 | % | 671 | 5 | % | 714 | 5 | % | |||||||||||||||||||||||||||||||||||
| Other | 1,376 | 22 | % | 1,510 | 23 | % | 2,697 | 22 | % | 3,077 | 23 | % | |||||||||||||||||||||||||||||||||||
| $ | 6,545 | $ | 6,933 | $ | 12,859 | $ | 13,825 | ||||||||||||||||||||||||||||||||||||||||
| As of | As of | ||||||||||||||||||||||
| Property and equipment, net: | September 27, 2024 | March 31, 2024 | |||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Mexico | $ | 802 | 36 | % | $ | 793 | 35 | % | |||||||||||||||
| U.S. | 328 | 15 | % | 334 | 15 | % | |||||||||||||||||
| China | 294 | 13 | % | 307 | 14 | % | |||||||||||||||||
| Malaysia | 141 | 6 | % | 142 | 6 | % | |||||||||||||||||
| Hungary | 131 | 6 | % | 124 | 5 | % | |||||||||||||||||
| Brazil | 86 | 4 | % | 88 | 4 | % | |||||||||||||||||
| Other | 472 | 20 | % | 481 | 21 | % | |||||||||||||||||
| $ | 2,254 | $ | 2,269 | ||||||||||||||||||||
We believe that the combination of our extensive open innovation platform solutions, design and engineering services, advanced supply chain management solutions and services, significant scale and global presence, and manufacturing campuses in low-cost geographic areas provide us with a competitive advantage and strong differentiation in the market for designing, manufacturing and servicing consumer and enterprise products for leading multinational and regional customers. Specifically, we offer our customers the ability to simplify their global product development, manufacturing process, and after-sales services, and enable them to meaningfully accelerate their time to market and cost savings.
Our operating results are affected by a number of factors, including the following:
•global economic conditions, including inflationary pressures, currency volatility, slower growth or recession, higher interest rates, and geopolitical uncertainty (including arising from ongoing conflict between Russia and Ukraine and the Israel-Hamas war);
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•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, 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;
•our ability to achieve commercially viable production yields and to manufacture components in commercial quantities to the performance specifications demanded by our customers;
•the effects on our business due to certain customers' products having short product lifecycles, our customers' ability to cancel or delay orders or change production quantities or locations, the short-term nature of our customers' commitments and rapid changes in demand;
•the effects that current credit and market conditions (including as a result of the ongoing conflict between Russia and Ukraine and the Israel-Hamas war) could have on the liquidity and financial condition of our customers and suppliers, including any impact on their ability to meet their contractual obligations;
•the impacts on our business due to supply chain issues, including component shortages, disruptions in transportation or other supply chain related constraints including disruptions in international commerce as a result of attacks on shipping vessels in the Red Sea;
•integration of acquired businesses and facilities;
•increased labor costs due to adverse labor conditions in the markets we operate;
•changes in tax legislation;
•changes in trade regulations and treaties; and
•exposure to infectious disease, epidemics and pandemics on our business operations in geographic locations impacted by an outbreak and on the business operations of our customers and suppliers.
We are also subject to other risks as outlined in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2024.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP" or "GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Due to geopolitical conflicts (including the Russian invasion of Ukraine and the Israel-Hamas war), there has been and we expect there will continue to be uncertainty and disruption in the global economy and financial markets. We have made estimates and assumptions taking into consideration certain possible impacts due to the Russian invasion of Ukraine, the Israel-Hamas war, and other geopolitical conflicts. These estimates may change, as new events occur, and additional information is obtained. Actual results may differ from previously estimated amounts, and such differences may be material to the consolidated financial statements. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the period they occur.
Refer to the accounting policies under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2024, where we discuss our more significant judgments and estimates used in the preparation of the condensed consolidated financial statements.
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RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain statements of operations data expressed as a percentage of net sales (amounts may not sum due to rounding). The financial information and the discussion below should be read together with the condensed consolidated financial statements and notes thereto included in this document. In addition, reference should be made to our audited consolidated financial statements and notes thereto and related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2024.
| Three-Month Periods Ended | Six-Month Periods Ended | ||||||||||||||||||||||
| September 27, 2024 | September 29, 2023 | September 27, 2024 | September 29, 2023 | ||||||||||||||||||||
| Net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||
| Cost of sales | 91.6 | 92.5 | 92.0 | 92.7 | |||||||||||||||||||
| Restructuring charges | 0.3 | — | 0.2 | 0.1 | |||||||||||||||||||
| Gross profit | 8.1 | 7.5 | 7.8 | 7.2 | |||||||||||||||||||
| Selling, general and administrative expenses | 3.3 | 3.2 | 3.3 | 3.3 | |||||||||||||||||||
| Restructuring charges | — | — | 0.1 | — | |||||||||||||||||||
| Intangible amortization | 0.3 | 0.2 | 0.3 | 0.3 | |||||||||||||||||||
| Operating income | 4.5 | 4.1 | 4.1 | 3.6 | |||||||||||||||||||
| Interest expense | 0.8 | 0.7 | 0.8 | 0.8 | |||||||||||||||||||
| Interest income | 0.2 | 0.2 | 0.2 | 0.2 | |||||||||||||||||||
| Other charges (income), net | (0.1) | 0.2 | — | 0.1 | |||||||||||||||||||
| Income from continuing operations before income taxes | 4.0 | 3.4 | 3.5 | 2.9 | |||||||||||||||||||
| Provision for (benefit from) income taxes | 0.7 | 0.5 | 0.8 | 0.4 | |||||||||||||||||||
| Net income from continuing operations | 3.3 | 2.9 | 2.7 | 2.5 | |||||||||||||||||||
| Net income from discontinued operations, net of tax | — | 3.0 | — | 2.0 | |||||||||||||||||||
| Net income | 3.3 | 5.9 | 2.7 | 4.5 | |||||||||||||||||||
| Net income attributable to noncontrolling interest | — | 2.6 | — | 1.5 | |||||||||||||||||||
| Net income attributable to Flex Ltd. | 3.3 | % | 3.3 | % | 2.7 | % | 3.0 | % | |||||||||||||||
Net sales
The following table sets forth our net sales by segment, and their relative percentages (the sum of the individual percentages may not equal 100% due to rounding):
| Three-Month Periods Ended | Six-Month Periods Ended | ||||||||||||||||||||||||||||||||||||||||||||||
| September 27, 2024 | September 29, 2023 | September 27, 2024 | September 29, 2023 | ||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Net sales: | |||||||||||||||||||||||||||||||||||||||||||||||
| Flex Agility Solutions | $ | 3,606 | 55 | % | $ | 3,618 | 52 | % | $ | 6,971 | 54 | % | $ | 7,219 | 52 | % | |||||||||||||||||||||||||||||||
| Flex Reliability Solutions | 2,939 | 45 | % | 3,315 | 48 | % | 5,888 | 46 | % | 6,606 | 48 | % | |||||||||||||||||||||||||||||||||||
| $ | 6,545 | $ | 6,933 | $ | 12,859 | $ | 13,825 | ||||||||||||||||||||||||||||||||||||||||
Net sales during the three-month period ended September 27, 2024 totaled $6.5 billion, representing a decrease of approximately $0.4 billion, or 6% from $6.9 billion during the three-month period ended September 29, 2023. Net sales for our FAS segment decreased approximately $12 million from the three-month period ended September 29, 2023, primarily driven by a low single-digit percentage decrease in our Communication, Enterprise, and Cloud ("CEC") business and a mid single-digit decrease in our Lifestyle business due to softer demand in certain markets, offset by a strong increase in our Consumer Devices business as a result of higher customer demand. Net sales for our FRS segment decreased approximately $0.4 billion, or 11% from the three-month period ended September 29, 2023, primarily driven by a high-teen percentage decrease in our Industrial business and a mid single-digit percentage decrease in our Automotive business due to lower customer demand. This was partially offset by a low single-digit percentage increase in our Health Solutions business due to higher customer demand. The factors described above that decreased FAS and FRS revenues were also partially offset by the effect of certain customer arrangements transitioning from point in time to over time revenue recognition during the quarter which also contributed to an
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increase in contract assets at September 27, 2024. Net sales decreased $0.4 billion to $2.0 billion in Asia, decreased $37 million to $1.4 billion in Europe, and increased $6 million to $3.1 billion in the Americas.
Net sales during the six-month period ended September 27, 2024 totaled $12.9 billion, representing a decrease of approximately $1.0 billion, or 7% from $13.8 billion during the six-month period ended September 29, 2023. Net sales for our FAS segment decreased approximately $0.2 billion, or 3% from the six-month period ended September 29, 2023, primarily driven by a high single-digit percentage decrease in our CEC business and a mid single-digit percentage decrease in our Lifestyle business, offset by a strong increase in our Consumer Devices business due to the same factors as for the three-month period discussion above. Net sales for our FRS segment decreased approximately $0.7 billion, or 11% from the six-month period ended September 29, 2023, primarily driven by a high-teen percentage decrease in our Industrial business, along with a low single-digit percentage decrease in both our Automotive and Health Solutions businesses, due principally to the same factors as for the three-month period discussion above. Net sales decreased $0.8 billion to $3.9 billion in Asia, decreased $0.2 billion to $2.8 billion in Europe, and decreased $9 million to $6.2 billion in the Americas.
Our ten largest customers during the three and six-month periods ended September 27, 2024 accounted for approximately 44% and 43% of net sales, respectively. Our ten largest customers during the three and six-month periods ended September 29, 2023 accounted for approximately 36% of net sales. No customer accounted for more than 10% of net sales during the three or six-month periods ended September 27, 2024 or September 29, 2023.
Cost of sales
Cost of sales is affected by a number of factors, including the number and size of new manufacturing programs, product mix, labor cost fluctuations by region, component costs and availability and capacity utilization.
Cost of sales during the three-month period ended September 27, 2024 totaled $6.0 billion, representing a decrease of approximately $0.4 billion, or 6% from $6.4 billion during the three-month period ended September 29, 2023. The lower cost of sales for the three-month period ended September 27, 2024 was primarily driven by decreased consolidated sales of $0.4 billion or 6%. Cost of sales in our FAS segment for the three-month period ended September 27, 2024 decreased approximately $0.1 billion, or 2% from the three-month period ended September 29, 2023, which is relatively in line with the overall decrease in FAS revenue during the same period primarily as a result of lower revenue in our Lifestyle and CEC businesses. Cost of sales in our FRS segment for the three-month period ended September 27, 2024 decreased approximately $0.4 billion, or 12% from the three-month period ended September 29, 2023, which is in line with the overall decrease in FRS revenue during the same period, primarily as a result of lower revenue in our Industrial business.
Cost of sales during the six-month period ended September 27, 2024 totaled $11.8 billion, representing a decrease of approximately $1.0 billion, or 8% from $12.8 billion during the six-month period ended September 29, 2023. The lower cost of sales for the six-month period ended September 27, 2024 was primarily driven by decreased consolidated sales of $1.0 billion or 7%. Cost of sales in our FAS segment for the six-month period ended September 27, 2024 decreased approximately $0.3 billion, or 5% from the six-month period ended September 29, 2023, which is aligned with the overall decrease in FAS revenue during the same period primarily due to the drivers noted in the discussion above for the three-month period. Cost of sales in our FRS segment for the six-month period ended September 27, 2024 decreased approximately $0.7 billion, or 11% from the six-month period ended September 29, 2023, which is in line with the overall decrease in FRS revenue during the same period primarily due to the drivers noted in the discussion above for the three-month period.
Gross profit
Gross profit is affected by fluctuations in cost of sales elements as outlined above and further by a number of factors, including product lifecycles, unit volumes, product mix, pricing, competition, new product introductions, and the expansion or consolidation of manufacturing facilities, as well as specific restructuring activities initiated from time to time. The flexible design of our manufacturing processes allows us to manufacture a broad range of products in our facilities and better utilize our manufacturing capacity across our diverse geographic footprint and service customers from all markets. In the case of new programs, profitability normally lags revenue growth due to product start-up costs, lower manufacturing program volumes in the start-up phase, operational inefficiencies, and under-absorbed overhead. Gross margin for these programs often improves over time as manufacturing volumes increase, as our utilization rates and overhead absorption improve, and as we increase the level of manufacturing services content. As a result of these various factors, our gross margin varies from period to period.
Gross profit during the three-month period ended September 27, 2024 increased $12 million to $0.5 billion, or 8.1% of net sales, from $0.5 billion, or 7.5% of net sales, during the three-month period ended September 29, 2023. Gross margin improved 60 basis points during the three-month period ended September 27, 2024 primarily due to favorable mix in our FAS segment combined with savings from restructuring actions.
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Gross profit during the six-month period ended September 27, 2024 increased $7 million to $1.0 billion, or 7.8% of net sales, from $1.0 billion, or 7.2% of net sales, during the six-month period ended September 29, 2023. Gross margin improved 60 basis points during the same period due to the same factors noted above in the three-month period discussion.
Segment income
An operating segment's performance is evaluated based on its pre-tax operating contribution, or segment income. Segment income is defined as net sales less cost of sales, and segment selling, general and administrative expenses, and does not include intangible amortization, stock-based compensation, restructuring charges, legal and other, and interest, net and other charges, net. A portion of depreciation is allocated to the respective segments, together with other general corporate research and development and administrative expenses.
The following table sets forth segment income and margins. Segment margins in the table below may not recalculate exactly due to rounding.
| Three-Month Periods Ended | Six-Month Periods Ended | ||||||||||||||||||||||||||||||||||||||||||||||
| September 27, 2024 | September 29, 2023 | September 27, 2024 | September 29, 2023 | ||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Segment income: | |||||||||||||||||||||||||||||||||||||||||||||||
| Flex Agility Solutions | $ | 218 | 6.1 | % | $ | 167 | 4.6 | % | $ | 397 | 5.7 | % | $ | 313 | 4.3 | % | |||||||||||||||||||||||||||||||
| Flex Reliability Solutions | 159 | 5.4 | % | 171 | 5.2 | % | 306 | 5.2 | % | 336 | 5.1 | % | |||||||||||||||||||||||||||||||||||
FAS segment margin increased approximately 150 basis points, to 6.1%, for the three-month period ended September 27, 2024, from 4.6% for the three-month period ended September 29, 2023. The margin increase was primarily due to strong execution, product mix and cost savings actions taken. The FAS segment margin increased approximately 140 basis points, to 5.7% for the six-month period ended September 27, 2024, from 4.3% for the six-month period ended September 29, 2023. This was primarily due to the same factors as noted for the three-month period.
FRS segment margin increased approximately 20 basis points, to 5.4% for the three-month period ended September 27, 2024, from 5.2% for the three-month period ended September 29, 2023. This was primarily driven by product mix and solid execution. FRS segment margin increased approximately 10 basis points, to 5.2% for the six-month period ended September 27, 2024 from 5.1% for the six-month period ended September 29, 2023. This was primarily due to the same factors as noted for the three-month period.
Restructuring charges
We committed to targeted restructuring activities to improve operational efficiencies by reducing excess workforce capacity. During the three and six-month periods ended September 27, 2024, we recognized approximately $18 million and $43 million of restructuring charges, respectively, primarily related to employee severance.
Selling, general and administrative expenses
Selling, general and administrative expenses (“SG&A”) was approximately $0.2 billion, or 3.3% of net sales, during the three-month period ended September 27, 2024, decreasing $5 million from approximately $0.2 billion or 3.2% of net sales, during the three-month period ended September 29, 2023. SG&A was $0.4 billion, or 3.3% of net sales, during the six-month period ended September 27, 2024, decreasing $27 million from $0.5 billion or 3.3% of net sales, during the six-month period ended September 29, 2023. The decreases reflect our enhanced cost control efforts to keep SG&A expenses relatively flat.
Intangible amortization
Amortization of intangible assets decreased to $16 million during the three-month period ended September 27, 2024, from $17 million for the three-month period ended September 29, 2023, and decreased to $32 million during the six-month period ended September 27, 2024, from $37 million for the six-month period ended September 29, 2023, primarily due to certain intangibles now being fully amortized.
Interest expense
Interest expense was $53 million during the three-month period ended September 27, 2024 compared to $49 million during the three-month period ended September 29, 2023. Interest expense was $109 million during the six-month period ended September 27, 2024 compared to $105 million during the six-month period ended September 29, 2023. The higher interest expense was primarily due to the effects of higher short-term borrowings and a new debt issuance in the second quarter of fiscal year 2025 partially offset by interest savings from debt repurchases and repayments.
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Interest income
Interest income was $16 million during the three-month period ended September 27, 2024, and $32 million during the six-month period ended September 27, 2024 which remains consistent with the equivalent prior year periods.
Other charges (income), net
Other income, net was $4 million during the three-month period ended September 27, 2024 compared to an expense of $14 million during the three-month period ended September 29, 2023, primarily due to a gain from a tax receivable agreement payment from Nextracker partially offset by higher losses from certain non-core equity method investments compared to the prior period.
Other income, net was $3 million during the six-month period ended September 27, 2024 compared to an expense of $25 million during the six-month period ended September 29, 2023, primarily due to the same factors as noted for the three-month period, along with lower foreign exchange transaction losses compared to the prior period.
Income taxes
Certain of our subsidiaries, at various times, have been granted tax relief in their respective countries, resulting in lower income taxes than would otherwise be the case under ordinary tax rates. Refer to note 15, “Income Taxes” of the notes to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended March 31, 2024 for further discussion.
The consolidated effective tax rate was 19% and 23% for the three and six-month periods ended September 27, 2024, and 14% and 12% for the three and six-month periods ended September 29, 2023, respectively. The effective rate varies from the Singapore statutory rate of 17% as a result of recognition of earnings in different jurisdictions (we generate most of our revenues and profits from operations outside of Singapore), operating loss carryforwards, income tax credits, release of previously established valuation allowances for deferred tax assets, liabilities for uncertain tax positions, as well as the effects of certain tax holidays and incentives granted to our subsidiaries primarily in China, Malaysia, the Netherlands and Israel. The effective tax rate for the three-month and six-month periods ended September 27, 2024 was higher than the effective tax rate for the three and six-month periods ended September 29, 2023 primarily due to the tax accrual required for our U.S. tax group after the U.S. tax group valuation allowance release in the fiscal year ended March 31, 2024, the recognition of a withholding tax accrual on the undistributed earnings of our Chinese subsidiaries due to the decision in the fiscal year ended March 31, 2024 to not indefinitely reinvest our China earnings in China, and unfavorable foreign exchange impacts.
The OECD Pillar Two Global Anti-Base Erosion (“GloBE”) model rules, issued under the OECD Inclusive Framework on Base Erosion and Profit Shifting, introduce a global minimum tax of 15% applicable to multinational enterprise groups with consolidated financial statement revenue in excess of €750 million. Numerous foreign jurisdictions have already enacted tax legislation based on the GloBE rules, with some effective as early as January 1, 2024. As of September 27, 2024, we recognized a nominal income tax expense for Pillar Two GloBE minimum tax. The Company is continuously monitoring the evolving application of this legislation and assessing its potential impact on our future tax liability.
On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was enacted into law, which includes a new corporate minimum tax, a stock repurchase excise tax, numerous green energy credits, other tax provisions, and significantly increased enforcement resources. While detailed regulations on some aspects of the act are still outstanding, we do not anticipate a material impact to our consolidated financial statements from these provisions.
Net income from continuing operations
Net income from continuing operations was $214 million during the three-month period ended September 27, 2024, compared to $201 million during the three-month period ended September 29, 2023; net income from continuing operations was $353 million during the six-month period ended September 27, 2024 compared to $348 million during the six-month period ended September 29, 2023, driven by the factors discussed above.
Net income from discontinued operations
Net income from discontinued operations was zero during the three-month period ended September 27, 2024, compared to $205 million during the three-month period ended September 29, 2023; net income from discontinued operations was zero during the six-month period ended September 27, 2024 compared to $269 million during the six-month period ended September 29, 2023, as Nextracker was spun off during the fourth quarter of fiscal year 2024.
Net income attributable to noncontrolling interest
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Net income attributable to noncontrolling interest was zero during the three-month period ended September 27, 2024, compared to $178 million during the three-month period ended September 29, 2023; net income attribute to noncontrolling interest was zero during the six-month period ended September 27, 2024 compared to $203 million during the six-month period ended September 29, 2023, as Nextracker was spun off during the fourth quarter of fiscal year 2024.
LIQUIDITY AND CAPITAL RESOURCES
We continuously evaluate our ability to meet our obligations over the next 12 months and beyond and proactively reset our capital structure to improve maturities and liquidity. We expect that our current financial condition, including our liquidity sources are adequate to fund current and future commitments. As of September 27, 2024, we had cash and cash equivalents of approximately $2.6 billion and bank and other borrowings of approximately $3.7 billion. We have a $2.5 billion revolving credit facility that is due to mature in July 2027, under which we had no borrowings outstanding as of September 27, 2024. We also issued $500 million of 5.250% Notes due January 2032 (the "2032 Senior Notes") in the second quarter of fiscal year 2025. As of September 27, 2024, we were in compliance with the covenants under all of our credit facilities and indentures; we also expect to remain in compliance with the covenants in the upcoming 12 months for our credit facilities and indentures.
During the six-month period ended September 27, 2024, we repurchased approximately $53 million of our 4.750% Notes due June 2025 under our 10b5-1 bond buyback program, resulting in an immaterial gain on our condensed consolidated statement of operations.
Cash provided by operating activities was $0.7 billion during the six-month period ended September 27, 2024, primarily driven by $0.4 billion of net income for the period plus $0.3 billion of non-cash charges such as depreciation, amortization, and stock-based compensation.
We believe net working capital is a key metric that measures our liquidity. Net working capital is calculated as current assets less current liabilities. Net working capital decreased approximately $0.5 billion to $4.0 billion as of September 27, 2024, from $4.5 billion as of March 31, 2024. The decrease was primarily the result of the effect of an increase in current portion of long-term debt of $0.5 billion.
Cash used in investing activities was $0.2 billion during the six-month period ended September 27, 2024. This was primarily driven by $0.2 billion of net capital expenditures for property and equipment to continue expanding capabilities and capacity in support of primarily our Automotive, CEC, and Industrial businesses.
We believe adjusted free cash flow is an important liquidity metric because it measures, during a given period, the amount of cash generated that is available to repay debt obligations, make investments, fund acquisitions, repurchase company shares and for certain other activities. Our adjusted free cash flow is defined as cash from operations, less net purchases of property and equipment allowing us to present adjusted cash flows on a consistent basis for investors. Our adjusted free cash flow for the six-month periods ended September 27, 2024 and September 29, 2023 was an inflow of $0.5 billion and $0.1 billion, respectively. Adjusted free cash flow is not a measure of liquidity under U.S. GAAP, and may not be defined and calculated by other companies in the same manner. Adjusted free cash flow should not be considered in isolation or as an alternative to net cash provided by operating activities. Adjusted free cash flows reconcile to the most directly comparable GAAP financial measure of cash flows from operations as follows:
| Six-Month Periods Ended | |||||||||||
| September 27, 2024 | September 29, 2023 | ||||||||||
| (In millions) | |||||||||||
| Net cash provided by operating activities | $ | 659 | $ | 363 | |||||||
| Purchases of property and equipment | (214) | (319) | |||||||||
| Proceeds from the disposition of property and equipment | 6 | 19 | |||||||||
| Adjusted free cash flow | $ | 451 | $ | 63 | |||||||
Cash used by financing activities was $0.3 billion during the six-month period ended September 27, 2024, which was primarily driven by $0.8 billion of cash paid for the repurchase of our ordinary shares offset by $0.5 billion of proceeds from the issuance of the 2032 Senior Notes.
Our cash balances are generated and held in numerous locations throughout the world. Liquidity is affected by many factors, some of which are based on normal ongoing operations of the business and some of which arise from fluctuations related to global economics and markets. Local government regulations may restrict our ability to move cash balances to meet cash needs under certain circumstances; however, any current restrictions are not material. We do not currently expect such regulations and restrictions to impact our ability to pay vendors and conduct operations throughout the global organization. We believe that our existing cash balances, together with anticipated cash flows from operations and borrowings available under our credit
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facilities, will be sufficient to fund our operations through at least the next twelve months and beyond. As of September 27, 2024 and March 31, 2024, approximately 70% and 55%, respectively, of our cash and cash equivalents were held by foreign subsidiaries outside of Singapore. Although substantially all of the amounts held outside of Singapore could be repatriated under current laws, a significant amount could be subject to income tax withholdings. We provide for tax liabilities on these amounts for financial statement purposes, except for certain of our foreign earnings that are considered indefinitely reinvested outside of Singapore (approximately $0.7 billion as of March 31, 2024). Repatriation could result in an additional income tax payment; however, for the majority of our foreign entities, our intent is to permanently reinvest these funds outside of Singapore and our current plans do not demonstrate a need to repatriate them to fund our operations in jurisdictions outside of where they are held. Where local restrictions prevent an efficient intercompany transfer of funds, our intent is that cash balances would remain outside of Singapore and we would meet our liquidity needs through ongoing cash flows, external borrowings, or both.
Future liquidity needs will depend on fluctuations in levels of inventory, accounts receivable and accounts payable, the timing of capital expenditures for new equipment, the extent to which we utilize operating leases for new facilities and equipment, and the levels of shipments and changes in the volumes of customer orders.
We maintain a commercial paper program which provides short-term financing under which there were no borrowings outstanding as of September 27, 2024.
Historically, we have funded operations from cash and cash equivalents generated from operations, proceeds from public offerings of equity and debt securities, bank debt and lease financings. We may enter into debt and equity financings, sales of accounts receivable and lease transactions to fund acquisitions and anticipated growth as needed.
The sale or issuance of equity or convertible debt securities could result in dilution to current shareholders. Further, we may issue debt securities that have rights and privileges senior to those of holders of ordinary shares, and the terms of this debt could impose restrictions on operations and could increase debt service obligations. This increased indebtedness could limit our flexibility as a result of debt service requirements and restrictive covenants, potentially affect our credit ratings, and may limit our ability to access additional capital or execute our business strategy. Any downgrades in credit ratings could adversely affect our ability to borrow as a result of more restrictive borrowing terms. We continue to assess our capital structure and evaluate the merits of redeploying available cash to reduce existing debt or repurchase ordinary shares.
Under our current share repurchase program, our Board of Directors authorized repurchases of our outstanding ordinary shares for up to $1.7 billion in accordance with the share purchase mandate approved by our shareholders at the date of the most recent Annual General Meeting which was held on August 8, 2024. During the six-month period ended September 27, 2024, we paid $757 million to repurchase shares under the current and prior repurchase plans at an average price of $30.19 per share. As of September 27, 2024, shares in the aggregate amount of $1.5 billion were available to be repurchased under the current plan.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
Information regarding our long-term debt payments, operating lease payments, capital lease payments and other commitments is provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on our Form 10-K for the fiscal year ended March 31, 2024.
In August 2024, we issued the 2032 Senior Notes, and other than such issuance, there were no material changes in our contractual obligations and commitments as of September 27, 2024.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no material changes in our exposure to market risks for changes in interest and foreign currency exchange rates for the six-month period ended September 27, 2024 as compared to the fiscal year ended March 31, 2024.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
The Company's management, with the participation of the Chief Executive Officer and Interim Chief Financial Officer has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of September 27, 2024. Based on that evaluation, the Company's Chief Executive Officer and Interim Chief Financial Officer concluded that, as of September 27, 2024, the Company's disclosure controls and procedures were effective in ensuring that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, is (i) recorded, processed, summarized and reported within
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the time periods specified in the SEC's rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
(b) Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our quarter ended September 27, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a description of our material legal proceedings, see note 13 “Commitments and Contingencies” in the notes to the condensed consolidated financial statements, which is incorporated herein by reference.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the risks and uncertainties discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2024, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be not material also may materially and adversely affect our business, financial condition and/or operating results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
The following table provides information regarding purchases of our ordinary shares made by us for the period from June 29, 2024 through September 27, 2024:
| Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||||||||||||||||
| June 29, 2024 - August 2, 2024 (2) | 3,946,815 | $ | 30.40 | 3,946,815 | $ | 435,822,159 | ||||||||||||||||||||
| August 3, 2024 - August 30, 2024 (2) (3) | 3,063,715 | $ | 31.01 | 3,063,715 | $ | 1,620,000,326 | ||||||||||||||||||||
| August 31, 2024 - September 27, 2024 (3) | 2,768,567 | $ | 30.70 | 2,768,567 | $ | 1,535,000,625 | ||||||||||||||||||||
| Total | 9,779,097 | 9,779,097 | ||||||||||||||||||||||||
(1)During the period from June 29, 2024 through September 27, 2024, all purchases were made pursuant to the programs discussed below in open market transactions. All purchases were made in accordance with Rule 10b-18 under the Securities Exchange Act of 1934.
(2)On August 2, 2023, our Board of Directors authorized repurchases of our outstanding ordinary shares for up to $2.0 billion. This is in accordance with the share purchase mandate whereby our shareholders approved a repurchase limit of 20% of our issued ordinary shares outstanding at the Annual General Meeting held on the same date as the Board authorization. As of June 28, 2024, we had shares in the aggregate amount of $556 million available to be repurchased under this plan, of which 4.5 million shares in the aggregate amount of $135 million were repurchased as of August 8, 2024 (after which authorization under this plan terminated).
(3)On August 8, 2024, our Board of Directors authorized repurchases of our outstanding ordinary shares for up to $1.7 billion. This is in accordance with the share purchase mandate whereby our shareholders approved a repurchase limit of 20% of our issued ordinary shares outstanding at the Annual General Meeting held on the same date as the Board authorization. As of September 27, 2024, shares in the aggregate amount of $1.5 billion were available to be repurchased under the current plan.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
ITEM 5. OTHER INFORMATION
Insider Trading Arrangements
During the fiscal quarter ended September 27, 2024, none of the Company’s directors or officers adopted terminated
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ITEM 6. EXHIBITS
EXHIBIT INDEX
| Incorporated by Reference | ||||||||||||||||||||||||||||||||||||||
| Exhibit No. | Exhibit | Form | File No. | Filing Date | Exhibit No. | Filed Herewith | ||||||||||||||||||||||||||||||||
Indenture, dated as of June 6, 2019, by and between the Company and U.S. Bank Trust Company, National Association (as successor in interest to U.S. Bank National Association), as trustee | 8-K | 000-23354 | June 6, 2019 | 4.1 | ||||||||||||||||||||||||||||||||||
Sixth Supplemental Indenture, dated as of August 21, 2024, by and between the Company and U.S. Bank Trust Company, National Association, as trustee | 8-K | 000-23354 | August 21, 2024 | 4.2 | ||||||||||||||||||||||||||||||||||
Form of 5.250% Global Note due 2032 (included in Exhibit 4.2) | 8-K | 000-23354 | August 21, 2024 | 4.3 | ||||||||||||||||||||||||||||||||||
Form of Restricted Share Unit Award Agreement under the Amended and Restated 2017 Equity Incentive Plan for service-based vesting awards (FY25 2-year prorated) | X | |||||||||||||||||||||||||||||||||||||
Form of Restricted Share Unit Award Agreement under the Amended and Restated 2017 Equity Incentive Plan for service-based vesting awards (FY25 supplemental equity) | X | |||||||||||||||||||||||||||||||||||||
Form of Restricted Share Unit Award Agreement under the Amended and Restated 2017 Equity Incentive Plan for performance-based vesting awards (FY25 supplemental equity) | X | |||||||||||||||||||||||||||||||||||||
| Letter in lieu of consent of Deloitte & Touche LLP | X | |||||||||||||||||||||||||||||||||||||
| Certification of Principal Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | X | |||||||||||||||||||||||||||||||||||||
Certification of Principal Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | X | |||||||||||||||||||||||||||||||||||||
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* | X | |||||||||||||||||||||||||||||||||||||
| 101.INS | XBRL Instance Document | X | ||||||||||||||||||||||||||||||||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document | X | ||||||||||||||||||||||||||||||||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | X | ||||||||||||||||||||||||||||||||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | X | ||||||||||||||||||||||||||||||||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | X | ||||||||||||||||||||||||||||||||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | X | ||||||||||||||||||||||||||||||||||||
| 104 | Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibit 101) | |||||||||||||||||||||||||||||||||||||
* This exhibit is furnished with this Quarterly Report on Form 10-Q, is not deemed filed with the Securities and Exchange Commission, and is not incorporated by reference into any filing of Flex Ltd. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| FLEX LTD. | ||||||||
| (Registrant) | ||||||||
| /s/ REVATHI ADVAITHI | ||||||||
| Revathi Advaithi | ||||||||
| Chief Executive Officer | ||||||||
| (Principal Executive Officer) | ||||||||
| Date: | October 31, 2024 | |||||||
/s/ JAIME MARTINEZ | ||||||||
Jaime Martinez | ||||||||
Interim Chief Financial Officer | ||||||||
| (Principal Financial Officer) | ||||||||
| Date: | October 31, 2024 | |||||||
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