10-KPeriod: FY2018

FLEX LTD. Annual Report, Year Ended Mar 31, 2018

Filed June 14, 2018For Securities:FLEX

Summary

Flex Ltd. reported net sales of $25.4 billion and net income of $429 million for the fiscal year ended March 31, 2018. The company experienced a 7% increase in net sales compared to the previous year, driven primarily by growth in its Industrial and Emerging Industries (IEI) and High Reliability Solutions (HRS) segments. Management highlighted strategic investments in innovation and design services, alongside its core manufacturing and supply chain capabilities, as key differentiators. However, investors should note the disclosure of material weaknesses in internal control over financial reporting, specifically concerning the accounting for accrued customer obligations and aspects of the control environment. While remediation efforts are underway, this indicates potential areas for enhanced oversight and process improvement. The company also reported increased selling, general, and administrative expenses, partly due to investments in design and engineering resources and legal matters.

Financial Highlights

54 data points
Beta

Revenue

$25.44B

6.3% Gross Margin

Net Income

$428.53M

1.7% Net Margin

EPS (Diluted)

$0.80

Total Assets

$13.72B

Cash & Equivalents

$1.47B

Free Cash Flow

-$4.43B

Financial Statements
Beta
Revenue$25.44B
Cost of Revenue$23.78B
Gross Profit$1.60B
R&D Expenses$78.20M
SG&A Expenses$1.02B
Interest Expense$123.10M
Net Income$428.53M
EPS (Basic)$0.81
EPS (Diluted)$0.80
Shares Outstanding (Basic)529.78M
Shares Outstanding (Diluted)536.60M

Key Highlights

  • 1Net sales increased by 7% to $25.4 billion for fiscal year 2018, driven by growth in IEI and HRS segments.
  • 2Net income increased by 34% to $429 million, supported by revenue growth and gains from the deconsolidation of a subsidiary and the sale of Wink.
  • 3The company reported material weaknesses in internal control over financial reporting related to accounting for customer obligations and control environment.
  • 4Selling, general, and administrative expenses increased by 9% due to investments in design and engineering and legal matters.
  • 5The company maintained a diversified customer base, with its top ten customers accounting for 41% of net sales and no single customer exceeding 10% of net sales in fiscal year 2018.
  • 6Free cash flow decreased to $236 million from $660 million in the prior year, primarily due to lower cash flows from operations and higher capital expenditures.

Frequently Asked Questions

Flex's revenue growth in fiscal year 2018 was primarily driven by strong performance in its Industrial and Emerging Industries (IEI) segment, which saw a 20% increase in sales, and its High Reliability Solutions (HRS) segment, which grew by 15%. The Consumer Technologies Group (CTG) also contributed with a 10% increase. These were partially offset by a 8% decline in the Communications & Enterprise Compute (CEC) segment.

The disclosure of material weaknesses in internal control over financial reporting indicates that there were deficiencies in the documentation and design of controls related to accounting for accrued customer obligations and aspects of the company's control environment. This means there's a reasonable possibility that a material misstatement in the financial statements might not be prevented or detected in a timely manner. While Flex is implementing remediation plans, this is a critical area for investors to monitor for potential impacts on financial reporting accuracy and reliability.

As of March 31, 2018, Flex had approximately $2.9 billion in total debt. The company has a $1.75 billion revolving credit facility maturing in June 2022. Management indicated they continue to assess their capital structure and evaluate options such as debt reduction or share repurchases. The company's credit ratings were considered 'investment grade' by major agencies at the time of the filing.