01—Abstract
Summary
Summary of the 10-K filed June 14, 2018. Cited figures are marked; the original filing is the authoritative source.
Flex Ltd. reported net sales of $25.4 billiona and net income of $429 million for the fiscal year ended March 31, 2018.
The company experienced a 7%b 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.
02—Key points
Key Highlights
- Net sales increased by 7% to $25.4 billion for fiscal year 2018, driven by growth in IEI and HRS segments.
- Net income increased by 34% to $429 million, supported by revenue growth and gains from the deconsolidation of a subsidiary and the sale of Wink.
- The company reported material weaknesses in internal control over financial reporting related to accounting for customer obligations and control environment.
- Selling, general, and administrative expenses increased by 9% due to investments in design and engineering and legal matters.
- The 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.
- Free 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.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2018filed June 14, 2018Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $25.44B$23.86B | +6.6% |
| Cost of Revenue | $23.78B$22.30B | +6.6% |
| Gross Profit | $1.60B$1.52B | +4.9% |
| R&D Expenses | $78.20M$65.60M | +19.2% |
| SG&A Expenses | $1.02B$937.34M | +8.8% |
| Interest Expense | $123.10M$108.00M | +14.0% |
| Net Income | $428.53M$319.56M | +34.1% |
| EPS (Basic) | $0.81$0.59 | +37.3% |
| EPS (Diluted) | $0.80$0.59 | +35.6% |
| Shares Outstanding (Basic) | 529.78M540.50M | −2.0% |
| Shares Outstanding (Diluted) | 536.60M546.22M | −1.8% |
05—Questions
Frequently Asked Questions
What were the main drivers of Flex's revenue growth in fiscal year 2018?
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.
What are the implications of the reported material weaknesses in internal controls?
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.
How is Flex managing its debt?
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.
06—Continue