Flex Ltd. — FY2021 Form 10-K Summary
Reporting period: Fiscal year ended March 31, 2021, compared primarily with fiscal 2020. This is an annual report, not a standalone 2020 fourth-quarter filing. Amounts are in U.S. dollars unless stated otherwise.
Business context
Flex provides design, manufacturing, supply-chain, logistics and aftermarket services across more than 100 locations in approximately 30 countries. In FY2021 it reorganized reporting into Flex Agility Solutions (FAS)—communications, enterprise and cloud; lifestyle; and consumer devices—and Flex Reliability Solutions (FRS)—automotive, health and industrial.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $24.124 billion | $24.210 billion |
| Gross profit / margin | $1.687 billion / 7.0% | $1.339 billion / 5.5% |
| Operating income before tax | $714 million | $159 million |
| Net income | $613 million | $88 million |
| Diluted earnings per share | $1.21 | $0.17 |
| Cash from operating activities | $144 million | $(1.533) billion |
| Adjusted free cash flow, non-GAAP | $677 million | $672 million |
Sales declined less than 1%. FAS sales were $13.493 billion, down 4%; FRS sales were $10.631 billion, up 5%. Segment income was $449 million for FAS (3.3% margin) and $662 million for FRS (6.2% margin). The effective tax rate was 14.1%, versus 44.7% in FY2020.
At March 31, 2021, cash and cash equivalents were $2.637 billion, total debt was $3.783 billion, working capital was $3.529 billion, and shareholders’ equity was $3.436 billion. The company had a $2.0 billion revolving credit facility maturing in January 2026, with no borrowings outstanding under it. It reported compliance with debt covenants and said available liquidity was adequate for current and future commitments.
Changes versus the prior year
- FAS sales fell $560 million, chiefly because Consumer Devices sales declined 25%, reflecting COVID-19 effects and the strategic reduction of higher-volatility, short-cycle business. FRS sales rose $474 million, led by Health Solutions, whose sales increased approximately 25%.
- Gross margin improved 150 basis points. Management attributed the increase mainly to lower restructuring charges and the absence of prior-year customer-asset impairments and inventory write-downs; lower Consumer Devices and Automotive activity partly offset the improvement.
- Net income rose substantially from FY2020, when results included higher impairment charges and restructuring costs. FY2021 included $67 million of other income, largely investment-fund earnings, partly offset by investment impairments.
- Operating cash flow improved by approximately $1.7 billion, but was only $144 million positive. Working capital rose to $2.9 billion, with receivables increasing as Flex reduced balances sold through receivables programs.
Outlook, risks and unusual items
- Management expects revenue to continue improving across end markets, but gave no specific numerical revenue or earnings guidance in the provided filing text. It expects component shortages to persist in the near term and noted continuing exposure in consumer-facing businesses if demand slows.
- COVID-19 generated more than $150 million of FY2021 costs, including health and safety measures, labor incentives, supply-chain costs and under-absorbed factory costs. Management reported temporary plant closures or restrictions in Brazil and Malaysia and was monitoring renewed COVID-19 impacts in India.
- Key operating risks include component shortages, volatile customer orders, customer concentration, competition, international trade and currency exposures, cybersecurity, product quality and liability, and execution of restructuring and new-program ramps. The ten largest customers represented 36% of sales; no single customer exceeded 10%.
- Flex recorded approximately $101 million of FY2021 restructuring charges, mainly employee severance. It repurchased approximately $183 million of shares during the year; $316.5 million remained available under its $500 million authorization. The company reported no current plan to pay cash dividends in FY2022.
- Flex was pursuing alternatives for Nextracker, including a possible IPO. On April 28, 2021, after fiscal year-end, it announced confidential submission of a draft Form S-1; a transaction was not assured.
- Contingencies include a completed voluntary disclosure to OFAC concerning possible sanctions noncompliance, for which penalties could be material; contested foreign tax assessments totaling approximately $162.5 million; Brazilian tax assessments totaling approximately $66.8 million; and a SunEdison-related potential claim. The securities class action was dismissed with prejudice, but the plaintiff appealed.
- Deloitte issued unqualified opinions on the financial statements and internal controls. The audit identified estimation of customer price adjustments as a critical audit matter; related customer accruals were $242 million at year-end.
Important facts for investors to verify
- Whether operating cash generation strengthens as receivables and inventory normalize, and how much reported adjusted free cash flow depends on its non-GAAP adjustments.
- Whether component availability, COVID-19 disruptions and customer demand affect the expected recovery, particularly in Consumer Devices and Automotive.
- Debt maturities, interest costs, covenant headroom and the practical availability of cash held outside Singapore, including potential repatriation taxes.
- Developments in the OFAC matter, foreign and Brazilian tax disputes, and the SunEdison contingency, including any change in potential exposure.
- Progress and terms of any Nextracker separation or IPO, and whether it delivers the intended benefits to Flex shareholders.