SHARE-BASED COMPENSATION

Equity Compensation Plans

The Company's primary plan used for granting equity compensation awards is the 2010 Equity Incentive Plan (the "2010 Plan").

During fiscal year 2016, in conjunction with the acquisition of NEXTracker, the Company assumed all of the outstanding, unvested share bonus awards and outstanding, unvested options to purchase shares of common stock of NEXTracker, and converted all these shares into Flex awards. As a result, the Company now offers the 2014 NEXTracker Equity Incentive Plan (the "NEXTracker Plan").

Additionally, during fiscal year 2017, in conjunction with an immaterial acquisition, the Company assumed all of the outstanding, unvested options to purchase shares of common stock of the acquiree, and converted all of these shares into Flex awards. As a result, the Company now offers an additional equity compensation plan, the BrightBox Technologies 2013 Plan (the "BrightBox Plan").

Further, during fiscal year 2017, the Company granted equity compensation awards under a fourth plan, the 2013 Elementum Plan (the "Elementum Plan"), which is administered by Elementum SCM (Cayman) Limited ("Elementum"), a majority owned subsidiary of the Company.

Share-Based Compensation Expense

The Company early adopted new guidance intended to reduce cost and complexity of the accounting for share-based payments, as discussed further in note 2.

The following table summarizes the Company's share-based compensation expense for all Equity Incentive Plans:



	Fiscal Year Ended March 31,
	2017		2016		2015
	(In thousands)
Cost of sales	$	10,023	$	8,986	$	7,503
Selling, general and administrative expenses	72,243		68,594		42,767
Total share-based compensation expense	$	82,266	$	77,580	$	50,270

Cash flows resulting from excess tax benefits (tax benefits related to the excess of proceeds from employee exercises of share options over the share-based compensation cost recognized for those options) are classified as operating cash flows. During fiscal years 2017, 2016 and 2015, the Company did not recognize any excess tax benefits as an operating cash inflow.

The 2010 Equity Incentive Plan

As of March 31, 2017, the Company had approximately 18.1 million shares available for grant under the 2010 Plan. Options issued to employees under the 2010 Plan generally vest over four years and expire seven years from the date of grant. Options granted to non-employee directors expire five years from the date of grant.

The exercise price of options granted to employees is determined by the Company's Board of Directors or the Compensation Committee and may not be less than the closing price of the Company's ordinary shares on the date of grant.

As of March 31, 2017, the total unrecognized compensation cost related to unvested share options granted to employees under the 2010 Plan was not significant and will be amortized on a straight-line basis over a weighted-average period of approximately 1.5 years.

The Company also grants share bonus awards under its equity compensation plan. Share bonus awards are rights to acquire a specified number of ordinary shares for no cash consideration in exchange for continued service with the Company. Share bonus awards generally vest in installments over a three to five-year period and unvested share bonus awards are forfeited upon termination of employment.

Vesting for certain share bonus awards is contingent upon both service and market conditions. Further, vesting for certain share bonus awards granted to certain executive officers is contingent upon meeting certain free cash flow targets.

As of March 31, 2017, the total unrecognized compensation cost related to unvested share bonus awards granted to employees was approximately $130.0 million under the 2010 Plan. These costs will be amortized generally on a straight-line basis over a weighted-average period of approximately 2.5 years. Approximately $14.4 million of the unrecognized compensation cost related to the 2010 Plan is related to share bonus awards granted to certain key employees whereby vesting is contingent on meeting a certain market condition.

Determining Fair Value - Options and share bonus awards

Valuation and Amortization Method—The Company estimates the fair value of share options granted under the 2010 Plan using the Black-Scholes valuation method and a single option award approach. This fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. The fair market value of share bonus awards granted, other than those awards with a market condition, is the closing price of the Company's ordinary shares on the date of grant and is generally recognized as compensation expense on a straight-line basis over the respective vesting period.

Expected Term—The Company's expected term used in the Black-Scholes valuation method represents the period that the Company's share options are expected to be outstanding and is determined based on historical experience of similar awards, giving consideration to the contractual terms of the share options, vesting schedules and expectations of future employee behavior as influenced by changes to the terms of its share options.

Expected Volatility—The Company's expected volatility used in the Black-Scholes valuation method is derived from a combination of implied volatility related to publicly traded options to purchase Flex ordinary shares and historical variability in the Company's periodic share price.

Expected Dividend—The Company has never paid dividends on its ordinary shares and accordingly the dividend yield percentage is zero for all periods.

Risk-Free Interest Rate—The Company bases the risk-free interest rate used in the Black-Scholes valuation method on the implied yield currently available on U.S. Treasury constant maturities issued with a term equivalent to the expected term of the option.

There were no options granted under the 2010 Plan during fiscal years 2017 and 2016. The fair value of the Company's share options granted to employees for fiscal year 2015 was estimated using the following weighted-average assumptions:



	Fiscal Year Ended March 31,
	2015
Expected term	6.3 years
Expected volatility	46.9%
Expected dividends	0.0%
Risk-free interest rate	2.3%
Weighted-average fair value	$4.85

Determining Fair Value - Share bonus awards with service and market conditions

Valuation and Amortization Method—The Company estimates the fair value of share bonus awards granted under the 2010 Plan whereby vesting is contingent on meeting certain market conditions using Monte Carlo simulation. This fair value is then amortized on a straight-line basis over the vesting period, which is the service period.

Expected volatility of Flex—Volatility used in a Monte Carlo simulation is derived from the historical volatility of Flex's stock price over a period equal to the service period of the share bonus awards granted. The service period is three years for those share bonus awards granted in fiscal years 2017, 2016 and 2015.

Average peer volatility—Volatility used in a Monte Carlo simulation is derived from the historical volatilities of both the Standard and Poor's ("S&P") 500 index and components of an extended Electronics Manufacturing Services ("EMS") group, comprised of global competitors of the Company within the same industry, for the share bonus awards granted in fiscal years 2017, 2016 and 2015.

Average Peer Correlation—Correlation coefficients were used to model the movement of Flex's stock price relative to both the S&P 500 index and peers in the extended EMS group for the share bonus awards granted in fiscal years 2017, 2016 and 2015.

Expected Dividend and Risk-Free Interest Rate assumptions—Same methodology as discussed above.

The fair value of the Company's share-bonus awards under the 2010 Plan, whereby vesting is contingent on meeting certain market conditions, for fiscal years 2017, 2016 and 2015 was estimated using the following weighted-average assumptions:



	Fiscal Year Ended March 31,
	2017		2016		2015
Expected volatility	25.8	%	26.0	%	29.4	%
Average peer volatility	25.1	%	23.0	%	25.9	%
Average peer correlation	0.6		0.6		0.6
Expected dividends	0.0	%	0.0	%	0.0	%
Risk-free interest rate	0.9	%	1.2	%	0.9	%

Share-Based Awards Activity

The following is a summary of option activity for the Company's 2010 Plan ("Price" reflects the weighted-average exercise price):



	Fiscal Year Ended March 31,
	2017				2016				2015
	Options		Price		Options		Price		Options		Price
Outstanding, beginning of fiscal year	2,369,636		$	8.31	15,992,894		$	7.81	23,612,872		$	8.57
Granted	—		—		—		—		15,000		11.11
Exercised	(1,573,356	)	6.89		(10,006,774	)	6.10		(3,600,900	)	6.53
Forfeited	(653,953	)	12.39		(3,616,484	)	12.23		(4,034,078	)	13.17
Outstanding, end of fiscal year	142,327		$	8.97	2,369,636		$	8.31	15,992,894		$	7.81
Options exercisable, end of fiscal year	138,950		$	8.93	2,359,527		$	8.30	15,959,173		$	7.81

The aggregate intrinsic value of options exercised under the Company's 2010 Plan (calculated as the difference between the exercise price of the underlying award and the price of the Company's ordinary shares determined as of the time of option exercise for options exercised in-the-money) was $9.3 million, $55.3 million and $16.3 million during fiscal years 2017, 2016 and 2015, respectively.

Cash received from option exercises under the 2010 Plan was $10.9 million, $61.1 million and $23.5 million for fiscal years 2017, 2016 and 2015, respectively.

The following table presents the composition of options outstanding and exercisable under the 2010 Plan as of March 31, 2017:



	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number of Shares Outstanding	Weighted Average Remaining Contractual Life (In Years)	Weighted Average Exercise Price		Number of Shares Exercisable	Weighted Average Remaining Contractual Life (In Years)	Weighted Average Exercise Price
$3.39 - $5.75	15,759	0.42	$	5.03	15,759	0.42	$	5.03
$5.87 - $7.07	11,003	1.43	6.63		11,003	1.43	6.63
$7.08 - $10.59	62,564	0.97	8.16		62,564	0.97	8.16
$10.67 - $11.41	45,501	1.14	11.16		42,124	0.91	11.16
$11.53 - $13.98	7,500	0.61	12.47		7,500	0.61	12.47
$3.39 - $13.98	142,327	0.99	$	8.97	138,950	0.91	$	8.93
Options vested and expected to vest	142,014	0.98	$	8.97

As of March 31, 2017 the aggregate intrinsic value for options outstanding, options vested and expected to vest, and options exercisable under the Company's 2010 Plan, was $1.2 million, respectively. The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company's ordinary shares as of March 31, 2017 for the approximately 0.2 million options that were in-the-money at March 31, 2017.

The following table summarizes the Company's share bonus award activity under the 2010 Plan ("Price" reflects the weighted-average grant-date fair value):



	Fiscal Year Ended March 31,
	2017				2016				2015
	Shares		Price		Shares		Price		Shares		Price
Unvested share bonus awards outstanding, beginning of fiscal year	17,000,076		$	10.77	18,993,252		$	9.01	21,848,120		$	7.32
Granted (1)	6,578,366		13.46		7,619,722		12.23		6,963,125		11.75
Vested (1)	(6,922,946	)	9.44		(8,529,378	)	7.93		(7,246,056	)	6.97
Forfeited	(956,914	)	11.20		(1,083,520	)	9.67		(2,571,937	)	7.70
Unvested share bonus awards outstanding, end of fiscal year	15,698,582		$	12.44	17,000,076		$	10.77	18,993,252		$	9.01

(1) Excluded from the fiscal year 2017 amounts are 1.7 million of share bonus awards representing the number of awards achieved above target levels based on the achievement of certain market conditions, as further described in the table below. These awards were issued and immediately vested in accordance with the terms and conditions of the underlying awards.

Of the 6.6 million unvested share bonus awards granted under the 2010 Plan in fiscal year 2017, approximately 5.7 million unvested share bonus awards have an average grant date price of $13.09 per share. Further, approximately 0.2 million of these unvested share bonus awards have an average grant date price of $12.82 per share and represents the target amount of grants made to certain executive officers whereby vesting is contingent on meeting certain free cash flow targets. These awards cliff vest after three years and will ultimately pay out over a range from zero up to a maximum of 0.4 million of the target payment based on a measurement of cumulative three-year increase of free cash flow from operations of the Company.

Further, 0.7 million of these unvested share bonus awards granted in fiscal year 2017 represents 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 $17.57 per award and was calculated using a Monte Carlo simulation. Vesting information of these shares are further detailed in the table below.

Of the 15.7 million unvested share bonus awards outstanding under the 2010 Plan as of the fiscal year ended 2017, approximately 2.1 million of unvested share bonus awards under the 2010 Plan represents the target amount of grants made to certain key employees whereby vesting is contingent on meeting certain market conditions summarized as follows:



	Targeted number of awards as of March 31, 2017 (in shares)				Range of shares that may be issued
		Average grant date fair value (per share)
							Assessment dates
Year of grant				Market condition	Minimum	Maximum	Assessment dates
Fiscal 2017	722,213	$	17.57	Vesting ranges from zero to 200% based on measurement of Flex's total shareholder return against both the Standard and Poor's ("S&P") 500 Composite Index and an Extended Electronics Manufacturing Services ("EMS") Group Index.	—	1,444,426	May 2019
Fiscal 2016	712,977	$	14.96	Vesting ranges from zero to 200% based on measurement of Flex's total shareholder return against both the S&P 500 Composite Index and an EMS Group Index.	—	1,425,954	May 2018
Fiscal 2015	686,520	$	14.77	Vesting ranges from zero to 200% based on measurement of Flex's total shareholder return against both the S&P 500 Composite Index and an EMS Group Index.	—	1,373,040	May 2017
Totals	2,121,710					4,243,420

The Company will recognize share-based compensation expense for awards with market conditions regardless of whether such awards will ultimately vest. During fiscal year 2017, 3.5 million shares vested in connection with the share bonus awards with market conditions granted in fiscal year 2014.

The total intrinsic value of share bonus awards vested under the Company's 2010 Plan was $109.5 million, $103.2 million and $79.0 million during fiscal years 2017, 2016 and 2015, respectively, based on the closing price of the Company's ordinary shares on the date vested.

The 2014 NEXTracker Equity Incentive Plan

All shares previously granted under the NEXTracker plan are the result of the Company's conversion of all outstanding, unvested shares of NEXTracker into unvested shares of the Company, as part of the acquisition. Therefore, no additional share options or share bonus awards were granted by the Company during fiscal year 2017.

Options issued to employees under the NEXTracker Plan generally have a vesting period of two to four years from vesting commencement date and expire ten years from the date of grant.

The exercise price of options granted to employees was determined by the Company based on a conversion rate agreed upon in the purchase agreement of NEXTracker.

As of March 31, 2017, the total unrecognized compensation cost related to unvested share options granted to employees under the NEXTracker Plan was $8.7 million and will be amortized on a straight-line basis over a weighted-average period of approximately 1.8 years.

Share bonus awards issued to employees under the NEXTracker Plan vest in installments over a three to five-year period from vesting commencement date, and unvested share bonus awards are forfeited upon termination of employment. Vesting for certain of these share bonus awards is contingent on meeting certain performance targets over a three-year period commencing October 1, 2015.

As of March 31, 2017, the total unrecognized compensation cost related to unvested share bonus awards granted to employees under the NEXTracker Plan was approximately $11.0 million and will be amortized generally on a straight-line basis over a weighted-average period of approximately 1.5 years.

Determining Fair Value

As noted above, there were no options granted under the NEXTracker Plan during fiscal year 2017. The fair value of the Company's share options granted to employees under the NEXTracker Plan for fiscal year 2016 was estimated using the following weighted-average assumptions:



	Fiscal Year Ended March 31, 2016
Expected term	2.9 years
Expected volatility	28.8%
Expected dividends	0.0%
Risk-free interest rate	0.9%
Weighted-average fair value	$7.76

Share-Based Awards Activity

The following is a summary of option activity for the NEXTracker Plan ("Price" reflects the weighted-average exercise price):



	Fiscal Year Ended March 31,
	2017				2016
	Options		Price		Options		Price
Outstanding, beginning of fiscal year	2,741,854		$	3.44	—		$	—
Granted	—		—		3,205,806		3.28
Exercised	(709,845	)	2.24		(237,380	)	0.99
Forfeited	(395,993	)	4.64		(226,572	)	3.75
Outstanding, end of fiscal year	1,636,016		$	3.61	2,741,854		$	3.44
Options exercisable, end of fiscal year	369,015		$	5.00	223,869		$	4.95

The aggregate intrinsic value of options exercised under the NEXTracker plan (calculated as the difference between the exercise price of the underlying award and the price of the Company's ordinary shares determined as of the time of option exercise for options exercised in-the-money) was $8.0 million and $2.3 million as of March 31, 2017 and 2016, respectively.

Cash received from option exercises under the NEXTracker Plan was $1.6 million and $0.2 million for fiscal year 2017 and 2016, respectively.

The following table presents the composition of options outstanding and exercisable under the NEXTracker Plan as of March 31, 2017:



	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number of Shares Outstanding	Weighted Average Remaining Contractual Life (In Years)	Weighted Average Exercise Price		Number of Shares Exercisable	Weighted Average Remaining Contractual Life (In Years)	Weighted Average Exercise Price
$0.08 - $5.24	1,223,059	8.50	$	1.30	229,584	8.50	$	1.70
$5.25 - $10.65	412,957	8.50	10.65		139,431	8.50	10.65
$0.08 - $10.65	1,636,016	8.50	$	3.61	369,015	8.50	$	5.00
Options vested and expected to vest	1,636,016	8.50	$	3.61

As of March 31, 2017 the aggregate intrinsic value for options outstanding, options vested and expected to vest, and options exercisable under the Company's NEXTracker Plan, were $22.2 million, $22.2 million, and $4.5 million, respectively. The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company's ordinary shares as of March 31, 2017 for the approximately 1.6 million options under the NEXTracker Plan that were in-the-money at March 31, 2017.

The following table summarizes the Company's share bonus award activity under the NEXTracker Plan ("Price" reflects the weighted-average grant-date fair value):



	Fiscal Year Ended March 31,
	2017				2016
	Shares		Price		Shares		Price
Unvested share bonus awards outstanding, beginning of fiscal year	2,309,096		$	10.27	—		$	—
Granted	—		—		2,393,195		10.27
Vested	(705,738	)	10.19		(31,925	)	10.27
Forfeited	(59,921	)	10.27		(52,174	)	10.27
Unvested share bonus awards outstanding, end of fiscal year	1,543,437		$	10.23	2,309,096		$	10.27

The total intrinsic value of share bonus awards vested under the Company's NEXTracker Plan was $9.6 million during fiscal year 2017, based on the closing price of the Company's ordinary shares on the date vested.

The BrightBox Technologies 2013 Plan

During fiscal year 2017, the Company granted 0.2 million share options under the BrightBox Plan, at an average grant date fair value price of $11.99 per share, and with a vesting period of three years from the vesting commencement date. All shares granted under the BrightBox plan are the result of the Company's conversion of all outstanding, unvested shares of BrightBox into unvested shares of the Company, as part of the acquisition. No additional grants will be made out of this plan in the future.

As of March 31, 2017, total unrecognized compensation expense related to share options under the BrightBox Plan is $1.4 million, and will be recognized over a weighted-average remaining vesting period of 2.1 years. As of March 31, 2017, the number of options outstanding was 0.2 million, at a weighted-average exercise price of $0.51 per share. No options under this plan were exercisable as of March 31, 2017.

The 2013 Equity Incentive Plan of Elementum SCM (Cayman) Ltd.

As of March 31, 2017 Elementum had approximately 0.1 million shares available for future grants under the 2013 Elementum Plan. Options to purchase shares in Elementum issued to employees under the Elementum Plan have a vesting period of two to four years and expire ten years from the grant date. As of March 31, 2017 there were 33.6 million of options outstanding at a weighted average exercise price of $0.39 per option. Cash received from option exercises under the Elementum Plan was $0.6 million for fiscal year 2017. Total unrecognized compensation expenses relating to stock options granted to certain employees under the Elementum Plan as of March 31, 2017 is $5.7 million, and will be recognized over a weighted average period of 2.6 years.