SHARE-BASED COMPENSATION

Equity Compensation Plans

Historically, the Company's primary plan used for granting equity compensation awards was the 2010 Equity Incentive Plan (the "2010 Plan"). Effective August 15, 2017, awards are granted under the Company's 2017 Equity Incentive Plan (the "2017 Plan"), which was approved by the Company's shareholders at the 2017 Annual General Meeting of Shareholders, to replace the 2010 Plan for further grants. For additional discussion about the 2017 Plan, refer to the Company's Proxy Statement, which was filed with the Securities and Exchange Commission on July 5, 2017.

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 maintains 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 maintains an additional equity compensation plan, the BrightBox Technologies 2013 Plan (the "BrightBox Plan"). The BrightBox Plan is immaterial to the Company for all periods presented.

As a result of the deconsolidation of Elementum during fiscal year 2018, the Company no longer grants equity compensation awards under the 2013 Elementum Plan. Refer to note 6 for additional information on the deconsolidation.

Share-Based Compensation Expense

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



	Fiscal Year Ended March 31,
	2018		2017		2016
	(In thousands)
Cost of sales	$	19,102	$	10,023	$	8,986
Selling, general and administrative expenses	66,142		72,243		68,594
Total share-based compensation expense	$	85,244	$	82,266	$	77,580

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 2018, 2017 and 2016, the Company did not recognize any excess tax benefits as an operating cash inflow.

The 2017 Equity Incentive Plan

As of March 31, 2018, the Company had approximately 22.2 million shares available for grant under the 2017 Plan. Options issued to employees under the 2017 Plan generally vest over four years and expire ten 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, 2018, the total unrecognized compensation cost related to unvested share options granted to employees under the 2017 Plan was not significant and will be amortized on a straight-line basis over a weighted-average period of approximately six months.

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, 2018, the total unrecognized compensation cost related to unvested share bonus awards granted to employees was approximately $134.2 million under the 2017 Plan. These costs will be amortized generally on a straight-line basis over a weighted-average period of approximately 2.5 years. Approximately $14.2 million of the unrecognized compensation cost related to the 2017 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 2017 and 2010 Plans 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 2017 and 2010 Plans during fiscal years 2018, 2017 and 2016.

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 2017 and 2010 Plans 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 2018, 2017 and 2016.

Average peer volatility—Volatility used in a Monte Carlo simulation is derived from the historical volatilities of the Standard and Poor's ("S&P") 500 index for the share bonus awards granted in fiscal years 2018, 2017 and 2016.

Average Peer Correlation—Correlation coefficients were used to model the movement of Flex's stock price relative to the S&P 500 index for the share bonus awards granted in fiscal years 2018, 2017 and 2016.

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 2017 and 2010 Plans, whereby vesting is contingent on meeting certain market conditions, for fiscal years 2018, 2017 and 2016 was estimated using the following weighted-average assumptions:



	Fiscal Year Ended March 31,
	2018		2017		2016
Expected volatility	25.1	%	25.8	%	26.0	%
Average peer volatility	28.7	%	25.1	%	23.0	%
Average peer correlation	0.6		0.6		0.6
Expected dividends	0.0	%	0.0	%	0.0	%
Risk-free interest rate	1.5	%	0.9	%	1.2	%

Share-Based Awards Activity

The following is a summary of option activity for the Company's 2017 and 2010 Plans ("Price" reflects the weighted-average exercise price):



	Fiscal Year Ended March 31,
	2018				2017				2016
	Options		Price		Options		Price		Options		Price
Outstanding, beginning of fiscal year	142,327		$	8.97	2,369,636		$	8.31	15,992,894		$	7.81
Granted	—		—		—		—		—		—
Exercised	(125,949	)	8.63		(1,573,356	)	6.89		(10,006,774	)	6.10
Forfeited	(9,500	)	11.55		(653,953	)	12.39		(3,616,484	)	12.23
Outstanding, end of fiscal year	6,878		$	9.78	142,327		$	8.97	2,369,636		$	8.31
Options exercisable, end of fiscal year	5,751		$	9.52	138,950		$	8.93	2,359,527		$	8.30

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 $1.1 million, $9.3 million and $55.3 million during fiscal years 2018, 2017 and 2016, respectively.

Cash received from option exercises under the 2010 Plan was $1.1 million, $10.9 million and $61.1 million for fiscal years 2018, 2017 and 2016, respectively.

As of March 31, 2018 the aggregate intrinsic value for options outstanding, options vested and expected to vest, and options exercisable under the Company's 2017 and 2010 Plans were immaterial. 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, 2018 for the immaterial amount of options that were in-the-money at March 31, 2018.

The following table summarizes the Company's share bonus award activity under the 2017 and 2010 Plans ("Price" reflects the weighted-average grant-date fair value):



	Fiscal Year Ended March 31,
	2018				2017				2016
	Shares		Price		Shares		Price		Shares		Price
Unvested share bonus awards outstanding, beginning of fiscal year	15,698,582		$	12.44	17,000,076		$	10.77	18,993,252		$	9.01
Granted (1)	6,155,761		16.99		8,261,666		13.46		7,619,722		12.23
Vested (1)	(6,473,562	)	12.17		(8,606,246	)	9.44		(8,529,378	)	7.93
Forfeited	(1,488,739	)	13.38		(956,914	)	11.20		(1,083,520	)	9.67
Unvested share bonus awards outstanding, end of fiscal year	13,892,042		$	14.52	15,698,582		$	12.44	17,000,076		$	10.77

(1) Included in the fiscal years 2018 and 2017 amounts are 0.7 million and 1.7 million of share bonus awards, respectively, 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 6.2 million unvested share bonus awards granted under the 2017 and 2010 Plans in fiscal year 2018, approximately 4.7 million are plain-vanilla unvested share bonus awards with no performance or market conditions with an average grant date price of $16.57 per share. Further, approximately 0.2 million of these unvested share bonus awards have an average grant date price of $16.34 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, 0.6 million of these unvested share bonus awards granted in fiscal year 2018 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 $20.25 per award and was calculated using a Monte Carlo simulation. Vesting information for these shares are further detailed in the table below. Finally, the remaining balance of 0.7 million represents the number of awards achieved above target levels, as described in the table above.

Of the 13.9 million unvested share bonus awards outstanding under the 2017 and 2010 Plans as of the fiscal year ended 2018, approximately 2.0 million of unvested share bonus awards 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, 2018 (in shares)			Range of shares that may be issued (1)
		Average grant date fair value (per share)
						Assessment dates
Year of grant				Minimum	Maximum	Assessment dates
Fiscal 2018	623,620	$	20.25	—	1,247,240	June 2020
Fiscal 2017	677,523	$	17.57	—	1,355,046	June 2019
Fiscal 2016	648,929	$	14.96	—	1,297,858	June 2018
Totals	1,950,072			—	3,900,144

(1) Vesting ranges from zero to 200% based on measurement of Flex's total shareholder return against the Standard and Poor's ("S&P") 500 Composite Index.

The Company will recognize share-based compensation expense for awards with market conditions regardless of whether such awards will ultimately vest. During fiscal year 2018, 1.4 million shares vested in connection with the share bonus awards with market conditions granted in fiscal year 2015.

The total intrinsic value of share bonus awards vested under the Company's 2017 and 2010 Plans was $108.4 million, $109.5 million and $103.2 million during fiscal years 2018, 2017 and 2016, respectively, based on the closing price of the Company's ordinary shares on the date vested.

The 2014 NEXTracker Equity Incentive Plan

All awards 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. During fiscal year 2018, the Company modified the vesting conditions of 0.3 million unvested options and 0.5 million share bonus awards under the NEXTracker Plan contingent on meeting certain performance targets. These options and share bonus awards were then re-granted to vest in installments over a three-year period commencing September 29, 2017. The Company determined that the transaction falls under the accounting for modification of awards, and accordingly adjusted the recognized compensation expense with an immaterial impact on the statement of operations for fiscal year 2018.

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, 2018, the total unrecognized compensation cost related to unvested share options granted to employees under the NEXTracker Plan was $6.3 million and will be amortized on a straight-line basis over a weighted-average period of approximately 2.1 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 September 29, 2017, following the modification of vesting conditions described above.

As of March 31, 2018, the total unrecognized compensation cost related to unvested share bonus awards granted to employees under the NEXTracker Plan was approximately $10.5 million and will be amortized generally on a straight-line basis over a weighted-average period of approximately 2.5 years.

Determining Fair Value

As noted above, the Company re-granted certain shares options under the NEXTracker Plan during fiscal year 2018 after modifying the vesting conditions. The fair value of share options granted under the NEXTracker Plan for fiscal years 2018 and 2016 was estimated using the following weighted-average assumptions:



	Fiscal Year Ended March 31, 2018	Fiscal Year Ended March 31, 2016
Expected term	6.5 years	2.9 years
Expected volatility	28.8%	28.8%
Expected dividends	0.0%	0.0%
Risk-free interest rate	2.1%	0.9%
Weighted-average fair value	$16.29	$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,
	2018				2017				2016
	Options		Price		Options		Price		Options		Price
Outstanding, beginning of fiscal year	1,636,016		$	3.61	2,741,854		$	3.44	—		$	—
Granted	288,386		0.54		—		—		3,205,806		3.28
Exercised	(510,322	)	3.27		(709,845	)	2.24		(237,380	)	0.99
Forfeited	(352,820	)	5.69		(395,993	)	4.64		(226,572	)	3.75
Outstanding, end of fiscal year	1,061,260		$	3.55	1,636,016		$	3.61	2,741,854		$	3.44
Options exercisable, end of fiscal year	352,829		$	5.11	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 $7.3 million, $8.0 million and 2.3 million as of March 31, 2018, 2017 and 2016, respectively.

Cash received from option exercises under the NEXTracker Plan was $1.7 million, $1.6 million and $0.2 million for fiscal years 2018, 2017 and 2016, respectively.

As of March 31, 2018 the aggregate intrinsic value for options outstanding, options vested and expected to vest, and options exercisable under the Company's NEXTracker Plan, were $13.6 million, $13.6 million, and $4.0 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, 2018 for the approximately 1.1 million options under the NEXTracker Plan that were in-the-money at March 31, 2018.

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,
	2018				2017				2016
	Shares		Price		Shares		Price		Shares		Price
Unvested share bonus awards outstanding, beginning of fiscal year	1,543,437		$	10.23	2,309,096		$	10.27	—		$	—
Granted	524,978		16.73		—		—		2,393,195		10.27
Vested	(471,831	)	7.63		(705,738	)	10.19		(31,925	)	10.27
Forfeited	(868,934	)	10.18		(59,921	)	10.27		(52,174	)	10.27
Unvested share bonus awards outstanding, end of fiscal year	727,650		$	11.85	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 $8.0 million and $9.6 million, during fiscal year 2018 and 2017, respectively, based on the closing price of the Company's ordinary shares on the date vested. The total intrinsic value of share bonus awards vested under the Company's NEXTracker Plan was immaterial during fiscal year 2016.