BALANCE SHEET ITEMS

Inventories

The components of inventories, net of applicable lower of cost and net realizable value write-downs, were as follows:



	As of September 28, 2018		As of March 31, 2018
	(In thousands)
Raw materials	$	3,512,523	$	2,760,410
Work-in-progress	407,998		450,569
Finished goods	522,334		588,850
	$	4,442,855	$	3,799,829

Due to the adoption of ASC 606, amounts that would have been reported as inventory under prior guidance are now included in contract assets or liabilities, depending on the net position of the contract, as disclosed in note 1. As a result of this accounting change, work-in-progress and finished goods as of September 28, 2018 are $415.6 million less than they would have been, had we not adopted ASC 606. The comparative information as of March 31, 2018, has not been restated and continues to be reported under the accounting standards in effect at that time.

Goodwill and Other Intangible Assets

The following table summarizes the activity in the Company’s goodwill account for each of its four segments during the six-month period ended September 28, 2018:



	HRS			CTG			IEI			CEC			Amount
	(In thousands)
Balance, beginning of the year	$	550,983		$	107,748		$	337,707		$	124,732		$	1,121,170
Divestitures (1)	(4,006		)	(4,412		)	(4,120		)	(6,391		)	(18,929		)
Foreign currency translation adjustments (2)	(19,718		)	—			—			—			(19,718		)
Balance, end of the period	$	527,259		$	103,336		$	333,587		$	118,341		$	1,082,523


(1)	During the six-month period ended September 28, 2018, the Company divested its China-based Multek operations, and as a result, recorded an aggregate reduction of goodwill of $18.9 million, which is included in the loss on sale recorded in other charges (income), net on the condensed consolidated statement of operation. See note 12 for additional information.


(2)	During the six-month period ended September 28, 2018, the Company recorded $19.7 million of foreign currency translation adjustments primarily related to the goodwill associated with the acquisition of Mirror Controls International ("MCi") and AGM Automotive ("AGM"), as the U.S. Dollar fluctuated against foreign currencies.

In accordance with accounting guidance on goodwill and other intangible assets, the Company evaluates goodwill for impairment at the reporting unit level annually, and whenever circumstances occur indicating that goodwill might be impaired. The performance of the test involves a two-step process. The first step of the impairment test involves comparing the fair value of each of the Company's reporting units with the reporting unit's carrying amount, including goodwill. The Company generally determines the fair value of its reporting units based upon, among other factors, market multiples for comparable companies as well as a discounted cash flow analysis. If the carrying amount of a reporting unit exceeds the reporting unit's fair value using these approaches, the Company performs the second step of the goodwill impairment test to determine the amount of impairment loss. The second step of the goodwill impairment test involves comparing the implied fair value of the Company's reporting unit's goodwill with the carrying amount of that goodwill.

During October 2018, the Company's market capitalization declined significantly. The Company believes the significant drop in market value constitutes a “triggering event” in accordance with the applicable accounting literature, and accordingly commenced an interim impairment test. The Company is in the process of completing the first step of the test, and based on preliminary results believes that it is probable that the fair value of the CTG reporting unit is lower than its carrying value. The Company is in the process of finalizing the long-term financial projections necessary to complete the first step of the goodwill impairment test. If it is determined that the goodwill of any of the reporting units is in fact impaired, the Company will then proceed to the second step of the impairment test in which it will measure the fair value of such reporting unit’s identified tangible and intangible assets and liabilities in order to determine the implied fair value of its goodwill and any resulting goodwill impairment.

As of the date of the filing of this Form 10-Q, the Company has not finalized its impairment analysis due to the limited time period from the first indication of potential impairment to the date of this filing and the complexities involved in developing long-term cash flow forecasts and in estimating the fair value of each reporting unit’s assets and liabilities. Accounting guidance provides that in circumstances in which step two of the impairment analysis has not been completed, a company should recognize an estimated impairment charge to the extent that it determines that it is probable that an impairment loss has occurred and such impairment loss can be reasonably estimated. As of the date of the filing of this Form 10-Q, such impairment loss is not reasonably estimable and thus no impairment charge has been recognized by the Company. The Company will complete its impairment analysis during the quarter ending December 31, 2018, which may result in a material impairment of its recorded goodwill.

The components of acquired intangible assets are as follows:



	As of September 28, 2018							As of March 31, 2018
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
	(In thousands)
Intangible assets:
Customer-related intangibles	$	303,361	$	(98,112	)	$	205,249	$	306,943	$	(79,051	)	$	227,892
Licenses and other intangibles	287,024		(116,866		)	170,158		304,007		(107,466		)	196,541
Total	$	590,385	$	(214,978	)	$	375,407	$	610,950	$	(186,517	)	$	424,433

The gross carrying amounts of intangible assets are removed when fully amortized. The estimated future annual amortization expense for intangible assets is as follows:



Fiscal Year Ending March 31,	Amount
	(In thousands)
2019 (1)	$	35,987
2020	66,906
2021	62,515
2022	53,678
2023	45,421
Thereafter	110,900
Total amortization expense	$	375,407

____________________________________________________________


(1)	Represents estimated amortization for the remaining six-month period ending March 31, 2019.

Other Current Assets

Other current assets include approximately $304.3 million and $445.4 million as of September 28, 2018 and March 31, 2018, respectively, for the deferred purchase price receivable from the Company's Asset-Backed Securitization programs. See note 10 for additional information. Assets held for sale related to the China-based Multek operations previously recorded in other current assets have been removed from the condensed consolidated balance sheet as of September 28, 2018, following the execution of the divestiture. See note 12 for additional information.

Investments

The Company has an investment portfolio that consists of strategic investments in privately held companies, and certain venture capital funds which are included within other assets. These privately held companies range from startups to more mature companies with established revenue streams and business models. The primary purpose of these investments is to create an ecosystem of partnerships with customers developing emerging technologies aligned to the Company's corporate strategy with bringing in future opportunities for exclusive manufacturing.

Non-majority-owned investments in entities are accounted for using the equity method when the Company has an investment in common stock or in-substance common stock, and either (a) has the ability to significantly influence the operating decisions of the issuer, or (b) if the Company has a voting percentage equal to or generally greater than 20% but less than 50%, and for non-majority-owned investments in partnerships when generally greater than 5%. The equity in earnings (losses) of equity method investees are immaterial for all periods presented, and are included in interest and other, net in the condensed consolidated statements of operations. Cost method is used for investments which the Company does not have the ability to significantly influence the operating decisions of the investee.

The Company monitors these investments for impairment indicators and makes appropriate reductions in carrying values as required whenever events or changes in circumstances indicate that the assets may be impaired. The factors the Company considers in its evaluation of potential impairment of its investments include, but are not limited to, a significant deterioration in the earnings performance or business prospects of the investee, or factors that raise significant concerns about the investee’s ability to continue as a going concern, such as negative cash flows from operation or working capital deficiencies. Fair values of these investments, when required, are estimated using unobservable inputs, primarily comparable company multiples and discounted cash flow projections. For investments accounted for under cost method that do not have readily determinable fair values, the Company has elected, per ASU 2016-01, to measure them at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

AutoLab AI (now known as Bright Machines)

During the first quarter of fiscal year 2019, the Company transferred existing employees and equipment with a net book value of approximately $40 million along with certain related software and Intellectual Property ("IP"), into the newly created AutoLab AI (“AutoLab”), in exchange for shares of preferred stock and a controlling financial interest in AutoLab. AutoLab is a privately held software-as-a service (SaaS) and hardware company focused on developing and deploying an automation solution worldwide. The Company has concluded that AutoLab does not qualify as a variable interest entity for purposes of evaluating whether it has a controlling financial interest.

Subsequent to the initial formation and prior to June 29, 2018, AutoLab received equity funding from third party investors and expanded the board of directors, resulting in dilution of the Company's voting interest below 50%. As a result, the Company concluded it no longer holds a controlling financial interest in AutoLab and accordingly, deconsolidated the entity.

The fair value of the Company’s non-controlling interest in AutoLab upon deconsolidation was approximately $127.6 million as of the date of deconsolidation. The Company accounts for its investment in AutoLab under the equity method, with the carrying amount included in other assets on the condensed consolidated balance sheet. The value of the Company’s interest on the date of deconsolidation was based on management’s estimate of the fair value of AutoLab at that time. Management relied on a multi-stage process which involved calculating the enterprise and equity value of AutoLab, then allocating the equity value of the entity to the Company’s securities. The enterprise value of AutoLab was estimated based on the value implied by the equity funding AutoLab received from third parties in the same period (i.e., level 2 inputs). The Company recognized a gain on deconsolidation of approximately $87.3 million with no material tax impact, which is included in other charges (income), net on the condensed consolidated statement of operations.

In addition, during the first quarter of fiscal year 2019, the Company leased approximately $76.5 million of fixed assets to AutoLab under a five-year lease term based on an interest rate of 4.20% per year. The leases were concluded to be sales-type leases and as such, the Company derecognized the associated assets from property and equipment, net and recorded a total net investment in the lease of $88.2 million in other current assets and other assets, based on the present value of lease receivables. The Company recorded an immaterial gain related to this leasing transaction, which is included in cost of sales on the condensed consolidated statement of operations.

Pro-forma financials have not been presented because the effects were not material to the Company’s condensed consolidated financial position and results of operation for all periods presented. AutoLab became a related party to the Company starting on the date of deconsolidation. The Company has engaged AutoLab as a strategic partner to develop and deploy automation solutions for Flex and has entered into a 5-year subscription agreement. Subscription fees under the AutoLab agreement were immaterial for the six-month period ended September 28, 2018.

As of September 28, 2018, and March 31, 2018, the Company's investments in non-majority owned companies totaled $557.2 million and $411.1 million, respectively. The equity in the earnings or losses of the Company's equity method investments, including AutoLab, was not material to the consolidated results of operations for any period presented and is included in interest and other, net.

Other Current Liabilities

Other current liabilities include customer working capital advances of $226.5 million and $153.6 million, customer-related accruals of $369.8 million and $439.0 million, and deferred revenue of $247.1 million and $329.0 million as of September 28, 2018 and March 31, 2018, respectively. The customer working capital advances are not interest-bearing, do not have fixed repayment dates and are generally reduced as the underlying working capital is consumed in production. Liabilities held for sale related to the China-based Multek operations previously recorded in other current liabilities have been removed from the condensed consolidated balance sheet as of September 28, 2018, following the execution of the divestiture. See note 12 for additional information.