SHARE-BASED COMPENSATION

Equity Compensation Plans

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

The Company assumed all of the outstanding and unvested restricted shares and options associated with a couple acquisitions and converted all of these shares into Flex awards. As a result, the Company maintains two additional equity compensation plans that are immaterial to the Company for all periods presented. No share options or restricted share unit awards were granted under these plans during fiscal year 2019, nor were there any shares available for grant under these plans as of March 31, 2019.

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,
	2019		2018		2017
	(In thousands)
Cost of sales	$	19,554	$	19,102	$	10,023
Selling, general and administrative expenses	56,478		66,142		72,243
Total share-based compensation expense	$	76,032	$	85,244	$	82,266

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 2019, 2018 and 2017, the Company did not recognize any excess tax benefits as an operating cash inflow.

As of March 31, 2019, the Company had approximately 16.1 million shares available for grant under the 2017 Plan. Options issued to employees under this plan generally vest over four years and expire ten years from the date of grant. Options granted to non-employee directors generally 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, 2019, the total unrecognized compensation cost related to unvested share options granted to employees under all plans was not material and will be amortized on a straight-line basis over a weighted-average period of approximately 1.8 years.

The Company also grants restricted share unit awards under its 2017 Plan. Restricted share unit awards are rights to acquire a specified number of ordinary shares for no cash consideration in exchange for continued service with the Company. Restricted share unit awards generally vest in installments over a three to five-year period and unvested restricted share unit awards are forfeited upon termination of employment.

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

As of March 31, 2019, the total unrecognized compensation cost related to unvested restricted share unit awards under all plans was approximately $132.9 million. These costs will be amortized generally on a straight-line basis over a weighted-average period of approximately 2.4 years. Approximately $14.2 million of the total unrecognized compensation cost is related to restricted share unit awards granted to certain key employees whereby vesting is contingent on meeting a certain market condition.

Determining Fair Value - Options and restricted share unit awards

Valuation and Amortization Method—The Company estimates the fair value of share options granted under the 2017 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 restricted share unit 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 Plan during fiscal years 2019, 2018, and 2017.

Determining Fair Value - Restricted share unit awards with service and market conditions

Valuation and Amortization Method—The Company estimates the fair value of restricted share unit awards granted under the 2017 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 restricted share unit awards granted. The service period is three years for those restricted share unit awards granted in fiscal years 2019, 2018, and 2017.

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 restricted share unit awards granted in fiscal years 2019, 2018, and 2017.

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 restricted share unit awards granted in fiscal years 2019, 2018, and 2017.

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

The fair value of the Company's restricted share unit awards under the 2017 Plan, whereby vesting is contingent on meeting certain market conditions, for fiscal years 2019, 2018, and 2017 was estimated using the following weighted-average assumptions:



	Fiscal Year Ended March 31,
	2019		2018		2017
Expected volatility	27.4	%	25.1	%	25.8	%
Average peer volatility	25.6	%	28.7	%	25.1	%
Average peer correlation	0.5		0.6		0.6
Expected dividends	0.0	%	0.0	%	0.0	%
Risk-free interest rate	2.7	%	1.5	%	0.9	%

Share-Based Awards Activity

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



	Fiscal Year Ended March 31,
	2019				2018				2017
	Options		Price		Options		Price		Options		Price
Outstanding, beginning of fiscal year	1,189,550		$	3.28	1,937,400		$	3.75	5,111,490		$	5.70
Granted	—		—		288,386		0.54		159,057		0.51
Exercised	(244,393	)	1.00		(667,184	)	4.15		(2,283,201	)	5.44
Forfeited	(71,927	)	3.37		(369,052	)	5.75		(1,049,946	)	9.47
Outstanding, end of fiscal year	873,230		$	3.93	1,189,550		$	3.28	1,937,400		$	3.75
Options exercisable, end of fiscal year	546,339		$	5.34	373,950		$	4.99	507,965		$	6.08

The aggregate intrinsic value of options exercised under all plans (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 $2.4 million, $8.9 million and $17.3 million during fiscal years 2019, 2018 and 2017, respectively.

Cash received from option exercises under all plans was immaterial for fiscal year 2019. Cash received from option exercises under all plans was $2.8 million and $12.4 million for fiscal years 2018 and 2017, respectively.

As of March 31, 2019 the aggregate intrinsic value for options outstanding, options vested and expected to vest, and options exercisable under all 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, 2019 for the immaterial amount of options that were in-the-money at March 31, 2019.

The following table summarizes the Company's restricted share unit award activity under all plans ("Price" reflects the weighted-average grant-date fair value):



	Fiscal Year Ended March 31,
	2019				2018				2017
	Shares		Price		Shares		Price		Shares		Price
Unvested restricted share unit awards outstanding, beginning of fiscal year	14,619,692		$	14.39	17,242,019		$	12.24	19,309,172		$	10.71
Granted (1)	8,257,502		12.59		6,680,739		16.97		8,261,666		13.46
Vested (1)	(5,952,039	)	13.12		(6,945,393	)	11.86		(9,311,984	)	9.50
Forfeited	(2,021,269	)	14.51		(2,357,673	)	12.20		(1,016,835	)	11.15
Unvested restricted share unit awards outstanding, end of fiscal year	14,903,886		$	13.76	14,619,692		$	14.39	17,242,019		$	12.24

(1)

Included in the fiscal years 2018 and 2017 amounts are 0.7 million and 1.7 million of restricted share unit 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 8.3 million unvested restricted share unit awards granted in fiscal year 2019, approximately 6.5 million are plain-vanilla unvested restricted share unit awards with no performance or market conditions with an average grant date price of $12.57 per share. Further, approximately 1.3 million of these unvested restricted share unit awards granted in fiscal year 2019 represents the target amount of grants made to certain key employees whereby vesting is contingent on certain market conditions, with an average grant date fair value estimated to be $14.00 per award calculated using a Monte Carlo simulation. Vesting information for these shares is further detailed in the table below.

Of the 14.9 million unvested restricted share unit awards outstanding under all plans as of the fiscal year ended March 31, 2019, approximately 2.5 million unvested restricted share unit awards represent 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, 2019 (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 2019	1,316,279	$	14.00	—	2,632,558	June 2021
Fiscal 2018	586,077	$	20.25	—	1,172,154	June 2020
Fiscal 2017	619,574	$	17.57	—	1,239,148	June 2019
Totals	2,521,930			—	5,043,860


(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 continue to recognize share-based compensation expense for awards with market conditions regardless of whether such awards will ultimately vest. During fiscal year 2019, 0.6 million shares vested in connection with the restricted share unit awards with market conditions granted in fiscal year 2016.

The total intrinsic value of restricted share unit awards vested under all the Company's plans was $80.2 million, $116.4 million and $119.1 million during fiscal years 2019, 2018 and 2017, respectively, based on the closing price of the Company's ordinary shares on the date vested.