SHARE-BASED COMPENSATION

12 Months Ended

Mar. 31, 2014

SHARE-BASED COMPENSATION

SHARE-BASED COMPENSATION

3. SHARE-BASED COMPENSATION

• Equity Compensation Plans

        During fiscal year 2014, the Company granted equity compensation awards under the 2010 Equity Incentive Plan (the "2010 Plan") and the 2013 Elementum Plan (the "Elementum Plan"). The 2010 Plan is administered by Flextronics International Ltd., while the Elementum Plan is administered by Elementum SCM (Cayman) Limited, a majority owned subsidiary of the Company.

• The 2010 Equity Incentive Plan of Flextronics International Ltd.

        As of March 31, 2014, the Company had approximately 38.1 million shares available for grants 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.

        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.

• Share-Based Compensation Expense

        The following table summarizes the Company's share-based compensation expense:

	Fiscal Year Ended March 31,
	2014		2013		2012
	(In thousands)
Cost of sales	$	6,540	$	5,163	$	7,446
Selling, general and administrative expenses		33,899		29,366		41,008
Total share-based compensation expense	$	40,439	$	34,529	$	48,454

        As required by the authoritative guidance for stock-based compensation, management made an estimate of expected forfeitures and is recognizing compensation costs only for those equity awards expected to vest. When estimating forfeitures, the Company considers voluntary termination behavior as well as an analysis of actual forfeitures.

        As of March 31, 2014, the total unrecognized compensation cost related to unvested share options granted to employees under the Company's 2010 Plan was approximately $0.6 million, net of estimated forfeitures. This cost will be amortized on a straight-line basis over a weighted-average period of approximately 1.0 year and will be adjusted for estimated forfeitures. As of March 31, 2014, the total unrecognized compensation cost related to unvested share bonus awards granted to employees was approximately $77.5 million, net of estimated forfeitures. This cost will be amortized generally on a straight-line basis over a weighted-average period of approximately 2.4 years and will be adjusted for estimated forfeitures. Approximately $15.0 million of the unrecognized compensation cost, net of forfeitures, is related to share bonus awards granted to certain key employees whereby vesting is contingent on meeting a certain market condition.

        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 financing cash flows. During fiscal years 2014, 2013 and 2012, the Company did not recognize any excess tax benefits as a financing cash inflow.

• Determining Fair Value

  Options

        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 Flextronics 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 currently does not intend to do so in the near term, 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 year 2014. The fair value of the Company's share options granted to employees for fiscal years 2013 and 2012 was estimated using the following weighted-average assumptions:

	Fiscal Year Ended March 31,
	2013			2012
Expected term		4.1 years			4.1 years
Expected volatility		46.9	%		46.9	%
Expected dividends		0.0	%		0.0	%
Risk-free interest rate		0.9	%		1.1	%
Weighted-average fair value	$	2.48		$	2.57

        Options granted during the 2013 and 2012 fiscal years had contractual lives of seven years.

• 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 Flextronics—Volatility used in Monte Carlo simulation is derived from the historical volatility of Flextronics' 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 2014 and 2013, and four years for those share bonus awards granted in fiscal year 2012.

        Average peer volatility—Volatility used in Monte Carlo simulation is derived from the historical volatilities of both the 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 year 2014, and historical volatilities of the S&P 500 index for the share bonus awards granted in fiscal years 2013 and 2012 based on the various service periods.

        Average Peer Correlation—Correlation coefficients were used to model the movement of Flextronics' 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 2014, and relative to the S&P 500 index for the share bonus awards granted in fiscal 2013 and 2012.

        Expected Dividend—The Company has never paid dividends on its ordinary shares and currently does not intend to do so in the near term, 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 Monte Carlo simulation on the yield of zero-coupon U.S. Treasury bills, as of the measurement date.

        The fair value of the Company's share-bonus awards, whereby vesting is contingent on meeting certain market conditions, for fiscal years 2014, 2013 and 2012 was estimated using the following weighted-average assumptions:

	Fiscal Year Ended March 31,
	2014			2013			2012
Expected volatility		35.9	%		41.7	%		60.6	%
Average peer volatility		35.7	%		19.2	%		27.4	%
Average peer correlation		0.4			0.7			0.7
Expected dividends		0.0	%		0.0	%		0.0	%
Risk-free interest rate		0.4	%		0.4	%		1.2	%

• 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,
	2014					2013					2012
	Options			Price		Options			Price		Options			Price
Outstanding, beginning of fiscal year		34,405,564		$	8.29		43,933,660		$	7.78		53,942,458		$	7.61
Granted		—			—		19,000			6.57		599,800			6.80
Exercised		(6,572,383	)		4.28		(5,398,331	)		4.12		(5,879,405	)		3.92
Forfeited		(4,220,309	)		12.93		(4,148,765	)		8.32		(4,729,193	)		10.45
Outstanding, end of fiscal year		23,612,872		$	8.57		34,405,564		$	8.29		43,933,660		$	7.78
Options exercisable, end of fiscal year		23,373,101		$	8.58		33,662,480		$	8.31		37,021,049		$	8.44

        The aggregate intrinsic value of options exercised (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) under the Company's 2010 Plan was $24.7 million, $13.0 million and $17.1 million during fiscal years 2014, 2013 and 2012 respectively.

        Cash received from option exercises was $28.1 million, $22.3 million and $23.1 million for fiscal years 2014, 2013 and 2012, respectively.

        The following table presents the composition of options outstanding and exercisable as of March 31, 2014:

	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 Exercise Price
$1.94 - $2.26		5,420,232		1.77	$	2.14		5,420,232	$	2.14
$3.39 - $5.75		3,604,664		2.36		5.54		3,583,720		5.54
$5.87 - $7.07		233,183		3.28		6.65		198,130		6.67
$7.08 - $10.59		5,506,846		1.56		10.18		5,323,072		10.26
$10.67 - $11.41		1,104,933		2.13		11.23		1,104,933		11.23
$11.53 - $13.98		6,619,666		0.88		12.23		6,619,666		12.23
$14.34 - $23.02		1,123,348		0.13		17.59		1,123,348		17.59
$1.94 - $23.02		23,612,872		1.52	$	8.57		23,373,101	$	8.58
Options vested and expected to vest		23,602,204		1.52	$	8.59

        As of March 31, 2014, the aggregate intrinsic value for options outstanding, options vested and expected to vest (which includes adjustments for expected forfeitures), and options exercisable were $53.5 million, $53.4 million and $53.0 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, 2014 for the approximately 10.1 million options that were in-the-money at March 31, 2014. As of March 31, 2014, the weighted average remaining contractual life for options exercisable was 1.49 years.

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

	Fiscal Year Ended March 31,
	2014					2013					2012
	Shares			Price		Shares			Price		Shares			Price
Unvested share bonus awards outstanding, beginning of fiscal year		21,807,069		$	6.80		15,965,268		$	6.91		13,801,942		$	8.04
Granted		8,978,941			8.07		9,582,867			6.74		9,213,456			6.78
Vested		(5,481,153	)		6.66		(1,506,234	)		7.51		(2,555,165	)		9.34
Forfeited		(3,456,737	)		7.07		(2,234,832	)		6.86		(4,494,965	)		8.60
Unvested share bonus awards outstanding, end of fiscal year		21,848,120		$	7.32		21,807,069		$	6.80		15,965,268		$	6.91

        Of the 21.8 million unvested share bonus awards outstanding as of the year ended March 31, 2014, approximately 5.1 million represents the target amount of grants made to certain key employees whereby vesting is contingent on meeting certain market conditions, and are summarized as follows:

						Range of shares that may be issued
	Targeted number of awards as of March 31, 2014 (in shares)		Average grant date fair value (per share)
Year of grant					Market condition	Minimum		Maximum		Assessment dates
Fiscal 2014		2,174,000	$	9.34	Vesting ranges from zero to 200% based on measurement of Flextronics' total shareholder return against both the Standard and Poor's ("S&P") 500 Composite Index and an Extended Electronics Manufacturing Services ("EMS") Group Index.		0		4,348,000	May 2016
Fiscal 2013		1,795,000	$	7.63	Vesting ranges from zero to 200% based on measurement of Flextronics' total shareholder return against the S&P 500 Composite Index.		0		3,590,000	May 2015
Fiscal 2012		822,500	$	7.78	Vesting ranges from zero to 150% based on measurement of Flextronics' total shareholder return against the S&P 500 Composite Index.		0		1,233,750	June 2014 (50%) June 2015 (50%)
Fiscal 2011		320,000	$	7.32	Vesting ranges from zero to 150% based on measurement of Flextronics' total shareholder return against the S&P 500 Composite Index.		0		480,000	June 2014
Totals		5,111,500							9,651,750

        In accordance with the accounting guidance, the Company will continue to recognize share-based compensation expense for these awards with market conditions regardless of whether such awards will ultimately vest. The first half of the share-bonus awards with market conditions granted in fiscal year 2011 did not vest in June 2013 as the market condition was not met as of that date. Half of the share-bonus awards with market conditions granted during fiscal 2012 and the remainder of the awards granted during fiscal year 2011 will vest in June 2014, and the expected payout percentages are approximately 50% and 75% of the number of shares granted, respectively.

        The total intrinsic value of share bonus awards vested under the Company's 2010 Plan was $42.4 million, $9.7 million, and $17.7 million during fiscal years 2014, 2013 and 2012, respectively, based on the closing price of the Company's ordinary shares on the date vested.

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

        In November 2013, Elementum SCM (Cayman) Ltd.("Elementum"), a majority owned subsidiary of the Company established its own equity incentive plan (Elementum Plan). During the year ended March 31, 2014, Elementum issued 8.3 million options with an average fair value of $0.19 per option and average exercise price of $0.17 per option to its employees which vest over a period of four years and expire ten years from the grant date. Of these options 1.9 million were cancelled during the fiscal year, and 6.4 million were outstanding at an average exercise price of $0.19 per option. None of the options had been exercised as of March 31, 2014, and Elementum had approximately 6.6 million shares available for future grants under this Plan.

        The exercise price of the options granted under this Plan are determined by the Board of Directors of Elementum and is based on valuations obtained from a third party service provider for the Elementum common shares as of the date of option grants.

        Fair value of options granted under this Plan are determined as follows:

        Valuation and Amortization Method—Elementum estimates the fair value of share options granted 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.

        Expected Term—The expected term used in the Black-Scholes valuation method is calculated using the simplified method as applicable to non-publicly-traded companies per the authoritative guidance for stock-based compensation expense.

        Expected Volatility—The expected volatility used in the Black-Scholes valuation method is derived from implied volatility related to publicly traded options to purchase ordinary shares of comparable companies.

        Expected Dividend—Elementum has never paid dividends on its ordinary shares and currently does not intend to do so in the near term, and accordingly, the dividend yield percentage is zero for all periods.

        Risk-Free Interest Rate—Elementum 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.

        Total stock-based compensation expense for the Elementum Plan recognized during the year ended March 31, 2014 is not material to the consolidated operating results of the Company and is included in the share-based compensation expense disclosures of the Company. Total unrecognized compensation expenses relating to stock options granted to certain employees under the Elementum Plan as of March 31, 2014 is $3.1 million, and will be recognized over a weighted average period of 3.75 years.