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 offers an additional equity compensation plan as of March 31, 2016, the 2014 NEXTracker Equity Incentive Plan (the "NEXTracker Plan").

Further, during fiscal year 2016, the Company granted equity compensation awards under a third 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 following table summarizes the Company's share-based compensation expense for all Equity Incentive Plans:



	Fiscal Year Ended March 31,
	2016		2015		2014
	(In thousands)
Cost of sales	$	8,986	$	7,503	$	6,540
Selling, general and administrative expenses	68,594		42,767		33,899
Total share-based compensation expense	$	77,580	$	50,270	$	40,439

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.

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 2016, 2015 and 2014, the Company did not recognize any excess tax benefits as a financing cash inflow.

The 2010 Equity Incentive Plan

As of March 31, 2016, the Company had approximately 27.1 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, 2016, the total unrecognized compensation cost, net of estimated forfeitures, 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 2.3 years, adjusted for estimated forfeitures.

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, 2016, the total unrecognized compensation cost related to unvested share bonus awards granted to employees was approximately $97.9 million, net of estimated forfeitures, 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, adjusted for estimated forfeitures. Approximately $13.7 million of the unrecognized compensation cost related to the 2010 Plan, net of estimated forfeitures, 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 2016 and 2014. 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

Options granted during fiscal year 2015 had contractual lives of seven years.

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 2016, 2015 and 2014.

Average peer volatility—Volatility used in a 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 years 2016, 2015 and 2014.

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 2016, 2015 and 2014.

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 2016, 2015 and 2014 was estimated using the following weighted-average assumptions:



	Fiscal Year Ended March 31,
	2016		2015		2014
Expected volatility	26.0	%	29.4	%	35.9	%
Average peer volatility	23.0	%	25.9	%	35.7	%
Average peer correlation	0.6		0.6		0.4
Expected dividends	0.0	%	0.0	%	0.0	%
Risk-free interest rate	1.2	%	0.9	%	0.4	%

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,
	2016				2015				2014
	Options		Price		Options		Price		Options		Price
Outstanding, beginning of fiscal year	15,992,894		$	7.81	23,612,872		$	8.57	34,405,564		$	8.29
Granted	—		—		15,000		11.11		—		—
Exercised	(10,006,774	)	6.10		(3,600,900	)	6.53		(6,572,383	)	4.28
Forfeited	(3,616,484	)	12.23		(4,034,078	)	13.17		(4,220,309	)	12.93
Outstanding, end of fiscal year	2,369,636		$	8.31	15,992,894		$	7.81	23,612,872		$	8.57
Options exercisable, end of fiscal year	2,359,527		$	8.30	15,959,173		$	7.81	23,373,101		$	8.58

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 $55.3 million, $16.3 million and $24.7 million during fiscal years 2016, 2015 and 2014, respectively.

Cash received from option exercises under the 2010 Plan was $61.1 million, $23.5 million and $28.1 million for fiscal years 2016, 2015 and 2014, respectively.

The following table presents the composition of options outstanding and exercisable under the 2010 Plan as of March 31, 2016:



	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
$1.94 - $5.75	1,148,421	0.40	$	5.55	1,148,421	0.40	$	5.55
$5.87 - $7.07	40,002	1.55	6.55		37,521	1.41	6.54
$7.08 - $10.59	323,646	1.76	8.25		323,646	1.76	8.25
$10.67 - $11.41	549,067	0.34	11.23		541,439	0.27	11.23
$11.53 - $13.98	273,500	0.50	13.37		273,500	0.50	13.37
$14.34 - $23.02	35,000	0.42	15.95		35,000	0.42	15.95
$1.94 - $23.02	2,369,636	0.60	$	8.31	2,359,527	0.59	$	8.30
Options vested and expected to vest	2,368,361	0.60	$	8.31

As of March 31, 2016 the aggregate intrinsic value for options outstanding, options vested and expected to vest (which includes adjustments for expected forfeitures), and options exercisable under the Company's 2010 Plan, were $9.4 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, 2016 for the approximately 2.1 million options that were in-the-money at March 31, 2016.

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,
	2016				2015				2014
	Shares		Price		Shares		Price		Shares		Price
Unvested share bonus awards outstanding, beginning of fiscal year	18,993,252		$	9.01	21,848,120		$	7.32	21,807,069		$	6.80
Granted	7,619,722		12.23		6,963,125		11.75		8,978,941		8.07
Vested	(8,529,378	)	7.93		(7,246,056	)	6.97		(5,481,153	)	6.66
Forfeited	(1,083,520	)	9.67		(2,571,937	)	7.70		(3,456,737	)	7.07
Unvested share bonus awards outstanding, end of fiscal year	17,000,076		$	10.77	18,993,252		$	9.01	21,848,120		$	7.32

Of the 7.6 million unvested share bonus awards granted under the 2010 Plan in fiscal year 2016, approximately 0.2 million have an average grant date price of $12.10 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 ultimately vest 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, and will cliff vest after a period of three-years.

Another 0.2 million of unvested share bonus awards granted in fiscal year 2016 have an average grant date price of $12.06 per share and represents the target amount of grants made to certain employees whereby vesting is contingent on meeting certain operating profit targets. These awards ultimately vest over a range from zero up to a maximum of 0.4 million of the target payments based on the operating profit achievements of a certain business unit of the Company over a four-year period. The vesting will begin on March 31, 2016 and occur every year over a period of four years contingent on meeting the agreed targets.

Further, 0.7 million of unvested share bonus awards granted in fiscal year 2016 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 was estimated to be $14.96 per award and was calculated using a Monte Carlo simulation. Vesting information of these shares are further detailed in the table below.

Of the 17.0 million unvested share bonus awards outstanding under the 2010 Plan as of the fiscal year ended 2016, approximately 3.2 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, 2016 (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 2016	726,995	$	14.96	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.	—	1,453,990	May 2018
Fiscal 2015	706,747	$	14.77	Vesting ranges from zero to 200% based on measurement of Flextronics' total shareholder return against both the S&P 500 Composite Index and an EMS Group Index.	—	1,413,494	May 2017
Fiscal 2014	1,810,000	$	9.36	Vesting ranges from zero to 200% based on measurement of Flextronics' total shareholder return against both the S&P 500 Composite Index and an EMS Group Index.	—	3,620,000	May 2016
Totals	3,243,742					6,487,484

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. During fiscal year 2016, 2.2 million shares vested in connection with the remaining number of share bonus awards with market conditions granted in fiscal year 2013, and 0.5 million shares vested in connection with half of the share bonus awards with market conditions granted in fiscal year 2012.

The total intrinsic value of share bonus awards vested under the Company's 2010 Plan was $103.2 million, $79.0 million and $42.4 million during fiscal years 2016, 2015 and 2014, respectively, based on the closing price of the Company's ordinary shares on the date vested.

The 2014 NEXTracker Equity Incentive Plan

All shares granted during fiscal year 2016 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. No additional grants will be made out of this plan in the future and therefore there are no shares available for grant under the NEXTracker Plan as of March 31, 2016. 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, 2016, the total unrecognized compensation cost, net of estimated forfeitures, related to unvested share options granted to employees under the NEXTracker Plan was $18.2 million and will be amortized on a straight-line basis over a weighted-average period of approximately 2.8 years, adjusted for estimated forfeitures.

The Company also granted share bonus awards under the NEXTracker Plan. These share bonus awards 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, 2016, the total unrecognized compensation cost related to unvested share bonus awards granted to employees was approximately $19.1 million under the NEXTracker Plan. These costs will be amortized generally on a straight-line basis over a weighted-average period of approximately 2.4 years, adjusted for estimated forfeitures.

Determining Fair Value

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,
	2016
	Options		Price
Outstanding, beginning of fiscal year	—		$	—
Granted	3,205,806		3.28
Exercised	(237,380	)	0.99
Forfeited	(226,572	)	3.75
Outstanding, end of fiscal year	2,741,854		$	3.44
Options exercisable, end of fiscal year	223,869		$	4.95

Of the 3.2 million unvested share-based awards granted under the NEXTracker Plan in fiscal year 2016, approximately 0.5 million of unvested share-based awards have an average grant date price of $7.76 per share and represents the number of grants made to certain NEXTracker employees whereby the right to exercise is contingent on meeting certain performance targets over a three-year period commencing October 1, 2015.

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 $2.32 million as of March 31, 2016.

Cash received from option exercises under the NEXTracker Plan was $0.2 million for fiscal year 2016.

The following table presents the composition of options outstanding and exercisable under the NEXTracker Plan as of March 31, 2016:



	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	2,088,258	9.49	$	1.19	129,376	9.49	$	0.79
$5.25 - $10.65	653,596	9.49	10.65		94,493	9.49	10.65
$0.08 - $10.65	2,741,854	9.49	$	3.44	223,869	9.49	$	4.95
Options vested and expected to vest	2,741,854	9.49	$	3.44

As of March 31, 2016 the aggregate intrinsic value, for options outstanding, options vested and expected to vest (which includes adjustments for expected forfeitures), and options exercisable under the Company's NEXTracker Plan, were $23.6 million, $23.6 million, and $1.59 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, 2016 for the approximately 2.7 million options under the NEXTracker Plan that were in-the-money at March 31, 2016.

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,
	2016
	Shares		Price
Unvested share bonus awards outstanding, beginning of fiscal year	—		$	—
Granted	2,393,195		10.27
Vested	(31,925	)	10.27
Forfeited	(52,174	)	10.27
Unvested share bonus awards outstanding, end of fiscal year	2,309,096		$	10.27

Of the 2.4 million unvested share bonus awards granted under the NEXTracker Plan as of the fiscal year ended 2016, approximately 0.9 million of unvested shares bonus awards represents the target amount of grants made to certain NEXTracker employees whereby vesting is contingent on meeting certain performance targets over a three-year period commencing October 1, 2015.

The total intrinsic value of share bonus awards vested under the Company's NEXTracker Plan was $0.35 million during fiscal year 2016, 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.

As of March 31, 2016 Elementum had approximately 5.4 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, 2016 there were 26.2 million of options outstanding at a weighted average exercise price of $0.35 per option. Cash received from option exercises under the Elementum Plan was $0.5 million for fiscal year 2016. Total unrecognized compensation expenses relating to stock options granted to certain employees under the Elementum Plan as of March 31, 2016 is $5.2 million, and will be recognized over a weighted average period of 2.7 years.