UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended May 31, 20182019
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:001-14063
JABIL INC.
(Exact name of registrant as specified in its charter)
Delaware | 38-1886260 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
10560 Dr. Martin Luther King, Jr. Street North, St. Petersburg, Florida 33716
(Address of principal executive offices) (Zip Code)
(727)577-9749
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule12b-2 of the Exchange Act.
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||
Common Stock, $0.001 par value per share | JBL | New York Stock Exchange |
As of June 20, 2018,21, 2019, there were 168,444,744152,927,423 shares of the registrant’s Common Stock outstanding.
JABIL INC. AND SUBSIDIARIES INDEX
Item 1. | Financial Statements |
JABIL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except for share data)
May 31, 2018 (Unaudited) | August 31, 2017 | May 31, 2019 (Unaudited) | August 31, 2018 | |||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 677,492 | $ | 1,189,919 | $ | 694,086 | $ | 1,257,949 | ||||||||
Accounts receivable, net of allowance for doubtful accounts of $11,084 as of May 31, 2018 and $14,134 as of August 31, 2017 | 1,586,685 | 1,397,424 | ||||||||||||||
Accounts receivable, net of allowance for doubtful accounts of $16,951 as of May 31, 2019 and $15,181 as of August 31, 2018 | 2,696,599 | 1,693,268 | ||||||||||||||
Contract assets | 899,482 | — | ||||||||||||||
Inventories, net | 3,343,782 | 2,942,083 | 3,159,369 | 3,457,706 | ||||||||||||
Prepaid expenses and other current assets | 1,124,028 | 1,097,257 | 524,833 | 1,141,000 | ||||||||||||
|
|
|
| |||||||||||||
Total current assets | 6,731,987 | 6,626,683 | 7,974,369 | 7,549,923 | ||||||||||||
Property, plant and equipment, net of accumulated depreciation of $3,547,148 as of May 31, 2018 and $3,125,390 as of August 31, 2017 | 3,127,083 | 3,228,678 | ||||||||||||||
Property, plant and equipment, net of accumulated depreciation of $3,993,635 as of May 31, 2019 and $3,646,945 as of August 31, 2018 | 3,335,837 | 3,198,016 | ||||||||||||||
Goodwill | 631,482 | 608,184 | 624,474 | 627,745 | ||||||||||||
Intangible assets, net of accumulated amortization of $298,925 as of May 31, 2018 and $269,212 as of August 31, 2017 | 288,342 | 284,596 | ||||||||||||||
Intangible assets, net of accumulated amortization of $329,189 as of May 31, 2019 and $307,178 as of August 31, 2018 | 266,205 | 279,131 | ||||||||||||||
Deferred income taxes | 230,751 | 205,722 | 202,556 | 218,252 | ||||||||||||
Other assets | 165,865 | 142,132 | 205,336 | 172,574 | ||||||||||||
|
|
|
| |||||||||||||
Total assets | $ | 11,175,510 | $ | 11,095,995 | $ | 12,608,777 | $ | 12,045,641 | ||||||||
|
|
|
| |||||||||||||
LIABILITIES AND EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Current installments of notes payable, long-term debt and capital lease obligations | $ | 273,500 | $ | 445,498 | ||||||||||||
Current installments of notes payable and long-term debt | $ | 454,830 | $ | 25,197 | ||||||||||||
Accounts payable | 4,327,659 | 4,257,623 | 4,826,333 | 4,942,932 | ||||||||||||
Accrued expenses | 1,980,266 | 2,167,472 | 2,586,052 | 2,262,744 | ||||||||||||
|
|
|
| |||||||||||||
Total current liabilities | 6,581,425 | 6,870,593 | 7,867,215 | 7,230,873 | ||||||||||||
Notes payable, long-term debt and capital lease obligations, less current installments | 2,175,133 | 1,632,592 | ||||||||||||||
Notes payable and long-term debt, less current installments | 2,476,842 | 2,493,502 | ||||||||||||||
Other liabilities | 66,690 | 74,237 | 145,750 | 94,617 | ||||||||||||
Income tax liabilities | 132,338 | 100,902 | 136,400 | 148,884 | ||||||||||||
Deferred income taxes | 34,366 | 49,327 | 115,370 | 114,385 | ||||||||||||
|
|
|
| |||||||||||||
Total liabilities | 8,989,952 | 8,727,651 | 10,741,577 | 10,082,261 | ||||||||||||
|
|
|
| |||||||||||||
Commitments and contingencies | ||||||||||||||||
Equity: | ||||||||||||||||
Jabil Inc. stockholders’ equity: | ||||||||||||||||
Preferred stock, $0.001 par value, authorized 10,000,000 shares; no shares issued and no shares outstanding | — | — | — | — | ||||||||||||
Common stock, $0.001 par value, authorized 500,000,000 shares; 256,590,528 and 253,266,684 shares issued and 168,799,744 and 177,727,653 shares outstanding as of May 31, 2018 and August 31, 2017, respectively | 257 | 253 | ||||||||||||||
Common stock, $0.001 par value, authorized 500,000,000 shares; 259,812,625 and 257,130,145 shares issued and 152,926,887 and 164,588,172 shares outstanding as of May 31, 2019 and August 31, 2018, respectively | 260 | 257 | ||||||||||||||
Additional paid-in capital | 2,191,406 | 2,104,203 | 2,279,409 | 2,218,673 | ||||||||||||
Retained earnings | 1,830,921 | 1,730,893 | 1,996,901 | 1,760,097 | ||||||||||||
Accumulated other comprehensive income | 25,932 | 54,620 | ||||||||||||||
Treasury stock at cost, 87,790,784 and 75,539,031 shares as of May 31, 2018 and August 31, 2017, respectively | (1,875,375 | ) | (1,536,455 | ) | ||||||||||||
Accumulated other comprehensive loss | (50,005 | ) | (19,399 | ) | ||||||||||||
Treasury stock at cost, 106,885,738 and 92,541,973 shares as of May 31, 2019 and August 31, 2018, respectively | (2,371,592 | ) | (2,009,371 | ) | ||||||||||||
|
|
|
| |||||||||||||
Total Jabil Inc. stockholders’ equity | 2,173,141 | 2,353,514 | 1,854,973 | 1,950,257 | ||||||||||||
Noncontrolling interests | 12,417 | 14,830 | 12,227 | 13,123 | ||||||||||||
|
|
|
| |||||||||||||
Total equity | 2,185,558 | 2,368,344 | 1,867,200 | 1,963,380 | ||||||||||||
|
|
|
| |||||||||||||
Total liabilities and equity | $ | 11,175,510 | $ | 11,095,995 | $ | 12,608,777 | $ | 12,045,641 | ||||||||
|
|
|
|
See accompanying notes to Condensed Consolidated Financial Statements.
JABIL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share data)
(Unaudited)
Three months ended | Nine months ended | Three months ended | Nine months ended | |||||||||||||||||||||||||||||
May 31, 2018 | May 31, 2017 | May 31, 2018 | May 31, 2017 | May 31, 2019 | May 31, 2018 | May 31, 2019 | May 31, 2018 | |||||||||||||||||||||||||
Net revenue | $ | 5,436,952 | $ | 4,489,557 | $ | 16,323,585 | $ | 14,040,092 | $ | 6,135,602 | $ | 5,436,952 | $ | 18,708,867 | $ | 16,323,585 | ||||||||||||||||
Cost of revenue | 5,038,725 | 4,163,142 | 15,058,940 | 12,920,267 | 5,691,803 | 5,038,725 | 17,290,544 | 15,058,940 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Gross profit | 398,227 | 326,415 | 1,264,645 | 1,119,825 | 443,799 | 398,227 | 1,418,323 | 1,264,645 | ||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||
Selling, general and administrative | 252,487 | 233,884 | 789,482 | 665,879 | 274,482 | 252,487 | 834,750 | 789,482 | ||||||||||||||||||||||||
Research and development | 10,082 | 7,274 | 27,535 | 21,982 | 11,449 | 10,082 | 32,747 | 27,535 | ||||||||||||||||||||||||
Amortization of intangibles | 10,040 | 9,174 | 29,909 | 26,262 | 7,610 | 10,040 | 23,033 | 29,909 | ||||||||||||||||||||||||
Restructuring and related charges | 12,647 | 32,700 | 29,462 | 113,529 | 9,340 | 12,647 | 16,182 | 29,462 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Operating income | 112,971 | 43,383 | 388,257 | 292,173 | 140,918 | 112,971 | 511,611 | 388,257 | ||||||||||||||||||||||||
Other expense | 10,139 | 15,821 | 26,506 | 23,872 | 14,084 | 10,139 | 39,391 | 26,506 | ||||||||||||||||||||||||
Interest income | (4,499 | ) | (3,663 | ) | (13,323 | ) | (8,407 | ) | (6,758 | ) | (4,499 | ) | (15,897 | ) | (13,323 | ) | ||||||||||||||||
Interest expense | 36,178 | 35,443 | 110,220 | 102,087 | 50,514 | 36,178 | 139,326 | 110,220 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Income (loss) before income tax | 71,153 | (4,218 | ) | 264,854 | 174,621 | |||||||||||||||||||||||||||
Income before income tax | 83,078 | 71,153 | 348,791 | 264,854 | ||||||||||||||||||||||||||||
Income tax expense | 28,451 | 21,481 | 120,705 | 93,495 | 39,046 | 28,451 | 113,078 | 120,705 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Net income (loss) | 42,702 | (25,699 | ) | 144,149 | 81,126 | |||||||||||||||||||||||||||
Net income (loss) attributable to noncontrolling interests, net of tax | 161 | (418 | ) | 505 | (2,285 | ) | ||||||||||||||||||||||||||
Net income | 44,032 | 42,702 | 235,713 | 144,149 | ||||||||||||||||||||||||||||
Net income attributable to noncontrolling interests, net of tax | 550 | 161 | 1,277 | 505 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Net income (loss) attributable to Jabil Inc. | $ | 42,541 | $ | (25,281 | ) | $ | 143,644 | $ | 83,411 | |||||||||||||||||||||||
Net income attributable to Jabil Inc. | $ | 43,482 | $ | 42,541 | $ | 234,436 | $ | 143,644 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Earnings (loss) per share attributable to the stockholders of Jabil Inc.: | ||||||||||||||||||||||||||||||||
Earnings per share attributable to the stockholders of Jabil Inc.: | ||||||||||||||||||||||||||||||||
Basic | $ | 0.25 | $ | (0.14 | ) | $ | 0.83 | $ | 0.46 | $ | 0.28 | $ | 0.25 | $ | 1.50 | $ | 0.83 | |||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Diluted | $ | 0.25 | $ | (0.14 | ) | $ | 0.81 | $ | 0.45 | $ | 0.28 | $ | 0.25 | $ | 1.47 | $ | 0.81 | |||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Weighted average shares outstanding: | ||||||||||||||||||||||||||||||||
Basic | 170,514 | 181,038 | 174,013 | 182,982 | 152,889 | 170,514 | 156,384 | 174,013 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Diluted | 173,279 | 181,038 | 176,997 | 186,621 | 155,678 | 173,279 | 159,036 | 176,997 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Cash dividends declared per common share | $ | 0.08 | $ | 0.08 | $ | 0.24 | $ | 0.24 | ||||||||||||||||||||||||
|
|
|
|
See accompanying notes to Condensed Consolidated Financial Statements.
JABIL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(Unaudited)
Three months ended | Nine months ended | |||||||||||||||
May 31, 2018 | May 31, 2017 | May 31, 2018 | May 31, 2017 | |||||||||||||
Net income (loss) | $ | 42,702 | $ | (25,699 | ) | $ | 144,149 | $ | 81,126 | |||||||
Other comprehensive income: | ||||||||||||||||
Foreign currency translation adjustment | (40,640 | ) | 11,727 | (19,720 | ) | 15,231 | ||||||||||
Changes in fair value of derivative instruments, net of tax | (5,944 | ) | (2,009 | ) | 22,453 | 8,647 | ||||||||||
Reclassification of net (gains) losses realized and included in net income related to derivative instruments, net of tax | (13,890 | ) | 201 | (28,974 | ) | 11,595 | ||||||||||
Unrealized (loss) gain on available for sale securities | (202 | ) | 4,548 | (2,016 | ) | 10,192 | ||||||||||
Actuarial loss, net of tax | — | — | (431 | ) | — | |||||||||||
Reclassification of losses on available for sale securities into net income | — | 10,139 | — | 10,139 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total other comprehensive (loss) income | (60,676 | ) | 24,606 | (28,688 | ) | 55,804 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Comprehensive (loss) income | $ | (17,974 | ) | $ | (1,093 | ) | $ | 115,461 | $ | 136,930 | ||||||
Comprehensive income (loss) attributable to noncontrolling interests | 161 | (418 | ) | 505 | (2,285 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Comprehensive (loss) income attributable to Jabil Inc. | $ | (18,135 | ) | $ | (675 | ) | $ | 114,956 | $ | 139,215 | ||||||
|
|
|
|
|
|
|
|
Three months ended | Nine months ended | |||||||||||||||
May 31, 2019 | May 31, 2018 | May 31, 2019 | May 31, 2018 | |||||||||||||
Net income | $ | 44,032 | $ | 42,702 | $ | 235,713 | $ | 144,149 | ||||||||
Other comprehensive loss: | ||||||||||||||||
Change in foreign currency translation | (18,548 | ) | (40,640 | ) | (5,636 | ) | (19,720 | ) | ||||||||
Change in derivative instruments: | ||||||||||||||||
Change in fair value of derivatives | (20,179 | ) | (5,944 | ) | (36,262 | ) | 22,453 | |||||||||
Adjustment for net (gains) losses realized and included in net income | (1,728 | ) | (13,890 | ) | 15,958 | (28,974 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Total change in derivative instruments | (21,907 | ) | (19,834 | ) | (20,304 | ) | (6,521 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Unrealized gain (loss) on available for sale securities | 3,703 | (202 | ) | (4,769 | ) | (2,016 | ) | |||||||||
Actuarial gain (loss) | — | — | 103 | (431 | ) | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total other comprehensive loss | (36,752 | ) | (60,676 | ) | (30,606 | ) | (28,688 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Comprehensive income (loss) | $ | 7,280 | $ | (17,974 | ) | $ | 205,107 | $ | 115,461 | |||||||
Comprehensive income attributable to noncontrolling interests | 550 | 161 | 1,277 | 505 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Comprehensive income (loss) attributable to Jabil Inc. | $ | 6,730 | $ | (18,135 | ) | $ | 203,830 | $ | 114,956 | |||||||
|
|
|
|
|
|
|
|
See accompanying notes to Condensed Consolidated Financial Statements.
JABIL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except for share data)thousands)
(Unaudited)
Jabil Inc. Stockholders’ Equity | Three months ended | Nine months ended | ||||||||||||||||||||||||||||||||||||||||||||||
Common Stock | Additional | Accumulated Other | May 31, 2019 | May 31, 2018 | May 31, 2019 | May 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||
Total stockholders’ equity, beginning balances | $ | 1,858,852 | $ | 2,294,346 | $ | 1,963,380 | $ | 2,368,344 | ||||||||||||||||||||||||||||||||||||||||
Shares Outstanding | Par Value | Paid-in Capital | Retained Earnings | Comprehensive Income | Treasury Stock | Noncontrolling Interests | Total Equity |
|
|
|
| |||||||||||||||||||||||||||||||||||||
Balance as of August 31, 2017 | 177,727,653 | $ | 253 | $ | 2,104,203 | $ | 1,730,893 | $ | 54,620 | $ | (1,536,455 | ) | $ | 14,830 | $ | 2,368,344 | ||||||||||||||||||||||||||||||||
Shares issued upon exercise of stock options | 29,688 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
Common stock: | ||||||||||||||||||||||||||||||||||||||||||||||||
Beginning balances | 260 | 257 | 257 | 253 | ||||||||||||||||||||||||||||||||||||||||||||
Shares issued under employee stock purchase plan | 575,777 | 1 | 12,844 | — | — | — | — | 12,845 | — | — | 1 | 1 | ||||||||||||||||||||||||||||||||||||
Vesting of restricted stock awards | 2,718,379 | 3 | (3 | ) | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Vesting of restricted stock | — | — | 2 | 3 | ||||||||||||||||||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||
Ending balances | 260 | 257 | 260 | 257 | ||||||||||||||||||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||
Additionalpaid-in capital: | ||||||||||||||||||||||||||||||||||||||||||||||||
Beginning balances | 2,264,966 | 2,176,764 | 2,218,673 | 2,104,203 | ||||||||||||||||||||||||||||||||||||||||||||
Shares issued under employee stock purchase plan | (5 | ) | 6 | 14,582 | 12,844 | |||||||||||||||||||||||||||||||||||||||||||
Vesting of restricted stock | — | — | (2 | ) | (3 | ) | ||||||||||||||||||||||||||||||||||||||||||
Recognition of stock-based compensation | 14,448 | 14,636 | 46,156 | 74,362 | ||||||||||||||||||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||
Ending balances | 2,279,409 | 2,191,406 | 2,279,409 | 2,191,406 | ||||||||||||||||||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||
Retained earnings: | ||||||||||||||||||||||||||||||||||||||||||||||||
Beginning balances | 1,966,100 | 1,802,372 | 1,760,097 | 1,730,893 | ||||||||||||||||||||||||||||||||||||||||||||
Declared dividends | (12,681 | ) | (13,992 | ) | (38,487 | ) | (43,616 | ) | ||||||||||||||||||||||||||||||||||||||||
Cumulative effect adjustment for adoption of new accounting standards | — | — | 40,855 | — | ||||||||||||||||||||||||||||||||||||||||||||
Net income attributable to Jabil Inc. | 43,482 | 42,541 | 234,436 | 143,644 | ||||||||||||||||||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||
Ending balances | 1,996,901 | 1,830,921 | 1,996,901 | 1,830,921 | ||||||||||||||||||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||
Accumulated other comprehensive (loss) income: | ||||||||||||||||||||||||||||||||||||||||||||||||
Beginning balances | (13,253 | ) | 86,608 | (19,399 | ) | 54,620 | ||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | (36,752 | ) | (60,676 | ) | (30,606 | ) | (28,688 | ) | ||||||||||||||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||
Ending balances | (50,005 | ) | 25,932 | (50,005 | ) | 25,932 | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||
Treasury stock: | ||||||||||||||||||||||||||||||||||||||||||||||||
Beginning balances | (2,370,898 | ) | (1,783,906 | ) | (2,009,371 | ) | (1,536,455 | ) | ||||||||||||||||||||||||||||||||||||||||
Purchases of treasury stock under employee stock plans | (790,598 | ) | — | — | — | — | (22,526 | ) | — | (22,526 | ) | (694 | ) | (183 | ) | (11,898 | ) | (22,526 | ) | |||||||||||||||||||||||||||||
Treasury shares purchased | (11,461,155 | ) | — | — | — | — | (316,394 | ) | — | (316,394 | ) | — | (91,286 | ) | (350,323 | ) | (316,394 | ) | ||||||||||||||||||||||||||||||
Recognition of stock-based compensation | — | — | 74,362 | — | — | — | — | 74,362 | ||||||||||||||||||||||||||||||||||||||||
Declared dividends | — | — | — | (43,616 | ) | — | — | — | (43,616 | ) | ||||||||||||||||||||||||||||||||||||||
Comprehensive income | — | — | — | 143,644 | (28,688 | ) | — | 505 | 115,461 | |||||||||||||||||||||||||||||||||||||||
Declared dividends to noncontrolling interest | — | — | — | — | — | — | (2,920 | ) | (2,920 | ) | ||||||||||||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||
Ending balances | (2,371,592 | ) | (1,875,375 | ) | (2,371,592 | ) | (1,875,375 | ) | ||||||||||||||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||
Noncontrolling interests: | ||||||||||||||||||||||||||||||||||||||||||||||||
Beginning balances | 11,677 | 12,251 | 13,123 | 14,830 | ||||||||||||||||||||||||||||||||||||||||||||
Net income attributable to noncontrolling interests | 550 | 161 | 1,277 | 505 | ||||||||||||||||||||||||||||||||||||||||||||
Acquisition of noncontrolling interests | — | — | 1,112 | — | ||||||||||||||||||||||||||||||||||||||||||||
Disposition of noncontrolling interests | — | — | (1,785 | ) | — | |||||||||||||||||||||||||||||||||||||||||||
Declared dividends to noncontrolling interests | — | — | (1,500 | ) | (2,920 | ) | ||||||||||||||||||||||||||||||||||||||||||
Foreign currency adjustments attributable to noncontrolling interests | — | — | — | — | — | — | 2 | 2 | — | 5 | — | 2 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Balance as of May 31, 2018 | 168,799,744 | $ | 257 | $ | 2,191,406 | $ | 1,830,921 | $ | 25,932 | $ | (1,875,375 | ) | $ | 12,417 | $ | 2,185,558 | ||||||||||||||||||||||||||||||||
Ending balances | 12,227 | 12,417 | 12,227 | 12,417 | ||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Total stockholders’ equity, ending balances | $ | 1,867,200 | $ | 2,185,558 | $ | 1,867,200 | $ | 2,185,558 | ||||||||||||||||||||||||||||||||||||||||
|
|
|
|
See accompanying notes to Condensed Consolidated Financial Statements.
JABIL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Nine months ended | Nine months ended | |||||||||||||||
May 31, 2018 | May 31, 2017 | May 31, 2019 | May 31, 2018 | |||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Cash flows provided by (used in) operating activities: | ||||||||||||||||
Net income | $ | 144,149 | $ | 81,126 | $ | 235,713 | $ | 144,149 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||||||||||
Depreciation and amortization | 583,646 | 570,557 | 574,922 | 583,646 | ||||||||||||
Restructuring and related charges | 14,838 | 58,613 | (3,555 | ) | 14,838 | |||||||||||
Recognition of stock-based compensation expense and related charges | 74,977 | 33,377 | 47,452 | 74,977 | ||||||||||||
Deferred income taxes | (39,762 | ) | (44,916 | ) | 14,008 | (39,762 | ) | |||||||||
Provision for allowance for doubtful accounts | 20,577 | 8,524 | 10,734 | 20,577 | ||||||||||||
Other, net | (4,059 | ) | 17,766 | 34,204 | (4,059 | ) | ||||||||||
Change in operating assets and liabilities, exclusive of net assets acquired: | ||||||||||||||||
Accounts receivable | (186,231 | ) | (85,761 | ) | (528,597 | ) | (1,692,208 | ) | ||||||||
Contract assets | (865,408 | ) | — | |||||||||||||
Inventories | (379,658 | ) | (216,149 | ) | 349,252 | (379,658 | ) | |||||||||
Prepaid expenses and other current assets | (32,981 | ) | 100,397 | 6,910 | (98,160 | ) | ||||||||||
Other assets | (21,542 | ) | (28,852 | ) | (16,700 | ) | (21,542 | ) | ||||||||
Accounts payable, accrued expenses and other liabilities | 20,897 | 38,341 | 253,721 | 20,897 | ||||||||||||
|
|
|
| |||||||||||||
Net cash provided by operating activities | 194,851 | 533,023 | ||||||||||||||
Net cash provided by (used in) operating activities | 112,656 | (1,376,305 | ) | |||||||||||||
|
|
|
| |||||||||||||
Cash flows from investing activities: | ||||||||||||||||
Cash flows (used in) provided by investing activities: | ||||||||||||||||
Acquisition of property, plant and equipment | (819,167 | ) | (482,739 | ) | (789,226 | ) | (819,167 | ) | ||||||||
Proceeds and advances from sale of property, plant and equipment | 246,370 | 43,437 | 167,653 | 246,370 | ||||||||||||
Cash paid for business and intangible asset acquisitions, net of cash | (109,664 | ) | (36,620 | ) | (153,239 | ) | (109,664 | ) | ||||||||
Cash receipts on sold receivables | 96,846 | 1,571,156 | ||||||||||||||
Other, net | (2,360 | ) | (1,360 | ) | (26,129 | ) | (2,360 | ) | ||||||||
|
|
|
| |||||||||||||
Net cash used in investing activities | (684,821 | ) | (477,282 | ) | ||||||||||||
Net cash (used in) provided by investing activities | (704,095 | ) | 886,335 | |||||||||||||
|
|
|
| |||||||||||||
Cash flows from financing activities: | ||||||||||||||||
Cash flows provided by (used in) financing activities: | ||||||||||||||||
Borrowings under debt agreements | 6,847,756 | 5,432,503 | 9,482,468 | 6,847,756 | ||||||||||||
Payments toward debt agreements | (6,472,728 | ) | (5,370,936 | ) | (9,073,684 | ) | (6,472,728 | ) | ||||||||
Payments to acquire treasury stock | (316,394 | ) | (237,135 | ) | (350,323 | ) | (316,394 | ) | ||||||||
Dividends paid to stockholders | (44,274 | ) | (45,550 | ) | (39,736 | ) | (44,274 | ) | ||||||||
Net proceeds from exercise of stock options and issuance of common stock under employee stock purchase plan | 12,844 | 11,246 | 14,582 | 12,844 | ||||||||||||
Treasury stock minimum tax withholding related to vesting of restricted stock | (22,526 | ) | (11,558 | ) | (11,898 | ) | (22,526 | ) | ||||||||
Other, net | (11,876 | ) | (1,496 | ) | (1,500 | ) | (11,876 | ) | ||||||||
|
|
|
| |||||||||||||
Net cash used in financing activities | (7,198 | ) | (222,926 | ) | ||||||||||||
Net cash provided by (used in) financing activities | 19,909 | (7,198 | ) | |||||||||||||
|
|
|
| |||||||||||||
Effect of exchange rate changes on cash and cash equivalents | (15,259 | ) | (943 | ) | 7,667 | (15,259 | ) | |||||||||
|
|
|
| |||||||||||||
Net decrease in cash and cash equivalents | (512,427 | ) | (168,128 | ) | (563,863 | ) | (512,427 | ) | ||||||||
Cash and cash equivalents at beginning of period | 1,189,919 | 912,059 | 1,257,949 | 1,189,919 | ||||||||||||
|
|
|
| |||||||||||||
Cash and cash equivalents at end of period | $ | 677,492 | $ | 743,931 | $ | 694,086 | $ | 677,492 | ||||||||
|
|
|
|
See accompanying notes to Condensed Consolidated Financial Statements.
JABIL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form10-Q and Article 10 of RegulationS-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary to present fairly the information set forth therein have been included. The CompanyJabil Inc. (the “Company”) has made certain reclassification adjustments to conform prior periods’ Condensed Consolidated Financial Statements to the current presentation. The accompanying unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and footnotes included in the Annual Report on Form10-K of Jabil Inc. (the “Company”)the Company for the fiscal year ended August 31, 2017.2018. Results for the nine months ended May 31, 20182019 are not necessarily an indication of the results that may be expected for the full fiscal year ending August 31, 2018.2019.
2. Earnings Per Share and Dividends
Earnings Per Share
The Company calculates its basic earnings per share by dividing net income attributable to Jabil Inc.the Company by the weighted average number of common shares outstanding during the period. The Company’s diluted earnings per share is calculated in a similar manner, but includes the effect of dilutive securities. The difference between the weighted average number of basic shares outstanding and the weighted average number of diluted shares outstanding is primarily due to dilutive unvested restricted stock unit awards (“restricted stock units”) and dilutive stock appreciation rights.
Potential shares of common stock are excluded from the computation of diluted earnings per share when their effect would be antidilutive. Performance-based restricted stock awardsunits are considered dilutive when the related performance criterioncriteria have been met assuming the end of the reporting period represents the end of the performance period. All potential shares of common stock are antidilutive in periods of net loss. Potential shares of common stock not included in the computation of earnings per share because their effect would have been antidilutive or because the performance criterion was not met were as follows (in thousands):
Three months ended | Nine months ended | |||||||||||||||
May 31, 2018 | May 31, 2017 | May 31, 2018 | May 31, 2017 | |||||||||||||
Stock appreciation rights | — | 514 | — | 334 | ||||||||||||
Restricted stock awards | 2,129 | 9,490 | 2,136 | 4,561 |
Three months ended | Nine months ended | |||||||||||||||
May 31, 2019 | May 31, 2018 | May 31, 2019 | May 31, 2018 | |||||||||||||
Restricted stock units | 1,345 | 2,129 | 1,338 | 2,136 |
Dividends
The following table sets forth cash dividends declared by the Company to common stockholders during the nine months ended May 31, 20182019 and 20172018 (in thousands, except for per share data):
Dividend Declaration Date | Dividend per Share | Total of Cash Dividends Declared | Date of Record for Dividend Payment | Dividend Cash Payment Date | ||||||||||||||||||||||||||
Fiscal Year 2019: | October 18, 2018 | $ | 0.08 | $ | 13,226 | November 15, 2018 | December 3, 2018 | |||||||||||||||||||||||
January 24, 2019 | $ | 0.08 | $ | 12,706 | February 15, 2019 | March 1, 2019 | ||||||||||||||||||||||||
Dividend Declaration Date | Dividend per Share | Total of Cash Dividends Declared | Date of Record for Dividend Payment | Dividend Cash Payment Date | April 18, 2019 | $ | 0.08 | $ | 12,681 | May 15, 2019 | June 3, 2019 | |||||||||||||||||||
Fiscal Year 2018: | October 19, 2017 | $0.08 | $14,588 | November 15, 2017 | December 1, 2017 | October 19, 2017 | $ | 0.08 | $ | 14,588 | November 15, 2017 | December 1, 2017 | ||||||||||||||||||
January 25, 2018 | $0.08 | $14,272 | February 15, 2018 | March 1, 2018 | January 25, 2018 | $ | 0.08 | $ | 14,272 | February 15, 2018 | March 1, 2018 | |||||||||||||||||||
April 19, 2018 | $0.08 | $13,991 | May 15, 2018 | June 1, 2018 | April 19, 2018 | $ | 0.08 | $ | 13,991 | May 15, 2018 | June 1, 2018 | |||||||||||||||||||
Fiscal Year 2017: | October 20, 2016 | $0.08 | $15,248 | November 15, 2016 | December 1, 2016 | |||||||||||||||||||||||||
January 26, 2017 | $0.08 | $15,051 | February 15, 2017 | March 1, 2017 | ||||||||||||||||||||||||||
April 20, 2017 | $0.08 | $14,840 | May 15, 2017 | June 1, 2017 |
3. Inventories
Inventories consist of the following (in thousands):
May 31, 2018 | August 31, 2017 | May 31, 2019 | August 31, 2018 | |||||||||||||
Raw materials | $ | 1,886,967 | $ | 1,574,241 | $ | 2,388,902 | $ | 2,070,569 | ||||||||
Work in process | 832,153 | 822,628 | 501,168 | 788,742 | ||||||||||||
Finished goods | 682,517 | 591,227 | 333,224 | 659,335 | ||||||||||||
Reserve for excess and obsolete inventory | (57,855 | ) | (46,013 | ) | (63,925 | ) | (60,940 | ) | ||||||||
|
|
|
| |||||||||||||
Inventories, net | $ | 3,343,782 | $ | 2,942,083 | $ | 3,159,369 | $ | 3,457,706 | ||||||||
|
|
|
|
4. Accrued Expenses
Accrued expenses consist of the following (in thousands):
May 31, 2019 | August 31, 2018 | |||||||
Contract liabilities | $ | 544,831 | $ | — | ||||
Deferred income | — | 691,365 | ||||||
Accrued compensation and employee benefits | 549,598 | 570,400 | ||||||
Other accrued expenses | 1,491,623 | 1,000,979 | ||||||
|
|
|
| |||||
Accrued expenses | $ | 2,586,052 | $ | 2,262,744 | ||||
|
|
|
|
5. Stock-Based Compensation and Share Repurchases
The Company recognized stock-based compensation expense within selling, general and administrative expense as follows (in thousands):
Three months ended | Nine months ended | Three months ended | Nine months ended | |||||||||||||||||||||||||||||
May 31, 2018 | May 31, 2017 | May 31, 2018 | May 31, 2017 | May 31, 2019 | May 31, 2018 | May 31, 2019 | May 31, 2018 | |||||||||||||||||||||||||
Restricted stock and stock appreciation rights | $ | 13,457 | $ | 16,829 | $ | 69,916 | $ | 28,539 | ||||||||||||||||||||||||
Restricted stock units and stock appreciation rights | $ | 12,592 | $ | 13,457 | $ | 41,247 | $ | 69,916 | ||||||||||||||||||||||||
Employee stock purchase plan | 1,581 | 1,521 | 5,368 | 4,838 | 1,914 | 1,581 | 6,205 | 5,368 | ||||||||||||||||||||||||
Other(1) | — | — | 7,538 | — | — | — | — | 7,538 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total | $ | 15,038 | $ | 18,350 | $ | 82,822 | $ | 33,377 | $ | 14,506 | $ | 15,038 | $ | 47,452 | $ | 82,822 | ||||||||||||||||
|
|
|
|
|
|
|
|
(1) | Represents aone-time cash-settled stock award that vested on November 30, 2017. |
As of May 31, 2018,2019, the shares available to be issued under the 2011 Stock Award and Incentive Plan were 12,777,424.12,021,729.
Restricted Stock AwardsUnits
Certain key employees have been granted time-based, performance-based and market-based restricted stock unit awards.units. The time-based restricted stock units generally vest on a graded vesting schedule over three years. The performance-based restricted stock units generally vest on a cliff vesting schedule over three years and up to a maximum of 150%, depending on the specified performance condition and the level of achievement obtained. The performance-based restricted stock units have a vesting condition that is based upon the Company’s cumulative adjusted core earnings per share during the performance period. The market-based restricted stock units generally vest on a cliff vesting schedule over three years and up to a maximum of 200%, depending on the specified performance condition and the level of achievement obtained. The market-based restricted stock units have a vesting condition that is tied to the Company’s total shareholder return based on the Company’s stock performance in relation to the companies in the Standard and Poor’s (S&P) Super Composite Technology Hardware and Equipment Index excluding the Company. During the nine months ended May 31, 20182019 and 2017,2018, the Company awarded approximately 1.41.6 million and 1.81.4 million time-based restricted stock units, respectively, 0.4 million and 0.60.4 million performance-based restricted stock units, respectively and 0.4 million and 0.4 million market-based restricted stock units, respectively.
On October 6, 2017, the Company’s Compensation Committee approved the modification of vesting criteria for certain performance-based restricted stock awards granted in fiscal year 2015. As a result of the modification, 0.8 million awards vested during the first quarter of fiscal year 2018, which resulted in approximately $24.9 million of stock-based compensation expense recognized.
The following represents the stock-based compensation information for the period indicated (in thousands):
May 31, 2018 | ||||
Unrecognized stock-based compensation expense—restricted stock | $ | 55,225 | ||
Remaining weighted-average period for restricted stock expense | 1.5 years |
Nine months ended | ||||
May 31, 2019 | ||||
Unrecognized stock-based compensation expense—restricted stock units | $ | 53,987 | ||
Remaining weighted-average period for restricted stock units expense | 1.4 years |
Share RepurchasesCommon Stock Outstanding
In July 2017,The following represents the Company’s Board of Directors authorized the repurchase of up to $450.0 million of the Company’s common stock (the “2017 Share Repurchase Program”). The 2017 Share Repurchase Program expires on August 31, 2018. As of May 31, 2018, 11.5 million shares had been repurchasedoutstanding for $316.2 million and $133.8 million remains available under the 2017 Share Repurchase Program.
Three months ended | Nine months ended | |||||||||||||||
May 31, 2019 | May 31, 2018 | May 31, 2019 | May 31, 2018 | |||||||||||||
Common stock outstanding: | ||||||||||||||||
Beginning balances | 152,878,329 | 172,063,230 | 164,588,172 | 177,727,653 | ||||||||||||
Shares issued upon exercise of stock options | — | — | 11,348 | 29,688 | ||||||||||||
Shares issued under employee stock purchase plan | (215 | ) | 261 | 692,110 | 575,777 | |||||||||||
Vesting of restricted stock | 73,095 | 24,232 | 1,979,022 | 2,718,379 | ||||||||||||
Purchases of treasury stock under employee stock plans | (24,322 | ) | (6,567 | ) | (489,158 | ) | (790,598 | ) | ||||||||
Treasury shares purchased(1) | — | (3,281,412 | ) | (13,854,607 | ) | (11,461,155 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Ending balances | 152,926,887 | 168,799,744 | 152,926,887 | 168,799,744 | ||||||||||||
|
|
|
|
|
|
|
|
In June 2018, the Company’s Board of Directors authorized the repurchase of up to $350.0 million of the Company’s common stock (the “2018 Share Repurchase Program”). The 2018 Share Repurchase Program expires August 31, 2019.
5.
(1) | In June 2018, the Company’s Board of Directors authorized the repurchase of up to $350.0 million of the Company’s common stock (the “2018 Share Repurchase Program”). The 2018 Share Repurchase Program expires August 31, 2019. As of May 31, 2019, the total amount authorized by the Board of Directors had been repurchased. |
6. Concentration of Risk and Segment Data
Concentration of Risk
Sales of the Company’s products are concentrated among specific customers. During the nine months ended May 31, 2018,2019, the Company’s five largest customers accounted for approximately 50%43% of its net revenue and 7782 customers accounted for approximately 90% of its net revenue. Sales to these customers were reported in the Electronics Manufacturing Services (“EMS”) and Diversified Manufacturing Services (“DMS”) operating segments.
The Company procures components from a broad group of suppliers. Almost allSome of the products manufactured by the Company require one or more components that are available from only a single source.
Segment Data
Net revenue for the operating segments is attributed to the segment in which the service is performed. An operating segment’s performance is evaluated based on itspre-tax operating contribution, or segment income. Segment income is defined as net revenue less cost of revenue, segment selling, general and administrative expenses, segment research and development expenses and an allocation of corporate manufacturing expenses and selling, general and administrative expenses. Segment income does not include amortization of intangibles, stock-based compensation expense and related charges, restructuring and related charges, distressed customer charges, acquisition costs and certain purchase accounting adjustments,integration charges, loss on disposal of subsidiaries, settlement of receivables and related charges, impairment of notes receivable and related charges, goodwill impairment charges, business interruption and impairment charges, net, income (loss) from discontinued operations, gain (loss) on sale of discontinued operations, other expense, interest income, interest expense, income tax expense or adjustment for net income (loss) attributable to noncontrolling interests. Total segment assets are defined as accounts receivable, inventories, net, customer-related property, plant and equipment, intangible assets net of accumulated amortization and goodwill. All other non-segment assets are reviewed on a global basis by management. Transactions between operating segments are generally recorded at amounts that approximate those at which the Companywe would transact with third parties.
The following tables settable sets forth operating segment information (in thousands):
Three months ended | Nine months ended | Three months ended | Nine months ended | |||||||||||||||||||||||||||||
May 31, 2018 | May 31, 2017 | May 31, 2018 | May 31, 2017 | May 31, 2019 | May 31, 2018 | May 31, 2019 | May 31, 2018 | |||||||||||||||||||||||||
Net revenue | ||||||||||||||||||||||||||||||||
EMS | $ | 3,161,626 | $ | 2,819,711 | $ | 8,894,174 | $ | 8,205,812 | $ | 3,988,489 | $ | 3,161,626 | $ | 11,296,319 | $ | 8,894,174 | ||||||||||||||||
DMS | 2,275,326 | 1,669,846 | 7,429,411 | 5,834,280 | 2,147,113 | 2,275,326 | 7,412,548 | 7,429,411 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
$ | 5,436,952 | $ | 4,489,557 | $ | 16,323,585 | $ | 14,040,092 | $ | 6,135,602 | $ | 5,436,952 | $ | 18,708,867 | $ | 16,323,585 | |||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Segment income and reconciliation of income before income tax | ||||||||||||||||||||||||||||||||
EMS | $ | 121,563 | $ | 109,783 | $ | 302,556 | $ | 297,418 | $ | 130,869 | $ | 121,563 | $ | 303,618 | $ | 302,556 | ||||||||||||||||
DMS | 28,499 | 4,022 | 253,322 | 178,121 | 54,896 | 28,499 | 326,866 | 253,322 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total segment income | $ | 150,062 | $ | 113,805 | $ | 555,878 | $ | 475,539 | $ | 185,765 | $ | 150,062 | $ | 630,484 | $ | 555,878 | ||||||||||||||||
Reconciling items: | ||||||||||||||||||||||||||||||||
Amortization of intangibles | (10,040 | ) | (9,174 | ) | (29,909 | ) | (26,262 | ) | (7,610 | ) | (10,040 | ) | (23,033 | ) | (29,909 | ) | ||||||||||||||||
Stock-based compensation expense and related charges | (15,038 | ) | (18,350 | ) | (82,822 | ) | (33,377 | ) | (14,506 | ) | (15,038 | ) | (47,452 | ) | (82,822 | ) | ||||||||||||||||
Restructuring and related charges | (12,647 | ) | (32,700 | ) | (29,462 | ) | (113,529 | ) | (9,340 | ) | (12,647 | ) | (16,182 | ) | (29,462 | ) | ||||||||||||||||
Distressed customer charge | — | (10,198 | ) | (14,706 | ) | (10,198 | ) | — | — | — | (14,706 | ) | ||||||||||||||||||||
Business interruption and impairment charges, net | 634 | — | (10,722 | ) | — | — | 634 | 2,860 | (10,722 | ) | ||||||||||||||||||||||
Acquisition and integration charges | (13,391 | ) | — | (35,066 | ) | — | ||||||||||||||||||||||||||
Other expense | (10,139 | ) | (15,821 | ) | (26,506 | ) | (23,872 | ) | (14,084 | ) | (10,139 | ) | (39,391 | ) | (26,506 | ) | ||||||||||||||||
Interest income | 4,499 | 3,663 | 13,323 | 8,407 | 6,758 | 4,499 | 15,897 | 13,323 | ||||||||||||||||||||||||
Interest expense | (36,178 | ) | (35,443 | ) | (110,220 | ) | (102,087 | ) | (50,514 | ) | (36,178 | ) | (139,326 | ) | (110,220 | ) | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Income (loss) before income tax | $ | 71,153 | $ | (4,218 | ) | $ | 264,854 | $ | 174,621 | |||||||||||||||||||||||
Income before income tax | $ | 83,078 | $ | 71,153 | $ | 348,791 | $ | 264,854 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
Total assets EMS DMS Other non-allocated assets May 31, 2018 August 31, 2017 $ 3,378,703 $ 2,778,820 5,144,452 5,290,468 2,652,355 3,026,707 $ 11,175,510 $ 11,095,995
(1) | Charges, net of insurance proceeds of $5.0 million for the three months ended May 31, 2018, and $2.9 million and $21.4 million for the nine months ended May 31, 2019 and 2018, respectively, relate to business interruption and asset impairment costs associated with damage from Hurricane Maria, which impacted our operations in Cayey, Puerto Rico. |
As of May 31, 2018,2019, the Company operated in 29 countries worldwide. Sales to unaffiliated customers are based on the Company’s location that maintains the customer relationship and transacts the external sale. Total
The following table sets forth, for the periods indicated, foreign netsource revenue represented 91.2% and 91.8%expressed as a percentage of net revenue during the three months and nine months ended May 31, 2018, respectively, compared to 90.6% and 91.3% of net revenue during the three months and nine months ended May 31, 2017, respectively.revenue:
6.
Three months ended | Nine months ended | |||||||||||||||
May 31, 2019 | May 31, 2018 | May 31, 2019 | May 31, 2018 | |||||||||||||
Foreign source revenue | 86.5 | % | 91.2 | % | 89.2 | % | 91.8 | % |
7. Notes Payable and Long-Term Debt and Capital Lease Obligations
Notes payable and long-term debt and capital lease obligations outstanding as of May 31, 20182019 and August 31, 20172018 are summarized below (in thousands):
Maturity Date | May 31, 2018 | August 31, 2017 | ||||||||||
8.250% Senior Notes(1)(2)(3) | Mar 15, 2018 | $ | — | $ | 399,506 | |||||||
5.625% Senior Notes(1)(2) | Dec 15, 2020 | 397,772 | 397,104 | |||||||||
4.700% Senior Notes(1)(2) | Sep 15, 2022 | 497,187 | 496,696 | |||||||||
4.900% Senior Notes(1) | Jul 14, 2023 | 298,753 | 298,571 | |||||||||
3.950% Senior Notes(1)(2)(3) | Jan 12, 2028 | 494,092 | — | |||||||||
Borrowings under credit facilities(4) | Nov 8, 2022 | 247,000 | — | |||||||||
Borrowings under loans(4) | Nov 8, 2022 | 487,016 | 458,395 | |||||||||
Capital lease obligations | 26,813 | 27,818 | ||||||||||
|
|
|
| |||||||||
Total notes payable, long-term debt and capital lease obligations | 2,448,633 | 2,078,090 | ||||||||||
Less current installments of notes payable, long-term debt and capital lease obligations | 273,500 | 445,498 | ||||||||||
|
|
|
| |||||||||
Notes payable, long-term debt and capital lease obligations, less current installments | $ | 2,175,133 | $ | 1,632,592 | ||||||||
|
|
|
|
Maturity Date | May 31, 2019 | August 31, 2018 | ||||||||||
5.625% Senior Notes | Dec 15, 2020 | $ | 398,663 | $ | 397,995 | |||||||
4.700% Senior Notes | Sep 15, 2022 | 497,841 | 497,350 | |||||||||
4.900% Senior Notes | Jul 14, 2023 | 298,996 | 298,814 | |||||||||
3.950% Senior Notes | Jan 12, 2028 | 494,670 | 494,208 | |||||||||
Borrowings under credit facilities(1) | Nov 8, 2022 and Aug 24, 2020 | 429,648 | — | |||||||||
Borrowings under loans | Nov 8, 2022 and Aug 24, 2020 | 811,854 | 830,332 | |||||||||
|
|
|
| |||||||||
Total notes payable and long-term debt | 2,931,672 | 2,518,699 | ||||||||||
Less current installments of notes payable and long-term debt | 454,830 | 25,197 | ||||||||||
|
|
|
| |||||||||
Notes payable and long-term debt, less current installments | $ | 2,476,842 | $ | 2,493,502 | ||||||||
|
|
|
|
(1) | As of |
During the nine months ended May 31, 2018, the interest rates on the Revolving Credit Facility ranged from 2.4% to 4.4% and the interest rates on the Term Loan Facility ranged from 2.6% to 3.3%. Interest is charged at a rate equal to (a) for the Revolving Credit Facility, either 0.000% to 0.575% above the base rate or 0.975% to 1.575% above the Eurocurrency rate and (b) for the Term Loan Facility, either 0.125% to 0.875% above the base rate or 1.125% to 1.875% above the Eurocurrency rate. The base rate represents the greatest of: (i) Citibank, N.A.’s base rate, (ii) 0.50% above the federal funds rate, and (iii) 1.0% above one-month LIBOR, but not less than zero. The Eurocurrency rate
represents adjusted LIBOR or adjusted CDOR, as applicable, for the applicable interest period, but not less than zero. Fees include a facility fee based on the revolving credit commitments of the lenders and a letter of credit fee based on the amount of outstanding letters of credit.
Additionally, the Company’s foreign subsidiaries had various additional credit facilities that finance their future growth and any corresponding working capital needs.
As of May 31, 2018, the Company has $1.9has $2.0 billion in available unused borrowing capacity under its revolving credit facilities.
Debt Covenants
Borrowings under the Company’s debt agreements are subject to various covenants that limit the Company’s ability to: incur additional indebtedness, sell assets, effect mergers and certain transactions, and effect certain transactions with subsidiaries and affiliates. In addition, the Revolving Credit Facilityrevolving credit facilities and the 4.900% Senior Notes contain debt leverage and interest coverage covenants. The Company is also subject to certain covenants requiring the Company to offer to repurchase the 5.625%, 4.700%, 4.900% or 3.950% Senior Notes upon a change of control. As of May 31, 20182019 and August 31, 2017,2018, the Company was in compliance with its debt covenants.
Fair Value
The estimated fair values of the Company’s publicly traded debt, including the 5.625%, 4.700% and 3.950% Senior Notes, were approximately $419.5$416.5 million, $514.1$517.9 million and $481.7$480.1 million, respectively, as of May 31, 2018.2019. The fair value estimates are based upon observable market data (Level 2 criteria). The estimated fair value of the Company’s private debt, the 4.900% Senior Notes, was approximately $306.5$311.2 million, as of May 31, 2018.2019. This fair value estimate is based on the Company’s indicative borrowing cost derived from discounted cash flows (Level 3 criteria). The carrying amounts of borrowings under credit facilities and under loans approximate fair value as interest rates on these instruments approximate current market rates.
7.8. Trade Accounts Receivable Securitization and Sale Programs
The Company regularly sells designated pools of trade accounts receivable under twoa foreign asset-backed securitization programsprogram, a North American asset-back securitization program and seven uncommitted trade accounts receivable sale programs (collectively referred to herein as the “programs”). The Company continues servicing the receivables sold and in exchange receives a servicing fee under each of the programs. Servicing fees related to each of the programs recognized during the three months and nine months ended May 31, 20182019 and 20172018 were not material. The Company does not record a servicing asset or liability on the Condensed Consolidated Balance Sheets as the Company estimates that the fee it receives to service these receivables approximates the fair market compensation to provide the servicing activities.
Transfers of the receivables under the programs are accounted for as sales and, accordingly, net receivables sold under the programs are excluded from accounts receivable on the Condensed Consolidated Balance Sheets and are reflected as cash provided by operating activities on the Condensed Consolidated Statements of Cash Flows. The adoption of Accounting Standards UpdateNo. 2016-15 (“ASU2016-15”) described in Note 14, New Accounting Guidance, resulted in a reclassification of cash flows from operating activities to investing activities in the Company’s Condensed Consolidated Statement of Cash Flows for cash receipts related to collections on the deferred purchase price receivable (i.e. beneficial interest) on asset-backed securitization transactions. In addition, the beneficial interest of $162.2 million and $1.5 billion for the nine months ended May 31, 2019 and 2018, respectively, obtained in exchange for securitized receivables are reported asnon-cash investing activities.
Asset-Backed Securitization Programs
The Company continuously sells designated pools of trade accounts receivable at a discount, under its North American asset-backed securitization program and its foreign asset-backed securitization program (collectively referred to herein as the “asset-backed securitization programs”) toa special purpose entities,entity, which in turn sell 100%sells certain of the receivables to: (i) conduits administered by unaffiliated financial institutions for the North American asset-backed securitization program and (ii) to an unaffiliated financial institution and a conduit administered by an unaffiliated financial institution on a monthly basis. Effective October 1, 2018, the foreign asset-backed securitization program terms were amended and the program was extended to September 30, 2021. In connection with this amendment, there is no longer a deferred purchase price receivable for the foreign asset-backed securitization program. Anyprogram as the entire purchase price is paid in cash when the receivables are sold.
As of October 1, 2018, approximately $734.2 million of accounts receivable sold under the foreign asset-backed securitization program was exchanged for the outstanding deferred purchase price receivable of $335.5 million. The remaining amount due to the financial institution of $398.7 million was subsequently settled for $25.2 million of cash and $373.5 million of trade accounts receivable sold to the financial institution. The previously sold trade accounts receivable were recorded at fair market value. Prior to the amendment, any portion of the purchase price for the receivables not paid in cash upon the sale occurring iswas recorded as a deferred purchase price receivable, which iswas paid from available cash as payments on the receivables arewere collected.
The foreign asset-backed securitization program contains a guarantee of payment by the special purpose entity, in an amount equal to approximately the North American asset-backed securitization program is a wholly-owned subsidiarynet cash proceeds under the program. No liability has been recorded for obligations under the guarantee as of the Company. May 31, 2019.
The special purpose entity in the foreign asset-backed securitization program is a separate bankruptcy-remote entity whose assets would be first available to satisfy the creditor claims of the unaffiliated financial institution. The Company is deemed the primary beneficiary of this special purpose entity as the Company has both the power to direct the activities of the entity that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to
receive the benefits that could potentially be significant to the entity from the transfer of the trade accounts receivable into the special purpose entity. Accordingly, the special purpose entitiesentity associated with thesethe foreign asset-backed securitization programs areprogram is included in the Company’s Condensed Consolidated Financial Statements.
The North American asset-backed securitization program was terminated on October 9, 2018 and as of this date approximately $500.0 million of accounts receivable sold under the program was exchanged for the outstanding deferred purchase price receivable of $300.0 million and $200.0 million of cash. The previously sold trade accounts receivable were recorded at fair market value.
On November 27, 2018, the Company entered into a new North American asset-backed securitization program. The Company continuously sells designated pools of trade accounts receivable under its new North American asset-backed securitization program to a special purpose entity, which in turn sells certain of the receivables to conduits administered by unaffiliated financial institutions on a monthly basis. The special purpose entity in the North American asset-backed securitization program is a wholly-owned subsidiary of the Company and is included in the Company’s Condensed Consolidated Financial Statements. There is no longer a deferred purchase price receivable for the North American asset-backed securitization program as the entire purchase price is paid in cash when the receivables are sold. Additionally, $204.4 million in receivables are pledged as collateral to the unaffiliated financial institution as of May 31, 2019.
Following is a summary of the asset-backed securitization programs and key terms:
Maximum Amount of Net Cash Proceeds (in millions)(1) | Expiration Date | Maximum Amount of Net Cash Proceeds (in millions)(1) | Expiration Date | |||||||||||
North American | $ | 200.0 | October 20, 2020 | $ | 390.0 | November 22, 2021 | ||||||||
Foreign | $ | 400.0 | September 28, 2018 | $ | 400.0 | September 30, 2021 |
(1) | Maximum amount available at any one time. |
In connection with the asset-backed securitization programs, the Company recognized the following (in millions):
Three months ended | Nine months ended | Three months ended | Nine months ended | |||||||||||||||||||||||||||||
May 31, 2018 | May 31, 2017 | May 31, 2018 | May 31, 2017 | May 31, 2019 | May 31, 2018 | May 31, 2019(4) | May 31, 2018 | |||||||||||||||||||||||||
Eligible trade accounts receivable sold | $ | 1,913 | $ | 2,069 | $ | 6,362 | $ | 6,568 | ||||||||||||||||||||||||
Trade accounts receivable sold | $ | 1,036 | $ | 1,913 | $ | 2,864 | $ | 6,362 | ||||||||||||||||||||||||
Cash proceeds received(1) | $ | 1,379 | $ | 1,565 | $ | 5,821 | $ | 6,060 | $ | 1,029 | $ | 1,379 | $ | 2,845 | $ | 5,821 | ||||||||||||||||
Pre-tax losses on sale of receivables(2) | $ | 4 | $ | 3 | $ | 11 | $ | 7 | $ | 7 | $ | 4 | $ | 19 | $ | 11 | ||||||||||||||||
Deferred purchase price receivables as of May 31(3) | $ | 530 | $ | 501 | $ | 530 | $ | 501 | $ | — | $ | 530 | $ | — | $ | 530 |
(1) | For the three months and nine months ended May 31, |
(2) | Recorded to other expense within the Condensed Consolidated Statements of Operations. |
(3) | Recorded initially at fair value as prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets and are valued using unobservable inputs (Level 3 inputs), primarily discounted cash flows, and due to their credit quality and short-term maturity the fair values approximated book values. The unobservable inputs consist of estimated credit losses and estimated discount rates, which both have an immaterial impact on the fair value calculations. |
(4) | Excludes $650.3 million of trade accounts receivable sold, $488.1 million of cash and $13.9 million of net cash received prior to the amendment of the foreign asset-backed securitization program and under the previous North American asset-backed securitization program. |
The asset-backed securitization programs require compliance with several covenants. The North American asset-basedasset-backed securitization program covenants include compliance with the interest ratio and debt to EBITDA ratio of the Credit Facility. The foreign asset-backed securitization program covenants include limitations on certain corporate actions such as mergers and consolidations. As of May 31, 20182019 and August 31, 2017,2018, the Company was in compliance with all covenants under the asset-backed securitization programs.
Trade Accounts Receivable Sale Programs
The following is a summary of the seven trade accounts receivable sale programs with unaffiliated financial institutions where the Company may elect to sell receivables and the unaffiliated financial institution may elect to purchase, at a discount, on an ongoing basis:
Program | Maximum Amount (in millions)(1) | Type of Facility | Expiration Date | Maximum Amount (in millions)(1) | Type of Facility | Expiration Date | ||||||||||||||||||||
A | $ | 650.0 | Uncommitted | August 31, 2022(2) | $ | 800.0 | Uncommitted | August 31, 2022(2) | ||||||||||||||||||
B | $ | 150.0 | Uncommitted | August 31, 2018 | $ | 150.0 | Uncommitted | November 30, 2019(3) | ||||||||||||||||||
C | 800.0 | CNY | Uncommitted | February 13, 2019 | 800.0 | CNY | Uncommitted | June 30, 2020 | ||||||||||||||||||
D | $ | 100.0 | Uncommitted | May 4, 2023(3)(4) | $ | 100.0 | Uncommitted | May 4, 2023(4) | ||||||||||||||||||
E | $ | 50.0 | Uncommitted | August 25, 2018 | $ | 50.0 | Uncommitted | August 25, 2019 | ||||||||||||||||||
F | $ | 150.0 | Uncommitted | January 25, 2019(5)(6) | $ | 150.0 | Uncommitted | January 25, 2020(5) | ||||||||||||||||||
G | $ | 50.0 | Uncommitted | February 23, 2023(2)(6) | $ | 50.0 | Uncommitted | February 23, 2023(2) | ||||||||||||||||||
H | $ | 100.0 | Uncommitted | August 10, 2019(6) | ||||||||||||||||||||||
I | $ | 100.0 | Uncommitted | July 21, 2019(7) | ||||||||||||||||||||||
J | $ | 740.0 | Uncommitted | February 28, 2020(8) | ||||||||||||||||||||||
K | $ | 110.0 | Uncommitted | April 11, 2020(9) |
(1) | Maximum amount available at any one time. |
(2) | Any party may elect to terminate the agreement upon 15 days prior notice. |
(3) | The program |
(4) | Any party may elect to terminate the agreement upon 30 days prior notice. |
(5) | The program will be automatically extended through January 25, 2023 unless either party provides 30 days notice of termination. |
(6) | The program will be automatically extended through August 10, 2023 unless either party provides 30 days notice of termination. |
(7) | The program will be automatically extended through August 21, 2023 unless either party provides 30 days notice of termination. |
(8) | The program will be automatically extended each year through February 28, 2024 unless either party provides 90 days notice of termination. |
(9) | The program will be automatically extended each year through April 11, 2025 unless either party provides 30 days notice of termination. |
In connection with the trade accounts receivable sale programs, the Company recognized the following (in millions):
Three months ended | Nine months ended | Three months ended | Nine months ended | |||||||||||||||||||||||||||||
May 31, 2018 | May 31, 2017 | May 31, 2018 | May 31, 2017 | May 31, 2019 | May 31, 2018 | May 31, 2019 | May 31, 2018 | |||||||||||||||||||||||||
Trade accounts receivable sold | $ | 1,301 | $ | 539 | $ | 4,035 | $ | 2,194 | $ | 1,548 | $ | 1,301 | $ | 5,101 | $ | 4,035 | ||||||||||||||||
Cash proceeds received | $ | 1,296 | $ | 538 | $ | 4,025 | $ | 2,190 | $ | 1,541 | $ | 1,296 | $ | 5,079 | $ | 4,025 | ||||||||||||||||
Pre-tax losses on sale of receivables(1) | $ | 7 | $ | 5 | $ | 22 | $ | 10 |
(1) | Recorded to other expense within the Condensed Consolidated |
8.9. Accumulated Other Comprehensive Income
The following table sets forth the changes in accumulated other comprehensive income (“AOCI”), net of tax, by component from August 31, 2017 tofor the nine months ended May 31, 20182019 (in thousands):
Foreign Currency Translation Adjustment(1) | Derivative Instruments(2) | Actuarial (Loss) Gain | Prior Service Cost | Available for Sale Securities(3) | Total | Foreign Currency Translation Adjustment | Derivative Instruments | Actuarial (Loss) Gain | Prior Service Cost | Available for Sale Securities | Total | |||||||||||||||||||||||||||||||||||||
Balance as of August 31, 2017 | $ | 57,582 | $ | 29,967 | $ | (33,215 | ) | $ | 889 | $ | (603 | ) | 54,620 | |||||||||||||||||||||||||||||||||||
Balance as of August 31, 2018 | $ | 7,431 | $ | 8,116 | $ | (25,021 | ) | $ | (643 | ) | $ | (9,282 | ) | (19,399 | ) | |||||||||||||||||||||||||||||||||
Other comprehensive (loss) income before reclassifications | (19,720 | ) | 22,453 | (431 | ) | — | (2,016 | ) | 286 | (5,636 | ) | (36,262 | ) | 103 | — | (4,769 | ) | (46,564 | ) | |||||||||||||||||||||||||||||
Amounts reclassified from AOCI | — | (28,974 | ) | — | — | — | (28,974 | ) | — | 15,958 | — | — | — | 15,958 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Other comprehensive (loss) income | (19,720 | ) | (6,521 | ) | (431 | ) | — | (2,016 | ) | (28,688 | ) | (5,636 | ) | (20,304 | ) | 103 | — | (4,769 | ) | (30,606 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Balance as of May 31, 2018 | $ | 37,862 | $ | 23,446 | $ | (33,646 | ) | $ | 889 | $ | (2,619 | ) | $ | 25,932 | ||||||||||||||||||||||||||||||||||
Balance as of May 31, 2019 | $ | 1,795 | $ | (12,188 | ) | $ | (24,918 | ) | $ | (643 | ) | $ | (14,051 | ) | $ | (50,005 | ) | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Amounts are net of tax, |
The following table sets forth the amounts reclassified from AOCI into the Condensed Consolidated Statements of Operations, and the associated financial statement line item, net of tax, for the periods indicated (in thousands):
Three months ended | Nine months ended | |||||||||||||||||||
Comprehensive Income Components | Financial Statement Line Item | May 31, 2019 | May 31, 2018 | May 31, 2019 | May 31, 2018 | |||||||||||||||
Unrealized losses (gains) on derivative instruments: | ||||||||||||||||||||
Foreign exchange contracts | Cost of revenue | $ | (1,298 | ) | $ | (10,459 | ) | $ | 17,248 | $ | (20,519 | ) | ||||||||
Interest rate contracts | Interest expense | (430 | ) | (3,431 | ) | (1,290 | ) | (8,455 | ) | |||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Total amounts reclassified from AOCI(1)(2) | $ | (1,728 | ) | $ | (13,890 | ) | $ | 15,958 | $ | (28,974 | ) | |||||||||
|
|
|
|
|
|
|
|
(1) | The Company expects to reclassify $0.5 million into earnings during the |
(2) | Amounts are net of tax, which are immaterial for the three months and nine months ended May 31, |
9.10. Commitments and Contingencies
The Company is party to certain lawsuits in the ordinary course of business. The Company does not believe that these proceedings, individually or in the aggregate, will have a material adverse effect on the Company’s financial position, results of operations or cash flows.
The Internal Revenue Service (“IRS”) completed its field examination of the Company’s tax returns for fiscal years 2009 through 2011 and issued a Revenue Agent’s Report (“RAR”) on May 27, 2015, which was updated on June 22, 2016. The IRS completed its field examination of the Company’s tax returns for fiscal years 2012 through 2014 and issued an RAR on April 19, 2017. The proposed adjustments in the RAR from both examination periods relate primarily to U.S. taxation of
certain intercompany transactions. IfOn May 8, 2019, the IRS ultimately prevails in its positions, the Company’s income tax payment duereturn audits for the fiscal years 2009 through 2011 and 2012 through 2014 would be approximately $28.6 million and $5.3 million, respectively, after utilization of tax loss carry forwards available through fiscal year 2014. Also,were effectively settled when the Company agreed to the IRS has proposed interestOffice of Appeals’ Form870-AD (Offer to Waive Restrictions on Assessment and penalties with respectCollection of Tax Deficiency and to fiscal years 2009 through 2011. The IRS may make similar claims in future audits with respect to these types of transactions. At this time, anticipating the amount of any future IRS proposedAccept Overassessment) adjustments, interest and penalties is not practicable.
The Company disagrees with the proposed adjustments and intends to vigorously contest these matters through the applicable IRS administrative and judicial procedures, as appropriate. As the final resolution of the proposed adjustments remains uncertain, the Company continues to provide for the uncertain tax positions based on the more likely than not standard. While the resolution of the issues may result in tax liabilities, interest and penalties, which may be significantly higherwere substantially lower than the amounts accrued for these matters, management currently believes that the resolution willinitial RAR proposed adjustments. The settlement did not have a material adverse effect on the Company’s financial position, results of operations, or cash flows. However, there can beflows and no assurance that management’s beliefs will be realized.additional tax liabilities were recorded.
10.11. Derivative Financial Instruments and Hedging Activities
The Company is directly and indirectly affected by changes in certain market conditions. These changes in market conditions may adversely impact the Company’s financial performance and are referred to as market risks. The Company, where deemed appropriate, uses derivatives as risk management tools to mitigate the potential impact of certain market risks. The primary market risks managed by the Company through the use of derivative instruments are foreign currency risk and interest rate risk.
Foreign Currency Risk Management
Forward contracts are put in place to manage the foreign currency risk associated with the anticipated foreign currency denominated revenues and expenses. A hedging relationship existed with an aggregate notional amount outstanding of $252.3$135.9 million and $314.6$293.4 million as of May 31, 20182019 and August 31, 2017,2018, respectively. The related forward foreign exchange contracts have been designated as hedging instruments and are accounted for as cash flow hedges. The forward foreign exchange contract transactions will effectively lock in the value of anticipated foreign currency denominated revenues and expenses against foreign currency fluctuations. The anticipated foreign currency denominated revenues and expenses being hedged are expected to occur between June 1, 20182019 and February 28, 2019.29, 2020.
In addition to derivatives that are designated as hedging instruments and qualify for hedge accounting, the Company also enters into forward contracts to economically hedge transactional exposure associated with commitments arising from trade accounts receivable, trade accounts payable, fixed purchase obligations and intercompany transactions denominated in a currency other than the functional currency of the respective operating entity. The aggregate notional amount of these outstanding contracts as of May 31, 20182019 and August 31, 2017,2018, was $2.2$2.1 billion and $2.1$2.3 billion, respectively.
The following table presents the fair values of the Company’s assets and liabilities related to forwardderivative instruments recorded in the Condensed Consolidated Balance Sheets utilized for foreign exchange contracts measured at fair value on a recurring basiscurrency risk management purposes as of May 31, 2019 and August 31, 2018 aggregated by the level in the fair-value hierarchy in which those measurements are classified (in thousands):
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Forward foreign exchange contracts | $ | — | 13,662 | — | $ | 13,662 | ||||||||||
Liabilities: | ||||||||||||||||
Forward foreign exchange contracts | — | (31,847 | ) | — | (31,847 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | — | (18,185 | ) | — | $ | (18,185 | ) | ||||||||
|
|
|
|
|
|
|
|
Fair Values of Derivative Instruments | ||||||||||||||||||||
Asset Derivatives | Liability Derivatives | |||||||||||||||||||
Balance Sheet Location | Fair Value as of May 31, 2019(1) | Fair Value as of August 31, 2018(1) | Balance Sheet Location | Fair Value as of May 31, 2019(1) | Fair Value as of August 31, 2018(1) | |||||||||||||||
Derivatives designated as hedging instruments: | ||||||||||||||||||||
Forward foreign exchange contracts | Prepaid expenses and other current assets | $ | 644 | $ | 225 | Accrued expenses | $ | 3,853 | $ | 13,364 | ||||||||||
Derivatives not designated as hedging instruments: | ||||||||||||||||||||
Forward foreign exchange contracts | Prepaid expenses and other current assets | $ | 5,216 | $ | 10,125 | Accrued expenses | $ | 26,851 | $ | 46,171 |
(1) | Classified as Level 2 in the fair-value hierarchy. |
The Company’s forward foreign exchange contracts are measured on a recurring basis at fair value, based on foreign currency spot rates and forward rates quoted by banks or foreign currency dealers.
The following table presents the fair values of the Company’s derivative instruments recorded in the Condensed Consolidated Balance Sheets as of May 31, 2018 and August 31, 2017 (in thousands):
Fair Values of Derivative Instruments | ||||||||||||||||||||||||
Asset Derivatives | Liability Derivatives | |||||||||||||||||||||||
Balance Sheet Location | Fair Value as of May 31, 2018 | Fair Value as of August 31, 2017 | Balance Sheet Location | Fair Value as of May 31, 2018 | Fair Value as of August 31, 2017 | |||||||||||||||||||
Derivatives designated as hedging instruments: | ||||||||||||||||||||||||
Forward foreign exchange contracts | | Prepaid expenses and other current assets |
| $ | 7,022 | $ | 8,380 | | Accrued expenses |
| $ | 9,607 | $ | 1,408 | ||||||||||
Derivatives not designated as hedging instruments: | ||||||||||||||||||||||||
Forward foreign exchange contracts | | Prepaid expenses and other current assets |
| $ | 6,640 | $ | 31,280 | | Accrued expenses |
| $ | 22,240 | $ | 9,131 |
The gains and losses recognized in earnings due to hedge ineffectiveness and the amount excluded from effectiveness testing were not material for all periods presented and are included as components of net revenue, cost of revenue and selling, general and administrative expense, which are the same line items in which the hedged items are recorded.
During
The following table presents the three months and nine months ended May 31, 2018, the Company recognized $27.2 million and $59.8 million, respectively, in foreign currency losses, which were offset by $41.2 million and $92.2 million of gains, respectively, from related forward contracts. Both the foreign currency losses andnet gains from forward contracts were recognizedrecorded in costthe Condensed Consolidated Statements of revenue. ForOperations for the three months and nine months ended May 31, 2017, the amounts were immaterial and were recognized as components of cost of revenue.periods indicated (in thousands):
Derivatives Not Designated as Hedging Instruments Under ASC 815 | Location of (Loss) Gain | Amount of (Loss) Gain Recognized in Net Income on Derivatives | ||||||||||||||||
Three months ended | Nine months ended | |||||||||||||||||
May 31, 2019 | May 31, 2018 | May 31, 2019 | May 31, 2018 | |||||||||||||||
Forward foreign exchange contracts(1) | Cost of revenue | $ | (33,476 | ) | $ | (19,785 | ) | $ | 9,332 | $ | 25,959 |
(1) | During the three months ended May 31, 2019 and 2018, the Company recognized $28.3 million and $23.1 million, respectively, of foreign currency gains in cost of revenue, which are offset by the losses from the forward foreign exchange contracts. During the nine months ended May 31, 2019 and 2018, the Company recognized $24.3 million and $12.5 million, respectively, of foreign currency losses in cost of revenue, which are offset by the gains from the forward foreign exchange contracts. |
Interest Rate Risk Management
The Company periodically enters into interest rate swaps to manage interest rate risk associated with the Company’s borrowings.
Cash Flow Hedges
DuringThe following table presents the fourth quarter of fiscal year 2016, the Company entered into forward interest rate swap transactions to hedge the fixed interest rate payments for an anticipated debt issuance, which was the issuance of the 3.950% Senior Notes. The swaps were accounted for as a cash flow hedge and had a notional amount of $200.0 million. Concurrently with the pricing of the 3.950% Senior Notes, in the second quarter of fiscal year 2018 the Company settled the swaps. The fair value of the cash received for the swaps at settlement was $17.2 million. The effective portion of the swaps is recorded in the Company’s Consolidated Balance Sheets as a component of AOCI and is amortized as a reduction to interest expense in the Company’s Consolidated Statements of Operations through January 2028. The effective portions of the swaps amortized to interest expense during the three months and nine months ended May 31, 2018 was not material.
During the fourth quarter of fiscal year 2016, the Company entered into interest rate swap transactions to hedge the variable interest rate payments for the Term Loan Facility. In connection with this transaction, the Company pays interest based upon a fixed rate as agreed upon with the respective counterparties and receives variable rate interest payments based on the one-month LIBOR. The interest rate swaps have an aggregate notional amountoutstanding as of $200.0 million andMay 31, 2019, which have been designated as hedging instruments and accounted for as cash flow hedges. The interest rate swaps were effective on September 30, 2016 and are scheduled to expire on June 30, 2019. The contracts will be settled with the respective counterparties on a net basis at each settlement date. Changes in the fair value of the interest rate swap transactions are recorded in the Company’s Condensed Consolidated Balance Sheets as a component of AOCI.
Interest Rate Swap Summary | Hedged Interest Rate Payments | Aggregate Notional Amount (in millions) | Effective Date | Expiration Date (1) | ||||||||||||
Forward Interest Rate Swap | ||||||||||||||||
Anticipated Debt Issuance | Fixed | $ | 200.0 | October 22, 2018 | December 15, 2020 | (2) | ||||||||||
Interest Rate Swaps(3) | ||||||||||||||||
2017 Term Loan Facility | Variable | $ | 200.0 | September 30, 2016 | June 30, 2019 | |||||||||||
2017 Term Loan Facility | Variable | $ | 200.0 | October 11, 2018 | August 31, 2020 | |||||||||||
2018 Term Loan Facility | Variable | $ | 350.0 | August 24, 2018 | August 24, 2020 |
11.
(1) | The contracts will be settled with the respective counterparties on a net basis at the expiration date for the forward interest rate swap and at each settlement date for the interest rate swaps. |
(2) | If the anticipated debt issuance occurs before December 15, 2020, the contracts will be terminated simultaneously with the debt issuance. |
(3) | The Company pays interest based upon a fixed rate as agreed upon with the respective counterparties and receives variable rate interest payments based on theone-month LIBOR for the $500.0 million Term Loan Facility, expiring on November 8, 2022 (the “2017 Term Loan Facility”), for which $400.0 million is hedged, and based on the three-month LIBOR for the $350.0 million Term Loan Facility, which expires on August 24, 2020 (the “2018 Term Loan Facility”). |
12. Restructuring and Related Charges
Following is a summary of the Company’s restructuring and related charges (in thousands):
Three months ended | Nine months ended | Three months ended | Nine months ended | |||||||||||||||||||||||||||||
May 31, 2018 | May 31, 2017 | May 31, 2018 | May 31, 2017 | May 31, 2019 | May 31, 2018 | May 31, 2019 | May 31, 2018 | |||||||||||||||||||||||||
Employee severance and benefit costs | $ | 5,058 | $ | 18,171 | $ | 11,048 | $ | 46,654 | $ | 6,513 | $ | 5,058 | $ | 15,460 | $ | 11,048 | ||||||||||||||||
Lease costs | 1,589 | 1,151 | 1,596 | 5,600 | (50 | ) | 1,589 | (41 | ) | 1,596 | ||||||||||||||||||||||
Asset write-off costs | 5,575 | 11,838 | 14,838 | 58,613 | (343 | ) | 5,575 | (3,555 | ) | 14,838 | ||||||||||||||||||||||
Other related costs | 425 | 1,540 | 1,980 | 2,662 | ||||||||||||||||||||||||||||
Other costs | 3,220 | 425 | 4,318 | 1,980 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total restructuring and related charges | $ | 12,647 | $ | 32,700 | $ | 29,462 | $ | 113,529 | $ | 9,340 | $ | 12,647 | $ | 16,182 | $ | 29,462 | ||||||||||||||||
|
|
|
|
|
|
|
|
(1) | Includes |
2017 Restructuring Plan
On September 15, 2016, the Company’s Board of Directors formally approved a restructuring plan to better align the Company’s global capacity and administrative support infrastructure to further optimize organizational effectiveness. This action includes headcount reductions across the Company’s selling, general and administrative cost base and capacity realignment in higher cost locations (the “2017 Restructuring Plan”).
Upon completion of theThe 2017 Restructuring Plan, the Company expects to recognize approximatelytotaling $195.0 million in restructuring and other related costs. The Company has incurred $180.2 million in costs-to-datecosts, is substantially complete as of May 31, 2018. The remaining costs for employee severance and benefit costs, asset write-off costs and other related costs are anticipated to be incurred through the first half of fiscal year 2019.
The tablestable below summarizesummarizes the Company’s liability activity, primarily associated with the 2017 Restructuring Plan (in
(in thousands):
Employee Severance and Benefit Costs | Lease Costs | Asset Write-off Costs | Other Related Costs | Total | ||||||||||||||||
Balance as of August 31, 2017 | $ | 33,580 | $ | 1,665 | $ | — | $ | 3,143 | $ | 38,388 | ||||||||||
Restructuring related charges | 11,048 | 1,596 | 14,838 | 1,980 | 29,462 | |||||||||||||||
Asset write-off charge and other non-cash activity | (56 | ) | 525 | (14,838 | ) | 18 | (14,351 | ) | ||||||||||||
Cash payments | (25,512 | ) | (437 | ) | — | (3,272 | ) | (29,221 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance as of May 31, 2018 | $ | 19,060 | $ | 3,349 | $ | — | $ | 1,869 | $ | 24,278 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Employee Severance and Benefit Costs | Lease Costs | Asset Write-off Costs | Other Related Costs | Total | ||||||||||||||||
Balance as of August 31, 2018 | $ | 18,131 | $ | 2,684 | $ | — | $ | 522 | $ | 21,337 | ||||||||||
Restructuring related charges | 15,460 | (41 | ) | (3,555 | ) | 1,469 | 13,333 | |||||||||||||
Assetwrite-off charge and othernon-cash activity | (331 | ) | — | 3,555 | (14 | ) | 3,210 | |||||||||||||
Cash payments | (23,811 | ) | (450 | ) | — | (1,275 | ) | (25,536 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance as of May 31, 2019 | $ | 9,449 | $ | 2,193 | $ | — | $ | 702 | $ | 12,344 | ||||||||||
|
|
|
|
|
|
|
|
|
|
12.13. Business Acquisitions
Fiscal year 2019
During fiscal year 2018, the Company and Johnson & Johnson Medical Devices Companies (“JJMD”) entered into a Framework Agreement to form a strategic collaboration and expand its existing relationship. The strategic collaboration expands the Company’s medical device manufacturing portfolio, diversification and capabilities.
On February 25, 2019 and April 29, 2019, under the terms of the Framework Agreement, the Company completed the initial closing and second closing, respectively, of its acquisition of certain assets of JJMD. The preliminary aggregate purchase price paid for both the initial closing and second closing was approximately $153.2 million in cash, which remains subject to certain post-closing adjustments. The acquisition of the JJMD assets has been accounted for as a business combination using the acquisition method of accounting. Total assets acquired of $163.6 million and total liabilities assumed of $10.4 million were recorded at their estimated fair values as of the acquisition dates. The final closings, which are subject to customary closing conditions, are expected to occur during fiscal year 2020.
The Company is currently evaluating the fair values of the assets and liabilities related to this business combination. The preliminary estimates and measurements are, therefore, subject to change during the measurement period for assets acquired, liabilities assumed and tax adjustments. The results of operations were included in the Company’s condensed consolidated financial results beginning on February 25, 2019 for the initial closing and April 29, 2019 for the second closing. The Company believes it is impracticable to provide pro forma information for the acquisition of the JJMD assets.
Fiscal year 2018
Acquisition
On September 1, 2017, the Company completed the acquisition of True-Tech Corporation (“True-Tech”) for approximately $95.9 million in cash. True-Tech is a manufacturer specializing in aerospace, semiconductor and medical machined components.
The acquisition of True-Tech assets has beenwas accounted for as a business combination using the acquisition method of accounting. Assets acquired of $114.7 million, including $25.9 million in intangible assets and $22.6 million in goodwill, and liabilities assumed of $18.8 million were recorded at their estimated fair values as of the acquisition date. The excess of the
purchase price over the fair value of the acquired assets and assumed liabilities was recorded to goodwill and was fully allocated to the EMS segment. The majority of the goodwill is currently expected to be deductible for income tax purposes. The results of operations were included in the Company’s condensed consolidated financial results beginning on September 1, 2017. Pro forma information has not been provided as the acquisition of True-Tech is not deemed to be significant.
13.14. New Accounting Guidance
Recently IssuedAdopted Accounting Guidance
During fiscal year 2014, the Financial Accounting Standards Board (“FASB”) issued an accounting standard, which will supersede existing revenue recognition guidance under current U.S. GAAP. The new standard is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. The accounting standard isbecame effective for the Company in the first quarter of fiscal year 2019. Companies may use either a full retrospective or a modified retrospective approach to adopt this standard.
The Company has determined that the new standard will result in a change to the timing of the Company’s revenue recognition policy for certain customer contracts to an “over time” model as opposed to a “point in time” model upon delivery. Additionally, the Company anticipates the new standard will impact the Company’s accounting for certain fulfillment costs, which include up-front costs to prepare for manufacturing activities that are expected to be recovered. Under the new standard, such up-front costs would be recognized as an asset and amortized on a systematic basis consistent with the pattern of the transfer of the goods to which the asset relates. The financial impacts of the new standard cannot be reasonably estimated at this time. The Company is in the process of implementingimplemented changes to its processes, policies and internal controls to meet the impact of the new standard and disclosure requirements. The Company expectsRefer to adoptNote 16 – “Revenue” to the new guidance under the modified retrospective approach.Condensed Consolidated Financial Statements for further details.
During fiscal year 2016, the FASB issued a new accounting standard to address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. This guidance isbecame effective for the Company beginning in the first quarter of fiscal year 2019, and must bewas applied prospectively by means of a cumulative-effect adjustment to the Consolidated Balance Sheet as of the beginning of the fiscal year of adoption and applied prospectivelySeptember 1, 2018 to equity investments that existexisted as of the date of adoption of the standard. The adoption of this standard isdid not expected to have a material impact on the Company’s Consolidated Financial Statements; however, the impact on future periods will depend on the facts and circumstances of future transactions.
During fiscal year 2016, the FASB issued a new accounting standard to address the presentation of certain transactions within the statement of cash flows with the objective of reducing the existing diversity in practice. This standard was adopted on September 1, 2018 on a retrospective basis and resulted in a reclassification of cash flows from operating activities to investing activities in the Company’s Consolidated Statement of Cash Flows for cash receipts related to collections on the deferred purchase price receivable on asset-backed securitization transactions. The increase in cash flow from investing activities and the corresponding decrease to cash flow from operating activities upon adoption of the standard was $96.8 million and $1.6 billion for the nine months ended May 31, 2019 and 2018, respectively.
During fiscal year 2017, the FASB issued a new accounting standard to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. The new standard eliminates the exception for an intra-entity transfer of an asset other than inventory and requires an entity to recognize the income tax consequences when the transfer occurs. This guidance became effective for the Company beginning in the first quarter of fiscal year 2019. This guidance was adopted on a modified retrospective basis and an immaterial cumulative-effect adjustment was recorded, which reduced retained earnings as of September 1, 2018.
During fiscal year 2017, the FASB issued a new accounting standard which clarifies the scope of accounting for asset derecognition and adds further guidance for recognizing gains and losses from the transferof non-financial assets in contracts withnon-customers. This guidance became effective for the Company beginning in the first quarter of fiscal year 2019 coincident with the new revenue recognition guidance. The adoption of this standard did not have a material impact on the Company’s Consolidated Financial Statements; however, the impact on future periods will depend on the facts and circumstances of future transactions.
During fiscal year 2017, the FASB issued a new accounting standard to improve the presentation of net periodic pension benefit cost. The Company adopted the standard on September 1, 2018 on a retrospective basis which results in reclassifications for the service cost component of net periodic benefit cost from selling, general and administrative expense to cost of revenue and for the other components from selling, general and administrative expense to other expense. Prior periods have not been reclassified due to immateriality.
During the second quarter of fiscal year 2018, the Securities and Exchange Commission (“SEC”) staff issued Staff Accounting Bulletin No. 118,Income Tax Accounting Implications of the Tax Cut and Jobs Act (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Cuts and Jobs Act of 2017 (“Tax Act”). SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete, but it is able to determine a reasonable estimate, it must record a provisional estimate in its financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. The Company applied SAB 118 and provided required disclosures in Note 15—“Income Taxes.”
Recently Issued Accounting Guidance
During fiscal year 2016, the FASB issued a new accounting standard revising lease accounting. The new guidance requires organizations to recognize lease assets and lease liabilities on the Consolidated Balance Sheet and disclose key information regarding leasing arrangements. This guidance is effective for the Company beginning in the first quarter of fiscal year 2020. Early application of the new standard is permitted and the standard must be adopted using a modified retrospective approach. The Company intends to elect the package of practical expedients offered, which allows entities to not reassess: i) whether any contracts prior to the adoption date are or contain leases, ii) lease classification, and iii) whether capitalized initial direct costs continue to meet the definition of this standard will impactinitial direct costs under the Company’s Consolidated Balance Sheet. Thenew guidance. In preparation for the adoption, the Company is implementing a new lease accounting system. While the Company is currently evaluating accounting policy elections and assessing any otheroverall impacts this new standard will have on its Consolidated Financial Statements.Statements, the new guidance is expected to have a material impact on the consolidated balance sheets upon adoption, primarily due to the recognition ofright-of-use assets and operating lease liabilities.
During fiscal year 2016, the FASB issued an accounting standard, which replaces the existing incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This guidance is effective for the Company beginning in the first quarter of fiscal year 2021 and early adoption is permitted beginning in the first quarter of fiscal year 2020. This guidance must be applied using a modified retrospective or prospective transition method, depending on the area covered by this accounting standard. The Company is currently assessing the impact this new standard may have on its Consolidated Financial Statements.
During fiscal year 2016, the FASB issued a new accounting standard to address the presentation of certain transactions within the statement of cash flows with the objective of reducing the existing diversity in practice. Adoption of this standard will be required on a retrospective basis and will result in a reclassification of cash flows from operating activities to investing activities in the Company’s Consolidated Statement of Cash Flows for cash receipts for the deferred purchase price receivable on asset-backed securitization transactions. This guidance is effective for the Company beginning in the first quarter of fiscal year 2019. While the Company is still quantifying the impact of this standard, it expects a material increase in cash flow from investing activities with a corresponding decrease to cash flow from operating activities upon adoption of the standard.
During fiscal year 2017, the FASB issued a new accounting standard to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. The new standard eliminates the exception for an intra-entity transfer of an asset other than inventory and requires an entity to recognize the income tax consequences when the transfer occurs. This guidance is effective for the Company beginning in the first quarter of fiscal year 2019. This guidance should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The adoption of this standard is not expected to have a material impact on the Company’s Consolidated Financial Statements; however, the impact on future periods will depend on the facts and circumstances of future transactions.
During fiscal year 2017, the FASB issued a new accounting standard which clarifies the scope of accounting for asset derecognition and adds further guidance for recognizing gains and losses from the transfer of non-financial assets in contracts with non-customers. This guidance is effective for the Company beginning in the first quarter of fiscal year 2019 coincident with the new revenue recognition guidance. The Company is currently assessing the impact this new standard may have on its Consolidated Financial Statements.
During fiscal year 2017, the FASB issued a new accounting standard to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities by simplifying the application of hedge accounting and improving the related disclosures in its financial statements. This guidance is effective for the Company beginning in the first quarter of fiscal year 2020, with early adoption permitted. The guidance must be applied using a modified retrospective approach. The adoption of this standard is not expected to have a material impact on the Company’s Consolidated Financial Statements; however, the impact on future periods will depend on the facts and circumstances of future transactions.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 (“Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code that will affect the Company’s fiscal year ending August 31, 2018. The Securities and Exchange Commission (“SEC”) staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cut and Jobs Act (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under Accounting Standards Codification Topic 740, “Income Taxes” (“ASC 740”). In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete, but it is able to determine a reasonable estimate, it must record a provisional estimate in its financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. The Company has applied SAB 118, recorded a provisional estimate related to certain effects of the Tax Act, and provided required disclosures in Note 14 – “Income Taxes.”
During the second quarter of fiscal year 2018, the FASB issued a new accounting standard which allowsaligns the requirements for capitalizing implementation costs incurred in a reclassification from accumulated other comprehensive incomehosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to retained earnings for stranded tax effects resulting from the Tax Act.develop or obtaininternal-use software. This guidance is effective for the Company beginning in the first quarter of fiscal year 2020,2021, with early adoption permitted. The Company is currently assessing the impact this new standard may have on its Consolidated Financial Statements.
Recently issued accounting guidance not discussed above is not applicable or did not have, or is not expected to have, a material impact to the Company.
14.15. Income Taxes
Tax Act
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Act. The Tax Act enacted December 22, 2017, reduced the corporate tax rate, limited or eliminated certain tax deductions, and changed the taxation of foreign earnings of U.S. multinational companies. The enacted changes include a mandatory income inclusion of the historically untaxed foreign earnings of a U.S. company’s foreign subsidiaries and will effectively tax such income at reduced tax rates (“mandatory deemed repatriationtransition tax”).
During the second quarter of 2018, the Company made reasonable estimates related to certain impacts of the Tax Act and, in accordance with SAB 118, recorded a provisional income tax expense of $30.9 million. This provisional expense is mainly comprised of the one-time mandatory deemed repatriation tax that will be paid over eight years as well as the re-measurement of the Company’s U.S. deferred tax attributes. The calculation of the mandatory deemed repatriation tax is based upon preliminary estimates of post-1986 earnings and profits and tax pools, utilization of U.S. federal net operating losses and tax credits, and the amounts of foreign earnings held in cash and non-cash assets. As of May 31, 2018, the Company continues to believe $30.9 million is a reasonable estimate related to Tax Reform based on the analyses, interpretations and guidance available at this time.
As a result of the mandatory deemed repatriationone-time transition tax, the Company will have a substantial amount of previously taxed earnings that can be distributed to the U.S. without additional U.S. taxation. Additionally, the Tax Act provides for a 100% dividends received deduction for dividends received by U.S. corporations from10-percent or more owned foreign corporations. Therefore,During the fiscal year ended August 31, 2018, the Company is analyzing its indefinite reinvestment assertionmade reasonable estimates related to certain impacts of the Tax Act and, cash repatriation plan. The Company has made no adjustments to its financial statements in accordance with SAB 118, recorded a net provisional income tax expense (benefit). In the currentsecond quarter with respect to its indefinite reinvestment assertion, but may do so during the measurement period. A change in assertion could result in a material deferred tax liability associated with foreign withholding taxes that would be incurred upon such future remittances of cash. Additionally,fiscal year 2019, the Company is still evaluatingcompleted its accounting for the effects of the Tax Act under SAB 118 based on the analysis, interpretations and guidance available at that time. There may be future adjustments based on changes in interpretations, legislative updates or final regulations under the Tax Act, changes in accounting standards for income taxes, or changes in estimates the Company utilized to calculate the transitional impact. During the first quarter of fiscal year 2019, the Company elected to record the Global IntangibleLow-Taxed Income (“GILTI”) provisions and the associated election to record its effects as a period cost or a component of deferred taxes.cost.
The final impact offollowing table summarizes the tax expense (benefit) related to the Tax Act may differrecognized during the SAB 118 measurement period (in millions):
One-time transition tax, inclusive of unrecognized tax benefits(1) | Re-measurement of the Company’s U.S. deferred tax attributes | Change in indefinite reinvestment assertion(2) | Other | Income tax expense (benefit) | ||||||||||||||||
Provisional income tax expense (benefit)—recognized in fiscal year 2018 | $ | 65.9 | $ | (10.5 | ) | $ | 85.0 | $ | 1.9 | $ | 142.3 | |||||||||
Income tax expense (benefit) adjustment—recognized in fiscal year 2019 | $ | (14.9 | ) | $ | 1.6 | $ | — | $ | — | $ | (13.3 | ) | ||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Income tax expense (benefit) related to the Tax Act through November 30, 2018 | $ | 51.0 | $ | (8.9 | ) | $ | 85.0 | $ | 1.9 | $ | 129.0 | |||||||||
|
|
|
|
|
|
|
|
|
|
(1) | The calculation of theone-time transition tax is based upon estimates of post-1986 earnings and profits, applicable foreign tax credits and relevant limitations, utilization of U.S. federal net operating losses and tax credits and the amount of foreign earnings held in cash andnon-cash assets. The adjustment during the first quarter of fiscal year 2019 was primarily related to further analysis of the Company’s utilization of foreign tax credits and applicable limitations. No other material adjustments were made to the net provisional income tax expense recognized in fiscal year 2018 related to the Tax Act under SAB 118. |
(2) | The liability recorded for a change in the indefinite reinvestment assertion on certain earnings from the Company’s foreign subsidiaries is primarily associated with foreign withholding taxes that would be incurred upon such future remittances of cash. The Company intends to indefinitely reinvest the remaining earnings from the Company’s foreign subsidiaries for which a deferred tax liability has not already been recorded. The accumulated earnings are the most significant component of the basis differences which are indefinitely reinvested. |
Effective Income Tax Rate
The U.S. federal statutory income tax rate and the Company’s effective income tax rate are as follows:
Three months ended | Nine months ended | |||||||||||||||
May 31, 2019 | May 31, 2018 | May 31, 2019 | May 31, 2018 | |||||||||||||
U.S. federal statutory income tax rate | 21.0 | % | 25.7 | % | 21.0 | % | 25.7 | % | ||||||||
Effective income tax rate | 47.0 | % | 40.0 | % | 32.4 | % | 45.6 | % |
The effective tax rate during the three months and nine months ended May 31, 2019, differed from the Company’s estimatesU.S. federal statutory rate primarily due to: (i) losses in tax jurisdictions with existing valuation allowances; and (ii) tax incentives granted to among other items, additional regulatory guidance that may be issued, changessites in interpretationsBrazil, China, Malaysia, Singapore and assumptions, and finalization of calculations ofVietnam. In addition, the impact of the Tax Act, including the on-going analysis of U.S. tax attributes, re-measurement of the Company’s U.S. deferred tax attributes and the computation of earnings and profits and tax pools of the Company’s foreign subsidiaries. The Company also continues to evaluate its indefinite reinvestment assertion regarding undistributed earnings and profits as a result of the Tax Act. As the Company finalizes the accounting for the tax effects of the enactment of the Tax Act during the measurement period, the Company will reflectnine months ended May 31, 2019 included adjustments to the provisional amounts previously recorded and record additional tax effects in the periods such adjustments are identified. The Company has not completed its accounting for any aspect of the Tax Act.
As a result of the Tax Act, the Company will be subject to a blended U.S. federal tax rate of 25.7% for the current fiscal year and a 21.0% U.S. federal tax rate for future years. The effective tax rate differed from the blended U.S. federal statutory rate of 25.7% during the nine months ended May 31, 2018 primarily due to the Tax Act, including theone-time mandatory deemed repatriation tax and there-measurement of the Company’s U.S. deferred tax attributes of $30.9 million, partially offset by a reduction in unrecognized tax benefits of $16.1 million for the lapse of statute in anon-U.S. jurisdiction. Other primary drivers for the difference between the effective tax rate and the blended U.S. federal statutory rate of 25.7% during the three months and nine months ended May 31, 2018 and 2017 are: (i) tax incentives granted to sites in Brazil, China, Malaysia, Singapore and Vietnam; and (ii) losses in tax jurisdictions with existing valuation allowances, including losses from stock-based compensation for the nine months ended May 31, 2018.
16. Revenue
Effective September 1, 2018, the Company adopted ASU2014-09, Revenue Recognition (Topic 606). The new standard is a comprehensive new revenue recognition model that requires the Company to recognize revenue in a manner which depicts the transfer of goods or services to its customers at an amount that reflects the consideration the Company expects to receive in exchange for those goods or services.
Prior to the adoption of the new standard, the Company recognized substantially all of its revenue from contracts with customers at a point in time, which was generally when the goods were shipped to or received by the customer, title and lossesrisk of ownership had passed, the price to the buyer was fixed or determinable and collectability was reasonably assured (net of estimated returns). Under the new standard, the Company will recognize revenue over time for the majority of its contracts with customers which will result in revenue for those customers being recognized earlier than under the previous guidance. Revenue for all other contracts with customers will continue to be recognized at a point in time, similar to recognition prior to the adoption of the standard.
Additionally, the new standard impacts the Company’s accounting for certain fulfillment costs, which include upfront costs to prepare for manufacturing activities that are expected to be recovered. Under the new standard, such upfront costs will be recognized as an asset and amortized on a systematic basis consistent with the pattern of the transfer of control of the products or services to which to the asset relates.
The Company adopted ASU2014-09 using the modified retrospective method by applying the guidance to all open contracts upon adoption and recorded a cumulative effect adjustment as of September 1, 2018, net of tax, of $42.6 million. No adjustments have been made to prior periods. Following is a summary of the cumulative effect adjustment (in thousands):
Balance as of August 31, 2018 | Adjustments due to adoption of ASU 2014-09 | Balance as of September 1, 2018 | ||||||||||
Assets | ||||||||||||
Contract assets(1) | $ | — | $ | 591,616 | $ | 591,616 | ||||||
Inventories, net (1) | $ | 3,457,706 | $ | (461,271 | ) | $ | 2,996,435 | |||||
Prepaid expenses and other current assets (1)(2) | $ | 1,141,000 | $ | (37,271 | ) | $ | 1,103,729 | |||||
Deferred income taxes(1)(2) | $ | 218,252 | $ | (8,325 | ) | $ | 209,927 | |||||
Liabilities | ||||||||||||
Contract liabilities(2)(3) | $ | — | $ | 690,142 | $ | 690,142 | ||||||
Deferred income(2)(3)(4) | $ | 691,365 | $ | (691,365 | ) | $ | — | |||||
Other accrued expenses(3)(4) | $ | 1,000,979 | $ | 40,392 | $ | 1,041,371 | ||||||
Deferred income taxes(1) | $ | 114,385 | $ | 2,977 | $ | 117,362 | ||||||
Equity | ||||||||||||
Retained earnings (1)(2) | $ | 1,760,097 | $ | 42,602 | $ | 1,802,699 |
(1) | Differences primarily relate to the timing of revenue recognition for over time customers and certain balance sheet reclassifications. |
(2) | Differences primarily relate to the timing of recognition and recovery of fulfillment costs and certain balance sheet reclassifications. |
(3) | Included within accrued expenses on the Condensed Consolidated Balance Sheets. |
(4) | Differences included in contract liabilities as of September 1, 2018. |
Significant Judgments
The Company is one of the leading providers of worldwide manufacturing services and solutions. The Company provides comprehensive electronics design, production and product management services to companies in various industries and end markets. The Company derives substantially all of its revenue from restructuringproduction and product management services (collectively referred to as “manufacturing services”), which encompasses the act of producing tangible products that are built to customer specifications, which are then provided to the customer.
The Company generally enters into manufacturing service contracts with its customers that provide the framework under which business will be conducted and customer purchase orders will be received for specific quantities and with predominantly fixed pricing. As a result, the Company considers its contract with a customer to be the combination of the manufacturing service contract and the purchase order, or any agreements or other similar documents.
The majority of our manufacturing service contracts relate to manufactured products which have no alternative use and for which the Company has an enforceable right to payment for the work completed to date. As a result, revenue is recognized over time when or as the Company transfers control of the promised products or services (known as performance obligations) to its customers. For certain other contracts with customers that do not meet the over time revenue recognition criteria, transfer of control occurs at a point in time which generally occurs upon delivery and transfer of risk and title to the customer.
Most of our contracts have a single performance obligation as the promise to transfer the individual manufactured product or service is capable of being distinct and is distinct within the context of the contract. For the majority of customers, performance obligations are satisfied over time based on the continuous transfer of control as manufacturing services are performed and are generally completed in less than one year.
The Company also derives revenue to a lesser extent from electronic design services to certain customers. Revenue from electronic design services is generally recognized over time as the services are performed.
For the Company’s over time customers, it believes the measure of progress which best depicts the transfer of control is based on costs incurred to date, relative to total estimated cost at completion (i.e., an input method). This method is a faithful depiction of the transfer of goods or services because it results in the recognition of revenue on the basis of ourto-date efforts in the satisfaction of a performance obligation relative to the total expected efforts in the satisfaction of the performance obligation. The Company believes that the use of an input method best depicts the transfer of control to the customer, which occurs as we incur costs on our contracts. The transaction price of each performance obligation is generally based upon the contractual stand-alone selling price of the product or service.
Certain contracts with customers include variable consideration, such as rebates, discounts, or returns. The Company recognizes estimates of this variable consideration that are not expected to result in a significant revenue reversal in the future, primarily based on the most likely level of consideration to be paid to the customer under the specific terms of the underlying programs.
Taxes collected from the Company’s customers and remitted to governmental authorities are presented within the Company’s Consolidated Statement of Operations on a net basis and are excluded from the transaction price. The Company has elected to account for shipping and handling activities related to contracts with customers as costs to fulfill the promise to transfer the goods. Accordingly, the Company records customer payments of shipping and handling costs as a component of net revenue, and classifies such costs as a component of cost of revenue.
The following table presents the effect of the adoption of the new revenue guidance on the Condensed Consolidated Balance Sheets as of May 31, 2019 (in thousands):
May 31, 2019 | ||||||||
As reported | Balance without the adoption of ASU2014-09 | |||||||
Assets | ||||||||
Contract assets (1) | $ | 899,482 | $ | — | ||||
Inventories, net(1) | $ | 3,159,369 | $ | 3,901,192 | ||||
Prepaid expenses and other current assets(1)(2) | $ | 524,833 | $ | 523,866 | ||||
Deferred income taxes(1) | $ | 202,556 | $ | 207,752 | ||||
Liabilities | ||||||||
Contract liabilities(2)(3) | $ | 544,831 | $ | — | ||||
Deferred income(2)(3)(4) | $ | — | $ | 544,012 | ||||
Other accrued expenses (3)(4) | $ | 1,491,623 | $ | 1,486,706 | ||||
Deferred income taxes(1) | $ | 115,370 | $ | 110,984 | ||||
Equity | ||||||||
Retained earnings(1)(2) | $ | 1,996,901 | $ | 1,853,592 |
(1) | Differences primarily relate to the timing of revenue recognition for over time customers and certain balance sheet reclassifications. |
(2) | Differences primarily relate to the timing of recognition and recovery of fulfillment costs and certain balance sheet reclassifications. |
(3) | Included within accrued expenses on the Condensed Consolidated Balance Sheets. |
(4) | Differences included in contract liabilities as of September 1, 2018. |
The following table presents the effect of the adoption of the new revenue guidance on the Consolidated Statement of Operations for the three months and nine months ended May 31, 2017.2019 (in thousands):
15. Subsequent Events
Three months ended | Nine months ended | |||||||||||||||
May 31, 2019 | May 31, 2019 | |||||||||||||||
As reported | Balance without the adoption of ASU2014-09 | As reported | Balance without the adoption of ASU2014-09 | |||||||||||||
Net revenue(1) | $ | 6,135,602 | $ | 6,072,984 | $ | 18,708,867 | $ | 18,302,187 | ||||||||
Cost of revenue(2) | $ | 5,691,803 | $ | 5,665,654 | $ | 17,290,544 | $ | 16,982,850 | ||||||||
Operating income | $ | 140,918 | $ | 104,449 | $ | 511,611 | $ | 412,625 | ||||||||
Income tax expense | $ | 39,046 | $ | 38,015 | $ | 113,078 | $ | 114,798 | ||||||||
Net income | $ | 44,032 | $ | 8,594 | $ | 235,713 | $ | 135,007 |
(1) | Differences primarily relate to the timing of revenue recognition for over-time customers and to the recovery of fulfillment costs. |
(2) | Differences primarily relate to the timing of cost recognition for over-time customers and the recognition of fulfillment costs. |
The following table presents the Company’s revenues disaggregated by segment (in thousands):
Three months ended | Nine months ended | |||||||||||||||||||||||
May 31, 2019 | May 31, 2019 | |||||||||||||||||||||||
EMS | DMS | Total | EMS | DMS | Total | |||||||||||||||||||
Timing of transfer | ||||||||||||||||||||||||
Point in time | $ | 699,825 | $ | 1,156,213 | $ | 1,856,038 | $ | 1,957,349 | $ | 4,722,696 | $ | 6,680,045 | ||||||||||||
Over time | $ | 3,288,664 | $ | 990,900 | $ | 4,279,564 | $ | 9,338,970 | $ | 2,689,852 | $ | 12,028,822 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | $ | 3,988,489 | $ | 2,147,113 | $ | 6,135,602 | $ | 11,296,319 | $ | 7,412,548 | $ | 18,708,867 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Contract Balances
Timing of revenue recognition may differ from the timing of invoicing to customers. The Company has evaluated subsequent events that occurred through the date of the filing of the Company’s third quarter of fiscal year 2018 Form 10-Q. No significant events occurred subsequentrecords an asset when revenue is recognized prior to the balance sheet date andinvoicing a customer (“contract assets”) while a liability is recognized when a customer pays an invoice prior to the filing dateCompany transferring control of this report that would have a material impactthe goods or services (“contract liabilities”). Amounts recognized as contract assets are generally transferred to receivables in the succeeding quarter due to the short-term nature of the manufacturing cycle. Contract assets are classified separately on the Condensed Consolidated Financial Statements.
The Company reviews contract assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable after considering factors such as the age of the balances and the financial stability of the customer. No impairment costs related to contract assets were recognized during the three months and nine months ended May 31, 2019.
Revenue recognized during the nine months ended May 31, 2019 that was included in the contract liability balance as of September 1, 2018 was $350.9 million.
Fulfillment Costs
The Company capitalizes costs incurred to fulfill its contracts that i) relate directly to the contract or anticipated contracts, ii) are expected to generate or enhance the Company’s resources that will be used to satisfy the performance obligation under the contract, and iii) are expected to be recovered through revenue generated from the contract. Prior to the adoption of the new guidance, unless explicit reimbursement contracts existed, these costs were expensed as incurred. Capitalized fulfillment costs are amortized to cost of revenue as the Company satisfies the related performance obligations under the contract with approximate lives ranging from1-3 years. These costs, which are included in prepaid expenses and other current assets and other assets on the Consolidated Balance Sheets, generally represent upfront costs incurred to prepare for manufacturing activities.
The Company assesses the capitalized fulfillment costs for impairment at the end of each reporting period. The Company will recognize an impairment loss to the extent the carrying amount of the capitalized costs exceeds the recoverable amount. Recoverability is assessed by considering the capitalized fulfillment costs in relation to the forecasted profitability of the related manufacturing performance obligations. As of May 31, 2019, capitalized costs to fulfill are $74.4 million. Amortization of fulfillment costs was $9.8 million and $29.7 million, respectively, for the three months and nine months ended May 31, 2019. No impairments related to fulfillments costs were recognized during the three months and nine months ended May 31, 2019.
Remaining Performance Obligations
The Company applied the practical expedient and did not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.
JABIL INC. AND SUBSIDIARIES
References in this report to “the Company,” “Jabil,” “we,” “our,” or “us” mean Jabil Inc. together with its subsidiaries, except where the context otherwise requires. This Quarterly Report onForm 10-Q contains certain statements that are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements (such as when we describe what “will,” “may,” or “should” occur, what we “plan,” “intend,” “estimate,” “believe,” “expect” or “anticipate” will occur, and other similar statements) include, but are not limited to, statements regarding future sales and operating results, potential risks pertaining to these future sales and operating results, future prospects, anticipated benefits of proposed (or future) acquisitions, dispositions and new facilities, growth, the capabilities and capacities of business operations, any financial or other guidance, expected capital expenditures and dividends, expected restructuring charges and related savings and all statements that are not based on historical fact, but rather reflect our current expectations concerning future results and events. We make certain assumptions when making forward-looking statements, any of which could prove inaccurate, including assumptions about our future operating results and business plans. Therefore, we can give no assurance that the results implied by these forward-looking statements will be realized. Furthermore, the inclusion of forward-looking information should not be regarded as a representation by the Company or any other person that future events, plans or expectations contemplated by the Company will be achieved. The following important factors, among others, could affect future results and events, causing those results and events to differ materially from those expressed or implied in our forward-looking statements:
• | fluctuation in our operating results; |
• | our dependence on a limited number of customers; |
• | our ability to manage growth effectively; |
• | competitive factors affecting our customers’ businesses and ours; |
• | the susceptibility of our production levels to the variability of customer requirements; |
• | our ability to keep pace with technological changes and competitive conditions; |
• | our reliance on a limited number of suppliers for critical components; |
• | exposure to financially troubled customers and suppliers; |
• | our exposure to the risks of a substantial international operation; and |
• | our ability to achieve the expected profitability from our acquisitions. |
For a further list and description of various risks, factors and uncertainties that could cause future results or events to differ materially from those expressed or implied in our forward-looking statements, see the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections contained in our Annual Report on Form10-K for the fiscal year ended August 31, 2017,2018, any subsequent reports on Form10-Q and Form8-K, and other filings we make with the Securities and Exchange Commission (“SEC”). Given these risks and uncertainties, the reader should not place undue reliance on these forward-looking statements.
All forward-looking statements included in this Quarterly Report onForm 10-Q are made only as of the date of this Quarterly Report onForm 10-Q, and we do not undertake any obligation to publicly update or correct any forward-looking statements to reflect events or circumstances that subsequently occur, or of which we hereafter become aware. You should read this document completely and with the understanding that our actual future results or events may be materially different from what we expect. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Overview
We are one of the leading providers of worldwide manufacturing services and solutions. We provide comprehensive electronics design, production and product management services to companies in the automotivevarious industries and transportation, capital equipment, consumer lifestyles and wearable technologies, computing and storage, defense and aerospace, digital home, healthcare, industrial and energy, mobility, networking and telecommunications, packaging, point of sale and printing industries.end markets. Our services enable our customers to reduce manufacturing costs, improve supply-chain management, reduce inventory obsolescence, lower transportation costs and reduce product fulfillment time. Our manufacturing and supply chain management services and solutions include innovation, design, planning, fabrication and assembly, delivery and managing the flow of resources and products. We derive substantially all of our revenue from production and product management services (collectively referred to as “manufacturing services”), which encompasses the act of producing tangible products that are built to customer specifications, which are then provided to the customer.
We serve our customers primarily through dedicated business units that combine highly automated, continuous flow manufacturing with advanced electronic design and design for manufacturability. We depend, and expect to continue to depend, upon a relatively small number of customers for a significant percentage of our net revenue, which in turn depends upon their growth, viability and financial stability. Based on net revenue for the nine months ended May 31, 2018,2019, our largest customers include Amazon.com, Inc., Apple, Inc., Cisco Systems, Inc., GoPro, Inc., Hewlett-Packard Company, Ingenico Group, Keysight Technologies, LM Ericsson Telephone Company, NetApp, Inc., and Nokia Networks, SolarEdge Technologies, Inc., Valeo S.A. and Zebra Technologies Corporation.Networks.
We conduct our operations in facilities that are located worldwide, including but not limited to, China, Hungary, Malaysia, Mexico, Singapore and the United States. We derived a substantial majority, 91.2%86.5% and 91.8%89.2%, of net revenue from our international operations for the three months and nine months ended May 31, 2018, respectively.2019. Our global manufacturing production sites allow customers to manufacture products simultaneously in the optimal locations for their products. Our global presence is key to assessing and executing on our business opportunities.
We have two reporting segments: Electronics Manufacturing Services (“EMS”) and Diversified Manufacturing Services (“DMS”), which are organized based on the economic profiles of the services performed, including manufacturing capabilities, market strategy, margins, return on capital and risk profiles. Our EMS segment is focused around leveraging IT, supply chain design and engineering, technologies largely centered on core electronics, utilizing our large scale manufacturing infrastructure and our ability to serve a broad range of end markets. Our EMS segment is typically a lower-margin but high volume business that produces product at a quicker rate (i.e. cycle time) and in larger quantities and includes customers primarily in the automotive and transportation, capital equipment, cloud, computing and storage, digital home,defense and aerospace, industrial and energy, networking and telecommunications, point of saleprint and printingretail, and smart home and appliances industries. Our DMS segment is focused on providing engineering solutions, with an emphasis on material sciences and technologies. Our DMS segment is typically a higher-margin business and includes customers primarily in the consumer lifestylesedge devices and wearable technologies, defense and aerospace,accessories, healthcare, mobility and packaging industries.
We monitor the current economic environment and its potential impact on both the customers we serve as well as ourend-markets and closely manage our costs and capital resources so that we can respond appropriately as circumstances change.
In September 2017, our operations in Cayey, Puerto Rico received significant hurricane damage. During the three months and nine months ended May 31, 2018, we recognized $(0.6) million and $10.7 million of expenses, net of insurance proceeds of $5.0 million and $21.4 million, respectively. As we continue to assess the impact to our operations, we may incur additional costs in the fourth quarter of fiscal year 2018. We also expect the majority of these costs will ultimately be offset by insurance coverage.
Summary of Results
The following table sets forth, for the three months and nine months ended May 31, 20182019 and 2017,2018, certain key operating results and other financial information (in thousands, except per share data):
Three months ended | Nine months ended | |||||||||||||||
May 31, 2018 | May 31, 2017 | May 31, 2018 | May 31, 2017 | |||||||||||||
Net revenue | $ | 5,436,952 | $ | 4,489,557 | $ | 16,323,585 | $ | 14,040,092 | ||||||||
Gross profit | $ | 398,227 | $ | 326,415 | $ | 1,264,645 | $ | 1,119,825 | ||||||||
Operating income | $ | 112,971 | $ | 43,383 | $ | 388,257 | $ | 292,173 | ||||||||
Net income (loss) attributable to Jabil Inc. | $ | 42,541 | $ | (25,281 | ) | $ | 143,644 | $ | 83,411 | |||||||
Earnings (loss) per share—basic | $ | 0.25 | $ | (0.14 | ) | $ | 0.83 | $ | 0.46 | |||||||
Earnings (loss) per share—diluted | $ | 0.25 | $ | (0.14 | ) | $ | 0.81 | $ | 0.45 | |||||||
Cash dividend per share—declared | $ | 0.08 | $ | 0.08 | $ | 0.24 | $ | 0.24 |
Three months ended | Nine months ended | |||||||||||||||
May 31, 2019 | May 31, 2018 | May 31, 2019 | May 31, 2018 | |||||||||||||
Net revenue | $ | 6,135,602 | $ | 5,436,952 | $ | 18,708,867 | $ | 16,323,585 | ||||||||
Gross profit | $ | 443,799 | $ | 398,227 | $ | 1,418,323 | $ | 1,264,645 | ||||||||
Operating income | $ | 140,918 | $ | 112,971 | $ | 511,611 | $ | 388,257 | ||||||||
Net income attributable to Jabil Inc. | $ | 43,482 | $ | 42,541 | $ | 234,436 | $ | 143,644 | ||||||||
Earnings per share—basic | $ | 0.28 | $ | 0.25 | $ | 1.50 | $ | 0.83 | ||||||||
Earnings per share—diluted | $ | 0.28 | $ | 0.25 | $ | 1.47 | $ | 0.81 |
Key Performance Indicators
Management regularly reviews financial andnon-financial performance indicators to assess the Company’s operating results. The following table sets forth, for the quarterly periods indicated, certain of management’s key financial performance indicators:
Three | ||||||||||||||||
May 31, | February 28, | November 30, | August 31, | |||||||||||||
Sales cycle(1) | ||||||||||||||||
Inventory turns (annualized)(2) | 6 turns | 6 turns | 6 turns | 6 turns | ||||||||||||
Days in accounts receivable(3) | 38 days | 38 days | 26 days | |||||||||||||
Days in inventory(4) | ||||||||||||||||
| 58 days | |||||||||||||||
Days in accounts payable | 83 days |
(1) | The sales cycle is calculated as the sum of days in accounts receivable and days in inventory, less the days in accounts payable; accordingly, the variance in the sales cycle quarter over quarter is a direct result of changes in these indicators. |
(2) | In connection with the adoption of Accounting Standards UpdateNo. 2014-09 (“ASU2014-09”), Revenue Recognition (Topic 606), inventory turns are calculated based on inventory and contract asset balances for the three months ended May 31, 2019, February 28, 2019 and November 30, 2018. |
(3) | During the three months ended November 30, 2018, the |
(4) | In connection with the |
During the three months ended May 31, |
Critical Accounting Policies and Estimates
The preparation of our Condensed Consolidated Financial Statements and related disclosures in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires management to make estimates and judgments that affect our reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On anon-going basis, we evaluate our estimates and assumptions based upon historical experience and various other factors and circumstances. Management believes that our estimates and assumptions are reasonable under the circumstances; however, actual results may vary from these estimates and assumptions under different future circumstances. For further discussion of our significant accounting policies, refer to Note 1 — “Description of Business and Summary of Significant Accounting Policies” to the Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” in our Annual Report on Form10-K for the fiscal year ended August 31, 2017.2018.
Revenue Recognition
Effective September 1, 2018, our revenue recognition accounting policies changed in conjunction with the adoption of the new revenue recognition standard. Upon adoption, we recognize revenue over time as manufacturing services are completed for the majority of our contracts with customers, which results in revenue being recognized earlier than under the previous guidance. Revenue for all other contracts with customers will be recognized at a point in time, upon transfer of control of the product to the customer, which is effectively no change to our historical accounting. For further discussion of the new revenue recognition standard, refer to Note 16 — “Revenue” to the Condensed Consolidated Financial Statements.
Recent Accounting Pronouncements
See Note 1314 – “New Accounting Guidance” to the Condensed Consolidated Financial Statements for a discussion of recent accounting guidance.
Results of Operations
The following table sets forth, for the three months and nine months ended May 31, 2018 and 2017, certain statements of operations data expressed as a percentage of net revenue:
Three months ended | Nine months ended | |||||||||||||||
May 31, 2018 | May 31, 2017 | May 31, 2018 | May 31, 2017 | |||||||||||||
Net revenue | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||
Cost of revenue | 92.7 | 92.7 | 92.3 | 92.0 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Gross profit | 7.3 | 7.3 | 7.7 | 8.0 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling, general and administrative | 4.6 | 5.2 | 4.7 | 4.7 | ||||||||||||
Research and development | 0.2 | 0.2 | 0.2 | 0.2 | ||||||||||||
Amortization of intangibles | 0.2 | 0.2 | 0.2 | 0.2 | ||||||||||||
Restructuring and related charges | 0.2 | 0.7 | 0.2 | 0.8 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Operating income | 2.1 | 1.0 | 2.4 | 2.1 | ||||||||||||
Other expense | 0.2 | 0.4 | 0.2 | 0.2 | ||||||||||||
Interest income | (0.1 | ) | (0.1 | ) | (0.1 | ) | (0.1 | ) | ||||||||
Interest expense | 0.7 | 0.8 | 0.7 | 0.7 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Income (loss) before income tax | 1.3 | (0.1 | ) | 1.6 | 1.3 | |||||||||||
Income tax expense | 0.5 | 0.5 | 0.7 | 0.7 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income (loss) | 0.8 | (0.6 | ) | 0.9 | 0.6 | |||||||||||
Net income (loss) attributable to noncontrolling interests, net of tax | 0.0 | (0.0 | ) | 0.0 | (0.0 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income (loss) attributable to Jabil Inc. | 0.8 | % | (0.6 | )% | 0.9 | % | 0.6 | % | ||||||||
|
|
|
|
|
|
|
|
The Three Months and Nine Months Ended May 31, 2018 compared to the Three Months and Nine Months Ended May 31, 2017
Net Revenue
Three months ended | Nine months ended | |||||||||||||||||||||||
(dollars in billions) | May 31, 2018 | May 31, 2017 | Change | May 31, 2018 | May 31, 2017 | Change | ||||||||||||||||||
Net revenue | $ | 5.4 | $ | 4.5 | 21.1 | % | $ | 16.3 | $ | 14.0 | 16.3 | % |
Net revenue increased during the three months ended May 31, 2018, compared to the three months ended May 31, 2017. Specifically, the DMS segment revenues increased 36% due to (i) a 29% increase in revenues from customers within our mobility business as a result of increased end user product demand, (ii) a 4% increase in revenues due to new business from existing customers in our healthcare business and (iii) a 3% increase in revenues due to a new customer and from existing customers in our consumer lifestyles and wearable technologies business. EMS segment revenues increased 12% primarily due to (i) a 3% increase in revenues from a new customer and from existing customers within our industrial and energy business, (ii) a 3% increase in revenues from existing customers in our capital equipment business, (iii) a 2% increase in revenues from existing customers in our digital home business, (iv) a 2% increase in revenues from existing customers within our networking and telecommunications business and (v) a 2% increase in revenues spread across various industries within the EMS segment.
Net revenue increased during the nine months ended May 31, 2018, compared to the nine months ended May 31, 2017. Specifically, the DMS segment revenues increased 27% due to (i) a 25% increase in revenues from customers within our mobility business as a result of increased end user product demand and (ii) a 2% increase in revenues due to new business from existing customers in our healthcare business. EMS segment revenues increased 8% primarily due to (i) a 3% increase in revenues from customers within our capital equipment business, (ii) a 2% increase in revenues from customers within our digital home business, (iii) a 2% increase in revenues from a new customer and existing customers within our industrial and energy business and (iv) a 1% increase in revenues from customers in our automotive and transportation business.
Generally, we assess revenue on a global customer basis regardless of whether the growth is associated with organic growth or as a result of an acquisition. Accordingly, we do not differentiate or separately report revenue increases generated by acquisitions as opposed to existing business. In addition, the added cost structures associated with our acquisitions have historically been relatively insignificant when compared to our overall cost structure.
The distribution of revenue across our segments has fluctuated, and will continue to fluctuate, as a result of numerous factors, including the following: fluctuations in customer demand as a result of recessionary and other conditions;demand; efforts to diversify certain portions of our business; seasonality in our business; business growth from new and existing customers; specific product performance; and any potential termination, or substantial winding down, of significant customer relationships.
Three months ended | Nine months ended | |||||||||||||||||||||||
(dollars in millions) | May 31, 2019 | May 31, 2018 | Change | May 31, 2019 | May 31, 2018 | Change | ||||||||||||||||||
Net revenue | $ | 6,135.6 | $ | 5,437.0 | 12.9 | % | $ | 18,708.9 | $ | 16,323.6 | 14.6 | % |
Net revenue increased during the three months ended May 31, 2019, compared to the three months ended May 31, 2018. Specifically, the EMS segment revenues increased 26% primarily due to (i) a 9% increase in revenues from new customers within our cloud business, (ii) a 9% increase in revenues from existing customers within our industrial and energy business, (iii) an 8% increase in revenues from customers within our networking and telecommunications business and (iv) a 6% increase in revenues from existing customers within our print and retail business. The increase is partially offset by a 6% decrease from existing customers within our computing and storage business and capital equipment business, which we expect to remain weak into the second half of calendar year 2020. DMS segment revenues decreased 6% due to a 15% decrease in revenues from customers within our mobility business as a result of decreased end user product demand, which we expect to remain weak for the balance of the fiscal year. The decrease was partially offset by a 9% increase in revenues from existing customers in our healthcare business.
Net revenue increased during the nine months ended May 31, 2019, compared to the nine months ended May 31, 2018. Specifically, the EMS segment revenues increased 27% primarily due to (i) a 9% increase in revenues from customers within our networking and telecommunications business, (ii) a 9% increase in revenues from new customers within our cloud business, (iii) a 9% increase in revenues from existing customers within our industrial and energy business and (iv) a 5% increase in revenues from existing customers within our print and retail business. The increase is partially offset by a 5% decrease from existing customers within our computing and storage business and capital equipment business. DMS segment revenues remained consistent due to a 6% increase in revenues from existing customers in our healthcare business. The increase is offset by a 6% decrease in revenue from customers within our mobility business as a result of decreased end user product demand.
Effective September 1, 2018, our revenue recognition accounting policies changed in conjunction with the adoption of the new revenue recognition standard. Upon adoption, we recognize revenue over time as manufacturing services are completed for the majority of our contracts with customers, which results in revenue being recognized earlier than under the previous guidance. Revenue for all other contracts with customers will be recognized at a point in time, upon transfer of control of the product to the customer, which is effectively no change to our historical accounting. For further discussion of the new revenue recognition standard, refer to Note 16 — “Revenue” to the Condensed Consolidated Financial Statements.
The following table sets forth, for the periods indicated, revenue by segment expressed as a percentage of net revenue:
Three months ended | Nine months ended | Three months ended | Nine months ended | |||||||||||||||||||||||||||||
May 31, 2018 | May 31, 2017 | May 31, 2018 | May 31, 2017 | May 31, 2019 | May 31, 2018 | May 31, 2019 | May 31, 2018 | |||||||||||||||||||||||||
EMS | 58 | % | 63 | % | 54 | % | 58 | % | 65 | % | 58 | % | 60 | % | 54 | % | ||||||||||||||||
DMS | 42 | % | 37 | % | 46 | % | 42 | % | 35 | % | 42 | % | 40 | % | 46 | % | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
The following table sets forth, for the periods indicated, foreign source revenue expressed as a percentage of net revenue:
Three months ended | Nine months ended | |||||||||||||||
May 31, 2018 | May 31, 2017 | May 31, 2018 | May 31, 2017 | |||||||||||||
Foreign source revenue | 91.2 | % | 90.6 | % | 91.8 | % | 91.3 | % |
Three months ended | Nine months ended | |||||||||||||||
May 31, 2019 | May 31, 2018 | May 31, 2019 | May 31, 2018 | |||||||||||||
Foreign source revenue | 86.5 | % | 91.2 | % | 89.2 | % | 91.8 | % |
Gross Profit
Three months ended | Nine months ended | Three months ended | Nine months ended | |||||||||||||||||||||||||||||||||||||
(dollars in millions) | May 31, 2018 | May 31, 2017 | Change | May 31, 2018 | May 31, 2017 | Change | May 31, 2019 | May 31, 2018 | May 31, 2019 | May 31, 2018 | ||||||||||||||||||||||||||||||
Gross profit | $ | 398.2 | $ | 326.4 | 22.0 | % | $ | 1,264.6 | $ | 1,119.8 | 12.9 | % | $ | 443.8 | $ | 398.2 | $ | 1,418.3 | $ | 1,264.6 | ||||||||||||||||||||
Percent of net revenue | 7.3 | % | 7.3 | % | 7.7 | % | 8.0 | % | 7.2 | % | 7.3 | % | 7.6 | % | 7.7 | % |
GrossFor the three months and nine months ended May 31, 2019, gross profit for our DMS segment increased as a percentage of net revenue due to improved profitability across the various businesses. This increase was offset by a decrease in gross profit as a percentage of net revenue in our EMS segment due to continued weakness in the capital equipment business and ramp costs associated with new business awards. As a result, gross profit remained relatively consistent as a percentage of net revenue during the three months and nine months ended May 31, 2018,2019, compared to the three months ended May 31, 2017 primarily due to the increase in net revenue.
Gross profit increased during theand nine months ended May 31, 2018, compared to the nine months ended May 31, 2017. Gross profit increased on an absolute basis primarily due to the increase in net revenue. Gross profit decreased as a percentage of revenue due to (i) increased materials costs in our mobility and packaging businesses due to the constrained components market and (ii) charges related to a distressed customer.2018.
Selling, General and Administrative
Three months ended | Nine months ended | Three months ended | Nine months ended | |||||||||||||||||||||||||||||||||||||||||||||
(dollars in millions) | May 31, 2018 | May 31, 2017 | Change | May 31, 2018 | May 31, 2017 | Change | May 31, 2019 | May 31, 2018 | Change | May 31, 2019 | May 31, 2018 | Change | ||||||||||||||||||||||||||||||||||||
Selling, general and administrative | $ | 252.5 | $ | 233.9 | 8.0 | % | $ | 789.5 | $ | 665.9 | 18.6 | % | $ | 274.5 | $ | 252.5 | $ | 22.0 | $ | 834.8 | $ | 789.5 | $ | 45.3 | ||||||||||||||||||||||||
Percent of net revenue | 4.6 | % | 5.2 | % | 4.7 | % | 4.7 | % |
Selling, general and administrative expenses increased during the three months ended May 31, 2018,2019, compared to the three months ended May 31, 2017, primarily2018. The increase is predominantly due to (i) $13.4 million in acquisition and integration charges related to our strategic collaboration with a healthcare company and (ii) an $8.6 million increase in salary and salary related expenses and other costs primarily to support new business growth and development.
Selling, general and administrative expenses increased during the nine months ended May 31, 2018,2019, compared to the nine months ended May 31, 2017. During the first quarter of fiscal year 2018, we recognized an additional $32.4 million of stock-based compensation expense2018. The increase is predominantly due to the modification of certain performance-based restricted stock awards and(i) a one-time cash-settled award while the first quarter of fiscal year 2017 included a $21.0$42.6 million reversal of stock-based compensation expense due to decreased expectations for the vesting of certain performance-based restricted stock awards. The remaining increase is primarily driven by an increase in salary and salary related expenses and other costs primarily to support new business growth and development.development and (ii) $35.1 million in acquisition and integration charges related to our strategic collaboration with a healthcare company. The increase is partially offset by an additional $32.4 million of stock-based compensation expense recognized during the nine months ended May 31, 2018 as a result of theone-time modification of certain performance-based restricted stock unit awards and aone-time cash-settled award.
Research and Development
Three months ended | Nine months ended | Three months ended | Nine months ended | |||||||||||||||||||||||||||||||||||||
(dollars in millions) | May 31, 2018 | May 31, 2017 | Change | May 31, 2018 | May 31, 2017 | Change | May 31, 2019 | May 31, 2018 | May 31, 2019 | May 31, 2018 | ||||||||||||||||||||||||||||||
Research and development | $ | 10.1 | $ | 7.3 | 38.6 | % | $ | 27.5 | $ | 22.0 | 25.3 | % | $ | 11.4 | $ | 10.1 | $ | 32.7 | $ | 27.5 | ||||||||||||||||||||
Percent of net revenue | 0.2 | % | 0.2 | % | 0.2 | % | 0.2 | % | 0.2 | % | 0.2 | % | 0.2 | % | 0.2 | % |
Research and development expenses remained consistent as a percentage of net revenue during the three months and nine months ended May 31, 2018,2019, compared to the three months and nine months ended May 31, 2017, respectively, remained relatively consistent as a percent of net revenue.2018.
Amortization of Intangibles
Three months ended | Nine months ended | Three months ended | Nine months ended | |||||||||||||||||||||||||||||||||||||||||||||
(dollars in millions) | May 31, 2018 | May 31, 2017 | Change | May 31, 2018 | May 31, 2017 | Change | May 31, 2019 | May 31, 2018 | Change | May 31, 2019 | May 31, 2018 | Change | ||||||||||||||||||||||||||||||||||||
Amortization of intangibles | $ | 10.0 | $ | 9.2 | 9.4 | % | $ | 29.9 | $ | 26.3 | 13.9 | % | $ | 7.6 | $ | 10.0 | $ | (2.4 | ) | $ | 23.0 | $ | 29.9 | $ | (6.9 | ) | ||||||||||||||||||||||
Percent of net revenue | 0.2 | % | 0.2 | % | 0.2 | % | 0.2 | % |
Amortization of intangibles increaseddecreased during the three months and nine months ended May 31, 2018,2019, compared to the three months and nine months ended May 31, 2017,2018, primarily due to amortization from intangible assets related to the True-TechNypro acquisition, that occurred in the first quarter ofwhich were fully amortized during fiscal year 2018.
Restructuring and Related Charges
Following is a summary of the Company’s restructuring and related charges (in thousands)millions):
Three months ended | Nine months ended | Three months ended | Nine months ended | |||||||||||||||||||||||||||||
May 31, 2018 | May 31, 2017 | May 31, 2018 | May 31, 2017 | May 31, 2019 | May 31, 2018 | May 31, 2019 | May 31, 2018 | |||||||||||||||||||||||||
Employee severance and benefit costs | $ | 5,058 | $ | 18,171 | $ | 11,048 | $ | 46,654 | $ | 6.5 | $ | 5.0 | $ | 15.5 | $ | 11.1 | ||||||||||||||||
Lease costs | 1,589 | 1,151 | 1,596 | 5,600 | (0.1 | ) | 1.6 | (0.1 | ) | 1.6 | ||||||||||||||||||||||
Asset write-off costs | 5,575 | 11,838 | 14,838 | 58,613 | (0.3 | ) | 5.6 | (3.5 | ) | 14.8 | ||||||||||||||||||||||
Other related costs | 425 | 1,540 | 1,980 | 2,662 | ||||||||||||||||||||||||||||
Other costs | 3.2 | 0.4 | 4.3 | 2.0 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total restructuring and related charges | $ | 12,647 | $ | 32,700 | $ | 29,462 | $ | 113,529 | $ | 9.3 | $ | 12.6 | $ | 16.2 | $ | 29.5 | ||||||||||||||||
�� |
|
|
|
|
|
|
|
|
(1) | Includes |
2017 Restructuring Plan
On September 15, 2016, our Board of Directors formally approved a restructuring plan to better align our global capacity and administrative support infrastructure to further optimize organizational effectiveness. This action includes headcount reductions across our selling, general and administrative cost base and capacity realignment in higher cost locations (the “2017 Restructuring Plan”).
Upon completion of theThe 2017 Restructuring Plan, we expect to recognize approximatelytotaling $195.0 million in restructuring and other related costs. We have incurred $180.2 million of costs-to-datecosts, is substantially complete as of May 31, 2018. The remaining costs for employee severance and benefits costs, asset write-off costs and other related costs are anticipated to be incurred through the first half of fiscal year 2019.
The 2017 Restructuring Plan is expected to yield annualized cost savings beginning in fiscal year 2019 in the range of $70.0 million to $90.0 million. The annual cost savings are expected to be reflected as a reduction in cost of revenue as well as reduction of selling, general and administrative expense.
See Note 1112 – “Restructuring and Related Charges” to the Condensed Consolidated Financial Statements for further discussion of restructuring and related charges for the 2017 Restructuring Plan.
Other Expense
Three months ended | Nine months ended | Three months ended | Nine months ended | |||||||||||||||||||||||||||||||||||||||||||||
(dollars in millions) | May 31, 2018 | May 31, 2017 | Change | May 31, 2018 | May 31, 2017 | Change | May 31, 2019 | May 31, 2018 | Change | May 31, 2019 | May 31, 2018 | Change | ||||||||||||||||||||||||||||||||||||
Other expense | $ | 10.1 | $ | 15.8 | $ | (5.7 | ) | $ | 26.5 | $ | 23.9 | $ | 2.6 | $ | 14.1 | $ | 10.1 | $ | 4.0 | $ | 39.4 | $ | 26.5 | $ | 12.9 |
Other expense decreasedincreased for the three months ended May 31, 2018,2019, compared to the three months ended May 31, 2017,2018, primarily due to an other than temporary impairment on available for sale securities$6.1 million of $11.5 million during the third quarter of fiscal year 2017. The decrease was partially offset by an increase inadditional fees of $4.7 million associated with the utilization of the foreign and North American asset-backed securitization programs and trade accounts receivable sale programs during the third quartersales programs. This increase was partially offset by $2.1 million of fiscal year 2018.other expense.
Other expense increased for the nine months ended May 31, 2018,2019, compared to the nine months ended May 31, 2017,2018, primarily due toto: (i) $20.6 million of additional fees incurred for the amendment of the foreign asset-backed securitization program and the new North American asset-backed securitization program and an increase in fees associated with the utilization of the asset-backed securitization programs and the new trade accounts receivable salesales programs. Additionally,The increase was partially offset by (i) $5.1 million of other expense and (ii) $2.6 million of costs incurred during the second quarternine months ended May 31, 2018, as a result of fiscal year 2018 we incurred costs of $2.6 million in connection with a “make-whole” premium and related costs for the early redemption of the 8.250% Senior Notes due 2018. The increase was partially offset by an other then temporary impairment on available for sale securities during the third quarter of fiscal year 2017.
Interest Income
Three months ended | Nine months ended | Three months ended | Nine months ended | |||||||||||||||||||||||||||||||||||||||||||||
(dollars in millions) | May 31, 2018 | May 31, 2017 | Change | May 31, 2018 | May 31, 2017 | Change | May 31, 2019 | May 31, 2018 | Change | May 31, 2019 | May 31, 2018 | Change | ||||||||||||||||||||||||||||||||||||
Interest income | $ | 4.5 | $ | 3.7 | $ | 0.8 | $ | 13.3 | $ | 8.4 | $ | 4.9 | $ | 6.8 | $ | 4.5 | $ | 2.3 | $ | 15.9 | $ | 13.3 | $ | 2.6 |
Interest income increased during the three months and nine months ended May 31, 2018,2019, compared to the three months and nine months ended May 31, 2017,2018, due to increased investments.cash equivalents (investments that are readily convertible to cash with maturity dates of 90 days or less).
Interest Expense
Three months ended | Nine months ended | Three months ended | Nine months ended | |||||||||||||||||||||||||||||||||||||||||||||
(dollars in millions) | May 31, 2018 | May 31, 2017 | Change | May 31, 2018 | May 31, 2017 | Change | May 31, 2019 | May 31, 2018 | Change | May 31, 2019 | May 31, 2018 | Change | ||||||||||||||||||||||||||||||||||||
Interest expense | $ | 36.2 | $ | 35.4 | $ | 0.8 | $ | 110.2 | $ | 102.1 | $ | 8.1 | $ | 50.5 | $ | 36.2 | $ | 14.3 | $ | 139.3 | $ | 110.2 | $ | 29.1 |
Interest expense increased during the three months and nine months ended May 31, 2018,2019, compared to the three months and nine months ended May 31, 2017,2018, due to additional borrowings on the Revolving Credit Facilityour credit facilities and higher interest rates. For the three months and nine months ended May 31, 2019, additional borrowings were driven by the timing and scale of our ongoing new business ramps. Additionally, the nine months ended May 31, 2019 was also impacted by the completion of the share repurchase program.
Income Tax Expense
Three months ended | Nine months ended | |||||||||||||||||||||||
May 31, 2018 | May 31, 2017 | Change | May 31, 2018 | May 31, 2017 | Change | |||||||||||||||||||
Effective tax rate | 40.0 | % | (509.3 | )% | 549.3 | % | 45.6 | % | 53.5 | % | (7.9 | )% |
Effective tax rate Three months ended Nine months ended May 31,
2019 May 31,
2018 Change May 31,
2019 May 31,
2018 Change 47.0 % 40.0 % 7.0 % 32.4 % 45.6 % (13.2 )%
The effective tax rate increased for the three months ended May 31, 20182019 compared to the three months ended May 31, 2017,2018, primarily due to (i) increaseddecreased income in jurisdictions with low tax rates and (ii) the overall loss for the three months ended May 31, 2017, despite having income in certain high tax-rate jurisdictions.or existing valuation allowances.
The effective tax rate decreased for the nine months ended May 31, 20182019, compared to the nine months ended May 31, 2017,2018, primarily due to (i) increased income in jurisdictions with low tax rates and (ii) $16.1 million of tax benefits from the lapse of statute in a non-U.S. jurisdiction. This decrease was partially offset by $30.9 million of tax expense from the Tax Cuts and Jobs Act impact driven primarily byof 2017 (“Tax Act”) for the one-time mandatory deemed repatriation tax.
Duringnine months ended May 31, 2018. Refer to Note 15 – “Income Taxes” to the second quarter of 2018, we made reasonable estimates of the impact related to certain aspects ofCondensed Consolidated Financial Statements for further information on the Tax Act and, in accordance with the SEC’s Staff Accounting Bulletin No. 118, recorded a provisional income tax expense of approximately $30.9 million. As of May 31, 2018, we continue to believe this is a reasonable estimate related to Tax Reform based on analyses, interpretations, and guidance available at this time. As a result of the Tax Act, we are analyzing the indefinite reinvestment assertion and cash repatriation plan. We have made no adjustments to the financial statements in the current quarter with respect to our indefinite reinvestment assertion but may do so during the measurement period permitted by applicable SEC guidance. A change in assertion could result in a material deferred tax liability associated with foreign withholding taxes that would be incurred upon such future remittances of cash. The final impact of the Tax Act may differ from our estimate due to, among other items, additional regulatory guidance that may be issued, changes in interpretations and assumptions and finalization of calculations of the impact of the Tax Act, including the on-going analysis of U.S. tax attributes, re-measurement of the U.S. deferred tax attributes and the computation of earnings and profits and tax pools of our foreign subsidiaries. As we finalize the accounting for the tax effects of the enactment of the Tax Act during the measurement period, we will reflect adjustments to the provisional amounts recorded and record additional tax effects in the periods such adjustments are identified.Act.
Non-GAAP (Core) Financial Measures
The following discussion and analysis of our financial condition and results of operations include certainnon-GAAP financial measures as identified in the reconciliationreconciliations below. Thenon-GAAP financial measures disclosed herein do not have standard meaning and may vary from thenon-GAAP financial measures used by other companies or how we may calculate those measures in other instances from time to time.Non-GAAP financial measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with U.S. GAAP. Also, our “core” financial measures should not be construed as an inference by us that our future results will be unaffected by those items that are excluded from our “core” financial measures.
Management believes that thenon-GAAP “core” financial measures set forth below are useful to facilitate evaluating the past and future performance of our ongoing manufacturing operations over multiple periods on a comparable basis by excluding the effects of the amortization of intangibles, stock-based compensation expense and related charges, restructuring and related charges, distressed customer charges, acquisition costs and certain purchase accounting adjustments,integration charges, loss on disposal of subsidiaries, settlement of receivables and related charges, impairment of notes receivable and related charges, goodwill impairment charges, business interruption and impairment charges, net, other than temporary impairment on securities, income (loss) from discontinued operations, gain (loss) on sale of discontinued operations and certain other expenses, net of tax and certain deferred tax valuation allowance charges. Among other uses, management usesnon-GAAP “core” financial measures to make operating decisions, assess business performance and as a factor in determining certain employee performance when evaluating incentive compensation.
We determine the tax effect of the items excluded from “core” earnings and “core” basic and diluted earnings per share based upon evaluation of the statutory tax treatment and the applicable tax rate of the jurisdiction in which thepre-tax items were incurred, and for which realization of the resulting tax benefit, if any, is expected. In certain jurisdictions where we do not expect to realize a tax benefit (due to existing tax incentives or a history of operating losses or other factors resulting in a valuation allowance related to deferred tax assets), a reduced or 0% tax rate is applied.
We are reporting “core” operating income, “core” earnings and “core” earningsreturn on invested capital to provide investors with an additional method for assessing operating income and earnings by presenting what we believe are our “core” manufacturing operations. A significant portion (based on the respective values) of the items that are excluded for purposes of calculating “core” operating income and “core” earnings also impacted certain balance sheet assets, resulting in a portion of an asset being written off without a corresponding recovery of cash we may have previously spent with respect to the asset. In the case of restructuring and related charges, we may make associated cash payments in the future. In addition, although, for purposes of calculating “core” operating income and “core” earnings, we exclude stock-based compensation expense (which we anticipate continuing to incur in the future) because it is anon-cash expense, anythe associated stock issued wouldmay result in an increase in our outstanding shares of stock, which wouldmay result in the dilution of our stockholders’ ownership interest. We encourage you to consider these matters when evaluating the utility of thesenon-GAAP financial measures.
Included in the tabletables below is a reconciliation of thenon-GAAP financial measures to the most directly comparable U.S. GAAP financial measures as provided in our Condensed Consolidated Financial Statements (in thousands):Statements:
Three months ended | Nine months ended | |||||||||||||||
May 31, 2018 | May 31, 2017 | May 31, 2018 | May 31, 2017 | |||||||||||||
Operating income (U.S. GAAP) | $ | 112,971 | $ | 43,383 | $ | 388,257 | $ | 292,173 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Amortization of intangibles | 10,040 | 9,174 | 29,909 | 26,262 | ||||||||||||
Stock-based compensation expense and related charges | 15,038 | 18,350 | 82,822 | 33,377 | ||||||||||||
Restructuring and related charges | 12,647 | 32,700 | 29,462 | 113,529 | ||||||||||||
Distressed customer charge(1) | — | 10,198 | 14,706 | 10,198 | ||||||||||||
Business interruption and impairment charges, net(2) | (634 | ) | — | 10,722 | — | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Adjustments to operating income | 37,091 | 70,422 | 167,621 | 183,366 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Core operating income (Non-GAAP) | $ | 150,062 | $ | 113,805 | $ | 555,878 | $ | 475,539 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net income (loss) attributable to Jabil Inc. (U.S. GAAP) | $ | 42,541 | $ | (25,281 | ) | $ | 143,644 | $ | 83,411 | |||||||
Adjustments to operating income | 37,091 | 70,422 | 167,621 | 183,366 | ||||||||||||
Other than temporary impairment on securities | — | 11,539 | — | 11,539 | ||||||||||||
Adjustments for taxes(3) | (16 | ) | 431 | 29,037 | (2,793 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Core earnings (Non-GAAP) | $ | 79,616 | $ | 57,111 | $ | 340,302 | $ | 275,523 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Earnings (loss) per share (U.S. GAAP): | ||||||||||||||||
Basic | $ | 0.25 | $ | (0.14 | ) | $ | 0.83 | $ | 0.46 | |||||||
|
|
|
|
|
|
|
| |||||||||
Diluted | $ | 0.25 | $ | (0.14 | ) | $ | 0.81 | $ | 0.45 | |||||||
|
|
|
|
|
|
|
| |||||||||
Core earnings per share (Non-GAAP): | ||||||||||||||||
Basic | $ | 0.47 | $ | 0.32 | $ | 1.96 | $ | 1.51 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Diluted | $ | 0.46 | $ | 0.31 | $ | 1.92 | $ | 1.48 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Weighted average shares outstanding used in the calculations of earnings per share (U.S. GAAP): | ||||||||||||||||
Basic | 170,514 | 181,038 | 174,013 | 182,982 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Diluted | 173,279 | 181,038 | 176,997 | 186,621 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Weighted average shares outstanding used in the calculations of earnings per share (Non-GAAP): | ||||||||||||||||
Basic | 170,514 | 181,038 | 174,013 | 182,982 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Diluted | 173,279 | 184,940 | 176,997 | 186,621 | ||||||||||||
|
|
|
|
|
|
|
|
Three months ended | Nine months ended | |||||||||||||||
(in thousands, except for per share data) | May 31, 2019 | May 31, 2018 | May 31, 2019 | May 31, 2018 | ||||||||||||
Operating income (U.S. GAAP) | $ | 140,918 | $ | 112,971 | $ | 511,611 | $ | 388,257 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Amortization of intangibles | 7,610 | 10,040 | 23,033 | 29,909 | ||||||||||||
Stock-based compensation expense and related charges | 14,506 | 15,038 | 47,452 | 82,822 | ||||||||||||
Restructuring and related charges | 9,340 | 12,647 | 16,182 | 29,462 | ||||||||||||
Distressed customer charge(1) | — | — | — | 14,706 | ||||||||||||
Business interruption and impairment charges, net(2) | — | (634 | ) | (2,860 | ) | 10,722 | ||||||||||
Acquisition and integration charges(3) | 13,391 | — | 35,066 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Adjustments to operating income | 44,847 | 37,091 | 118,873 | 167,621 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Core operating income(Non-GAAP) | $ | 185,765 | $ | 150,062 | $ | 630,484 | $ | 555,878 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net income attributable to Jabil Inc. (U.S. GAAP) | $ | 43,482 | $ | 42,541 | $ | 234,436 | $ | 143,644 | ||||||||
Adjustments to operating income | 44,847 | 37,091 | 118,873 | 167,621 | ||||||||||||
Adjustments for taxes(4) | 125 | (16 | ) | (17,837 | ) | 29,037 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Core earnings(Non-GAAP) | $ | 88,454 | $ | 79,616 | $ | 335,472 | $ | 340,302 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Diluted earnings per share (U.S. GAAP) | $ | 0.28 | $ | 0.25 | $ | 1.47 | $ | 0.81 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Diluted core earnings per share(Non-GAAP) | $ | 0.57 | $ | 0.46 | $ | 2.11 | $ | 1.92 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Diluted weighted average shares outstanding used in the calculation of earnings per share (U.S. GAAP andNon-GAAP) | 155,678 | 173,279 | 159,036 | 176,997 | ||||||||||||
|
|
|
|
|
|
|
|
(1) | Charges relate to inventory and other assets charges for a distressed customer. |
(2) | Charges, net of insurance proceeds of $5.0 million for the three months ended May 31, 2018, and $2.9 million and $21.4 million for the |
(3) | Charges related to our strategic collaboration with Johnson & Johnson Medical Devices Companies (“JJMD”). |
(4) | The nine months ended May 31, 2019 includes a $13.3 million income tax benefit for the effects of the Tax Act recorded during the three months ended November 30, 2018. The nine months ended May 31, 2018 includes $30.9 million, which is comprised of the provisionalone-time |
Three months ended | ||||||||
(in thousands) | May 31, 2019 | May 31, 2018 | ||||||
Numerator: | ||||||||
Operating income (U.S. GAAP) | $ | 140,918 | $ | 112,971 | ||||
Tax effect (1) | (42,490 | ) | (30,717 | ) | ||||
|
|
|
| |||||
After-tax operating income | 98,428 | 82,254 | ||||||
x4 | x4 | |||||||
|
|
|
| |||||
Annualizedafter-tax operating income | $ | 393,712 | $ | 329,016 | ||||
|
|
|
| |||||
Core operating income(Non-GAAP) | $ | 185,765 | $ | 150,062 | ||||
Tax effect (2) | (41,150 | ) | (29,951 | ) | ||||
|
|
|
| |||||
After-tax core operating income | 144,615 | 120,111 | ||||||
x4 | x4 | |||||||
|
|
|
| |||||
Annualizedafter-tax core operating income | $ | 578,460 | $ | 480,444 | ||||
|
|
|
| |||||
Denominator: | ||||||||
Average total Jabil Inc. stockholders’ equity (3) | $ | 1,851,074 | $ | 2,227,618 | ||||
Average notes payable and long-term debt, less current installments (3) | 2,479,615 | 2,152,478 | ||||||
Average current installments of notes payable and long-term debt (3) | 315,008 | 149,024 | ||||||
Average cash and cash equivalents (3) | (721,572 | ) | (809,144 | ) | ||||
|
|
|
| |||||
Net invested capital base | $ | 3,924,125 | $ | 3,719,976 | ||||
|
|
|
| |||||
Return on Invested Capital (U.S. GAAP) | 10.0 | % | 8.8 | % | ||||
Adjustments noted above | 4.7 | % | 4.1 | % | ||||
Core Return on Invested Capital(Non-GAAP) | 14.7 | % | 12.9 | % |
(1) | The tax effect is calculated by applying the U.S. GAAP effective tax rate for the |
(2) | The tax effect is calculated by applying the core effective tax rate for the three months ended May 31, 2019 and 2018 to core operating income less interest expense. |
(3) | The average is based on the addition of the account balance at the end of the most recently-ended quarter to the account balance at the end of the prior quarter and dividing by two. |
Acquisitions and Expansion
As discussed in Note 12 – “Business Acquisitions”During fiscal year 2019, the Company and JJMD entered into a Framework Agreement to form a strategic collaboration and expand our existing relationship. The strategic collaboration expands our medical device manufacturing portfolio, diversification and capabilities.
On February 25, 2019 and April 29, 2019, under the Condensed Consolidated Financial Statements,terms of the Framework Agreement, we completed onethe initial closing and second closing, respectively, of our acquisition duringof certain assets of JJMD. The preliminary aggregate purchase price paid for both the nine months ended May 31, 2018initial closing and second closing was approximately $153.2 million in cash, which wasremains subject to certain post-closing adjustments. The acquisition of the JJMD assets has been accounted for as a business combination using the acquisition method of accounting. Our Condensed Consolidated Financial Statements include the operating resultsTotal assets acquired of each business from the date$163.6 million and total liabilities assumed of acquisition.
Seasonality
Production levels for a portion$10.4 million were recorded at their estimated fair values as of the DMS segmentacquisition dates. The final closings, which are subject to seasonal influences. customary closing conditions, are expected to occur during fiscal year 2020.
We may realize greater net revenue during our first fiscal quarter, which ends on November 30, dueare currently evaluating the fair values of the assets and liabilities related to higher demand for consumer related productsthis business combination. The preliminary estimates and measurements are, therefore, subject to change during the holiday selling season. Therefore, quarterlymeasurement period for assets acquired, liabilities assumed and tax adjustments. The results should not be relied upon as necessarily being indicative of operations were included in our condensed consolidated financial results beginning on February 25, 2019 for the entire fiscal year.initial closing and April 29, 2019 for the second closing. We believe it is impracticable to provide pro forma information for the acquisition of JJMD assets.
Liquidity and Capital Resources
We believe that our level of liquidity sources, which includes available borrowings under our revolving credit facilities, additional proceeds available under our asset-backed securitization programs and under our uncommitted trade accounts receivable sale programs, cash on hand, funds provided by operations and the access to the capital markets, will be adequate to fund our capital expenditures, the payment of any declared quarterly dividends, approved share repurchases,repurchase programs, any potential acquisitions and our working capital requirements for the next 12 months. We continue to assess our capital structure and evaluate the merits of redeploying available cash to reduce existing debt or repurchase common stock.
Cash and Cash Equivalents
As of May 31, 2018,2019, we had approximately $677.5$694.1 million in cash and cash equivalents. As our growth remains predominantly outside of the United States, a significant portion of such cash and cash equivalents are held by our foreign subsidiaries.
As a result of the Tax Act and after the mandatory deemed repatriationone-time transition tax on our historically untaxed foreign earnings, the cash and cash equivalents held by our foreign subsidiaries will no longer be subject to U.S. federal income tax consequences upon subsequent repatriation to the United States. As a result, most of our cash and cash equivalents as of May 31, 20182019 could be repatriated to the United States without potential tax consequences.
Notes Payable and Credit Facilities
Following is a summary of principal debt payments and debt issuance for our notes payable and credit facilities (in thousands):facilities:
8.250% Senior Notes(1) | 5.625% Senior Notes | 4.700% Senior Notes | 4.900% Senior Notes | 3.950% Senior Notes(1) | Borrowings under revolving credit facilities(2) | Borrowings under loans | Total notes payable and credit facilities | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance as of August 31, 2017 | $ | 399,506 | $ | 397,104 | $ | 496,696 | $ | 298,571 | $ | — | $ | — | $ | 458,395 | $ | 2,050,272 | ||||||||||||||||||||||||||||||||||||||||||||
(in thousands) | 5.625% Senior Notes | 4.700% Senior Notes | 4.900% Senior Notes | 3.950% Senior Notes | Borrowings under revolving credit facilities(1) | Borrowings under loans | Total notes payable and credit facilities | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance as of August 31, 2018 | $ | 397,995 | $ | 497,350 | $ | 298,814 | $ | 494,208 | $ | — | $ | 830,332 | $ | 2,518,699 | ||||||||||||||||||||||||||||||||||||||||||||||
Borrowings | — | — | — | — | 498,623 | 6,299,186 | 50,000 | 6,847,809 | — | — | — | — | 9,482,468 | — | 9,482,468 | |||||||||||||||||||||||||||||||||||||||||||||
Payments | (400,000 | ) | — | — | — | — | (6,052,186 | ) | (19,602 | ) | (6,471,788 | ) | — | — | — | — | (9,052,402 | ) | (18,885 | ) | (9,071,287 | ) | ||||||||||||||||||||||||||||||||||||||
Other | 494 | 668 | 491 | 182 | (4,531 | ) | — | (1,777 | ) | (4,473 | ) | 668 | 491 | 182 | 462 | (418 | ) | 407 | 1,792 | |||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||
Balance as of May 31, 2018 | $ | — | $ | 397,772 | $ | 497,187 | $ | 298,753 | $ | 494,092 | $ | 247,000 | $ | 487,016 | $ | 2,421,820 | ||||||||||||||||||||||||||||||||||||||||||||
Balance as of May 31, 2019 | $ | 398,663 | $ | 497,841 | $ | 298,996 | $ | 494,670 | $ | 429,648 | $ | 811,854 | $ | 2,931,672 | ||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||
Maturity Date | | March 15, 2018 | | | December 15, 2020 | | | September 15, 2022 | | | July 14, 2023 | | | January 12, 2028 | | | November 8, 2022(2) | | | November 8, 2022(2) | | Dec 15, 2020 | Sep 15, 2022 | Jul 14, 2023 | Jan 12, 2028 | | Nov 8, 2022 and Aug 24, 2020 | (1) | | Nov 8, 2022 and Aug 24, 2020 | | |||||||||||||||||||||||||||||
Original Facility/ Maximum Capacity | | $400.0 million | | | $400.0 million | | | $500.0 million | | | $300.0 million | | | $500.0 million | | | $2.2 billion(2) | | | $501.8 million(2) | | |||||||||||||||||||||||||||||||||||||||
Original Facility/Maximum Capacity | $ | 400.0 million | $ | 500.0 million | $ | 300.0 million | $ | 500.0 million | $ | 2.4 billion | (1) | $ | 851.7 million |
(1) | As of |
During the nine months ended May 31, 2018, the interest rates on the Revolving Credit Facility borrowings ranged from 2.4% to 4.4% and the interest rates on the Term Loan Facility ranged from 2.6% to 3.3%.
Additionally, our foreign subsidiaries have various additional credit facilities that finance their future growth and any corresponding working capital needs.
As of May 31, 2018, we had $1.9 billion in available unused borrowing capacity under our revolving credit facilities.
Currently, weWe have a shelf registration statement with the SEC registering the potential sale of an indeterminate amount of debt and equity securities in the future to augment our liquidity and capital resources.
Our Senior Notes and our Credit Facilitycredit facilities contain various financial and nonfinancial covenants. A violation of these covenants could negatively impact our liquidity by restricting our ability to borrow under the notes payable and credit facilities and potentially causing acceleration of amounts due under these notes payable and credit facilities. As of May 31, 2018 and August 31, 2017,2019, we were in compliance with all covenants under our Senior Notes and Credit Facility.debt covenants. Refer to Note 67 – “Notes Payable and Long-Term Debt and Capital Lease Obligations”Debt” to the Condensed Consolidated Financial Statements for further details.
Asset-Backed Securitization and Trade Accounts Receivable Sale Programs
Asset-Backed Securitization Programs
We continuously sell designated pools of trade accounts receivable at a discount, under our foreign asset-backed securitization programsprogram to a special purpose entities,entity, which in turn sell 100%sells certain of the receivables to: (i) conduits administered by unaffiliated financial institutions and (ii)to an unaffiliated financial institution and a conduit administered by an unaffiliated financial institution on a monthly basis. Effective October 1, 2018, the foreign asset-backed securitization program terms were amended and the program was extended to September 30, 2021. In connection with this amendment, there is no longer a deferred purchase price receivable for the foreign asset-backed securitization program as the entire purchase price is paid in cash when the receivables are sold.
As of October 1, 2018, approximately $734.2 million of accounts receivable sold under the foreign asset-backed securitization program was exchanged for the outstanding deferred purchase price receivable of $335.5 million. The remaining amount due to the financial institution of $398.7 million was subsequently settled for $25.2 million of cash and $373.5 million of trade accounts receivable sold to the financial institution. AnyPrior to the amendment, any portion of the purchase price for the receivables not paid in cash upon the sale occurring iswas recorded as a deferred purchase price receivable, which iswas paid from available cash as payments on the receivables were collected. The foreign asset-backed securitization program contains a guarantee of payment by the special purpose entity, in an amount equal to approximately the net cash proceeds under the program. No liability has been recorded for obligations under the guarantee as of May 31, 2019.
The North American asset-backed securitization program was terminated on October 9, 2018 and as of this date approximately $500.0 million of accounts receivable sold under the program was exchanged for the outstanding deferred purchase price receivable of $300.0 million and $200.0 million of cash. The previously sold trade accounts receivable were recorded at fair market value.
On November 27, 2018, we entered into a new North American asset-backed securitization program. We continuously sell designated pools of trade accounts receivable under our new North American asset-backed securitization program to a special purpose entity, which in turn sells certain of the receivables to conduits administered by unaffiliated financial institutions on a monthly basis. There is no longer a deferred purchase price receivable for the North American asset-backed securitization program as the entire purchase price is paid in cash when the receivables are collected.sold. Additionally, $204.4 million of receivables are pledged as collateral to the unaffiliated financial institution as of May 31, 2019.
Following is a summary of our asset-backed securitization programs and key terms:
Maximum Amount of Net Cash Proceeds (in millions)(1) | Expiration Date | Maximum Amount of Net Cash Proceeds (in millions)(1) | Expiration Date | |||||||||||
North American | $ | 200.0 | October 20, 2020 | $ | 390.0 | November 22, 2021 | ||||||||
Foreign | $ | 400.0 | September 28, 2018 | $ | 400.0 | September 30, 2021 |
(1) | Maximum amount available at any one time. |
In connection with our asset-backed securitization programs, as ofduring the three months and nine months ended May 31, 2018,2019, we sold $1.1$1.0 billion and $2.9 billion, respectively, of eligible trade accounts receivable which represents the face amount of total sold outstanding receivables at that date. In exchange,and we received cash proceeds of $600.6 million$1.0 billion and recorded a deferred purchase price receivable of $529.6 million.$2.8 billion, respectively. As of May 31, 2018,2019, we had up to $0.1$55.1 million in available liquidity under our asset-backed securitization programs.
Our asset-backed securitization programs contain various financial and nonfinancial covenants. As of May 31, 20182019 and August 31, 2017,2018, we were in compliance with all covenants under our asset-backed securitization programs. Refer to Note 78 – “Trade Accounts Receivable Securitization and Sale Programs” to the Condensed Consolidated Financial Statements for further details on the programs.
Trade Accounts Receivable Sale Programs
Following is a summary of the seven trade accounts receivable sale programs with unaffiliated financial institutions. Under the programs we may elect to sell receivables and the unaffiliated financial institutions may elect to purchase, at a discount, on an ongoing basis:
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
|
Program | Maximum Amount (in millions)(1) | Type of Facility | Expiration Date | |||||||||||
A | $ | 800.0 | Uncommitted | August 31, 2022(2) | ||||||||||
B | $ | 150.0 | Uncommitted | November 30, 2019(3) | ||||||||||
C | 800.0 | CNY | Uncommitted | June 30, 2020 | ||||||||||
D | $ | 100.0 | Uncommitted | May 4, 2023(4) | ||||||||||
E | $ | 50.0 | Uncommitted | August 25, 2019 | ||||||||||
F | $ | 150.0 | Uncommitted | January 25, 2020(5) | ||||||||||
G | $ | 50.0 | Uncommitted | February 23, 2023(2) | ||||||||||
H | $ | 100.0 | Uncommitted | August 10, 2019(6) | ||||||||||
I | $ | 100.0 | Uncommitted | July 21, 2019(7) | ||||||||||
J | $ | 740.0 | Uncommitted | February 28, 2020(8) | ||||||||||
K | $ | 110.0 | Uncommitted | April 11, 2020(9) |
(1) | Maximum amount available at any one time. |
(2) | Any party may elect to terminate the agreement upon 15 days prior notice. |
(3) | The program |
(4) | Any party may elect to terminate the agreement upon 30 days prior notice. |
(5) | The program will be automatically extended through January 25, 2023 unless either party provides 30 days notice of termination. |
(6) | The program will be automatically extended through August 10, 2023 unless either party provides 30 days notice of termination. |
(7) | The program will be automatically extended through August 21, 2023 unless either party provides 30 days notice of termination. |
(8) | The program will be automatically extended each year through February 28, 2024 unless either party provides 90 days notice of termination. |
(9) | The program will be automatically extended each year through April |
During the three months and nine months ended May 31, 2018,2019, we sold $1.3$1.5 billion and $4.0$5.1 billion, respectively, of trade accounts receivable under these programs and we received cash proceeds of $1.3$1.5 billion and $4.0$5.1 billion, respectively. As of May 31, 2018,2019, we had up to $353.8 million$1.3 billion in available liquidity under our trade accounts receivable sale programs.
Capital Expenditures
For fiscal year 2018,2019, we anticipate our net capital expenditures which do not include any amounts spent on acquisitions, will be approximately $700.0 million, principally to$800.0 million. Our capital expenditures will support investments in new markets and ongoing businessmaintenance in theour DMS and EMS segments. The amount of actual capital expenditures may be affected by general economic, financial, competitive, legislative and regulatory factors, among other things.
Cash Flows
The following table sets forth selected consolidated cash flow information during the nine months ended May 31, 2018 and 2017 (in thousands):
Nine months ended | ||||||||
May 31, 2018 | May 31, 2017 | |||||||
Net cash provided by operating activities | $ | 194,851 | $ | 533,023 | ||||
Net cash used in investing activities | (684,821 | ) | (477,282 | ) | ||||
Net cash used in financing activities | (7,198 | ) | (222,926 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | (15,259 | ) | (943 | ) | ||||
|
|
|
| |||||
Net decrease in cash and cash equivalents | $ | (512,427 | ) | $ | (168,128 | ) | ||
|
|
|
|
Nine months ended | ||||||||
May 31, 2019 | May 31, 2018 | |||||||
Net cash provided by (used in) operating activities | $ | 112,656 | $ | (1,376,305 | ) | |||
Net cash (used in) provided by investing activities | (704,095 | ) | 886,335 | |||||
Net cash provided by (used in) financing activities | 19,909 | (7,198 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents | 7,667 | (15,259 | ) | |||||
|
|
|
| |||||
Net decrease in cash and cash equivalents | $ | (563,863 | ) | $ | (512,427 | ) | ||
|
|
|
|
Operating Activities
Net cash provided by operating activities during the nine months ended May 31, 20182019 was primarily due to non-cash expenses and higherdecreased inventories, increased accounts payable, accrued expenses and other liabilities andnon-cash expenses, partially offset by higherincreased contract assets and accounts receivable. The decrease in inventories accounts receivableis primarily due to the adoption of ASU2014-09 and prepaid expenses and other current assets.the reclassification to contract assets for revenue recognized for over time customers, partially offset by an increase in inventories to support expected sales levels in the fourth quarter of fiscal year 2019. The increase in accounts payable, accrued expenses and other liabilities wasis primarily due to an increase in materials purchases due to increased demand in the mobility businesstiming of collections on accounts receivable sold under the securitization programs and the timing of purchases and cash payments. The increase in inventories supports expected sales levels and alsocontract assets is due to increased demandthe adoption of ASU2014-09 and advance purchases in anticipationthe timing of a materials shortage.revenue recognition for over time customers. The increase in accounts receivable is primarily driven by the amended and new securitization programs and higher sales and timing of sales and cash collections activity as well as higher sales levels. The increase in prepaid expense and other current assets is primarily due to an increase in value added tax receivables, partially offset by a decrease in deferred purchase price receivables from a decrease in receivables sold and the timing of cash collections.
Investing Activities
Net cash used in investing activities during the nine months ended May 31, 20182019 consisted primarily of: (i)of capital expenditures principally to support ongoing business in the DMS and EMS segments and (ii) cash paidexpenditures for assets acquired in connection with the initial and second closings of the acquisition of True-Tech Corporation, which wereJJMD, partially offset by proceeds and advances from the sale of property, plant and equipment.
Financing Activities
Net cash used inprovided by financing activities during the nine months ended May 31, 20182019 was primarily due to: (i) borrowings under debt agreements and (ii) net proceeds from the exercise of stock options and issuance of common stock under the employee stock purchase plan. Net cash provided by financing activities was largely offset by: (i) payments for debt agreements, including the 8.250% Senior Notes, (ii) the repurchase of our common stock, (iii) dividend payments and (iv) treasury stock minimum tax withholding related to vesting of restricted stock. Net cash used in financing activities was partially offset by borrowings under debt agreements including the 3.950% Senior Notes.
Contractual Obligations
As of the date of this report, other than the borrowings on the 3.950% Senior Notes and payments on the 8.250% Senior Notes discussed in Note 6 – “Notes Payable, Long-Term Debt and Capital Lease Obligations” to the Condensed Consolidated Financial Statements, there were no material changes outside the ordinary course of business since August 31, 20172018 to our contractual obligations and commitments.
Dividends and Share Repurchases
We currently expect to continue to declare and pay regular quarterly dividends of an amount similar to our past declarations. However, the declaration and payment of future dividends are discretionary and will be subject to determination by our Board of Directors each quarter following its review of our financial performance.
In July 2017, the Board of Directors authorized the repurchase of up to $450.0 million of our common stock. The 2017 Share Repurchase Program expires on August 31, 2018. As of May 31, 2018, 11.5 million shares had been repurchased for $316.2 million and $133.8 million remains available under the 2017 Share Repurchase Program.
In June 2018, the Board of Directors authorized the repurchase of up to $350.0 million of our common stock. The 2018stock (the “2018 Share Repurchase ProgramProgram”). This authorization expires on August 31, 2019. As of May 31, 2019, the total amount authorized by the Board of Directors had been repurchased.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
There have been no material changes in our primary risk exposures or management of market risks from those disclosed in our Annual Report onForm 10-K for the fiscal year ended August 31, 2017.2018.
Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation required byRules 13a-15 and15d-15 under the Exchange Act (the “Evaluation”), under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures as defined inRules 13a-15 and15d-15 under the Exchange Act as of May 31, 2018.2019. Based on the Evaluation, our CEO and CFO concluded that the design and operation of our disclosure controls were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) accumulated and communicated to our senior management, including our CEO and CFO, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
For our fiscal quarter ended May 31, 2018,2019, we did not identify any modifications to our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 1. | Legal Proceedings |
We are party to certain lawsuits in the ordinary course of business. We do not believe that these proceedings, individually or in the aggregate, will have a material adverse effect on our financial position, results of operations or cash flows.
Item 1A. | Risk Factors |
For information regarding risk factors that could affect our business, results of operations, financial condition or future results, see Part I, “Item 1A. Risk Factors” of our Annual Report on Form10-K for the fiscal year ended August 31, 2017.2018. For further information on our forward-looking statements see Part I of this Quarterly Report on Form10-Q.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
The following table provides information relating to our repurchase of common stock during the three months ended May 31, 2018:2019:
Period | Total Number of Shares Purchased(1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Program(2) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (in thousands) | ||||||||||||
March 1, 2018 - March 31, 2018 | 815,307 | $ | 27.63 | 815,000 | $ | 202,463 | ||||||||||
April 1, 2018 - April 30, 2018 | 1,265,541 | $ | 28.06 | 1,260,865 | $ | 167,086 | ||||||||||
May 1, 2018 - May 31, 2018 | 1,207,131 | $ | 27.64 | 1,205,547 | $ | 133,764 | ||||||||||
|
|
|
| |||||||||||||
Total | 3,287,979 | $ | 27.80 | 3,281,412 |
Period | Total Number of Shares Purchased(1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Program | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (in thousands) | ||||||||||||
March 1, 2019 - March 31, 2019 | — | $ | — | — | $ | — | ||||||||||
April 1, 2019 - April 30, 2019 | 5,126 | $ | 31.14 | — | $ | — | ||||||||||
May 1, 2019 - May 31, 2019 | 19,196 | $ | 27.83 | — | $ | — | ||||||||||
|
|
|
| |||||||||||||
Total | 24,322 | $ | 28.53 | — |
(1) | The purchases include amounts that are attributable to shares surrendered to us by employees to satisfy, in connection with the vesting of restricted stock unit awards and the exercise of stock appreciation rights, their tax withholding obligations. |
Item 3. | Defaults Upon Senior Securities |
None.
Item 4. | Mine Safety Disclosures |
Not applicable.
Item 5. | Other Information |
None.
Item 6. | Exhibits |
Index to Exhibits
† | Indicates management compensatory plan, contract or arrangement |
* | Filed or furnished herewith |
** | XBRL (Extensible Business Reporting Language) Filed Electronically with this report. |
Certain instruments with respect to long-term debt of the Registrant and its consolidated subsidiaries are not filed herewith pursuant to Item 601(b)(4)(iii) of RegulationS-K since the total amount of securities authorized under each such instrument does not exceed 10% of the total assets of the Registrant and its subsidiaries on a consolidated basis. The Registrant agrees to furnish a copy of any such instrument to the Securities and Exchange Commission upon request.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
JABIL INC. Registrant | ||||||
Date: June 28, | By: | / | ||||
Mark T. Mondello Chief Executive Officer | ||||||
Date: June 28, | By: | / | ||||
Chief Financial Officer |
3540