QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 2021
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, Florida33716
(Address of principal executive offices) (Zip Code)
(727) 577-9749
(Registrant’s telephone number, including area code)
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
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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-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 Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
1
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 Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of June 24, 2021, there were 145,829,630 shares of the registrant’s Common Stock outstanding.
Accounts receivable, net of allowance for doubtful accounts of $26,939 as of May 31, 2021 and $25,827 as of August 31, 2020
3,227,627
2,847,743
Contract assets
1,070,606
1,104,700
Inventories, net
3,979,329
3,131,783
Prepaid expenses and other current assets
741,223
657,102
Total current assets
10,259,514
9,134,885
Property, plant and equipment, net of accumulated depreciation of $4,922,191 as of May 31, 2021 and $4,525,758 as of August 31, 2020
3,812,159
3,665,312
Operating lease right-of-use asset
360,938
362,847
Goodwill
719,473
696,853
Intangible assets, net of accumulated amortization of $430,994 as of May 31, 2021 and $395,074 as of August 31, 2020
194,780
209,870
Deferred income taxes
165,612
165,407
Other assets
228,232
162,242
Total assets
$
15,740,708
$
14,397,416
LIABILITIES AND EQUITY
Current liabilities:
Current installments of notes payable and long-term debt
$
50,168
$
50,194
Accounts payable
6,193,198
5,687,038
Accrued expenses
3,490,480
3,211,528
Current operating lease liabilities
113,150
110,723
Total current liabilities
9,846,996
9,059,483
Notes payable and long-term debt, less current installments
2,876,599
2,678,288
Other liabilities
302,602
268,925
Non-current operating lease liabilities
303,703
302,035
Income tax liabilities
169,593
148,629
Deferred income taxes
102,255
114,657
Total liabilities
13,601,748
12,572,017
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; 266,865,062 and 263,830,270 shares issued and 146,837,466 and 150,330,358 shares outstanding as of May 31, 2021 and August 31, 2020, respectively
267
264
Additional paid-in capital
2,490,892
2,413,616
Retained earnings
2,525,323
2,040,922
Accumulated other comprehensive loss
14,722
(34,168)
Treasury stock at cost, 120,027,596 and 113,499,912 shares as of May 31, 2021 and August 31, 2020, respectively
(2,893,193)
(2,609,250)
Total Jabil Inc. stockholders’ equity
2,138,011
1,811,384
Noncontrolling interests
949
14,015
Total equity
2,138,960
1,825,399
Total liabilities and equity
$
15,740,708
$
14,397,416
See accompanying notes to Condensed Consolidated Financial Statements.
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 Form 10-Q and Article 10 of Regulation S-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 accompanying unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and footnotes included in the Annual Report on Form 10-K of Jabil Inc. (the “Company”) for the fiscal year ended August 31, 2020. Results for the nine months ended May 31, 2021 are not necessarily an indication of the results that may be expected for the full fiscal year ending August 31, 2021.
2. Trade Accounts Receivable Sale Programs
The Company regularly sells designated pools of high credit quality trade accounts receivable under uncommitted trade accounts receivable sale programs to unaffiliated financial institutions without recourse. As these accounts receivable are sold without recourse, the Company does not retain the associated risks following the transfer of such accounts receivable to the respective financial institutions. The Company continues servicing the receivables sold and in exchange receives a servicing fee under each of the trade accounts receivable sale programs. Servicing fees related to each of the trade accounts receivable sale programs recognized during the three months and nine months ended May 31, 2021 and 2020 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 trade accounts receivable sale programs are accounted for as sales and, accordingly, net receivables sold under the trade accounts receivable sale 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 following is a summary of the 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
A
$
600.0
Uncommitted
December 5, 2021(2)
B
$
150.0
Uncommitted
November 30, 2021
C
400.0
CNY
Uncommitted
August 31, 2023
D
$
150.0
Uncommitted
May 4, 2023(3)
E
$
150.0
Uncommitted
January 25, 2022(4)
F
$
50.0
Uncommitted
February 23, 2023(5)
G
$
100.0
Uncommitted
August 10, 2021(6)
H
$
100.0
Uncommitted
July 21, 2021(7)
I
$
550.0
Uncommitted
December 4, 2021(8)
J
$
135.0
Uncommitted
April 11, 2022(9)
K
100.0
CHF
Uncommitted
December 5, 2021(2)
(1)Maximum amount of trade accounts receivable that may be sold under a facility at any one time.
(2)The program will be automatically extended through December 5, 2025 unless either party provides 30 days’ notice of termination.
(3)Any party may elect to terminate the agreement upon 30 days’ prior notice.
(4)The program will be automatically extended through January 25, 2023 unless either party provides 30 days’ notice of termination.
(5)Any party may elect to terminate the agreement upon 15 days’ prior notice.
Notes payable and long-term debt outstanding as of May 31, 2021 and August 31, 2020 are summarized below (in thousands):
Maturity Date
May 31, 2021
August 31, 2020
4.700% Senior Notes
Sep 15, 2022
$
499,150
$
498,659
4.900% Senior Notes
Jul 14, 2023
299,482
299,300
3.950% Senior Notes
Jan 12, 2028
495,902
495,440
3.600% Senior Notes
Jan 15, 2030
495,146
494,756
3.000% Senior Notes
Jan 15, 2031
590,944
590,162
1.700% Senior Notes (1)
Apr 15, 2026
495,560
—
Borrowings under credit facilities (2)(3)
Jan 22, 2024 and Jan 22, 2026
—
—
Borrowings under loans (1)
Jun 23, 2021
50,583
350,165
Total notes payable and long-term debt
2,926,767
2,728,482
Less current installments of notes payable and long-term debt
50,168
50,194
Notes payable and long-term debt, less current installments
$
2,876,599
$
2,678,288
(1)On April 14, 2021, the Company issued $500.0 million of publicly registered 1.700% Senior Notes due 2026 (the “1.700% Senior Notes”). The Company used the net proceeds for general corporate purposes, including repayment of the prior $300.0 million Term Loan Facility.
(2)On April 28, 2021, the Company entered into an amendment (the “Amendment”) to its senior unsecured credit agreement dated as of January 22, 2020 (the “Credit Facility”). The Amendment, among other things, (i) increased the commitments available under the three-year revolving credit facility (the “Three-Year Revolving Credit Facility”) from $700.0 million to $1.2 billion, (ii) instituted certain sustainability-linked adjustments to the interest rates applicable to borrowings under the Credit Facility and (iii) extended the termination date of the Three-Year Revolving Credit Facility to January 22, 2024, and of the Five-Year Revolving Credit Facility of $2.0 billion to January 22, 2026.
(3)As of May 31, 2021, the Company has $3.8 billion in available unused borrowing capacity under its revolving credit facilities. The Credit Facility acts as the back-up facility for commercial paper outstanding, if any. The Company has a borrowing capacity of up to $1.8 billion under its commercial paper program.
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 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 4.700%, 4.900%, 3.950%, 3.600%, 3.000% or 1.700% Senior Notes upon a change of control. As of May 31, 2021 and August 31, 2020, the Company was in compliance with its debt covenants.
Fair Value
Refer to Note 16 – “Fair Value Measurements” for the estimated fair values of the Company’s notes payable and long-term debt.
5. Asset-Backed Securitization Programs
The Company continuously sells designated pools of trade accounts receivable, at a discount, under its foreign asset-backed securitization program and its North American asset-backed securitization program to special purpose entities, which in turn sell certain of the receivables under the foreign program to an unaffiliated financial institution and a conduit administered by an unaffiliated financial institution and certain of the receivables under the North American program to conduits administered by an unaffiliated financial institution on a monthly basis.
The Company continues servicing the receivables sold and in exchange receives a servicing fee under each of the asset-backed securitization programs. Servicing fees related to each of the asset-backed securitization programs recognized during the three months and nine months ended May 31, 2021 and 2020 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 asset-backed securitization programs are accounted for as sales and, accordingly, net receivables sold under the asset-backed securitization 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 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 entity associated with the foreign asset-backed securitization program is included in the Company’s Condensed Consolidated Financial Statements. As of May 31, 2021, the special purpose entity has liabilities for which creditors do not have recourse to the general credit of the Company (primary beneficiary). The liabilities cannot exceed the maximum amount of net cash proceeds under the foreign asset-backed securitization program.
The foreign asset-backed securitization program contains a guarantee of payment by the special purpose entity, in an amount approximately equal to the net cash proceeds under the program. No liability has been recorded for obligations under the guarantee as of May 31, 2021.
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. Certain unsold receivables covering the maximum amount of net cash proceeds available under the North American asset-backed securitization program are pledged as collateral to the unaffiliated financial institution as of May 31, 2021.
Following is a summary of the asset-backed securitization programs and key terms:
Maximum Amount of Net Cash Proceeds (in millions)(1)(2)
Expiration Date
North American
$
390.0
November 22, 2021
Foreign
$
400.0
(3)
(1)Maximum amount available at any one time.
(2)As of May 31, 2021, the Company had up to $148.5 million in available liquidity under its asset-backed securitization programs, of which all available liquidity related to the foreign asset-backed securitization program.
(3)The Company terminated the foreign asset-backed securitization program on June 28, 2021. In connection with the termination, the Company paid approximately $167.0 million in cash, which consisted of a remittance of collections received prior to that date in the Company’s role as servicer of sold receivables, and a repurchase at fair value of all previously sold receivables that remained outstanding as of that date. The Company expects to receive payment on the repurchased receivables from the related customers during the fourth quarter of fiscal year 2021.
In connection with the asset-backed securitization programs, the Company recognized the following (in millions):
Three months ended
Nine months ended
May 31, 2021
May 31, 2020
May 31, 2021
May 31, 2020
Trade accounts receivable sold
$
1,074
$
948
$
3,388
$
3,205
Cash proceeds received(1)
$
1,072
$
944
$
3,381
$
3,189
Pre-tax losses on sale of receivables(2)
$
2
$
4
$
7
$
16
(1)The amounts primarily represent proceeds from collections reinvested in revolving-period transfers.
(2)Recorded to other expense within the Condensed Consolidated Statements of Operations.
The asset-backed securitization programs require compliance with several covenants. The North American asset-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, 2021 and August 31, 2020, the Company was in compliance with all covenants under the asset-backed securitization programs.
6. Accrued Expenses
Accrued expenses consist of the following (in thousands):
May 31, 2021
August 31, 2020
Contract liabilities(1)
$
512,131
$
496,219
Accrued compensation and employee benefits
762,551
703,250
Other accrued expenses
2,215,798
2,012,059
Accrued expenses
$
3,490,480
$
3,211,528
(1)Revenue recognized during the nine months ended May 31, 2021 and 2020 that was included in the contract liability balance as of August 31, 2020 and 2019 was $306.0 million and $260.9 million, respectively.
7. Postretirement and Other Employee Benefits
Net Periodic Benefit Cost
The following table provides information about the net periodic benefit cost for all plans for the three months and nine months ended May 31, 2021 and 2020 (in thousands):
Three months ended
Nine months ended
May 31, 2021
May 31, 2020
May 31, 2021
May 31, 2020
Service cost (1)
$
6,278
$
6,701
$
18,809
$
17,802
Interest cost (2)
1,172
755
3,469
2,327
Expected long-term return on plan assets (2)
(3,897)
(3,741)
(11,746)
(10,316)
Recognized actuarial (gain) loss (2)
(1,230)
225
(3,743)
674
Amortization of actuarial gain (2)
(1,715)
—
(5,205)
—
Amortization of prior service credit (2)
(13)
(11)
(39)
(33)
Net periodic benefit cost
$
595
$
3,929
$
1,545
$
10,454
(1)Service cost is recognized in cost of revenue in the Condensed Consolidated Statement of Operations.
(2)Components are recognized in other expense in the Condensed Consolidated Statement of Operations.
8. 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 $1.0 billion and $355.2 million as of May 31, 2021 and August 31, 2020, 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, 2021 and May 31, 2022.
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, 2021 and August 31, 2020, was $3.3 billion and $2.9 billion, respectively.
Refer to Note 16 – “Fair Value Measurements” for the fair values and classification of the Company’s derivative instruments.
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.
The following table presents the gains and losses from forward contracts recorded in the Condensed Consolidated Statements of Operations for the periods indicated (in thousands):
Derivatives Not Designated as Hedging Instruments Under ASC 815
Location of Gain (Loss) on Derivatives Recognized in Net Income
Amount of Gain (Loss) Recognized in Net Income on Derivatives
Three months ended
Nine months ended
May 31, 2021
May 31, 2020
May 31, 2021
May 31, 2020
Forward foreign exchange contracts(1)
Cost of revenue
$
27,212
$
(36,955)
$
147,655
$
(3,436)
(1)For the three months and nine months ended May 31, 2021, the Company recognized $21.5 million and $120.6 million, respectively, of foreign currency losses in cost of revenue, which are offset by the gains from the forward foreign exchange contracts. During the three months and nine months ended May 31, 2020, the Company recognized $36.9 million and $0.4 million, respectively, of foreign currency gains in cost revenue, which are offset by the losses 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
The following table presents the interest rate swaps outstanding as of May 31, 2021, which have been designated as hedging instruments and accounted for as cash flow hedges:
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
$
250.0
November 2, 2020
July 31, 2024
(2)
Anticipated Debt Issuance
Fixed
$
150.0
May 24, 2021
July 31, 2024
(2)
(1)The contracts will be settled with the respective counterparties on a net basis at the expiration date for the forward interest rate swap.
(2)If the anticipated debt issuance occurs before July 31, 2024, the contracts will be terminated simultaneously with the debt issuance.
Contemporaneously with the issuance of our 3.000% Notes in July 2020, the Company amended interest rate swap agreements with a notional value of $200.0 million, with mandatory termination dates from August 15, 2020 to February 15, 2022 (the “2020 Extended Interest Rate Swaps”). In addition, the Company entered into interest rate swaps to offset future exposures of fluctuations in the fair value of the 2020 Extended Interest Rate Swaps (the “Offsetting Interest Rate Swaps”).
9. Accumulated Other Comprehensive (Loss) Income
The following table sets forth the changes in accumulated other comprehensive (loss) income (“AOCI”), net of tax, by component for the nine months ended May 31, 2021 (in thousands):
Other comprehensive income (loss) before reclassifications
25,613
64,113
(256)
—
89,470
Amounts reclassified from AOCI
—
(40,580)
—
—
(40,580)
Other comprehensive income (loss)(1)
25,613
23,533
(256)
—
48,890
Balance as of May 31, 2021
$
(10,982)
$
(7,463)
$
33,837
$
(670)
$
14,722
(1)Amounts are net of tax, which are immaterial.
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, 2021
May 31, 2020
May 31, 2021
May 31, 2020
Realized (gains) losses on derivative instruments:(1)
Foreign exchange contracts
Cost of revenue
$
(4,309)
$
16,451
$
(43,021)
$
20,648
Interest rate contracts
Interest expense
814
(431)
2,441
(1,293)
Total amounts reclassified from AOCI(2)
$
(3,495)
$
16,020
$
(40,580)
$
19,355
(1)The Company expects to reclassify $7.9 million into earnings during the next twelve months, which will primarily be classified as a component of cost of revenue.
(2)Amounts are net of tax, which are immaterial for the three months and nine months ended May 31, 2021 and 2020.
10. Stockholders’ Equity
The Company recognized stock-based compensation expense within selling, general and administrative expense as follows (in thousands):
Three months ended
Nine months ended
May 31, 2021
May 31, 2020
May 31, 2021
May 31, 2020
Restricted stock units
$
15,956
$
14,299
$
67,553
$
54,783
Employee stock purchase plan
2,809
2,583
8,566
7,431
Total
$
18,765
$
16,882
$
76,119
$
62,214
On January 21, 2021, the 2021 Equity Incentive Plan (the “2021 EIP”) was approved by the shareholders of the Company. The 2021 EIP replaced the Company’s 2011 Stock Award and Incentive Plan, which terminated on October 21, 2020. As of May 31, 2021, the shares available to be issued under the 2021 EIP were 10,965,250.
Restricted Stock Units
Certain key employees have been granted time-based, performance-based and market-based restricted stock unit awards (“restricted stock 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, 2021 and 2020, the Company awarded approximately 1.2 million and 1.1 million time-based restricted stock units, respectively, 0.4 million and 0.3 million performance-based restricted stock units, respectively, and 0.3 million and 0.3 million market-based restricted stock units, respectively.
The following represents the stock-based compensation information as of the period indicated (in thousands):
May 31, 2021
Unrecognized stock-based compensation expense—restricted stock units
$
45,840
Remaining weighted-average period for restricted stock units expense
1.4 years
Common Stock Outstanding
The following represents the common stock outstanding for the periods indicated:
Three months ended
Nine months ended
May 31, 2021
May 31, 2020
May 31, 2021
May 31, 2020
Common stock outstanding:
Beginning balances
149,366,501
151,407,526
150,330,358
153,520,380
Shares issued upon exercise of stock options
9,321
—
9,321
56,999
Shares issued under employee stock purchase plan
—
—
771,548
595,717
Vesting of restricted stock
12,787
13,234
2,253,923
2,252,846
Purchases of treasury stock under employee stock plans
(3,436)
(2,808)
(613,715)
(619,931)
Treasury shares purchased(1)
(2,547,707)
(843,916)
(5,913,969)
(5,231,975)
Ending balances
146,837,466
150,574,036
146,837,466
150,574,036
(1)In September 2019, the Company’s Board of Directors authorized the repurchase of up to $600.0 million of the Company’s common stock as part of a two-year capital allocation framework (the “2020 Share Repurchase Program”). As of May 31, 2021, 11.9 million shares had been repurchased for $475.6 million and $124.4 million remains available under the 2020 Share Repurchase Program. The 2020 Share Repurchase Program authorization expires at the end of fiscal year 2021.
11. 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, 2021, the Company’s five largest customers accounted for approximately 47% of its net revenue and 79 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. Some 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 its pre-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, severance and related charges, distressed customer charges, acquisition and integration charges, (gain) impairment on securities, loss on disposal of subsidiaries, settlement of receivables and related charges, impairment of notes receivable and related charges, restructuring of securities loss, goodwill impairment charges, business interruption and impairment charges, net, income (loss) from discontinued operations, gain (loss) on sale of discontinued operations, other expense (excluding certain components of net periodic benefit cost), interest income, interest expense, income tax expense or adjustment for net income (loss) attributable to noncontrolling interests. Transactions between operating segments are generally recorded at amounts that approximate those at which we would transact with third parties.
As of September 1, 2020, certain customers have been realigned within the Company’s operating segments. As there have been no changes to how the Company’s chief operating decision maker assesses operating performance and allocates resources, the Company’s operating segments which are the reporting segments continue to consist of the DMS and EMS
segments. Customers within the automotive and transportation and smart home and appliances industries are now presented within the DMS segment. Prior period disclosures are restated to reflect the realignment.
The following table presents the Company’s revenues disaggregated by segment (in thousands):
Three months ended
May 31, 2021
May 31, 2020
EMS
DMS
Total
EMS
DMS
Total
Timing of transfer
Point in time
$
1,346,207
$
1,441,135
$
2,787,342
$
958,786
$
1,385,203
$
2,343,989
Over time
2,296,785
2,130,518
4,427,303
2,428,503
1,563,150
3,991,653
Total
$
3,642,992
$
3,571,653
$
7,214,645
$
3,387,289
$
2,948,353
$
6,335,642
Nine months ended
May 31, 2021
May 31, 2020
EMS
DMS
Total
EMS
DMS
Total
Timing of transfer
Point in time
$
3,222,365
$
5,463,053
$
8,685,418
$
3,323,119
$
4,409,710
$
7,732,829
Over time
7,193,156
5,997,147
13,190,303
7,043,921
5,189,673
12,233,594
Total
$
10,415,521
$
11,460,200
$
21,875,721
$
10,367,040
$
9,599,383
$
19,966,423
The following tables set forth operating segment information (in thousands):
Three months ended
Nine months ended
May 31, 2021
May 31, 2020
May 31, 2021
May 31, 2020
Segment income and reconciliation of income before income tax
EMS
$
137,119
$
97,824
$
357,214
$
259,679
DMS
139,764
74,260
569,212
349,168
Total segment income
$
276,883
$
172,084
$
926,426
$
608,847
Reconciling items:
Amortization of intangibles
(12,066)
(13,178)
(35,160)
(42,895)
Stock-based compensation expense and related charges
As of May 31, 2021, the Company operated in 31 countries worldwide. Sales to unaffiliated customers are based on the Company location that maintains the customer relationship and transacts the external sale.
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, 2021
May 31, 2020
May 31, 2021
May 31, 2020
Foreign source revenue
82.7
%
83.4
%
83.6
%
82.6
%
12. Restructuring, Severance and Related Charges
Following is a summary of the Company’s restructuring, severance and related charges (in thousands):
Three months ended
Nine months ended
May 31, 2021
May 31, 2020
May 31, 2021
May 31, 2020
Employee severance and benefit costs
$
483
$
56,891
$
3,191
$
83,684
Lease costs
—
402
(2,873)
6,870
Asset write-off costs
8
6,253
4,598
31,678
Other costs
253
5,604
739
21,773
Total restructuring, severance and related charges(1)
$
744
$
69,150
$
5,655
$
144,005
(1)Primarily relates to the 2020 Restructuring Plan, and includes $0.0 million and $23.7 million recorded in the EMS segment, $0.6 million and $29.3 million recorded in the DMS segment and $0.1 million and $16.2 million of non-allocated charges for the three months ended May 31, 2021 and 2020, respectively. Includes $(0.4) million and $55.8 million recorded in the EMS segment, $5.5 million and $69.0 million recorded in the DMS segment and $0.6 million and $19.2 million of non-allocated charges for the nine months ended May 31, 2021 and 2020, respectively. Except for asset write-off costs, all restructuring, severance and related charges are cash costs.
2020 Restructuring Plan
On September 20, 2019, the Company’s Board of Directors formally approved a restructuring plan to realign the Company’s global capacity support infrastructure, particularly in the Company’s mobility footprint in China, in order to optimize organizational effectiveness. This action includes headcount reductions and capacity realignment (the “2020 Restructuring Plan”).
The 2020 Restructuring Plan, totaling $85.0 million in restructuring and other related costs, is substantially complete as of May 31, 2021.
The table below summarizes the Company’s liability activity, primarily associated with the 2020 Restructuring Plan
(in thousands):
Employee Severance and Benefit Costs
Lease Costs
Asset Write-off Costs
Other Related Costs
Total
Balance as of August 31, 2020
$
8,143
$
2,316
$
—
$
426
$
10,885
Restructuring related charges
2,722
(2,873)
4,352
733
4,934
Asset write-off charge and other non-cash activity
12
1,554
(4,352)
(142)
(2,928)
Cash payments
(7,102)
(170)
—
(763)
(8,035)
Balance as of May 31, 2021
$
3,775
$
827
$
—
$
254
$
4,856
The Company’s liability associated with the worldwide workforce reduction initiated in the third quarter of fiscal year 2020 is $14.0 million as of May 31, 2021.
13. Income Taxes
Effective Income Tax Rate
The U.S. federal statutory income tax rate and the Company's effective income tax rate are as follows:
The effective income tax rate decreased for the three months and nine months ended May 31, 2021, compared to the three months and nine months ended May 31, 2020, primarily due to: (i) increased income for the three months and nine months ended May 31, 2021, driven in part by decreased restructuring charges in tax jurisdictions with minimal related income tax benefit and (ii) a $21.2 million income tax expense associated with the re-measurement of deferred tax assets related to an extension of a non-U.S. tax incentive recorded during the three months ended May 31, 2020.
The effective income tax rate differed from the U.S. federal statutory income tax rate of 21.0% during the three months and nine months ended May 31, 2021 and 2020, primarily due to: (i) losses in tax jurisdictions with existing valuation allowances, (ii) tax incentives granted to sites in Brazil, China, Malaysia, Singapore and Vietnam and (iii) a $21.2 million income tax expense associated with the re-measurement of deferred tax assets related to an extension of a non-U.S. tax incentive recorded during the three months ended May 31, 2020.
14. Earnings Per Share and Dividends
Earnings Per Share
The Company calculates its basic earnings per share by dividing net income attributable to 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 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 units are considered dilutive when the related performance criteria 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, 2021
May 31, 2020
May 31, 2021
May 31, 2020
Restricted stock units
665
3,717
665
3,379
Employee stock purchase plan
—
57
—
92
Stock appreciation rights
—
5
—
28
Dividends
The following table sets forth cash dividends declared by the Company to common stockholders during the nine months ended May 31, 2021 and 2020 (in thousands, except for per share data):
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 October 26, 2020, under the terms of the framework agreement, the Company completed the fourth closing of its acquisition of certain assets of JJMD. The aggregate purchase price paid for the fourth closing was approximately $18.9 million in cash. Total assets acquired of $29.8 million and total liabilities assumed of $10.9 million were recorded at their estimated fair values as of the acquisition date.
The acquisition of the JJMD assets was accounted for as a business combination using the acquisition method of accounting. The Company is currently evaluating the fair value of the assets and liabilities related to the fourth closing. 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 October 26, 2020 for the fourth closing. The Company believes it is impracticable to provide pro forma information for the acquisition of the JJMD assets.
16. Fair Value Measurements
Fair Value Measurements on a Recurring Basis
The following table presents the fair value of the Company's financial assets and liabilities measured at fair value by hierarchy level on a recurring basis as of the periods indicated:
(in thousands)
Fair Value Hierarchy
May 31, 2021
August 31, 2020
Assets:
Cash and cash equivalents:
Cash equivalents
Level 1
(1)
$
17,839
$
33,869
Prepaid expenses and other current assets:
Short-term investments
Level 1
17,216
16,556
Forward foreign exchange contracts:
Derivatives designated as hedging instruments (Note 8)
Level 2
(2)
19,089
11,201
Derivatives not designated as hedging instruments (Note 8)
Level 2
(2)
60,944
58,893
Other assets:
Forward interest rate swap:
Derivatives designated as hedging instruments (Note 8)
Level 2
(3)
18,772
—
Liabilities:
Accrued expenses:
Forward foreign exchange contracts:
Derivatives designated as hedging instruments (Note 8)
Level 2
(2)
$
1,527
$
1,522
Derivatives not designated as hedging instruments (Note 8)
Level 2
(2)
8,023
9,100
Interest rate swaps:
Derivatives not designated as hedging instruments (Note 8)
Level 2
(3)
8,276
540
Extended interest rate swap not designated as a hedging instrument (Note 8)
Level 2
(4)
17,809
26,492
Other liabilities:
Interest rate swaps:
Derivatives not designated as hedging instruments (Note 8)
Level 2
(3)
—
329
Extended interest rate swap not designated as a hedging instrument (Note 8)
Level 2
(4)
—
13,111
Forward interest rate swaps:
Derivatives designated as hedging instruments (Note 8)
Level 2
(3)
546
—
(1)Consist of investments that are readily convertible to cash with original maturities of 90 days or less.
(2)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.
(3)Fair value measurements are based on the contractual terms of the derivatives and use observable market-based inputs. The interest rate swaps are valued using a discounted cash flow analysis on the expected cash flows of each derivative using observable inputs including interest rate curves and credit spreads.
(4)The 2020 Extended Interest Rate Swaps are considered a hybrid instrument and the Company elected the fair value option for reporting. Fair value measurements are based on the contractual terms of the contract and use observable market-based inputs. The interest rate swaps are valued using a discounted cash flow analysis of the expected cash flows using observable inputs including interest rate curves and credit spreads.
Assets Held for Sale
The following table presents the assets held for sale:
May 31, 2021
August 31, 2020
(in thousands)
Carrying Amount
Carrying Amount
Assets held for sale (1)
$
60,580
$
67,380
(1)The fair value of assets held for sale exceeds the carrying value for $30.1 million of assets held for sale. For $30.5 million of assets held for sale, the carrying value approximates the fair value with the asset value measured using Level 2 inputs.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, trade accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses approximate fair value because of the short-term nature of these financial instruments. The carrying amounts of borrowings under credit facilities and under loans approximates fair value as interest rates on these instruments approximates current market rates.
Notes payable and long-term debt is carried at amortized cost; however, the Company estimates the fair values of notes payable and long-term debt for disclosure purposes. The following table presents the carrying amounts and fair values of the Company's notes payable and long-term debt, by hierarchy level as of the periods indicated:
May 31, 2021
August 31, 2020
(in thousands)
Fair Value Hierarchy
Carrying Amount
Fair Value
Carrying Amount
Fair Value
Notes payable and long-term debt:
4.700% Senior Notes
Level 2
(1)
$
499,150
$
527,780
$
498,659
$
537,180
4.900% Senior Notes
Level 3
(2)
$
299,482
$
325,411
$
299,300
$
329,435
3.950% Senior Notes
Level 2
(1)
$
495,902
$
555,460
$
495,440
$
551,930
3.600% Senior Notes
Level 2
(1)
$
495,146
$
538,850
$
494,756
$
536,110
3.000% Senior Notes
Level 2
(1)
$
590,944
$
610,830
$
590,162
$
611,616
1.700% Senior Notes
Level 2
(1)
$
495,560
$
502,340
$
—
$
—
(1)The fair value estimates are based upon observable market data.
(2)This fair value estimate is based on the Company’s indicative borrowing cost derived from discounted cash flows.
17. Commitments and Contingencies
Leases
During fiscal year 2021, the Company entered into new operating and finance leases. The future minimum lease payments under these new leases as of May 31, 2021 are summarized below.
Payments due by period (in thousands)
Total
Less than 1 year
1-3 years
3-5 years
After 5 years
Operating lease obligations
$
92,963
$
20,728
$
38,034
$
23,929
$
10,272
Finance lease obligations(1)
$
83,737
$
44,759
$
29,230
$
7,397
$
2,351
(1)As of May 31, 2021 , the future minimum lease payments exclude $154.9 million of residual value guarantees that could potentially come due in future periods. The Company does not believe it is probable that any amounts will be owed under these guarantees. Therefore, no amounts related to the residual value guarantees are included in the lease payments used to measure the right-of-use assets and lease liabilities.
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.
18. New Accounting Guidance
Recently Adopted Accounting Guidance
During fiscal year 2016, the FASB issued an accounting standard, which replaces the existing incurred loss impairment model with an expected credit loss model and requires a financial asset measured at amortized cost to be presented at the net amount expected to be collected. The Company adopted the guidance during the first quarter of fiscal year 2021. The adoption of this standard did not have a material impact on the Company’s Consolidated Financial Statements.
During fiscal year 2018, the FASB issued a new accounting standard which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This guidance was effective for the Company beginning in the first quarter of fiscal year 2021. The adoption of this standard did not have a material impact on the Company’s Consolidated Financial Statements.
Recently Issued Accounting Guidance
Recently issued accounting guidance is not applicable or did not have, or is not expected to have, a material impact to the Company.
This Quarterly Report on Form 10-Q contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Many of the forward-looking statements are located in Item 2 of this Form 10-Q under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “should,” “could,” “can,” “may,” and similar terms. Forward-looking statements are not guarantees of future performance and the Company’s actual results may differ significantly from the results discussed in the forward-looking statements. Achievement of anticipated results is subject to substantial risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from past results and those anticipated, estimated or projected. You should bear this in mind as you consider forward-looking statements, and you are cautioned not to put undue reliance on forward-looking statements. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law or by the rules and regulations of the SEC. You are advised, however, to consult any further disclosures we make on related subjects. Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended August 31, 2020 such as, the scope and duration of the COVID-19 outbreak and its impact on our operations, sites, customers and supply chain; managing growth effectively; our dependence on a limited number of customers; competitive challenges affecting our customers; managing rapid declines or increases in customer demand and other related customer challenges that may occur; risks arising from relationships with emerging companies; changes in technology; our ability to introduce new business models or programs requiring implementation of new competencies; competition; transportation issues; our ability to maintain our engineering, technological and manufacturing expertise; retaining key personnel; our ability to purchase components efficiently and reliance on a limited number of suppliers for critical components; risks associated with international sales and operations; our ability to achieve expected profitability from acquisitions; risk arising from our restructuring activities; issues involving our information systems, including security issues; regulatory risks (including the expense of complying, or failing to comply, with applicable regulations; risk arising from design or manufacturing defects; and intellectual property risk); financial risks (including customers or suppliers who become financially troubled; turmoil in financial markets; tax risks; credit rating risks; risks of exposure to debt; currency fluctuations; energy prices; and asset impairment); changes in financial accounting standards or policies; and risk of natural disaster, climate change or other global events. 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.
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 various industries and 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 encompass the act of producing tangible components that are built to customer specifications and 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.
We conduct our operations in facilities that are located worldwide, including but not limited to, China, Malaysia, Mexico, Singapore, the United States and Hungary. We derived a substantial majority, 82.7% and 83.6%, of net revenue from our international operations for the three months and nine months ended May 31, 2021, respectively. 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 a high volume business that produces product at a quicker rate (i.e. cycle time) and in larger quantities and includes customers primarily in the 5G, wireless and cloud, digital print and retail, industrial and semi-cap, and networking and storage industries. Our DMS segment is focused on providing engineering solutions, with an emphasis on material sciences, technologies and healthcare. Our DMS includes customers primarily in the automotive and transportation, connected devices, healthcare and packaging, and mobility industries.
As of September 1, 2020, certain customers have been realigned within our operating segments. Our operating segments, which are the reporting segments, continue to consist of the DMS and EMS segments. Customers within the automotive and transportation and smart home and appliances industries are now presented within the DMS segment. Prior period disclosures are restated to reflect the realignment.
We monitor the current economic environment and its potential impact on both the customers we serve as well as our end-markets and closely manage our costs and capital resources so that we can respond appropriately as circumstances change.
COVID-19
The COVID-19 pandemic, which began to impact us in January 2020, has continued to affect our business and the businesses of our customers and suppliers. Travel and business operation restrictions arising from virus containment efforts of governments around the world have continued to impact our operations in Asia, Europe and the Americas. Essential activity exceptions from these restrictions have allowed us to continue to operate but virus containment efforts have resulted in additional direct costs.
The impact on our suppliers has led to supply chain constraints, including difficulty sourcing materials necessary to fulfill customer production requirements and challenges in transporting completed products to our end customers.
Summary of Results
The following table sets forth, for the periods indicated, certain key operating results and other financial information (in thousands, except per share data):
Management regularly reviews financial and non-financial performance indicators to assess the Company’s operating results. Changes in our operating assets and liabilities are largely affected by our working capital requirements, which are dependent on the effective management of our sales cycle as well as timing of payments. Our sales cycle measures how quickly we can convert our manufacturing services into cash through sales. We believe the metrics set forth below are useful to investors in measuring our liquidity as future liquidity needs will depend on fluctuations in levels of inventory, accounts receivable and accounts payable.
The following table sets forth, for the quarterly periods indicated, certain of management’s key financial performance indicators:
Three months ended
May 31, 2021
February 28, 2021
May 31, 2020
Sales cycle(1)
25 days
25 days
27 days
Inventory turns (annualized)(2)
5 turns
6 turns
5 turns
Days in accounts receivable(3)
40 days
40 days
37 days
Days in inventory(4)
68 days
65 days
67 days
Days in accounts payable(5)
84 days
81 days
77 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 was a direct result of changes in these indicators.
(2)Inventory turns (annualized) are calculated as 360 days divided by days in inventory.
(3)Days in accounts receivable is calculated as accounts receivable, net, divided by net revenue multiplied by 90 days. During the three months ended May 31, 2021 and February 28, 2021, the increase in days in accounts receivable from the three months ended May 31, 2020 was primarily due to an increase in accounts receivable, primarily driven by higher sales and timing of collections.
(4)Days in inventory is calculated as inventory and contract assets divided by cost of revenue multiplied by 90 days. During the three months ended May 31, 2021, the increase in days in inventory from the prior sequential quarter was to support expected sales levels in the fourth quarter of fiscal year 2021.
(5)Days in accounts payable is calculated as accounts payable divided by cost of revenue multiplied by 90 days. During the three months ended May 31, 2021, the increase in days in accounts payable from the three months ended February 28, 2021 and the three months ended May 31, 2021, respectively, was primarily due to an increase for material purchases and the timing of payments.
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 an on-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 Form 10-K for the fiscal year ended August 31, 2020.
See Note 18 – “New Accounting Guidance” to the Condensed Consolidated Financial Statements for a discussion of recent accounting guidance.
Results of Operations
Net Revenue
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; efforts to diversify certain portions of 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, 2021
May 31, 2020
Change
May 31, 2021
May 31, 2020
Change
Net revenue
$
7,214.6
$
6,335.6
13.9
%
$
21,875.7
$
19,966.4
9.6
%
Net revenue increased during the three months ended May 31, 2021, compared to the three months ended May 31, 2020. Specifically, the DMS segment net revenue increased 21% due to: (i) a 7% increase in revenues from existing customers in our automotive and transportation business, (ii) a 7% increase in revenues from existing customers within our connected devices business, (iii) a 6% increase in revenue from existing customers within our healthcare and packaging business and (iv) a 1% increase in revenues from existing customers within our mobility business. The EMS segment net revenue increased 8% due to: (i) a 3% increase from existing customers within our 5G, wireless and cloud business, (ii) a 2% increase from existing customers within our networking and storage business, (iii) a 2% increase from existing customers within our digital print and retail business, and (iv) a 1% increase from an existing customer within our industrial and capital equipment business.
Net revenue increased during the nine months ended May 31, 2021, compared to the nine months ended May 31, 2020. Specifically, the DMS segment net revenue increased 19% due to: (i) a 8% increase in revenues from existing customers within our mobility business as our ability to meet customer demand during the nine months ended May 31, 2020, was greatly diminished due to COVID-19 containment efforts in China, (ii) a 5% increase in revenues from existing customers within our connected devices business, (iii) a 4% increase in revenues from existing customers in our automotive and transportation business and (iv) a 2% increase in revenues from existing customers within our healthcare and packaging business. The EMS segment net revenue remained relatively consistent.
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
May 31, 2021
May 31, 2020
May 31, 2021
May 31, 2020
EMS
50
%
53
%
48
%
52
%
DMS
50
%
47
%
52
%
48
%
Total
100
%
100
%
100
%
100
%
The following table sets forth, for the periods indicated, foreign source revenue expressed as a percentage of net revenue:
Gross profit as a percentage of net revenue increased as compared to the three months and nine months ended May 31, 2020, primarily due to: (i) product mix and improved profitability across the various businesses and (ii) a decrease in incremental and idle labor costs associated with travel disruptions and governmental restrictions, largely related to the COVID-19 pandemic of $44.3 million and $72.1 million, for the three months ended and nine months ended May 31, 2021, respectively.
Selling, General and Administrative
Three months ended
Nine months ended
(dollars in millions)
May 31, 2021
May 31, 2020
Change
May 31, 2021
May 31, 2020
Change
Selling, general and administrative
$
305.6
302.8
$
2.8
$
914.3
$
916.8
$
(2.5)
Selling, general and administrative expenses increased during the three months ended May 31, 2021, compared to the three months ended May 31, 2020. The increase is primarily due to: (i) a $17.3 million increase due to higher salary and salary related expenses and (ii) a $1.9 million increase in stock-based compensation expense due to anticipated achievement levels for certain performance-based stock awards and a higher stock price for cash-settled awards. The increase is partially offset by: (i) a $10.4 million decrease in costs related to the COVID-19 pandemic, primarily for personal protection equipment for our employees globally, and (ii) a $6.1 million decrease in acquisition and integration charges related to our strategic collaboration with a healthcare company.
Selling, general and administrative expenses decreased during the nine months ended May 31, 2021, compared to the nine months ended May 31, 2020. The decrease is primarily due to a $26.6 million decrease in acquisition and integration charges related to our strategic collaboration with a healthcare company. The decrease is partially offset by (i) a $13.9 million increase in stock-based compensation expense due to anticipated achievement levels for certain performance-based stock awards, a higher stock price for awards granted during fiscal year 2021 and a higher stock price for cash-settled awards and (ii) a $10.2 million increase due to higher salary and salary related expenses.
Research and Development
Three months ended
Nine months ended
(dollars in millions)
May 31, 2021
May 31, 2020
May 31, 2021
May 31, 2020
Research and development
$
9.7
$
11.6
$
27.1
$
33.6
Percent of net revenue
0.1
%
0.2
%
0.1
%
0.2
%
Research and development expenses remained relatively consistent as a percentage of net revenue during the three months and nine months ended May 31, 2021, compared to the three months and nine months ended May 31, 2020.
Amortization of Intangibles
Three months ended
Nine months ended
(dollars in millions)
May 31, 2021
May 31, 2020
Change
May 31, 2021
May 31, 2020
Change
Amortization of intangibles
$
12.1
$
13.2
$
(1.1)
$
35.2
$
42.9
$
(7.7)
Amortization of intangibles decreased during the three months and nine months ended May 31, 2021, compared to the three months and nine months ended May 31, 2020, primarily due to certain intangible assets that were fully amortized during fiscal year 2020.
Following is a summary of the Company’s restructuring, severance and related charges (in millions):
Three months ended
Nine months ended
May 31, 2021
May 31, 2020
May 31, 2021
May 31, 2020
Employee severance and benefit costs
$
0.5
$
56.9
$
3.2
$
83.7
Lease costs
—
0.4
(2.9)
6.9
Asset write-off costs
—
6.3
4.6
31.7
Other costs
0.2
5.6
0.8
21.7
Total restructuring, severance and related charges(1)
$
0.7
$
69.2
$
5.7
$
144.0
(1)Primarily relates to the 2020 Restructuring Plan, and includes $0.0 million and $23.7 million recorded in the EMS segment, $0.6 million and $29.3 million recorded in the DMS segment and $0.1 million and $16.2 million of non-allocated charges for the three months ended May 31, 2021 and 2020, respectively. Includes $(0.4) million and $55.8 million recorded in the EMS segment, $5.5 million and $69.0 million recorded in the DMS segment and $0.6 million and $19.2 million of non-allocated charges for the nine months ended May 31, 2021 and 2020, respectively. Except for asset write-off costs, all restructuring, severance and related charges are cash costs.
See Note 12 – “Restructuring, Severance and Related Charges” to the Condensed Consolidated Financial Statements for further discussion of restructuring, severance and related charges for the 2020 Restructuring Plan.
(Gain) Impairment on Securities
Three months ended
Nine months ended
(dollars in millions)
May 31, 2021
May 31, 2020
Change
May 31, 2021
May 31, 2020
Change
(Gain) impairment on securities
$
(2.4)
$
—
$
(2.4)
$
(2.4)
$
12.2
$
(14.6)
`
The change in (gain) impairment on securities for the three months ended May 31, 2021 compared to the three months ended May 31, 2020 is due to cash proceeds received in connection with the sale of an investment. For the nine months ended May 31, 2021 compared to the nine months ended May 31, 2020, the cash proceeds were partially offset by a non-cash impairment charge incurred in connection with the sale of an investment in the optical networking segment during fiscal year 2020.
Other (Income) Expense
Three months ended
Nine months ended
(dollars in millions)
May 31, 2021
May 31, 2020
Change
May 31, 2021
May 31, 2020
Change
Other (income) expense
$
(3.4)
$
5.6
$
(9.0)
$
(6.8)
$
25.3
$
(32.1)
The change in other (income) expense for the three months ended May 31, 2021 compared to the three months ended May 31, 2020, is primarily due to: (i) $5.3 million related to a decrease in fees associated with lower utilization of the trade accounts receivable sales programs, (ii) $2.9 million related to lower net periodic benefit costs and (iii) $0.8 million arising from an increase in other income.
The change in other (income) expense for the nine months ended May 31, 2021 compared to the nine months ended May 31, 2020, is primarily due to: (i) $20.8 million related to a decrease in fees associated with lower utilization of the trade accounts receivable sales programs, (ii) $9.9 million related to lower net periodic benefit costs and (iii) $1.4 million arising from an increase in other income.
Interest Income
Three months ended
Nine months ended
(dollars in millions)
May 31, 2021
May 31, 2020
Change
May 31, 2021
May 31, 2020
Change
Interest income
$
1.6
$
1.9
$
(0.3)
$
5.1
$
13.1
$
(8.0)
Interest income decreased during the three months and nine months ended May 31, 2021, compared to the three months and nine months ended May 31, 2020, primarily due to lower interest rates on cash equivalents (investments that are readily convertible to cash with maturity dates of 90 days or less).
Interest expense decreased during the three months and nine months ended May 31, 2021, compared to the three months and nine months ended May 31, 2020 due to lower interest rates and lower borrowings on our credit facilities and commercial paper program.
Income Tax Expense
Three months ended
Nine months ended
May 31, 2021
May 31, 2020
Change
May 31, 2021
May 31, 2020
Change
Effective income tax rate
20.3
%
465.0
%
(444.7)
%
26.0
%
108.3
%
(82.3)
%
The effective income tax rate decreased for the three months and nine months ended May 31, 2021, compared to the three months and nine months ended May 31, 2020, primarily due to: (i) increased income for the three months and nine months ended May 31, 2021, driven in part by decreased restructuring charges in tax jurisdictions with minimal related income tax benefit and (ii) a $21.2 million income tax expense associated with the re-measurement of deferred tax assets related to an extension of a non-U.S. tax incentive recorded during the three months ended May 31, 2020.
Non-GAAP (Core) Financial Measures
The following discussion and analysis of our financial condition and results of operations include certain non-GAAP financial measures as identified in the reconciliations below. The non-GAAP financial measures disclosed herein do not have standard meaning and may vary from the non-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 indication by us that our future results will be unaffected by those items that are excluded from our “core” financial measures.
Management believes that the non-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, severance and related charges, distressed customer charges, acquisition and 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, (gain) 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 uses non-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” diluted earnings per share based upon evaluation of the statutory tax treatment and the applicable tax rate of the jurisdiction in which the pre-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 cash flow 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, severance 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 a non-cash expense, the associated stock issued may result in an increase in our outstanding shares of stock, which may result in the dilution of our stockholders’ ownership interest. We encourage you to consider these matters when evaluating the utility of these non-GAAP financial measures.
Adjusted free cash flow is defined as net cash provided by (used in) operating activities plus cash receipts on sold receivables less net capital expenditures (acquisition of property, plant and equipment less proceeds and advances from the sale of property, plant and equipment). We report adjusted free cash flow as we believe this non-GAAP financial measure is useful to investors in measuring our ability to generate cash internally and fund future growth and to provide a return to shareholders.
Included in the tables below are reconciliations of the non-GAAP financial measures to the most directly comparable U.S. GAAP financial measures as provided in our Condensed Consolidated Financial Statements:
Reconciliation of U.S. GAAP Financial Results to Non-GAAP Measures
Three months ended
Nine months ended
(in thousands, except for per share data)
May 31, 2021
May 31, 2020
May 31, 2021
May 31, 2020
Operating income (U.S. GAAP)
$
239,774
$
59,384
$
790,074
$
302,793
Amortization of intangibles
12,066
13,178
35,160
42,895
Stock-based compensation expense and related charges
18,765
16,882
76,119
62,214
Restructuring, severance and related charges
744
69,150
5,655
144,005
Distressed customer charge (1)
—
—
—
14,963
Net periodic benefit cost (2)
5,534
2,797
16,850
7,398
Business interruption and impairment charges, net
—
4,574
(806)
4,574
Acquisition and integration charges (3)
—
6,119
3,374
30,005
Adjustments to operating income
37,109
112,700
136,352
306,054
Core operating income (Non-GAAP)
$
276,883
$
172,084
$
926,426
$
608,847
Net income (loss) attributable to Jabil Inc. (U.S. GAAP)
$
169,480
$
(50,958)
$
521,576
$
(13,819)
Adjustments to operating income
37,109
112,700
136,352
306,054
(Gain) impairment on securities
(2,409)
—
(2,409)
12,205
Net periodic benefit cost (2)
(5,534)
(2,797)
(16,850)
(7,398)
Adjustments for taxes
(584)
(2,422)
(1,732)
1,166
Core earnings (Non-GAAP)
$
198,062
$
56,523
$
636,937
$
298,208
Diluted earnings (loss) per share (U.S. GAAP)
$
1.12
$
(0.34)
$
3.41
$
(0.09)
Diluted core earnings per share (Non-GAAP)
$
1.30
$
0.37
$
4.17
$
1.93
Diluted weighted average shares outstanding (U.S. GAAP)
151,976
150,723
152,838
151,956
Diluted weighted average shares outstanding (Non-GAAP)
151,976
152,693
152,838
154,412
(1)Relates to accounts receivable and inventory charges for certain distressed customers in the renewable energy sector during the nine months ended May 31, 2020.
(2)Following the adoption of Accounting Standards Update 2017-07, Compensation - Retirement Benefits (Topic 715) (“ASU 2017-07”), pension service cost is recognized in cost of revenue and all other components of net periodic benefit cost, including return on plan assets, are presented in other expense. We are reclassifying the pension components in other expense to core operating income as we assess operating performance, inclusive of all components of net periodic benefit cost, with the related revenue. There is no impact to core earnings or diluted core earnings per share for this adjustment..
(3)Charges related to our strategic collaboration with Johnson & Johnson Medical Devices Companies (“JJMD”).
Adjusted Free Cash Flow
Nine months ended
(in thousands)
May 31, 2021
May 31, 2020
Net cash provided by operating activities (U.S. GAAP)
$
670,860
$
570,726
Acquisition of property, plant and equipment
(878,020)
(648,945)
Proceeds and advances from sale of property, plant and equipment
During fiscal year 2018, 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 October 26, 2020, under the terms of the framework agreement, we completed the fourth closing of our acquisition of certain assets of JJMD. The aggregate purchase price paid for the fourth closing was approximately $18.9 million in cash. Total assets acquired of $29.8 million and total liabilities assumed of $10.9 million were recorded at their estimated fair values as of the acquisition date.
The acquisition of the JJMD assets was accounted for as a business combination using the acquisition method of accounting. The Company is currently evaluating the fair value of the assets and liabilities related to the fourth closing. 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 our condensed consolidated financial results beginning on October 26, 2020 for the fourth closing. We believe it is impracticable to provide pro forma information for the acquisition of the JJMD assets.
Liquidity and Capital Resources
We believe that our level of liquidity sources, which includes available borrowings under our revolving credit facilities and commercial paper program, additional proceeds available under our North American asset-backed securitization program 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, any share repurchases under the approved program, 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.
Cash and Cash Equivalents
As of May 31, 2021, we had approximately $1.2 billion 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. Most of our cash and cash equivalents as of May 31, 2021 could be repatriated to the United States without potential tax expense.
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)
4.700% Senior Notes
4.900% Senior Notes
3.950% Senior Notes
3.600% Senior Notes
3.000% Senior Notes
1.700% Senior Notes (1)
Borrowings
under
revolving
credit
facilities (2)(3)
Borrowings
under
loans(1)
Total notes payable and credit facilities
Balance as of August 31, 2020
$
498,659
$
299,300
$
495,440
$
494,756
$
590,162
$
—
$
—
$
350,165
$
2,728,482
Borrowings
—
—
—
—
—
499,905
581,581
—
1,081,486
Payments
—
—
—
—
—
—
(581,581)
(300,138)
(881,719)
Other
491
182
462
390
782
(4,345)
—
556
(1,482)
Balance as of May 31, 2021
$
499,150
$
299,482
$
495,902
$
495,146
$
590,944
$
495,560
$
—
$
50,583
$
2,926,767
Maturity Date
Sep 15, 2022
Jul 14, 2023
Jan 12, 2028
Jan 15, 2030
Jan 15, 2031
Apr 15, 2026
Jan 22, 2024 and Jan 22, 2026
Jun 23, 2021
Original Facility/ Maximum Capacity
$500.0 million
$300.0 million
$500.0 million
$500.0 million
$600.0 million
$500.0 million
$3.8 billion(2)(3)
$51.9 million(1)
(1)On April 14, 2021, we issued $500.0 million of publicly registered 1.700% Senior Notes due 2026 (the “1.700% Senior Notes”). We used the net proceeds for general corporate purposes, including repayment of the prior $300.0 million Term Loan Facility.
(2)On April 28, 2021, we entered into an amendment (the “Amendment”) to our senior unsecured credit agreement dated as of January 22, 2020 (the “Credit Facility”). The Amendment, among other things, (i) increased the commitments available under the three-year revolving credit facility (the “Three-Year Revolving Credit Facility”) from
$700.0 million to $1.2 billion, (ii) instituted certain sustainability-linked adjustments to the interest rates applicable to borrowings under the Credit Facility and (iii) primarily extended the termination date of the Three-Year Revolving Credit Facility to January 22, 2024, and of the Five-Year Revolving Credit Facility of $2.0 billion to January 22, 2026.
(3)As of May 31, 2021, we had $3.8 billion in available unused borrowing capacity under our revolving credit facilities. The Credit Facility acts as the back-up facility for commercial paper outstanding, if any. We have a borrowing capacity of up to $1.8 billion under our commercial paper program.
We 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 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, 2021 and August 31, 2020, we were in compliance with our debt covenants. Refer to Note 4 – “Notes Payable and Long-Term Debt” to the Condensed Consolidated Financial Statements for further details.
Asset-Backed Securitization Programs
We continuously sell designated pools of trade accounts receivable, at a discount, under our North American asset-backed securitization program to a special purpose entity, which in turn sells certain of the receivables to conduits administered by an unaffiliated financial institution on a monthly basis.
Certain unsold receivables covering the maximum amount of net cash proceeds available under the North American asset-backed securitization program are pledged as collateral to the unaffiliated financial institution as of May 31, 2021.
Following is a summary of our asset-backed securitization programs and key terms:
Maximum Amount of Net Cash Proceeds (in millions)(1)
Expiration Date
North American
$
390.0
November 22, 2021
Foreign
$
400.0
(2)
(1)Maximum amount available at any one time.
(2)We terminated the foreign asset-backed securitization program on June 28, 2021. In connection with the termination, we paid approximately $167.0 million in cash, which consisted of a remittance of collections received prior to that date in our role as servicer of sold receivables, and a repurchase at fair value of all previously sold receivables that remained outstanding as of that date. We expect to receive payment on the repurchased receivables from the related customers during the fourth quarter of fiscal year 2021.
In connection with our asset-backed securitization programs, during the three months and nine months ended May 31, 2021, we sold $1.1 billion and $3.4 billion, respectively, of trade accounts receivable and we received cash proceeds of $1.1 billion and $3.4 billion, respectively. As of May 31, 2021, we had up to $148.5 million in available liquidity under our asset-backed securitization programs, of which all available liquidity related to the foreign asset-backed securitization program.
Our asset-backed securitization programs contain various financial and nonfinancial covenants. As of May 31, 2021 and August 31, 2020, we were in compliance with all covenants under our asset-backed securitization programs. Refer to Note 5 – “Asset-Backed Securitization Programs” to the Condensed Consolidated Financial Statements for further details on the programs.
Trade Accounts Receivable Sale Programs
Following is a summary of the 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:
(1)Maximum amount of trade accounts receivable that may be sold under a facility at any one time.
(2)The program will be automatically extended through December 5, 2025 unless either party provides 30 days notice of termination.
(3)Any party may elect to terminate the agreement upon 30 days prior notice.
(4)The program will be automatically extended through January 25, 2023 unless either party provides 30 days notice of termination.
(5)Any party may elect to terminate the agreement upon 15 days prior notice.
(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 through December 5, 2024 unless either party provides 30 days notice of termination.
(9)The program will be automatically extended through April 11, 2025 unless either party provides 30 days notice of termination.
During the three months and nine months ended May 31, 2021, we sold $1.0 billion and $3.6 billion, respectively, of trade accounts receivable under these programs and we received cash proceeds of $1.0 billion and $3.6 billion, respectively. As of May 31, 2021, we had up to $1.6 billion in available liquidity under our trade accounts receivable sale programs.
Capital Expenditures
For Fiscal Year 2021, we anticipate our net capital expenditures will be approximately $800.0 million. In general, our capital expenditures support ongoing maintenance in our DMS and EMS segments and investments in capabilities and targeted end markets. 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 (in thousands):
Nine months ended
May 31, 2021
May 31, 2020
Net cash provided by operating activities
$
670,860
$
570,726
Net cash used in investing activities
(644,232)
(679,463)
Net cash used in financing activities
(177,141)
(259,592)
Effect of exchange rate changes on cash and cash equivalents
Net cash provided by operating activities during the nine months ended May 31, 2021 was primarily due to non-cash expenses, an increase in accounts payable, accrued expenses and other liabilities and net income, partially offset by: an increase in inventories, accounts receivable and prepaid expenses and other current assets. The increase in accounts payable, accrued expenses and other liabilities is primarily due to the timing of purchases and cash payments. The increase in inventories is primarily to support expected sales levels in the fourth quarter of fiscal year 2021. The increase in accounts receivable is primarily driven by higher sales and the timing of collections. The increase in prepaid expenses and other current assets is primarily due to the timing of payments.
Investing Activities
Net cash used in investing activities during the nine months ended May 31, 2021 consisted primarily of capital expenditures, principally to support ongoing business in the DMS and EMS segments and expenditures in connection with the acquisition of certain assets of JJMD and the acquisition of Ecologic, partially offset by proceeds and advances from the sale of property, plant and equipment.
Financing Activities
Net cash used in financing activities during the nine months ended May 31, 2021 was primarily due to (i) payments for debt agreements, (ii) the repurchase of our common stock under our share repurchase authorization, (iii) dividend payments and (iv) the purchase of treasury stock under employee stock plans. Net cash used in financing activities was partially offset by (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.
Contractual Obligations
As of the date of this report, other than the borrowings on the 1.700% Senior Notes, the amended Credit Facility, (see Note 4 - “Notes Payable and Long-Term Debt” to the Condensed Consolidated Financial Statements) and the new operating and finance leases, (see Note 17 – “Commitments and Contingencies” to the Condensed Consolidated Financial Statements), there were no other material changes outside the ordinary course of business since August 31, 2020 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 and global economic conditions.
In September 2019, the Board of Directors authorized the repurchase of up to $600.0 million of our common stock as a part of a two-year capital allocation framework (the “2020 Share Repurchase Program”). As of May 31, 2021, 11.9 million shares had been repurchased for $475.6 million and $124.4 million remains available under the 2020 Share Repurchase Program. The 2020 Share Repurchase Program expires at the end of fiscal year 2021.
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 on Form 10-K for the fiscal year ended August 31, 2020.
Item 4.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation required by Rules 13a-15 and 15d-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 in Rules 13a-15 and 15d-15 under the Exchange Act as of May 31, 2021. 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, 2021, 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.
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 Form 10-K for the fiscal year ended August 31, 2020. For further information on our forward-looking statements see Part I of this Quarterly Report on Form 10-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, 2021:
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, 2021 - March 31, 2021
853,574
$
46.01
853,574
$
214,857
April 1, 2021 - April 30, 2021
750,156
$
53.71
748,265
$
174,666
May 1, 2021 - May 31, 2021
947,413
$
53.18
945,868
$
124,367
Total
2,551,143
$
50.94
2,547,707
(1)The purchases include amounts that are attributable to 3,436 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.
(2)In September 2019, our Board of Directors authorized the repurchase of up to $600.0 million of our common stock as publicly announced in a press release on September 24, 2019 (the “2020 Share Repurchase Program”).
The following financial information from Jabil’s Quarterly Report on Form 10-Q for the quarterly period ended May 31, 2021, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets as of May 31, 2021 and August 31, 2020, (ii) Condensed Consolidated Statements of Operations for the three months and nine months ended May 31, 2021 and 2020, (iii) Condensed Consolidated Statements of Comprehensive Income for the three months and nine months ended May 31, 2021 and 2020, (iv) Condensed Consolidated Statements of Stockholders’ Equity for the three months and nine months ended May 31, 2021 and 2020, (v) Condensed Consolidated Statements of Cash Flows for the nine months ended May 31, 2021 and 2020, and (vi) the Notes to Condensed Consolidated Financial Statements.
Cover Page Interactive Data File - Embedded within the inline XBRL Document
†
Indicates management compensatory plan, contract or arrangement
*
Filed or furnished herewith
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 Regulation S-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.
