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6: EX-10.5 Material Contract HTML 134K
7: EX-31.1 Certification -- §302 - SOA'02 HTML 32K
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9: EX-32.1 Certification -- §906 - SOA'02 HTML 26K
10: EX-32.2 Certification -- §906 - SOA'02 HTML 26K
16: R1 Cover Page HTML 77K
17: R2 Condensed Consolidated Balance Sheets HTML 153K
18: R3 Condensed Consolidated Balance Sheets HTML 49K
(Parenthetical)
19: R4 Condensed Consolidated Statements of Operations HTML 120K
20: R5 Condensed Consolidated Statements of Comprehensive HTML 72K
Income
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Equity
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23: R8 Basis of Presentation HTML 28K
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28: R13 Asset-Backed Securitization Program HTML 60K
29: R14 Accrued Expenses HTML 35K
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31: R16 Derivative Financial Instruments and Hedging HTML 54K
Activities
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33: R18 Stockholders' Equity HTML 49K
34: R19 Concentration of Risk and Segment Data HTML 79K
35: R20 Income Taxes HTML 36K
36: R21 Earnings Per Share and Dividends HTML 41K
37: R22 Fair Value Measurements HTML 90K
38: R23 Commitments and Contingencies HTML 27K
39: R24 New Accounting Guidance HTML 36K
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Accounts Receivable Sale Programs Amounts
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65: R50 Derivative Financial Instruments and Hedging HTML 38K
Activities (Additional Information) (Details)
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(Exact name of registrant as specified in its charter)
iDelaware
i38-1886260
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
i10800 Roosevelt Boulevard North, iSt. Petersburg, iFloridai33716
(Address of principal executive offices) (Zip Code)
(i727) i577-9749
(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
iCommon Stock, $0.001 par value per share
iJBL
iNew 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. iYes☒ 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). iYes☒ 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.
iLarge accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging growth company
i☐
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 i☐ No ☒
Current installments of notes payable and long-term debt
$
i500
$
i—
Accounts payable
i7,483
i6,841
Accrued expenses
i3,871
i3,734
Current operating lease liabilities
i111
i108
Total current liabilities
i11,965
i10,683
Notes payable and long-term debt, less current installments
i2,379
i2,878
Other liabilities
i332
i334
Non-current operating lease liabilities
i403
i333
Income tax liabilities
i189
i178
Deferred income taxes
i113
i111
Total liabilities
i15,381
i14,517
Commitments and contingencies
i
i
Equity:
Jabil Inc. stockholders’ equity:
Preferred stock, $ii0.001/
par value, authorized ii10,000,000/
shares; iino/ shares issued and iino/
shares outstanding
i—
i—
Common stock, $ii0.001/
par value, authorized ii500,000,000/ shares;
i269,843,564 and i267,418,092 shares issued and i144,166,009
and i144,496,077 shares outstanding as of November 30, 2021 and August 31, 2021, respectively
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.
iBasis 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. Jabil Inc. (the “Company”) has made certain reclassification adjustments to conform prior periods’ Condensed Consolidated Financial Statements to the current presentation. The accompanying unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and footnotes included in the Annual Report on Form 10-K of Jabil Inc. (the “Company”) for the fiscal year ended August 31, 2021. Results for the three months ended November 30, 2021 are not necessarily an indication of the results that may be expected for the full fiscal year ending August 31, 2022.
2.
iTrade Accounts Receivable Sale Programs
The Company regularly sells designated pools of high credit quality trade accounts receivable, at a discount, 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.
As of November 30, 2021, the Company may elect to sell receivables and the unaffiliated financial institution may elect to purchase specific accounts receivable at any one time up to a: (i) maximum aggregate amount available of $i2.0 billion under inine
trade accounts receivable sale programs, (ii) maximum amount available of i400 million CNY under ione
trade accounts receivable sale program and (iii) maximum amount available of i100 million CHF under ione
trade accounts receivable sale program. The trade accounts receivable sale programs expire on various dates through 2025.
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 the trade accounts receivable sale programs recognized during the three months ended November 30, 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.
i
In connection with the trade accounts receivable sale programs, the Company recognized the following (in millions):
(1)Receivables sold 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.
(2)Recorded to other expense within the Condensed Consolidated Statement of Operations.
/
3. iInventories
i
Inventories
consist of the following (in millions):
During fiscal year 2022, the Company entered into new operating and finance leases. iiThe
future minimum lease payments under these new leases as of November 30, 2021 were as follows (in millions):/
Payments due by period (in millions)
Total
Less than 1 year
1-3 years
3-5 years
After 5 years
Operating lease obligations(1)
$
i118
$
i18
$
i34
$
i28
$
i38
Finance lease obligations(1)
$
i48
$
i24
$
i24
$
i—
$
i—
(1)Excludes $i28 million of payments related to leases signed but not yet commenced. Additionally, certain leases signed but not yet commenced contain residual value guarantees and purchase options not deemed probable.
Less current installments of notes payable and long-term debt
i500
i—
Notes payable and long-term debt, less current installments
$
i2,379
$
i2,878
/
(1)As of November 30, 2021, the Company has $i3.8 billion in available unused borrowing capacity under its revolving credit facilities. The senior unsecured credit agreement dated as of January 22, 2020 and amended on April
28, 2021 (the “Credit Facility”) acts as the back-up facility for commercial paper outstanding, if any. The Company has a borrowing capacity of up to $i1.8 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 i4.900% 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 i4.700%, i4.900%,
i3.950%, i3.600%, i3.000%
or i1.700% Senior Notes upon a change of control. As of November 30, 2021 and August 31, 2021, the Company was in compliance with its debt covenants.
Fair Value
Refer to Note 15 – “Fair Value Measurements” for the estimated fair values of the
Company’s notes payable and long-term debt.
6. Asset-Backed Securitization Program
Certain Jabil entities participating in the global asset-backed securitization program continuously sell designated pools of trade accounts receivable to a special purpose entity, which in turn sells certain of the receivables at a discount to conduits administered by an unaffiliated financial institution on a monthly basis. In addition, a foreign entity participating in the global
asset-backed
securitization program sells certain receivables at a discount to conduits administered by an unaffiliated financial institution on a daily basis. The Company terminated the foreign asset-backed securitization program on June 28, 2021.
The Company continues servicing the receivables sold and in exchange receives a servicing fee under the global asset-backed securitization program. Servicing fees related to the asset-backed securitization programs recognized during the three months ended November 30, 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.
The special purpose entity in the global 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 up to the maximum amount of net cash proceeds available under the domestic, or U.S., portion of the global asset-backed securitization program are pledged as collateral to the unaffiliated
financial institution as of November 30, 2021.
The global asset-backed securitization program expires on November 25, 2024 and the maximum amount of net cash proceeds available at any one time is $i600 million. As of November 30, 2021, the
Company had ino available liquidity under its global asset-backed securitization program.
i
In
connection with the asset-backed securitization program, the Company recognized the following (in millions):
(1)Receivables sold 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.
(2)The amounts primarily represent proceeds from collections reinvested in revolving-period transfers.
(3)Recorded to other expense within the Condensed Consolidated Statements of Operations.
(4)Activity includes the foreign asset-backed securitization program which terminated on June 28, 2021.
/
The
global asset-backed securitization program requires compliance with several covenants including compliance with the interest ratio and debt to EBITDA ratio of the Credit Facility. As of November 30, 2021 and August 31, 2021, the Company was in compliance with all covenants under the global asset-backed securitization program.
7. iAccrued
Expenses
i
Accrued expenses consist of the following (in millions):
(1)Revenue recognized during the three months ended November 30, 2021 and 2020 that was included in the contract liability balance as of August 31, 2021and 2020was $i98
million and $i170 million, respectively.
/
8. iPostretirement
and Other Employee Benefits
Net Periodic Benefit Cost
iThe following table provides information about the net periodic benefit cost for all plans for the three months ended November 30, 2021 and 2020 (in millions):
(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.
(3)Actuarial gains and losses are amortized using a corridor approach. The gain/loss corridor is equal to ii10/
percent of the greater of the projected benefit obligation and the fair value of plan assets. Gains and losses in excess of the corridor are generally amortized over the average future working lifetime of the plan participants.
9. iDerivative 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 $i1.3 billion and $i1.5
billion as of November 30, 2021 and August 31, 2021, 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 December 1, 2021 and November 30, 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 November 30, 2021 and August 31, 2021, was $i3.5
billion and $i3.6 billion, respectively.
Refer to Note 15 – “Fair Value Measurements” for the fair values and classification of the Company’s derivative instruments.
The gains and losses recognized in earnings due to 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.
i
The
following table presents the gains from forward contracts recorded in the Condensed Consolidated Statements of Operations for the periods indicated (in millions):
Derivatives Not Designated as Hedging Instruments Under ASC 815
Location of Gain on Derivatives Recognized in Net Income
Amount of Gain Recognized in Net Income on Derivatives
(1)For the three months ended November 30, 2021 and 2020, the Company recognized $i27 million and $i73 million,
respectively, of foreign currency losses in cost of revenue, which are offset by the gains from the forward foreign exchange contracts.
The Company periodically enters into interest rate swaps to manage interest rate risk associated with the
Company’s borrowings.
Cash Flow Hedges
i
The following table presents the interest rate swaps outstanding as of November 30, 2021, which have been designated as hedging instruments and accounted for as cash flow hedges:
(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 i3.000%
Notes in July 2020, the Company amended interest rate swap agreements with a notional value of $i200.0 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”). The change in fair value of the 2020 Extended Interest Rate Swaps and Offsetting Interest Rate Swaps is recorded in the Consolidated Statements of Income through the maturity date as an adjustment to interest expense.
10. iAccumulated Other Comprehensive Income
i
The
following table sets forth the changes in accumulated other comprehensive income (“AOCI”), net of tax, by component for the three months ended November 30, 2021 (in millions):
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 millions):
(1)The Company expects to reclassify $i7 million into earnings during the next twelve months, which will primarily be classified as a component of cost of revenue.
(2)Amounts are included in the computation of net periodic benefit pension cost. Refer to Note 8 – “Postretirement and Other Employee Benefits” for additional information.
(3)Amounts are net of tax, which are immaterial for the three months ended November 30, 2021 and 2020.
11. iStockholders’
Equity
i
The Company recognized stock-based compensation expense within selling, general and administrative expense as follows (in millions):
As of November 30, 2021, the shares available to be issued under the 2021 Equity Incentive Plan were i9,852,269.
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 ithree years. The performance-based restricted stock units generally vest on a cliff vesting schedule over ithree
years and up to a maximum of i150%, 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 ithree years and up to a maximum of i200%,
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 three months ended November 30, 2021 and 2020, the Company awarded approximately i0.7
million and i1.1 million time-based restricted stock units, respectively, i0.2
million and i0.3 million performance-based restricted stock units, respectively, and i0.2
million and i0.3 million market-based restricted stock units, respectively.
i
The
following represents the stock-based compensation information as of the period indicated (in millions):
Purchases of treasury stock under employee stock plans
(i690,555)
(i601,406)
Treasury shares purchased(1)
(i2,064,985)
(i1,474,464)
Ending balances
i144,166,009
i150,471,570
/
(1)In July 2021, the Board of Directors approved an authorization for the repurchase of up to $i1.0 billion of the Company’s common stock (“the 2022 Share Repurchase Program”). As of November 30, 2021, i2.8
million shares had been repurchased for $i169 million and $i831 million remains available
under the 2022 Share Repurchase Program.
Sales of the Company’s products are concentrated among specific customers. During the three months ended November 30, 2021, the Company’s five largest customers accounted for approximately i49% of its net revenue and 74 customers accounted for approximately i90%
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. Certain items are excluded from the calculation of segment income. Transactions between operating segments are generally recorded at amounts that approximate those at which we would transact with third parties.
i
The following table sets forth operating segment information (in millions):
The Company operates in more than i30 countries worldwide. Sales to unaffiliated customers are based on the Company location that maintains
the customer relationship and transacts the external sale. iThe following table sets forth, for the periods indicated, foreign source revenue expressed as a percentage of net revenue:
The effective income tax rate decreased for the three months ended November 30, 2021, compared to the three months ended November 30, 2020, primarily due to decreased losses in tax jurisdictions with existing valuation allowances for the three months ended November 30, 2021.
The effective income tax rate differed from the U.S. federal statutory income tax rate of 21.0% during the three months ended November 30, 2021 and 2020,
primarily due to: (i) losses in tax jurisdictions with existing valuation allowances and (ii) tax incentives granted to sites in China, Malaysia, Singapore and Vietnam.
14. iEarnings 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.
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. iPotential 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):
The following table sets forth cash dividends declared by the Company to common stockholders during the three months ended November 30, 2021 and 2020 (in millions, except for per share data):
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:
Derivatives designated as hedging instruments (Note 9)
Level 2
(2)
$
i5
$
i6
Derivatives not designated as hedging instruments (Note 9)
Level 2
(2)
i10
i9
Interest rate swaps:
Derivatives not designated as hedging instruments (Note 9)
Level 2
(3)
i3
i3
Extended interest rate swap not designated as a hedging instrument (Note 9)
Level 2
(4)
i9
i10
Other liabilities:
Forward interest rate swap:
Derivatives designated as hedging instruments (Note 9)
Level 2
(3)
i6
i7
(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
i
The following table presents the assets held for sale:
(1)The fair value of assets held for sale exceeds the carrying value for $i30 million of assets held for sale. For $i31 million
of assets held for sale, the carrying value approximates the fair value with the asset value measured using Level 2 inputs.
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. iThe
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:
(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.
16. iCommitments
and Contingencies
Legal Proceedings
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.
17. iNew
Accounting Guidance
i
New accounting guidance adopted during the period did not have a material impact to the Company.
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, 2021 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 currently depend, and expect to continue to depend for the foreseeable future, 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, Ireland, Malaysia, Mexico, Singapore and the United States. We
derived a substantial majority, 84.8% of net revenue, from our international operations for the three months ended November 30, 2021. 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 segment includes customers primarily in the automotive and transportation, connected devices, healthcare and packaging, and mobility industries.
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.
Refer to Item 7. "Management's Discussion and Analysis
of Financial Condition and Results of Operations" section contained in our Annual Report on Form 10-K for the fiscal year ended August 31, 2021 for further discussion of the items disclosed in Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations" section as of November 30, 2021 contained herein.
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 millions, 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:
(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 November 30, 2021, the increase in days in accounts receivable from the prior sequential quarter 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 November 30, 2021, the decrease in days in inventory from the prior sequential quarter was due to increased sales activity during the quarter. During the three months ended November 30, 2021, the increase in days in inventory from the three months ended November 30, 2020 was primarily due to supply chain constraints and increased materials purchases to support expected sales levels in the second quarter of fiscal year 2022.
(5)Days in
accounts payable is calculated as accounts payable divided by cost of revenue multiplied by 90 days. During the three months ended November 30, 2021, the decrease in days in accounts payable from the prior sequential quarter was primarily due to timing of purchases and cash payments during the quarter. During the three months ended November 30, 2021, the increase in days in accounts payable from the three months ended November 30, 2020 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, 2021.
Recent Accounting Pronouncements
See Note 17 – “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.
Net revenue increased during the three months ended November 30, 2021, compared to the three months ended November 30, 2020. Specifically, the DMS segment net revenue increased 11% due to: (i) a 6% increase in revenues from existing customers within our mobility business, (ii) a 4% increase in revenues from existing customers in our automotive and transportation business, and (iii) a 3% increase in revenue from existing customers within our healthcare and packaging business. The increase is partially offset by a 2% decrease in revenues from existing customers within our connected devices business. The EMS segment net revenue increased 7% due to: (i) a 4% increase from existing customers within our industrial and capital equipment business, (ii) a 4% increase from existing customers within
our 5G, wireless and cloud business, and (iii) a 2% increase from existing customers within our digital print and retail business. The increase is partially offset by a 3% decrease from existing customers within our networking and storage business.
The following table sets forth, for the periods indicated, revenue by segment expressed as a percentage of net revenue:
Gross profit as a percentage of net revenue decreased for the three months ended November 30, 2021 compared to the three months ended November 30, 2020, primarily due to product mix for the DMS segment.
Selling, general and administrative expenses remained relatively consistent during the three months ended November 30, 2021, compared to the three months ended November 30, 2020.
Research and development expenses remained relatively consistent as a percentage of net revenue during the three months ended November 30, 2021, compared to the three months ended November 30, 2020.
Amortization of intangibles remained relatively consistent during the three months ended November 30, 2021, compared to the three months ended November 30, 2020.
Restructuring, severance and related charges remained relatively consistent during the three months ended November 30, 2021, compared to the three months ended November 30, 2020. The 2021 Restructuring Plan was complete as of August 31, 2021.
Other expense (income) remained relatively consistent during the three months ended November 30, 2021 compared to the three months ended November 30, 2020.
The effective income tax rate decreased for the three months ended November 30, 2021, compared to the three months ended November 30, 2020, primarily due to decreased losses in tax jurisdictions with existing valuation allowances for the three months ended November 30, 2021.
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. 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. 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.
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.
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:
Stock-based compensation expense and related charges
35
34
Restructuring, severance and related charges
—
(1)
Net periodic benefit cost (1)
7
5
Acquisition and integration charges (2)
—
2
Adjustments to operating income
50
51
Core operating income (Non-GAAP)
$
400
$
365
Net income attributable to Jabil Inc. (U.S. GAAP)
$
241
$
200
Adjustments to operating income
50
51
Net periodic benefit cost (1)
(7)
(5)
Adjustments for taxes
—
(1)
Core earnings (Non-GAAP)
$
284
$
245
Diluted earnings per share (U.S. GAAP)
$
1.63
$
1.31
Diluted core earnings per share (Non-GAAP)
$
1.92
$
1.60
Diluted weighted average shares outstanding (U.S. GAAP and Non-GAAP)
147.7
152.9
(1)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.
(2)Charges related to our strategic collaboration with Johnson & Johnson Medical Devices Companies (“JJMD”).
Net cash (used in) provided by operating activities (U.S. GAAP)
$
(46)
$
65
Acquisition of property, plant and equipment
(281)
(353)
Proceeds and advances from sale of property, plant and equipment
208
111
Adjusted free cash flow (Non-GAAP)
$
(119)
$
(177)
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 global asset-backed securitization program and under our uncommitted trade accounts receivable sale programs, cash on hand, cash flows provided by operating activities and access to the capital markets, will be adequate to fund our cash requirements, including 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 and beyond. We continue to assess our capital structure
and evaluate the merits of redeploying available cash.
Cash and Cash Equivalents
As of November 30, 2021, we had approximately $1.2 billion in cash and cash equivalents, of which a significant portion was held by our foreign subsidiaries. Most of our foreign cash and cash equivalents as of November 30, 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:
(1)As of November 30, 2021, we had $3.8 billion in available unused borrowing capacity under our revolving credit facilities. The senior unsecured credit agreement dated as of January 22, 2020 and amended on April 28, 2021 (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. Borrowings with an original maturity of 90 days or less are recorded net within the statement of cash flows, and have been excluded from the table above.
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 November 30, 2021 and August 31, 2021, we were in compliance with our debt covenants. Refer to Note 5 – “Notes Payable and Long-Term Debt” to the Condensed Consolidated Financial Statements for further details.
Global Asset-Backed Securitization Program
Certain Jabil entities participating in the global
asset-backed securitization program continuously sell designated pools of trade accounts receivable to a special purpose entity, which in turn sells certain of the receivables at a discount to conduits administered by an unaffiliated financial institution on a monthly basis. In addition, a foreign entity participating in the global asset-backed securitization program sells certain receivables at a discount to conduits administered by an unaffiliated financial institution on a daily basis.
We continue servicing the receivables sold and in exchange receive a servicing fee under the global asset-backed securitization program. Servicing fees related to the asset-backed securitization programs recognized during the three months ended November 30, 2021 and 2020 were not material. We do not record a servicing asset or liability on
the Condensed Consolidated Balance Sheets as we estimate that the fee we receive to service these receivables approximates the fair market compensation to provide the servicing activities.
The special purpose entity in the global asset-backed securitization program is a wholly-owned subsidiary of the Company and is included in our Condensed Consolidated Financial Statements. Certain unsold receivables covering up to the maximum amount of net cash proceeds available under the domestic, or U.S., portion of the global asset-backed securitization program are pledged as collateral to the unaffiliated financial institution as of November 30, 2021.
The global asset-backed securitization program expires on November
25, 2024 and the maximum amount of net cash proceeds available at any one time is $600 million. During the three months ended November 30, 2021, we sold $1.0 billion of trade accounts receivable and we received cash proceeds of $1.0 billion. As of November 30, 2021, we had no available liquidity under our global asset-backed securitization program.
The global asset-backed securitization program requires compliance with several covenants including compliance with the interest ratio and debt to EBITDA ratio of the Credit Facility. As of November 30, 2021 and August 31, 2021, we were in compliance with all covenants under our global asset-backed securitization program. Refer to Note 6 – “Asset-Backed Securitization Program” to the Condensed Consolidated Financial Statements for further details on the program.
As of November 30, 2021, we may elect to sell receivables and the unaffiliated financial institution may elect to purchase specific accounts receivable at any one time up to a: (i) maximum aggregate amount available of $2.0 billion under nine trade accounts receivable sale programs, (ii) maximum amount available of 400 million CNY under one trade accounts receivable sale program and (iii) maximum amount available of 100 million CHF under one trade accounts receivable sale program. The trade accounts receivable sale programs expire on various dates through 2025.
During the three months ended November 30, 2021, we sold $2.0 billion of trade accounts receivable under these programs and we received cash proceeds of $2.0 billion. As of November 30, 2021, we had up to $1.4 billion in available liquidity under our trade accounts receivable sale programs.
Capital Expenditures
For Fiscal Year 2022, we anticipate our net capital expenditures will be approximately $830 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 millions):
Net cash (used in) provided by operating activities
$
(46)
$
65
Net cash used in investing activities
(73)
(264)
Net cash used in financing activities
(208)
(87)
Effect of exchange rate changes on cash and cash equivalents
(11)
—
Net decrease in cash and cash equivalents
$
(338)
$
(286)
Operating Activities
Net cash used in operating activities during the three months ended November 30, 2021 was primarily due to an increase in accounts receivable, inventories, contract assets, prepaid expenses and other current assets; partially offset by: an increase in accounts payable, accrued expenses and other liabilities, non-cash expenses and net income. The increase in accounts receivable is primarily driven by higher sales and the timing of collections. The increase in inventories is primarily due to supply chain constraints and higher materials purchases to support expected sales levels in the second quarter of fiscal year 2022. The increase in contract
assets is primarily due to timing of revenue recognition for over time customers. The increase in prepaid expenses and other current assets is primarily due to the timing of payments. The increase in accounts payable, accrued expenses and other liabilities is primarily due to the timing of purchases and cash payments.
Investing Activities
Net cash used in investing activities during the three months ended November 30, 2021 consisted primarily of capital expenditures, principally to support ongoing business in the DMS and EMS segments, partially offset by proceeds and advances from the sale of property, plant and equipment.
Financing Activities
Net cash used in financing activities during the three months ended November
30, 2021 was primarily due to (i) payments for debt agreements, (ii) the repurchase of our common stock under our share repurchase authorization, (iii) the purchase of treasury stock under employee stock plans and (iv) dividend payments. Net cash used in financing activities was partially offset by borrowings under debt agreements.
As of the date of this report, other than the new operating and finance leases, (see Note 4 – “Leases” to the Condensed Consolidated Financial Statements),
there were no material changes outside the ordinary course of business, since August 31, 2021 to our contractual obligations and commitments and the related cash requirements.
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 July 2021, the Board of Directors approved an authorization for the repurchase of up to $1.0 billion of our common stock (the “2022 Share Repurchase Program”). As of November
30, 2021, 2.8 million shares had been repurchased for $169 million and $831 million remains available under the 2022 Share Repurchase Program.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in our primary risk exposures or management of market risks from those disclosed in our Annual Report on Form 10-K for the fiscal year ended August 31, 2021.
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 November 30, 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 November 30, 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.
See the discussion in Note 16 - “Commitments and Contingencies” to the Condensed Consolidated Financial Statements.
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, 2021. 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
(1)The purchases include amounts that are attributable to 690,555 shares surrendered to us by employees to satisfy, in connection with the vesting of restricted stock unit awards, their tax withholding obligations.
(2)In July 2021, our Board of Directors authorized the repurchase of up to $1.0 billion of our common stock as publicly announced in a press release on July 23, 2021 (the “2022 Share Repurchase Program”).
The following financial information from Jabil’s Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2021, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets as of November 30, 2021 and August 31, 2021, (ii) Condensed Consolidated Statements of Operations for the three months ended November 30, 2021 and 2020, (iii) Condensed Consolidated Statements of Comprehensive Income for the three months ended November 30, 2021 and 2020, (iv) Condensed Consolidated Statements of Stockholders’ Equity for the three months ended November
30, 2021 and 2020, (v) Condensed Consolidated Statements of Cash Flows for the three months ended November 30, 2021 and 2020, and (vi) the Notes to Condensed Consolidated Financial Statements.
104
Cover Page Interactive Data File (Embedded within the inline XBRL Document in Exhibit 101).
†
Indicates management compensatory plan, contract or arrangement
*
Filed or furnished herewith
**
Certain portions of this exhibit have been redacted pursuant to Item 601(b)(10)(iv) of Regulation S-K. Jabil agrees to furnish supplementally an
unredacted copy of the exhibit to the Securities and Exchange Commission upon request.
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.
