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37: R20 Income Taxes HTML 41K
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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.)
i10560 Dr. Martin Luther King, Jr. Street 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
$
i50,197
$
i50,194
Accounts payable
i5,644,359
i5,687,038
Accrued expenses
i3,037,158
i3,211,528
Current operating lease liabilities
i110,663
i110,723
Total current liabilities
i8,842,377
i9,059,483
Notes payable and long-term debt, less current installments
i2,679,819
i2,678,288
Other liabilities
i305,410
i268,925
Non-current operating lease liabilities
i306,044
i302,035
Income tax liabilities
i161,416
i148,629
Deferred income taxes
i97,155
i114,657
Total liabilities
i12,392,221
i12,572,017
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; i266,842,954 and i263,830,270 shares issued and i149,366,501
and i150,330,358 shares outstanding as of February 28, 2021 and August 31, 2020, 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. 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 six months ended February 28, 2021 are not necessarily an indication of the results that may be expected for the full fiscal year ending August 31, 2021.
2. iTrade
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 six months ended February 28, 2021 and February 29, 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.
i
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:
Less current installments of notes payable and long-term debt
i50,197
i50,194
Notes payable and long-term debt, less current installments
$
i2,679,819
$
i2,678,288
/
(1)As of February 28, 2021, the Company has $i3.8 billion in available unused borrowing capacity under its revolving credit facilities. The Revolving Credit Facility under the ifive-year
unsecured credit facility entered into on January 22, 2020 (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% or i3.000%
Senior Notes upon a change of control. As of February 28, 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 six months ended February
28, 2021 and February 29, 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 February 28, 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. iNo liability has been recorded for obligations under the guarantee as of February 28, 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 February 28, 2021.
i
Following is a summary of the
asset-backed securitization programs and key terms:
Maximum Amount of Net Cash Proceeds (in millions)(1)(2)
(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 February
28, 2021 and August 31, 2020, the Company was in compliance with all covenants under the asset-backed securitization programs.
6. iAccrued Expenses
i
Accrued
expenses consist of the following (in thousands):
The
following table provides information about the net periodic benefit cost for all plans for the three months and six months ended February 28, 2021 and February 29, 2020 (in thousands):
(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. 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 $i658.1 million and $i355.2
million as of February 28, 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 March 1, 2021 and November 30, 2021.
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 February 28, 2021 and August 31, 2020, was $i3.2
billion and $i2.9 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.
iThe
following table presents the gains from forward contracts recorded in the Condensed Consolidated Statements of Operations for the periods indicated (in thousands):
(1)For the three months and six months ended February 28, 2021, the Company recognized $i26.2 million and $i99.1 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 six months ended February 29, 2020, the Company recognized $i7.6 million and $i36.4 million,
respectively, of foreign currency losses in cost revenue, which are offset by the gains from the forward foreign exchange contracts.
Interest Rate Risk Management
The Company periodically enters into interest rate swaps to manage interest rate risk associated with the Company’s borrowings.
Cash Flow Hedges
i
The
following table presents the interest rate swaps outstanding as of February 28, 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”).
9. iAccumulated Other Comprehensive (Loss) Income
i
The
following table sets forth the changes in accumulated other comprehensive (loss) income (“AOCI”), net of tax, by component for the six months ended February 28, 2021 (in thousands):
iThe 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):
(1)The Company expects to reclassify $i4.7 million into earnings during the next twelve months, which will primarily be classified as a component of cost of revenue.
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 February 28, 2021, the shares available to be issued under the 2021 EIP werei10,919,155.
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 six months ended February 28, 2021 and February 29, 2020, the Company awarded approximately i1.2
million and i1.1 million time-based restricted stock units, respectively, i0.4
million and i0.3 million performance-based restricted stock units, respectively, and i0.3
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 thousands):
Purchases of treasury stock under employee stock plans
(i8,873)
(i86,706)
(i610,279)
(i617,123)
Treasury shares purchased(1)
(i1,891,798)
(i1,767,782)
(i3,366,262)
(i4,388,059)
Ending balances
i149,366,501
i151,407,526
i149,366,501
i151,407,526
(1)In September 2019, the Company’s Board of Directors authorized the repurchase of up to $i600.0 million of the Company’s common stock as part of a itwo-year
capital allocation framework (the “2020 Share Repurchase Program”). As of February 28, 2021, i9.4 million shares had been repurchased for $i345.9
million and $i254.1 million remains available under the 2020 Share Repurchase Program. The 2020 Share Repurchase Program authorization expires at the end of fiscal year 2021.
/
11. iConcentration
of Risk and Segment Data
Concentration of Risk
Sales of the Company’s products are concentrated among specific customers. During the six months ended February 28, 2021, the Company’s ifive largest customers
accounted for approximately i49% of its net revenue and i75 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. 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, 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.
iThe following table presents the Company’s revenues disaggregated by segment (in thousands):
As of February 28, 2021, the Company operated in i31 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:
Total restructuring, severance and related charges(1)
$
i6,626
$
i29,604
$
i4,911
$
i74,855
/
(1)Primarily relates to the 2020 Restructuring Plan, and includes $i2.5 million and $i14.7
million recorded in the EMS segment, $i4.0 million and $i14.5 million recorded in the DMS segment and $i0.1
million and $i0.4 million of non-allocated charges for the three months ended February 28, 2021 and February 29, 2020, respectively. Includes $(i0.5)
million and $i32.1 million recorded in the EMS segment, $i5.0 million and $i39.7
million recorded in the DMS segment and $i0.4 million and $i3.1 million of non-allocated charges for the six months ended February 28, 2021
and February 29, 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 $i85.0 million in restructuring and other related costs, is substantially complete as of February 28, 2021.
i
The
table below summarizes the Company’s liability activity, primarily associated with the 2020 Restructuring Plan
The Company’s liability associated with the worldwide workforce reduction initiated in the third quarter of fiscal year 2020 is $i18.3 million as of February 28, 2021.
13.
iIncome Taxes
Effective Income Tax Rate
iThe
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 six months ended February 28, 2021, compared to the three months and six months ended February 29, 2020, primarily due to increased income for the three months and six months ended February 28, 2021, driven in part by decreased restructuring charges in tax jurisdictions with minimal related income tax benefit.
The effective income tax rate differed from the U.S. federal statutory income tax rate of 21.0% during the three months and six months ended February 28, 2021 and February 29, 2020, primarily due to: (i) losses in
tax jurisdictions with existing valuation allowances and (ii) tax incentives granted to sites in Brazil, 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 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. 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 six months ended February 28, 2021 and February 29, 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 preliminary aggregate purchase price paid for the fourth closing was approximately
$i18.4 million in cash, which remains subject to certain post-closing adjustments based on conditions within the Framework Agreement. Total assets acquired of $i30.6
million and total liabilities assumed of $i12.2 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. iFair
Value Measurements
Fair Value Measurements on a Recurring Basis
i
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 8)
Level 2
(2)
$
i3,149
$
i1,522
Derivatives not designated as hedging instruments (Note 8)
Level 2
(2)
i6,922
i9,100
Interest rate swaps:
Derivatives not designated as hedging instruments (Note 8)
Level 2
(3)
i7,890
i540
Extended interest rate swap not designated as a hedging instrument (Note 8)
Level 2
(4)
i18,190
i26,492
Other liabilities:
Interest rate swaps:
Derivatives not designated as hedging instruments (Note 8)
Level 2
(3)
i—
i329
Extended interest rate swap not designated as a hedging instrument (Note 8)
Level 2
(4)
i—
i13,111
(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.
(1)The fair value of assets held for sale exceeds the carrying value for $i30.1 million of assets held for sale. For $i30.5 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:
(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. iCommitments
and Contingencies
Leases
During the six months ended February 28, 2021, the Company entered into certain new finance leases with minimum lease payments of $i95.3 million, due primarily in 2023.
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.
18. iNew
Accounting Guidance
i
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 is 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 Vietnam. We derived a substantial majority, 84.7% and 84.1%, of net revenue from our international operations for the three months and six months ended February 28, 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:
(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 February 28, 2021, the increase in days in accounts receivable from the three months ended February 29, 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 February 28, 2021, the increase in days in inventory from the prior sequential quarter was to support expected sales levels in the third quarter of fiscal year 2021. During the three months ended February 28, 2021, the decrease in days in inventory from the three months ended February 29, 2020 was primarily due to idle capacity and supply chain constraints, largely in China due to COVID-19 during the three months ended February
29, 2020.
(5)Days in accounts payable is calculated as accounts payable divided by cost of revenue multiplied by 90 days. During the three months ended February 28, 2021, the increase in days in accounts payable from the three months ended February 29, 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, 2020.
Recent Accounting Pronouncements
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.
Net revenue increased during the three months ended February 28, 2021, compared to the three months ended February 29, 2020. Specifically, the DMS segment net revenue increased 26% due to: (i) a 17% increase in revenues from existing customers within our mobility business as our ability to meet customer demand during the three months ended February 29, 2020, was greatly diminished due to COVID-19 containment efforts in China, (ii) a 6% increase in revenues from existing customers within our connected devices business and (iii) a 3% increase in revenues from existing customers in our automotive and transportation business. The EMS segment net revenue decreased 1% primarily due to a decrease in
revenues from existing customers within our cloud business, which began transitioning to a consignment model in fiscal year 2021.
Net revenue increased during the six months ended February 29, 2021, compared to the six months ended February 29, 2020. Specifically, the DMS segment net revenue increased 19% due to: (i) a 12% increase in revenues from existing customers within our mobility business as our ability to meet customer demand during the six months ended February 29, 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 and (iii) a 2% increase in revenues from existing customers in our automotive and transportation business. The EMS segment net revenue decreased
3% primarily due to a decrease in revenues from existing customers within our cloud business, which began transitioning to a consignment model in fiscal year 2021.
The following table sets forth, for the periods indicated, revenue by segment expressed as a percentage of net revenue:
For the three months and six months ended February 28, 2021, gross profit as a percentage of net revenue increased as compared to the three months and six months ended February 29, 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.
Selling, general and administrative expenses increased during the three months ended February 28, 2021, compared to the three months ended February 29, 2020. The increase is primarily due to: (i) a $16.6 million increase due to higher salary and salary related expenses, partially offset by a decrease in travel expenses due to reduced travel as result of the COVID-19 pandemic and (ii) an $8.7 million increase in stock-based compensation expense due to a higher stock price for awards granted during fiscal year 2021 and anticipated achievement levels for certain performance-based stock awards. The increase is partially offset by a $6.5 million decrease in acquisition and integration charges related to our strategic collaboration with a healthcare company.
Selling,
general and administrative expenses decreased during the six months ended February 28, 2021, compared to the six months ended February 29, 2020. The decrease is primarily due to: (i) a $20.5 million decrease in acquisition and integration charges related to our strategic collaboration with a healthcare company (ii) a $7.8 million decrease due to lower travel expenses related to a reduction in travel due to the COVID-19 pandemic, partially offset by higher salary and salary related expenses. The decrease is partially offset by (i) a $12.0 million increase in stock-based compensation expense due to a higher stock price for awards granted during fiscal year 2021 and anticipated achievement levels for certain performance-based stock awards and (ii) an $11.1 million increase in costs related to the COVID-19 pandemic for personal protection equipment for our employees globally.
Research and development expenses remained relatively consistent as a percentage of net revenue during the three months and six months ended February 28, 2021, compared to the three months and six months ended February 29, 2020.
Amortization of intangibles decreased during the three months and six months ended February 28, 2021, compared to the three months and six months ended February 29, 2020, primarily due to certain intangible assets that were fully amortized during fiscal year 2020.
Total restructuring, severance and related charges(1)
$
6.6
$
29.6
$
4.9
$
74.9
(1)Primarily relates to the 2020 Restructuring Plan, and includes $2.5 million and $14.7 million recorded in the EMS segment, $4.0 million and $14.5 million recorded in the DMS segment and $0.1 million and $0.4 million of non-allocated charges for the three months ended February 28, 2021 and February 29, 2020, respectively. Includes $(0.5) million and $32.1 million recorded in the EMS segment, $5.0 million and $39.7 million recorded in the DMS segment and $0.4 million and $3.1 million of non-allocated charges for the six months ended February 28, 2021 and February 29, 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.
The decrease in impairment on securities for the three months and six months ended February 28, 2021, compared to the three months and six months ended February 29, 2020 is due to a non-cash impairment charge in connection with the sale of an investment in the optical networking segment during the three months ended February 29, 2020.
Other (income) expense increased for the three months ended February 28, 2021, compared to the three months ended February 29, 2020, primarily due to: (i) $7.9 million related to a decrease in fees associated with lower utilization of the trade accounts receivable sales programs and (ii) $3.1 million related to lower net periodic benefit costs. The decrease is partially offset by $0.9 million arising from an increase in other expense.
Other (income) expense increased during the six months ended February 28, 2021, compared to the six months ended February 29, 2020, primarily due to: (i) $15.5 million related to a decrease in fees associated with lower
utilization of the trade accounts receivable sales programs, (ii) $7.0 million related to lower net periodic benefit costs and (iii) $0.7 million arising from a reduction in other expense.
Interest income decreased during the three months and six months ended February 28, 2021, compared to the three months and six months ended February 29, 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 six months ended February 28, 2021, compared to the three months and six months ended February 29, 2020 due to lower interest rates and lower borrowings on our credit facilities and commercial paper program.
The effective income tax rate decreased for the three months and six months ended February 28, 2021, compared to the three months and six months ended February 29, 2020, primarily due to increased income for the three months and six months ended February 28, 2021, driven in part by decreased restructuring charges in tax jurisdictions with minimal related income tax benefit.
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, loss 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
Stock-based compensation expense and related charges
23,813
15,109
57,354
45,332
Restructuring, severance and related charges
6,626
29,604
4,911
74,855
Distressed customer charge (1)
—
—
—
14,963
Net periodic benefit cost (2)
5,723
2,776
11,316
4,601
Business interruption and impairment charges, net
(806)
—
(806)
—
Acquisition and integration charges (3)
1,261
7,752
3,374
23,886
Adjustments to operating income
48,256
68,818
99,243
193,354
Core operating income (Non-GAAP)
$
284,606
$
159,448
$
649,543
$
436,763
Net income (loss) attributable to Jabil Inc. (U.S. GAAP)
$
151,654
$
(3,283)
$
352,096
$
37,139
Adjustments to operating income
48,256
68,818
99,243
193,354
Impairment on securities
—
12,205
—
12,205
Net periodic benefit cost (2)
(5,723)
(2,776)
(11,316)
(4,601)
Adjustments for taxes
(553)
3,091
(1,148)
3,588
Core earnings (Non-GAAP)
$
193,634
$
78,055
$
438,875
$
241,685
Diluted earnings (loss) per share (U.S. GAAP)
$
0.99
$
(0.02)
$
2.30
$
0.24
Diluted core earnings per share (Non-GAAP)
$
1.27
$
0.50
$
2.87
$
1.55
Diluted weighted average shares outstanding (U.S. GAAP)
152,975
152,058
153,051
156,171
Diluted weighted average shares outstanding (Non-GAAP)
152,975
155,714
153,051
156,171
(1)Relates to accounts receivable and inventory charges for certain distressed customers in the renewable energy sector during the six months ended February 29, 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”).
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 preliminary aggregate purchase price paid for the fourth closing was approximately $18.4 million in cash, which remains subject to certain post-closing adjustments based on conditions within the Framework Agreement. Total assets acquired of $30.6 million and total liabilities assumed of $12.2 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. We are 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 asset-backed securitization programs and under our uncommitted trade accounts receivable sale programs, cash on hand, funds provided by operations and the access to the capital markets, will be adequate to fund our capital
expenditures, the payment of any declared quarterly dividends, 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 February 28, 2021, we had approximately $838.1 million in cash and cash equivalents. As our growth remains predominantly outside of the United States, a significant portion of such cash and cash equivalents are held by our foreign subsidiaries. Most of our cash and cash equivalents as of February 28, 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 February 28, 2021, we had $3.8 billion in available unused borrowing capacity under our revolving credit facilities. The Revolving Credit Facility under 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 February 28, 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 foreign asset-backed securitization program and our 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 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 February 28, 2021.
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 February 28, 2021.
Following is a summary of our asset-backed securitization programs and key terms:
Maximum Amount of Net Cash Proceeds (in millions)(1)
In connection with our asset-backed securitization programs, during the three months and six months ended February 28, 2021, we sold $1.1 billion and $2.3 billion, respectively, of trade accounts receivable and we received cash proceeds of $1.1 billion and $2.3 billion, respectively. As of February 28, 2021, we had up to $53.3 million in available liquidity under our asset-backed securitization programs.
Our asset-backed securitization programs contain various financial and nonfinancial covenants. As of February 28, 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 six months ended February 28, 2021, we sold $1.3 billion and $2.6 billion, respectively, of trade accounts receivable under these programs and we received cash proceeds of $1.3 billion and $2.6 billion, respectively. As of February 28, 2021, we had up to $2.0 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):
Net cash provided by operating activities during the six months ended February 28, 2021 was primarily due to net income and a decrease in contract assets, partially offset by: (i) an increase in inventories, accounts receivable and prepaid expenses and other current assets and (ii) a decrease in accounts payable, accrued expenses
and other liabilities. The decrease in contract assets is primarily due to timing of revenue recognition for over time customers. The increase in inventories is primarily to support expected sales levels in the third 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 an increase in forward contract assets driven by normal hedging activity. The decrease in accounts payable, accrued expenses and other liabilities is primarily due the timing of purchases and cash payments.
Investing Activities
Net cash used in investing activities during the six
months ended February 28, 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 six months ended February 28, 2021 was primarily due to (i) payments for debt agreements, (ii) the repurchase of our common stock under our share repurchase authorization and (iii) 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
During the first quarter of fiscal year 2021, we entered into new finance leases that are primarily due in fiscal year 2023. As of February 28, 2021, we have $95.3 million of contractual obligations related to these new leases. As of the date of this report, 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 February 28, 2021, 9.4 million shares had been repurchased for $345.9 million and $254.1 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 February 28, 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 February 28, 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
(1)The purchases include amounts that are attributable to 8,873 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 February 28, 2021, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets as of February 28, 2021 and August 31, 2020, (ii) Condensed Consolidated Statements of Operations for the three months and six months ended February 28, 2021 and February 29, 2020, (iii) Condensed Consolidated Statements of Comprehensive Income for the three months and six months ended February 28, 2021 and February 29, 2020, (iv) Condensed Consolidated Statements of Stockholders’ Equity
for the three months and six months ended February 28, 2021 and February 29, 2020, (v) Condensed Consolidated Statements of Cash Flows for the six months ended February 28, 2021 and February 29, 2020 and (vi) the Notes to Condensed Consolidated Financial Statements.
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Indicates management compensatory plan, contract or arrangement
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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.
