Item 1. Financial Statements
Item 1.
Financial Statements
JABIL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except for share data)
1
Table of Contents
May 31,
2020
(Unaudited)
August 31,
2019
ASSETS
Current assets:
Cash and cash equivalents
$
763,337
$
1,163,343
Accounts receivable, net of allowance for doubtful accounts of $32,239 as of May 31, 2020 and $17,221 as of August 31, 2019
2,579,803
2,745,226
Contract assets
1,086,035
911,940
Inventories, net
3,283,701
3,023,003
Prepaid expenses and other current assets
553,416
501,573
Total current assets
8,266,292
8,345,085
Property, plant and equipment, net of accumulated depreciation of $4,452,228 as of May 31, 2020 and $4,110,496 as of August 31, 2019
3,485,669
3,333,750
Operating lease right-of-use asset
377,540
—
Goodwill
700,735
622,255
Intangible assets, net of accumulated amortization of $380,850 as of May 31, 2020 and $337,841 as of August 31, 2019
221,510
256,853
Deferred income taxes
173,008
198,827
Other assets
166,122
213,705
Total assets
$
13,390,876
$
12,970,475
LIABILITIES AND EQUITY
Current liabilities:
Current installments of notes payable and long-term debt
$
399,737
$
375,181
Accounts payable
5,019,286
5,166,780
Accrued expenses
3,246,977
2,990,144
Current operating lease liabilities
102,284
—
Total current liabilities
8,768,284
8,532,105
Notes payable and long-term debt, less current installments
2,087,593
2,121,284
Other liabilities
321,065
163,821
Non-current operating lease liabilities
311,939
—
Income tax liabilities
143,368
136,689
Deferred income taxes
113,323
115,818
Total liabilities
11,745,572
11,069,717
Commitments and contingencies
Equity:
Jabil Inc. stockholders’ equity:
Preferred stock, $0.001 par value, authorized 10,000,000 shares; no shares issued and no shares outstanding
—
—
Common stock, $0.001 par value, authorized 500,000,000 shares; 263,312,358 and 260,406,796 shares issued and 150,574,036 and 153,520,380 shares outstanding as of May 31, 2020 and August 31, 2019, respectively
263
260
Additional paid-in capital
2,380,094
2,304,552
Retained earnings
1,985,546
2,037,037
Accumulated other comprehensive loss
( 149,403
)
( 82,794
)
Treasury stock at cost, 112,738,322 and 106,886,416 shares as of May 31, 2020 and August 31, 2019, respectively
( 2,584,198
)
( 2,371,612
)
Total Jabil Inc. stockholders’ equity
1,632,302
1,887,443
Noncontrolling interests
13,002
13,315
Total equity
1,645,304
1,900,758
Total liabilities and equity
$
13,390,876
$
12,970,475
See accompanying notes to Condensed Consolidated Financial Statements.
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JABIL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share data)
(Unaudited)
Three months ended
Nine months ended
May 31,
2020
May 31,
2019
May 31,
2020
May 31,
2019
Net revenue
$
6,335,642
$
6,135,602
$
19,966,423
$
18,708,867
Cost of revenue
5,879,494
5,691,803
18,526,311
17,290,544
Gross profit
456,148
443,799
1,440,112
1,418,323
Operating expenses:
Selling, general and administrative
302,849
274,482
916,772
834,750
Research and development
11,587
11,449
33,647
32,747
Amortization of intangibles
13,178
7,610
42,895
23,033
Restructuring, severance and related charges
69,150
9,340
144,005
16,182
Operating income
59,384
140,918
302,793
511,611
Impairment on securities
—
—
12,205
—
Other expense
5,602
14,084
25,275
39,391
Interest income
( 1,864
)
( 6,758
)
( 13,144
)
( 15,897
)
Interest expense
41,873
50,514
132,967
139,326
Income before income tax
13,773
83,078
145,490
348,791
Income tax expense
64,036
39,046
157,620
113,078
Net (loss) income
( 50,263
)
44,032
( 12,130
)
235,713
Net income attributable to noncontrolling interests, net of tax
695
550
1,689
1,277
Net (loss) income attributable to Jabil Inc.
$
( 50,958
)
$
43,482
$
( 13,819
)
$
234,436
(Loss) earnings per share attributable to the stockholders of Jabil Inc.:
Basic
$
( 0.34
)
$
0.28
$
( 0.09
)
$
1.50
Diluted
$
( 0.34
)
$
0.28
$
( 0.09
)
$
1.47
Weighted average shares outstanding:
Basic
150,723
152,889
151,956
156,384
Diluted
150,723
155,678
151,956
159,036
See accompanying notes to Condensed Consolidated Financial Statements.
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JABIL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(Unaudited)
Three months ended
Nine months ended
May 31,
2020
May 31,
2019
May 31,
2020
May 31,
2019
Net (loss) income
$
( 50,263
)
$
44,032
$
( 12,130
)
$
235,713
Other comprehensive (loss) income:
Change in foreign currency translation
( 32,135
)
( 18,548
)
( 43,010
)
( 5,636
)
Change in derivative instruments:
Change in fair value of derivatives
( 22,862
)
( 20,179
)
( 21,391
)
( 36,262
)
Adjustment for net losses (gains) realized and included in net income
16,020
( 1,728
)
19,355
15,958
Total change in derivative instruments
( 6,842
)
( 21,907
)
( 2,036
)
( 20,304
)
Unrealized (loss) gain on available for sale securities
( 7,483
)
3,703
( 21,563
)
( 4,769
)
Actuarial gain
—
—
—
103
Total other comprehensive (loss) income
( 46,460
)
( 36,752
)
( 66,609
)
( 30,606
)
Comprehensive (loss) income
$
( 96,723
)
$
7,280
$
( 78,739
)
$
205,107
Comprehensive income attributable to noncontrolling interests
695
550
1,689
1,277
Comprehensive (loss) income attributable to Jabil Inc.
$
( 97,418
)
$
6,730
$
( 80,428
)
$
203,830
See accompanying notes to Condensed Consolidated Financial Statements.
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JABIL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
(Unaudited)
Three months ended
Nine months ended
May 31,
2020
May 31,
2019
May 31,
2020
May 31,
2019
Total stockholders' equity, beginning balances
$
1,759,140
$
1,858,852
$
1,900,758
$
1,963,380
Common stock:
Beginning balances
263
260
260
257
Shares issued under employee stock purchase plan
—
—
1
1
Vesting of restricted stock
—
—
2
2
Ending balances
263
260
263
260
Additional paid-in capital:
Beginning balances
2,363,839
2,264,966
2,304,552
2,218,673
Shares issued under employee stock purchase plan
—
( 5
)
16,179
14,582
Vesting of restricted stock
—
—
( 2
)
( 2
)
Recognition of stock-based compensation
16,255
14,448
59,365
46,156
Ending balances
2,380,094
2,279,409
2,380,094
2,279,409
Retained earnings:
Beginning balances
2,048,954
1,966,100
2,037,037
1,760,097
Declared dividends
( 12,450
)
( 12,681
)
( 37,672
)
( 38,487
)
Cumulative effect adjustment for adoption of new accounting standards
—
—
—
40,855
Net (loss) income attributable to Jabil Inc.
( 50,958
)
43,482
( 13,819
)
234,436
Ending balances
1,985,546
1,996,901
1,985,546
1,996,901
Accumulated other comprehensive loss:
Beginning balances
( 102,943
)
( 13,253
)
( 82,794
)
( 19,399
)
Other comprehensive loss
( 46,460
)
( 36,752
)
( 66,609
)
( 30,606
)
Ending balances
( 149,403
)
( 50,005
)
( 149,403
)
( 50,005
)
Treasury stock:
Beginning balances
( 2,563,282
)
( 2,370,898
)
( 2,371,612
)
( 2,009,371
)
Purchases of treasury stock under employee stock plans
( 75
)
( 694
)
( 23,086
)
( 11,898
)
Treasury shares purchased
( 20,841
)
—
( 189,500
)
( 350,323
)
Ending balances
( 2,584,198
)
( 2,371,592
)
( 2,584,198
)
( 2,371,592
)
Noncontrolling interests:
Beginning balances
12,309
11,677
13,315
13,123
Net income attributable to noncontrolling interests
695
550
1,689
1,277
Acquisition of noncontrolling interests
—
—
—
1,112
Disposition of noncontrolling interests
—
—
—
( 1,785
)
Declared dividends to noncontrolling interests
( 2
)
—
( 2,002
)
( 1,500
)
Ending balances
13,002
12,227
13,002
12,227
Total stockholders' equity, ending balances
$
1,645,304
$
1,867,200
$
1,645,304
$
1,867,200
See accompanying notes to Condensed Consolidated Financial Statements.
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JABIL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Nine months ended
May 31,
2020
May 31,
2019
Cash flows provided by operating activities:
Net (loss) income
$
( 12,130
)
$
235,713
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
600,692
574,922
Restructuring and related charges
39,292
( 3,555
)
Recognition of stock-based compensation expense and related charges
62,214
47,452
Deferred income taxes
18,279
14,008
Provision for allowance for doubtful accounts
14,636
10,734
Other, net
20,979
34,204
Change in operating assets and liabilities, exclusive of net assets acquired:
Accounts receivable
142,470
( 528,597
)
Contract assets
( 92,574
)
( 865,408
)
Inventories
( 229,398
)
349,252
Prepaid expenses and other current assets
( 44,331
)
6,910
Other assets
( 9,089
)
( 16,700
)
Accounts payable, accrued expenses and other liabilities
59,686
253,721
Net cash provided by operating activities
570,726
112,656
Cash flows used in investing activities:
Acquisition of property, plant and equipment
( 648,945
)
( 789,226
)
Proceeds and advances from sale of property, plant and equipment
93,679
167,653
Cash paid for business and intangible asset acquisitions, net of cash
( 145,595
)
( 153,239
)
Cash receipts on sold receivables
—
96,846
Other, net
21,398
( 26,129
)
Net cash used in investing activities
( 679,463
)
( 704,095
)
Cash flows (used in) provided by financing activities:
Borrowings under debt agreements
9,521,853
9,482,468
Payments toward debt agreements
( 9,533,522
)
( 9,073,684
)
Payments to acquire treasury stock
( 189,500
)
( 350,323
)
Dividends paid to stockholders
( 38,411
)
( 39,736
)
Net proceeds from exercise of stock options and issuance of common stock under employee stock purchase plan
16,179
14,582
Treasury stock minimum tax withholding related to vesting of restricted stock
( 23,085
)
( 11,898
)
Other, net
( 13,106
)
( 1,500
)
Net cash (used in) provided by financing activities
( 259,592
)
19,909
Effect of exchange rate changes on cash and cash equivalents
( 31,677
)
7,667
Net decrease in cash and cash equivalents
( 400,006
)
( 563,863
)
Cash and cash equivalents at beginning of period
1,163,343
1,257,949
Cash and cash equivalents at end of period
$
763,337
$
694,086
See accompanying notes to Condensed Consolidated Financial Statements.
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JABIL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1 . Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to 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 the Company for the fiscal year ended August 31, 2019 . Results for the nine months ended May 31, 2020 are not necessarily an indication of the results that may be expected for the full fiscal year ending August 31, 2020 .
The full impact on the Company’s business and results of operations related to COVID-19 depends on future developments and cannot be fully predicted. The Company has considered all information available as of the date of these financial statements and is not aware of any circumstances that would result in an update to its estimates or judgments, or any adjustment to the carrying value of its assets or liabilities. Estimates are dependent on certain events and may change as future events occur or additional information becomes available and thus actual results could differ materially from these estimates and judgments.
2 . Trade Accounts Receivable Sale Programs
The Company regularly sells designated pools of high credit quality trade accounts receivable under uncommitted trade accounts receivable sale programs to unaffiliated financial institutions without recourse. As these accounts receivable are sold without recourse, the Company does not retain the associated risks following the transfer of such accounts receivable to the respective financial institutions. The Company continues servicing the receivables sold and in exchange receives a servicing fee under each of the trade accounts receivable sale programs. Servicing fees related to each of the trade accounts receivable sale programs recognized during the three months and nine months ended May 31, 2020 and 2019 were not material. The Company does not record a servicing asset or liability on the Condensed Consolidated Balance Sheets as the Company estimates that the fee it receives to service these receivables approximates the fair market compensation to provide the servicing activities.
Transfers of the receivables under the trade accounts receivable sale programs are accounted for as sales and, accordingly, net receivables sold under the trade accounts receivable sale programs are excluded from accounts receivable on the Condensed Consolidated Balance Sheets and are reflected as cash provided by operating activities on the Condensed Consolidated Statements of Cash Flows.
The following is a summary of the trade accounts receivable sale programs with unaffiliated financial institutions where the Company may elect to sell receivables and the unaffiliated financial institution may elect to purchase, at a discount, on an ongoing basis:
Program
Maximum
Amount
(in millions) (1)
Type of
Facility
Expiration
Date
A
$
600.0
Uncommitted
December 5, 2020 (2)
B
$
150.0
Uncommitted
November 30, 2020 (3)
C
800.0
CNY
Uncommitted
June 30, 2020
D
$
150.0
Uncommitted
May 4, 2023 (4)
E
$
50.0
Uncommitted
August 25, 2020
F
$
150.0
Uncommitted
January 25, 2021 (5)
G
$
50.0
Uncommitted
February 23, 2023 (6)
H
$
100.0
Uncommitted
August 10, 2020 (7)
I
$
100.0
Uncommitted
July 21, 2020 (8)
J
$
650.0
Uncommitted
December 4, 2020 (9)
K
$
135.0
Uncommitted
April 11, 2021 (10)
L
100.0
CHF
Uncommitted
December 5, 2020 (2)
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(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 each year through December 5, 2025 unless either party provides 30 days ’ notice of termination.
(3)
The program will automatically extend for one year at each expiration date unless either party provides 10 days ’ notice of termination.
(4)
Any party may elect to terminate the agreement upon 30 days ’ prior notice.
(5)
The program will be automatically extended through January 25, 2023 unless either party provides 30 days ’ notice of termination.
(6)
Any party may elect to terminate the agreement upon 15 days ’ prior notice.
(7)
The program will be automatically extended through August 10, 2023 unless either party provides 30 days ’ notice of termination.
(8)
The program will be automatically extended through August 21, 2023 unless either party provides 30 days ’ notice of termination.
(9)
The program will be automatically extended each year through December 5, 2024 unless either party provides 30 days ’ notice of termination.
(10)
The program will be automatically extended each year through April 11, 2025 unless either party provides 30 days ’ notice of termination.
In connection with the trade accounts receivable sale programs, the Company recognized the following (in millions):
Three months ended
Nine months ended
May 31, 2020
May 31, 2019
May 31, 2020
May 31, 2019
Trade accounts receivable sold
$
2,162
$
1,548
$
6,325
$
5,101
Cash proceeds received
$
2,158
$
1,541
$
6,311
$
5,079
Pre-tax losses on sale of receivables (1)
$
4
$
7
$
14
$
22
(1)
Recorded to other expense within the Condensed Consolidated Statement of Operations.
3 . Inventories
Inventories consist of the following (in thousands):
May 31, 2020
August 31, 2019
Raw materials
$
2,524,454
$
2,310,081
Work in process
412,834
468,217
Finished goods
425,894
314,258
Reserve for excess and obsolete inventory
( 79,481
)
( 69,553
)
Inventories, net
$
3,283,701
$
3,023,003
4 . Leases
Effective September 1, 2019, the Company adopted Accounting Standards Update No. 2016-02 (“ASU 2016-02”), Leases (Topic 842) using the modified retrospective approach and also elected to apply the package of practical expedients, which among other things, allows entities to maintain the historical lease classification for existing leases. The Company has lease agreements that contain both lease and non-lease components. For lease agreements entered into or reassessed after the adoption of ASU 2016-02, the Company has elected the practical expedient to combine lease and non-lease components for building and real estate leases.
The Company primarily has leases for buildings and real estate with lease terms ranging from 1 year to 36 years . Leases for other classes of assets are not significant. For any leases with an initial term in excess of 12 months, the Company determines whether an arrangement is a lease at contract inception by evaluating if the contract conveys the right to use and control the specific property or equipment. Certain lease agreements contain purchase or renewal options. These options are included in the lease term when it is reasonably certain that the Company will exercise that option. Generally, the Company's lease agreements do not contain material residual value guarantees or material restrictive covenants.
Right-of-use assets represent the right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized based on the
8
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present value of future lease payments over the lease term at the lease commencement date. When determining the present value of future payment, the Company uses the incremental borrowing rate when the implicit rate is not readily determinable. Any payment deemed probable under residual value guarantees is included in lease payments. Any variable payments, other than those that depend on an index or rate, are excluded from right-of-use assets and lease liabilities.
Leases with an initial term of 12 months or less are not recorded as right-of-use assets and lease liabilities in the Consolidated Balance Sheet. Lease expense for these leases is recognized on a straight-line basis over the lease term.
Upon adoption of ASU 2016-02, the Company recorded $ 414.6 million and $ 437.5 million of right-of-use assets and lease liabilities, respectively, related to its existing operating lease portfolio. The accounting for the Company's finance leases remained substantially unchanged and balances were not significant on the adoption date. The adoption of this standard did not have a material impact on the Consolidated Statements of Operations or the Consolidated Statements of Cash Flows.
The following table sets forth the amount of lease assets and lease liabilities included on the Company's Condensed Consolidated Balance Sheets, as of the period indicated (in thousands):
Financial Statement Line Item
May 31, 2020
Assets
Operating lease assets (1)
Operating lease right-of-use assets
$
377,540
Finance lease assets (2)
Property, plant and equipment, net
149,956
Total lease assets
$
527,496
Liabilities
Current
Operating lease liabilities
Current operating lease liabilities
$
102,284
Finance lease liabilities
Accrued expenses
7,047
Non-current
Operating lease liabilities
Non-current operating lease liabilities
311,939
Finance lease liabilities
Other liabilities
155,546
Total lease liabilities
$
576,816
(1)
Net of accumulated amortization of $ 72.3 million .
(2)
Net of accumulated amortization of $ 11.0 million .
The following table is a summary of expenses related to leases included on the Company's Condensed Consolidated Statements of Operations, for the periods indicated (in thousands):
Three months ended
Nine months ended
May 31, 2020
May 31, 2020
Operating lease cost
$
28,472
$
84,018
Finance lease cost
Amortization of leased assets
1,445
4,026
Interest on lease liabilities
1,250
3,693
Other
3,526
7,709
Net lease cost (1)
$
34,693
$
99,446
(1)
Lease costs are primarily recognized in cost of revenue.
The following table is a summary of the weighted-average remaining lease terms and weighted-average discount rates of the Company's leases, as of the period indicated:
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Table of Contents
May 31, 2020
Weighted-average remaining lease term
Weighted-average discount rate
Operating leases
5.5 years
3.21
%
Finance leases
6.0 years
4.32
%
The following table sets forth other supplemental information related to the Company's lease portfolio (in thousands):
Nine months ended
May 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases (1)
$
83,427
Operating cash flows for finance leases (1)
3,693
Financing activities for finance leases (2)
4,451
Non-cash right-of-use assets obtained in exchange for new lease liabilities:
Operating leases
82,552
Finance leases
111,591
(1)
Included in accounts payable, accrued expenses and other liabilities in Operating Activities of the Company's Condensed Consolidated Statements of Cash Flows.
(2)
Included in payments toward debt agreements in Financing Activities of the Company's Condensed Consolidated Statements of Cash Flows.
The future minimum lease payments under operating and finance leases as of May 31, 2020 were as follows (in thousands):
Twelve months ended May 31,
Operating Leases (1)
Finance Leases
Total
2020
$
112,866
$
11,964
$
124,830
2021
88,654
12,354
101,008
2022
68,909
11,783
80,692
2023
56,144
11,917
68,061
2024
41,127
43,059
84,186
Thereafter
92,130
98,846
190,976
Total minimum lease payments
$
459,830
$
189,923
$
649,753
Less: Interest
( 45,607
)
( 27,330
)
( 72,937
)
Present value of lease liabilities
$
414,223
$
162,593
$
576,816
(1)
Excludes $ 43.4 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.
As disclosed in the Company’s Form 10-K for the fiscal year ended August 31, 2019, the future minimum lease payments of non-cancelable operating leases prior to the adoption of ASU 2016-02 were as follows (in thousands):
Fiscal Year Ending August 31,
Amount
2020
$
118,312
2021
102,915
2022
84,729
2023
63,206
2024
51,091
Thereafter
182,932
Total minimum lease payments
$
603,185
Total operating lease expense prior to the adoption of ASU 2016-02 was approximately $ 125.4 million , $ 130.2 million and $ 117.2 million for fiscal years 2019, 2018 and 2017, respectively.
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5 . Notes Payable and Long-Term Debt
Notes payable and long-term debt outstanding as of May 31, 2020 and August 31, 2019 are summarized below (in thousands):
Maturity
Date
May 31,
2020
August 31,
2019
5.625% Senior Notes
Dec 15, 2020
$
399,555
$
398,886
4.700% Senior Notes
Sep 15, 2022
498,496
498,004
4.900% Senior Notes
Jul 14, 2023
299,239
299,057
3.950% Senior Notes
Jan 12, 2028
495,286
494,825
3.600% Senior Notes (1)
Jan 15, 2030
494,616
—
Borrowings under credit facilities (2)(3)(4)
Apr 23, 2021, Jan 22, 2023 and Jan 22, 2025
—
—
Borrowings under loans (2)
Jan 22, 2025
300,138
805,693
Total notes payable and long-term debt
2,487,330
2,496,465
Less current installments of notes payable and long-term debt
399,737
375,181
Notes payable and long-term debt, less current installments
$
2,087,593
$
2,121,284
12
Table of Contents
(1)
On January 15, 2020, the Company issued $ 500.0 million of publicly registered 3.600 % Senior Notes due 2030 (the “ 3.600 % Senior Notes”). The net proceeds from the offering were used for the repayment of term loan indebtedness.
(2)
On January 22, 2020, the Company entered into a senior unsecured credit agreement which provides for: (i) a Revolving Credit Facility in the initial amount of $ 2.7 billion , of which $ 700.0 million expires on January 22, 2023 and $ 2.0 billion expires on January 22, 2025 and (ii) a $ 300.0 million Term Loan Facility which expires on January 22, 2025, (collectively the “Credit Facility”). Interest and fees on the Credit Facility advances are based on the Company’s non-credit enhanced long-term senior unsecured debt rating as determined by Standard & Poor’s Ratings Service, Moody’s Investors Service and Fitch Ratings. In connection with the Company’s entry into the Credit Facility, the Company terminated the Company’s amended and restated five-year credit agreement dated November 8, 2017 and the credit agreement dated August 24, 2018.
During the nine months ended May 31, 2020 , the interest rates on the Revolving Credit Facility ranged from 1.2 % to 4.3 % and the Term Loan Facility ranged from 1.6 % to 3.5 % . Interest is charged at a rate equal to (a) for the Revolving Credit Facility, either 0.000 % to 0.450 % above the base rate or 0.975 % to 1.450 % above the Eurocurrency rate and (b) for the Term Loan Facility, either 0.125 % to 0.750 % above the base rate or 1.125 % to 1.750 % above the Eurocurrency rate. The base rate represents the greatest of: (i) Citibank, N.A.’s prime rate, (ii) 0.50 % above the federal funds rate, and (iii) 1.0 % above one-month LIBOR, but not less than zero. The Eurocurrency rate represents adjusted LIBOR or adjusted CDOR, as applicable, for the applicable interest period, but not less than zero. Fees include a facility fee based on the revolving credit commitments of the lenders and a letter of credit fee based on the amount of outstanding letters of credit.
(3)
On April 24, 2020, the Company entered into an unsecured 364 -day revolving credit agreement up to an initial aggregate amount of $ 375.0 million , which was increased to $ 425.0 million on May 29, 2020 (the “ 364 -Day Revolving Credit Agreement”). The 364 -Day Revolving Credit Agreement expires on April 23, 2021. Interest and fees on the 364 -Day Revolving Credit Agreement advances are based on the Company’s non-credit enhanced long-term senior unsecured debt rating as determined by Standard & Poor’s Ratings Service, Moody’s Investors Service and Fitch Ratings.
As of May 31, 2020 , no draws were made on the 364 -Day Revolving Credit Agreement. Interest is charged at a rate equal to either (i) 0.450 % , 0.525 % or 0.800 % above the base rate or (ii) 1.450 % , 1.525 % or 1.800 % above the Eurodollar rate. The base rate represents the greatest of: (i) Mizuho’s base rate, (ii) 0.50 % above the federal funds rate, and (iii) 1.0 % above one-month LIBOR, subject to a floor of 0.75 % . The Eurodollar rate represents adjusted LIBOR for the applicable interest period, subject to a floor of 0.75 % . Fees include a facility fee based on the revolving credit commitments of the lenders.
(4)
As of May 31, 2020 , the Company has $ 3.7 billion in available unused borrowing capacity under its revolving credit facilities. The Revolving Credit Facility under the Credit Facility acts as the back-up facility for commercial paper outstanding, if any. The Company has a borrowing capacity of up to $ 1.8 billion under its commercial paper program.
Debt Covenants
Borrowings under the Company’s debt agreements are subject to various covenants that limit the Company’s ability to: incur additional indebtedness, sell assets, effect mergers and certain transactions, and effect certain transactions with subsidiaries and affiliates. In addition, the revolving credit facilities and the 4.900 % Senior Notes contain debt leverage and interest coverage covenants. The Company is also subject to certain covenants requiring the Company to offer to repurchase the 5.625 % , 4.700 % , 4.900 % , 3.950 % or 3.600 % Senior Notes upon a change of control. As of May 31, 2020 and August 31, 2019 , the Company was in compliance with its debt covenants.
Fair Value
Refer to Note 17 – “Fair Value Measurements” for the estimated fair values of the Company’s notes payable and long-term debt.
6 . 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 foreign asset-backed receivables to an unaffiliated financial institution and a conduit administered by an unaffiliated financial institution and certain of the North American asset-backed receivables to conduits administered by an unaffiliated financial institution on a monthly basis.
13
Table of Contents
The Company continues servicing the receivables sold and in exchange receives a servicing fee under each of the asset-backed securitization programs. Servicing fees related to each of the asset-backed securitization programs recognized during the three months and nine months ended May 31, 2020 and 2019 were not material. The Company does not record a servicing asset or liability on the Condensed Consolidated Balance Sheets as the Company estimates that the fee it receives to service these receivables approximates the fair market compensation to provide the servicing activities.
Transfers of the receivables under the asset-backed securitization programs are accounted for as sales and, accordingly, net receivables sold under the asset-backed securitization programs are excluded from accounts receivable on the Condensed Consolidated Balance Sheets and are reflected as cash provided by operating activities on the Condensed Consolidated Statements of Cash Flows.
The special purpose entity in the foreign asset-backed securitization program is a separate bankruptcy-remote entity whose assets would be first available to satisfy the creditor claims of the unaffiliated financial institution. The Company is deemed the primary beneficiary of this special purpose entity as the Company has both the power to direct the activities of the entity that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive the benefits that could potentially be significant to the entity from the transfer of the trade accounts receivable into the special purpose entity. Accordingly, the special purpose entity associated with the foreign asset-backed securitization program is included in the Company’s Condensed Consolidated Financial Statements. As of May 31, 2020 , the special purpose entity has liabilities for which creditors do not have recourse to the general credit of the Company (primary beneficiary). The liabilities cannot exceed the maximum amount of net cash proceeds under the foreign asset-backed securitization program.
The foreign asset-backed securitization program contains a guarantee of payment by the special purpose entity, in an amount approximately equal to the net cash proceeds under the program. No liability has been recorded for obligations under the guarantee as of May 31, 2020 .
The special purpose entity in the North American asset-backed securitization program is a wholly-owned subsidiary of the Company and is included in the Company’s Condensed Consolidated Financial Statements. Certain unsold receivables covering the maximum amount of net cash proceeds available under the North American asset-backed securitization program are pledged as collateral to the unaffiliated financial institution as of May 31, 2020 .
Following is a summary of the asset-backed securitization programs and key terms:
Maximum Amount of
Net Cash Proceeds (in millions) (1)(2)
Expiration
Date
North American
$
390.0
November 22, 2021
Foreign
$
400.0
September 30, 2021
(1)
Maximum amount available at any one time.
(2)
As of May 31, 2020 , the Company had up to $ 136.6 million in available liquidity under its asset-backed securitization programs.
In connection with the asset-backed securitization programs, the Company recognized the following (in millions):
Three months ended
Nine months ended
May 31, 2020
May 31, 2019
May 31, 2020
May 31, 2019 (3)
Trade accounts receivable sold
$
948
$
1,036
$
3,205
$
2,864
Cash proceeds received (1)
$
944
$
1,029
$
3,189
$
2,845
Pre-tax losses on sale of receivables (2)
$
4
$
7
$
16
$
19
(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.
(3)
Excludes $ 650.3 million of trade accounts receivable sold, $ 488.1 million of cash and $ 13.9 million of net cash received prior to the amendment of the foreign asset-backed securitization program and under the previous North American asset-backed securitization program which occurred during the first quarter of fiscal year 2019.
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 five-year
14
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unsecured credit facility entered into on January 22, 2020 (the “Credit Facility”). The foreign asset-backed securitization program covenants include limitations on certain corporate actions such as mergers and consolidations. As of May 31, 2020 and August 31, 2019 , the Company was in compliance with all covenants under the asset-backed securitization programs.
7 . Accrued Expenses
Accrued expenses consist of the following (in thousands):
May 31, 2020
August 31, 2019
Contract liabilities (1)
$
463,773
$
511,329
Accrued compensation and employee benefits
609,905
600,907
Other accrued expenses
2,173,299
1,877,908
Accrued expenses
$
3,246,977
$
2,990,144
(1)
Revenue recognized during the nine months ended May 31, 2020 and 2019 that was included in the contract liability balance as of September 1, 2019 and 2018 was $ 260.9 million and $ 350.9 million , respectively.
8 . Postretirement and Other Employee Benefits
Postretirement Benefits
Net Periodic Benefit Cost
The following table provides information about the net periodic benefit cost for all plans for the three months and nine months ended May 31, 2020 and 2019 (in thousands):
Three months ended
Nine months ended
May 31, 2020
May 31, 2019
May 31, 2020
May 31, 2019
Service cost (1)
$
6,701
$
381
$
17,802
$
965
Interest cost (2)
755
987
2,327
2,742
Expected long-term return on plan assets (2)
( 3,741
)
( 1,344
)
( 10,316
)
( 4,026
)
Recognized actuarial loss (2)
225
203
674
616
Amortization of prior service credit (2)
( 11
)
( 11
)
( 33
)
( 34
)
Net periodic benefit cost
$
3,929
$
216
$
10,454
$
263
(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.
Acquired Plan
As a result of the third closing of the JJMD acquisition, the Company assumed a pension obligation for employees in Switzerland (the “Switzerland plan”). The Switzerland plan, which is a qualified defined benefit pension plan, provides benefits based on average employee earnings over an approximately 8 years service period preceding retirement and length of employee service. The Company’s policy is to contribute amounts sufficient to meet minimum funding requirements as set forth in Switzerland employee benefit and tax laws plus such additional amounts as are deemed appropriate by the Company.
The following tables provide information only related to the Switzerland plan as of the acquisition date, September 30, 2019, and are preliminary estimates.
Benefit Obligation and Plan Assets
15
Table of Contents
The benefit obligations, plan assets and the funded status of the Switzerland plan as of September 30, 2019 are as follows (in thousands):
September 30, 2019
Ending projected benefit obligation
$
( 404,297
)
Ending fair value of plan assets
$
330,793
Unfunded status
$
( 73,504
)
Cash Flows
The Company expects to make cash contributions between $ 9.9 million and $ 12.1 million to its Switzerland pension plan during fiscal year 2020 . The estimated future benefit payments, which reflect expected future service, are as follows (in thousands):
Fiscal Year Ended August 31,
Amount
2020
$
25,693
2021
22,572
2022
20,908
2023
19,140
2024
17,995
2025 through 2029
86,337
Accumulated Benefit Obligation
The following table provides information for the Switzerland plan with an accumulated benefit obligation as of September 30, 2019 (in thousands):
September 30, 2019
Projected benefit obligation
$
( 404,297
)
Accumulated benefit obligation
$
( 394,427
)
Fair value of plan assets
$
330,793
9 . Derivative Financial Instruments and Hedging Activities
The Company is directly and indirectly affected by changes in certain market conditions. These changes in market conditions may adversely impact the Company’s financial performance and are referred to as market risks. The Company, where deemed appropriate, uses derivatives as risk management tools to mitigate the potential impact of certain market risks. The primary market risks managed by the Company through the use of derivative instruments are foreign currency risk and interest rate risk.
Foreign Currency Risk Management
Forward contracts are put in place to manage the foreign currency risk associated with the anticipated foreign currency denominated revenues and expenses. A hedging relationship existed with an aggregate notional amount outstanding of $ 389.7 million and $ 334.1 million as of May 31, 2020 and August 31, 2019 , respectively. The related forward foreign exchange contracts have been designated as hedging instruments and are accounted for as cash flow hedges. The forward foreign exchange contract transactions will effectively lock in the value of anticipated foreign currency denominated revenues and expenses against foreign currency fluctuations. The anticipated foreign currency denominated revenues and expenses being hedged are expected to occur between June 1, 2020 and May 31, 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 May 31, 2020 and August 31, 2019 , was $ 2.6 billion and $ 2.5 billion , respectively.
16
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Refer to Note 17 – “Fair Value Measurements” for the fair values and classification of the Company’s derivative instruments.
The gains and losses recognized in earnings due to hedge ineffectiveness and the amount excluded from effectiveness testing were not material for all periods presented and are included as components of net revenue, cost of revenue and selling, general and administrative expense, which are the same line items in which the hedged items are recorded.
The following table presents the losses and gains from forward contracts recorded in the Condensed Consolidated Statements of Operations for the periods indicated (in thousands):
Derivatives Not Designated as Hedging Instruments Under ASC 815
Location of (Loss) Gain on Derivatives Recognized in Net Income
Amount of (Loss) Gain Recognized in Net Income on Derivatives
Three months ended
Nine months ended
May 31, 2020
May 31, 2019
May 31, 2020
May 31, 2019
Forward foreign exchange contracts (1)
Cost of revenue
$
( 36,955
)
$
( 33,476
)
$
( 3,436
)
$
9,332
(1)
For the three months and nine months ended May 31, 2020 , the Company recognized $ 36.9 million and $ 0.4 million , respectively, of foreign currency gains in cost of revenue, which are offset by the losses from the forward foreign exchange contracts. During the three months ended May 31, 2019 , the Company recognized $ 28.3 million of foreign currency gains in cost of revenue, which are offset by the losses from the forward foreign exchange contracts. During the nine months ended May 31, 2019 , the Company recognized $ 24.3 million of foreign currency losses in cost of revenue, which are offset by the gains from the forward foreign exchange contracts.
Interest Rate Risk Management
The Company periodically enters into interest rate swaps to manage interest rate risk associated with the Company’s borrowings.
Cash Flow Hedges
The following table presents the interest rate swaps outstanding as of May 31, 2020 , which have been designated as hedging instruments and accounted for as cash flow hedges:
Interest Rate Swap Summary
Hedged Interest Rate Payments
Aggregate Notional Amount (in millions)
Effective Date
Expiration Date (1)
Forward Interest Rate Swap
Anticipated Debt Issuance
Fixed
$
200.0
Oct 22, 2018
Dec 15, 2020
(2)
Interest Rate Swaps
Debt obligations
Variable
$
550.0
Aug 24, 2018 and
Oct 11, 2018
Aug 24, 2020 and Aug 31, 2020
(3)
(1)
The contracts will be settled with the respective counterparties on a net basis at the expiration date for the forward interest rate swap and at each settlement date for the interest rate swaps.
(2)
If the anticipated debt issuance occurs before December 15, 2020, the contracts will be terminated simultaneously with the debt issuance.
(3)
The Company pays interest based upon a fixed rate as agreed upon with the respective counterparties and receives variable rate interest payments based on the one-month and three-month LIBOR for borrowings under the Credit Facility and certain other debt obligations. Of the amount hedged, $ 350.0 million expires on August 24, 2020 and $ 200.0 million expires on August 31, 2020.
10 . Accumulated Other Comprehensive Income
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The following table sets forth the changes in accumulated other comprehensive (loss) income (“AOCI”), net of tax, by component for the nine months ended May 31, 2020 (in thousands):
Foreign
Currency
Translation
Adjustment
Derivative
Instruments
Actuarial
Loss
Prior
Service Cost
Available for
Sale Securities
Total
Balance as of August 31, 2019
$
( 14,298
)
$
( 39,398
)
$
( 28,033
)
$
( 608
)
$
( 457
)
( 82,794
)
Other comprehensive (loss) income before reclassifications
( 43,010
)
( 21,391
)
—
—
( 21,563
)
( 85,964
)
Amounts reclassified from AOCI
—
19,355
—
—
—
19,355
Other comprehensive (loss) income (1)
( 43,010
)
( 2,036
)
—
—
( 21,563
)
( 66,609
)
Balance as of May 31, 2020
$
( 57,308
)
$
( 41,434
)
$
( 28,033
)
$
( 608
)
$
( 22,020
)
$
( 149,403
)
(1)
Amounts are net of tax, which are immaterial.
The following table sets forth the amounts reclassified from AOCI into the Condensed Consolidated Statements of Operations, and the associated financial statement line item, net of tax, for the periods indicated (in thousands):
Three months ended
Nine months ended
Comprehensive Income Components
Financial Statement Line Item
May 31,
2020
May 31,
2019
May 31,
2020
May 31,
2019
Realized losses (gains) on derivative instruments: (1)
Foreign exchange contracts
Cost of revenue
$
16,451
$
( 1,298
)
$
20,648
$
17,248
Interest rate contracts
Interest expense
( 431
)
( 430
)
( 1,293
)
( 1,290
)
Total amounts reclassified from AOCI (2)
$
16,020
$
( 1,728
)
$
19,355
$
15,958
(1)
The Company expects to reclassify $ 4.4 million into earnings during the next twelve months, which will primarily be classified as a component of cost of revenue.
(2)
Amounts are net of tax, which are immaterial for the three months and nine months ended May 31, 2020 and 2019 .
11 . Stockholders’ Equity
The Company recognized stock-based compensation expense within selling, general and administrative expense as follows (in thousands):
Three months ended
Nine months ended
May 31, 2020
May 31, 2019
May 31, 2020
May 31, 2019
Restricted stock units
$
14,299
$
12,592
$
54,783
$
41,247
Employee stock purchase plan
2,583
1,914
7,431
6,205
Total
$
16,882
$
14,506
$
62,214
$
47,452
As of May 31, 2020 , the shares available to be issued under the 2011 Stock Award and Incentive Plan were 10,519,566 .
Restricted Stock Units
Certain key employees have been granted time-based, performance-based and market-based restricted stock unit awards (“restricted stock units”). The time-based restricted stock units generally vest on a graded vesting schedule over three years . The performance-based restricted stock units generally vest on a cliff vesting schedule over three years and up to a maximum of 150 % , depending on the specified performance condition and the level of achievement obtained. The performance-based restricted stock units have a vesting condition that is based upon the Company’s cumulative adjusted core earnings per share during the performance period. The market-based restricted stock units generally vest on a cliff vesting schedule over three years and up to a maximum of 200 % , depending on the specified performance condition and the level of achievement obtained.
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Table of Contents
The market-based restricted stock units have a vesting condition that is tied to the Company’s total shareholder return based on the Company’s stock performance in relation to the companies in the Standard and Poor’s (S&P) Super Composite Technology Hardware and Equipment Index excluding the Company. During the nine months ended May 31, 2020 and 2019 , the Company awarded approximately 1.1 million and 1.6 million time-based restricted stock units, respectively, 0.3 million and 0.4 million performance-based restricted stock units, respectively and 0.3 million and 0.4 million market-based restricted stock units, respectively.
The following represents the stock-based compensation information for the period indicated (in thousands):
Nine months ended
May 31, 2020
Unrecognized stock-based compensation expense—restricted stock units
$
54,394
Remaining weighted-average period for restricted stock units expense
1.4 years
Common Stock Outstanding
The following represents the common stock outstanding for the periods indicated:
Three months ended
Nine months ended
May 31, 2020
May 31, 2019
May 31, 2020
May 31, 2019
Common stock outstanding:
Beginning balances
151,407,526
152,878,329
153,520,380
164,588,172
Shares issued upon exercise of stock options
—
—
56,999
11,348
Shares issued under employee stock purchase plan
—
( 215
)
595,717
692,110
Vesting of restricted stock
13,234
73,095
2,252,846
1,979,022
Purchases of treasury stock under employee stock plans
( 2,808
)
( 24,322
)
( 619,931
)
( 489,158
)
Treasury shares purchased (1)
( 843,916
)
—
( 5,231,975
)
( 13,854,607
)
Ending balances
150,574,036
152,926,887
150,574,036
152,926,887
(1)
In September 2019, the Company’s Board of Directors authorized the repurchase of up to $ 600.0 million of the Company’s common stock as part of a two-year capital allocation framework (the “2020 Share Repurchase Program”). As of May 31, 2020 , 5.2 million shares had been repurchased for $ 188.9 million and $ 411.1 million remains available under the 2020 Share Repurchase Program.
12 . Concentration of Risk and Segment Data
Concentration of Risk
Sales of the Company’s products are concentrated among specific customers. During the nine months ended May 31, 2020 , the Company’s five largest customers accounted for approximately 47 % of its net revenue and 72 customers accounted for approximately 90 % of its net revenue. Sales to these customers were reported in the Electronics Manufacturing Services (“EMS”) and Diversified Manufacturing Services (“DMS”) operating segments.
The Company procures components from a broad group of suppliers. Some of the products manufactured by the Company require one or more components that are available from only a single source.
Segment Data
Net revenue for the operating segments is attributed to the segment in which the service is performed. An operating segment’s performance is evaluated based on its pre-tax operating contribution, or segment income. Segment income is defined as net revenue less cost of revenue, segment selling, general and administrative expenses, segment research and development expenses and an allocation of corporate manufacturing expenses and selling, general and administrative expenses. Segment income does not include amortization of intangibles, stock-based compensation expense and related charges, restructuring, severance and related charges, distressed customer charges, acquisition and integration charges, impairment on securities, loss on disposal of subsidiaries, settlement of receivables and related charges, impairment of notes receivable and related charges,
19
Table of Contents
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.
The following table presents the Company’s revenues disaggregated by segment (in thousands):
Three months ended
May 31, 2020
May 31, 2019
EMS
DMS
Total
EMS
DMS
Total
Timing of transfer
Point in time
$
963,512
$
1,380,477
$
2,343,989
$
699,825
$
1,156,213
$
1,856,038
Over time
2,949,416
1,042,237
3,991,653
3,288,664
990,900
4,279,564
Total
$
3,912,928
$
2,422,714
$
6,335,642
$
3,988,489
$
2,147,113
$
6,135,602
Nine months ended
May 31, 2020
May 31, 2019
EMS
DMS
Total
EMS
DMS
Total
Timing of transfer
Point in time
$
3,340,992
$
4,391,837
$
7,732,829
$
1,957,349
$
4,722,696
$
6,680,045
Over time
8,819,442
3,414,152
12,233,594
9,338,970
2,689,852
12,028,822
Total
$
12,160,434
$
7,805,989
$
19,966,423
$
11,296,319
$
7,412,548
$
18,708,867
The following table sets forth operating segment information (in thousands):
Three months ended
Nine months ended
May 31, 2020
May 31, 2019
May 31, 2020
May 31, 2019
Segment income and reconciliation of income before income tax
EMS
$
102,372
$
130,869
$
291,902
$
303,618
DMS
69,712
54,896
316,945
326,866
Total segment income
$
172,084
$
185,765
$
608,847
$
630,484
Reconciling items:
Amortization of intangibles
( 13,178
)
( 7,610
)
( 42,895
)
( 23,033
)
Stock-based compensation expense and related charges
( 16,882
)
( 14,506
)
( 62,214
)
( 47,452
)
Restructuring, severance and related charges
( 69,150
)
( 9,340
)
( 144,005
)
( 16,182
)
Distressed customer charge
—
—
( 14,963
)
—
Business interruption and impairment charges, net (1)
( 4,574
)
—
( 4,574
)
2,860
Acquisition and integration charges
( 6,119
)
( 13,391
)
( 30,005
)
( 35,066
)
Impairment on securities
—
—
( 12,205
)
—
Other expense (net of periodic benefit cost)
( 8,399
)
( 14,084
)
( 32,673
)
( 39,391
)
Interest income
1,864
6,758
13,144
15,897
Interest expense
( 41,873
)
( 50,514
)
( 132,967
)
( 139,326
)
Income before income tax
$
13,773
$
83,078
$
145,490
$
348,791
(1) Charges for the three and nine months ended May 31, 2020, relate to a flood that impacted our facility in Huangpu, China. Charges, net of insurance proceeds of $ 2.9 million for the nine months ended May 31, 2019 , relate to business interruption and asset impairment costs associated with damage from Hurricane Maria, which impacted our operations in Cayey, Puerto Rico.
20
Table of Contents
As of May 31, 2020 , the Company operated in 31 countries worldwide. Sales to unaffiliated customers are based on the Company location that maintains the customer relationship and transacts the external sale. The following tables set forth external net revenue, net of intercompany eliminations, and long-lived asset information where individual countries represent a material portion of the total (in thousands):
`
Three months ended
Nine months ended
May 31, 2020
May 31, 2019
May 31, 2020
May 31, 2019
External net revenue:
Singapore
$
1,470,283
$
1,324,901
$
4,717,568
$
5,232,505
Mexico
1,165,154
1,200,555
3,510,110
3,248,757
China
1,140,270
1,261,707
3,263,591
3,779,162
Malaysia
378,106
427,858
1,374,335
1,221,819
Vietnam
222,477
196,443
651,255
516,801
Other
908,906
892,812
2,966,952
2,690,987
Foreign source revenue
5,285,196
5,304,276
16,483,811
16,690,031
U.S.
1,050,446
831,326
3,482,612
2,018,836
Total
$
6,335,642
$
6,135,602
$
19,966,423
$
18,708,867
May 31, 2020
August 31, 2019
Long-lived assets:
China
$
1,490,313
$
1,579,904
Mexico
393,079
418,641
Malaysia
223,618
154,386
Switzerland
219,290
158
Singapore
145,249
156,028
Taiwan
115,436
123,608
Vietnam
109,371
85,728
Hungary
100,568
85,809
Other
451,396
462,261
Long-lived assets related to foreign operations
3,248,320
3,066,523
U.S.
1,159,594
1,146,335
Total
$
4,407,914
$
4,212,858
13 . Restructuring, Severance and Related Charges
Following is a summary of the Company’s restructuring, severance and related charges (in thousands):
Three months ended
Nine months ended
May 31, 2020 (2)
May 31, 2019 (3)
May 31, 2020 (2)
May 31, 2019 (3)
Employee severance and benefit costs
$
56,891
$
6,513
$
83,684
$
15,460
Lease costs
402
( 50
)
6,870
( 41
)
Asset write-off costs
6,253
( 343
)
31,678
( 3,555
)
Other costs
5,604
3,220
21,773
4,318
Total restructuring, severance and related charges (1)
$
69,150
$
9,340
$
144,005
$
16,182
(1)
Includes $ 23.7 million and $ 7.6 million recorded in the EMS segment, $ 29.3 million and $ 0.0 million recorded in the DMS segment and $ 16.2 million and $ 1.7 million of non-allocated charges for the three months ended May 31, 2020 and 2019 , respectively. Includes $ 55.8 million and $ 12.3 million recorded in the EMS segment, $ 69.0 million and $ 2.1 million recorded in the DMS segment and $ 19.2 million and $ 1.8 million of non-allocated charges for the nine months
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ended May 31, 2020 and 2019 , respectively. Except for asset write-off costs, all restructuring, severance and related charges are cash costs.
(2)
As the Company continues to optimize its cost structure and improve operational efficiencies, $ 52.3 million of employee severance and benefit costs was incurred in connection with a reduction in the worldwide workforce during the three and nine months ended May 31, 2020. The Company’s liability associated with the worldwide workforce reduction is $ 50.9 million as of May 31, 2020. The remaining amount primarily relates to the 2020 Restructuring Plan.
(3)
Primarily relates to the 2017 Restructuring Plan.
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 reflects the Company’s intention only and restructuring decisions, and the timing of such decisions, at certain locations are still subject to consultation with the Company’s employees and their representatives.
The Company expects to recognize approximately $ 85.0 million in pre-tax restructuring and other related costs over the course of the Company’s fiscal year 2020. This information will be subject to the finalization of timetables for the transition of functions, consultation with employees and their representatives as well as the statutory severance requirements of the particular jurisdictions impacted, and the amount and timing of the actual charges may vary due to a variety of factors. The Company’s estimates for the charges discussed above exclude any potential income tax effects.
The table below summarizes the Company’s liability activity, primarily associated with the 2020 Restructuring Plan
(in thousands):
Employee Severance
and Benefit Costs
Lease Costs
Asset Write-off Costs
Other Related Costs
Total
Balance as of August 31, 2019 (1)
$
3,162
$
1,980
$
—
$
789
$
5,931
Restructuring related charges
31,421
6,870
31,678
312
70,281
Asset write-off charge and other non-cash activity
( 140
)
( 5,639
)
( 31,678
)
5
( 37,452
)
Cash payments
( 24,086
)
( 739
)
—
( 650
)
( 25,475
)
Balance as of May 31, 2020
$
10,357
$
2,472
$
—
$
456
$
13,285
(1)
Balance as of August 31, 2019 primarily relates to the 2017 Restructuring Plan.
14 . Income Taxes
Effective Income Tax Rate
The U.S. federal statutory income tax rate and the Company's effective income tax rate are as follows:
Three months ended
Nine months ended
May 31,
2020
May 31,
2019
May 31,
2020
May 31,
2019
U.S. federal statutory income tax rate
21.0
%
21.0
%
21.0
%
21.0
%
Effective income tax rate
465.0
%
47.0
%
108.3
%
32.4
%
The effective income tax rate increased for the three months and nine months ended May 31, 2020 , compared to the three months and nine months ended May 31, 2019 , primarily due to: (i) decreased income for the three months and nine months ended May 31, 2020, driven in part by increased restructuring charges with minimal related tax benefit; (ii) a $ 21.2 million income tax expense associated with the re-measurement of deferred tax assets related to an extension of a non-U.S. tax incentive recorded during the three months ended May 31, 2020; and (iii) adjustments related to the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) for the nine months ended May 31, 2019, including a $ 13.3 million income tax benefit recorded during the three months ended November 30, 2018.
The effective tax rate differed from the U.S. federal statutory rate of 21.0% during the three months and nine months ended May 31, 2020 and 2019 , primarily due to: (i) losses in tax jurisdictions with existing valuation allowances; (ii) tax
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incentives granted to sites in Brazil, China, Malaysia, Singapore and Vietnam; (iii) a $ 21.2 million income tax expense associated with the re-measurement of deferred tax assets related to an extension of a non-U.S. tax incentive recorded during the three months ended May 31, 2020; and (iv) adjustments to amounts previously recorded for the Tax Act for the nine months ended May 31, 2019 .
15 . Earnings Per Share and Dividends
Earnings Per Share
The Company calculates its basic earnings per share by dividing net income attributable to the Company by the weighted average number of common shares outstanding during the period. The Company’s diluted earnings per share is calculated in a similar manner, but includes the effect of dilutive securities. The difference between the weighted average number of basic shares outstanding and the weighted average number of diluted shares outstanding is primarily due to dilutive unvested restricted stock units and dilutive stock appreciation rights.
Potential shares of common stock are excluded from the computation of diluted earnings per share when their effect would be antidilutive. Performance-based restricted stock units are considered dilutive when the related performance criteria have been met assuming the end of the reporting period represents the end of the performance period. All potential shares of common stock are antidilutive in periods of net loss. Potential shares of common stock not included in the computation of earnings per share because their effect would have been antidilutive or because the performance criterion was not met were as follows (in thousands):
Three months ended
Nine months ended
May 31, 2020
May 31, 2019
May 31, 2020
May 31, 2019
Restricted stock units
3,717
1,345
3,379
1,338
Employee stock purchase plan
57
—
92
—
Stock appreciation rights
5
—
28
—
Dividends
The following table sets forth cash dividends declared by the Company to common stockholders during the nine months ended May 31, 2020 and 2019 (in thousands, except for per share data):
Dividend
Declaration Date
Dividend
per Share
Total of Cash
Dividends
Declared
Date of Record for
Dividend Payment
Dividend Cash
Payment Date
Fiscal Year 2020:
October 17, 2019
$
0.08
$
12,647
November 15, 2019
December 2, 2019
January 23, 2020
$
0.08
$
12,517
February 14, 2020
March 4, 2020
April 15, 2020
$
0.08
$
12,452
May 15, 2020
June 3, 2020
Fiscal Year 2019:
October 18, 2018
$
0.08
$
13,226
November 15, 2018
December 3, 2018
January 24, 2019
$
0.08
$
12,706
February 15, 2019
March 1, 2019
April 18, 2019
$
0.08
$
12,681
May 15, 2019
June 3, 2019
16 . Business Acquisitions
During fiscal year 2018, the Company and Johnson & Johnson Medical Devices Companies (“JJMD”) entered into a Framework Agreement to form a strategic collaboration and expand its existing relationship. The strategic collaboration expands the Company’s medical device manufacturing portfolio, diversification and capabilities.
On February 25, 2019 and April 29, 2019, under the terms of the Framework Agreement, the Company completed the initial and second closings, respectively, of its acquisition of certain assets of JJMD. The aggregate purchase price paid for the initial and second closings was approximately $ 167.4 million in cash. For the initial and second closings, total assets acquired of $ 173.5 million and total liabilities assumed of $ 6.1 million were recorded at their estimated fair values as of the acquisition dates.
On September 30, 2019, under the terms of the Framework Agreement, the Company completed the third closing of its acquisition of certain assets of JJMD. The preliminary aggregate purchase price paid for the third closing was approximately $ 111.8 million in cash, which remains subject to certain post-closing adjustments based on conditions within the Framework
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Agreement. For the third closing, total assets acquired of $ 199.7 million , including $ 83.2 million in contract assets, $ 35.1 million in inventory and $ 70.4 million in goodwill, and total liabilities assumed of $ 87.9 million , including $ 73.5 million of pension obligations, were recorded at their estimated fair values as of the acquisition date. There were no intangible assets identified in this acquisition and the goodwill is primarily attributable to the assembled workforce. The majority of the goodwill is currently not expected to be deductible for income tax purposes.
The acquisition of the JJMD assets have been accounted for as separate business combinations for each closing using the acquisition method of accounting. The Company is currently evaluating the fair values of the assets and liabilities related to the third closing of these business combinations. The preliminary estimates and measurements are, therefore, subject to change during the measurement period for assets acquired, liabilities assumed and tax adjustments. The results of operations were included in the Company’s condensed consolidated financial results beginning on February 25, 2019 for the initial closing, April 29, 2019 for the second closing and September 30, 2019 for the third closing. The Company believes it is impracticable to provide pro forma information for the acquisition of the JJMD assets.
17 . Fair Value Measurements
Fair Value Measurements on a Recurring Basis
The following table presents the fair value of the Company's financial assets and liabilities measured at fair value by hierarchy level on a recurring basis as of the periods indicated:
(in thousands)
Fair Value Hierarchy
May 31, 2020
August 31, 2019
Assets:
Cash and cash equivalents:
Cash equivalents
Level 1
(1)
$
38,259
$
27,804
Prepaid expenses and other current assets:
Short-term investments
Level 1
16,860
14,088
Forward foreign exchange contracts:
Derivatives designated as hedging instruments (Note 9)
Level 2
(2)
6,277
904
Derivatives not designated as hedging instruments (Note 9)
Level 2
(2)
7,210
6,878
Other assets:
Senior Non-Convertible Preferred Stock
Level 3
(3)
14,400
33,102
Liabilities:
Accrued expenses:
Forward foreign exchange contracts:
Derivatives designated as hedging instruments (Note 9)
Level 2
(2)
$
4,403
$
15,999
Derivatives not designated as hedging instruments (Note 9)
Level 2
(2)
38,004
55,391
Interest rate swaps:
Derivatives designated as hedging instruments (Note 9)
Level 2
(4)
3,357
5,918
Forward interest rate swaps:
Derivatives designated as hedging instruments (Note 9)
Level 2
(4)
50,923
—
Other liabilities:
Forward interest rate swaps:
Derivatives designated as hedging instruments (Note 9)
Level 2
(4)
—
35,045
(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)
The Senior Non-Convertible Preferred Stock is valued each reporting period using unobservable inputs based on a discounted cash flow model and is classified as an available for sale debt security with any unrealized loss recorded to AOCI. As of May 31, 2020 and August 31, 2019 , the unobservable inputs have an immaterial impact on the fair value calculation.
(4)
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.
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Assets Held for Sale
The following table presents the assets held for sale (in thousands):
May 31, 2020
August 31, 2019
(in thousands)
Carrying Amount
Carrying Amount
Assets held for sale (1)
$
30,120
$
—
(1)
The fair value of assets held for sale exceeds the carrying value. As a result, no impairment has been recorded for assets held for sale as of May 31, 2020 .
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, trade accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses approximate fair value because of the short-term nature of these financial instruments. The carrying amounts of borrowings under credit facilities and under loans approximates fair value as interest rates on these instruments approximates current market rates.
Notes payable and long-term debt is carried at amortized cost; however, the Company estimates the fair values of notes payable and long-term debt for disclosure purposes. The following table presents the carrying amounts and fair values of the Company's notes payable and long-term debt, by hierarchy level as of the periods indicated:
May 31, 2020
August 31, 2019
(in thousands)
Fair Value Hierarchy
Carrying Amount
Fair Value
Carrying Amount
Fair Value
Notes payable and long-term debt: (Note 5)
5.625% Senior Notes
Level 2
(1)
$
399,555
$
408,876
$
398,886
$
416,000
4.700% Senior Notes
Level 2
(1)
498,496
527,065
498,004
525,890
4.900% Senior Notes
Level 3
(2)
299,239
317,323
299,057
318,704
3.950% Senior Notes
Level 2
(1)
495,286
515,755
494,825
509,845
3.600% Senior Notes
Level 2
(1)
494,616
491,515
—
—
(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.
Refer to Note 8 - “Postretirement and Other Employee Benefits” for disclosure surrounding the fair value of the Company’s pension plan assets.
18 . Commitments and Contingencies
The Company is party to certain lawsuits in the ordinary course of business. The Company does not believe that these proceedings, individually or in the aggregate, will have a material adverse effect on the Company’s financial position, results of operations or cash flows.
19 . New Accounting Guidance
Recently Adopted Accounting Guidance
During fiscal year 2016, the FASB issued a new accounting standard revising lease accounting, which requires the Company to recognize right-of-use assets and lease liabilities on the Consolidated Balance Sheet and disclose key information regarding leasing arrangements. The accounting standard became effective for the Company in the first quarter of fiscal year 2020. Refer to Note 4 - “Leases” to the Condensed Consolidated Financial Statements for further details.
During fiscal year 2017, the FASB issued a new accounting standard to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities by simplifying the application of hedge accounting and improving the related disclosures in its financial statements. This guidance became effective for the Company beginning in the first quarter of fiscal year 2020. The guidance was applied using a modified retrospective approach.
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The adoption of this standard did not have a material impact on the Company’s Consolidated Financial Statements; however, the impact on future periods will depend on the facts and circumstances of future transactions.
Recently Issued Accounting Guidance
During fiscal year 2016, the FASB issued an accounting standard, which replaces the existing incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This guidance is effective for the Company beginning in the first quarter of fiscal year 2021. This guidance must be applied using a modified retrospective or prospective transition method, depending on the area covered by this accounting standard. The Company is currently assessing the impact this new standard may have on its Consolidated Financial Statements.
During fiscal year 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 Company is currently assessing the impact this new standard may have on its Consolidated Financial Statements.
During the third quarter of fiscal year 2020, the FASB issued a new accounting standard which provides guidance in accounting for contracts, hedging relationships, and other transactions that reference U.S. dollar LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments in this update are elective and were effective for the Company immediately upon issuance. The Company is currently assessing the impact of the transition from U.S. dollar LIBOR to alternative reference rates but does not expect this new standard to have a material impact on its Consolidated Financial Statements.
Recently issued accounting guidance not discussed above is not applicable or did not have, or is not expected to have, a material impact to the Company.
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JABIL INC. AND SUBSIDIARIES
References in this report to “the Company,” “Jabil,” “we,” “our,” or “us” mean Jabil Inc. together with its subsidiaries, except where the context otherwise requires. This Quarterly Report on Form 10-Q contains certain statements that are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements (such as when we describe what “will,” “may,” or “should” occur, what we “plan,” “intend,” “estimate,” “believe,” “expect” or “anticipate” will occur, and other similar statements).We make certain assumptions when making forward-looking statements, any of which could prove inaccurate, including assumptions about our future operating results and business plans. Therefore, we can give no assurance that the results implied by these forward-looking statements will be realized. Furthermore, the inclusion of forward-looking information should not be regarded as a representation by the Company or any other person that future events, plans or expectations contemplated by the Company will be achieved. The following important factors, among others, could affect future results and events, causing those results and events to differ materially from those expressed or implied in our forward-looking statements: the scope and duration of the COVID-19 pandemic and its impact on global economic systems, our employees, sites, operations, customers, and supply chain, managing growth effectively; our dependence on a limited number of customers; competitive challenges affecting our customers; managing rapid declines in customer demand and other related customer challenges that may occur; changes in technology; the occurrence of, success and expected financial results from, product ramps; competition; our ability to maintain and improve costs, quality and delivery for our customers; 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; performance in the markets in which we operate; and adverse changes in political conditions, in the U.S. and internationally, including, among others, adverse changes in tax laws and rates and our ability to estimate and manage their impact. For a further list and description of various risks, factors and uncertainties that could cause future results or events to differ materially from those expressed or implied in our forward-looking statements, see the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections contained in our Annual Report on Form 10-K for the fiscal year ended August 31, 2019 , any subsequent reports on Form 10-Q and Form 8-K, and other filings we make with the Securities and Exchange Commission (“SEC”). Given these risks and uncertainties, the reader should not place undue reliance on these forward-looking statements.
All forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date of this Quarterly Report on Form 10-Q, and we do not undertake any obligation to publicly update or correct any forward-looking statements to reflect events or circumstances that subsequently occur, or of which we hereafter become aware. You should read this document completely and with the understanding that our actual future results or events may be materially different from what we expect. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.