JABIL INC 10-Q

Item 1. Financial Statements JABIL INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except for share data) November 30, 2020 (Unaudited) August 31, 2020 ASSETS Current assets: Cash and cash equivalents $ 1,107,573 $ 1,393,557 Accounts receivable, net of allowance for doubtful accounts of $ 24,479 as of November 30, 2020 and $ 25,827 as of August 31, 2020 3,651,869 2,847,743 Contract assets 1,088,059 1,104,700 Inventories, net 3,271,842 3,131,783 Prepaid expenses and other current assets 727,849 657,102 Total current assets 9,847,192 9,134,885 Property, plant and equipment, net of accumulated depreciation of $ 4,676,152 as of November 30, 2020 and $ 4,525,758 as of August 31, 2020 3,792,091 3,665,312 Operating lease right-of-use asset 391,004 362,847 Goodwill 706,625 696,853 Intangible assets, net of accumulated amortization of $ 406,694 as of November 30, 2020 and $ 395,074 as of August 31, 2020 198,801 209,870 Deferred income taxes 165,264 165,407 Other assets 168,501 162,242 Total assets $ 15,269,478 $ 14,397,416 LIABILITIES AND EQUITY Current liabilities: Current installments of notes payable and long-term debt $ 50,195 $ 50,194 Accounts payable 6,431,567 5,687,038 Accrued expenses 3,061,092 3,211,528 Current operating lease liabilities 119,150 110,723 Total current liabilities 9,662,004 9,059,483 Notes payable and long-term debt, less current installments 2,679,005 2,678,288 Other liabilities 331,093 268,925 Non-current operating lease liabilities 324,379 302,035 Income tax liabilities 163,459 148,629 Deferred income taxes 115,587 114,657 Total liabilities 13,275,527 12,572,017 Commitments and contingencies Equity: Jabil Inc. stockholders’ equity: Preferred stock, $ 0.001 par value, authorized 10,000,000 shares; no shares issued and no shares outstanding — — Common stock, $ 0.001 par value, authorized 500,000,000 shares; 266,047,352 and 263,830,270 shares issued and 150,471,570 and 150,330,358 shares outstanding as of November 30, 2020 and August 31, 2020, respectively 266 264 Additional paid-in capital 2,445,582 2,413,616 Retained earnings 2,228,729 2,040,922 Accumulated other comprehensive loss ( 14,346 ) ( 34,168 ) Treasury stock at cost, 115,575,782 and 113,499,912 shares as of November 30, 2020 and August 31, 2020, respectively ( 2,680,860 ) ( 2,609,250 ) Total Jabil Inc. stockholders’ equity 1,979,371 1,811,384 Noncontrolling interests 14,580 14,015 Total equity 1,993,951 1,825,399 Total liabilities and equity $ 15,269,478 $ 14,397,416 See accompanying notes to Condensed Consolidated Financial Statements. 1 Table of Contents JABIL INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except for per share data) (Unaudited) Three months ended November 30, 2020 November 30, 2019 Net revenue $ 7,832,529 $ 7,505,698 Cost of revenue 7,197,969 6,951,859 Gross profit 634,560 553,839 Operating expenses: Selling, general and administrative 302,752 328,899 Research and development 8,118 10,770 Amortization of intangibles 11,455 16,140 Restructuring, severance and related charges ( 1,715 ) 45,251 Operating income 313,950 152,779 Other (income) expense ( 1,922 ) 11,172 Interest income ( 1,881 ) ( 5,944 ) Interest expense 32,346 44,911 Income before income tax 285,407 102,640 Income tax expense 84,400 61,926 Net income 201,007 40,714 Net income attributable to noncontrolling interests, net of tax 565 292 Net income attributable to Jabil Inc. $ 200,442 $ 40,422 Earnings per share attributable to the stockholders of Jabil Inc.: Basic $ 1.33 $ 0.26 Diluted $ 1.31 $ 0.26 Weighted average shares outstanding: Basic 150,157 153,100 Diluted 152,918 156,462 See accompanying notes to Condensed Consolidated Financial Statements. 2 Table of Contents JABIL INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) (Unaudited) Three months ended November 30, 2020 November 30, 2019 Net income $ 201,007 $ 40,714 Other comprehensive income (loss): Change in foreign currency translation 10,718 ( 529 ) Change in derivative instruments: Change in fair value of derivatives 24,911 10,945 Adjustment for net (gains) losses realized and included in net income ( 15,551 ) 6,883 Total change in derivative instruments 9,360 17,828 Unrealized loss on available for sale securities — ( 8,827 ) Actuarial loss ( 256 ) — Total other comprehensive income 19,822 8,472 Comprehensive income $ 220,829 $ 49,186 Comprehensive income attributable to noncontrolling interests 565 292 Comprehensive income attributable to Jabil Inc. $ 220,264 $ 48,894 See accompanying notes to Condensed Consolidated Financial Statements. 3 Table of Contents JABIL INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands) (Unaudited) Three months ended November 30, 2020 November 30, 2019 Total stockholders' equity, beginning balances $ 1,825,399 $ 1,900,758 Common stock: Beginning balances 264 260 Vesting of restricted stock 2 2 Ending balances 266 262 Additional paid-in capital: Beginning balances 2,413,616 2,304,552 Vesting of restricted stock ( 2 ) ( 2 ) Recognition of stock-based compensation 31,968 27,757 Ending balances 2,445,582 2,332,307 Retained earnings: Beginning balances 2,040,922 2,037,037 Declared dividends ( 12,635 ) ( 12,701 ) Net income attributable to Jabil Inc. 200,442 40,422 Ending balances 2,228,729 2,064,758 Accumulated other comprehensive loss: Beginning balances ( 34,168 ) ( 82,794 ) Other comprehensive income 19,822 8,472 Ending balances ( 14,346 ) ( 74,322 ) Treasury stock: Beginning balances ( 2,609,250 ) ( 2,371,612 ) Purchases of treasury stock under employee stock plans ( 21,581 ) ( 19,317 ) Treasury shares purchased ( 50,029 ) ( 96,390 ) Ending balances ( 2,680,860 ) ( 2,487,319 ) Noncontrolling interests: Beginning balances 14,015 13,315 Net income attributable to noncontrolling interests 565 292 Ending balances 14,580 13,607 Total stockholders' equity, ending balances $ 1,993,951 $ 1,849,293 See accompanying notes to Condensed Consolidated Financial Statements. 4 Table of Contents JABIL INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) Three months ended November 30, 2020 November 30, 2019 Cash flows provided by operating activities: Net income $ 201,007 $ 40,714 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 205,766 202,859 Restructuring and related charges ( 1,556 ) 18,347 Recognition of stock-based compensation expense and related charges 33,541 30,223 Deferred income taxes ( 1,869 ) ( 6,645 ) Provision for allowance for doubtful accounts 2,426 10,413 Other, net 11,247 1,179 Change in operating assets and liabilities, exclusive of net assets acquired: Accounts receivable ( 791,492 ) ( 863,210 ) Contract assets 27,971 ( 68,322 ) Inventories ( 134,723 ) ( 286,775 ) Prepaid expenses and other current assets ( 54,243 ) ( 31,413 ) Other assets ( 8,142 ) ( 8,162 ) Accounts payable, accrued expenses and other liabilities 575,527 981,736 Net cash provided by operating activities 65,460 20,944 Cash flows used in investing activities: Acquisition of property, plant and equipment ( 352,881 ) ( 230,393 ) Proceeds and advances from sale of property, plant and equipment 110,792 23,209 Cash paid for business and intangible asset acquisitions, net of cash ( 18,417 ) ( 116,767 ) Other, net ( 3,367 ) ( 1,779 ) Net cash used in investing activities ( 263,873 ) ( 325,730 ) Cash flows used in financing activities: Borrowings under debt agreements 200,000 1,779,801 Payments toward debt agreements ( 201,969 ) ( 1,787,243 ) Payments to acquire treasury stock ( 50,029 ) ( 96,390 ) Dividends paid to stockholders ( 13,814 ) ( 13,731 ) Treasury stock minimum tax withholding related to vesting of restricted stock ( 21,581 ) ( 19,317 ) Net cash used in financing activities ( 87,393 ) ( 136,880 ) Effect of exchange rate changes on cash and cash equivalents ( 178 ) ( 1,835 ) Net decrease in cash and cash equivalents ( 285,984 ) ( 443,501 ) Cash and cash equivalents at beginning of period 1,393,557 1,163,343 Cash and cash equivalents at end of period $ 1,107,573 $ 719,842 See accompanying notes to Condensed Consolidated Financial Statements. 5 Table of Contents 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 Jabil Inc. (the “Company”) for the fiscal year ended August 31, 2020. Results for the three months ended November 30, 2020 are not necessarily an indication of the results that may be expected for the full fiscal year ending August 31, 2021. 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 ended November 30, 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, 2021 (2) B $ 150.0 Uncommitted November 30, 2021 C 400.0 CNY Uncommitted August 31, 2023 D $ 150.0 Uncommitted May 4, 2023 (3) E $ 150.0 Uncommitted January 25, 2021 (4) F $ 50.0 Uncommitted February 23, 2023 (5) G $ 100.0 Uncommitted August 10, 2021 (6) H $ 100.0 Uncommitted July 21, 2021 (7) I $ 650.0 Uncommitted December 4, 2021 (8) J $ 135.0 Uncommitted April 11, 2021 (9) K 100.0 CHF Uncommitted December 5, 2021 (2) 6 Table of Contents (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. In connection with the trade accounts receivable sale programs, the Company recognized the following (in millions): Three months ended November 30, 2020 November 30, 2019 Trade accounts receivable sold $ 1,256 $ 1,962 Cash proceeds received $ 1,255 $ 1,957 Pre-tax losses on sale of receivables (1) $ 1 $ 5 (1) Recorded to other expense within the Condensed Consolidated Statement of Operations. 3. Inventories Inventories consist of the following (in thousands): November 30, 2020 August 31, 2020 Raw materials $ 2,428,713 $ 2,389,719 Work in process 480,968 450,781 Finished goods 444,170 376,542 Reserve for excess and obsolete inventory ( 82,009 ) ( 85,259 ) Inventories, net $ 3,271,842 $ 3,131,783 7 Table of Contents 4. Notes Payable and Long-Term Debt Notes payable and long-term debt outstanding as of November 30, 2020 and August 31, 2020 are summarized below (in thousands): Maturity Date November 30, 2020 August 31, 2020 4.700 % Senior Notes Sep 15, 2022 $ 498,823 $ 498,659 4.900 % Senior Notes Jul 14, 2023 299,361 299,300 3.950 % Senior Notes Jan 12, 2028 495,594 495,440 3.600 % Senior Notes Jan 15, 2030 494,896 494,756 3.000 % Senior Notes Jan 15, 2031 590,400 590,162 Borrowings under credit facilities (1) Apr 23, 2021, Jan 22, 2023 and Jan 22, 2025 — — Borrowings under loans Jan 22, 2025 350,126 350,165 Total notes payable and long-term debt 2,729,200 2,728,482 Less current installments of notes payable and long-term debt 50,195 50,194 Notes payable and long-term debt, less current installments $ 2,679,005 $ 2,678,288 (1) As of November 30, 2020, the Company has $ 3.8 billion in available unused borrowing capacity under its revolving credit facilities. The Revolving Credit Facility under the five-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 $ 1.8 billion under its commercial paper program. Debt Covenants Borrowings under the Company’s debt agreements are subject to various covenants that limit the Company’s ability to: incur additional indebtedness, sell assets, effect mergers and certain transactions, and effect certain transactions with subsidiaries and affiliates. In addition, the revolving credit facilities and the 4.900 % Senior Notes contain debt leverage and interest coverage covenants. The Company is also subject to certain covenants requiring the Company to offer to repurchase the 4.700 %, 4.900 %, 3.950 %, 3.600 % or 3.000 % Senior Notes upon a change of control. As of November 30, 2020 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 ended November 30, 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 8 Table of Contents 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 November 30, 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 November 30, 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 November 30, 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 November 30, 2020, the Company had up to $ 6.3 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 November 30, 2020 November 30, 2019 Trade accounts receivable sold $ 1,173 $ 1,162 Cash proceeds received (1) $ 1,171 $ 1,156 Pre-tax losses on sale of receivables (2) $ 2 $ 6 (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 November 30, 2020 and August 31, 2020, the Company was in compliance with all covenants under the asset-backed securitization programs. 6. Accrued Expenses Accrued expenses consist of the following (in thousands): November 30, 2020 August 31, 2020 Contract liabilities (1) $ 441,151 $ 496,219 Accrued compensation and employee benefits 740,959 703,250 Other accrued expenses 1,878,982 2,012,059 Accrued expenses $ 3,061,092 $ 3,211,528 (1) Revenue recognized during the three months ended November 30, 2020 and 2019 that was included in the contract liability balance as of August 31, 2020 and 2019 was $ 170.3 million and $ 101.4 million, respectively. 9 Table of Contents 7 . Postretirement and Other Employee Benefits Net Periodic Benefit Cost The following table provides information about the net periodic benefit cost for all plans for the three months ended November 30, 2020 and 2019 (in thousands): Three months ended November 30, 2020 November 30, 2019 Service cost (1) $ 6,078 $ 4,463 Interest cost (2) 1,121 763 Expected long-term return on plan assets (2) ( 3,870 ) ( 2,786 ) Recognized actuarial (gain) loss (2) ( 1,243 ) 223 Amortization of actuarial gain (2) ( 1,724 ) — Amortization of prior service credit (2) ( 13 ) ( 11 ) Net periodic benefit cost $ 349 $ 2,652 (1) Service cost is recognized in cost of revenue in the Condensed Consolidated Statement of Operations. (2) Components are recognized in other expense in the Condensed Consolidated Statement of Operations. 8. Derivative Financial Instruments and Hedging Activities The Company is directly and indirectly affected by changes in certain market conditions. These changes in market conditions may adversely impact the Company’s financial performance and are referred to as market risks. The Company, where deemed appropriate, uses derivatives as risk management tools to mitigate the potential impact of certain market risks. The primary market risks managed by the Company through the use of derivative instruments are foreign currency risk and interest rate risk. Foreign Currency Risk Management Forward contracts are put in place to manage the foreign currency risk associated with the anticipated foreign currency denominated revenues and expenses. A hedging relationship existed with an aggregate notional amount outstanding of $ 1.0 billion and $ 355.2 million as of November 30, 2020 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 December 1, 2020 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 November 30, 2020 and August 31, 2020, was $ 3.5 billion and $ 2.9 billion, respectively. Refer to Note 16 – “Fair Value Measurements” for the fair values and classification of the Company’s derivative instruments. The gains and losses recognized in earnings due to hedge ineffectiveness and the amount excluded from effectiveness testing were not material for all periods presented and are included as components of net revenue, cost of revenue and selling, general and administrative expense, which are the same line items in which the hedged items are recorded. The following table presents the gains from forward contracts recorded in the Condensed Consolidated Statements of Operations for the periods indicated (in thousands): 10 Table of Contents Derivatives Not Designated as Hedging Instruments Under ASC 815 Location of Gain on Derivatives Recognized in Net Income Amount of Gain Recognized in Net Income on Derivatives Three months ended November 30, 2020 November 30, 2019 Forward foreign exchange contracts (1) Cost of revenue $ 84,006 $ 26,718 (1) During the three months ended November 30, 2020 and 2019, the Company recognized $ 72.9 million and $ 28.9 million, respectively, of foreign currency losses in cost of revenue, which are offset by the gains from the forward foreign exchange contracts. Interest Rate Risk Management The Company periodically enters into interest rate swaps to manage interest rate risk associated with the Company’s borrowings. Cash Flow Hedges The following table presents the interest rate swaps outstanding as of November 30, 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 $ 250.0 November 2, 2020 July 31, 2024 (2) (1) The contracts will be settled with the respective counterparties on a net basis at the expiration date for the forward interest rate swap. (2) If the anticipated debt issuance occurs before July 31, 2024, the contracts will be terminated simultaneously with the debt issuance. Contemporaneously with the issuance of our 3.000 % Notes in July 2020, the Company amended interest rate swap agreements with a notional value of $ 200.0 million, with mandatory termination dates from August 15, 2020 to February 15, 2022 (the “2020 Extended Interest Rate Swaps”). In addition, the Company entered into interest rate swaps to offset future exposures of fluctuations in the fair value of the 2020 Extended Interest Rate Swaps (the “Offsetting Interest Rate Swaps”). 9. Accumulated Other Comprehensive Income The following table sets forth the changes in accumulated other comprehensive income (loss) (“AOCI”), net of tax, by component for the three months ended November 30, 2020 (in thousands): Foreign Currency Translation Adjustment Derivative Instruments Actuarial Loss Prior Service Cost Total Balance as of August 31, 2020 $ ( 36,595 ) $ ( 30,996 ) $ 34,093 $ ( 670 ) $ ( 34,168 ) Other comprehensive income (loss) before reclassifications 10,718 24,911 ( 256 ) — 35,373 Amounts reclassified from AOCI — ( 15,551 ) — — ( 15,551 ) Other comprehensive income (loss) (1) 10,718 9,360 ( 256 ) — 19,822 Balance as of November 30, 2020 $ ( 25,877 ) $ ( 21,636 ) $ 33,837 $ ( 670 ) $ ( 14,346 ) (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): 11 Table of Contents Three months ended Comprehensive Income Components Financial Statement Line Item November 30, 2020 November 30, 2019 Realized (gains) losses on derivative instruments: (1) Foreign exchange contracts Cost of revenue $ ( 16,368 ) $ 7,314 Interest rate contracts Interest expense 817 ( 431 ) Total amounts reclassified from AOCI (2) $ ( 15,551 ) $ 6,883 (1) The Company expects to reclassify $ 14.5 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 ended November 30, 2020 and 2019. 10. Stockholders’ Equity The Company recognized stock-based compensation expense within selling, general and administrative expense as follows (in thousands): Three months ended November 30, 2020 November 30, 2019 Restricted stock units $ 31,273 $ 28,183 Employee stock purchase plan 2,268 2,040 Total $ 33,541 $ 30,223 On October 15, 2020, the Company’s Board of Directors approved the proposed 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan will replace the Company’s 2011 Stock Award and Incentive Plan, which terminated on October 21, 2020. The proposed 2021 Plan will be voted on during the annual meeting of shareholders to be held on January 21, 2021. Restricted Stock Units Certain key employees have been granted time-based, performance-based and market-based restricted stock unit awards (“restricted stock units”). The time-based restricted stock units generally vest on a graded vesting schedule over three years . The performance-based restricted stock units generally vest on a cliff vesting schedule over three years and up to a maximum of 150 %, depending on the specified performance condition and the level of achievement obtained. The performance-based restricted stock units have a vesting condition that is based upon the Company’s cumulative adjusted core earnings per share during the performance period. The market-based restricted stock units generally vest on a cliff vesting schedule over three years and up to a maximum of 200 %, depending on the specified performance condition and the level of achievement obtained. The market-based restricted stock units have a vesting condition that is tied to the Company’s total shareholder return based on the Company’s stock performance in relation to the companies in the Standard and Poor’s (S&P) Super Composite Technology Hardware and Equipment Index excluding the Company. During both the three months ended November 30, 2020 and 2019, the Company awarded approximately 1.1 million time-based restricted stock units, 0.3 million performance-based restricted stock units and 0.3 million market-based restricted stock units, respectively. The following represents the stock-based compensation information as of the period indicated (in thousands): November 30, 2020 Unrecognized stock-based compensation expense—restricted stock units $ 70,544 Remaining weighted-average period for restricted stock units expense 1.5 years Common Stock Outstanding 12 Table of Contents The following represents the common stock outstanding for the periods indicated: Three months ended November 30, 2020 November 30, 2019 Common stock outstanding: Beginning balances 150,330,358 153,520,380 Shares issued upon exercise of stock options — 13,930 Vesting of restricted stock 2,217,082 1,916,740 Purchases of treasury stock under employee stock plans ( 601,406 ) ( 530,417 ) Treasury shares purchased (1) ( 1,474,464 ) ( 2,620,277 ) Ending balances 150,471,570 152,300,356 (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 November 30, 2020, 7.5 million shares had been repurchased for $ 263.9 million and $ 336.1 million remains available under the 2020 Share Repurchase Program. 11. Concentration of Risk and Segment Data Concentration of Risk Sales of the Company’s products are concentrated among specific customers. During the three months ended November 30, 2020, the Company’s five largest customers accounted for approximately 50 % of its net revenue and 68 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, restructuring of securities loss, goodwill impairment charges, business interruption and impairment charges, net, income (loss) from discontinued operations, gain (loss) on sale of discontinued operations, other expense (excluding certain components of net periodic benefit cost), interest income, interest expense, income tax expense or adjustment for net income (loss) attributable to noncontrolling interests. Transactions between operating segments are generally recorded at amounts that approximate those at which we would transact with third parties. As of September 1, 2020, certain customers have been realigned within the Company’s operating segments. As there have been no changes to how the Company’s chief operating decision maker assesses operating performance and allocates resources, the Company’s operating segments which are the reporting segments continue to consist of the DMS and EMS segments. Customers within the automotive and transportation and smart home and appliances industries are now presented within the DMS segment. Prior period disclosures are restated to reflect the realignment. The following table presents the Company’s revenues disaggregated by segment (in thousands): Three months ended November 30, 2020 November 30, 2019 EMS DMS Total EMS DMS Total Timing of transfer Point in time $ 1,057,019 $ 2,239,828 $ 3,296,847 $ 1,383,752 $ 1,876,637 $ 3,260,389 Over time 2,536,028 1,999,654 4,535,682 2,375,186 1,870,123 4,245,309 Total $ 3,593,047 $ 4,239,482 $ 7,832,529 $ 3,758,938 $ 3,746,760 $ 7,505,698 13 Table of Contents The following tables set forth operating segment information (in thousands): Three months ended November 30, 2020 November 30, 2019 Segment income and reconciliation of income before income tax EMS $ 121,978 $ 89,354 DMS 242,959 187,961 Total segment income $ 364,937 $ 277,315 Reconciling items: Amortization of intangibles ( 11,455 ) ( 16,140 ) Stock-based compensation expense and related charges ( 33,541 ) ( 30,223 ) Restructuring, severance and related charges 1,715 ( 45,251 ) Distressed customer charge — ( 14,963 ) Acquisition and integration charges ( 2,113 ) ( 16,134 ) Other expense (net of periodic benefit cost) ( 3,671 ) ( 12,997 ) Interest income 1,881 5,944 Interest expense ( 32,346 ) ( 44,911 ) Income before income tax $ 285,407 $ 102,640 November 30, 2020 August 31, 2020 Total assets EMS $ 4,001,727 $ 3,233,681 DMS 6,953,659 6,641,764 Other non-allocated assets 4,314,092 4,521,971 $ 15,269,478 $ 14,397,416 As of November 30, 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 table sets forth, for the periods indicated, foreign source revenue expressed as a percentage of net revenue: Three months ended November 30, 2020 November 30, 2019 Foreign source revenue 83.6 % 81.8 % 12. Restructuring, Severance and Related Charges Following is a summary of the Company’s restructuring, severance and related charges (in thousands): Three months ended November 30, 2020 November 30, 2019 Employee severance and benefit costs $ 568 $ 18,781 Lease costs ( 2,873 ) 239 Asset write-off costs ( 2 ) 16,316 Other costs 592 9,915 Total restructuring, severance and related charges (1) $ ( 1,715 ) $ 45,251 (1) Primarily relates to the 2020 Restructuring Plan, and includes $( 3.0 ) million and $ 17.4 million recorded in the EMS segment, $ 1.0 million and $ 25.2 million recorded in the DMS segment and $ 0.3 million and $ 2.7 million of non-allocated charges for the three months ended November 30, 2020 and 2019, respectively. Except for asset write-off costs, all restructuring, severance and related charges are cash costs. 14 Table of Contents 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. Upon completion of the 2020 Restructuring Plan, the Company expects to recognize approximately $ 85.0 million in restructuring and other related costs. The Company incurred $ 76.9 million of costs during fiscal year 2020 and anticipates incurring the remaining costs during fiscal year 2021 for employee severance and benefit costs, asset write-off costs, and other related costs. The table below summarizes the Company’s liability activity, primarily associated with the 2020 Restructuring Plan (in thousands): Employee Severance and Benefit Costs Lease Costs Asset Write-off Costs Other Related Costs Total Balance as of August 31, 2020 $ 8,143 $ 2,316 $ — $ 426 $ 10,885 Restructuring related charges 264 ( 2,873 ) ( 2 ) 497 ( 2,114 ) Asset write-off charge and other non-cash activity — 1,554 2 — 1,556 Cash payments ( 4,525 ) ( 56 ) — ( 171 ) ( 4,752 ) Balance as of November 30, 2020 $ 3,882 $ 941 $ — $ 752 $ 5,575 The Company’s liability associated with the worldwide workforce reduction is $ 27.5 million as of November 30, 2020. 13. Income Taxes Effective Income Tax Rate The U.S. federal statutory income tax rate and the Company's effective income tax rate are as follows: Three months ended November 30, 2020 November 30, 2019 U.S. federal statutory income tax rate 21.0 % 21.0 % Effective income tax rate 29.6 % 60.3 % The effective income tax rate decreased for the three months ended November 30, 2020, compared to the three months ended November 30, 2019, primarily due to increased income for the three months ended November 30, 2020, 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 ended November 30, 2020 and 2019, 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. 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 15 Table of Contents 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 November 30, 2020 November 30, 2019 Restricted stock units 1,074 1,126 Dividends The following table sets forth cash dividends declared by the Company to common stockholders during the three months ended November 30, 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 2021: October 15, 2020 $ 0.08 $ 12,417 November 16, 2020 December 2, 2020 Fiscal Year 2020: October 17, 2019 $ 0.08 $ 12,647 November 15, 2019 December 2, 2019 15. 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 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 $ 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. The Company is currently evaluating the fair value of the assets and liabilities related to the fourth closing. The preliminary estimates and measurements are, therefore, subject to change during the measurement period for assets acquired, liabilities assumed and tax adjustments. The results of operations were included in the Company’s condensed consolidated financial results beginning on October 26, 2020 for the fourth closing. The Company believes it is impracticable to provide pro forma information for the acquisition of the JJMD assets. 16. Fair Value Measurements Fair Value Measurements on a Recurring Basis The following table presents the fair value of the Company's financial assets and liabilities measured at fair value by hierarchy level on a recurring basis as of the periods indicated: 16 Table of Contents (in thousands) Fair Value Hierarchy November 30, 2020 August 31, 2020 Assets: Cash and cash equivalents: Cash equivalents Level 1 (1) $ 24,894 $ 33,869 Prepaid expenses and other current assets: Short-term investments Level 1 17,220 16,556 Forward foreign exchange contracts: Derivatives designated as hedging instruments (Note 8) Level 2 (2) 24,094 11,201 Derivatives not designated as hedging instruments (Note 8) Level 2 (2) 104,364 58,893 Liabilities: Accrued expenses: Forward foreign exchange contracts: Derivatives designated as hedging instruments (Note 8) Level 2 (2) $ 722 $ 1,522 Derivatives not designated as hedging instruments (Note 8) Level 2 (2) 6,540 9,100 Interest rate swaps: Derivatives not designated as hedging instruments (Note 8) Level 2 (3) 1,663 540 Extended interest rate swap not designated as a hedging instrument (Note 8) Level 2 (4) 25,259 26,492 Other liabilities: Interest rate swaps: Derivatives not designated as hedging instruments (Note 8) Level 2 (3) 947 329 Extended interest rate swap not designated as a hedging instrument (Note 8) Level 2 (4) 12,425 13,111 Forward interest rate swaps: Derivatives designated as hedging instruments (Note 8) Level 2 (3) 1,241 — (1) Consist of investments that are readily convertible to cash with original maturities of 90 days or less. (2) The Company’s forward foreign exchange contracts are measured on a recurring basis at fair value, based on foreign currency spot rates and forward rates quoted by banks or foreign currency dealers. (3) Fair value measurements are based on the contractual terms of the derivatives and use observable market-based inputs. The interest rate swaps are valued using a discounted cash flow analysis on the expected cash flows of each derivative using observable inputs including interest rate curves and credit spreads. (4) The 2020 Extended Interest Rate Swaps are considered a hybrid instrument and the Company elected the fair value option for reporting. Fair value measurements are based on the contractual terms of the contract and use observable market-based inputs. The interest rate swaps are valued using a discounted cash flow analysis of the expected cash flows using observable inputs including interest rate curves and credit spreads. Assets Held for Sale The following table presents the assets held for sale (in thousands): November 30, 2020 August 31, 2020 (in thousands) Carrying Amount Carrying Amount Assets held for sale (1) $ 66,180 $ 67,380 (1) The fair value of assets held for sale exceeds the carrying value for $ 30.1 million of assets held for sale. For $ 36.1 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. 17 Table of Contents 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: November 30, 2020 August 31, 2020 (in thousands) Fair Value Hierarchy Carrying Amount Fair Value Carrying Amount Fair Value Notes payable and long-term debt: (Note 5) 4.700 % Senior Notes Level 2 (1) $ 498,823 $ 535,080 $ 498,659 $ 537,180 4.900 % Senior Notes Level 3 (2) 299,361 328,810 299,300 329,435 3.950 % Senior Notes Level 2 (1) 495,594 561,005 495,440 551,930 3.600 % Senior Notes Level 2 (1) 494,896 553,710 494,756 536,110 3.000 % Senior Notes Level 2 (1) 590,400 629,262 590,162 611,616 (1) The fair value estimates are based upon observable market data. (2) This fair value estimate is based on the Company’s indicative borrowing cost derived from discounted cash flows. 17. Commitments and Contingencies The Company is party to certain lawsuits in the ordinary course of business. The Company does not believe that these proceedings, individually or in the aggregate, will have a material adverse effect on the Company’s financial position, results of operations or cash flows. 18. New Accounting Guidance Recently Adopted Accounting Guidance During fiscal year 2016, the FASB issued an accounting standard, which replaces the existing incurred loss impairment model with an expected credit loss model and requires a financial asset measured at amortized cost to be presented at the net amount expected to be collected. The Company adopted the guidance during the first quarter of fiscal year 2021. The adoption of this standard did not have a material impact on the Company’s Consolidated Financial Statements. During fiscal year 2018, the FASB issued a new accounting standard which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This guidance 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. 18 Table of Contents JABIL INC. AND SUBSIDIARIES 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. 19 Table of Contents