JABIL INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview We are one of the leading providers of worldwide manufacturing services and solutions. We provide comprehensive electronics design, production and product management services to companies in various industries and end markets. Our services enable our customers to reduce manufacturing costs, improve supply-chain management, reduce inventory obsolescence, lower transportation costs and reduce product fulfillment time. Our manufacturing and supply chain management services and solutions include innovation, design, planning, fabrication and assembly, delivery and managing the flow of resources and products. We derive substantially all of our revenue from production and product management services (collectively referred to as “manufacturing services”), which encompass the act of producing tangible components that are built to customer specifications and are then provided to the customer. We serve our customers primarily through dedicated business units that combine highly automated, continuous flow manufacturing with advanced electronic design and design for manufacturability. We depend, and expect to continue to depend, upon a relatively small number of customers for a significant percentage of our net revenue, which in turn depends upon their growth, viability and financial stability. We conduct our operations in facilities that are located worldwide, including but not limited to, China, Malaysia, Mexico, Singapore, the United States and Hungary. We derived a substantial majority, 82.7% and 83.6%, of net revenue from our international operations for the three months and nine months ended May 31, 2021, respectively. Our global manufacturing production sites allow customers to manufacture products simultaneously in the optimal locations for their products. Our global presence is key to assessing and executing on our business opportunities. We have two reporting segments: Electronics Manufacturing Services (“EMS”) and Diversified Manufacturing Services (“DMS”), which are organized based on the economic profiles of the services performed, including manufacturing capabilities, market strategy, margins, return on capital and risk profiles. Our EMS segment is focused around leveraging IT, supply chain design and engineering, technologies largely centered on core electronics, utilizing our large scale manufacturing infrastructure and our ability to serve a broad range of end markets. Our EMS segment is a high volume business that produces product at a quicker rate (i.e. cycle time) and in larger quantities and includes customers primarily in the 5G, wireless and cloud, digital print and retail, industrial and semi-cap, and networking and storage industries. Our DMS segment is focused on providing engineering solutions, with an emphasis on material sciences, technologies and healthcare. Our DMS includes customers primarily in the automotive and transportation, connected devices, healthcare and packaging, and mobility industries. As of September 1, 2020, certain customers have been realigned within our operating segments. Our operating segments, which are the reporting segments, continue to consist of the DMS and EMS segments. Customers within the automotive and transportation and smart home and appliances industries are now presented within the DMS segment. Prior period disclosures are restated to reflect the realignment. We monitor the current economic environment and its potential impact on both the customers we serve as well as our end-markets and closely manage our costs and capital resources so that we can respond appropriately as circumstances change. COVID-19 The COVID-19 pandemic, which began to impact us in January 2020, has continued to affect our business and the businesses of our customers and suppliers. Travel and business operation restrictions arising from virus containment efforts of governments around the world have continued to impact our operations in Asia, Europe and the Americas. Essential activity exceptions from these restrictions have allowed us to continue to operate but virus containment efforts have resulted in additional direct costs. The impact on our suppliers has led to supply chain constraints, including difficulty sourcing materials necessary to fulfill customer production requirements and challenges in transporting completed products to our end customers. Summary of Results The following table sets forth, for the periods indicated, certain key operating results and other financial information (in thousands, except per share data): 21 Table of Contents Three months ended Nine months ended May 31, 2021 May 31, 2020 May 31, 2021 May 31, 2020 Net revenue $ 7,214,645 $ 6,335,642 $ 21,875,721 $ 19,966,423 Gross profit $ 567,800 $ 456,148 $ 1,772,285 $ 1,440,112 Operating income $ 239,774 $ 59,384 $ 790,074 $ 302,793 Net income (loss) attributable to Jabil Inc. $ 169,480 $ (50,958) $ 521,576 $ (13,819) Earnings (loss) per share—basic $ 1.14 $ (0.34) $ 3.49 $ (0.09) Earnings (loss) per share—diluted $ 1.12 $ (0.34) $ 3.41 $ (0.09) Key Performance Indicators Management regularly reviews financial and non-financial performance indicators to assess the Company’s operating results. Changes in our operating assets and liabilities are largely affected by our working capital requirements, which are dependent on the effective management of our sales cycle as well as timing of payments. Our sales cycle measures how quickly we can convert our manufacturing services into cash through sales. We believe the metrics set forth below are useful to investors in measuring our liquidity as future liquidity needs will depend on fluctuations in levels of inventory, accounts receivable and accounts payable. The following table sets forth, for the quarterly periods indicated, certain of management’s key financial performance indicators: Three months ended May 31, 2021 February 28, 2021 May 31, 2020 Sales cycle (1) 25 days 25 days 27 days Inventory turns (annualized) (2) 5 turns 6 turns 5 turns Days in accounts receivable (3) 40 days 40 days 37 days Days in inventory (4) 68 days 65 days 67 days Days in accounts payable (5) 84 days 81 days 77 days (1) The sales cycle is calculated as the sum of days in accounts receivable and days in inventory, less the days in accounts payable; accordingly, the variance in the sales cycle quarter over quarter was a direct result of changes in these indicators. (2) Inventory turns (annualized) are calculated as 360 days divided by days in inventory. (3) Days in accounts receivable is calculated as accounts receivable, net, divided by net revenue multiplied by 90 days. During the three months ended May 31, 2021 and February 28, 2021, the increase in days in accounts receivable from the three months ended May 31, 2020 was primarily due to an increase in accounts receivable, primarily driven by higher sales and timing of collections. (4) Days in inventory is calculated as inventory and contract assets divided by cost of revenue multiplied by 90 days. During the three months ended May 31, 2021, the increase in days in inventory from the prior sequential quarter was to support expected sales levels in the fourth quarter of fiscal year 2021. (5) Days in accounts payable is calculated as accounts payable divided by cost of revenue multiplied by 90 days. During the three months ended May 31, 2021, the increase in days in accounts payable from the three months ended February 28, 2021 and the three months ended May 31, 2021, respectively, was primarily due to an increase for material purchases and the timing of payments. Critical Accounting Policies and Estimates The preparation of our Condensed Consolidated Financial Statements and related disclosures in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires management to make estimates and judgments that affect our reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and assumptions based upon historical experience and various other factors and circumstances. Management believes that our estimates and assumptions are reasonable under the circumstances; however, actual results may vary from these estimates and assumptions under different future circumstances. For further discussion of our significant accounting policies, refer to Note 1 — “Description of Business and Summary of Significant Accounting Policies” to the Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the fiscal year ended August 31, 2020. 22 Table of Contents Recent Accounting Pronouncements See Note 18 – “New Accounting Guidance” to the Condensed Consolidated Financial Statements for a discussion of recent accounting guidance. Results of Operations Net Revenue Generally, we assess revenue on a global customer basis regardless of whether the growth is associated with organic growth or as a result of an acquisition. Accordingly, we do not differentiate or separately report revenue increases generated by acquisitions as opposed to existing business. In addition, the added cost structures associated with our acquisitions have historically been relatively insignificant when compared to our overall cost structure. The distribution of revenue across our segments has fluctuated, and will continue to fluctuate, as a result of numerous factors, including the following: fluctuations in customer demand; efforts to diversify certain portions of our business; business growth from new and existing customers; specific product performance; and any potential termination, or substantial winding down, of significant customer relationships. Three months ended Nine months ended (dollars in millions) May 31, 2021 May 31, 2020 Change May 31, 2021 May 31, 2020 Change Net revenue $ 7,214.6 $ 6,335.6 13.9 % $ 21,875.7 $ 19,966.4 9.6 % Net revenue increased during the three months ended May 31, 2021, compared to the three months ended May 31, 2020. Specifically, the DMS segment net revenue increased 21% due to: (i) a 7% increase in revenues from existing customers in our automotive and transportation business, (ii) a 7% increase in revenues from existing customers within our connected devices business, (iii) a 6% increase in revenue from existing customers within our healthcare and packaging business and (iv) a 1% increase in revenues from existing customers within our mobility business. The EMS segment net revenue increased 8% due to: (i) a 3% increase from existing customers within our 5G, wireless and cloud business, (ii) a 2% increase from existing customers within our networking and storage business, (iii) a 2% increase from existing customers within our digital print and retail business, and (iv) a 1% increase from an existing customer within our industrial and capital equipment business. Net revenue increased during the nine months ended May 31, 2021, compared to the nine months ended May 31, 2020. Specifically, the DMS segment net revenue increased 19% due to: (i) a 8% increase in revenues from existing customers within our mobility business as our ability to meet customer demand during the nine months ended May 31, 2020, was greatly diminished due to COVID-19 containment efforts in China, (ii) a 5% increase in revenues from existing customers within our connected devices business, (iii) a 4% increase in revenues from existing customers in our automotive and transportation business and (iv) a 2% increase in revenues from existing customers within our healthcare and packaging business. The EMS segment net revenue remained relatively consistent. The following table sets forth, for the periods indicated, revenue by segment expressed as a percentage of net revenue: Three months ended Nine months ended May 31, 2021 May 31, 2020 May 31, 2021 May 31, 2020 EMS 50 % 53 % 48 % 52 % DMS 50 % 47 % 52 % 48 % Total 100 % 100 % 100 % 100 % The following table sets forth, for the periods indicated, foreign source revenue expressed as a percentage of net revenue: Three months ended Nine months ended May 31, 2021 May 31, 2020 May 31, 2021 May 31, 2020 Foreign source revenue 82.7 % 83.4 % 83.6 % 82.6 % 23 Table of Contents Gross Profit Three months ended Nine months ended (dollars in millions) May 31, 2021 May 31, 2020 May 31, 2021 May 31, 2020 Gross profit $ 567.8 $ 456.1 $ 1,772.3 $ 1,440.1 Percent of net revenue 7.9 % 7.2 % 8.1 % 7.2 % Gross profit as a percentage of net revenue increased as compared to the three months and nine months ended May 31, 2020, primarily due to: (i) product mix and improved profitability across the various businesses and (ii) a decrease in incremental and idle labor costs associated with travel disruptions and governmental restrictions, largely related to the COVID-19 pandemic of $44.3 million and $72.1 million, for the three months ended and nine months ended May 31, 2021, respectively. Selling, General and Administrative Three months ended Nine months ended (dollars in millions) May 31, 2021 May 31, 2020 Change May 31, 2021 May 31, 2020 Change Selling, general and administrative $ 305.6 302.8 $ 2.8 $ 914.3 $ 916.8 $ (2.5) Selling, general and administrative expenses increased during the three months ended May 31, 2021, compared to the three months ended May 31, 2020. The increase is primarily due to: (i) a $17.3 million increase due to higher salary and salary related expenses and (ii) a $1.9 million increase in stock-based compensation expense due to anticipated achievement levels for certain performance-based stock awards and a higher stock price for cash-settled awards. The increase is partially offset by: (i) a $10.4 million decrease in costs related to the COVID-19 pandemic, primarily for personal protection equipment for our employees globally, and (ii) a $6.1 million decrease in acquisition and integration charges related to our strategic collaboration with a healthcare company. Selling, general and administrative expenses decreased during the nine months ended May 31, 2021, compared to the nine months ended May 31, 2020. The decrease is primarily due to a $26.6 million decrease in acquisition and integration charges related to our strategic collaboration with a healthcare company. The decrease is partially offset by (i) a $13.9 million increase in stock-based compensation expense due to anticipated achievement levels for certain performance-based stock awards, a higher stock price for awards granted during fiscal year 2021 and a higher stock price for cash-settled awards and (ii) a $10.2 million increase due to higher salary and salary related expenses. Research and Development Three months ended Nine months ended (dollars in millions) May 31, 2021 May 31, 2020 May 31, 2021 May 31, 2020 Research and development $ 9.7 $ 11.6 $ 27.1 $ 33.6 Percent of net revenue 0.1 % 0.2 % 0.1 % 0.2 % Research and development expenses remained relatively consistent as a percentage of net revenue during the three months and nine months ended May 31, 2021, compared to the three months and nine months ended May 31, 2020. Amortization of Intangibles Three months ended Nine months ended (dollars in millions) May 31, 2021 May 31, 2020 Change May 31, 2021 May 31, 2020 Change Amortization of intangibles $ 12.1 $ 13.2 $ (1.1) $ 35.2 $ 42.9 $ (7.7) Amortization of intangibles decreased during the three months and nine months ended May 31, 2021, compared to the three months and nine months ended May 31, 2020, primarily due to certain intangible assets that were fully amortized during fiscal year 2020. Restructuring, Severance and Related Charges 24 Table of Contents Following is a summary of the Company’s restructuring, severance and related charges (in millions): Three months ended Nine months ended May 31, 2021 May 31, 2020 May 31, 2021 May 31, 2020 Employee severance and benefit costs $ 0.5 $ 56.9 $ 3.2 $ 83.7 Lease costs — 0.4 (2.9) 6.9 Asset write-off costs — 6.3 4.6 31.7 Other costs 0.2 5.6 0.8 21.7 Total restructuring, severance and related charges (1) $ 0.7 $ 69.2 $ 5.7 $ 144.0 (1) Primarily relates to the 2020 Restructuring Plan, and includes $0.0 million and $23.7 million recorded in the EMS segment, $0.6 million and $29.3 million recorded in the DMS segment and $0.1 million and $16.2 million of non-allocated charges for the three months ended May 31, 2021 and 2020, respectively. Includes $(0.4) million and $55.8 million recorded in the EMS segment, $5.5 million and $69.0 million recorded in the DMS segment and $0.6 million and $19.2 million of non-allocated charges for the nine months ended May 31, 2021 and 2020, respectively. Except for asset write-off costs, all restructuring, severance and related charges are cash costs. See Note 12 – “Restructuring, Severance and Related Charges” to the Condensed Consolidated Financial Statements for further discussion of restructuring, severance and related charges for the 2020 Restructuring Plan. (Gain) Impairment on Securities Three months ended Nine months ended (dollars in millions) May 31, 2021 May 31, 2020 Change May 31, 2021 May 31, 2020 Change (Gain) impairment on securities $ (2.4) $ — $ (2.4) $ (2.4) $ 12.2 $ (14.6) ` The change in (gain) impairment on securities for the three months ended May 31, 2021 compared to the three months ended May 31, 2020 is due to cash proceeds received in connection with the sale of an investment. For the nine months ended May 31, 2021 compared to the nine months ended May 31, 2020, the cash proceeds were partially offset by a non-cash impairment charge incurred in connection with the sale of an investment in the optical networking segment during fiscal year 2020. Other (Income) Expense Three months ended Nine months ended (dollars in millions) May 31, 2021 May 31, 2020 Change May 31, 2021 May 31, 2020 Change Other (income) expense $ (3.4) $ 5.6 $ (9.0) $ (6.8) $ 25.3 $ (32.1) The change in other (income) expense for the three months ended May 31, 2021 compared to the three months ended May 31, 2020, is primarily due to: (i) $5.3 million related to a decrease in fees associated with lower utilization of the trade accounts receivable sales programs, (ii) $2.9 million related to lower net periodic benefit costs and (iii) $0.8 million arising from an increase in other income. The change in other (income) expense for the nine months ended May 31, 2021 compared to the nine months ended May 31, 2020, is primarily due to: (i) $20.8 million related to a decrease in fees associated with lower utilization of the trade accounts receivable sales programs, (ii) $9.9 million related to lower net periodic benefit costs and (iii) $1.4 million arising from an increase in other income. Interest Income Three months ended Nine months ended (dollars in millions) May 31, 2021 May 31, 2020 Change May 31, 2021 May 31, 2020 Change Interest income $ 1.6 $ 1.9 $ (0.3) $ 5.1 $ 13.1 $ (8.0) Interest income decreased during the three months and nine months ended May 31, 2021, compared to the three months and nine months ended May 31, 2020, primarily due to lower interest rates on cash equivalents (investments that are readily convertible to cash with maturity dates of 90 days or less). 25 Table of Contents Interest Expense Three months ended Nine months ended (dollars in millions) May 31, 2021 May 31, 2020 Change May 31, 2021 May 31, 2020 Change Interest expense $ 33.8 $ 41.9 $ (8.1) $ 97.2 $ 133.0 $ (35.8) Interest expense decreased during the three months and nine months ended May 31, 2021, compared to the three months and nine months ended May 31, 2020 due to lower interest rates and lower borrowings on our credit facilities and commercial paper program. Income Tax Expense Three months ended Nine months ended May 31, 2021 May 31, 2020 Change May 31, 2021 May 31, 2020 Change Effective income tax rate 20.3 % 465.0 % (444.7) % 26.0 % 108.3 % (82.3) % The effective income tax rate decreased for the three months and nine months ended May 31, 2021, compared to the three months and nine months ended May 31, 2020, primarily due to: (i) increased income for the three months and nine months ended May 31, 2021, driven in part by decreased restructuring charges in tax jurisdictions with minimal related income tax benefit and (ii) a $21.2 million income tax expense associated with the re-measurement of deferred tax assets related to an extension of a non-U.S. tax incentive recorded during the three months ended May 31, 2020. Non-GAAP (Core) Financial Measures The following discussion and analysis of our financial condition and results of operations include certain non-GAAP financial measures as identified in the reconciliations below. The non-GAAP financial measures disclosed herein do not have standard meaning and may vary from the non-GAAP financial measures used by other companies or how we may calculate those measures in other instances from time to time. Non-GAAP financial measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with U.S. GAAP. Also, our “core” financial measures should not be construed as an indication by us that our future results will be unaffected by those items that are excluded from our “core” financial measures. Management believes that the non-GAAP “core” financial measures set forth below are useful to facilitate evaluating the past and future performance of our ongoing manufacturing operations over multiple periods on a comparable basis by excluding the effects of the amortization of intangibles, stock-based compensation expense and related charges, restructuring, severance and related charges, distressed customer charges, acquisition and integration charges, loss on disposal of subsidiaries, settlement of receivables and related charges, impairment of notes receivable and related charges, goodwill impairment charges, business interruption and impairment charges, net, (gain) impairment on securities, income (loss) from discontinued operations, gain (loss) on sale of discontinued operations and certain other expenses, net of tax and certain deferred tax valuation allowance charges. Among other uses, management uses non-GAAP “core” financial measures to make operating decisions, assess business performance and as a factor in determining certain employee performance when evaluating incentive compensation. We determine the tax effect of the items excluded from “core” earnings and “core” diluted earnings per share based upon evaluation of the statutory tax treatment and the applicable tax rate of the jurisdiction in which the pre-tax items were incurred, and for which realization of the resulting tax benefit, if any, is expected. In certain jurisdictions where we do not expect to realize a tax benefit (due to existing tax incentives or a history of operating losses or other factors resulting in a valuation allowance related to deferred tax assets), a reduced or 0% tax rate is applied. We are reporting “core” operating income, “core” earnings and cash flow to provide investors with an additional method for assessing operating income and earnings, by presenting what we believe are our “core” manufacturing operations. A significant portion (based on the respective values) of the items that are excluded for purposes of calculating “core” operating income and “core” earnings also impacted certain balance sheet assets, resulting in a portion of an asset being written off without a corresponding recovery of cash we may have previously spent with respect to the asset. In the case of restructuring, severance and related charges, we may make associated cash payments in the future. In addition, although, for purposes of calculating “core” operating income and “core” earnings, we exclude stock-based compensation expense (which we anticipate continuing to incur in the future) because it is a non-cash expense, the associated stock issued may result in an increase in our outstanding shares of stock, which may result in the dilution of our stockholders’ ownership interest. We encourage you to consider these matters when evaluating the utility of these non-GAAP financial measures. 26 Table of Contents Adjusted free cash flow is defined as net cash provided by (used in) operating activities plus cash receipts on sold receivables less net capital expenditures (acquisition of property, plant and equipment less proceeds and advances from the sale of property, plant and equipment). We report adjusted free cash flow as we believe this non-GAAP financial measure is useful to investors in measuring our ability to generate cash internally and fund future growth and to provide a return to shareholders. Included in the tables below are reconciliations of the non-GAAP financial measures to the most directly comparable U.S. GAAP financial measures as provided in our Condensed Consolidated Financial Statements: Reconciliation of U.S. GAAP Financial Results to Non-GAAP Measures Three months ended Nine months ended (in thousands, except for per share data) May 31, 2021 May 31, 2020 May 31, 2021 May 31, 2020 Operating income (U.S. GAAP) $ 239,774 $ 59,384 $ 790,074 $ 302,793 Amortization of intangibles 12,066 13,178 35,160 42,895 Stock-based compensation expense and related charges 18,765 16,882 76,119 62,214 Restructuring, severance and related charges 744 69,150 5,655 144,005 Distressed customer charge (1) — — — 14,963 Net periodic benefit cost (2) 5,534 2,797 16,850 7,398 Business interruption and impairment charges, net — 4,574 (806) 4,574 Acquisition and integration charges (3) — 6,119 3,374 30,005 Adjustments to operating income 37,109 112,700 136,352 306,054 Core operating income (Non-GAAP) $ 276,883 $ 172,084 $ 926,426 $ 608,847 Net income (loss) attributable to Jabil Inc. (U.S. GAAP) $ 169,480 $ (50,958) $ 521,576 $ (13,819) Adjustments to operating income 37,109 112,700 136,352 306,054 (Gain) impairment on securities (2,409) — (2,409) 12,205 Net periodic benefit cost (2) (5,534) (2,797) (16,850) (7,398) Adjustments for taxes (584) (2,422) (1,732) 1,166 Core earnings (Non-GAAP) $ 198,062 $ 56,523 $ 636,937 $ 298,208 Diluted earnings (loss) per share (U.S. GAAP) $ 1.12 $ (0.34) $ 3.41 $ (0.09) Diluted core earnings per share (Non-GAAP) $ 1.30 $ 0.37 $ 4.17 $ 1.93 Diluted weighted average shares outstanding (U.S. GAAP) 151,976 150,723 152,838 151,956 Diluted weighted average shares outstanding (Non-GAAP) 151,976 152,693 152,838 154,412 (1) Relates to accounts receivable and inventory charges for certain distressed customers in the renewable energy sector during the nine months ended May 31, 2020. (2) Following the adoption of Accounting Standards Update 2017-07, Compensation - Retirement Benefits (Topic 715) (“ASU 2017-07”), pension service cost is recognized in cost of revenue and all other components of net periodic benefit cost, including return on plan assets, are presented in other expense. We are reclassifying the pension components in other expense to core operating income as we assess operating performance, inclusive of all components of net periodic benefit cost, with the related revenue. There is no impact to core earnings or diluted core earnings per share for this adjustment.. (3) Charges related to our strategic collaboration with Johnson & Johnson Medical Devices Companies (“JJMD”). Adjusted Free Cash Flow Nine months ended (in thousands) May 31, 2021 May 31, 2020 Net cash provided by operating activities (U.S. GAAP) $ 670,860 $ 570,726 Acquisition of property, plant and equipment (878,020) (648,945) Proceeds and advances from sale of property, plant and equipment 286,702 93,679 Adjusted free cash flow (Non-GAAP) $ 79,542 $ 15,460 27 Table of Contents Acquisitions and Expansion During fiscal year 2018, the Company and JJMD entered into a framework agreement to form a strategic collaboration and expand our existing relationship. The strategic collaboration expands our medical device manufacturing portfolio, diversification and capabilities. On October 26, 2020, under the terms of the framework agreement, we completed the fourth closing of our acquisition of certain assets of JJMD. The aggregate purchase price paid for the fourth closing was approximately $18.9 million in cash. Total assets acquired of $29.8 million and total liabilities assumed of $10.9 million were recorded at their estimated fair values as of the acquisition date. The acquisition of the JJMD assets was accounted for as a business combination using the acquisition method of accounting. The Company is currently evaluating the fair value of the assets and liabilities related to the fourth closing. The preliminary estimates and measurements are, therefore, subject to change during the measurement period for assets acquired, liabilities assumed and tax adjustments. The results of operations were included in our condensed consolidated financial results beginning on October 26, 2020 for the fourth closing. We believe it is impracticable to provide pro forma information for the acquisition of the JJMD assets. Liquidity and Capital Resources We believe that our level of liquidity sources, which includes available borrowings under our revolving credit facilities and commercial paper program, additional proceeds available under our North American asset-backed securitization program and under our uncommitted trade accounts receivable sale programs, cash on hand, funds provided by operations and the access to the capital markets, will be adequate to fund our capital expenditures, the payment of any declared quarterly dividends, any share repurchases under the approved program, any potential acquisitions and our working capital requirements for the next 12 months. We continue to assess our capital structure and evaluate the merits of redeploying available cash. Cash and Cash Equivalents As of May 31, 2021, we had approximately $1.2 billion in cash and cash equivalents. As our growth remains predominantly outside of the United States, a significant portion of such cash and cash equivalents are held by our foreign subsidiaries. Most of our cash and cash equivalents as of May 31, 2021 could be repatriated to the United States without potential tax expense. Notes Payable and Credit Facilities Following is a summary of principal debt payments and debt issuance for our notes payable and credit facilities: (in thousands) 4.700% Senior Notes 4.900% Senior Notes 3.950% Senior Notes 3.600% Senior Notes 3.000% Senior Notes 1.700% Senior Notes (1) Borrowings under revolving credit facilities (2)(3) Borrowings under loans (1) Total notes payable and credit facilities Balance as of August 31, 2020 $ 498,659 $ 299,300 $ 495,440 $ 494,756 $ 590,162 $ — $ — $ 350,165 $ 2,728,482 Borrowings — — — — — 499,905 581,581 — 1,081,486 Payments — — — — — — (581,581) (300,138) (881,719) Other 491 182 462 390 782 (4,345) — 556 (1,482) Balance as of May 31, 2021 $ 499,150 $ 299,482 $ 495,902 $ 495,146 $ 590,944 $ 495,560 $ — $ 50,583 $ 2,926,767 Maturity Date Sep 15, 2022 Jul 14, 2023 Jan 12, 2028 Jan 15, 2030 Jan 15, 2031 Apr 15, 2026 Jan 22, 2024 and Jan 22, 2026 Jun 23, 2021 Original Facility/ Maximum Capacity $500.0 million $300.0 million $500.0 million $500.0 million $600.0 million $500.0 million $3.8 billion (2)(3) $51.9 million (1) (1) On April 14, 2021, we issued $500.0 million of publicly registered 1.700% Senior Notes due 2026 (the “1.700% Senior Notes”). We used the net proceeds for general corporate purposes, including repayment of the prior $300.0 million Term Loan Facility. (2) On April 28, 2021, we entered into an amendment (the “Amendment”) to our senior unsecured credit agreement dated as of January 22, 2020 (the “Credit Facility”). The Amendment, among other things, (i) increased the commitments available under the three-year revolving credit facility (the “Three-Year Revolving Credit Facility”) from 28 Table of Contents $700.0 million to $1.2 billion, (ii) instituted certain sustainability-linked adjustments to the interest rates applicable to borrowings under the Credit Facility and (iii) primarily extended the termination date of the Three-Year Revolving Credit Facility to January 22, 2024, and of the Five-Year Revolving Credit Facility of $2.0 billion to January 22, 2026. (3) As of May 31, 2021, we had $3.8 billion in available unused borrowing capacity under our revolving credit facilities. The Credit Facility acts as the back-up facility for commercial paper outstanding, if any. We have a borrowing capacity of up to $1.8 billion under our commercial paper program. We have a shelf registration statement with the SEC registering the potential sale of an indeterminate amount of debt and equity securities in the future to augment our liquidity and capital resources. Our Senior Notes and our credit facilities contain various financial and nonfinancial covenants. A violation of these covenants could negatively impact our liquidity by restricting our ability to borrow under the notes payable and credit facilities and potentially causing acceleration of amounts due under these notes payable and credit facilities. As of May 31, 2021 and August 31, 2020, we were in compliance with our debt covenants. Refer to Note 4 – “Notes Payable and Long-Term Debt” to the Condensed Consolidated Financial Statements for further details. Asset-Backed Securitization Programs We continuously sell designated pools of trade accounts receivable, at a discount, under our North American asset-backed securitization program to a special purpose entity, which in turn sells certain of the receivables to conduits administered by an unaffiliated financial institution on a monthly basis. Certain unsold receivables covering the maximum amount of net cash proceeds available under the North American asset-backed securitization program are pledged as collateral to the unaffiliated financial institution as of May 31, 2021. Following is a summary of our asset-backed securitization programs and key terms: Maximum Amount of Net Cash Proceeds (in millions) (1) Expiration Date North American $ 390.0 November 22, 2021 Foreign $ 400.0 (2) (1) Maximum amount available at any one time. (2) We terminated the foreign asset-backed securitization program on June 28, 2021. In connection with the termination, we paid approximately $167.0 million in cash, which consisted of a remittance of collections received prior to that date in our role as servicer of sold receivables, and a repurchase at fair value of all previously sold receivables that remained outstanding as of that date. We expect to receive payment on the repurchased receivables from the related customers during the fourth quarter of fiscal year 2021. In connection with our asset-backed securitization programs, during the three months and nine months ended May 31, 2021, we sold $1.1 billion and $3.4 billion, respectively, of trade accounts receivable and we received cash proceeds of $1.1 billion and $3.4 billion, respectively. As of May 31, 2021, we had up to $148.5 million in available liquidity under our asset-backed securitization programs, of which all available liquidity related to the foreign asset-backed securitization program. Our asset-backed securitization programs contain various financial and nonfinancial covenants. As of May 31, 2021 and August 31, 2020, we were in compliance with all covenants under our asset-backed securitization programs. Refer to Note 5 – “Asset-Backed Securitization Programs” to the Condensed Consolidated Financial Statements for further details on the programs. Trade Accounts Receivable Sale Programs Following is a summary of the trade accounts receivable sale programs with unaffiliated financial institutions. Under the programs we may elect to sell receivables and the unaffiliated financial institutions may elect to purchase, at a discount, on an ongoing basis: 29 Table of Contents Program Maximum Amount (in millions) (1) Type of Facility Expiration Date A $ 600.0 Uncommitted December 5, 2021 (2) B $ 150.0 Uncommitted November 30, 2021 C 400.0 CNY Uncommitted August 31, 2023 D $ 150.0 Uncommitted May 4, 2023 (3) E $ 150.0 Uncommitted January 25, 2022 (4) F $ 50.0 Uncommitted February 23, 2023 (5) G $ 100.0 Uncommitted August 10, 2021 (6) H $ 100.0 Uncommitted July 21, 2021 (7) I $ 550.0 Uncommitted December 4, 2021 (8) J $ 135.0 Uncommitted April 11, 2022 (9) K 100.0 CHF Uncommitted December 5, 2021 (2) (1) Maximum amount of trade accounts receivable that may be sold under a facility at any one time. (2) The program will be automatically extended through December 5, 2025 unless either party provides 30 days notice of termination. (3) Any party may elect to terminate the agreement upon 30 days prior notice. (4) The program will be automatically extended through January 25, 2023 unless either party provides 30 days notice of termination. (5) Any party may elect to terminate the agreement upon 15 days prior notice. (6) The program will be automatically extended through August 10, 2023 unless either party provides 30 days notice of termination. (7) The program will be automatically extended through August 21, 2023 unless either party provides 30 days notice of termination. (8) The program will be automatically extended through December 5, 2024 unless either party provides 30 days notice of termination. (9) The program will be automatically extended through April 11, 2025 unless either party provides 30 days notice of termination. During the three months and nine months ended May 31, 2021, we sold $1.0 billion and $3.6 billion, respectively, of trade accounts receivable under these programs and we received cash proceeds of $1.0 billion and $3.6 billion, respectively. As of May 31, 2021, we had up to $1.6 billion in available liquidity under our trade accounts receivable sale programs. Capital Expenditures For Fiscal Year 2021, we anticipate our net capital expenditures will be approximately $800.0 million. In general, our c apital expenditures support ongoing maintenance in our DMS and EMS segments and investments in capabilities and targeted end markets. The amount of actual capital expenditures may be affected by general economic, financial, competitive, legislative and regulatory factors, among other things. Cash Flows The following table sets forth selected consolidated cash flow information (in thousands): Nine months ended May 31, 2021 May 31, 2020 Net cash provided by operating activities $ 670,860 $ 570,726 Net cash used in investing activities (644,232) (679,463) Net cash used in financing activities (177,141) (259,592) Effect of exchange rate changes on cash and cash equivalents (2,315) (31,677) Net decrease in cash and cash equivalents $ (152,828) $ (400,006) Operating Activities 30 Table of Contents Net cash provided by operating activities during the nine months ended May 31, 2021 was primarily due to non-cash expenses, an increase in accounts payable, accrued expenses and other liabilities and net income, partially offset by: an increase in inventories, accounts receivable and prepaid expenses and other current assets. The increase in accounts payable, accrued expenses and other liabilities is primarily due to the timing of purchases and cash payments. The increase in inventories is primarily to support expected sales levels in the fourth quarter of fiscal year 2021. The increase in accounts receivable is primarily driven by higher sales and the timing of collections. The increase in prepaid expenses and other current assets is primarily due to the timing of payments. Investing Activities Net cash used in investing activities during the nine months ended May 31, 2021 consisted primarily of capital expenditures, principally to support ongoing business in the DMS and EMS segments and expenditures in connection with the acquisition of certain assets of JJMD and the acquisition of Ecologic, partially offset by proceeds and advances from the sale of property, plant and equipment. Financing Activities Net cash used in financing activities during the nine months ended May 31, 2021 was primarily due to (i) payments for debt agreements, (ii) the repurchase of our common stock under our share repurchase authorization, (iii) dividend payments and (iv) the purchase of treasury stock under employee stock plans. Net cash used in financing activities was partially offset by (i) borrowings under debt agreements and (ii) net proceeds from the exercise of stock options and issuance of common stock under the employee stock purchase plan. Contractual Obligations As of the date of this report, other than the borrowings on the 1.700% Senior Notes, the amended Credit Facility, (see Note 4 - “Notes Payable and Long-Term Debt” to the Condensed Consolidated Financial Statements) and the new operating and finance leases, (see Note 17 – “Commitments and Contingencies” to the Condensed Consolidated Financial Statements), there were no other material changes outside the ordinary course of business since August 31, 2020 to our contractual obligations and commitments. Dividends and Share Repurchases We currently expect to continue to declare and pay regular quarterly dividends of an amount similar to our past declarations. However, the declaration and payment of future dividends are discretionary and will be subject to determination by our Board of Directors each quarter following its review of our financial performance and global economic conditions. In September 2019, the Board of Directors authorized the repurchase of up to $600.0 million of our common stock as a part of a two-year capital allocation framework (the “2020 Share Repurchase Program”). As of May 31, 2021, 11.9 million shares had been repurchased for $475.6 million and $124.4 million remains available under the 2020 Share Repurchase Program. The 2020 Share Repurchase Program expires at the end of fiscal year 2021. 31 Table of Contents Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes in our primary risk exposures or management of market risks from those disclosed in our Annual Report on Form 10-K for the fiscal year ended August 31, 2020.