What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-04-01 compared with 2022-01-07 · 147 added, 93 removed, 202 unchanged (54% of the section changed)

8 unchanged sentences

We conduct our operations in facilities that are located worldwide, including but not limited to, China, Ireland, Malaysia, Mexico, Singapore and the United States.

We derived a substantial majority, 84.8% of net revenue, from our international operations for the three months ended November 30, 2021.

We derived a substantial majority, 83.5% and 84.2%, of net revenue from our international operations for the three months and six months ended February 28, 2022, respectively.

Our global manufacturing production sites allow customers to manufacture products simultaneously in the optimal locations for their products.

10 unchanged sentences

"Management's Discussion and Analysis of Financial Condition and Results of Operations" section contained in our Annual Report on Form 10-K for the fiscal year ended August 31, 2021 for further discussion of the items disclosed in Item 2.

"Management's Discussion and Analysis of Financial Condition and Results of Operations" section as of November 30, 2021 contained herein.

"Management's Discussion and Analysis of Financial Condition and Results of Operations" section as of February 28, 2022 contained herein.

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.

5 unchanged sentences

Three months ended

November 30, 2021

November 30, 2020

Six months ended

February 28, 2022

February 28, 2021

February 28, 2022

February 28, 2021

Operating income

9 unchanged sentences

Three months ended

November 30, 2021

August 31, 2021

February 28, 2022

November 30, 2021

February 28, 2021

Sales cycle (1)

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(3) Days in accounts receivable is calculated as accounts receivable, net, divided by net revenue multiplied by 90 days.

During the three months ended November 30, 2021, the increase in days in accounts receivable from the prior sequential quarter was primarily due to an increase in accounts receivable, primarily driven by higher sales and timing of collections.

During the three months ended February 28, 2022, the decrease in days in accounts receivable from the prior sequential quarter was primarily due to lower sales and timing of collections.

(4) Days in inventory is calculated as inventory and contract assets divided by cost of revenue multiplied by 90 days.

During the three months ended November 30, 2021, the decrease in days in inventory from the prior sequential quarter was due to increased sales activity during the quarter.

During the three months ended November 30, 2021, the increase in days in inventory from the three months ended November 30, 2020 was primarily due to supply chain constraints and increased materials purchases to support expected sales levels in the second quarter of fiscal year 2022.

During the three months ended February 28, 2022, the increase in days in inventory from the prior sequential quarter and the three months ended February 28, 2021 was primarily due to higher raw material balances due to supply chain constraints.

(5) Days in accounts payable is calculated as accounts payable divided by cost of revenue multiplied by 90 days.

During the three months ended November 30, 2021, the decrease in days in accounts payable from the prior sequential quarter was primarily due to timing of purchases and cash payments during the quarter.

During the three months ended November 30, 2021, the increase in days in accounts payable from the three months ended November 30, 2020 was primarily due to an increase for material purchases and the timing of payments.

During the three months ended February 28, 2022, the increase in days in accounts payable from the prior sequential quarter was primarily due to timing of purchases and cash payments during the quarter.

During the three months ended February 28, 2022, the increase in days in accounts payable from the three months ended February 28, 2021 was primarily due to an increase for material purchases and the timing of payments.

Critical Accounting Policies and Estimates

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however, actual results may vary from these estimates and assumptions under different future circumstances.

For further discussion of our

significant accounting policies, refer to Note 1 — “Description of Business and Summary of Significant Accounting Policies” to the Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the fiscal year ended August 31, 2021.

For further discussion of our significant accounting policies, refer to Note 1 — “Description of Business and Summary of Significant Accounting Policies” to the Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of

Operations – Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the fiscal year ended August 31, 2021.

Recent Accounting Pronouncements

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Three months ended

Six months ended

(dollars in millions)

November 30, 2021

November 30, 2020

Net revenue increased during the three months ended November 30, 2021, compared to the three months ended November 30, 2020.

Specifically, the DMS segment net revenue increased 11% due to:

(i) a 6% increase in revenues from existing customers within our mobility business, (ii) a 4% increase in revenues from existing customers in our automotive and transportation business, and (iii) a 3% increase in revenue from existing customers within our healthcare and packaging business.

The increase is partially offset by a 2% decrease in revenues from existing customers within our connected devices business.

The EMS segment net revenue increased 7% due to:

(i) a 4% increase from existing customers within our industrial and capital equipment business, (ii) a 4% increase from existing customers within our 5G, wireless and cloud business, and (iii) a 2% increase from existing customers within our digital print and retail business.

The increase is partially offset by a 3% decrease from existing customers within our networking and storage business.

February 28, 2022

February 28, 2021

February 28, 2022

February 28, 2021

Net revenue increased during the three months ended February 28, 2022, compared to the three months ended February 28, 2021.

Specifically, the EMS segment net revenue increased 19% due to:

(i) a 10% increase in revenues from existing customers within our 5G, wireless and cloud business, (ii) a 5% increase in revenues from existing customers within our digital print and retail business, (iii) a 3% increase in revenues from existing customers within our industrial and capital equipment business, and (iv) a 1% increase in revenues from existing customers within our networking and storage business.

The DMS segment net revenue increased 4% due to:

(i) a 7% increase in revenues from existing customers in our automotive and transportation business, (ii) a 3% increase in revenues from existing customers within our healthcare and packaging business, and (iii) a 3% increase in revenues from existing customers within our connected devices business.

The increase is partially offset by a 9% decrease in revenues from existing customers within our mobility business.

Net revenue increased during the six months ended February 28, 2022, compared to the six months ended February 28, 2021.

Specifically, the EMS segment net revenue increased 13% due to:

(i) a 7% increase in revenues from existing customers within our 5G, wireless and cloud business, (ii) a 4% increase in revenues from existing customers within our industrial and capital equipment business, and (iii) a 3% increase in revenues from existing customers within our digital print and retail business.

The increase is partially offset by a 1% decrease in revenues from existing customers within our networking and storage business.

The DMS segment net revenue increased 8% due to:

(i) a 6% increase in revenues from existing customers in our automotive and transportation business, and (ii) a 3% increase in revenues from existing customers within our healthcare and packaging business.

The increase is partially offset by a 1% decrease in revenues from existing customers within our mobility business.

The following table sets forth, for the periods indicated, revenue by segment expressed as a percentage of net revenue:

Three months ended

November 30, 2021

November 30, 2020

Six months ended

February 28, 2022

February 28, 2021

February 28, 2022

February 28, 2021

The following table sets forth, for the periods indicated, foreign source revenue expressed as a percentage of net revenue:

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November 30, 2021

November 30, 2020

Six months ended

February 28, 2022

February 28, 2021

February 28, 2022

February 28, 2021

Foreign source revenue

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(dollars in millions)

November 30, 2021

November 30, 2020

February 28, 2022

February 28, 2021

February 28, 2022

February 28, 2021

Percent of net revenue

Gross profit as a percentage of net revenue decreased for the three months ended November 30, 2021 compared to the three months ended November 30, 2020, primarily due to product mix for the DMS segment.

Gross profit as a percentage of net revenue decreased for the three months and six months ended February 28, 2022 compared to the three months and six months ended February 28, 2021, primarily due to product mix.

Selling, General and Administrative

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(dollars in millions)

November 30, 2021

November 30, 2020

February 28, 2022

February 28, 2021

February 28, 2022

February 28, 2021

Selling, general and administrative

Selling, general and administrative expenses remained relatively consistent during the three months ended November 30, 2021, compared to the three months ended November 30, 2020.

Selling, general and administrative expenses decreased during the three months ended February 28, 2022, compared to the three months ended February 28, 2021.

The decrease is primarily due to:

(i) a $14 million decrease due to lower salary and salary related expenses and (ii) a $7 million decrease in stock-based compensation expense due to certain one-time awards granted during the second quarter of fiscal year 2021 and higher anticipated achievement levels during the three months ended February 28, 2021 for certain performance-based stock awards.

Selling, general and administrative expenses decreased during the six months ended February 28, 2022, compared to the six months ended February 28, 2021.

The decrease is primarily due to:

(i) a $9 million decrease due to lower salary and salary related expenses and (ii) a $6 million decrease in stock-based compensation expense due to certain one-time awards granted during the second quarter of fiscal year 2021 and higher anticipated achievement levels during the six months ended February 28, 2021 for certain performance-based stock awards.

Research and Development

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(dollars in millions)

November 30, 2021

November 30, 2020

February 28, 2022

February 28, 2021

February 28, 2022

February 28, 2021

Research and development

Percent of net revenue

Research and development expenses remained relatively consistent as a percentage of net revenue during the three months ended November 30, 2021, compared to the three months ended November 30, 2020.

Research and development expenses remained consistent as a percentage of net revenue during the three months and six months ended February 28, 2022, compared to the three months and six months ended February 28, 2021.

Amortization of Intangibles

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(dollars in millions)

November 30, 2021

November 30, 2020

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February 28, 2021

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February 28, 2021

Amortization of intangibles

Amortization of intangibles remained relatively consistent during the three months ended November 30, 2021, compared to the three months ended November 30, 2020.

Amortization of intangibles decreased during the three months and six months ended February 28, 2022, compared to the three months and six months ended February 28, 2021 primarily driven by reduced amortization related to the Nypro trade name.

Restructuring, Severance and Related Charges

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(dollars in millions)

November 30, 2021

November 30, 2020

February 28, 2022

February 28, 2021

February 28, 2022

February 28, 2021

Restructuring, severance and related charges

Restructuring, severance and related charges remained relatively consistent during the three months ended November 30, 2021, compared to the three months ended November 30, 2020.

The 2021 Restructuring Plan was complete as of August 31, 2021.

Other Expense (Income)

Restructuring, severance and related charges decreased during the three months and six months ended February 28, 2022, compared to the three months and six months ended February 28, 2021 as the 2020 Restructuring Plan was complete as of August 31, 2021.

Three months ended

Six months ended

(dollars in millions)

November 30, 2021

November 30, 2020

Other expense (income)

Other expense (income) remained relatively consistent during the three months ended November 30, 2021 compared to the three months ended November 30, 2020.

February 28, 2022

February 28, 2021

February 28, 2022

February 28, 2021

Other income remained relatively consistent during the three months and six months ended February 28, 2022 compared to the three months and six months ended February 28, 2021.

Interest Income

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(dollars in millions)

November 30, 2021

November 30, 2020

February 28, 2022

February 28, 2021

February 28, 2022

February 28, 2021

Interest income

Interest income remained relatively consistent during the three months ended November 30, 2021, compared to the three months ended November 30, 2020.

Interest income remained relatively consistent during the three months and six months ended February 28, 2022, compared to the three months and six months ended February 28, 2021.

Interest Expense

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(dollars in millions)

November 30, 2021

November 30, 2020

February 28, 2022

February 28, 2021

February 28, 2022

February 28, 2021

Interest expense

Interest expense remained relatively consistent during the three months ended November 30, 2021, compared to the three months ended November 30, 2020.

Interest expense remained relatively consistent during the three months and six months ended February 28, 2022, compared to the three months and six months ended February 28, 2021.

Income Tax Expense

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November 30, 2021

November 30, 2020

Six months ended

February 28, 2022

February 28, 2021

February 28, 2022

February 28, 2021

Effective income tax rate

The effective income tax rate decreased for the three months ended November 30, 2021, compared to the three months ended November 30, 2020, primarily due to decreased losses in tax jurisdictions with existing valuation allowances for the three months ended November 30, 2021.

The effective income tax rate decreased for the three months and six months ended February 28, 2022, compared to the three months and six months ended February 28, 2021, primarily due to decreased losses in tax jurisdictions with existing valuation allowances for the three months and six months ended February 28, 2022.

Non-GAAP (Core) Financial Measures

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Among other uses, management uses non-GAAP “core” financial measures to make operating decisions, assess business performance and as a factor in determining certain employee performance when evaluating incentive compensation.

Also, our “core” financial measures should not be construed as an indication by us that our future results will be unaffected by those items that are excluded from our “core” financial measures.

Also, our “core” financial measures should not be

construed as an indication by us that our future results will be unaffected by those items that are excluded from our “core” financial measures.

We determine the tax effect of the items excluded from “core” earnings and “core” diluted earnings per share based upon evaluation of the statutory tax treatment and the applicable tax rate of the jurisdiction in which the pre-tax items were incurred, and for which realization of the resulting tax benefit, if any, is expected.

5 unchanged sentences

Three months ended

Six months ended

(in millions, except for per share data)

November 30, 2021

November 30, 2020

February 28, 2022

February 28, 2021

February 28, 2022

February 28, 2021

Operating income (U.S.

3 unchanged sentences

Net periodic benefit cost (1)

Business interruption and impairment charges, net

Acquisition and integration charges (2)

14 unchanged sentences

Adjusted Free Cash Flow

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Six months ended

(in millions)

November 30, 2021

November 30, 2020

Net cash (used in) provided by operating activities (U.S.

February 28, 2022

February 28, 2021

Net cash provided by operating activities (U.S.

Acquisition of property, plant and equipment

2 unchanged sentences

Liquidity and Capital Resources

We believe that our level of liquidity sources, which includes available borrowings under our revolving credit facilities and commercial paper program, additional proceeds available under our global asset-backed securitization program and under our uncommitted trade accounts receivable sale programs, cash on hand, cash flows provided by operating activities and access to the capital markets, will be adequate to fund our cash requirements, including capital expenditures, the payment of any declared quarterly dividends, any share repurchases under the approved program, any potential acquisitions and our working capital requirements for the next 12 months and beyond.

uncommitted trade accounts receivable sale programs, cash on hand, cash flows provided by operating activities and access to the capital markets, will be adequate to fund our cash requirements, including capital expenditures, the payment of any declared quarterly dividends, any share repurchases under the approved program, any potential acquisitions and our working capital requirements for the next 12 months and beyond.

We continue to assess our capital structure and evaluate the merits of redeploying available cash.

Cash and Cash Equivalents

As of November 30, 2021, we had approximately $1.2 billion in cash and cash equivalents, of which a significant portion was held by our foreign subsidiaries.

Most of our foreign cash and cash equivalents as of November 30, 2021 could be repatriated to the United States without potential tax expense.

As of February 28, 2022, we had approximately $1.1 billion in cash and cash equivalents, of which a significant portion was held by our foreign subsidiaries.

Most of our foreign cash and cash equivalents as of February 28, 2022 could be repatriated to the United States without potential tax expense.

Notes Payable and Credit Facilities

6 unchanged sentences

Balance as of August 31, 2021

Balance as of November 30, 2021

Balance as of February 28, 2022

Maturity Date

2 unchanged sentences

$3.8 billion (1)

(1) As of November 30, 2021, we had $3.8 billion in available unused borrowing capacity under our revolving credit facilities.

(1) As of February 28, 2022, we had $3.8 billion in available unused borrowing capacity under our revolving credit facilities.

The senior unsecured credit agreement dated as of January 22, 2020 and amended on April 28, 2021 (the “Credit Facility”) acts as the back-up facility for commercial paper outstanding, if any.

We have a borrowing capacity of up to $1.8 billion under our commercial paper program.

Borrowings with an original maturity of 90 days or less are recorded net within the statement of cash flows, and have been excluded from the table above.

We have a borrowing capacity of up to $3.2 billion under our commercial paper program, which was increased from $1.8 billion on February 18, 2022.

Borrowings with an original maturity of 90 days or less are recorded net within the Condensed Consolidated Statement of Cash Flows, and have been excluded from the table above.

We have a shelf registration statement with the SEC registering the potential sale of an indeterminate amount of debt and equity securities in the future to augment our liquidity and capital resources.

1 unchanged sentence

A violation of these covenants could negatively impact our liquidity by restricting our ability to borrow under the notes payable and credit facilities and potentially causing acceleration of amounts due under these notes payable and credit facilities.

As of November 30, 2021 and August 31, 2021, we were in compliance with our debt covenants.

As of February 28, 2022 and August 31, 2021, we were in compliance with our debt covenants.

Refer to Note 5 – “Notes Payable and Long-Term Debt” to the Condensed Consolidated Financial Statements for further details.

3 unchanged sentences

We continue servicing the receivables sold and in exchange receive a servicing fee under the global asset-backed securitization program.

Servicing fees related to the asset-backed securitization programs recognized during the three months ended November 30, 2021 and 2020 were not material.

We do not record a servicing asset or liability on the Condensed Consolidated Balance Sheets as we estimate that the fee we receive to service these receivables approximates the fair market compensation to provide the servicing activities.

Servicing fees related to the asset-backed securitization programs recognized during the three months and six months ended February 28, 2022 and 2021 were not material.

We do not record a servicing asset or liability on the Condensed

Consolidated Balance Sheets as we estimate that the fee we receive to service these receivables approximates the fair market compensation to provide the servicing activities.

The special purpose entity in the global asset-backed securitization program is a wholly-owned subsidiary of the Company and is included in our Condensed Consolidated Financial Statements.

Certain unsold receivables covering up to the maximum amount of net cash proceeds available under the domestic, or U.S., portion of the global asset-backed securitization program are pledged as collateral to the unaffiliated financial institution as of November 30, 2021.

The global asset-backed securitization program expires on November 25, 2024 and the maximum amount of net cash proceeds available at any one time is $600 million.

During the three months ended November 30, 2021, we sold $1.0 billion of trade accounts receivable and we received cash proceeds of $1.0 billion.

As of November 30, 2021, we had no available liquidity under our global asset-backed securitization program.

During the three months and six months ended February 28, 2022, we sold $1.0 billion and $2.0 billion, respectively, of trade accounts receivable and we received cash proceeds of $1.0 billion and $2.0 billion, respectively.

As of February 28, 2022, we had no available liquidity under our global asset-backed securitization program.

The global asset-backed securitization program requires compliance with several covenants including compliance with the interest ratio and debt to EBITDA ratio of the Credit Facility.

As of November 30, 2021 and August 31, 2021, we were in compliance with all covenants under our global asset-backed securitization program.

As of February 28, 2022 and August 31, 2021, we were in compliance with all covenants under our global asset-backed securitization program.

Refer to Note 6 – “Asset-Backed Securitization Program” to the Condensed Consolidated Financial Statements for further details on the program.

Trade Accounts Receivable Sale Programs

As of November 30, 2021, we may elect to sell receivables and the unaffiliated financial institution may elect to purchase specific accounts receivable at any one time up to a:

As of February 28, 2022, we may elect to sell receivables and the unaffiliated financial instit ution may elect to purchase specific accounts receivable at any one time up to a:

(i) maximum aggregate amount available of $2.0 billion under nine trade accounts receivable sale programs, (ii) maximum amount available of 400 million CNY under one trade accounts receivable sale program and (iii) maximum amount available of 100 million CHF under one trade accounts receivable sale program.

The trade accounts receivable sale programs expire on various dates through 2025.

During the three months ended November 30, 2021, we sold $2.0 billion of trade accounts receivable under these programs and we received cash proceeds of $2.0 billion.

As of November 30, 2021, we had up to $1.4 billion in available liquidity under our trade accounts receivable sale programs.

During the three months and six months ended February 28, 2022, we sold $2.0 billion and $3.9 billion, respectively, of trade accounts receivable under these programs and we received cash proceeds of $2.0 billion and $3.9 billion, respectively.

As of February 28, 2022, we had up to $1.6 billion in available liquidity under our trade accounts receivable sale programs.

Capital Expenditures

3 unchanged sentences

The following table sets forth selected consolidated cash flow information (in millions):

Three months ended

November 30, 2021

November 30, 2020

Net cash (used in) provided by operating activities

Six months ended

February 28, 2022

February 28, 2021

Net cash provided by operating activities

Net cash used in investing activities

3 unchanged sentences

Operating Activities

Net cash used in operating activities during the three months ended November 30, 2021 was primarily due to an increase in accounts receivable, inventories, contract assets, prepaid expenses and other current assets;

Net cash provided by operating activities during the six months ended February 28, 2022, was primarily due to net income and non-cash expenses and an increase in accounts payable, accrued expenses and other liabilities;

partially offset by:

an increase in accounts payable, accrued expenses and other liabilities, non-cash expenses and net income.

The increase in accounts receivable is primarily driven by higher sales and the timing of collections.

The increase in inventories is primarily due to supply chain constraints and higher materials purchases to support expected sales levels in the second quarter of fiscal year 2022.

The increase in contract assets is primarily due to timing of revenue recognition for over time customers.

The increase in prepaid expenses and other current assets is primarily due to the timing of payments.

an increase in inventories, contract assets, prepaid expenses and other current assets and accounts receivable.

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 was primarily due to higher raw material balances due to supply chain constraints.

The increase in contract assets is primarily due to timing of revenue recognition for over time customers.

The increase in prepaid expenses and other current

assets is primarily due to the timing of payments.

The increase in accounts receivable is primarily driven by higher sales and the timing of collections.

Investing Activities

Net cash used in investing activities during the three months ended November 30, 2021 consisted primarily of capital expenditures, principally to support ongoing business in the DMS and EMS segments, partially offset by proceeds and advances from the sale of property, plant and equipment.

Net cash used in investing activities during the six months ended February 28, 2022 consisted primarily of capital expenditures, principally to support ongoing business in the DMS and EMS segments, partially offset by proceeds and advances from the sale of property, plant and equipment.

Financing Activities

Net cash used in financing activities during the three months ended November 30, 2021 was primarily due to (i) payments for debt agreements, (ii) the repurchase of our common stock under our share repurchase authorization, (iii) the purchase of treasury stock under employee stock plans and (iv) dividend payments.

Net cash used in financing activities during the six months ended February 28, 2022 was primarily due to (i) payments for debt agreements, (ii) the repurchase of our common stock under our share repurchase authorization and (iii) the purchase of treasury stock under employee stock plans.

Net cash used in financing activities was partially offset by borrowings under debt agreements.

5 unchanged sentences

In July 2021, the Board of Directors approved an authorization for the repurchase of up to $1.0 billion of our common stock (the “2022 Share Repurchase Program”).

As of November 30, 2021, 2.8 million shares had been repurchased for $169 million and $831 million remains available under the 2022 Share Repurchase Program.

As of February 28, 2022, 5.1 million shares had been repurchased for $314 million and $686 million remains available under the 2022 Share Repurchase Program.

Quantitative and Qualitative Disclosures About Market Risk

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis