What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-10-25 compared with 2021-10-22 · 94 added, 137 removed, 332 unchanged (41% of the section changed)

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Our DMS segment includes customers primarily in the automotive and transportation, connected devices, healthcare and packaging, and mobility industries.

As of September 1, 2020, certain customers were 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.

Our cost of revenue includes the cost of electronic components and other materials that comprise the products we manufacture;

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We economically hedge certain of these local currency costs, based on our evaluation of the potential exposure as compared to the cost of the hedge, through the purchase of foreign currency exchange contracts.

in the fair market value of such hedging instruments are reflected within the Consolidated Statement of Operations and the Consolidated Statement of Comprehensive Income.

Changes in the fair market value of such hedging instruments are reflected within the Consolidated Statement of Operations and the Consolidated Statement of Comprehensive Income.

See Note 13 – “Concentration of Risk and Segment Data” to the Consolidated Financial Statements.

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Essential activity exceptions from these restrictions have allowed us to continue to operate but virus containment efforts have resulted in additional direct costs.

During the fiscal year ended August 31, 2020, we incurred approximately $142 million in direct costs associated with the COVID-19 outbreak, primarily due to incremental and idle labor costs and the procurement of personal protection equipment for our employees globally.

This increase in costs was partially offset by governmental subsidies, such as lower payroll taxes or social insurance in certain countries, related to COVID-19 incentives.

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.

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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 August 31, 2021, the increase in days in accounts receivable from the three months ended August 31, 2020 was primarily due to an increase in accounts receivable, primarily driven by higher sales and the timing of collections.

During the three months ended August 31, 2021, the decrease in days in accounts receivable from the prior sequential quarter was driven primarily by the timing of collections.

During the three months ended August 31, 2022, the increase in days in accounts receivable from the three months ended May 31, 2022 and August 31, 2021 was primarily due to an increase in accounts receivable, primarily driven by higher sales and the 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 August 31, 2021, the increase in days in inventory from the three months ended August 31, 2020 was primarily to support expected sales levels in the first quarter of fiscal year 2022 and supply-chain constraints as a result of the COVID-19 pandemic.

During the three months ended August 31, 2021, the increase in days in inventory from the prior sequential quarter was primarily driven by supply-chain constraints as a result of the COVID-19 pandemic.

During the three months ended August 31, 2022, the increase in days in inventory from the three months ended August 31, 2021 was primarily due to higher raw material balances due to supply-chain constraints and to support expected sales levels in the first quarter of fiscal year 2023.

During the three months ended August 31, 2022, the decrease in days in inventory from the prior sequential quarter was primarily driven by increased sales activity during the quarter.

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

During the three months ended August 31, 2021, the increase in days in accounts payable from the three months ended May 31, 2021 and August 31, 2020 was primarily due to an increase in materials purchases and timing of payments.

During the three months ended August 31, 2022, the decrease in days in accounts payable from the three months ended August 31, 2021 was primarily due to timing of purchases and cash payments during the quarter.

During the three months

ended August 31, 2022, the increase in days in accounts payable from the three months ended May 31, 2022 was primarily due to an increase in materials purchases and timing of payments.

Critical Accounting Policies and Estimates

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We have identified the following critical accounting policies that affect the more significant judgments and estimates used in the preparation of our Consolidated Financial Statements.

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.

For further discussion of our significant accounting policies, refer to Note 1 – “Des cription of Business and Summary of Significant Accounting Policies” to the Consolidated Financial Statements.

Revenue Recognition

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The transaction price of each performance obligation is generally based upon the contractual stand-alone selling price of the product or service.

Certain contracts with customers include variable consideration, such as periodic cost of materials adjustments, rebates, discounts, or returns.

We recognize estimates of this variable consideration that are not expected to result in a significant revenue reversal in the future, primarily based on the most likely level of consideration to be paid to the customer under the specific terms of the underlying programs.

Inventory Valuation

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Long-Lived Assets

We review property, plant and equipment and amortizable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of property, plant and equipment is measured by comparing its carrying value to the undiscounted projected cash flows that the asset(s) or asset group(s) are expected to generate.

If the carrying amount of an asset or an asset group is not recoverable, we recognize an impairment loss based on the excess of the carrying amount of the long-lived asset or asset group over its respective fair value, which is generally determined as either the present value of estimated future cash flows or the appraised value.

The impairment analysis is based on significant assumptions of future results made by management, including revenue and cash flow projections.

Circumstances that may lead to impairment of property, plant and equipment include unforeseen decreases in future

performance or industry demand and the restructuring of our operations resulting from a change in our business strategy or adverse economic conditions.

We have recorded intangible assets, including goodwill, in connection with business acquisitions.

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The fair value of acquired amortizable intangible assets impacts the amounts recorded as goodwill.

We review amortizable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

We perform a goodwill impairment analysis on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

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Recent Accounting Pronouncements

See Note 19 – “New Accounting Guidance” to the Consolidated Financial Statements for a discussion of recent accounting guidance.

S ee Note 19 – “New Accounting Guidance” to the Consolidated Financial Statements for a discussion of recent accounting guidance.

Results of Operations

Refer to Item 7.

"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, 2020 for the results of operations discussion for the fiscal year ended August 31, 2020 compared to the fiscal year ended August 31, 2019.

"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 en ded August 31, 2021 for the results of operations discussion for the fiscal year ended August 31, 2021 compared to the fiscal year ended August 31, 2020 .

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.

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(dollars in millions)

(1) As of September 1, 2020, certain customers were 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.

Net revenue increased during the fiscal year ended August 31, 2022 compared to the fiscal year ended August 31, 2021.

Specifically, the DMS segment net revenue increased 17% due to:

(i) a 6% increase in revenues from existing customers within our mobility business as our ability to meet customer demand during the fiscal year ended August 31, 2020, was greatly diminished due to COVID-19 containment efforts in China, (ii) a 4% 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 3% increase in revenues from existing customers within our healthcare and packaging businesses.

The EMS segment net revenue decreased 1% due primarily to a decrease in revenues from existing customers in our cloud business, which began transitioning to a consignment model in fiscal year 2021.

Net revenue increased during the fiscal year ended August 31, 2020 compared to the fiscal year ended August 31, 2019.

Specifically, the EMS segment revenues increased 9% primarily due to (i) a 10% increase in revenues from existing customers within our 5G, wireless and cloud business and (ii) a 3% increase in revenues from existing customers within our industrial and capital equipment business.

The increase is partially offset by (i) a 2% decrease from existing customers within our networking and storage business and (ii) a 2% decrease in revenues from existing customers within our digital print and retail business.

DMS segment revenues increased 7% due to (i) an 8% increase in revenues from new and existing customers in our healthcare and packaging businesses and (ii) a 1% increase in revenues from existing customers in our automotive and transportation business.

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

Specifically, the EMS segment net revenue increased 20% due to:

(i) a 9% 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 4% increase in revenues from existing customers within our industrial and capital equipment business and (iv) a 2% increase in revenues from existing customer within our networking and storage business.

The DMS segment net revenue increased 9% due to:

(i) a 6% increase in revenues from existing customers within our automotive and transportation business, (ii) a 3% increase in revenues from existing customers within our healthcare and packaging businesses and (iii) a 2% increase in revenues from existing customers within our connected devices business.

The increase was partially offset by a 2% decrease in revenues from existing customers within our mobility business.

During fiscal year 2023, we expect an additional $500 million in components that we procure and integrate for our cloud business will shift from a purchase and resale model to a customer-controlled consignment service model.

As a result of this continued transition, revenue associated with these components are shown on a net basis and as a result, we expect higher gross margins and lower cash used in this business.

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

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Percent of net revenue

Gross profit as a percentage of net revenue increased for the fiscal year ended August 31, 2021 compared to the fiscal year ended August 31, 2020, primarily due to:

(i) product mix and improved profitability across various businesses and (ii) a decrease of $72 million in incremental and idle labor costs associated with travel disruptions and governmental restrictions, largely related to the COVID-19 pandemic.

Gross profit as a percentage of net revenue decreased for the fiscal year ended August 31, 2022 compared to the fiscal year ended August 31, 2021, primarily due to product mix.

Selling, General and Administrative

Fiscal Year Ended August 31,

(dollars in millions)

(in millions)

Selling, general and administrative

Selling, general and administrative expenses increased during the fiscal year ended August 31, 2021 compared to the fiscal year ended August 31, 2020.

The increase is predominantly due to (i) a $48 million increase due to higher salary and salary related expenses and (ii) a $19 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.

The increase is partially offset by a $29 million decrease primarily due to lower acquisition and integration charges related to our strategic collaboration with a healthcare company.

Selling, general and administrative expenses decreased during the fiscal year ended August 31, 2022 compared to the fiscal year ended August 31, 2021.

The decrease is primarily due to (i) a $39 million decrease due to lower salary and salary related expenses and (ii) a $21 million decrease in stock-based compensation expense due to higher anticipated achievement levels for certain performance-based stock awards during the fiscal year ended August 31, 2021 and certain one-time awards granted during the second quarter of fiscal year 2021.

Research and Development

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Percent of net revenue

Research and development expenses remained relatively consistent as a percent of net revenue during the fiscal year ended August 31, 2021 compared to the fiscal year ended August 31, 2020.

Research and development expenses remained consistent as a percent of net revenue during the fiscal year ended August 31, 2022 compared to the fiscal year ended August 31, 2021.

Amortization of Intangibles

Fiscal Year Ended August 31,

(dollars in millions)

(in millions)

Amortization of intangibles

Amortization of intangibles decreased during the fiscal year ended August 31, 2021 compared to the fiscal year ended August 31, 2020 primarily due to certain intangible assets that were fully amortized during fiscal year 2020.

Amortization of intangibles decreased during the fiscal year ended August 31, 2022 compared to the fiscal year ended August 31, 2021 primarily driven by reduced amortization related to the Nypro trade name.

Restructuring, Severance and Related Charges

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Fiscal Year Ended August 31,

(dollars in millions)

(in millions)

Employee severance and benefit costs

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Total restructuring, severance and related charges (2)

(1) As the Company continued to optimize its cost structure and improve operational efficiencies, $57 million of employee severance and benefit costs was incurred in connection with a reduction in the worldwide workforce during the fiscal year ended August 31, 2020.

The remaining amount primarily relates to the 2020 Restructuring Plan, which was complete as of August 31, 2021.

(2) Primarily relates to the 2017 Restructuring Plan, which was complete as of August 31, 2019.

(3) Includes $0 million, $62 million and $21 million recorded in the EMS segment, $9 million, $76 million and $3 million recorded in the DMS segment and $1 million, $19 million and $2 million of non-allocated charges for the fiscal years ended August 31, 2021, 2020 and 2019, respectively.

(1) Recorded during the fiscal year ended August 31, 2022 for headcount reduction activities.

(2) Includes $1 million and $0 million recorded in the EMS segment, $10 million and $9 million recorded in the DMS segment and $7 million and $1 million of non-allocated charges for the fiscal years ended August 31, 2022 and 2021, respectively.

Except for asset write-off costs, all restructuring, severance and related charges are cash costs.

See Note 14 – “Restructuring, Severance and Related Charges” to the Consolidated Financial Statements for further discussion of restructuring, severance and related charges for the 2020 Restructuring Plans.

Se e Note 14 – “Restructuring, Severance and Related Charges” to the Consolidated Financial Statements for further discussion of restructuring, severance and related charges.

Loss on Debt Extinguishment

Fiscal Year Ended August 31,

(in millions)

Loss on debt extinguishment

Loss on debt extinguishment is due to the “make-whole” premium incurred during the fiscal year ended August 31, 2022, for the redemption of the 4.700% Senior Notes due 2022.

(Gain) Loss on Securities

Fiscal Year Ended August 31,

(dollars in millions)

(in millions)

(Gain) loss on securities

The change in (gain) loss on securities during the fiscal year ended August 31, 2021 compared to the fiscal year ended August 31, 2020, is due to cash proceeds received in connection with the sale of an investment partially offset by:

(i) an impairment charge of $36 million during the fiscal year ended August 31, 2020 related to our investment in the Senior Non-Convertible Preferred Stock of iQor Holdings, Inc.

(“iQor”) as a result of iQor’s bankruptcy filing and (ii) an impairment charge of $12 million during the fiscal year ended August 31, 2020 in connection with the sale of an investment in the optical networking segment.

Other (Income) Expense

The change in (gain) loss on securities during the fiscal year ended August 31, 2022 compared to the fiscal year ended August 31, 2021, is due to cash proceeds received in connection with the sale of an investment during the fiscal year ended August 31, 2021.

Other Expense (Income)

Fiscal Year Ended August 31,

(dollars in millions)

Other (income) expense

The change in other (income) expense during the fiscal year ended August 31, 2021 compared to the fiscal year ended August 31, 2020, is primarily due to:

(i) $24 million related to a decrease in fees associated with lower utilization of both our trade accounts receivable sales and securitization programs during fiscal year 2021, (ii) $10 million primarily related to lower net periodic benefit costs in fiscal year 2021, (iii) $7 million of costs incurred during the fiscal year ended August 31, 2020 related to the redemption of the 5.625% Senior Notes due 2020 and (iv) $1 million arising from an increase in other income.

(in millions)

Other expense (income)

The change in other expense (income) during the fiscal year ended August 31, 2022 compared to the fiscal year ended August 31, 2021, is primarily due to:

(i) $10 million related to an increase in fees associated with higher utilization of the trade accounts receivable sales programs, (ii) $7 million primarily related to higher net periodic benefit costs, and (iii) $6 million arising from an increase in other expense.

Interest Income

Fiscal Year Ended August 31,

(dollars in millions)

(in millions)

Interest income

Interest income decreased during the fiscal year ended August 31, 2021 compared to the fiscal year ended August 31, 2020, due to lower interest rates, partially offset by increased interest income on higher cash equivalents (investments that are readily convertible to cash with maturity dates of 90 days or less).

Interest income remained relatively consistent during the fiscal year ended August 31, 2022 compared to the fiscal year ended August 31, 2021.

Interest Expense

Fiscal Year Ended August 31,

(dollars in millions)

(in millions)

Interest expense

Interest expense decreased during the fiscal year ended August 31, 2021, compared to the fiscal year ended August 31, 2020, primarily due to lower interest rates and lower borrowings on our credit facilities, partially offset by additional borrowings on our commercial paper program and senior debt issuances.

Interest expense increased during the fiscal year ended August 31, 2022, compared to the fiscal year ended August 31, 2021, primarily due to higher interest rates and higher borrowings on our credit facilities and commercial paper program.

Additionally, the increase is due to higher borrowings on our senior notes.

Income Tax Expense

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The effective income tax rate decreased for the fiscal year ended August 31, 2022, compared to the fiscal year ended August 31, 2021, primarily due to:

(i) higher income before income tax for the fiscal year ended August 31, 2021, driven in part by decreased restructuring charges in tax jurisdictions with minimal related income tax benefit and (ii) a $21 million income tax expense associated with the re-measurement of deferred tax assets related to the extension of a non-U.S.

tax incentive recorded during the fiscal year ended August 31, 2020.

(i) higher income before income tax in low tax rate jurisdictions and decreased losses in tax jurisdictions with existing valuation allowances for the fiscal year ended August 31, 2022 and (ii) an income tax benefit of $26 million for the reversal of a portion of the U.S.

valuation allowance for the fiscal year ended August 31, 2022.

These decreases were partially offset by a $17 million income tax expense for an unrecognized tax benefit related to the taxation of certain prior year intercompany transactions for the fiscal year ended August 31, 2022.

Non-GAAP (Core) Financial Measures

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Also, our “core” financial measures should not be construed as an inference 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) loss on securities, income (loss) from discontinued operations, gain (loss) on sale of discontinued operations and certain other expenses, net of tax and certain deferred tax valuation allowance charges.

Management believes that the non-GAAP “core” financial measures set forth below are useful to facilitate evaluating the past and future performance of our ongoing manufacturing operations over multiple periods on a comparable basis by excluding the effects of the amortization of intangibles, stock-based compensation expense and related charges, restructuring, severance and related charges, distressed customer charges, acquisition and integration charges, loss on disposal of subsidiaries, settlement of receivables and related charges, impairment of notes receivable and related charges, goodwill impairment charges, business interruption and impairment charges, net, loss on debt extinguishment, (gain) loss on securities, income (loss) from discontinued operations, gain (loss) on sale of discontinued operations and certain other expenses, net of tax and certain deferred tax valuation allowance charges.

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

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

In certain jurisdictions where we do not expect to realize a tax benefit (due to existing tax incentives or a history of operating losses or other factors resulting in a valuation allowance related to deferred tax assets), a reduced or 0% tax rate is applied.

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 flows to provide investors with an additional method for assessing operating income and earnings, by presenting what we believe are our “core” manufacturing operations.

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We encourage you to consider these matters when evaluating the utility of these non-GAAP financial measures.

Adjusted free cash flow is defined as net cash provided by (used in) operating activities plus cash receipts on sold receivables less net capital expenditures (acquisition of property, plant and equipment less proceeds and advances from the sale of property, plant and equipment).

Adjusted free cash flow is defined as net cash provided by (used in) operating activities 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.

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GAAP financial measures as provided in our Consolidated Financial Statements:

Refer to Item 7.

"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 the non-GAAP financial measures discussion for the fiscal year ended August 31, 2021 compared to the fiscal year ended August 31, 2020.

Reconciliation of U.S.

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Adjustments to operating income

Loss on debt extinguishment (3)

(Gain) loss on securities

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GAAP and Non-GAAP)

The remaining amount primarily related to the 2020 Restructuring Plan.

(2) Relates to accounts receivable and inventory charges for certain distressed customers.

(3) 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.

(1) Recorded during the fiscal year ended August 31, 2022 for headcount reduction activities.

(2) 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.

(4) Charges, net of insurance proceeds, for the fiscal years ended August 31, 2021 and 2020, relate to a flood that impacted our facility in Huangpu, China.

(5) Charges related to our strategic collaboration with Johnson & Johnson Medical Devices Companies (“JJMD”).

(6) Relates to an impairment of an investment with iQor and the sale of an investment in the optical networking segment during fiscal year 2020.

(7) The fiscal year ended August 31, 2019 includes a $13 million income tax benefit for the effects of the Tax Cuts and Jobs Act of 2017 (“Tax Act”) recorded during the three months ended November 30, 2018.

(3) Charges related to the redemption of our 4.700% Senior Notes due 2022.

(4) The fiscal year ended August 31, 2022 includes an income tax benefit of $26 million for the reversal of a portion of the U.S.

valuation allowance.

Adjusted Free Cash Flow

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Net cash provided by operating activities (U.S.

Cash receipts on sold receivables

Acquisition of property, plant and equipment

Proceeds and advances from sale of property, plant and equipment

Acquisition of property, plant and equipment (“PP&E”) (1)

Proceeds and advances from sale of PP&E (1)

Adjusted free cash flow (Non-GAAP)

(1) In fiscal year 2019, the adoption of Accounting Standards Update ("ASU") 2016-15, "Classification of Certain Cash Receipts and Cash Payments" resulted in a reclassification of cash flows from operating activities to investing

activities for cash receipts for the deferred purchase price receivable on asset-backed securitization transactions.

The adoption of this standard does not reflect a change in the underlying business or activities.

(1) Certain customers co-invest in property, plant and equipment (“PP&E”) with us.

As we acquire PP&E, we recognize the cash payments in acquisition of PP&E.

When our customers reimburse us and obtain control, we recognized the cash receipts in proceeds and advances from the sale of PP&E.

Quarterly Results (Unaudited)

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Operating income

Net income (1)(2)

Net income attributable to Jabil Inc.

Earnings per share attributable to the stockholders of Jabil Inc.:

(1) Includes direct costs related to the COVID-19 pandemic of $23 million and $22 million for the three months ended August 31, 2021 and 2020, respectively.

(2) Includes the impairment of an investment with iQor during the three months ended August 31, 2020.

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 $19 million in cash.

Total assets acquired of $30 million and total liabilities assumed of $11 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.

Refer to Note 16 – “Business Acquisitions” to the Consolidated Financial Statements for further discussion.

Refe r to Note 16 – “Business Acquisitions” to th e Consolidated Financial Statements for discussion.

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 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 believe that our level of liquidity sources, which includes cash on hand, 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 flows provided by operating activities and 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, our working capital requirements and our contractual obligations for the next 12 months and beyond.

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

Certain of our trade accounts receivable sale programs expire or are subject to termination provisions within fiscal year 2022.

While we expect to renew such trade accounts receivable sale programs, market conditions, including the implications of the COVID-19 pandemic, at the time our current programs expire may create challenges in doing so, such as incurring a higher cost of capital.

Cash and Cash Equivalents

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1.700% Senior Notes

4.250% Senior Notes (1)

facilities (2)

commercial paper program (3)

Balance as of August 31, 2020

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$3.8 billion (2)

(1) On April 14, 2021, we issued $500 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 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 $700 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.

(1) On May 4, 2022, we issued $500 million of registered 4.250% Senior Notes due 2027 (the “Green Bonds” or the “4.250% Senior Notes”).

On May 31, 2022, the net proceeds from the offering were used to redeem our 4.700% Senior Notes due in 2022 and pay the applicable “make-whole” premium and accrued interest.

In addition, we intend to allocate an amount equal to the net proceeds from this offering to finance or refinance eligible expenditures under our new green financing framework.

(2) As of August 31, 2022, 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.

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.

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

In the ordinary course of business, we have letters of credit and surety bonds with banks and insurance companies outstanding of $73 million as of August 31, 2022.

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Global asset-backed securitization program - Effective August 20, 2021, the global asset-backed securitization program (formerly referred to as the North American asset-backed securitization program) terms were amended to:

(i) add a foreign

entity to the program, (ii) increase the maximum amount of net cash proceeds available at any one time from $390 million to $600 million and (iii) extend the expiration date of the program to November 25, 2024.

As of August 31, 2021, we had up to $24 million in available liquidity under our global asset-backed securitization program.

(i) add a foreign entity to the program, (ii) increase the maximum amount of net cash proceeds available at any one time from $390 million to $600 million and (iii) extend the expiration date of the program to November 25, 2024.

In connection with our asset-backed securitization program, during the fiscal year ended August 31, 2022, we sold $3.9 billion of trade accounts receivable and we received cash proceeds of $3.9 billion.

As of August 31, 2022, we had no available liquidity under our global asset-backed securitization program.

Certain entities participating in the global asset-backed securitization program continuously sell designated pools of trade accounts receivable to a special purpose entity, which in turn sells certain of the receivables at a discount to conduits administered by an unaffiliated financial institution on a monthly basis.

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(i) $68 million for the remittance of collections received prior to June 28, 2021, in our role as servicer of sold receivables and (ii) a repurchase of $99 million of all previously sold receivables, at fair value, that remained outstanding as of June 28, 2021.

As of August 31, 2021, we have substantially collected the repurchased receivables from customers.

The special purpose entity in the foreign asset-backed securitization program is a separate bankruptcy-remote entity that is winding down as a result of the termination of the foreign-asset backed securitization program.

We are deemed the primary beneficiary of this special purpose entity as we have 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 our Consolidated Financial Statements.

The foreign asset-backed securitization program contained a guarantee of payment by the special purpose entity, in an amount approximately equal to the net cash proceeds under the program.

As a result of the termination of the foreign asset-backed securitization program, all outstanding amounts have been settled with the unaffiliated financial institution as of August 31, 2021.

As such, no liability has been recorded for obligations under the guarantee.

As of August 31, 2021, we had substantially collected the repurchased receivables from customers.

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

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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:

(in millions) (1)

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 (in millions):

December 5, 2022

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August 10, 2023

July 21, 2022

December 4, 2022

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(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.

(4) 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.

(5) The program will be automatically extended through December 5, 2024 unless either party provides 30 days notice of termination.

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As of August 31, 2022, we had up to $1.6 billion in available liquidity under our trade accounts receivable sale programs.

Capital Expenditures

For Fiscal Year 2022, we anticipate our net capital expenditures will be approximately $830 million.

In general, our capital expenditures support ongoing maintenance in our DMS and EMS segments and investments in capabilities and targeted end markets.

The amount of actual capital expenditures may be affected by general economic, financial, competitive, legislative and regulatory factors, among other things.

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

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Effect of exchange rate changes on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Operating Activities

Net cash provided by operating activities during the fiscal year ended August 31, 2021 was primarily due to increased accounts payable, accrued expenses and other liabilities, non-cash expenses, net income, and decreased contract assets, partially offset by increased inventories, accounts receivable, and prepaid expenses and other current assets.

Net cash provided by operating activities during the fiscal year ended August 31, 2022 was primarily due to increased accounts payable, accrued expenses and other liabilities, non-cash expenses and net income, partially offset by increased inventories, accounts receivable, prepaid expenses and other current assets and contract assets.

The increase in accounts payable, accrued expenses and other liabilities is primarily due to the timing of purchases and cash payments.

The decrease in contract assets is primarily due to the timing of billings to our customers.

The increase in inventories is primarily to support expected sales levels in the first quarter of fiscal year 2022 and supply chain constraints due to the COVID-19 pandemic.

The increase in inventories is primarily due to higher raw material balances due to supply chain constraints and to support expected sales levels in the first quarter of fiscal year 2023 .

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 driven by the timing of payments.

The increase in contract assets is primarily due to the timing of billings to our customers.

Investing Activities

Net cash used in investing activities during the fiscal year ended August 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 Brands, Inc., partially offset by proceeds and advances from the sale of property, plant and equipment.

Net cash used in investing activities during the fiscal year ended August 31, 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 fiscal year ended August 31, 2021 was primarily due to (i) payments for debt agreements, (ii) the repurchase of our common stock, (iii) dividend payments, (iv) the purchase of the noncontrolling interests, and (v) treasury stock minimum tax withholding related to vesting of restricted stock.

Net cash used in financing activities during the fiscal year ended August 31, 2022 was primarily due to (i) payments for debt agreements, (ii) the repurchase of our common stock, (iii) dividend payments, and (iv) treasury stock minimum tax withholding related to vesting of restricted stock.

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.

Capital Expenditures

For Fiscal Year 2023, we anticipate our net capital expenditures will be approximately $875 million.

In general, our capital expenditures support ongoing maintenance in our DMS and EMS segments and investments in capabilities and targeted end markets.

The amount of actual capital expenditures may be affected by general economic, financial, competitive, legislative and regulatory factors, among other things.

Dividends and Share Repurchases

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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 million of our common stock as part of a two-year capital allocation framework (“the 2020 Share Repurchase Program”).

As of August 31, 2021, 14.1 million shares had been repurchased for $600 million and no authorization remains under the 2020 Share Repurchase Program.

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 August 31, 2022, 12.4 million shares had been repurchased for $737 million and $263 million remains available under the 2022 Share Repurchase Program.

In September 2022, the Board of Directors approved an authorization for the repurchase of up to $1.0 billion of our common stock (the “2023 Share Repurchase Program”).

Contractual Obligations

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Additionally, certain leases signed but not yet commenced contain residual value guarantees and purchase options not deemed probable.

(3) As of August 31, 2021, the future minimum lease payments exclude $155 million of residual value guarantees that could potentially come due in future periods.

(3) Excludes $194 million of residual value guarantees that could potentially come due in future periods.

The Company does not believe it is probable that any amounts will be owed under these guarantees.

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These future payments are not recorded on the Consolidated Balance Sheets but will be recorded as incurred.

(6) Includes (i) a $21 million capital commitment, (ii) a $9 million obligation related to a new human resource system and (iii) $30 million related to the one-time transition tax as a result of the Tax Act that will be paid in annual installments through fiscal year 2026.

(6) Includes (i) a $19 million capital commitment, (ii) a $5 million obligation related to a human resource system and (iii) $27 million related to the one-time transition tax as a result of the Tax Cuts and Jobs Act of 2017 that will be paid in annual installments through fiscal year 2026.

(7) As of August 31, 2022, we have $7 million and $158 million recorded as a current and a long-term liability, respectively, for uncertain tax positions.

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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-K

Item 7. Management’s Discussion and Analysis