What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-04-05 compared with 2023-01-06 · 151 added, 92 removed, 207 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, 85.7% of net revenue from our international operations for the three months ended November 30, 2022.

We derived a substantial majority, 84.0% and 85.0%, of net revenue from our international operations for the three months and six months ended February 28, 2023, 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, 2022 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, 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.

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.

"Management's Discussion and Analysis of Financial Condition and Results of Operations" section as of February 28, 2023 contained herein.

The COVID-19 pandemic has had, and continues to have, significant impacts in countries where we operate.

Travel and business operation restrictions arising from governmental virus containment efforts have continued to impact our operations in Asia during this fiscal year.

Certain of our suppliers continue to experience 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

1 unchanged sentence

Three months ended

November 30, 2022

November 30, 2021

Six months ended

February 28, 2023

February 28, 2022

February 28, 2023

February 28, 2022

Operating income

9 unchanged sentences

Three months ended

November 30, 2022

August 31, 2022

February 28, 2023

November 30, 2022

February 28, 2022

Sales cycle (1)

7 unchanged sentences

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

(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, 2022, the increase in days in inventory from the three months ended November 30, 2021 was primarily due to higher raw material balances due to supply chain constraints.

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

During the three months ended February 28, 2023, the increase in days in inventory from the prior sequential quarter and the three months ended February 28, 2022, was primarily due to higher raw material balances related to supply chain constraints, particularly in the automotive supply chain.

(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, 2022, the decrease in days in accounts payable from the prior sequential quarter and the three months ended November 30, 2021, was primarily due to timing of purchases and cash payments during the quarter.

During the three months ended February 28, 2023, the increase in days in accounts payable from the prior sequential quarter was primarily due to an increase in material purchases and timing of payments during the quarter.

During the three months ended February 28, 2023, the decrease in days in accounts payable from the three months ended February 28, 2022, was primarily due to cash payments and timing of purchases during the quarter.

Critical Accounting Policies and Estimates

5 unchanged sentences

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, 2022.

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, 2022.

Recent Accounting Pronouncements

11 unchanged sentences

Three months ended

Six months ended

(dollars in millions)

November 30, 2022

November 30, 2021

Net revenue increased during the three months ended November 30, 2022, compared to the three months ended November 30, 2021.

February 28, 2023

February 28, 2022

February 28, 2023

February 28, 2022

Net revenue increased during the three months ended February 28, 2023, compared to the three months ended February 28, 2022.

Specifically, the DMS segment net revenue increased 8% due to:

(i) a 6% increase in revenues from existing customers within our automotive and transportation business, (ii) a 5% increase in revenues from existing customers within our mobility business, and (iii) a 4% increase in revenues from existing customers within our healthcare and packaging business.

The increase is partially offset by a 7% decrease in revenues from existing customers within our connected devices business.

The EMS segment net revenue increased 7% due to:

(i) a 4% increase in revenues from existing customers within our industrial and capital equipment business, (ii) a 2% increase in revenues from existing customers within our digital print and retail business, and (iii) a 2% increase in revenues from existing customers within our networking and storage business.

The increase is partially offset by a 1% decrease in revenues from existing customers within our 5G, wireless and cloud business.

Net revenue increased during the six months ended February 28, 2023, compared to the six months ended February 28, 2022.

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

(i) a 5% 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 networking and storage business, and (iv) a 4% increase in revenues from existing customers within our industrial and capital equipment business.

(i) a 4% increase in revenues from existing customers within our industrial and capital equipment business, (ii) a 4% increase in revenues from existing customers within our digital print and retail business, (iii) a 3% increase in revenues from existing customers within our networking and storage business, and (iv) a 2% increase in revenues from existing customers within our 5G, wireless and cloud business.

The DMS segment net revenue increased 8% due to:

(i) a 7% increase in revenues from existing customers within 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 (i) a 1% decrease in revenues from existing customer within our mobility business and (ii) a 1% decrease in revenues from existing customers within our connected devices business.

We expect an additional $300 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 for a total of $800 million during fiscal year 2023.

(i) a 7% increase in revenues from existing customers within our automotive and transportation business, (ii) a 4% increase in revenues from existing customers within our healthcare and packaging business, and (iii) a 1% increase in revenues from existing customers within our mobility business.

The increase is partially offset by a 4% decrease in revenues from existing customers within our connected devices business.

We continue to expect $800 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 during fiscal year 2023.

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.

1 unchanged sentence

Three months ended

November 30, 2022

November 30, 2021

Six months ended

February 28, 2023

February 28, 2022

February 28, 2023

February 28, 2022

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

Three months ended

November 30, 2022

November 30, 2021

Six months ended

February 28, 2023

February 28, 2022

February 28, 2023

February 28, 2022

Foreign source revenue

Three months ended

Six months ended

(dollars in millions)

November 30, 2022

November 30, 2021

February 28, 2023

February 28, 2022

February 28, 2023

February 28, 2022

Percent of net revenue

Gross profit as a percentage of net revenue decreased for the three months ended November 30, 2022, compared to the three months ended November 30, 2021, primarily due to product mix.

Gross profit as a percentage of net revenue remained relatively consistent for the three months and six months ended February 28, 2023, compared to the three months and six months ended February 28, 2022.

Selling, General and Administrative

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(dollars in millions)

November 30, 2022

November 30, 2021

February 28, 2023

February 28, 2022

February 28, 2023

February 28, 2022

Selling, general and administrative

Selling, general and administrative expenses increased during the three months ended November 30, 2022, compared to the three months ended November 30, 2021.

Selling, general and administrative expenses increased during the three months ended February 28, 2023, compared to the three months ended February 28, 2022.

The increase is primarily due to a $4 million increase in stock-based compensation expense due to awards granted during the three months ended November 30, 2022.

Selling, general and administrative expenses increased during the six months ended February 28, 2023, compared to the six months ended February 28, 2022.

The increase is primarily due to a $11 million increase in stock-based compensation expense due to higher anticipated achievement levels for certain performance-based stock awards and awards granted during the three months ended November 30, 2022.

1 unchanged sentence

Three months ended

Six months ended

(dollars in millions)

November 30, 2022

November 30, 2021

February 28, 2023

February 28, 2022

February 28, 2023

February 28, 2022

Research and development

Percent of net revenue

Research and development expenses remained consistent as a percentage of net revenue during the three months ended November 30, 2022, compared to the three months ended November 30, 2021.

Research and development expenses remained consistent as a percentage of net revenue during the three months and six months ended February 28, 2023, compared to the three months and six months ended February 28, 2022.

Amortization of Intangibles

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Six months ended

(dollars in millions)

November 30, 2022

November 30, 2021

February 28, 2023

February 28, 2022

February 28, 2023

February 28, 2022

Amortization of intangibles

Amortization of intangibles remained consistent during the three months ended November 30, 2022, compared to the three months ended November 30, 2021.

Amortization of intangibles remained relatively consistent during the three months and six months ended February 28, 2023, compared to the three months and six months ended February 28, 2022.

Restructuring, Severance and Related Charges

Three months ended

Six months ended

(dollars in millions)

November 30, 2022

November 30, 2021

February 28, 2023

February 28, 2022

February 28, 2023

February 28, 2022

Restructuring, severance and related charges

Restructuring, severance and related charges during the three months ended November 30, 2022, primarily relates to headcount reduction to further optimize our business activities.

Other Expense

Restructuring, severance and related charges increased during the six months ended February 28, 2023, compared to the six months ended February 28, 2022 primarily related to a headcount reduction to further optimize our business activities during the three months ended November 30, 2022.

Other Expense (Income)

Three months ended

Six months ended

(dollars in millions)

November 30, 2022

November 30, 2021

Other expense

The change in other expense during the three months ended November 30, 2022, compared to the three months ended November 30, 2021, is primarily due to higher interest rates and an increase in fees associated with higher utilization of the trade accounts receivable sales programs.

February 28, 2023

February 28, 2022

February 28, 2023

February 28, 2022

Other expense (income)

The change in other expense (income) during the three months ended February 28, 2023, compared to the three months ended February 28, 2022, is primarily due to:

(i) $15 million related to an increase in fees associated with the securitization programs and higher utilization of and higher interest rates for the trade accounts receivable sales programs, (ii) $4 million primarily related to higher net periodic benefit costs, and (iii) $2 million arising from an increase in other expense.

The change in other expense (income) during the six months ended February 28, 2023, compared to the six months ended February 28, 2022, is primarily due to:

(i) $31 million related to an increase in fees associated with the securitization programs and higher utilization of and higher interest rates for the trade accounts receivable programs, and (ii) $7 million primarily related to higher net periodic benefit costs.

The change is partially offset by $3 million arising from a decrease in other expense.

Interest Income

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Six months ended

(dollars in millions)

November 30, 2022

November 30, 2021

February 28, 2023

February 28, 2022

February 28, 2023

February 28, 2022

Interest income

Interest income increased during the three months November 30, 2022, compared to the three months ended November 30, 2021, primarily due to higher interest rates on cash equivalents (investments that are readily convertible to cash with maturity dates of 90 days or less).

Interest income increased during the three months and six months ended February 28, 2023, compared to the three months and six months ended February 28, 2022, primarily due to higher interest rates on cash equivalents (investments that are readily convertible to cash with maturity dates of 90 days or less).

Interest Expense

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(dollars in millions)

November 30, 2022

November 30, 2021

February 28, 2023

February 28, 2022

February 28, 2023

February 28, 2022

Interest expense

Interest expense increased during the three months ended November 30, 2022, compared to the three months ended November 30, 2021, primarily due to higher interest rates on our credit facilities and commercial paper program.

Interest expense increased during the three months and six months ended February 28, 2023, compared to the three months and six months ended February 28, 2022, primarily due to higher interest rates on our commercial paper program and credit facilities.

Income Tax Expense

Three months ended

November 30, 2022

November 30, 2021

Six months ended

February 28, 2023

February 28, 2022

February 28, 2023

February 28, 2022

Effective income tax rate

The effective income tax rate differed for the three months ended November 30, 2022, compared to the three months ended November 30, 2021, primarily due to increased losses in tax jurisdictions with minimal related income tax benefit, driven in part by restructuring charges, for the three months ended November 30, 2022.

The effective income tax rate differed for the three months and six months ended February 28, 2023, compared to the three months and six months ended February 28, 2022, primarily due to:

(i) a change in the jurisdictional mix of earnings, driven in part by restructuring charges for the six months ended February 28, 2023 and (ii) a $10 million income tax benefit associated with the reversal of a non-U.S.

partial valuation allowance during the three months ended February 28, 2023.

Non-GAAP (Core) Financial Measures

13 unchanged sentences

Three months ended

Six months ended

(in millions, except for per share data)

November 30, 2022

November 30, 2021

February 28, 2023

February 28, 2022

February 28, 2023

February 28, 2022

Operating income (U.S.

14 unchanged sentences

GAAP and Non-GAAP)

(1) Recorded during the three months ended November 30, 2022, related to headcount reduction to further optimize our business activities.

(1) Recorded during the six months ended February 28, 2023, related to headcount reduction to further optimize our business activities.

(2) 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 unchanged sentence

Adjusted Free Cash Flow

Three months ended

Six months ended

(in millions)

November 30, 2022

November 30, 2021

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

February 28, 2023

February 28, 2022

Net cash provided by operating activities (U.S.

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

8 unchanged sentences

Cash and Cash Equivalents

As of November 30, 2022, 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, 2022 could be repatriated to the United States without potential tax expense.

As of February 28, 2023, 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 February 28, 2023 could be repatriated to the United States without potential tax expense.

Notes Payable and Credit Facilities

7 unchanged sentences

Balance as of August 31, 2022

Balance as of November 30, 2022

Balance as of February 28, 2023

Maturity Date

2 unchanged sentences

$3.8 billion (2)

(1) As of November 30, 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.

(1) On February 10, 2023, we entered into an amendment (the “Amendment”) to our senior unsecured credit agreement dated as of January 22, 2020 (as amended, the “Credit Facility”).

The Amendment, among other things, (i) instituted certain amendments to the sustainability-linked adjustments to the interest rates applicable to borrowings under the three-year revolving credit facility (the “Three-Year Revolving Credit Facility”) and the five-year revolving credit facility (the “Five-Year Revolving Credit Facility”), (ii) established customary SOFR, CDOR, EURIBOR and TIBOR provisions, which replaced the LIBOR provisions set forth in the existing agreement, and (iii) extended the termination date of the Three-Year Revolving Credit Facility to January 22, 2025, and of the Five-Year Revolving Credit Facility to January 22, 2027.

(2) As of February 28, 2023, 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 $3.2 billion under our commercial paper program.

Commercial paper 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.

Commercial paper borrowings with an original maturity of 90 days or less are recorded net within the Condensed Consolidated Statements 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, 2022 and August 31, 2022, we were in compliance with our debt covenants.

As of February 28, 2023 and August 31, 2022, 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 global asset-backed securitization program recognized during the three months ended November 30, 2022 and 2021 were not material.

Servicing fees related to the global asset-backed securitization program recognized during the three months and six months ended February 28, 2023 and 2022 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, 2022.

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, 2022, we sold $1.1 billion of trade accounts receivable and we received cash proceeds of $1.1 billion.

As of November 30, 2022, we had no available liquidity under our global asset-backed securitization program.

During the three months and six months ended February 28, 2023, we sold $1.0 billion and $2.1 billion, respectively, of trade accounts receivable and we received cash proceeds of $1.0 billion and $2.0 billion, respectively.

As of February 28, 2023, 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, 2022 and August 31, 2022, we were in

compliance with all covenants under our global asset-backed securitization program.

As of February 28, 2023 and August 31, 2022, 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, 2022, we may elect to sell receivables and the unaffiliated financ ial institutions may elect to purchase specific accounts receivable at any one time up to a:

(i) maximum aggregate amount available of $2.0 billion under eight 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.

As of February 28, 2023, we may elect to sell receivables and the unaffiliated financ ial institutions may elect to purchase specific accounts receivable at any one time up to a:

(i) maximum aggregate amount available of $2.1 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, 2022, we sold $3.5 billion of trade accounts receivable under these programs and we received cash proceeds of $3.5 billion.

As of November 30, 2022, we had up to $1.1 billion in available liquidity under our trade accounts receivable sale programs.

During the three months and six months ended February 28, 2023, we sold $2.9 billion and $6.5 billion, respectively, of trade accounts receivable under these programs and we received cash proceeds of $2.9 billion and $6.4 billion, respectively.

As of February 28, 2023, we had up to $1.3 billion in available liquidity under our trade accounts receivable sale programs.

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

Three months ended

November 30, 2022

November 30, 2021

Net cash provided by (used in) operating activities

Six months ended

February 28, 2023

February 28, 2022

Net cash provided by operating activities

Net cash used in investing activities

3 unchanged sentences

Operating Activities

Net cash provided by operating activities during the three months ended November 30, 2022, was primarily due to non-cash expenses and net income and an increase in accounts payable, accrued expenses and other liabilities.

These increases were partially offset by an increase in accounts receivable, inventories, contract assets, 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 accounts receivable is primarily driven by higher sales and the timing of collections.

The increase in inventories is 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.

Net cash provided by operating activities during the six months ended February 28, 2023, was primarily due to non-cash expenses and net income and a decrease in accounts receivable, accounts payable, accrued expenses and other liabilities, contract assets.

These decreases were partially offset by an increase in inventories and prepaid expenses and other current assets.

The decrease in accounts receivable is primarily driven by the timing of collections.

The decrease 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 timing of revenue recognition for over time customers.

The increase in inventories is primarily due to higher raw material balances related to supply chain constraints, particularly in the automotive supply chain.

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 three months ended November 30, 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.

Net cash used in investing activities during the six months ended February 28, 2023 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, 2022 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, 2023 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 was partially offset by borrowings under debt agreements.

7 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, 2022, 15.0 million shares had been repurchased for $898 million and $102 million remains available under the 2022 Share Repurchase Program.

As of February 28, 2023, 16.5 million shares had been repurchased for $1.0 billion and no authorization remains 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 the Company’s common stock (the “2023 Share Repurchase Program”).

As of November 30, 2022, no shares had been repurchased under the 2023 Share Repurchase Program.

As of February 28, 2023, 0.3 million shares had been repurchased for $25 million and $975 million remains available under the 2023 Share Repurchase Program.

Contractual Obligations

3 unchanged sentences

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