Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We are one of the leading providers of worldwide manufacturing services and solutions. We provide comprehensive electronics design, production and product management services to companies in various industries and end markets. We derive substantially all of our revenue from production and product management services (collectively referred to as “manufacturing services”), which encompass the act of producing tangible components that are built to customer specifications and are then provided to the customer.
We have two reporting segments: Electronics Manufacturing Services (“EMS”) and Diversified Manufacturing Services (“DMS”), which are organized based on the economic profiles of the services performed, including manufacturing capabilities, market strategy, margins, return on capital and risk profiles. Our EMS segment is focused around leveraging IT, supply chain design and engineering, technologies largely centered on core electronics, utilizing our large scale manufacturing infrastructure and our ability to serve a broad range of end markets. Our EMS segment is a high volume business that produces product at a quicker rate (i.e. cycle time) and in larger quantities and includes customers primarily in the 5G, wireless and cloud, digital print and retail, industrial and semi-capital equipment, and networking and storage industries. Our DMS segment is focused on providing engineering solutions, with an emphasis on material sciences, technologies and healthcare. Our DMS segment includes customers primarily in the automotive and transportation, connected devices, healthcare and packaging, and mobility industries.
Our cost of revenue includes the cost of electronic components and other materials that comprise the products we manufacture; the cost of labor and manufacturing overhead; and adjustments for excess and obsolete inventory. As a provider of turnkey manufacturing services, we are responsible for procuring components and other materials. This requires us to commit significant working capital to our operations and to manage the purchasing, receiving, inspecting and stocking of materials. At times, we collect deposits from our customers related to the purchase of inventory in order to effectively manage our working capital. Although we bear the risk of fluctuations in the cost of materials and excess scrap, our ability to purchase components and materials efficiently may contribute significantly to our operating results. While we periodically negotiate cost of materials adjustments with our customers, rising component and material prices may negatively affect our margins. Net revenue from each product that we manufacture consists of an element based on the costs of materials in that product and an element based on the labor and manufacturing overhead costs allocated to that product. Our gross margin for any product depends on the mix between the cost of materials in the product and the cost of labor and manufacturing overhead allocated to the product.
Our operating results are impacted by the level of capacity utilization of manufacturing facilities; indirect labor costs; and selling, general and administrative expenses. Operating income margins have generally improved during periods of high production volume and high capacity utilization. During periods of low production volume, we generally have reduced operating income margins.
We monitor the current economic environment and its potential impact on both the customers we serve as well as our end markets and closely manage our costs and capital resources so that we can try to respond appropriately as circumstances change.
We have consistently utilized advanced circuit design, production design and manufacturing technologies to meet the needs of our customers. To support this effort, our engineering staff focuses on developing and refining design and manufacturing technologies to meet specific needs of specific customers. Most of the expenses associated with these customer-specific efforts are reflected in our cost of revenue. In addition, our engineers engage in research and development (“R&D”) of new technologies that apply generally to our operations. The expenses of these R&D activities are reflected in the research and development line item within our Consolidated Statements of Operations.
An important element of our strategy is the expansion of our global production facilities. The majority of our revenue and materials costs worldwide are denominated in U.S. dollars, while our labor and utility costs in operations outside the U.S. are denominated in local currencies. 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. Changes in the fair market value of such hedging instruments are reflected within the Consolidated Statements of Operations and the Consolidated Statements of Comprehensive Income.
On September 26, 2023, we announced the signing of a definitive agreement to divest our mobility business to BYD Electronic (International) Company Limited (“BYDE”) in a cash transaction valued at approximately $2.2 billion. The transaction is
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anticipated to close within the first two quarters of our fiscal year 2024 (which is the period from September 1, 2023 through February 29, 2024), and is subject to closing conditions, including required regulatory approvals.
See Note 13 – “Concentration of Risk and Segment Data” to the Consolidated Financial Statements.
Summary of Results
The following table sets forth, for the periods indicated, certain key operating results and other financial information (in millions, except per share data):
Fiscal Year Ended August 31,
2023
2022
2021
Net revenue
$
34,702
$
33,478
$
29,285
Gross profit
$
2,867
$
2,632
$
2,359
Operating income
$
1,537
$
1,393
$
1,055
Net income attributable to Jabil Inc.
$
818
$
996
$
696
Earnings per share – basic
$
6.15
$
7.06
$
4.69
Earnings per share – diluted
$
6.02
$
6.90
$
4.58
Key Performance Indicators
Management regularly reviews financial and non-financial performance indicators to assess the Company’s operating results. Changes in our operating assets and liabilities are largely affected by our working capital requirements, which are dependent on the effective management of our sales cycle as well as timing of payments. Our sales cycle measures how quickly we can convert our manufacturing services into cash through sales. We believe the metrics set forth below are useful to investors in measuring our liquidity as future liquidity needs will depend on fluctuations in levels of inventory, accounts receivable and accounts payable.
The following table sets forth, for the quarterly periods indicated, certain of management’s key financial performance indicators:
Three Months Ended
August 31, 2023 (1)
May 31, 2023
August 31, 2022
Sales cycle (2)
43 days
48 days
32 days
Inventory turns (annualized) (3)
5 turns
4 turns
5 turns
Days in accounts receivable (4)
40 days
38 days
40 days
Days in inventory (5)
80 days
84 days
79 days
Days in accounts payable (6)
77 days
74 days
87 days
(1) The calculation of these key performance indicators includes assets and liabilities held for sale for the three months ended August 31, 2023.
(2) The sales cycle is calculated as the sum of days in accounts receivable and days in inventory, less the days in accounts payable; accordingly, the variance in the sales cycle quarter over quarter is a direct result of changes in these indicators.
(3) Inventory turns (annualized) are calculated as 360 days divided by days in inventory.
(4) 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, 2023, the increase in days in accounts receivable from the prior sequential quarter was primarily due to an increase in accounts receivable, primarily driven by timing of collections.
(5) 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, 2023, the decrease in days in inventory from the prior sequential quarter was primarily driven by sales activity during the quarter resulting in a higher consumption of inventory and improved working capital management.
(6) 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, 2023, the decrease in days in accounts payable from the three months ended August 31, 2022 was primarily due to cash payments and timing of purchases during the quarter. During the three months ended August 31, 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 cash payments during the quarter.
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Critical Accounting Policies and Estimates
The preparation of our Consolidated Financial Statements and related disclosures in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires management to make estimates and judgments that affect our reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and assumptions based upon historical experience and various other factors and circumstances. Management believes that our estimates and assumptions are reasonable under the circumstances; however, actual results may vary from these estimates and assumptions under different future circumstances. 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 – “Des cription of Business and Summary of Significant Accounting Policies” to the Consolidated Financial Statements.
Revenue Recognition
For our over time customers, we believe the measure of progress which best depicts the transfer of control is based on costs incurred to date, relative to total estimated cost at completion (i.e., an input method). This method is a faithful depiction of the transfer of goods or services because it results in the recognition of revenue on the basis of our to-date efforts in the satisfaction of a performance obligation relative to the total expected efforts in the satisfaction of the performance obligation. We believe that the use of an input method best depicts the transfer of control to the customer, which occurs as we incur costs on our contracts. The transaction price of each performance obligation is generally based upon the contractual stand-alone selling price of the product or service.
Inventory Valuation
We purchase inventory based on forecasted demand and record inventory at the lower of cost and net realizable value. Management regularly assesses inventory valuation based on current and forecasted usage, customer inventory-related contractual obligations and other lower of cost and net realizable value considerations. If actual market conditions or our customers’ product demands are less favorable than those projected, additional valuation adjustments may be necessary.
Long-Lived Assets
We have recorded intangible assets, including goodwill, in connection with business acquisitions. Estimated useful lives of amortizable intangible assets are determined by management based on an assessment of the period over which the asset is expected to contribute to future cash flows. 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. The Company may elect to perform a qualitative assessment to determine whether it is more likely than not that a reporting unit is impaired. If the qualitative assessment is not performed or if the Company determines that it is not more likely than not that the fair value of the reporting unit exceeds the carrying value, the recoverability of goodwill is measured at the reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, to the fair value of the reporting unit. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and a loss is recognized in the amount equal to that excess.
We perform an indefinite-lived intangible asset impairment analysis on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Company may elect to perform a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible is impaired. If the qualitative assessment is not performed or if the Company determines that it is not more likely than not that the fair value of an indefinite-lived intangible exceeds the carrying value, the recoverability is measured by comparing the carrying amount to the fair value. If the carrying amount of the indefinite-lived intangible asset exceeds its fair value, the indefinite-lived intangible asset is considered impaired.
We completed our annual impairment analysis for goodwill and indefinite-lived intangible assets during the fourth quarter of fiscal year 2023. The qualitative assessment was used for all reporting units and we determined that it is more likely than not that the fair values of our reporting units and the indefinite-lived intangible assets are in excess of the carrying values and that no impairment existed as of the date of the impairment analysis.
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Income Taxes
We estimate our income tax provision in each of the jurisdictions in which we operate, a process that includes estimating exposures related to examinations by taxing authorities. We must also make judgments regarding the ability to realize deferred tax assets. The carrying value of our net deferred tax assets is based on our belief that it is more likely than not that we will generate sufficient future taxable income in certain jurisdictions to realize these deferred tax assets. A valuation allowance has been established for deferred tax assets that we do not believe meet the “more likely than not” criteria. We assess whether an uncertain tax position taken or expected to be taken in a tax return meets the threshold for recognition and measurement in the Consolidated Financial Statements. Our judgments regarding future taxable income as well as tax positions taken or expected to be taken in a tax return may change due to changes in market conditions, changes in tax laws or other factors. If our assumptions and consequently our estimates change in the future, the valuation allowances and/or tax reserves established may be increased or decreased, resulting in a respective increase or decrease in income tax expense. For further discussion related to our income taxes, refer to Note 15 — “Income Taxes” to the Consolidated Financial Statements.
Recent Accounting Pronouncements
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 en ded August 31, 2022 for the results of operations discussion for the fiscal year ended August 31, 2022 compared to the fiscal year ended August 31, 2021 .
Net Revenue
Generally, we assess revenue on a global customer basis regardless of whether the growth is associated with organic growth or as a result of an acquisition. Accordingly, we do not differentiate or separately report revenue increases generated by acquisitions as opposed to existing business. In addition, the added cost structures associated with our acquisitions have historically been relatively insignificant when compared to our overall cost structure.
The distribution of revenue across our segments has fluctuated, and will continue to fluctuate, as a result of numerous factors, including the following: fluctuations in customer demand; efforts to diversify certain portions of our business; business growth from new and existing customers; specific product performance; and any potential termination, or substantial winding down, of significant customer relationships.
Fiscal Year Ended August 31,
Change
(dollars in millions)
2023
2022
2021
2023 vs. 2022
2022 vs. 2021
Net revenue
$
34,702
$
33,478
$
29,285
3.7
%
14.3
%
2023 vs. 2022
Net revenue increased during the fiscal year ended August 31, 2023 compared to the fiscal year ended August 31, 2022. Specifically, the DMS segment net revenue increased 8% due to: (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 businesses and (iii) a 1% increase in in revenues from existing customers within our mobility business. The increase was partially offset by a 4% decrease in revenues from existing customers within our connected devices business. The EMS segment net revenue remained consistent due to: (i) a 2% increase in revenues from existing customers within our industrial and semi-capital equipment business and (ii) a 2% decrease in revenues from existing customers within our 5G, wireless and cloud business.
On September 26, 2023, we announced the signing of a definitive agreement to divest our mobility business to BYD Electronic (International) Company Limited (“BYDE”) in a cash transaction valued at approximately $2.2 billion. The transaction is anticipated to close within the first two quarters of our fiscal year 2024 (which is the period from September 1, 2023 through February 29, 2024), and is subject to closing conditions, including required regulatory approvals. See Note 16 – “Business Acquisitions and Divestitures” to the Consolidated Financial Statements for additional information.
During fiscal year 2024, we expect an additional $700 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.
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The following table sets forth, for the periods indicated, revenue by segment expressed as a percentage of net revenue:
Fiscal Year Ended August 31,
2023
2022
2021
EMS
48
%
50
%
47
%
DMS
52
%
50
%
53
%
Total
100
%
100
%
100
%
The following table sets forth, for the periods indicated, foreign source revenue expressed as a percentage of net revenue:
Fiscal Year Ended August 31,
2023
2022
2021
Foreign source revenue
85.8
%
83.9
%
83.6
%
Gross Profit
Fiscal Year Ended August 31,
(dollars in millions)
2023
2022
2021
Gross profit
$
2,867
$
2,632
$
2,359
Percent of net revenue
8.3
%
7.9
%
8.1
%
2023 vs. 2022
Gross profit as a percentage of net revenue increased for the fiscal year ended August 31, 2023 compared to the fiscal year ended August 31, 2022, primarily due to product mix.
Selling, General and Administrative
Fiscal Year Ended August 31,
Change
(in millions)
2023
2022
2021
2023 vs. 2022
2022 vs. 2021
Selling, general and administrative
$
1,206
$
1,154
$
1,213
$
52
$
(59)
2023 vs. 2022
Selling, general and administrative expenses increased during the fiscal year ended August 31, 2023 compared to the fiscal year ended August 31, 2022. The increase is primarily due to: (i) a $26 million increase due to higher salary and salary related expenses, (ii) a $14 million increase in stock-based compensation expense due to higher anticipated achievement levels for certain performance-based stock awards and increased awards granted, and (iii) $12 million of other selling, general and administrative expenses.
Research and Development
Fiscal Year Ended August 31,
(dollars in millions)
2023
2022
2021
Research and development
$
34
$
33
$
34
Percent of net revenue
0.1
%
0.1
%
0.1
%
2023 vs. 2022
Research and development expenses remained consistent as a percent of net revenue during the fiscal year ended August 31, 2023 compared to the fiscal year ended August 31, 2022.
Amortization of Intangibles
Fiscal Year Ended August 31,
Change
(in millions)
2023
2022
2021
2023 vs. 2022
2022 vs. 2021
Amortization of intangibles
$
33
$
34
$
47
$
(1)
$
(13)
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2023 vs. 2022
Amortization of intangibles remained relatively consistent during the fiscal year ended August 31, 2023 compared to the fiscal year ended August 31, 2022.
Restructuring, Severance and Related Charges
Fiscal Year Ended August 31,
Change
(in millions)
2023
2022
2021
2023 vs. 2022
2022 vs. 2021
Restructuring, severance and related charges
$
57
$
18
$
10
$
39
$
8
2023 vs. 2022
Restructuring, severance and related charges increased during the fiscal year ended August 31, 2023, compared to the fiscal year ended August 31, 2022 primarily related to a headcount reduction to further optimize our business activities.
2024 Restructuring Plan
On September 26, 2023, our Board of Directors approved a restructuring plan to (i) realign our cost base for stranded costs associated with the sale and realignment of our mobility business and (ii) optimize our global footprint. This action includes headcount reductions across our Selling, General and Administrative (“SG&A”) cost base and capacity realignment (the “2024 Restructuring Plan”). The 2024 Restructuring Plan reflects our intention only and restructuring decisions, and the timing of such decisions, at certain locations are still subject to consultation with our employees and their representatives.
Based on the analysis done to date, we currently expect to recognize approximately $300 million in pre-tax restructuring and other related costs over the course of our 2024 fiscal year. The charges relating to the 2024 Restructuring Plan are currently expected to result in net cash expenditures of approximately $200 million that will be payable over the course of our fiscal years 2024 and 2025. The exact timing of these charges and cash outflows, as well as the estimated cost ranges by category type, have not been finalized. This information will be subject to the finalization of timetables for the transition of functions, consultation with employees and their representatives as well as the statutory severance requirements of the jurisdictions impacted, and the amount and timing of the actual charges may vary due to a variety of factors. Our estimates for the charges discussed above exclude any potential income tax effects.
See 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,
Change
(in millions)
2023
2022
2021
2023 vs. 2022
2022 vs. 2021
Loss on debt extinguishment
$
—
$
4
$
—
$
(4)
$
4
2023 vs. 2022
The change in loss on debt extinguishment during the fiscal year ended August 31, 2023 compared to the fiscal year ended August 31, 2022, is due to the “make-whole” premium incurred for the redemption of the 4.700% Senior Notes during the fiscal year ended August 31, 2022.
Gain on Securities
Fiscal Year Ended August 31,
Change
(in millions)
2023
2022
2021
2023 vs. 2022
2022 vs. 2021
Gain on securities
$
—
$
—
$
(2)
$
—
$
2
2023 vs. 2022
Gain on securities remained consistent during the fiscal year ended August 31, 2023 compared to the fiscal year ended August 31, 2022.
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Other Expense (Income)
Fiscal Year Ended August 31,
Change
(in millions)
2023
2022
2021
2023 vs. 2022
2022 vs. 2021
Other expense (income)
$
69
$
12
$
(11)
$
57
$
23
2023 vs. 2022
The change in other expense (income) during the fiscal year ended August 31, 2023 compared to the fiscal year ended August 31, 2022, is primarily due to a $57 million increase in fees due to higher interest rates on our trade accounts receivable sale programs and global asset-backed securitization program.
Interest Expense, net
Fiscal Year Ended August 31,
Change
(in millions)
2023
2022
2021
2023 vs. 2022
2022 vs. 2021
Interest expense, net
$
206
$
146
$
124
$
60
$
22
2023 vs. 2022
Interest expense, net increased during the fiscal year ended August 31, 2023 compared to the fiscal year ended August 31, 2022, primarily due to higher interest rates on our commercial paper program and credit facilities.
Income Tax Expense
Fiscal Year Ended August 31,
Change
2023
2022
2021
2023 vs. 2022
2022 vs. 2021
Effective income tax rate
35.2
%
19.1
%
26.0
%
16.1
%
(6.9)
%
2023 vs. 2022
The effective income tax rate increased for the fiscal year ended August 31, 2023, compared to the fiscal year ended August 31, 2022, primarily due to: (i) a change in the jurisdictional mix of earnings, (ii) an income tax expense of $146 million related to a change in the indefinite reinvestment assertion resulting from the planned divestiture and operations classified as held for sale for the fiscal year ended August 31, 2023, and (iii) 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 increases 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
The following discussion and analysis of our financial condition and results of operations include certain non-GAAP financial measures as identified in the reconciliation below. The non-GAAP financial measures disclosed herein do not have standard meaning and may vary from the non-GAAP financial measures used by other companies or how we may calculate those measures in other instances from time to time. Non-GAAP financial measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with U.S. GAAP. Also, our “core” financial measures should not be construed as an 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, 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.
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For fiscal year 2023, the Company adopted an annual normalized tax rate (“normalized core tax rate”) for the computation of the non-GAAP (core) income tax provision to provide better consistency across reporting periods. In estimating the normalized core tax rate annually, the Company utilizes a full-year financial projection of core earnings that considers the mix of earnings across tax jurisdictions, existing tax positions, and other significant tax matters. The Company may adjust the normalized core tax rate during the year for material impacts from new tax legislation or material changes to the Company’s operations.
Prior to fiscal year 2023, the Company determined the tax effect of the items included and excluded from core earnings quarterly.
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. A significant portion (based on the respective values) of the items that are excluded for purposes of calculating “core” operating income and “core” earnings also impacted certain balance sheet assets, resulting in a portion of an asset being written off without a corresponding recovery of cash we may have previously spent with respect to the asset. In the case of restructuring, severance and related charges, we may make associated cash payments in the future. In addition, although, for purposes of calculating “core” operating income and “core” earnings, we exclude stock-based compensation expense (which we anticipate continuing to incur in the future) because it is a non-cash expense, the associated stock issued may result in an increase in our outstanding shares of stock, which may result in the dilution of our stockholders’ ownership interest. We encourage you to consider these matters when evaluating the utility of these non-GAAP financial measures.
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.
Included in the tables below are a reconciliation of the non-GAAP financial measures to the most directly comparable U.S. 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, 2022 for the non-GAAP financial measures discussion for the fiscal year ended August 31, 2022 compared to the fiscal year ended August 31, 2021.
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Reconciliation of U.S. GAAP Financial Results to Non-GAAP Measures
Fiscal Year Ended August 31,
(in millions, except for per share data)
2023
2022
2021
Operating income (U.S. GAAP)
$
1,537
$
1,393
$
1,055
Amortization of intangibles
33
34
47
Stock-based compensation expense and related charges
95
81
102
Restructuring, severance and related charges (1)
57
18
10
Net periodic benefit cost (2)
11
17
24
Business interruption and impairment charges, net
—
—
(1)
Acquisition and integration charges
—
—
4
Adjustments to operating income
196
150
186
Core operating income (Non-GAAP)
$
1,733
$
1,543
$
1,241
Net income attributable to Jabil Inc. (U.S. GAAP)
$
818
$
996
$
696
Adjustments to operating income
196
150
186
Loss on debt extinguishment
—
4
—
Gain on securities
—
—
(2)
Net periodic benefit cost (2)
(11)
(17)
(24)
Adjustment for taxes (3)
169
(28)
(3)
Core earnings (Non-GAAP)
$
1,172
$
1,105
$
853
Diluted earnings per share (U.S. GAAP)
$
6.02
$
6.90
$
4.58
Diluted core earnings per share (Non-GAAP)
$
8.63
$
7.65
$
5.61
Diluted weighted average shares outstanding (U.S. GAAP and Non-GAAP)
135.9
144.4
152.1
(1) Recorded during the fiscal year ended August 31, 2023, related to headcount reduction to further optimize our business 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.
(3) The adjustment for taxes for the fiscal year ended August 31, 2023, primarily relates to a change in the indefinite reinvestment assertion associated with operations that have been classified as held for sale.
Adjusted Free Cash Flow
Fiscal Year Ended August 31,
(in millions)
2023
2022
2021
Net cash provided by operating activities (U.S. GAAP)
$
1,734
$
1,651
$
1,433
Acquisition of property, plant and equipment (“PP&E”) (1)
(1,030)
(1,385)
(1,159)
Proceeds and advances from sale of PP&E (1)
322
544
366
Adjusted free cash flow (Non-GAAP)
$
1,026
$
810
$
640
(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)
The following table sets forth certain unaudited quarterly financial information for the three months ended August 31, 2023 and 2022. In the opinion of management, this information has been presented on the same basis as the audited consolidated financial statements appearing elsewhere, and all necessary adjustments (consisting primarily of normal recurring accruals) have been included in the amounts stated below to present fairly the unaudited quarterly results when read in conjunction with the audited consolidated financial statements and related notes thereto. The operating results for any quarter are not necessarily indicative of results for any future period.
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Three Months Ended
(in millions, except for per share data)
August 31, 2023
August 31, 2022
Net revenue
$
8,458
$
9,030
Gross profit
$
766
$
729
Operating income
$
441
$
409
Net income
$
155
$
315
Net income attributable to Jabil Inc.
$
155
$
315
Earnings per share attributable to the stockholders of Jabil Inc.:
Basic
$
1.18
$
2.30
Diluted
$
1.15
$
2.25
Acquisitions and Divestitures
We announced on September 26, 2023 that, through our indirect subsidiary, Jabil Circuit (Singapore) Pte. Ltd., a Singapore private limited company (“Singapore Seller”), we have agreed to sell to BYD Electronic (International) Co. Ltd., a Hong Kong limited liability company (“Purchaser” or “BYDE”), our product manufacturing business in Chengdu, including our supporting component manufacturing in Wuxi (the “Business”) for cash consideration of approximately $2.2 billion, subject to certain customary purchase price adjustments. The sale is being made pursuant to a definitive agreement (the “Purchase Agreement”) for the sale and purchase of certain assets of Singapore Seller and the shares of Juno Singapore Target Newco Pte. Ltd. (the “Target”). Following a pre-closing reorganization (the “Reorganization”), the Target will hold, indirectly or directly, the Business.
Pursuant to the Preliminary Acquisition Agreement, dated August 26, 2023, by and between Purchaser and Singapore Seller, and the Purchase Agreement, Purchaser paid an aggregate deposit in the amount of $440 million, of which $132 million was paid to an escrow agent and $308 million was paid to the Company. Singapore Seller is entitled to retain the deposits in all circumstances, except in the event of a termination of the Purchase Agreement by Purchaser due to Singapore Seller’s breach of any warranty or failure to comply with any covenant applicable to it that would cause any closing condition of Purchaser to not be satisfied. Purchaser is entitled to repayment of $390 million of the deposit if on April 1, 2024 (i) the Reorganization has not been completed in all material respects, other than as a result of the failure to obtain regulatory approvals in the People’s Republic of China, and (ii) all other mutual conditions and conditions of Singapore Seller to closing have been satisfied.
The transaction is anticipated to close within the first two quarters of our current fiscal year 2024 (which is the period from September 1, 2023 through February 29, 2024). The closing of the transaction is subject to certain customary closing conditions set forth in the Purchase Agreement that include, among other things, receipt of regulatory approvals, accuracy of the warranties of the parties (subject to certain materiality standards set forth in the Purchase Agreement), completion of the Reorganization in all material respects, and material performance of certain respective obligations. The closing of the transaction is not conditioned on the receipt of financing.
As of August 31, 2023, the assets and liabilities of the Business were classified as held for sale and the carrying value is less than the estimated fair value less cost to sell and, thus, no adjustment to the carrying value of the disposal group is necessary. The planned divestiture did not meet the criteria to be reported as discontinued operations and we will continue to report the operating results for the Business in our Consolidated Statement of Operations in the DMS segment until the transaction is closed.
Refer to Note 16 – “Business Acquisitions and Divestitures” to the Consolidated Financial Statements for discussion.
Liquidity and Capital Resources
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.
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Cash and Cash Equivalents
As of August 31, 2023, we had approximately $1.8 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 August 31, 2023 could be repatriated to the United States without potential tax expense.
Notes Payable and Credit Facilities
Following is a summary of principal debt payments and debt issuance for our notes payable and credit facilities:
(in millions)
4.700%
Senior
Notes
4.900%
Senior
Notes (1)
3.950%
Senior
Notes
3.600%
Senior
Notes
3.000%
Senior
Notes
1.700%
Senior
Notes
4.250%
Senior
Notes
5.450%
Senior
Notes (1)
Borrowings
under
revolving
credit
facilities (2)(3)
Borrowings
under
loans
Total notes
payable
and
credit
facilities
Balance as of August 31, 2021
$
499
$
300
$
496
$
495
$
591
$
496
$
—
$
—
$
—
$
1
$
2,878
Borrowings
—
—
—
—
—
—
498
—
3,269
—
3,767
Payments
(500)
—
—
—
—
—
—
—
(3,269)
(1)
(3,770)
Other
1
—
1
1
1
1
(5)
—
—
—
—
Balance as of August 31, 2022
—
300
497
496
592
497
493
—
—
—
2,875
Borrowings
—
—
—
—
—
—
—
298
3,749
—
4,047
Payments
—
(300)
—
—
—
—
—
—
(3,747)
—
(4,047)
Other
—
—
—
—
1
1
2
(2)
(2)
—
—
Balance as of August 31, 2023
$
—
$
—
$
497
$
496
$
593
$
498
$
495
$
296
$
—
$
—
$
2,875
Maturity Date
Sep 15, 2022
Jul 14, 2023
Jan 12, 2028
Jan 15, 2030
Jan 15, 2031
Apr 15, 2026
May 15, 2027
Feb 1, 2029
Jan 22, 2025 and Jan 22, 2027
Jul 31, 2026
Original Facility/ Maximum Capacity (2)
$500 million
$300 million
$500 million
$500 million
$600 million
$500 million
$500 million
$300 million
$3.8 billion (3)
$1 million
(1) On April 13, 2023, we issued $300 million of publicly registered 5.450% Senior Notes due 2029 (the “5.450% Senior Notes”). We used the net proceeds for general corporate purposes, including, together with available cash, repayment of the $300 million aggregate principal amount of our 4.900% Senior Notes due in July 2023.
(2) 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.
(3) As of August 31, 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 Consolidated Statements 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 $66 million as of August 31, 2023. Unused letters of credit were $68 million as of August 31, 2023. Letters of credit and surety bonds are generally available for draw down in the event we do not perform.
We have a shelf registration statement with the SEC registering the potential sale of an indeterminate amount of debt and equity securities in the future to augment our liquidity and capital resources.
Our Senior Notes and our credit facilities contain various financial and nonfinancial covenants. A violation of these covenants could negatively impact our liquidity by restricting our ability to borrow under the notes payable and credit facilities and potentially causing acceleration of amounts due under these notes payable and credit facilities. As of August 31, 2023 and 2022,
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we were in compliance with our debt covenants. Refer to Note 7 – “Notes Payable and Long-Term Debt” to the Consolidated Financial Statements for further details.
Global Asset-Backed Securitization Program
Certain Jabil 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. In addition, a foreign entity participating in the global asset-backed securitization program sells certain receivables at a discount to conduits administered by an unaffiliated financial institution on a daily basis.
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 fiscal years ended August 31, 2023, 2022 and 2021 were not material. We do not record a servicing asset or liability on the 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 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 August 31, 2023.
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. The facility limit was increased to $700 million for the month of August 2023. During the fiscal year ended August 31, 2023, we sold $4.1 billion of trade accounts receivable and we received cash proceeds of $4.1 billion. As of August 31, 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 August 31, 2023, we were in compliance with all covenants under our global asset-backed securitization program. Refer to Note 8 – “Asset-Backed Securitization Programs” to the Consolidated Financial Statements for further details on the programs.
Trade Accounts Receivable Sale Programs
Following is a summary of the trade accounts receivable sale programs with unaffiliated financial institutions. Under the programs we may elect to sell receivables and the unaffiliated financial institutions may elect to purchase, at a discount, on an ongoing basis (in millions):
Program
Maximum
Amount (1)
Type of
Facility
Expiration
Date
A
$
700
Uncommitted
December 5, 2025 (2)
B
$
120
Uncommitted
(2)
C
400
CNY
Uncommitted
August 31, 2023 (2)
D
$
150
Uncommitted
May 4, 2028 (2)
E
$
150
Uncommitted
(3)
F
$
50
Uncommitted
(3)
G
$
100
Uncommitted
(2)
H
$
600
Uncommitted
December 5, 2024 (2)
I
$
135
Uncommitted
April 11, 2025 (2)
J
100
CHF
Uncommitted
December 5, 2025 (2)
K
8,100
INR
Uncommitted
(2)
(1) Maximum amount of trade accounts receivable that may be sold under a facility at any one time.
(2) Any party may elect to terminate the agreement upon 30 days prior notice.
(3) Any party may elect to terminate the agreement upon 15 days prior notice.
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During the fiscal year ended August 31, 2023, we sold $10.8 billion of trade accounts receivable under these programs and we received cash proceeds of $10.7 billion. As of August 31, 2023, we had up to $1.8 billion in available liquidity under our trade accounts receivable sale programs.
Cash Flows
The following table sets forth selected consolidated cash flow information (in millions):
Fiscal Year Ended August 31,
2023
2022
2021
Net cash provided by operating activities
$
1,734
$
1,651
$
1,433
Net cash used in investing activities
(723)
(858)
(851)
Net cash used in financing activities
(680)
(888)
(413)
Effect of exchange rate changes on cash and cash equivalents
(5)
6
4
Net increase (decrease) in cash and cash equivalents
$
326
$
(89)
$
173
Operating Activities
Net cash provided by operating activities during the fiscal year ended August 31, 2023, was primarily due to non-cash expenses and net income and a decrease in inventories, accounts receivable and contract assets. These decreases were partially offset by a decrease in accounts payable, accrued expenses and other liabilities and an increase in prepaid expenses and other current assets. The decrease in inventories is primarily driven by sales activity resulting in a higher consumption of inventory and improved working capital management. The decrease in accounts receivable is primarily driven by the timing of collections. The decrease in contract assets is primarily due to timing of revenue recognition for over time customers. The decrease in accounts payable, accrued expenses and other liabilities is primarily due to the timing of purchases and cash payments. 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 fiscal year ended August 31, 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 and proceeds from the planned divestiture of our mobility business.
Financing Activities
Net cash used in financing activities during the fiscal year ended August 31, 2023 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 2024, we anticipate our net capital expenditures to be in the range of 2.2 percent to 2.5 percent of net revenue. Upon closing of the Company’s sale of its mobility business, we anticipate our longer-term net capital expenditures to be in the range of 2.0 to 2.3 percent of net revenue. 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
Following is a summary of the dividends and share repurchases for the fiscal years indicated below (in millions):
Dividends Paid (1)
Share Repurchases (2)
Total
Fiscal years 2016 – 2020
$
283
$
1,468
$
1,751
Fiscal year 2021
$
50
$
428
$
478
Fiscal year 2022
$
48
$
696
$
744
Fiscal year 2023
$
45
$
487
$
532
Total
$
426
$
3,079
$
3,505
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(1) The difference between dividends declared and dividends paid is due to dividend equivalents for unvested restricted stock units that are paid at the time the awards vest.
(2) Excludes commissions and excise taxes.
We currently expect to continue to declare and pay regular quarterly dividends in amounts similar to our past declarations. However, the declaration and payment of future dividends are discretionary and will be subject to determination by our Board of Directors each quarter following its review of our financial performance and global economic conditions.
In 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 February 28, 2023, 16.5 million shares had been repurchased for $1.0 billion and no authorization remained 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”). As of August 31, 2023, 2.7 million shares had been repurchased for $224 million, excluding excise tax, and $776 million remains available under the 2023 Share Repurchase Program. In September 2023, the Board of Directors amended and increased the 2023 Share Repurchase Program to allow for the repurchase of up to $2.5 billion of our common stock.
Contractual Obligations
Our contractual obligations as of August 31, 2023 are summarized below. As disclosed below, while we have certain non-cancelable purchase order obligations for property, plant and equipment, we generally do not enter into non-cancelable purchase orders for materials until we receive a corresponding purchase commitment from our customer. Non-cancelable purchase orders do not typically extend beyond the normal lead time of several weeks, at most. Purchase orders beyond this time frame are typically cancellable.
Payments due by period (in millions)
Total
Less than 1
year
1-3 years
3-5 years
After 5 years
Notes payable and long-term debt
$
2,875
$
—
$
498
$
992
$
1,385
Future interest on notes payable and long-term debt (1)
525
102
201
148
74
Operating lease obligations (2)
532
138
178
100
116
Finance lease obligations (2)(3)
314
93
203
8
10
Non-cancelable purchase order obligations (4)
663
464
185
14
—
Pension and postretirement contributions and payments (5)
62
29
6
6
21
Other (6)
32
14
18
—
—
Total contractual obligations (7)
$
5,003
$
840
$
1,289
$
1,268
$
1,606
(1) Consists of interest on notes payable and long-term debt outstanding as of August 31, 2023. Certain of our notes payable and long-term debt pay interest at variable rates. We have applied estimated interest rates to determine the value of these expected future interest payments.
(2) Excludes $214 million of payments related to leases signed but not yet commenced. Of these excluded payments, $163 million relates to a variable interest entity (“VIE”), for which the Company is not the primary beneficiary. This is also the Company’s maximum exposure to loss related to the VIE. The Company expects the lease related to the VIE to commence in fiscal year 2024. Additionally, certain leases signed but not yet commenced contain residual value guarantees and purchase options not deemed probable.
(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. Therefore, no amounts related to the residual value guarantees are included in the lease payments used to measure the right-of-use assets and lease liabilities.
(4) Consists of purchase commitments entered into as of August 31, 2023 primarily for property, plant and equipment and software pursuant to legally enforceable and binding agreements.
(5) Includes the estimated company contributions to funded pension plans during fiscal year 2024 and the expected benefit payments for unfunded pension and postretirement plans from fiscal years 2024 through 2033. These future payments are not recorded on the Consolidated Balance Sheets but will be recorded as incurred.
(6) Includes (i) a $7 million capital commitment, (ii) a $2 million obligation related to a human resource system and (iii) $23 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.
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(7) As of August 31, 2023, we have $3 million and $167 million recorded as a current and a long-term liability, respectively, for uncertain tax positions. We are not able to reasonably estimate the timing of payments, or the amount by which our liability for these uncertain tax positions will increase or decrease over time, and accordingly, this liability has been excluded from the above table.