JABIL INC
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended November 30, 2021
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission File Number: 001-14063
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |||||||
(Address of principal executive offices) (Zip Code)
(727 ) 577-9749
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | |||||||||
| Non-accelerated filer | ☐ |
Smaller reporting company | |||||||||
| Emerging growth company | |||||||||||
1
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of December 31, 2021, there were 143,484,377 shares of the registrant’s Common Stock outstanding.
2
JABIL INC. AND SUBSIDIARIES INDEX
| Item 1. | ||||||||
Condensed Consolidated Balance Sheets as of November 30, 2021 and August 31, 2021 |
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Condensed Consolidated Statements of Operations for the three months ended November 30, 2021 and 2020 |
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Condensed Consolidated Statements of Comprehensive Income for the three months ended November 30, 2021 and 2020 |
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Condensed Consolidated Statements of Stockholders’ Equity for the three months ended November 30, 2021 and 2020 |
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Condensed Consolidated Statements of Cash Flows for the three months ended November 30, 2021 and 2020 |
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| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
PART I—FINANCIAL INFORMATION
| Item 1. | Financial Statements | ||||
JABIL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except for share data)
| November 30, 2021 (Unaudited) |
August 31, 2021 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Accounts receivable, net of allowance for doubtful accounts | |||||||||||
| Contract assets | |||||||||||
| Inventories, net | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
Property, plant and equipment, net of accumulated depreciation of $ |
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| Operating lease right-of-use asset | |||||||||||
| Goodwill | |||||||||||
Intangible assets, net of accumulated amortization of $ |
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| Deferred income taxes | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Current installments of notes payable and long-term debt | $ | $ | |||||||||
| Accounts payable | |||||||||||
| Accrued expenses | |||||||||||
| Current operating lease liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Notes payable and long-term debt, less current installments | |||||||||||
| Other liabilities | |||||||||||
| Non-current operating lease liabilities | |||||||||||
| Income tax liabilities | |||||||||||
| Deferred income taxes | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies | |||||||||||
| Equity: | |||||||||||
| Jabil Inc. stockholders’ equity: | |||||||||||
Preferred stock, $ |
|||||||||||
Common stock, $ |
|||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( |
( |
|||||||||
Treasury stock at cost, |
( |
( |
|||||||||
| Total Jabil Inc. stockholders’ equity | |||||||||||
| Noncontrolling interests | |||||||||||
| Total equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
See accompanying notes to Condensed Consolidated Financial Statements.
1
JABIL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except for per share data)
(Unaudited)
| Three months ended | |||||||||||
| November 30, 2021 | November 30, 2020 | ||||||||||
| Net revenue | $ | $ | |||||||||
| Cost of revenue | |||||||||||
| Gross profit | |||||||||||
| Operating expenses: | |||||||||||
| Selling, general and administrative | |||||||||||
| Research and development | |||||||||||
| Amortization of intangibles | |||||||||||
| Restructuring, severance and related charges | ( |
||||||||||
| Operating income | |||||||||||
| Other expense (income) | ( |
||||||||||
| Interest income | ( |
( |
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| Interest expense | |||||||||||
| Income before income tax | |||||||||||
| Income tax expense | |||||||||||
| Net income | |||||||||||
| Net income attributable to noncontrolling interests, net of tax | |||||||||||
| Net income attributable to Jabil Inc. | $ | $ | |||||||||
| Earnings per share attributable to the stockholders of Jabil Inc.: | |||||||||||
| Basic | $ | $ | |||||||||
| Diluted | $ | $ | |||||||||
| Weighted average shares outstanding: | |||||||||||
| Basic | |||||||||||
| Diluted | |||||||||||
See accompanying notes to Condensed Consolidated Financial Statements.
2
JABIL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
(Unaudited)
| Three months ended | |||||||||||
| November 30, 2021 | November 30, 2020 | ||||||||||
| Net income | $ | $ | |||||||||
| Other comprehensive (loss) income: | |||||||||||
| Change in foreign currency translation | ( |
||||||||||
| Change in derivative instruments: | |||||||||||
| Change in fair value of derivatives | |||||||||||
| Adjustment for net losses (gains) realized and included in net income | ( |
||||||||||
| Total change in derivative instruments | |||||||||||
| Actuarial loss | ( |
||||||||||
| Prior service credit | |||||||||||
| Total other comprehensive (loss) income | ( |
||||||||||
| Comprehensive income | $ | $ | |||||||||
| Comprehensive income attributable to noncontrolling interests | |||||||||||
| Comprehensive income attributable to Jabil Inc. | $ | $ | |||||||||
See accompanying notes to Condensed Consolidated Financial Statements.
3
JABIL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions)
(Unaudited)
| Three months ended | |||||||||||
| November 30, 2021 | November 30, 2020 | ||||||||||
Total stockholders' equity, beginning balances |
$ | $ | |||||||||
Common stock: |
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Additional paid-in capital: |
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Beginning balances |
|||||||||||
Recognition of stock-based compensation |
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Ending balances |
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Retained earnings: |
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Beginning balances |
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Declared dividends |
( |
( |
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| Net income attributable to Jabil Inc. | |||||||||||
Ending balances |
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| Accumulated other comprehensive loss: | |||||||||||
Beginning balances |
( |
( |
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| Other comprehensive income | ( |
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Ending balances |
( |
( |
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Treasury stock: |
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Beginning balances |
( |
( |
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Purchases of treasury stock under employee stock plans |
( |
( |
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Treasury shares purchased |
( |
( |
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Ending balances |
( |
( |
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Noncontrolling interests: |
|||||||||||
Beginning balances |
|||||||||||
Net income attributable to noncontrolling interests |
|||||||||||
Ending balances |
|||||||||||
Total stockholders' equity, ending balances |
$ | $ | |||||||||
See accompanying notes to Condensed Consolidated Financial Statements.
4
JABIL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
| Three months ended | |||||||||||
| November 30, 2021 | November 30, 2020 | ||||||||||
| Cash flows (used in) provided by operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Depreciation, amortization, and other, net | |||||||||||
| Change in operating assets and liabilities, exclusive of net assets acquired | ( |
( |
|||||||||
| Net cash (used in) provided by operating activities | ( |
||||||||||
| Cash flows used in investing activities: | |||||||||||
| Acquisition of property, plant and equipment | ( |
( |
|||||||||
| Proceeds and advances from sale of property, plant and equipment | |||||||||||
| Cash paid for business and intangible asset acquisitions, net of cash | ( |
||||||||||
| Other, net | ( |
||||||||||
| Net cash used in investing activities | ( |
( |
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| Cash flows used in financing activities: | |||||||||||
| Borrowings under debt agreements | |||||||||||
| Payments toward debt agreements | ( |
( |
|||||||||
| Payments to acquire treasury stock | ( |
( |
|||||||||
| Dividends paid to stockholders | ( |
( |
|||||||||
| Treasury stock minimum tax withholding related to vesting of restricted stock | ( |
( |
|||||||||
| Net cash used in financing activities | ( |
( |
|||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( |
||||||||||
| Net decrease in cash and cash equivalents | ( |
( |
|||||||||
| Cash and cash equivalents at beginning of period | |||||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
See accompanying notes to Condensed Consolidated Financial Statements.
5
JABIL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
2. Trade Accounts Receivable Sale Programs
The Company regularly sells designated pools of high credit quality trade accounts receivable, at a discount, under uncommitted trade accounts receivable sale programs to unaffiliated financial institutions without recourse. As these accounts receivable are sold without recourse, the Company does not retain the associated risks following the transfer of such accounts receivable to the respective financial institutions.
As of November 30, 2021, the Company may elect to sell receivables and the unaffiliated financial institution may elect to purchase specific accounts receivable at any one time up to a: (i) maximum aggregate amount available of $2.0 billion under nine trade accounts receivable sale programs, (ii) maximum amount available of 400 million CNY under one trade accounts receivable sale program and (iii) maximum amount available of 100 million CHF under one trade accounts receivable sale program. The trade accounts receivable sale programs expire on various dates through 2025.
The Company continues servicing the receivables sold and in exchange receives a servicing fee under each of the trade accounts receivable sale programs. Servicing fees related to the trade accounts receivable sale programs recognized during the three months ended November 30, 2021 and 2020 were not material. The Company does not record a servicing asset or liability on the Condensed Consolidated Balance Sheets as the Company estimates that the fee it receives to service these receivables approximates the fair market compensation to provide the servicing activities.
In connection with the trade accounts receivable sale programs, the Company recognized the following (in millions):
| Three months ended | |||||||||||
| November 30, 2021 | November 30, 2020 | ||||||||||
Trade accounts receivable sold(1) |
$ | $ | |||||||||
| Cash proceeds received | $ | $ | |||||||||
Pre-tax losses on sale of receivables(2) |
$ | $ | |||||||||
(1)Receivables sold are excluded from accounts receivable on the Condensed Consolidated Balance Sheets and are reflected as cash provided by operating activities on the Condensed Consolidated Statements of Cash Flows.
(2)Recorded to other expense within the Condensed Consolidated Statement of Operations.
3. Inventories
Inventories consist of the following (in millions):
| November 30, 2021 | August 31, 2021 | ||||||||||
| Raw materials | $ | $ | |||||||||
| Work in process | |||||||||||
| Finished goods | |||||||||||
| Reserve for excess and obsolete inventory | ( |
( |
|||||||||
| Inventories, net | $ | $ | |||||||||
6
4. Leases
During fiscal year 2022, the Company entered into new operating and finance leases. The future minimum lease payments under these new leases as of November 30, 2021 were as follows (in millions):
| Payments due by period (in millions) | |||||||||||||||||||||||||||||
| Total | Less than 1 year |
1-3 years | 3-5 years | After 5 years | |||||||||||||||||||||||||
Operating lease obligations(1) |
$ | $ | $ | $ | $ | ||||||||||||||||||||||||
Finance lease obligations(1) |
$ | $ | $ | $ | $ | ||||||||||||||||||||||||
(1)Excludes $28 million of payments related to leases signed but not yet commenced. Additionally, certain leases signed but not yet commenced contain residual value guarantees and purchase options not deemed probable.
5. Notes Payable and Long-Term Debt
Notes payable and long-term debt outstanding as of November 30, 2021 and August 31, 2021 are summarized below (in millions):
| Maturity Date | November 30, 2021 | August 31, 2021 | ||||||||||||||||||
| Sep 15, 2022 | $ | $ | ||||||||||||||||||
| Jul 14, 2023 | ||||||||||||||||||||
| Jan 12, 2028 | ||||||||||||||||||||
| Jan 15, 2030 | ||||||||||||||||||||
| Jan 15, 2031 | ||||||||||||||||||||
| Apr 15, 2026 | ||||||||||||||||||||
Borrowings under credit facilities(1) |
Jan 22, 2024 and Jan 22, 2026 | |||||||||||||||||||
| Borrowings under loans | Jul 31, 2026 | |||||||||||||||||||
| Total notes payable and long-term debt | ||||||||||||||||||||
Less current installments of notes payable and long-term debt |
||||||||||||||||||||
Notes payable and long-term debt, less current installments |
$ | $ | ||||||||||||||||||
Debt Covenants
Borrowings under the Company’s debt agreements are subject to various covenants that limit the Company’s ability to: incur additional indebtedness, sell assets, effect mergers and certain transactions, and effect certain transactions with subsidiaries and affiliates. In addition, the revolving credit facilities and the 4.900 % Senior Notes contain debt leverage and interest coverage covenants. The Company is also subject to certain covenants requiring the Company to offer to repurchase the 4.700 %, 4.900 %, 3.950 %, 3.600 %, 3.000 % or 1.700 % Senior Notes upon a change of control. As of November 30, 2021 and August 31, 2021, the Company was in compliance with its debt covenants.
Fair Value
6. Asset-Backed Securitization Program
7
asset-backed securitization program sells certain receivables at a discount to conduits administered by an unaffiliated financial institution on a daily basis. The Company terminated the foreign asset-backed securitization program on June 28, 2021.
The Company continues servicing the receivables sold and in exchange receives a servicing fee under the global asset-backed securitization program. Servicing fees related to the asset-backed securitization programs recognized during the three months ended November 30, 2021 and 2020 were not material. The Company does not record a servicing asset or liability on the Condensed Consolidated Balance Sheets as the Company estimates that the fee it receives 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 the Company’s Condensed Consolidated Financial Statements. Certain unsold receivables covering up to the maximum amount of net cash proceeds available under the domestic, or U.S., portion of the global asset-backed securitization program are pledged as collateral to the unaffiliated financial institution as of November 30, 2021.
The global asset-backed securitization program expires on November 25, 2024 and the maximum amount of net cash proceeds available at any one time is $600 million. As of November 30, 2021, the Company had no available liquidity under its global asset-backed securitization program.
In connection with the asset-backed securitization program, the Company recognized the following (in millions):
| Three months ended | |||||||||||
| November 30, 2021 | November 30, 2020(4) | ||||||||||
Trade accounts receivable sold(1) |
$ | $ | |||||||||
Cash proceeds received(2) |
$ | $ | |||||||||
Pre-tax losses on sale of receivables(3) |
$ | $ | |||||||||
(1)Receivables sold are excluded from accounts receivable on the Condensed Consolidated Balance Sheets and are reflected as cash provided by operating activities on the Condensed Consolidated Statements of Cash Flows.
(2)The amounts primarily represent proceeds from collections reinvested in revolving-period transfers.
(3)Recorded to other expense within the Condensed Consolidated Statements of Operations.
(4)Activity includes the foreign asset-backed securitization program which terminated on June 28, 2021.
7. Accrued Expenses
Accrued expenses consist of the following (in millions):
| November 30, 2021 | August 31, 2021 | ||||||||||
Contract liabilities(1) |
$ | $ | |||||||||
| Accrued compensation and employee benefits | |||||||||||
| Inventory deposits | |||||||||||
| Other accrued expenses | |||||||||||
| Accrued expenses | $ | $ | |||||||||
(1)Revenue recognized during the three months ended November 30, 2021 and 2020 that was included in the contract liability balance as of August 31, 2021 and 2020 was $98 million and $170 million, respectively.
8. Postretirement and Other Employee Benefits
Net Periodic Benefit Cost
8
| Three months ended | |||||||||||
| November 30, 2021 | November 30, 2020 | ||||||||||
Service cost (1) |
$ | $ | |||||||||
Interest cost (2) |
|||||||||||
Expected long-term return on plan assets (2) |
( |
( |
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Recognized actuarial gain (2) |
( |
( |
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Amortization of actuarial gain (2)(3) |
( |
( |
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Amortization of prior service cost (2) |
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| Net periodic benefit cost | $ | ( |
$ | ||||||||
(1)Service cost is recognized in cost of revenue in the Condensed Consolidated Statement of Operations.
(2)Components are recognized in other expense in the Condensed Consolidated Statement of Operations.
(3)Actuarial gains and losses are amortized using a corridor approach. The gain/loss corridor is equal to 10
9. Derivative Financial Instruments and Hedging Activities
The Company is directly and indirectly affected by changes in certain market conditions. These changes in market conditions may adversely impact the Company’s financial performance and are referred to as market risks. The Company, where deemed appropriate, uses derivatives as risk management tools to mitigate the potential impact of certain market risks. The primary market risks managed by the Company through the use of derivative instruments are foreign currency risk and interest rate risk.
Foreign Currency Risk Management
Forward contracts are put in place to manage the foreign currency risk associated with the anticipated foreign currency denominated revenues and expenses. A hedging relationship existed with an aggregate notional amount outstanding of $1.3 billion and $1.5 billion as of November 30, 2021 and August 31, 2021, respectively. The related forward foreign exchange contracts have been designated as hedging instruments and are accounted for as cash flow hedges. The forward foreign exchange contract transactions will effectively lock in the value of anticipated foreign currency denominated revenues and expenses against foreign currency fluctuations. The anticipated foreign currency denominated revenues and expenses being hedged are expected to occur between December 1, 2021 and November 30, 2022.
In addition to derivatives that are designated as hedging instruments and qualify for hedge accounting, the Company also enters into forward contracts to economically hedge transactional exposure associated with commitments arising from trade accounts receivable, trade accounts payable, fixed purchase obligations and intercompany transactions denominated in a currency other than the functional currency of the respective operating entity. The aggregate notional amount of these outstanding contracts as of November 30, 2021 and August 31, 2021, was $3.5 billion and $3.6 billion, respectively.
Refer to Note 15 – “Fair Value Measurements” for the fair values and classification of the Company’s derivative instruments.
The gains and losses recognized in earnings due to the amount excluded from effectiveness testing were not material for all periods presented and are included as components of net revenue, cost of revenue and selling, general and administrative expense, which are the same line items in which the hedged items are recorded.
The following table presents the gains from forward contracts recorded in the Condensed Consolidated Statements of Operations for the periods indicated (in millions):
| Derivatives Not Designated as Hedging Instruments Under ASC 815 | Location of Gain on Derivatives Recognized in Net Income | Amount of Gain Recognized in Net Income on Derivatives | ||||||||||||||||||
| Three months ended | ||||||||||||||||||||
| November 30, 2021 | November 30, 2020 | |||||||||||||||||||
Forward foreign exchange contracts(1) |
Cost of revenue | $ | $ | |||||||||||||||||
Interest Rate Risk Management
9
The Company periodically enters into interest rate swaps to manage interest rate risk associated with the Company’s borrowings.
Cash Flow Hedges
The following table presents the interest rate swaps outstanding as of November 30, 2021, which have been designated as hedging instruments and accounted for as cash flow hedges:
| Interest Rate Swap Summary | Hedged Interest Rate Payments | Aggregate Notional Amount (in millions) | Effective Date | Expiration Date (1) |
||||||||||||||||||||||
| Forward Interest Rate Swap | ||||||||||||||||||||||||||
| Anticipated Debt Issuance | Fixed | $ | November 2, 2020 | July 31, 2024 | (2) | |||||||||||||||||||||
| Anticipated Debt Issuance | Fixed | $ | May 24, 2021 | July 31, 2024 | (2) | |||||||||||||||||||||
(1)The contracts will be settled with the respective counterparties on a net basis at the expiration date for the forward interest rate swap.
(2)If the anticipated debt issuance occurs before July 31, 2024, the contracts will be terminated simultaneously with the debt issuance.
Contemporaneously with the issuance of our 3.000 % Notes in July 2020, the Company amended interest rate swap agreements with a notional value of $200.0 million, with mandatory termination dates from August 15, 2020 to February 15, 2022 (the “2020 Extended Interest Rate Swaps”). In addition, the Company entered into interest rate swaps to offset future exposures of fluctuations in the fair value of the 2020 Extended Interest Rate Swaps (the “Offsetting Interest Rate Swaps”). The change in fair value of the 2020 Extended Interest Rate Swaps and Offsetting Interest Rate Swaps is recorded in the Consolidated Statements of Income through the maturity date as an adjustment to interest expense.
10. Accumulated Other Comprehensive Income
The following table sets forth the changes in accumulated other comprehensive income (“AOCI”), net of tax, by component for the three months ended November 30, 2021 (in millions):
| Foreign Currency Translation Adjustment |
Derivative Instruments |
Actuarial Gain (Loss) |
Prior Service (Cost) Credit |
Total | |||||||||||||||||||||||||
Balance as of August 31, 2021 |
$ | ( |
$ | ( |
$ | $ | ( |
$ | ( |
||||||||||||||||||||
| Other comprehensive (loss) income before reclassifications | ( |
( |
|||||||||||||||||||||||||||
| Amounts reclassified from AOCI | ( |
( |
|||||||||||||||||||||||||||
Other comprehensive (loss) income(1) |
( |
( |
( |
||||||||||||||||||||||||||
Balance as of November 30, 2021 |
$ | ( |
$ | ( |
$ | $ | ( |
$ | ( |
||||||||||||||||||||
(1)Amounts are net of tax, which are immaterial.
The following table sets forth the amounts reclassified from AOCI into the Condensed Consolidated Statements of Operations, and the associated financial statement line item, net of tax, for the periods indicated (in millions):
| Three months ended | ||||||||||||||||||||
| Comprehensive Income Components | Financial Statement Line Item | November 30, 2021 | November 30, 2020 | |||||||||||||||||
Realized losses (gains) on derivative instruments:(1) |
||||||||||||||||||||
| Foreign exchange contracts | Cost of revenue | ( |
||||||||||||||||||
| Interest rate contracts | Interest expense | |||||||||||||||||||
| Actuarial gain | (2) |
( |
||||||||||||||||||
| Prior service cost | (2) |
|||||||||||||||||||
Total amounts reclassified from AOCI(3) |
$ | ( |
$ | ( |
||||||||||||||||
(1)The Company expects to reclassify $7 million into earnings during the next twelve months, which will primarily be classified as a component of cost of revenue.
10
(2)Amounts are included in the computation of net periodic benefit pension cost. Refer to Note 8 – “Postretirement and Other Employee Benefits” for additional information.
(3)Amounts are net of tax, which are immaterial for the three months ended November 30, 2021 and 2020.
11. Stockholders’ Equity
The Company recognized stock-based compensation expense within selling, general and administrative expense as follows (in millions):
| Three months ended | ||||||||||||||
| November 30, 2021 | November 30, 2020 | |||||||||||||
Restricted stock units |
$ | $ | ||||||||||||
| Employee stock purchase plan | ||||||||||||||
| Total | $ | $ | ||||||||||||
As of November 30, 2021, the shares available to be issued under the 2021 Equity Incentive Plan were 9,852,269 .
Restricted Stock Units
Certain key employees have been granted time-based, performance-based and market-based restricted stock unit awards (“restricted stock units”). The time-based restricted stock units generally vest on a graded vesting schedule over three years . The performance-based restricted stock units generally vest on a cliff vesting schedule over three years and up to a maximum of 150 %, depending on the specified performance condition and the level of achievement obtained. The performance-based restricted stock units have a vesting condition that is based upon the Company’s cumulative adjusted core earnings per share during the performance period. The market-based restricted stock units generally vest on a cliff vesting schedule over three years and up to a maximum of 200 %, depending on the specified performance condition and the level of achievement obtained. The market-based restricted stock units have a vesting condition that is tied to the Company’s total shareholder return based on the Company’s stock performance in relation to the companies in the Standard and Poor’s (SP) Super Composite Technology Hardware and Equipment Index excluding the Company. During the three months ended November 30, 2021 and 2020, the Company awarded approximately 0.7 million and 1.1 million time-based restricted stock units, respectively, 0.2 million and 0.3 million performance-based restricted stock units, respectively, and 0.2 million and 0.3 million market-based restricted stock units, respectively.
The following represents the stock-based compensation information as of the period indicated (in millions):
| November 30, 2021 | |||||
| Unrecognized stock-based compensation expense—restricted stock units | $ | ||||
| Remaining weighted-average period for restricted stock units expense | |||||
Common Stock Outstanding
| Three months ended | |||||||||||
| November 30, 2021 | November 30, 2020 | ||||||||||
Common stock outstanding: |
|||||||||||
Beginning balances |
|||||||||||
Vesting of restricted stock |
|||||||||||
Purchases of treasury stock under employee stock plans |
( |
( |
|||||||||
Treasury shares purchased(1) |
( |
( |
|||||||||
Ending balances |
|||||||||||
12. Concentration of Risk and Segment Data
11
Concentration of Risk
Sales of the Company’s products are concentrated among specific customers. During the three months ended November 30, 2021, the Company’s five largest customers accounted for approximately 49 % of its net revenue and 74 customers accounted for approximately 90 % of its net revenue. Sales to these customers were reported in the Electronics Manufacturing Services (“EMS”) and Diversified Manufacturing Services (“DMS”) operating segments.
The Company procures components from a broad group of suppliers. Some of the products manufactured by the Company require one or more components that are available from only a single source.
Segment Data
Net revenue for the operating segments is attributed to the segment in which the service is performed. An operating segment’s performance is evaluated based on its pre-tax operating contribution, or segment income. Segment income is defined as net revenue less cost of revenue, segment selling, general and administrative expenses, segment research and development expenses and an allocation of corporate manufacturing expenses and selling, general and administrative expenses. Certain items are excluded from the calculation of segment income. Transactions between operating segments are generally recorded at amounts that approximate those at which we would transact with third parties.
The following table sets forth operating segment information (in millions):
| Three months ended | |||||||||||
| November 30, 2021 | November 30, 2020 | ||||||||||
| Segment income and reconciliation of income before income tax | |||||||||||
| EMS | $ | $ | |||||||||
| DMS | |||||||||||
| Total segment income | $ | $ | |||||||||
| Reconciling items: | |||||||||||
| Amortization of intangibles | ( |
( |
|||||||||
| Stock-based compensation expense and related charges | ( |
( |
|||||||||
| Restructuring, severance and related charges | |||||||||||
| Acquisition and integration charges | ( |
||||||||||
| Other expense (net of periodic benefit cost) | ( |
( |
|||||||||
| Interest income | |||||||||||
| Interest expense | ( |
( |
|||||||||
| Income before income tax | $ | $ | |||||||||
The following table presents the Company’s revenues disaggregated by segment (in millions):
| Three months ended | |||||||||||||||||||||||||||||||||||
| November 30, 2021 | November 30, 2020 | ||||||||||||||||||||||||||||||||||
| EMS | DMS | Total | EMS | DMS | Total | ||||||||||||||||||||||||||||||
| Timing of transfer | |||||||||||||||||||||||||||||||||||
| Point in time | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Over time | |||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
The Company operates in more than 30 countries worldwide. Sales to unaffiliated customers are based on the Company location that maintains the customer relationship and transacts the external sale. The following table sets forth, for the periods indicated, foreign source revenue expressed as a percentage of net revenue:
12
| Three months ended | |||||||||||
| November 30, 2021 | November 30, 2020 | ||||||||||
| Foreign source revenue | % | % | |||||||||
13. Income Taxes
Effective Income Tax Rate
The U.S. federal statutory income tax rate and the Company's effective income tax rate are as follows:
| Three months ended | |||||||||||
| November 30, 2021 | November 30, 2020 | ||||||||||
| U.S. federal statutory income tax rate | % | % | |||||||||
| Effective income tax rate | % | % | |||||||||
The effective income tax rate decreased for the three months ended November 30, 2021, compared to the three months ended November 30, 2020, primarily due to decreased losses in tax jurisdictions with existing valuation allowances for the three months ended November 30, 2021.
14. Earnings Per Share and Dividends
Earnings Per Share
The Company calculates its basic earnings per share by dividing net income attributable to the Company by the weighted average number of common shares outstanding during the period. The Company’s diluted earnings per share is calculated in a similar manner, but includes the effect of dilutive securities. The difference between the weighted average number of basic shares outstanding and the weighted average number of diluted shares outstanding is primarily due to dilutive unvested restricted stock units.
Potential shares of common stock are excluded from the computation of diluted earnings per share when their effect would be antidilutive. Performance-based restricted stock units are considered dilutive when the related performance criteria have been met assuming the end of the reporting period represents the end of the performance period. All potential shares of common stock are antidilutive in periods of net loss. Potential shares of common stock not included in the computation of earnings per share because their effect would have been antidilutive or because the performance criterion was not met were as follows (in thousands):
| Three months ended | |||||||||||
| November 30, 2021 | November 30, 2020 | ||||||||||
| Restricted stock units | |||||||||||
Dividends
The following table sets forth cash dividends declared by the Company to common stockholders during the three months ended November 30, 2021 and 2020 (in millions, except for per share data):
| Dividend Declaration Date |
Dividend per Share |
Total of Cash Dividends Declared |
Date of Record for Dividend Payment |
Dividend Cash Payment Date | |||||||||||||||||||||||||
| Fiscal Year 2022: | October 21, 2021 | $ | $ | November 15, 2021 | December 1, 2021 | ||||||||||||||||||||||||
| Fiscal Year 2021: | October 15, 2020 | $ | $ | November 16, 2020 | December 2, 2020 | ||||||||||||||||||||||||
15. Fair Value Measurements
13
Fair Value Measurements on a Recurring Basis
The following table presents the fair value of the Company's financial assets and liabilities measured at fair value by hierarchy level on a recurring basis as of the periods indicated:
| (in millions) | Fair Value Hierarchy | November 30, 2021 | August 31, 2021 | |||||||||||||||||
| Assets: | ||||||||||||||||||||
| Cash and cash equivalents: | ||||||||||||||||||||
| Cash equivalents | Level 1 | (1) |
$ | $ | ||||||||||||||||
| Prepaid expenses and other current assets: | ||||||||||||||||||||
| Short-term investments | Level 1 | |||||||||||||||||||
| Forward foreign exchange contracts: | ||||||||||||||||||||
Derivatives designated as hedging instruments (Note 9) |
Level 2 | (2) |
||||||||||||||||||
Derivatives not designated as hedging instruments (Note 9) |
Level 2 | (2) |
||||||||||||||||||
| Other assets: | ||||||||||||||||||||
| Forward interest rate swap: | ||||||||||||||||||||
Derivatives designated as hedging instruments (Note 9) |
Level 2 | (3) |
||||||||||||||||||
| Liabilities: | ||||||||||||||||||||
| Accrued expenses: | ||||||||||||||||||||
| Forward foreign exchange contracts: | ||||||||||||||||||||
Derivatives designated as hedging instruments (Note 9) |
Level 2 | (2) |
$ | $ | ||||||||||||||||
Derivatives not designated as hedging instruments (Note 9) |
Level 2 | (2) |
||||||||||||||||||
| Interest rate swaps: | ||||||||||||||||||||
Derivatives not designated as hedging instruments (Note 9) |
Level 2 | (3) |
||||||||||||||||||
Extended interest rate swap not designated as a hedging instrument (Note 9) |
Level 2 | (4) |
||||||||||||||||||
| Other liabilities: | ||||||||||||||||||||
| Forward interest rate swap: | ||||||||||||||||||||
Derivatives designated as hedging instruments (Note 9) |
Level 2 | (3) |
||||||||||||||||||
(1)Consist of investments that are readily convertible to cash with original maturities of 90 days or less.
(2)The Company’s forward foreign exchange contracts are measured on a recurring basis at fair value, based on foreign currency spot rates and forward rates quoted by banks or foreign currency dealers.
(3)Fair value measurements are based on the contractual terms of the derivatives and use observable market-based inputs. The interest rate swaps are valued using a discounted cash flow analysis on the expected cash flows of each derivative using observable inputs including interest rate curves and credit spreads.
(4)The 2020 Extended Interest Rate Swaps are considered a hybrid instrument and the Company elected the fair value option for reporting. Fair value measurements are based on the contractual terms of the contract and use observable market-based inputs. The interest rate swaps are valued using a discounted cash flow analysis of the expected cash flows using observable inputs including interest rate curves and credit spreads.
Assets Held for Sale
The following table presents the assets held for sale:
| November 30, 2021 | August 31, 2021 | |||||||||||||
| (in millions) | Carrying Amount | Carrying Amount | ||||||||||||
Assets held for sale (1) |
$ | $ | ||||||||||||
(1)The fair value of assets held for sale exceeds the carrying value for $30 million of assets held for sale. For $31 million of assets held for sale, the carrying value approximates the fair value with the asset value measured using Level 2 inputs.
Fair Value of Financial Instruments
14
The carrying amounts of cash and cash equivalents, trade accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses approximate fair value because of the short-term nature of these financial instruments. The carrying amounts of borrowings under credit facilities and under loans approximates fair value as interest rates on these instruments approximates current market rates.
Notes payable and long-term debt is carried at amortized cost; however, the Company estimates the fair values of notes payable and long-term debt for disclosure purposes. The following table presents the carrying amounts and fair values of the Company's notes payable and long-term debt, by hierarchy level as of the periods indicated:
| November 30, 2021 | August 31, 2021 | |||||||||||||||||||||||||||||||
| (in millions) | Fair Value Hierarchy | Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||||||||||||||||
Notes payable and long-term debt: (Note 5) |
||||||||||||||||||||||||||||||||
| Level 2 | (1) |
$ | $ | $ | $ | |||||||||||||||||||||||||||
| Level 3 | (2) |
$ | $ | $ | $ | |||||||||||||||||||||||||||
| Level 2 | (1) |
$ | $ | $ | $ | |||||||||||||||||||||||||||
| Level 2 | (1) |
$ | $ | $ | $ | |||||||||||||||||||||||||||
| Level 2 | (1) |
$ | $ | $ | $ | |||||||||||||||||||||||||||
| Level 2 | (1) |
$ | $ | $ | $ | |||||||||||||||||||||||||||
(1)The fair value estimates are based upon observable market data.
16. Commitments and Contingencies
Legal Proceedings
The Company is party to certain lawsuits in the ordinary course of business. The Company does not believe that these proceedings, individually or in the aggregate, will have a material adverse effect on the Company’s financial position, results of operations or cash flows.
17. New Accounting Guidance
New accounting guidance adopted during the period did not have a material impact to the Company.
Recently issued accounting guidance is not applicable or did not have, or is not expected to have, a material impact to the Company.
15
JABIL INC. AND SUBSIDIARIES
This Quarterly Report on Form 10-Q contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Many of the forward-looking statements are located in Item 2 of this Form 10-Q under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “should,” “could,” “can,” “may,” and similar terms. Forward-looking statements are not guarantees of future performance and the Company’s actual results may differ significantly from the results discussed in the forward-looking statements. Achievement of anticipated results is subject to substantial risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from past results and those anticipated, estimated or projected. You should bear this in mind as you consider forward-looking statements, and you are cautioned not to put undue reliance on forward-looking statements. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law or by the rules and regulations of the SEC. You are advised, however, to consult any further disclosures we make on related subjects. Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended August 31, 2021 such as, the scope and duration of the COVID-19 outbreak and its impact on our operations, sites, customers and supply chain; managing growth effectively; our dependence on a limited number of customers; competitive challenges affecting our customers; managing rapid declines or increases in customer demand and other related customer challenges that may occur; risks arising from relationships with emerging companies; changes in technology; our ability to introduce new business models or programs requiring implementation of new competencies; competition; transportation issues; our ability to maintain our engineering, technological and manufacturing expertise; retaining key personnel; our ability to purchase components efficiently and reliance on a limited number of suppliers for critical components; risks associated with international sales and operations; our ability to achieve expected profitability from acquisitions; risk arising from our restructuring activities; issues involving our information systems, including security issues; regulatory risks (including the expense of complying, or failing to comply, with applicable regulations; risk arising from design or manufacturing defects; and intellectual property risk); financial risks (including customers or suppliers who become financially troubled; turmoil in financial markets; tax risks; credit rating risks; risks of exposure to debt; currency fluctuations; energy prices; and asset impairment); changes in financial accounting standards or policies; and risk of natural disaster, climate change or other global events. References in this report to “the Company,” “Jabil,” “we,” “our,” or “us” mean Jabil Inc. together with its subsidiaries, except where the context otherwise requires.
16
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||||
Overview
We are one of the leading providers of worldwide manufacturing services and solutions. We provide comprehensive electronics design, production and product management services to companies in various industries and end markets. Our services enable our customers to reduce manufacturing costs, improve supply-chain management, reduce inventory obsolescence, lower transportation costs and reduce product fulfillment time. Our manufacturing and supply chain management services and solutions include innovation, design, planning, fabrication and assembly, delivery and managing the flow of resources and products. We derive substantially all of our revenue from production and product management services (collectively referred to as “manufacturing services”), which encompass the act of producing tangible components that are built to customer specifications and are then provided to the customer.
We serve our customers primarily through dedicated business units that combine highly automated, continuous flow manufacturing with advanced electronic design and design for manufacturability. We currently depend, and expect to continue to depend for the foreseeable future, upon a relatively small number of customers for a significant percentage of our net revenue, which in turn depends upon their growth, viability and financial stability.
We conduct our operations in facilities that are located worldwide, including but not limited to, China, Ireland, Malaysia, Mexico, Singapore and the United States. We derived a substantial majority, 84.8% of net revenue, from our international operations for the three months ended November 30, 2021. Our global manufacturing production sites allow customers to manufacture products simultaneously in the optimal locations for their products. Our global presence is key to assessing and executing on our business opportunities.
We have two reporting segments: Electronics Manufacturing Services (“EMS”) and Diversified Manufacturing Services (“DMS”), which are organized based on the economic profiles of the services performed, including manufacturing capabilities, market strategy, margins, return on capital and risk profiles. Our EMS segment is focused around leveraging IT, supply chain design and engineering, technologies largely centered on core electronics, utilizing our large scale manufacturing infrastructure and our ability to serve a broad range of end markets. Our EMS segment is a high volume business that produces product at a quicker rate (i.e. cycle time) and in larger quantities and includes customers primarily in the 5G, wireless and cloud, digital print and retail, industrial and semi-cap, and networking and storage industries. Our DMS segment is focused on providing engineering solutions, with an emphasis on material sciences, technologies and healthcare. Our DMS segment includes customers primarily in the automotive and transportation, connected devices, healthcare and packaging, and mobility industries.
We monitor the current economic environment and its potential impact on both the customers we serve as well as our end-markets and closely manage our costs and capital resources so that we can respond appropriately as circumstances change.
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 further discussion of the items disclosed in Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations" section as of November 30, 2021 contained herein.
COVID-19
The COVID-19 pandemic, which began to impact us in January 2020, has continued to affect our business and the businesses of our customers and suppliers. Travel and business operation restrictions arising from virus containment efforts of governments around the world have continued to impact our operations in Asia, Europe and the Americas. Essential activity exceptions from these restrictions have allowed us to continue to operate but virus containment efforts have resulted in additional direct costs.
The impact on our suppliers has led to supply chain constraints, including difficulty sourcing materials necessary to fulfill customer production requirements and challenges in transporting completed products to our end customers.
Summary of Results
The following table sets forth, for the periods indicated, certain key operating results and other financial information (in millions, except per share data):
17
| Three months ended | |||||||||||
| November 30, 2021 | November 30, 2020 | ||||||||||
| Net revenue | $ | 8,567 | $ | 7,833 | |||||||
| Gross profit | $ | 675 | $ | 635 | |||||||
| Operating income | $ | 350 | $ | 314 | |||||||
| Net income attributable to Jabil Inc. | $ | 241 | $ | 200 | |||||||
| Earnings per share—basic | $ | 1.68 | $ | 1.33 | |||||||
| Earnings per share—diluted | $ | 1.63 | $ | 1.31 | |||||||
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 | |||||||||||||||||
| November 30, 2021 | August 31, 2021 | November 30, 2020 | |||||||||||||||
Sales cycle(1) |
22 days | 19 days | 16 days | ||||||||||||||
Inventory turns (annualized)(2) |
5 turns | 5 turns | 7 turns | ||||||||||||||
Days in accounts receivable(3) |
41 days | 38 days | 42 days | ||||||||||||||
Days in inventory(4) |
66 days | 71 days | 55 days | ||||||||||||||
Days in accounts payable(5) |
85 days | 90 days | 80 days | ||||||||||||||
(1)The sales cycle is calculated as the sum of days in accounts receivable and days in inventory, less the days in accounts payable; accordingly, the variance in the sales cycle quarter over quarter was a direct result of changes in these indicators.
(2)Inventory turns (annualized) are calculated as 360 days divided by days in inventory.
(3)Days in accounts receivable is calculated as accounts receivable, net, divided by net revenue multiplied by 90 days. During the three months ended November 30, 2021, the increase in days in accounts receivable from the prior sequential quarter was primarily due to an increase in accounts receivable, primarily driven by higher sales and timing of collections.
(4)Days in inventory is calculated as inventory and contract assets divided by cost of revenue multiplied by 90 days. During the three months ended November 30, 2021, the decrease in days in inventory from the prior sequential quarter was due to increased sales activity during the quarter. During the three months ended November 30, 2021, the increase in days in inventory from the three months ended November 30, 2020 was primarily due to supply chain constraints and increased materials purchases to support expected sales levels in the second quarter of fiscal year 2022.
(5)Days in accounts payable is calculated as accounts payable divided by cost of revenue multiplied by 90 days. During the three months ended November 30, 2021, the decrease in days in accounts payable from the prior sequential quarter was primarily due to timing of purchases and cash payments during the quarter. During the three months ended November 30, 2021, the increase in days in accounts payable from the three months ended November 30, 2020 was primarily due to an increase for material purchases and the timing of payments.
Critical Accounting Policies and Estimates
The preparation of our Condensed Consolidated Financial Statements and related disclosures in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires management to make estimates and judgments that affect our reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and assumptions based upon historical experience and various other factors and circumstances. Management believes that our estimates and assumptions are reasonable under the circumstances; however, actual results may vary from these estimates and assumptions under different future circumstances. For further discussion of our
18
significant accounting policies, refer to Note 1 — “Description of Business and Summary of Significant Accounting Policies” to the Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the fiscal year ended August 31, 2021.
Recent Accounting Pronouncements
See Note 17 – “New Accounting Guidance” to the Condensed Consolidated Financial Statements for a discussion of recent accounting guidance.
Results of Operations
Net Revenue
Generally, we assess revenue on a global customer basis regardless of whether the growth is associated with organic growth or as a result of an acquisition. Accordingly, we do not differentiate or separately report revenue increases generated by acquisitions as opposed to existing business. In addition, the added cost structures associated with our acquisitions have historically been relatively insignificant when compared to our overall cost structure.
The distribution of revenue across our segments has fluctuated, and will continue to fluctuate, as a result of numerous factors, including the following: fluctuations in customer demand; efforts to diversify certain portions of our business; business growth from new and existing customers; specific product performance; and any potential termination, or substantial winding down, of significant customer relationships.
| Three months ended | |||||||||||||||||
| (dollars in millions) | November 30, 2021 | November 30, 2020 | Change | ||||||||||||||
| Net revenue | $ | 8,567 | $ | 7,833 | 9.4 | % | |||||||||||
Net revenue increased during the three months ended November 30, 2021, compared to the three months ended November 30, 2020. Specifically, the DMS segment net revenue increased 11% due to: (i) a 6% increase in revenues from existing customers within our mobility business, (ii) a 4% increase in revenues from existing customers in our automotive and transportation business, and (iii) a 3% increase in revenue from existing customers within our healthcare and packaging business. The increase is partially offset by a 2% decrease in revenues from existing customers within our connected devices business. The EMS segment net revenue increased 7% due to: (i) a 4% increase from existing customers within our industrial and capital equipment business, (ii) a 4% increase from existing customers within our 5G, wireless and cloud business, and (iii) a 2% increase from existing customers within our digital print and retail business. The increase is partially offset by a 3% decrease from existing customers within our networking and storage business.
The following table sets forth, for the periods indicated, revenue by segment expressed as a percentage of net revenue:
| Three months ended | |||||||||||
| November 30, 2021 | November 30, 2020 | ||||||||||
| EMS | 45 | % | 46 | % | |||||||
| DMS | 55 | % | 54 | % | |||||||
| Total | 100 | % | 100 | % | |||||||
The following table sets forth, for the periods indicated, foreign source revenue expressed as a percentage of net revenue:
| Three months ended | |||||||||||
| November 30, 2021 | November 30, 2020 | ||||||||||
| Foreign source revenue | 84.8 | % | 83.6 | % | |||||||
Gross Profit
19
| Three months ended | |||||||||||
| (dollars in millions) | November 30, 2021 | November 30, 2020 | |||||||||
| Gross profit | $ | 675 | $ | 635 | |||||||
| Percent of net revenue | 7.9 | % | 8.1 | % | |||||||
Gross profit as a percentage of net revenue decreased for the three months ended November 30, 2021 compared to the three months ended November 30, 2020, primarily due to product mix for the DMS segment.
Selling, General and Administrative
| Three months ended | |||||||||||||||||
| (dollars in millions) | November 30, 2021 | November 30, 2020 | Change | ||||||||||||||
| Selling, general and administrative | $ | 308 | $ | 303 | $ | 5 | |||||||||||
Selling, general and administrative expenses remained relatively consistent during the three months ended November 30, 2021, compared to the three months ended November 30, 2020.
Research and Development
| Three months ended | |||||||||||
| (dollars in millions) | November 30, 2021 | November 30, 2020 | |||||||||
| Research and development | $ | 9 | $ | 8 | |||||||
| Percent of net revenue | 0.1 | % | 0.1 | % | |||||||
Research and development expenses remained relatively consistent as a percentage of net revenue during the three months ended November 30, 2021, compared to the three months ended November 30, 2020.
Amortization of Intangibles
| Three months ended | |||||||||||||||||
| (dollars in millions) | November 30, 2021 | November 30, 2020 | Change | ||||||||||||||
| Amortization of intangibles | $ | 8 | $ | 11 | $ | (3) | |||||||||||
Amortization of intangibles remained relatively consistent during the three months ended November 30, 2021, compared to the three months ended November 30, 2020.
Restructuring, Severance and Related Charges
| Three months ended | |||||||||||||||||
| (dollars in millions) | November 30, 2021 | November 30, 2020 | Change | ||||||||||||||
Restructuring, severance and related charges |
$ | — | $ | (1) | $ | 1 | |||||||||||
Restructuring, severance and related charges remained relatively consistent during the three months ended November 30, 2021, compared to the three months ended November 30, 2020. The 2021 Restructuring Plan was complete as of August 31, 2021.
Other Expense (Income)
| Three months ended | |||||||||||||||||
| (dollars in millions) | November 30, 2021 | November 30, 2020 | Change | ||||||||||||||
| Other expense (income) | $ | 1 | $ | (1) | $ | 2 | |||||||||||
Other expense (income) remained relatively consistent during the three months ended November 30, 2021 compared to the three months ended November 30, 2020.
20
Interest Income
| Three months ended | |||||||||||||||||
| (dollars in millions) | November 30, 2021 | November 30, 2020 | Change | ||||||||||||||
| Interest income | $ | 1 | $ | 2 | $ | (1) | |||||||||||
Interest income remained relatively consistent during the three months ended November 30, 2021, compared to the three months ended November 30, 2020.
Interest Expense
| Three months ended | |||||||||||||||||
| (dollars in millions) | November 30, 2021 | November 30, 2020 | Change | ||||||||||||||
| Interest expense | $ | 33 | $ | 32 | $ | 1 | |||||||||||
Interest expense remained relatively consistent during the three months ended November 30, 2021, compared to the three months ended November 30, 2020.
Income Tax Expense
| Three months ended | |||||||||||||||||
| November 30, 2021 | November 30, 2020 | Change | |||||||||||||||
| Effective income tax rate | 23.9 | % | 29.6 | % | (5.7) | % | |||||||||||
The effective income tax rate decreased for the three months ended November 30, 2021, compared to the three months ended November 30, 2020, primarily due to decreased losses in tax jurisdictions with existing valuation allowances for the three months ended November 30, 2021.
Non-GAAP (Core) Financial Measures
The following discussion and analysis of our financial condition and results of operations include certain non-GAAP financial measures as identified in the reconciliations below. The non-GAAP financial measures disclosed herein do not have standard meaning and may vary from the non-GAAP financial measures used by other companies or how we may calculate those measures in other instances from time to time. Non-GAAP financial measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with U.S. GAAP. Among other uses, management uses non-GAAP “core” financial measures to make operating decisions, assess business performance and as a factor in determining certain employee performance when evaluating incentive compensation. Also, our “core” financial measures should not be construed as an indication by us that our future results will be unaffected by those items that are excluded from our “core” financial measures.
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.
Included in the tables below are reconciliations of the non-GAAP financial measures to the most directly comparable U.S. GAAP financial measures as provided in our Condensed Consolidated Financial Statements:
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Reconciliation of U.S. GAAP Financial Results to Non-GAAP Measures
| Three months ended | |||||||||||
| (in millions, except for per share data) | November 30, 2021 | November 30, 2020 | |||||||||
| Operating income (U.S. GAAP) | $ | 350 | $ | 314 | |||||||
| Amortization of intangibles | 8 | 11 | |||||||||
Stock-based compensation expense and related charges |
35 | 34 | |||||||||
| Restructuring, severance and related charges | — | (1) | |||||||||
Net periodic benefit cost (1) |
7 | 5 | |||||||||
Acquisition and integration charges (2) |
— | 2 | |||||||||
| Adjustments to operating income | 50 | 51 | |||||||||
| Core operating income (Non-GAAP) | $ | 400 | $ | 365 | |||||||
| Net income attributable to Jabil Inc. (U.S. GAAP) | $ | 241 | $ | 200 | |||||||
| Adjustments to operating income | 50 | 51 | |||||||||
Net periodic benefit cost (1) |
(7) | (5) | |||||||||
| Adjustments for taxes | — | (1) | |||||||||
| Core earnings (Non-GAAP) | $ | 284 | $ | 245 | |||||||
| Diluted earnings per share (U.S. GAAP) | $ | 1.63 | $ | 1.31 | |||||||
| Diluted core earnings per share (Non-GAAP) | $ | 1.92 | $ | 1.60 | |||||||
| Diluted weighted average shares outstanding (U.S. GAAP and Non-GAAP) | 147.7 | 152.9 | |||||||||
(1)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.
(2)Charges related to our strategic collaboration with Johnson Johnson Medical Devices Companies (“JJMD”).
Adjusted Free Cash Flow
| Three months ended | |||||||||||
| (in millions) | November 30, 2021 | November 30, 2020 | |||||||||
| Net cash (used in) provided by operating activities (U.S. GAAP) | $ | (46) | $ | 65 | |||||||
Acquisition of property, plant and equipment |
(281) | (353) | |||||||||
| Proceeds and advances from sale of property, plant and equipment | 208 | 111 | |||||||||
| Adjusted free cash flow (Non-GAAP) | $ | (119) | $ | (177) | |||||||
Liquidity and Capital Resources
We believe that our level of liquidity sources, which includes available borrowings under our revolving credit facilities and commercial paper program, additional proceeds available under our global asset-backed securitization program and under our uncommitted trade accounts receivable sale programs, cash on hand, cash flows provided by operating activities and access to the capital markets, will be adequate to fund our cash requirements, including capital expenditures, the payment of any declared quarterly dividends, any share repurchases under the approved program, any potential acquisitions and our working capital requirements for the next 12 months and beyond. We continue to assess our capital structure and evaluate the merits of redeploying available cash.
Cash and Cash Equivalents
As of November 30, 2021, we had approximately $1.2 billion in cash and cash equivalents, of which a significant portion was held by our foreign subsidiaries. Most of our foreign cash and cash equivalents as of November 30, 2021 could be repatriated to the United States without potential tax expense.
Notes Payable and Credit Facilities
Following is a summary of principal debt payments and debt issuance for our notes payable and credit facilities:
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| (in millions) | 4.700% Senior Notes |
4.900% Senior Notes |
3.950% Senior Notes |
3.600% Senior Notes | 3.000% Senior Notes | 1.700% Senior Notes | Borrowings under revolving credit facilities (1) |
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 | — | — | — | — | — | — | 550 | — | 550 | ||||||||||||||||||||||||||||||||||||||||||||
| Payments | — | — | — | — | — | — | (550) | — | (550) | ||||||||||||||||||||||||||||||||||||||||||||
| Other | 1 | — | — | — | — | — | — | — | 1 | ||||||||||||||||||||||||||||||||||||||||||||
| Balance as of November 30, 2021 | $ | 500 | $ | 300 | $ | 496 | $ | 495 | $ | 591 | $ | 496 | $ | — | $ | 1 | $ | 2,879 | |||||||||||||||||||||||||||||||||||
| Maturity Date | Sep 15, 2022 | Jul 14, 2023 | Jan 12, 2028 | Jan 15, 2030 | Jan 15, 2031 | Apr 15, 2026 | Jan 22, 2024 and Jan 22, 2026 | Jul 31, 2026 | |||||||||||||||||||||||||||||||||||||||||||||
| Original Facility/ Maximum Capacity | $500 million | $300 million | $500 million | $500 million | $600 million | $500 million | $3.8 billion(1) |
$2 million | |||||||||||||||||||||||||||||||||||||||||||||
(1)As of November 30, 2021, we had $3.8 billion in available unused borrowing capacity under our revolving credit facilities. The senior unsecured credit agreement dated as of January 22, 2020 and amended on April 28, 2021 (the “Credit Facility”) acts as the back-up facility for commercial paper outstanding, if any. We have a borrowing capacity of up to $1.8 billion under our commercial paper program. Borrowings with an original maturity of 90 days or less are recorded net within the statement of cash flows, and have been excluded from the table above.
We have a 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 November 30, 2021 and August 31, 2021, we were in compliance with our debt covenants. Refer to Note 5 – “Notes Payable and Long-Term Debt” to the Condensed Consolidated Financial Statements for further details.
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 asset-backed securitization programs recognized during the three months ended November 30, 2021 and 2020 were not material. We do not record a servicing asset or liability on the Condensed Consolidated Balance Sheets as we estimate that the fee we receive to service these receivables approximates the fair market compensation to provide the servicing activities.
The special purpose entity in the global asset-backed securitization program is a wholly-owned subsidiary of the Company and is included in our Condensed Consolidated Financial Statements. Certain unsold receivables covering up to the maximum amount of net cash proceeds available under the domestic, or U.S., portion of the global asset-backed securitization program are pledged as collateral to the unaffiliated financial institution as of November 30, 2021.
The global asset-backed securitization program expires on November 25, 2024 and the maximum amount of net cash proceeds available at any one time is $600 million. During the three months ended November 30, 2021, we sold $1.0 billion of trade accounts receivable and we received cash proceeds of $1.0 billion. As of November 30, 2021, we had no available liquidity under our global asset-backed securitization program.
The global asset-backed securitization program requires compliance with several covenants including compliance with the interest ratio and debt to EBITDA ratio of the Credit Facility. As of November 30, 2021 and August 31, 2021, we were in compliance with all covenants under our global asset-backed securitization program. Refer to Note 6 – “Asset-Backed Securitization Program” to the Condensed Consolidated Financial Statements for further details on the program.
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Trade Accounts Receivable Sale Programs
As of November 30, 2021, we may elect to sell receivables and the unaffiliated financial institution may elect to purchase specific accounts receivable at any one time up to a: (i) maximum aggregate amount available of $2.0 billion under nine trade accounts receivable sale programs, (ii) maximum amount available of 400 million CNY under one trade accounts receivable sale program and (iii) maximum amount available of 100 million CHF under one trade accounts receivable sale program. The trade accounts receivable sale programs expire on various dates through 2025.
During the three months ended November 30, 2021, we sold $2.0 billion of trade accounts receivable under these programs and we received cash proceeds of $2.0 billion. As of November 30, 2021, we had up to $1.4 billion in available liquidity under our trade accounts receivable sale programs.
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.
Cash Flows
The following table sets forth selected consolidated cash flow information (in millions):
| Three months ended | |||||||||||
| November 30, 2021 | November 30, 2020 | ||||||||||
| Net cash (used in) provided by operating activities | $ | (46) | $ | 65 | |||||||
| Net cash used in investing activities | (73) | (264) | |||||||||
| Net cash used in financing activities | (208) | (87) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | (11) | — | |||||||||
| Net decrease in cash and cash equivalents | $ | (338) | $ | (286) | |||||||
Operating Activities
Net cash used in operating activities during the three months ended November 30, 2021 was primarily due to an increase in accounts receivable, inventories, contract assets, prepaid expenses and other current assets; partially offset by: an increase in accounts payable, accrued expenses and other liabilities, non-cash expenses and net income. The increase in accounts receivable is primarily driven by higher sales and the timing of collections. The increase in inventories is primarily due to supply chain constraints and higher materials purchases to support expected sales levels in the second quarter of fiscal year 2022. The increase in contract assets is primarily due to timing of revenue recognition for over time customers. The increase in prepaid expenses and other current assets is primarily due to the timing of payments. The increase in accounts payable, accrued expenses and other liabilities is primarily due to the timing of purchases and cash payments.
Investing Activities
Net cash used in investing activities during the three months ended November 30, 2021 consisted primarily of capital expenditures, principally to support ongoing business in the DMS and EMS segments, partially offset by proceeds and advances from the sale of property, plant and equipment.
Financing Activities
Net cash used in financing activities during the three months ended November 30, 2021 was primarily due to (i) payments for debt agreements, (ii) the repurchase of our common stock under our share repurchase authorization, (iii) the purchase of treasury stock under employee stock plans and (iv) dividend payments. Net cash used in financing activities was partially offset by borrowings under debt agreements.
Contractual Obligations
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As of the date of this report, other than the new operating and finance leases, (see Note 4 – “Leases” to the Condensed Consolidated Financial Statements), there were no material changes outside the ordinary course of business, since August 31, 2021 to our contractual obligations and commitments and the related cash requirements.
Dividends and Share Repurchases
We currently expect to continue to declare and pay regular quarterly dividends of an amount similar to our past declarations. However, the declaration and payment of future dividends are discretionary and will be subject to determination by our Board of Directors each quarter following its review of our financial performance and global economic conditions.
In July 2021, the Board of Directors approved an authorization for the repurchase of up to $1.0 billion of our common stock (the “2022 Share Repurchase Program”). As of November 30, 2021, 2.8 million shares had been repurchased for $169 million and $831 million remains available under the 2022 Share Repurchase Program.
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | ||||
There have been no material changes in our primary risk exposures or management of market risks from those disclosed in our Annual Report on Form 10-K for the fiscal year ended August 31, 2021.
| Item 4. | Controls and Procedures | ||||
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation required by Rules 13a-15 and 15d-15 under the Exchange Act (the “Evaluation”), under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15 and 15d-15 under the Exchange Act as of November 30, 2021. Based on the Evaluation, our CEO and CFO concluded that the design and operation of our disclosure controls were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) accumulated and communicated to our senior management, including our CEO and CFO, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
For our fiscal quarter ended November 30, 2021, we did not identify any modifications to our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
| Item 1. | Legal Proceedings | ||||
See the discussion in Note 16 - “Commitments and Contingencies” to the Condensed Consolidated Financial Statements.
| Item 1A. | Risk Factors | ||||
For information regarding risk factors that could affect our business, results of operations, financial condition or future results, see Part I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended August 31, 2021. For further information on our forward-looking statements see Part I of this Quarterly Report on Form 10-Q.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | ||||
The following table provides information relating to our repurchase of common stock during the three months ended
November 30, 2021:
| Period | Total Number of Shares Purchased(1) |
Average Price Paid per Share |
Total Number of Shares Purchased as Part of Publicly Announced Program(2) |
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (in millions)(2) | |||||||||||||||||||
| September 1, 2021 - September 30, 2021 | 872,673 | $ | 61.45 | 872,673 | $ | 905 | |||||||||||||||||
| October 1, 2021 - October 31, 2021 | 1,487,379 | $ | 61.58 | 816,980 | $ | 854 | |||||||||||||||||
| November 1, 2021 - November 30, 2021 | 395,488 | $ | 62.30 | 375,332 | $ | 831 | |||||||||||||||||
| Total | 2,755,540 | $ | 61.64 | 2,064,985 | |||||||||||||||||||
(1)The purchases include amounts that are attributable to 690,555 shares surrendered to us by employees to satisfy, in connection with the vesting of restricted stock unit awards, their tax withholding obligations.
(2)In July 2021, our Board of Directors authorized the repurchase of up to $1.0 billion of our common stock as publicly announced in a press release on July 23, 2021 (the “2022 Share Repurchase Program”).
| Item 3. | Defaults Upon Senior Securities | ||||
None.
| Item 4. | Mine Safety Disclosures | ||||
Not applicable.
| Item 5. | Other Information | ||||
None.
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| Item 6. | Exhibits | ||||
Index to Exhibits
| Incorporated by Reference Herein | |||||||||||||||||||||||||||||||||||||||||
| Exhibit No. | Description | Form | Exhibit | Filing Date/Period End Date | |||||||||||||||||||||||||||||||||||||
| 3.1 | 10-Q | 3.1 | 5/31/2017 | ||||||||||||||||||||||||||||||||||||||
| 3.2 | 10-Q | 3.2 | 5/31/2017 | ||||||||||||||||||||||||||||||||||||||
| 4.1 | Form of Certificate for Shares of the Registrant’s Common Stock. (P) | S-1 | 3/17/1993 | ||||||||||||||||||||||||||||||||||||||
| 4.2 | 8-K | 4.2 | 1/17/2008 | ||||||||||||||||||||||||||||||||||||||
| 4.3 | 8-K | 4.1 | 8/6/2012 | ||||||||||||||||||||||||||||||||||||||
| 4.4 | 8-K | 4.3 | 8/6/2012 | ||||||||||||||||||||||||||||||||||||||
| 4.5 | 8-K | 4.1 | 1/17/2018 | ||||||||||||||||||||||||||||||||||||||
| 4.6 | 8-K | 4.1 | 1/15/2020 | ||||||||||||||||||||||||||||||||||||||
| 4.7 | 8-K | 4.1 | 7/13/2020 | ||||||||||||||||||||||||||||||||||||||
| 4.8 | 8-K | 4.1 | 4/14/2021 | ||||||||||||||||||||||||||||||||||||||
| 10.1†* ** | |||||||||||||||||||||||||||||||||||||||||
| 10.2†* ** | |||||||||||||||||||||||||||||||||||||||||
| 10.3†* | |||||||||||||||||||||||||||||||||||||||||
| 10.4†* | |||||||||||||||||||||||||||||||||||||||||
| 10.5†* | |||||||||||||||||||||||||||||||||||||||||
| 10.6† | 8-K | 10.1 | 12/9/2021 | ||||||||||||||||||||||||||||||||||||||
| 10.7† | 8-K | 10.1 | 4/28/2021 | ||||||||||||||||||||||||||||||||||||||
| 31.1* | |||||||||||||||||||||||||||||||||||||||||
| 31.2* | |||||||||||||||||||||||||||||||||||||||||
| 32.1* | |||||||||||||||||||||||||||||||||||||||||
| 32.2* | |||||||||||||||||||||||||||||||||||||||||
27
| 101 | The following financial information from Jabil’s Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2021, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets as of November 30, 2021 and August 31, 2021, (ii) Condensed Consolidated Statements of Operations for the three months ended November 30, 2021 and 2020, (iii) Condensed Consolidated Statements of Comprehensive Income for the three months ended November 30, 2021 and 2020, (iv) Condensed Consolidated Statements of Stockholders’ Equity for the three months ended November 30, 2021 and 2020, (v) Condensed Consolidated Statements of Cash Flows for the three months ended November 30, 2021 and 2020, and (vi) the Notes to Condensed Consolidated Financial Statements. |
||||||||||||||||||||||||||||||||||||||||
| 104 | Cover Page Interactive Data File (Embedded within the inline XBRL Document in Exhibit 101). | ||||||||||||||||||||||||||||||||||||||||
| † | Indicates management compensatory plan, contract or arrangement | ||||||||||||||||||||||||||||||||||||||||
| * | Filed or furnished herewith | ||||||||||||||||||||||||||||||||||||||||
| ** | Certain portions of this exhibit have been redacted pursuant to Item 601(b)(10)(iv) of Regulation S-K. Jabil agrees to furnish supplementally an unredacted copy of the exhibit to the Securities and Exchange Commission upon request. |
||||||||||||||||||||||||||||||||||||||||
Certain instruments with respect to long-term debt of the Registrant and its consolidated subsidiaries are not filed herewith pursuant to Item 601(b)(4)(iii) of Regulation S-K since the total amount of securities authorized under each such instrument does not exceed 10% of the total assets of the Registrant and its subsidiaries on a consolidated basis. The Registrant agrees to furnish a copy of any such instrument to the Securities and Exchange Commission upon request.
28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| JABIL INC. Registrant | ||||||||
| Date: January 7, 2022 | By: | /s/ MARK T. MONDELLO | ||||||
| Mark T. Mondello Chief Executive Officer | ||||||||
| Date: January 7, 2022 | By: | /s/ MICHAEL DASTOOR | ||||||
| Michael Dastoor Chief Financial Officer | ||||||||
29
TABLE OF CONTENTS
Part I Financial InformationItem 1. Financial StatementsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 6. Exhibits