JABIL INC. 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 depend, and expect to continue to depend, 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. Based on net revenue, for the nine months endedMay 31, 2020 , our largest customers include Amazon.com, Inc., Apple, Inc., Cisco Systems, Inc., Hewlett-Packard Company, Ingenico Group, Johnson and Johnson,LM Ericsson Telephone Company , NetApp, Inc., SolarEdge Technologies Inc., and Tesla, Inc. We conduct our operations in facilities that are located worldwide, including but not limited to,China ,Malaysia ,Mexico ,Singapore ,the United States andVietnam . We derived a substantial majority, 83.4% and 82.6%, of net revenue from our international operations for the three months and nine months endedMay 31, 2020 . 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 automotive and transportation, capital equipment, cloud, computing and storage, defense and aerospace, industrial and energy, networking and telecommunications, print and retail, and smart home and appliances industries. Our DMS segment is focused on providing engineering solutions, with an emphasis on material sciences, technologies and healthcare. Our DMS includes customers primarily in the edge devices and accessories, healthcare, mobility and packaging 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. The COVID-19 pandemic, which began to impact us inJanuary 2020 , has continued to affect our business and the businesses of our customers and suppliers into our fiscal third quarter. Travel and business operation restrictions arising from virus containment efforts of governments around the world have continued to impact our operations inAsia ,Europe and theAmericas . With the exception of certain jurisdictions, essential activity exceptions from these restrictions have allowed us to continue to operate. Nevertheless, virus containment efforts in the three and nine months endedMay 31, 2020 , led to a disruption in operations and certain facility or intermittent business closures in areas such asChina ,Malaysia ,India andCalifornia , which have resulted in additional direct costs and a reduction in revenue in certain end markets. Our first priority has been the health and safety of our employees and so we have incurred additional costs in order to procure the necessary equipment, including face masks, thermometers, hand sanitizers and personal protection equipment, to keep our employees safe. We have implemented risk-mitigation activities including travel restrictions, social distancing practices, additional cleaning procedures within our facilities, contact tracing, COVID-19 testing, and requiring employees and visitors to have their temperatures taken and wear masks when they are at our sites. During the three months and nine months endedMay 31, 2020 , we incurred approximately$67.4 million and$120.4 million , respectively, in direct costs associated with the COVID-19 outbreak, primarily due to incremental and idle labor costs leading to a reduction in factory utilization as a result of the travel disruptions and governmental restrictions and the procurement of personal protection equipment for our employees globally. Additionally, certain of the Company's suppliers were similarly impacted by the COVID-19 pandemic, leading to supply chain constraints, including difficulty sourcing materials necessary to fulfill customer production requirements and challenges in transporting completed products to our end customers. 28
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We have implemented efforts across the organization to enhance our financial position, increase liquidity and reduce costs. During the three months endedMay 31, 2020 , we added incremental short-term committed revolving credit agreements of$625.0 million . In addition, we have taken aggressive steps to reduce expenses, including suspending base salary increases for Fiscal Year 2021. Our Chief Executive Officer, Chief Financial Officer and other executive vice presidents will reduce their base salaries by 25% fromJune 1, 2020 throughNovember 30, 2020 and will forego any bonus that would otherwise be due to them under Jabil's Fiscal Year 2020 short-term incentive program. Members of Jabil's Board of Directors will also reduce by 25% their annual cash retainers that would otherwise be payable during the period fromJune 1, 2020 throughNovember 30, 2020 . In order to further decrease operating expenses and better align with the needs of the business, we have reduced our worldwide workforce and implemented voluntary early retirement programs. In connection with reducing our worldwide workforce, we incurred$52.3 million of severance and benefit costs during the three and nine months endedMay 31, 2020 . Following this reduction in headcount, we expect annual savings beginning in Fiscal Year 2021 of approximately$40.0 million to$50.0 million . We continue to focus on prioritizing spending related to future business. Our performance is subject to global economic conditions, as well as their impacts on levels of consumer spending and the production of goods. These current conditions are significantly impacted by COVID-19, have had a negative impact on our results of operations during the three months and nine months endedMay 31, 2020 and will continue to have a negative impact on our operations over the next fiscal quarter and likely beyond. See Risk Factors, "The effect of COVID-19 on our operations and the operations of our customers, suppliers and logistics providers has, and is expected to continue to have, a material and adverse impact on our financial condition and results of operations." Summary of Results The following table sets forth, for the periods indicated, certain key operating results and other financial information (in thousands, except per share data): Three months ended Nine months ended May 31, 2020 May 31, 2019 May 31, 2020 May 31, 2019 Net revenue$ 6,335,642 $ 6,135,602 $ 19,966,423 $ 18,708,867 Gross profit$ 456,148 $ 443,799 $ 1,440,112 $ 1,418,323 Operating income$ 59,384 $ 140,918 $ 302,793 $ 511,611 Net (loss) income attributable to Jabil Inc.$ (50,958 ) $ 43,482 $ (13,819 ) $ 234,436 (Loss) earnings per share-basic$ (0.34 ) $ 0.28$ (0.09 ) $ 1.50 (Loss) earnings per share-diluted$ (0.34 ) $ 0.28$ (0.09 ) $ 1.47 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: 29
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Three months ended
February November
May 31, 2020 29, 2020 30, 2019 August 31, 2019
Sales cycle(1) 27 days 30 days 23 days 19 days
Inventory turns (annualized)(2) 5 turns 5 turns 6 turns 6 turns
Days in accounts receivable(3) 37 days 34 days 43 days 38 days
Days in inventory(4) 67 days 70 days 57 days 58 days
Days in accounts payable(5) 77 days 74 days 77 days 77 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
receivable from the prior sequential quarter was primarily due to an
increase in accounts receivable, primarily driven by higher sales and
timing of collections. During the three months ended
decrease was primarily driven by lower sales and the timing of collections
in the second quarter.
(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 May
31, 2020, the decrease was primarily due to increased sales activity during
the quarter. During the three months ended
was primarily driven by idle capacity and supply chain constraints, largely
in China due to COVID-19.
(5) Days in accounts payable is calculated as accounts payable divided by cost
of revenue multiplied by 90 days.
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 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, 2019 .
Recent Accounting Pronouncements
See Note 19 - "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
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significant customer relationships.
Three months ended Nine months ended
(dollars in millions) May 31, 2020 May 31, 2019 Change May 31, 2020 May 31, 2019 Change
Net revenue $ 6,335.6 $ 6,135.6 3.3 % $ 19,966.4 $ 18,708.9 6.7 %
Net revenue increased during the three months ended May 31, 2020 , compared to
the three months ended May 31, 2019 . Specifically, the DMS segment revenues
increased 13% due to (i) a 7% increase in revenues from new and existing
customers in our healthcare and packaging businesses, (ii) a 4% increase in
revenues from existing customers within our edge devices and accessories
business, and (iii) a 2% increase in revenues from existing customers within our
mobility business. The EMS segment revenues decreased 2% primarily due to (i) a
6% decrease from existing customers within our networking and telecommunications
business, (ii) a 3% decrease in revenues from existing customers within our
print and retail business, and (iii) a 4% decrease in revenues spread across
various industries within the EMS segment, including our smart home and
appliances and automotive and transportation businesses. The decrease is
partially offset by (i) an 8% increase in revenues from existing customers
within our cloud business and (ii) a 3% increase in revenues spread across
various industries within the EMS segment, including our capital equipment
business.
Net revenue increased during the nine months ended May 31, 2020 , compared to the
nine months ended May 31, 2019 . Specifically, the EMS segment revenues increased
8% primarily due to (i) a 13% increase in revenues from existing customers
within our cloud business and (ii) a 2% increase in revenues from existing
customers within our capital equipment business. The increase is partially
offset by a 7% decrease from existing customers within our networking and
telecommunications business. DMS segment revenues increased 5% due to a 12%
increase in revenues from new and existing customers in our healthcare and
packaging businesses. The increase is partially offset by a 7% decrease in
revenue from customers within our mobility and edge devices and accessories
businesses due to decreased end user product demand and end market dynamics in
the first quarter of fiscal year 2020.
The following table sets forth, for the periods indicated, revenue by segment
expressed as a percentage of net revenue:
Three months ended Nine months ended
May 31, 2020 May 31, 2019 May 31, 2020 May 31, 2019
EMS 62 % 65 % 61 % 60 %
DMS 38 % 35 % 39 % 40 %
Total 100 % 100 % 100 % 100 %
The following table sets forth, for the periods indicated, foreign source revenue expressed as a percentage of net revenue:
Three months ended Nine months ended
May 31, 2020 May 31, 2019 May 31, 2020 May 31, 2019
Foreign source revenue 83.4 % 86.5 % 82.6 % 89.2 %
Gross Profit
Three months ended Nine months ended
(dollars in millions) May 31, 2020 May 31, 2019 May 31, 2020 May 31, 2019
Gross profit $ 456.1 $ 443.8 $ 1,440.1 $ 1,418.3
Percent of net revenue 7.2 % 7.2 % 7.2 % 7.6 %
Gross profit as a percentage of net revenue remained consistent for the three
months ended May 31, 2020 , compared to the three months ended May 31, 2019 .
During the three months ended May 31, 2020 , we recognized $50.9 million in
incremental and idle labor costs associated with travel disruptions and
governmental restrictions, largely related to the COVID-19 outbreak. This
increase in costs was partially offset by governmental subsidies, such as lower
payroll taxes or social insurance in certain countries, related to COVID-19
incentives. During the three months ended May 31, 2019 , we had weakness in the
capital equipment business and ramp costs associated with new business awards.
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Gross profit as a percentage of net revenue decreased for the nine months endedMay 31, 2020 , compared to the nine months endedMay 31, 2019 , primarily due to an increase of$97.6 million in incremental and idle labor costs associated with travel disruptions and governmental restrictions, largely related to the COVID-19 outbreak. Additionally, gross profit as a percent of revenue decreased for the EMS segment largely due to product mix. The decrease was partially offset by an increase in the DMS segment due to improved profitability across the various businesses. Selling, General and Administrative Three months ended Nine months ended (dollars in millions) May 31, 2020 May 31, 2019 Change May 31, 2020 May 31, 2019 Change Selling, general and administrative$ 302.8 $ 274.5 $ 28.3 $
916.8
Selling, general and administrative expenses increased during the three months endedMay 31, 2020 , compared to the three months endedMay 31, 2019 . The increase is predominantly due to (i) a$16.6 million increase in salary and salary related expenses and other costs primarily due to our strategic collaboration with a healthcare company, (ii)$16.5 million in costs related to the COVID-19 outbreak, including personal protection equipment for our employees globally and (iii) a$2.4 million increase in stock-based compensation expense. The increase is partially offset by a$7.2 million decrease in acquisition and integration charges related to our strategic collaboration with a healthcare company. Selling, general and administrative expenses increased during the nine months endedMay 31, 2020 , compared to the nine months endedMay 31, 2019 . The increase is predominantly due to (i) a$49.5 million increase in salary and salary related expenses and other costs primarily due to our strategic collaboration with a healthcare company, (ii)$22.8 million in costs related to the COVID-19 outbreak, including personal protection equipment for our employees globally and (iii) a$14.7 million increase in stock-based compensation expense. The increase is partially offset by a$5.0 million decrease in acquisition and integration charges related to our strategic collaboration with a healthcare company. Research and Development Three months ended Nine months ended (dollars in millions) May 31, 2020 May 31, 2019 May 31, 2020 May 31, 2019 Research and development$ 11.6 $ 11.4 $ 33.6 $ 32.7 Percent of net revenue 0.2 % 0.2 % 0.2 % 0.2 % Research and development expenses remained consistent as a percentage of net revenue during the three months and nine months endedMay 31, 2020 , compared to the three months and nine months endedMay 31, 2019 . Amortization of Intangibles Three months ended Nine months ended (dollars in millions) May 31, 2020 May 31, 2019 Change May 31, 2020 May 31, 2019 Change Amortization of intangibles$ 13.2 $ 7.6$ 5.6 $ 42.9 $ 23.0$ 19.9 Amortization of intangibles increased during the three months and nine months endedMay 31, 2020 , compared to the three months and nine months endedMay 31, 2019 , primarily driven by amortization related to the Nypro trade name, which was reclassified to a definite-lived intangible asset during the fourth quarter of fiscal year 2019 as a result of our decision to rebrand. As such, this trade name was assigned a four-year estimated useful life and is being amortized on an accelerated basis. Restructuring, Severance and Related Charges Following is a summary of the Company's restructuring, severance and related charges (in millions): 32
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Three months ended Nine months ended
May 31,
2020(2) May 31, 2019(3) May 31, 2020(2) May 31, 2019(3)
Employee severance and benefit
costs $ 56.9 $ 6.5 $ 83.7 $ 15.5
Lease costs 0.4 (0.1 ) 6.9 (0.1 )
Asset write-off costs 6.3 (0.3 ) 31.7 (3.5 )
Other costs 5.6 3.2 21.7 4.3
Total restructuring, severance
and related charges(1) $ 69.2 $ 9.3 $ 144.0 $ 16.2
(1) Includes
million and
2020 and 2019, respectively. Includes
recorded in the EMS segment,
DMS segment and
the nine months ended
write-off costs, all restructuring, severance and related charges are cash
costs.
(2) As the Company continues to optimize its cost structure and improve
operational efficiencies,
costs was incurred in connection with a reduction in the worldwide
workforce during the three and nine months ended May 31, 2020 . The
Company's liability associated with the worldwide workforce reduction isthe 2020 Restructuring Plan.
(3) Primarily relates to the 2017 Restructuring Plan.
2020 Restructuring Plan OnSeptember 20, 2019 , our Board of Directors formally approved a restructuring plan to realign our global capacity support infrastructure, particularly in our mobility footprint inChina , in order to optimize organizational effectiveness. This action includes headcount reductions and capacity realignment (the "2020 Restructuring Plan"). The 2020 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. We expect to recognize approximately$85.0 million in pre-tax restructuring and other related costs over the course of our fiscal year 2020. The charges relating to the 2020 Restructuring Plan are currently expected to result in cash expenditures in the range of approximately$30.0 million to$40.0 million that will be payable over the course of our fiscal years 2020 and 2021. 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 particular 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. The 2020 Restructuring Plan, once complete, is expected to yield annualized cost savings beginning in fiscal year 2021 of approximately$40.0 million . We expect cost savings of$25.0 million during fiscal year 2020. See Note 13 - "Restructuring, Severance and Related Charges" to the Condensed Consolidated Financial Statements for further discussion of restructuring, severance and related charges for the 2020 Restructuring Plan. Impairment on Securities Three months ended Nine months ended
(dollars in millions)
May 31, 2020 May 31, 2019 Change
Impairment on securities $ - $ - $ - $ 12.2 $ - $ 12.2
The increase in impairment on securities for the nine months ended May 31, 2020 ,
compared to the nine months ended May 31, 2019 is due to a non-cash impairment
charge in connection with the sale of an investment in the optical networking
segment during the three months ended February 29, 2020 .
Other Expense
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Three months ended Nine months ended
(dollars in millions) May 31, 2020 May 31, 2019 Change May 31, 2020 May 31, 2019 Change
Other expense $ 5.6 $ 14.1 $ (8.5 ) $ 25.3 $ 39.4 $ (14.1 )
Other expense decreased for the three months ended May 31, 2020 , compared to the
three months ended May 31, 2019 , primarily due to: (i) $6.4 million related to a
decrease in fees associated with the utilization of the trade accounts
receivable sales programs and (ii) $2.7 million related to lower net periodic
benefit costs. The decrease was partially offset by $0.6 million of other
expense.
Other expense decreased for the nine months ended May 31, 2020 , compared to the
nine months ended May 31, 2019 , primarily due to: (i) $11.0 million related to a
decrease in fees associated with the utilization of the trade accounts
receivable sales programs and fees incurred for the amendment of the foreign
asset-backed securitization program and the new North American asset-backed
securitization program in fiscal year 2019 and (ii) $7.0 million related to
lower net periodic benefit costs. The decrease was partially offset by $3.9
million of other expense.
Interest Income
Three months ended Nine months ended
(dollars in millions) May 31, 2020 May 31, 2019 Change May 31, 2020 May 31, 2019 Change
Interest income $ 1.9 $ 6.8 $ (4.9 ) $ 13.1 $ 15.9 $ (2.8 )
Interest income decreased during the three months ended May 31, 2020 , compared
to the three months ended May 31, 2019 , primarily due to lower interest rates on
cash equivalents (investments that are readily convertible to cash with maturity
dates of 90 days or less).
Interest income decreased during the nine months ended May 31, 2020 , compared to
the nine months ended May 31, 2019 , due to lower interest rates, partially
offset by increased cash equivalents (investments that are readily convertible
to cash with maturity dates of 90 days or less).
Interest Expense
Three months ended Nine months ended
(dollars in millions) May 31, 2020 May 31, 2019 Change May 31, 2020 May 31, 2019 Change
Interest expense $ 41.9 $ 50.5 $ (8.6 ) $ 133.0 $ 139.3 $ (6.3 )
Interest expense decreased during the three months ended May 31, 2020 , compared
to the three months ended May 31, 2019 due to lower interest rates.
Interest expense decreased during the nine months ended May 31, 2020 , compared
to the nine months ended May 31, 2019 due to lower interest rates, partially
offset by additional borrowings on our credit facilities and commercial paper
program.
Income Tax Expense
Three months ended Nine months ended
May 31, 2020 May 31, 2019 Change May31, 2020 May 31, 2019 Change Effective income tax rate 465.0 % 47.0 % 418.0 % 108.3 % 32.4 % 75.9 % The effective income tax rate increased for the three months and nine months endedMay 31, 2020 , compared to the three months and nine months endedMay 31, 2019 , primarily due to: (i) decreased income for the three months and nine months endedMay 31, 2020 , driven in part by increased restructuring charges with minimal related tax benefit; (ii) a$21.2 million income tax expense associated with the re-measurement of deferred tax assets related to an extension of a non-U.S. tax incentive recorded during the three months endedMay 31, 2020 ; and (iii) adjustments related to the Tax Cuts and Jobs Act of 2017 (the "Tax Act") for the nine months endedMay 31, 2019 , including a$13.3 million income tax benefit recorded during the three months endedNovember 30, 2018 . 34
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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 withU.S. GAAP. 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. 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, impairment on securities, restructuring of securities loss, income (loss) from discontinued operations, gain (loss) on sale of discontinued operations and certain other expenses, net of tax and certain deferred tax valuation allowance charges. Among other uses, management uses non-GAAP "core" financial measures to make operating decisions, assess business performance and as a factor in determining certain employee performance when evaluating incentive compensation. We determine the tax effect of the items excluded from "core" earnings and "core" diluted earnings per share based upon evaluation of the statutory tax treatment and the applicable tax rate of the jurisdiction in which the pre-tax items were incurred, and for which realization of the resulting tax benefit, if any, is expected. In certain jurisdictions where we do not expect to realize a tax benefit (due to existing tax incentives or a history of operating losses or other factors resulting in a valuation allowance related to deferred tax assets), a reduced or 0% tax rate is applied. We are reporting "core" operating income, "core" earnings and adjusted free cash flow 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 plus cash receipts on sold receivables less net capital expenditures (acquisition of property, plant and equipment less proceeds and advances from the sale of property, plant and equipment). 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 reconciliations of the non-GAAP financial measures to the most directly comparableU.S. GAAP financial measures as provided in our Condensed Consolidated Financial Statements: Reconciliation ofU.S. GAAP Financial Results to Non-GAAP Measures 35
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Three months ended Nine months ended
(in thousands, except for per
share data) May 31, 2020 May 31, 2019 May 31, 2020 May 31, 2019
Operating income (U.S. GAAP) $ 59,384 $ 140,918 $ 302,793 $ 511,611
Amortization of intangibles 13,178 7,610 42,895 23,033
Stock-based compensation expense
and related charges 16,882 14,506 62,214 47,452
Restructuring, severance and
related charges (1) 69,150 9,340 144,005 16,182
Distressed customer charge (2) - - 14,963 -
Net periodic benefit cost (3) 2,797 - 7,398 -
Business interruption and
impairment charges, net (4) 4,574 - 4,574 (2,860 )
Acquisition and integration
charges (5) 6,119 13,391 30,005 35,066
Adjustments to operating income 112,700 44,847 306,054 118,873
Core operating income (Non-GAAP) $ 172,084 $ 185,765 $ 608,847 $ 630,484
Net (loss) income attributable
to Jabil Inc. (U.S. GAAP) $ (50,958 ) $ 43,482 $ (13,819 ) $ 234,436
Adjustments to operating income 112,700 44,847 306,054 118,873
Impairment on securities - - 12,205 -
Net periodic benefit cost (3) (2,797 ) - (7,398 ) -
Adjustments for taxes (6) (2,422 ) 125 1,166 (17,837 )
Core earnings (Non-GAAP) $ 56,523 $ 88,454 $ 298,208 $ 335,472
Diluted (loss) earnings per
share (U.S. GAAP) $ (0.34 ) $ 0.28 $ (0.09 ) $ 1.47
Diluted core earnings per share
(Non-GAAP) $ 0.37 $ 0.57 $ 1.93 $ 2.11
Diluted weighted average shares
outstanding (U.S. GAAP) 150,723 155,678 151,956 159,036
Diluted weighted average shares
outstanding (Non-GAAP) 152,693 155,678 154,412 159,036
(1) As the Company continues to optimize its cost structure and improve
operational efficiencies,
costs was incurred in connection with a reduction in the worldwide
workforce during the three and nine months ended May 31, 2020 .
(2) Charges relate to accounts receivable and inventory charges for certain
distressed customers primarily in the renewable energy sector.
(3) Following the adoption of Accounting Standards Update 2017-07, Compensation
- Retirement Benefits (Topic 715) ("ASU 2017-07"), pension service cost is
recognized in cost of revenue and all other components of net periodic
benefit cost, including return on plan assets, are presented in other
expense. We are reclassifying the pension components in other expense to
core operating income as we assess operating performance, inclusive of all
components of net periodic benefit cost, with the related revenue. There is
no impact to core earnings or diluted core earnings per share for this
adjustment.
(4) Charges for the three and nine months ended
that impacted our facility in Huangpu,
proceeds of
business interruptions and asset impairment costs associated with damage
from Hurricane Maria, which impacted our operations in Cayey,
(5) Charges related to our strategic collaboration with Johnson & Johnson
Medical Devices Companies ("JJMD").
(6) The nine months ended May 31, 2019 includes a $13.3 million income taxbenefit for the effects of the Tax Act recorded during the three months
ended
Adjusted Free Cash Flow
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Nine months ended
(in thousands) May 31, 2020 May 31, 2019(1)
Net cash provided by operating activities (U.S. GAAP) $ 570,726 $ 112,656
Cash receipts on sold receivables -
96,846
Acquisition of property, plant and equipment (648,945 )
(789,226 ) Proceeds and advances from sale of property, plant and equipment
93,679 167,653
Adjusted free cash flow (Non-GAAP)$ 15,460 $ (412,071 )
(1) In fiscal year 2019, the adoption of Accounting Standards Update ("ASU")
2016-15, "Classification of Certain Cash Receipts and Cash Payments"
resulted in a reclassification of cash flows from operating activities to
investing activities for cash receipts for the deferred purchase price
receivable on asset-backed securitization transactions. The adoption of
this standard does not reflect a change in the underlying business oractivities. The effects of this change are applied retrospectively to all
prior periods.
Acquisitions and Expansion
During fiscal year 2018, the Company and Johnson & Johnson Medical Devices
Companies ("JJMD") entered into a Framework Agreement to form a strategic
collaboration and expand our existing relationship. The strategic collaboration
expands our medical device manufacturing portfolio, diversification and
capabilities.
On February 25, 2019 and April 29, 2019 , under the terms of the Framework
Agreement, we completed the initial and second closings, respectively, of our
acquisition of certain assets of JJMD. The aggregate purchase price paid for the
initial and second closings was approximately $167.4 million in cash. For the
initial and second closings, total assets acquired of $173.5 million and total
liabilities assumed of $6.1 million were recorded at their estimated fair values
as of the acquisition dates.
On September 30, 2019 , under the terms of the Framework Agreement, we completed
the third closing of our acquisition of certain assets of JJMD. The preliminary
aggregate purchase price paid for the third closing was approximately $111.8
million in cash, which remains subject to certain post-closing adjustments based
on conditions within the Framework Agreement. For the third closing, total
assets acquired of $199.7 million , including $83.2 million in contract assets,
$35.1 million in inventory and $70.4 million in goodwill, and total liabilities
assumed of $87.9 million , including $73.5 million of pension obligations, were
recorded at their estimated fair values as of the acquisition date. There were
no intangible assets identified in this acquisition and the goodwill is
primarily attributable to the assembled workforce. The majority of the goodwill
is currently not expected to be deductible for income tax purposes.
The acquisition of the JJMD assets have been accounted for as separate business
combinations for each closing using the acquisition method of accounting. We are
currently evaluating the fair values of the assets and liabilities related to
the third closing of these business combinations. The preliminary estimates and
measurements are, therefore, subject to change during the measurement period for
assets acquired, liabilities assumed and tax adjustments. The results of
operations were included in our consolidated financial results beginning on
February 25, 2019 for the initial closing, April 29, 2019 for the second closing
and September 30, 2019 for the third closing. We believe it is impracticable to
provide pro forma information for the acquisition of the JJMD assets.
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 asset-backed securitization programs and
under our uncommitted trade accounts receivable sale programs, cash on hand,
funds provided by operations and the access to the capital markets, will be
adequate to fund our capital expenditures, the payment of any declared quarterly
dividends, any share repurchases under the approved program, any potential
acquisitions and our working capital requirements for the next 12 months. We
continue to assess our capital structure and evaluate the merits of redeploying
available cash.
Certain of our trade accounts receivable sale programs expire or are subject to
termination provisions within the 2020 calendar year. In addition, our 5.625%
Senior Notes mature on December 15, 2020 . While we expect to renew such trade
accounts receivable sale programs and refinance our Senior Notes, market
conditions, including the implications of the COVID-19 pandemic, at the time our
current programs expire and debt matures, respectively, may create challenges in
doing so, such as incurring a higher cost of capital.
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Cash and Cash Equivalents As ofMay 31, 2020 , we had approximately$763.3 million in cash and cash equivalents. As our growth remains predominantly outside ofthe United States , a significant portion of such cash and cash equivalents are held by our foreign subsidiaries. Most of our cash and cash equivalents as ofMay 31, 2020 could be repatriated tothe United States without potential tax consequences. Notes Payable and Credit Facilities Following is a summary of principal debt payments and debt issuance for our notes payable and credit facilities: Borrowings Total notes under payable 5.625% 4.700% 4.900% 3.950% revolving Borrowings Borrowings and Senior Senior Senior Senior 3.600% Senior credit under under credit (in thousands) Notes Notes Notes Notes Notes(1) facilities(2)(3)(4) commercial paper program(4) loans(2) facilities Balance as ofAugust 31, 2019 $ 398,886 $ 498,004 $ 299,057 $ 494,825 $ - $ - $ - $ 805,693$ 2,496,465 Borrowings - - - - 499,165 8,485,027 237,661 300,000 9,521,853 Payments - - - - - (8,485,027 ) (237,661 ) (806,383 ) (9,529,071 ) Other 669 492 182 461 (4,549 ) - - 828 (1,917 ) Balance as ofMay 31, 2020 $ 399,555 $ 498,496 $ 299,239 $ 495,286 $ 494,616 $ - $ - $ 300,138$ 2,487,330 Apr 23, 2021, Jan 22, 2023 and Jan Maturity Date Dec 15, 2020 Sep 15, 2022 Jul 14, 2023 Jan 12, 2028 Jan 15, 2030 22, 2025(2)(3)(4) (4) Jan 22, 2025(2) Original Facility/$500.0
Maximum Capacity
$500.0 million million$3.7 billion (2)(3)(4) (4)$301.7 million (2)
(1) On
Senior Notes due 2030 (the "3.600% Senior Notes"). The net proceeds from
the offering were used for the repayment of term loan indebtedness.
(2) On
which provides for: (i) a Revolving Credit Facility in the initial amount
of $2.7 billion , of which $700.0 million expires on January 22, 2023 and
$2.0 billion expires on January 22, 2025 and (ii) a $300.0 million Term
Loan Facility which expires on
Facility"). Interest and fees on the Credit Facility advances are based on
our non-credit enhanced long-term senior unsecured debt rating as
determined by
and Fitch Ratings. In connection with our entry into the Credit Facility,
we terminated our amended and restated five-year credit agreement dated
During the nine months endedMay 31, 2020 , the interest rates on the Revolving Credit Facility ranged from 1.2% to 4.3% and the Term Loan Facility ranged from 1.6% to 3.5%. Interest is charged at a rate equal to (a) for the Revolving Credit Facility, either 0.000% to 0.450% above the base rate or 0.975% to 1.450% above the Eurocurrency rate and (b) for the Term Loan Facility, either 0.125% to 0.750% above the base rate or 1.125% to 1.750% above the Eurocurrency rate. The base rate represents the greatest of: (i)Citibank, N.A.'s prime rate, (ii) 0.50% above the federal funds rate, and (iii) 1.0% above one-month LIBOR, but not less than zero. The Eurocurrency rate represents adjusted LIBOR or adjusted CDOR, as applicable, for the applicable interest period, but not less than zero. Fees include a facility fee based on the revolving credit commitments of the lenders and a letter of credit fee based on the amount of outstanding letters of credit. (3) OnApril 24, 2020 , we entered into an unsecured 364-day revolving credit
agreement up to an initial aggregate amount of
increased to
Agreement"). The 364-Day Revolving Credit Agreement expires on
2021. Interest and fees on the 364-Day Revolving Credit Agreement advances
are based on our non-credit enhanced long-term senior unsecured debt rating
as determined by Standard & Poor's Ratings Service , Moody's Investors
Service and Fitch Ratings.
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As ofMay 31, 2020 , no draws were made on the 364-Day Revolving Credit Agreement. Interest is charged at a rate equal to either (i) 0.450%, 0.525% or 0.800% above the base rate or (ii) 1.450%, 1.525% or 1.800% above the Eurodollar rate. The base rate represents the greatest of: (i) Mizuho's base rate, (ii) 0.50% above the federal funds rate, and (iii) 1.0% above one-month LIBOR, subject to a floor of 0.75%. The Eurodollar rate represents adjusted LIBOR for the applicable interest period, subject to a floor of 0.75%. Fees include a facility fee based on the revolving credit commitments of the lenders. (4) As ofMay 31, 2020 , we had$3.7 billion in available unused borrowing
capacity under our revolving credit facilities. The Revolving Credit
Facility under the Credit Facility acts as the back-up facility for
commercial paper outstanding, if any. We have a borrowing capacity of up to
We have a shelf registration statement with theSEC 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 ofMay 31, 2020 , 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. Asset-Backed Securitization Programs We continuously sell designated pools of trade accounts receivable, at a discount, under our foreign asset-backed securitization program and our North American asset-backed securitization program to special purpose entities, which in turn sell certain of the foreign asset-backed receivables to an unaffiliated financial institution and a conduit administered by an unaffiliated financial institution and certain of the North American asset-backed receivables to conduits administered by an unaffiliated financial institution on a monthly basis. The foreign asset-backed securitization program contains a guarantee of payment by the special purpose entity, in an amount approximately equal to the net cash proceeds under the program. No liability has been recorded for obligations under the guarantee as ofMay 31, 2020 . Certain unsold receivables covering the maximum amount of net cash proceeds available under the North American asset-backed securitization program are pledged as collateral to the unaffiliated financial institution as ofMay 31, 2020 . Following is a summary of our asset-backed securitization programs and key terms: Maximum Amount of Expiration Net Cash Proceeds (in millions)(1) Date North American $ 390.0 November 22, 2021 Foreign $ 400.0 September 30, 2021 (1) Maximum amount available at any one time. In connection with our asset-backed securitization programs, during the three months and nine months endedMay 31, 2020 , we sold$0.9 billion and$3.2 billion , respectively, of trade accounts receivable and we received cash proceeds of$0.9 billion and$3.2 billion , respectively. As ofMay 31, 2020 , we had up to$136.6 million in available liquidity under our asset-backed securitization programs. Our asset-backed securitization programs contain various financial and nonfinancial covenants. As ofMay 31, 2020 andAugust 31, 2019 , we were in compliance with all covenants under our asset-backed securitization programs. Refer to Note 6 - "Asset-Backed Securitization Programs" to the Condensed Consolidated Financial Statements for further details on the programs. Trade Accounts Receivable Sale Programs 39
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Following is a summary of the trade accounts receivable sale programs with
unaffiliated financial institutions. Under the programs we may elect to sell
receivables and the unaffiliated financial institutions may elect to purchase,
at a discount, on an ongoing basis:
Maximum
Amount Type of Expiration
Program (in millions)(1) Facility Date
A $ 600.0 Uncommitted December 5, 2020(2)
B $ 150.0 Uncommitted November 30, 2020(3)
C 800.0 CNY Uncommitted June 30, 2020
D $ 150.0 Uncommitted May 4, 2023(4)
E $ 50.0 Uncommitted August 25, 2020
F $ 150.0 Uncommitted January 25, 2021(5)
G $ 50.0 Uncommitted February 23, 2023(6)
H $ 100.0 Uncommitted August 10, 2020(7)
I $ 100.0 Uncommitted July 21, 2020(8)
J $ 650.0 Uncommitted December 4, 2020(9)
K $ 135.0 Uncommitted April 11, 2021(10)
L 100.0 CHF Uncommitted December 5, 2020(2)
(1) Maximum amount of trade accounts receivable that may be sold under a
facility at any one time.
(2) The program will be automatically extended each year through
2025 unless either party provides 30 days notice of termination.
(3) The program will automatically extend for one year at each expiration date
unless either party provides 10 days notice of termination.
(4) Any party may elect to terminate the agreement upon 30 days prior notice.
(5) The program will be automatically extended through
either party provides 30 days notice of termination.
(6) Any party may elect to terminate the agreement upon 15 days prior notice.
(7) The program will be automatically extended through
either party provides 30 days notice of termination.
(8) The program will be automatically extended through
either party provides 30 days notice of termination.
(9) The program will be automatically extended each year through December 5,
2024 unless either party provides 30 days notice of termination.
(10) The program will be automatically extended each year through
unless either party provides 30 days notice of termination.
During the three months and nine months endedMay 31, 2020 , we sold$2.2 billion and$6.3 billion , respectively, of trade accounts receivable under these programs and we received cash proceeds of$2.2 billion and$6.3 billion , respectively. As ofMay 31, 2020 , we had up to$932.4 million in available liquidity under our trade accounts receivable sale programs. Capital Expenditures For Fiscal Year 2020, we anticipate our net capital expenditures will be approximately$800.0 million . In general, our capital expenditures support ongoing maintenance in our DMS and EMS segments and investments in new 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 thousands): 40
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Nine months ended
May 31, 2020 May 31, 2019
Net cash provided by operating activities $ 570,726 $ 112,656
Net cash used in investing activities (679,463 ) (704,095 ) Net cash (used in) provided by financing activities (259,592 )
19,909
Effect of exchange rate changes on cash and cash equivalents (31,677 )
7,667
Net decrease in cash and cash equivalents$ (400,006 ) $
(563,863 )
Operating Activities Net cash provided by operating activities during the nine months endedMay 31, 2020 was primarily due to non-cash expenses, decreased accounts receivable and increased accounts payable, accrued expenses and other liabilities, partially offset by increased contract assets, inventories and prepaid expenses and other current assets. The decrease in accounts receivable is primarily driven by the timing of collections. The increase in accounts payable, accrued expenses and other liabilities is primarily due to the timing of purchases and cash payments. The increase in contract assets is primarily due to the timing of revenue recognition for over time customers. The increase in inventories is primarily to support expected sales levels in the fourth quarter of fiscal year 2020. The increase in prepaid expenses and other current assets is primarily due to an increase in value added tax receivables. Investing Activities Net cash used in investing activities during the nine months endedMay 31, 2020 consisted primarily of capital expenditures principally to support ongoing business in the DMS and EMS segments and expenditures for assets acquired in connection with the third closing of the acquisition of certain assets of JJMD, partially offset by proceeds and advances from the sale of property, plant and equipment. Financing Activities Net cash used in financing activities during the nine months endedMay 31, 2020 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. Contractual Obligations As of the date of this report, other than the borrowings on the 3.600% Senior Notes, the Credit Facility and the 364-Day Revolving Credit Agreement (see Note 5 - "Notes Payable and Long-Term Debt" to the Condensed Consolidated Financial Statements) and the items disclosed below, there were no material changes outside the ordinary course of business sinceAugust 31, 2019 to our contractual obligations and commitments. In connection with the third closing of the acquisition of certain assets of JJMD, we assumed additional contractual obligations related to postretirement benefit plans and executed certain financing leases. The following table provides details of these assumed obligations: Payments due by period (in thousands) Less than 1 After 5 Total year 1-3 years 3-5 years years Pension and postretirement contributions and payments(1)$ 11,026 $ 11,026 $ - $ - $ - Finance lease obligations(2)$ 114,275 $ 5,904 $ 12,972 $ 13,102 $ 82,297
(1) Represents the estimated company contributions to the funded
plan during fiscal year 2020. These future payments are not recorded on
the Condensed Consolidated Balance Sheets but will be recorded as
incurred. Refer to Note 8 - Postretirement and other Employee Benefits for
further discussion of the assumed postretirement benefit obligation.
(2) The amount payable after five years includes
requirements at the end of the respective leases.
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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. InSeptember 2019 , the Board of Directors authorized the repurchase of up to$600.0 million of our common stock as a part of a two-year capital allocation framework (the "2020 Share Repurchase Program"). As ofMay 31, 2020 , 5.2 million shares had been repurchased for$188.9 million and$411.1 million remains available under the 2020 Share Repurchase Program. 42
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