NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted
accounting principles (U.S. GAAP) for interim financial information and with the instructions to
Form 10-Q
and Article 10 of
Regulation S-X.
Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary to present fairly the
information set forth therein have been included. The Company has made certain reclassification adjustments to conform prior periods Condensed Consolidated Financial Statements to the current presentation. The accompanying unaudited Condensed
Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and footnotes included in the Annual Report on
Form 10-K
of Jabil Circuit, Inc. (the
Company) for the fiscal year ended August 31, 2016. Results for the three months ended November 30, 2016 are not necessarily an indication of the results that may be expected for the full fiscal year ending August 31,
2017.
2. Earnings Per Share and Dividends
a.
Earnings Per Share
The Company calculates its basic earnings per share by dividing net income attributable to Jabil Circuit, Inc.
by the weighted average number of common shares outstanding during the period. The Companys diluted earnings per share is calculated in a similar manner, but includes the effect of dilutive securities. To the extent these securities are
anti-dilutive, they are excluded from the calculation of diluted earnings per share. The following table sets forth the calculations of basic and diluted earnings per share attributable to the stockholders of Jabil Circuit, Inc. (in thousands,
except earnings per share data):
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
November 30,
2016
|
|
|
November 30,
2015
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income attributable to Jabil Circuit, Inc.
|
|
$
|
88,027
|
|
|
$
|
131,885
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share
|
|
|
185,292
|
|
|
|
190,355
|
|
|
|
|
|
|
|
|
|
|
Dilutive common shares issuable under the employee stock purchase plan and upon exercise of stock
options and stock appreciation rights
|
|
|
178
|
|
|
|
155
|
|
Dilutive unvested restricted stock awards
|
|
|
2,386
|
|
|
|
2,733
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share
|
|
|
187,856
|
|
|
|
193,243
|
|
|
|
|
|
|
|
|
|
|
Earnings per share attributable to the stockholders of Jabil Circuit, Inc.:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.48
|
|
|
$
|
0.69
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.47
|
|
|
$
|
0.68
|
|
|
|
|
|
|
|
|
|
|
For the three months ended November 30, 2016 and 2015, options to purchase 1,406,490 and 2,019,750 stock
appreciation rights, respectively, were excluded from the computation of diluted earnings per share as their effect would have been anti-dilutive.
6
b. Dividends
The following table sets forth certain information relating to the Companys cash dividends declared to common stockholders of the Company
during the three months ended November 30, 2016 and 2015 (in thousands, 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 2017:
|
|
October 20, 2016
|
|
$
|
0.08
|
|
|
$
|
15,248
|
|
|
November 15, 2016
|
|
December 1, 2016
|
Fiscal Year 2016:
|
|
October 14, 2015
|
|
$
|
0.08
|
|
|
$
|
15,906
|
|
|
November 16, 2015
|
|
December 1, 2015
|
3. Inventories
Inventories consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
November 30, 2016
|
|
|
August 31, 2016
|
|
Raw materials
|
|
$
|
1,415,787
|
|
|
$
|
1,302,481
|
|
Work in process
|
|
|
636,757
|
|
|
|
675,867
|
|
Finished goods
|
|
|
494,711
|
|
|
|
510,485
|
|
Reserve for inventory obsolescence
|
|
|
(41,056
|
)
|
|
|
(32,221
|
)
|
|
|
|
|
|
|
|
|
|
Total inventories, net
|
|
$
|
2,506,199
|
|
|
$
|
2,456,612
|
|
|
|
|
|
|
|
|
|
|
4. Stock-Based Compensation
The Company recognizes stock-based compensation expense, reduced for estimated forfeitures, on a straight-line basis over the requisite service
period of the award, which is generally the vesting period for outstanding stock awards. The Company recorded $(0.3) million and $24.8 million of stock-based compensation expense gross of tax effects, which is included in selling, general
and administrative expenses within the Condensed Consolidated Statements of Operations during the three months ended November 30, 2016 and 2015, respectively. During the three months ended November 30, 2016, the Company recorded a
$21.0 million reversal to stock-based compensation expense due to decreased expectations for the vesting of certain performance-based restricted stock awards. The Company recorded tax benefits related to the stock-based compensation expense of
$0.1 million and $0.3 million, which is included in income tax expense within the Condensed Consolidated Statements of Operations for the three months ended November 30, 2016 and 2015, respectively.
The following table summarizes shares available for grant and stock appreciation rights (SARS) activity from August 31, 2016
through November 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Available
for Grant
|
|
|
SARS
Outstanding
|
|
|
Average
Intrinsic Value
(in thousands)
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
Life (years)
|
|
Balance at August 31, 2016
|
|
|
4,898,739
|
|
|
|
2,439,066
|
|
|
$
|
1,066
|
|
|
$
|
25.32
|
|
|
|
1.13
|
|
SARS canceled
|
|
|
1,331,769
|
|
|
|
(1,331,769
|
)
|
|
|
|
|
|
$
|
29.27
|
|
|
|
|
|
Restricted stock awards granted, net of forfeitures
(a)
|
|
|
1,231,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SARS exercised
|
|
|
|
|
|
|
(28,818
|
)
|
|
|
|
|
|
$
|
22.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at November 30, 2016
|
|
|
7,461,645
|
|
|
|
1,078,479
|
|
|
$
|
1,052
|
|
|
$
|
20.55
|
|
|
|
2.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at November 30, 2016
|
|
|
|
1,078,479
|
|
|
$
|
1,052
|
|
|
$
|
20.55
|
|
|
|
2.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
Represents the maximum number of shares that can be issued based on
the achievement of certain performance criteria.
7
The following table summarizes restricted stock activity from August 31, 2016 through
November 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted-
Average
Grant-Date
Fair Value
|
|
Unvested balance at August 31, 2016
|
|
|
14,777,178
|
|
|
$
|
21.09
|
|
Changes during the period
|
|
|
|
|
|
|
|
|
Shares granted
(a)
|
|
|
2,705,180
|
|
|
$
|
23.57
|
|
Shares vested
|
|
|
(1,812,168
|
)
|
|
$
|
21.25
|
|
Shares forfeited
|
|
|
(3,936,317
|
)
|
|
$
|
20.79
|
|
|
|
|
|
|
|
|
|
|
Unvested balance at November 30, 2016
|
|
|
11,733,873
|
|
|
$
|
21.74
|
|
|
|
|
|
|
|
|
|
|
(a)
For those shares granted that are based on the achievement of certain
performance criteria, represents the maximum number of shares that can vest.
Certain key employees have been granted time-based,
performance-based and market-based restricted stock awards. The time-based restricted awards granted generally vest on a graded vesting schedule over three years. The performance-based restricted awards generally vest on a cliff vesting schedule
over three to five years and provide a range of vesting possibilities of up to a maximum of 100% or 150%, depending on the specified performance condition and the level of achievement obtained. The market-based restricted awards generally vest on a
cliff vesting schedule over three years and provide a range of vesting possibilities of up to a maximum of 200%. The market-based awards have a vesting condition that is tied to the Companys stock performance in relation to the Standard and
Poors (S&P) Super Composite Technology Hardware and Equipment Index. The market conditions are considered in the grant date fair value using a Monte Carlo valuation model, which utilizes multiple input variables to determine the
probability of the Company achieving the specified market conditions. Stock-based compensation expense related to an award with a market condition will be recognized over the requisite service period regardless of whether the market condition is
satisfied, provided that the requisite service period has been completed. During the three months ended November 30, 2016 and 2015, the Company awarded approximately 1.0 million and 2.5 million time-based restricted stock units,
respectively, 0.6 million and 1.3 million performance-based restricted stock units, respectively and 0.4 million and 0.4 million market-based stock units, respectively.
At November 30, 2016, there was $74.6 million of total unrecognized stock-based compensation expense related to restricted stock
awards. This expense is expected to be recognized over a weighted-average period of 1.5 years.
5. Concentration of Risk and Segment Data
a. Concentration of Risk
Sales of
the Companys products are concentrated among specific customers. During the three months ended November 30, 2016, the Companys five largest customers accounted for approximately 51% of its net revenue and 70 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. Almost all of the products manufactured by the Company require one or more
components that are available from only a single source.
Production levels for a portion of the DMS segment are subject to seasonal
influences. The Company may realize greater net revenue during its first fiscal quarter due to higher demand for consumer related products manufactured in the DMS segment during the holiday selling season. Therefore, quarterly results should not be
relied upon as necessarily being indicative of results for the entire fiscal year.
b. Segment Data
Operating segments are defined as components of an enterprise that engage in business activities from which they may earn revenues and incur
expenses; for which separate financial information is available; and whose operating results are regularly reviewed by the chief operating decision maker to assess the performance of the individual segment and make decisions about resources to be
allocated to the segment.
8
The Company derives its revenue from providing comprehensive electronics design, production and
product management services. The chief operating decision maker evaluates performance and allocates resources on a segment basis. The Companys operating segments consist of two segments EMS and DMS, which are also the
Companys reportable segments. The EMS segment is focused around leveraging IT, supply chain design and engineering, technologies largely centered on core electronics, sharing of the Companys large scale manufacturing infrastructure and
the ability to serve a broad range of end markets. The EMS segment includes customers primarily in the automotive, capital equipment, computing and storage, digital home, industrial and energy, networking and telecommunications, point of sale and
printing industries. The DMS segment is focused on providing engineering solutions and a focus on material sciences and technologies. The DMS segment includes customers primarily in the consumer lifestyles and wearable technologies, defense and
aerospace, emerging growth, healthcare, mobility and packaging industries.
Net revenue for the operating segments is attributed to the
segment in which the service is performed. An operating segments 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, and does not include amortization of intangibles, stock-based compensation
expense and related charges, restructuring and related charges, distressed customer charges, acquisition costs and certain purchase accounting adjustments, loss on disposal of subsidiaries, settlement of receivables and related charges, impairment
of notes receivable and related charges, goodwill impairment charges, income (loss) from discontinued operations, gain (loss) on sale of discontinued operations, other expense, interest income, interest expense, income tax expense or adjustment for
net income (loss) attributable to noncontrolling interests. Total segment assets are defined as accounts receivable, inventories, net customer-related property, plant and equipment, intangible assets net of accumulated amortization and goodwill. All
other non-segment assets are reviewed on a global basis by management. Transactions between operating segments are generally recorded at amounts that approximate those at which we would transact with third parties.
9
The following tables set forth operating segment information (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
November 30, 2016
|
|
|
November 30, 2015
|
|
Net revenue
|
|
|
|
|
|
|
|
|
EMS
|
|
$
|
2,703,290
|
|
|
$
|
2,724,414
|
|
DMS
|
|
|
2,401,608
|
|
|
|
2,483,563
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,104,898
|
|
|
$
|
5,207,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income and reconciliation of income before income tax
|
|
|
|
|
|
|
|
|
EMS
|
|
$
|
89,546
|
|
|
$
|
83,266
|
|
DMS
|
|
|
119,994
|
|
|
|
165,222
|
|
|
|
|
|
|
|
|
|
|
Total segment income
|
|
$
|
209,540
|
|
|
$
|
248,488
|
|
|
|
|
Reconciling items:
|
|
|
|
|
|
|
|
|
Amortization of intangibles
|
|
|
8,322
|
|
|
|
7,840
|
|
Stock-based compensation expense and related charges
|
|
|
(291
|
)
|
|
|
24,792
|
|
Restructuring and related charges
|
|
|
35,902
|
|
|
|
1,353
|
|
Other expense
|
|
|
4,680
|
|
|
|
1,765
|
|
Interest income
|
|
|
(2,455
|
)
|
|
|
(2,064
|
)
|
Interest expense
|
|
|
32,844
|
|
|
|
33,035
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
130,538
|
|
|
$
|
181,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2016
|
|
|
August 31, 2016
|
|
Total assets
|
|
|
|
|
|
|
|
|
EMS
|
|
$
|
2,768,080
|
|
|
$
|
2,615,237
|
|
DMS
|
|
|
5,010,360
|
|
|
|
5,012,798
|
|
Other non-allocated assets
|
|
|
2,765,406
|
|
|
|
2,694,642
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,543,846
|
|
|
$
|
10,322,677
|
|
|
|
|
|
|
|
|
|
|
As of November 30, 2016, the Company operated in 28 countries worldwide. Sales to unaffiliated
customers are based on the Companys location that maintains the customer relationship and transacts the external sale. Total foreign net revenue represented 92.3% and 92.1% of net revenue during the three months ended November 30, 2016
and 2015, respectively.
6. Notes Payable, Long-Term Debt and Capital Lease Obligations
Notes payable, long-term debt and capital lease obligations outstanding at November 30, 2016 and August 31, 2016 are summarized below
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
November 30,
2016
|
|
|
August 31,
2016
|
|
8.250% Senior Notes due 2018
|
|
$
|
398,791
|
|
|
$
|
398,552
|
|
5.625% Senior Notes due 2020
|
|
|
396,435
|
|
|
|
396,212
|
|
4.700% Senior Notes due 2022
|
|
|
496,205
|
|
|
|
496,041
|
|
4.900% Senior Notes due 2023
|
|
|
298,389
|
|
|
|
298,329
|
|
Borrowings under credit facilities
|
|
|
|
|
|
|
|
|
Borrowings under loans
|
|
|
493,234
|
|
|
|
502,210
|
|
Capital lease obligations
|
|
|
27,856
|
|
|
|
28,478
|
|
|
|
|
|
|
|
|
|
|
Total notes payable, long-term debt and capital lease obligations
|
|
|
2,110,910
|
|
|
|
2,119,822
|
|
Less current installments of notes payable, long-term debt and capital lease obligations
|
|
|
43,198
|
|
|
|
45,810
|
|
|
|
|
|
|
|
|
|
|
Notes payable, long-term debt and capital lease obligations, less current installments
|
|
$
|
2,067,712
|
|
|
$
|
2,074,012
|
|
|
|
|
|
|
|
|
|
|
10
The $400.0 million of 8.250% senior unsecured notes, $400.0 million of 5.625% senior
unsecured notes, $500.0 million of 4.700% senior unsecured notes and $300.0 million of 4.900% senior unsecured notes outstanding are carried at the principal amount of each note, less any unamortized discount. The estimated fair values of
the Companys publicly traded debt, including the 8.250%, 5.625% and 4.700% senior notes, were approximately $431.4 million, $433.3 million and $514.5 million respectively, at November 30, 2016. The fair value estimates are
based upon observable market data (Level 2 criteria). The estimated fair value of the Companys private debt, the 4.900% senior notes, was approximately $306.1 million, at November 30, 2016. This fair value estimate is based on
the Companys indicative borrowing cost derived from discounted cash flows (Level 3 criteria). The carrying amounts of borrowings under credit facilities and under loans approximates fair value as interest rates on these instruments
approximates current market rates.
7. Trade Accounts Receivable Securitization and Sale Programs
The Company regularly sells designated pools of trade accounts receivable under two asset-backed securitization programs and three uncommitted
trade accounts receivable sale programs (collectively referred to herein as the programs). The Company continues servicing the receivables sold and in exchange receives a servicing fee under each of the programs. Servicing fees related
to each of the programs recognized during the three months ended November 30, 2016 and 2015 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.
Transfers
of the receivables under the programs are accounted for as sales and, accordingly, net receivables sold under the programs 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.
a. Asset-Backed Securitization Programs
The Company continuously sells designated pools of trade accounts receivable under its North American asset-backed securitization program,
currently scheduled to expire on October 20, 2017, and its foreign asset-backed securitization program, currently scheduled to expire on May 1, 2018, (collectively referred to herein as the asset-backed securitization programs)
to special purpose entities, which in turn sell 100% of the receivables to conduits administered by unaffiliated financial institutions (for the North American asset-backed securitization program) and to an unaffiliated financial institution and a
conduit administered by an unaffiliated financial institution (for the foreign asset-backed securitization program). The special purpose entity in the North American asset-backed securitization program is a wholly-owned subsidiary of the Company.
The special purpose entity in the foreign asset-backed securitization program is a separate bankruptcy-remote entity whose assets would be first available to satisfy the creditor claims of the unaffiliated financial institution. The Company is
deemed the primary beneficiary of this special purpose entity as the Company has both the power to direct the activities of the entity that most significantly impact the entitys economic performance and the obligation to absorb losses or the
right to receive the benefits that could potentially be significant to the entity from the transfer of the trade accounts receivable into the special purpose entity. Accordingly, the special purpose entities associated with these asset-backed
securitization programs are included in the Companys Condensed Consolidated Financial Statements. Any portion of the purchase price for the receivables which is not paid in cash upon the sale taking place is recorded as a deferred purchase
price receivable, which is paid as payments on the receivables are collected. Net cash proceeds of up to a maximum of $200.0 million and $275.0 million for the North American and foreign asset-backed securitization programs, respectively,
are available at any one time.
In connection with the asset-backed securitization programs, the Company sold $2.3 billion and
$1.9 billion of eligible trade accounts receivable during the three months ended November 30, 2016 and 2015, respectively. In exchange, the Company received cash proceeds of $1.6 billion and $1.5 billion during the three months
ended November 30, 2016 and 2015, respectively, (which represented proceeds from collections reinvested in revolving-period transfers as there were no new transfers during these periods) and a deferred purchase price receivable. At
November 30, 2016 and 2015, the deferred purchase price receivables recorded in connection with the asset-backed securitization programs totaled approximately $765.6 million and $451.6 million, respectively.
The Company recognized pretax losses on the sales of receivables under the asset-backed securitization programs of approximately
$1.8 million and $1.0 million during the three months ended November 30, 2016 and 2015, respectively, which are recorded to other expense within the Condensed Consolidated Statements of Operations.
The deferred purchase price receivables recorded under the asset-backed securitization programs are recorded initially at fair value as
prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets and are valued using unobservable inputs (Level 3 inputs), primarily discounted cash flows, and due to their credit quality and short-term maturity the fair
values approximated book values. The unobservable inputs consist of estimated credit losses and estimated discount rates, which both have an immaterial impact on the fair value calculations of the deferred purchase price receivables.
11
b. Trade Accounts Receivable Sale Programs
In connection with three separate trade accounts receivable sale programs with unaffiliated financial institutions, the Company may elect to
sell, at a discount, on an ongoing basis, up to a maximum of $650.0 million, $150.0 million and $100.0 million, respectively, of specific trade accounts receivable at any one time. The $650.0 million trade accounts receivable
sale program is an uncommitted facility that is scheduled to expire on August 31, 2017 (as the agreement was automatically extended on October 31, 2016), although any party may elect to terminate the agreement upon 15 days prior
notice. The $150.0 million trade accounts receivable sale program is an uncommitted facility that is subject to expiration on August 31, 2017. The $100.0 million trade accounts receivable sale program is an uncommitted facility that
is scheduled to expire on October 31, 2017 (as the agreement was automatically extended on October 31, 2016), although any party may elect to terminate the agreement upon 15 days prior notice. The $100.0 million trade accounts
receivable sale program will be automatically extended each year until November 1, 2018, unless any party gives no less than 30 days prior notice that the agreement should not be extended.
During the three months ended November 30, 2016 and 2015, the Company sold $0.9 billion and $1.4 billion of trade accounts
receivable under these programs, respectively. In exchange, the Company received cash proceeds of $0.9 billion and $1.4 billion during the three months ended November 30, 2016 and 2015, respectively. The resulting losses on the sales
of trade accounts receivable during the three months ended November 30, 2016 and 2015 were approximately $1.2 million and $1.0 million, respectively, and were recorded to other expense within the Condensed Consolidated Statements of
Operations.
8. Accumulated Other Comprehensive Income
The following table sets forth the changes in accumulated other comprehensive income (AOCI), net of tax, by component from
August 31, 2016 to November 30, 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency
Translation
Adjustment
|
|
|
Derivative
Instruments
|
|
|
Actuarial
Loss
|
|
|
Prior
Service Cost
|
|
|
Unrealized
(Loss) Gain
on Available
for Sale
Securities
|
|
|
Total
|
|
Balance at August 31, 2016
|
|
$
|
16,338
|
|
|
$
|
7,784
|
|
|
$
|
(43,587
|
)
|
|
$
|
941
|
|
|
$
|
(21,353
|
)
|
|
$
|
(39,877
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
(23,619
|
)
|
|
|
8,234
|
|
|
|
|
|
|
|
|
|
|
|
(1,250
|
)
|
|
|
(16,635
|
)
|
Amounts reclassified from AOCI
|
|
|
|
|
|
|
3,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income
|
|
|
(23,619
|
)
|
|
|
11,831
|
|
|
|
|
|
|
|
|
|
|
|
(1,250
|
)
|
|
|
(13,038
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at November 30, 2016
|
|
$
|
(7,281
|
)
|
|
$
|
19,615
|
|
|
$
|
(43,587
|
)
|
|
$
|
941
|
|
|
$
|
(22,603
|
)
|
|
$
|
(52,915
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The portion of AOCI reclassified into earnings during the three months ended November 30, 2016 for
derivative instruments was primarily classified as a component of cost of revenue. The tax benefit (expense) on the derivative instruments component of AOCI, including reclassification adjustments, is not material for the three months ended
November 30, 2016. There was no tax benefit (expense) on the foreign currency translation adjustment and the unrealized (loss) gain on available for sale securities components of AOCI, including reclassification adjustments, for the three
months ended November 30, 2016.
9. Postretirement and Other Employee Benefits
The Company sponsors defined benefit pension plans in several countries in which it operates. The pension obligations relate primarily to the
following: (a) a funded retirement plan in the United Kingdom and (b) both funded and unfunded retirement plans, mainly in Austria, France, Germany, The Netherlands, Poland, and Taiwan, which provide benefits based upon years of service
and compensation at retirement.
The following table provides information about net periodic benefit cost for the pension plans during the
three months ended November 30, 2016 and 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
November 30, 2016
|
|
|
November 30, 2015
|
|
Service cost
|
|
$
|
259
|
|
|
$
|
222
|
|
Interest cost
|
|
|
746
|
|
|
|
1,268
|
|
Expected long-term return on plan assets
|
|
|
(1,129
|
)
|
|
|
(1,463
|
)
|
Recognized actuarial loss
|
|
|
476
|
|
|
|
266
|
|
Amortization of prior service cost
|
|
|
(34
|
)
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
318
|
|
|
$
|
258
|
|
|
|
|
|
|
|
|
|
|
During the three months ended November 30, 2016, the Company made contributions of approximately
$0.7 million to its defined benefit pension plans. The Company expects to make total cash contributions of between $2.6 million and $3.4 million to its funded pension plans during the fiscal year ended August 31, 2017.
12
10. Commitments and Contingencies
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 Companys financial position, results of operations or cash flows.
The Internal Revenue Service (IRS) completed its field examination of the Companys tax returns for fiscal years 2009 through
2011 and issued a Revenue Agents Report on May 27, 2015, which was updated on June 22, 2016, proposing adjustments primarily related to U.S. taxation of certain intercompany transactions. If the IRS ultimately prevails in its
positions, the Companys income tax payment due for the fiscal years 2009 through 2011 would be approximately $28.6 million after utilization of tax loss carry forwards available through fiscal year 2011. Also, the IRS has proposed
interest and penalties with respect to fiscal years 2009 through 2011. The IRS may make similar claims in future audits with respect to these types of transactions. At this time, anticipating the amount of any future IRS proposed adjustments,
interest, and penalties is not practicable.
The Company disagrees with the proposed adjustments and intends to vigorously contest these
matters through the applicable IRS administrative and judicial procedures, as appropriate. As the final resolution of the proposed adjustments remains uncertain, the Company continues to provide for the uncertain tax positions based on the more
likely than not standard. While the resolution of the issues may result in tax liabilities, interest and penalties, which are significantly higher than the amounts provided for these matters, management currently believes that the resolution will
not have a material adverse effect on the Companys financial position, results of operations or cash flows. Despite this belief, an unfavorable resolution, particularly if the IRS successfully asserts similar claims for later years, could have
a material adverse effect on the Companys results of operations and financial condition.
11. 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 Companys 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 fluctuation risk and interest rate risk.
All derivative instruments are recorded gross on the Condensed Consolidated Balance Sheets at their respective fair values. The accounting for
changes in the fair value of a derivative instrument depends on the intended use and designation of the derivative instrument. For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative and
the offsetting gain or loss on the hedged item attributable to the hedged risk are recognized in current earnings. For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the
derivative instrument is initially reported as a component of AOCI, net of tax, and is subsequently reclassified into the line item within the Condensed Consolidated Statements of Operations in which the hedged items are recorded in the same period
in which the hedged item affects earnings. The ineffective portion of the gain or loss is recognized immediately in current earnings. For derivative instruments that are not designated as hedging instruments, gains and losses from changes in fair
values are recognized in earnings. Cash receipts and cash payments related to derivative instruments are recorded in the same category as the cash flows from the items being hedged on the Condensed Consolidated Statements of Cash Flows.
For derivatives accounted for as hedging instruments, the Company formally designates and documents, at inception, the financial instruments
as a hedge of a specific underlying exposure, the risk management objective and the strategy for undertaking the hedge transaction. In addition, the Company formally performs an assessment, both at inception and at least quarterly thereafter, to
determine whether the financial instruments used in hedging transactions are effective at offsetting changes in the cash flows on the related underlying exposures.
a. 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 $261.3 million and $323.3 million at November 30, 2016 and August 31, 2016, 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, 2016 and August 31, 2017.
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 at November 30, 2016 and August 31, 2016, was $1.7 billion and $1.7 billion, respectively.
13
The following table presents the Companys assets and liabilities related to forward foreign
exchange contracts measured at fair value on a recurring basis as of November 30, 2016, aggregated by the level in the fair-value hierarchy in which those measurements are classified (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign exchange contracts
|
|
$
|
|
|
|
|
14,218
|
|
|
|
|
|
|
$
|
14,218
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign exchange contracts
|
|
|
|
|
|
|
(35,919
|
)
|
|
|
|
|
|
|
(35,919
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
|
(21,701
|
)
|
|
|
|
|
|
$
|
(21,701
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys 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.
The following table presents the fair
values of the Companys derivative instruments located on the Condensed Consolidated Balance Sheets utilized for foreign currency risk management purposes at November 30, 2016 and August 31, 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Values of Derivative Instruments
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
Balance Sheet
Location
|
|
Fair Value at
November 30,
2016
|
|
|
Fair Value at
August 31,
2016
|
|
|
Balance Sheet
Location
|
|
|
Fair Value at
November 30,
2016
|
|
|
Fair Value at
August 31,
2016
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign exchange contracts
|
|
Prepaid expenses
and other current assets
|
|
$
|
1,015
|
|
|
$
|
420
|
|
|
|
Accrued
expenses
|
|
|
$
|
9,214
|
|
|
$
|
1,986
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign exchange contracts
|
|
Prepaid expenses
and other current
assets
|
|
$
|
13,203
|
|
|
$
|
3,850
|
|
|
|
Accrued
expenses
|
|
|
$
|
26,705
|
|
|
$
|
10,801
|
|
As of November 30, 2016 and August 31, 2016, the Company also included gains and losses in AOCI
related to changes in fair value of its derivatives utilized for foreign currency risk management purposes and designated as hedging instruments. These gains and losses were not material and the portion that is expected to be reclassified into
earnings during the next 12 months will be classified as components of net revenue, cost of revenue and selling, general and administrative expense. The gains and losses recognized in earnings due to hedge ineffectiveness and 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.
The Company recognized gains and losses in earnings related to changes in fair value of derivatives utilized for foreign currency risk
management purposes and not designated as hedging instruments during the three months ended November 30, 2016 and 2015. These amounts were not material and were recognized as components of cost of revenue.
b. Interest Rate Risk Management
The Company periodically enters into interest rate swaps to manage interest rate risk associated with the Companys borrowings.
Cash Flow Hedges
During the fourth
quarter of fiscal year 2007, the Company entered into forward interest rate swap transactions to hedge the fixed interest rate payments for an anticipated debt issuance, which was the issuance of the 8.250% Senior Notes. The swaps were accounted for
as a cash flow hedge and had a notional amount of $400.0 million. Concurrently with the pricing of the 8.250% Senior Notes, the Company settled the swaps by its payment of $43.1 million. The ineffective portion of the swaps was immediately
recorded to interest expense within the Condensed Consolidated Statements of Operations. The effective portion of the swaps is recorded on the Companys Condensed Consolidated Balance Sheets as a component of AOCI and is being amortized to
interest expense within the
14
Companys Condensed Consolidated Statements of Operations over the life of the 8.250% Senior Notes, which is through March 15, 2018. The effective portions of the swaps amortized to
interest expense during the three months ended November 30, 2016 and 2015 were not material. Existing losses related to interest rate risk management hedging arrangements that are expected to be reclassified into earnings during the next
12 months are not material.
During the fourth quarter of fiscal year 2016, the Company entered into forward starting swap
transactions to hedge the fixed interest rate payments for an anticipated debt issuance. The forward starting swaps have an aggregate notional amount of $200.0 million and have been designated as hedging instruments and accounted for as cash flow
hedges. The forward starting swaps are scheduled to expire on March 15, 2018. If the anticipated debt issuance occurs before March 15, 2018, the contracts will be terminated simultaneously with the debt issuance. The contracts will be
settled with the respective counterparties on a net basis at the time of termination or expiration. Changes in the fair value of the forward starting swap transactions are recorded on the Companys Condensed Consolidated Balance Sheets as a
component of AOCI.
During the fourth quarter of fiscal year 2016, the Company entered into interest rate swap transactions to hedge the
variable interest rate payments for the Term Loan Facility. In connection with this transaction, the Company will pay interest based upon a fixed rate as agreed upon with the respective counterparties and receive variable rate interest payments
based on the one-month LIBOR. The interest rate swaps have an aggregate notional amount of $200.0 million and have been designated as hedging instruments and accounted for as cash flow hedges. The interest rate swaps are effective on September
30, 2016 and scheduled to expire on June 30, 2019. The contracts will be settled with the respective counterparties on a net basis at each settlement date. Changes in the fair value of the interest rate swap transactions are recorded on
the Companys Condensed Consolidated Balance Sheets as a component of AOCI.
12. Restructuring and Related Charges
2017 Restructuring Plan
In
conjunction with the restructuring plan that was approved by the Companys Board of Directors on September 15, 2016 (the 2017 Restructuring Plan), the Company charged $34.1 million of restructuring and related charges to
the Condensed Consolidated Statement of Operations during the three months ended November 30, 2016. The 2017 Restructuring Plan is intended to better align the Companys global capacity and administrative support infrastructure in order to
further optimize organizational effectiveness. This action includes headcount reductions across the Companys Selling, General and Administrative cost base and capacity realignment in higher cost locations. The restructuring and related charges
during the three months ended November 30, 2016 include cash costs of $17.9 million related to employee severance and benefit costs, $3.3 million related to lease costs and $0.2 million of other related costs, as well as non-cash
costs of $12.7 million related to asset write-off costs.
15
The Company currently expects to recognize approximately $195.0 million in pre-tax restructuring and other related costs over the course
of the Companys fiscal years 2017 and 2018. Since the inception of the 2017 Restructuring Plan, a total of $34.1 million of restructuring and related costs have been recognized. Of the $34.1 million recognized to date,
$5.5 million was allocated to the EMS segment, $11.5 million was allocated to the DMS segment and $17.1 million was not allocated to a segment. The charges related to the 2017 Restructuring Plan, excluding asset write-off costs, are
currently expected to result in net cash expenditures of approximately $50.0 million that have been or will be payable over the course of the Companys fiscal years 2017 and 2018. The remaining $160.9 million of the restructuring and
related costs expected to be recognized reflects the Companys intention only and restructuring decisions, and the timing of such decisions, at certain plants are still subject to the finalization of timetables for the transition of functions
and consultation with the Companys employees and their representatives.
The table below set forth the significant components and
activity in the 2017 Restructuring Plan during the three months ended November 30, 2016 (in thousands):
2017 Restructuring Plan
Three Months Ended November 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Balance at
August 31, 2016
|
|
|
Restructuring
Related
Charges
|
|
|
Asset Write-off
Charge and Other
Non-Cash
Activity
|
|
|
Cash
Payments
|
|
|
Liability Balance at
November 30, 2016
|
|
Employee severance and benefit costs
|
|
$
|
|
|
|
$
|
17,896
|
|
|
$
|
(15
|
)
|
|
$
|
(7,987
|
)
|
|
$
|
9,894
|
|
Lease costs
|
|
|
|
|
|
|
3,291
|
|
|
|
|
|
|
|
(767
|
)
|
|
|
2,524
|
|
Asset write-off costs
|
|
|
|
|
|
|
12,640
|
|
|
|
(12,640
|
)
|
|
|
|
|
|
|
|
|
Other related costs
|
|
|
|
|
|
|
235
|
|
|
|
|
|
|
|
(146
|
)
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
34,062
|
|
|
$
|
(12,655
|
)
|
|
$
|
(8,900
|
)
|
|
$
|
12,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
The tables below set forth the significant components and activity in the 2017 Restructuring Plan
by reportable segment during the three months ended November 30, 2016 (in thousands):
2017 Restructuring Plan Three Months
Ended November 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Balance at
August 31, 2016
|
|
|
Restructuring
Related
Charges
|
|
|
Asset Write-off
Charge and Other
Non-Cash Activity
|
|
|
Cash
Payments
|
|
|
Liability Balance at
November 30, 2016
|
|
EMS
|
|
$
|
|
|
|
$
|
5,521
|
|
|
$
|
(5,070
|
)
|
|
$
|
(326
|
)
|
|
$
|
125
|
|
DMS
|
|
|
|
|
|
|
11,504
|
|
|
|
(7,577
|
)
|
|
|
(1,144
|
)
|
|
|
2,783
|
|
Other
|
|
|
|
|
|
|
17,037
|
|
|
|
(8
|
)
|
|
|
(7,430
|
)
|
|
|
9,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
34,062
|
|
|
$
|
(12,655
|
)
|
|
$
|
(8,900
|
)
|
|
$
|
12,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 Restructuring Plan
In conjunction with the restructuring plan that was approved by the Companys Board of Directors in fiscal year 2013 (the 2013
Restructuring Plan), the Company charged $1.8 million and $1.4 million of restructuring and related charges to the Condensed Consolidated Statement of Operations during the three months ended November 30, 2016 and 2015,
respectively. The 2013 Restructuring Plan is intended to better align the Companys manufacturing capacity in certain geographies and to reduce the Companys worldwide workforce in order to reduce operating expenses. The restructuring and
related charges during the three months ended November 30, 2016 and 2015 include cash costs of $1.5 million and $1.1 million related to employee severance and benefit costs, respectively, and $0.3 million and $0.3 million of
other related costs, respectively.
The Company currently expects to recognize approximately $179.0 million in pre-tax restructuring
and other related costs over the course of the Companys fiscal years 2013 through 2017 under the 2013 Restructuring Plan. Since the inception of the 2013 Restructuring Plan, a total of $163.7 million of restructuring and related costs
have been recognized. Of the $163.7 million recognized to date, $126.0 million was allocated to the EMS segment, $28.8 million was allocated to the DMS segment and $8.9 million was not allocated to a segment. A majority of the
total restructuring costs are related to employee severance and benefit arrangements. The charges related to the 2013 Restructuring Plan, excluding asset write-off costs, are currently expected to result in cash expenditures of approximately
$157.4 million that have been or will be payable over the course of the Companys fiscal years 2013 through 2017. The remaining $15.3 million of the restructuring and related costs expected to be recognized reflects the Companys
intention only and restructuring decisions, and the timing of such decisions, at certain plants are still subject to the finalization of timetables for the transition of functions and consultation with the Companys employees and their
representatives.
The tables below set forth the significant components and activity in the 2013 Restructuring Plan during the three
months ended November 30, 2016 and 2015 (in thousands):
2013 Restructuring Plan Three Months Ended November 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Balance at
August 31, 2016
|
|
|
Restructuring
Related
Charges
|
|
|
Asset Write-off
Charge and Other
Non-Cash Activity
|
|
|
Cash
Payments
|
|
|
Liability Balance at
November 30, 2016
|
|
Employee severance and benefit costs
|
|
$
|
17,266
|
|
|
$
|
1,490
|
|
|
$
|
(669
|
)
|
|
$
|
(2,883
|
)
|
|
$
|
15,204
|
|
Lease costs
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
Other related costs
|
|
|
740
|
|
|
|
350
|
|
|
|
(32
|
)
|
|
|
(338
|
)
|
|
|
720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,027
|
|
|
$
|
1,840
|
|
|
$
|
(701
|
)
|
|
$
|
(3,221
|
)
|
|
$
|
15,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 Restructuring Plan Three Months Ended November 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Balance at
August 31, 2015
|
|
|
Restructuring
Related
Charges
|
|
|
Asset Write-off
Charge and Other
Non-Cash Activity
|
|
|
Cash
Payments
|
|
|
Liability Balance at
November 30, 2015
|
|
Employee severance and benefit costs
|
|
$
|
30,047
|
|
|
$
|
1,078
|
|
|
$
|
(1,396
|
)
|
|
$
|
(8,954
|
)
|
|
$
|
20,775
|
|
Lease costs
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
|
|
Other related costs
|
|
|
846
|
|
|
|
275
|
|
|
|
(49
|
)
|
|
|
(216
|
)
|
|
|
856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
30,957
|
|
|
$
|
1,353
|
|
|
$
|
(1,445
|
)
|
|
$
|
(9,170
|
)
|
|
$
|
21,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
The tables below set forth the significant components and activity in the 2013 Restructuring Plan
by reportable segment during the three months ended November 30, 2016 and 2015 (in thousands):
2013 Restructuring Plan
Three Months Ended November 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Balance at
August 31, 2016
|
|
|
Restructuring
Related
Charges
|
|
|
Asset Write-off
Charge and Other
Non-Cash Activity
|
|
|
Cash
Payments
|
|
|
Liability Balance at
November 30, 2016
|
|
EMS
|
|
$
|
17,338
|
|
|
$
|
1,840
|
|
|
$
|
(689
|
)
|
|
$
|
(3,101
|
)
|
|
$
|
15,388
|
|
DMS
|
|
|
689
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
(120
|
)
|
|
|
557
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,027
|
|
|
$
|
1,840
|
|
|
$
|
(701
|
)
|
|
$
|
(3,221
|
)
|
|
$
|
15,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 Restructuring Plan Three Months Ended November 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Balance at
August 31, 2015
|
|
|
Restructuring
Related
Charges
|
|
|
Asset Write-off
Charge and Other
Non-Cash Activity
|
|
|
Cash
Payments
|
|
|
Liability Balance at
November 30, 2015
|
|
EMS
|
|
$
|
28,834
|
|
|
$
|
1,236
|
|
|
$
|
(1,426
|
)
|
|
$
|
(8,565
|
)
|
|
$
|
20,079
|
|
DMS
|
|
|
1,960
|
|
|
|
236
|
|
|
|
(19
|
)
|
|
|
(561
|
)
|
|
|
1,616
|
|
Other
|
|
|
163
|
|
|
|
(119
|
)
|
|
|
|
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
30,957
|
|
|
$
|
1,353
|
|
|
$
|
(1,445
|
)
|
|
$
|
(9,170
|
)
|
|
$
|
21,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13. Business Acquisitions
Fiscal year 2016
On November 25,
2015, the Company entered into a master purchase agreement for certain assets and liabilities of various legal entities, collectively referred to as Hanson. On January 13, 2016, the Company completed the acquisition of the assets
for approximately $139.2 million in cash, plus the assumption of certain liabilities of $230.0 million (such liabilities were subsequently paid in February 2016 and classified in our Consolidated Statement of Cash Flows as a component of
cash flows from operating activities), with the exception of the real property, which closed on July 7, 2016, for approximately $33.3 million. Hanson is engaged in the business of manufacturing certain parts for customers in the DMS
segment.
The acquisition of certain Hanson assets has been accounted for as a business combination using the acquisition method of
accounting. Assets acquired of $406.4 million, including $276.8 million in property, plant and equipment, $129.6 million in goodwill and intangible assets assigned to customer relationships, liabilities assumed of $230.0 million
and $3.9 million of deferred tax liabilities were recorded at their estimated fair values as of the acquisition date. The excess of the purchase price over the fair value of the acquired assets was recorded to goodwill and was fully allocated
to the DMS segment. None of the goodwill is currently expected to be deductible for income tax purposes. A customer relationship was valued using the multi-period excess earnings method under the income approach. The results of operations were
included in the Companys condensed consolidated financial results beginning on January 13, 2016. Pro forma information has not been provided as the acquisition of Hanson is not deemed to be significant.
During the first quarter of fiscal year 2016, the Company completed two additional acquisitions (Inala Technologies Limited and various legal
entities collectively referred to as Shemer Companies) which were not deemed to be significant individually or in the aggregate. The acquired businesses expanded the Companys capabilities in capital equipment, networking and
telecommunications, and printing. The aggregate purchase price of these acquisitions totaled approximately $72.3 million in cash.
These two acquisitions have been accounted for as business combinations using the acquisition method of accounting. Assets acquired of
$92.2 million, including $19.3 million in goodwill and $31.4 million in intangible assets, and liabilities assumed of $19.9 million were recorded at their estimated fair values as of the acquisition dates. The excess of the
purchase prices over the fair values of the acquired assets and assumed liabilities of $19.3 million was recorded to goodwill and was fully allocated to the EMS segment. None of the goodwill is currently expected to be deductible for income tax
purposes. The results of operations of the acquired businesses were included in the Companys condensed consolidated financial results beginning on the date of the acquisitions. Pro forma information has not been provided as the acquisitions
are not deemed to be significant individually or in the aggregate.
18
14. New Accounting Guidance
Recently Issued Accounting Guidance
During the third quarter of fiscal year 2014, the FASB issued an accounting standard which will supersede existing revenue recognition guidance
under current U.S. GAAP. The new standard is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects
to receive in exchange for those goods or services. During the fourth quarter of fiscal year 2015, the FASB issued an accounting standard deferring the effective date of this accounting guidance by one year. Therefore, the accounting standard is
effective for the Company in the first quarter of fiscal year 2019. Companies may use either a full retrospective or a modified retrospective approach to adopt this standard and management is currently evaluating which transition approach to use.
The Company is currently in the process of assessing what impact this new standard may have on its Condensed Consolidated Financial Statements.
During the fourth quarter of fiscal year 2015, the FASB issued a new accounting standard intended to simplify the subsequent measurement of
inventory, excluding inventory accounted for under the last-in, first-out or the retail inventory methods. The new standard replaces the current lower of cost or market test with a lower of cost and net realizable value test. Under the current
guidance, market could be replacement cost, net realizable value or net realizable value less an approximately normal profit margin. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable
costs of completion, disposal and transportation. This guidance is required to be applied on a prospective basis and is effective for the Company beginning in the first quarter of fiscal year 2018 with early adoption permitted. The Company is
currently in the process of assessing what impact this new standard may have on its Condensed Consolidated Financial Statements.
During
the second quarter of fiscal year 2016, the FASB issued a new accounting standard to address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. This guidance is effective for the Company beginning in
the first quarter of fiscal year 2019. Early application is permitted only for certain provisions, and the update must be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption and
applied prospectively to equity investments that exist as of the date of adoption of the standard. The Company is currently assessing the impact this new standard may have on its Condensed Consolidated Financial Statements.
During the second quarter of fiscal year 2016, the FASB issued a new accounting standard revising lease accounting. The new guidance requires
organizations to recognize lease assets and lease liabilities on the consolidated balance sheet and disclose key information regarding leasing arrangements. This guidance is effective for the Company beginning in the first quarter of fiscal year
2020. Early application of the new standard is permitted and must be adopted using a modified retrospective approach. The adoption of this standard will impact the Companys condensed consolidated balance sheet. The Company is currently
assessing any other impacts this new standard will have on its Condensed Consolidated Financial Statements.
During the fourth quarter of
fiscal year 2016, the FASB issued an accounting standard, which replaces the existing incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and
supportable information to inform credit loss estimates. This guidance is effective for the Company beginning in the first quarter of fiscal year 2021 and early adoption is permitted beginning in the first quarter of fiscal year 2020. This guidance
must be applied using a modified retrospective or prospective transition method, depending on the area covered by this accounting standard. The Company is currently assessing the impact this new standard may have on its Condensed Consolidated
Financial Statements.
During the fourth quarter of fiscal year 2016, the FASB issued a new accounting standard to address the
presentation of certain transactions within the statement of cash flows with the objective of reducing the existing diversity in practice. This guidance is effective for the Company beginning in the first quarter of fiscal year 2019 and early
adoption is permitted. The Company is currently assessing the impact this new standard may have on its Condensed Consolidated Financial Statements.
During the first quarter of fiscal year 2017, the FASB issued a new accounting standard to improve the accounting for the income tax
consequences of intra-entity transfers of assets other than inventory. The new standard eliminates the exception for an intra-entity transfer of an asset other than inventory and requires an entity to recognize the income tax consequences when the
transfer occurs. This guidance is effective for the Company beginning in the first quarter of fiscal year 2019 and early adoption is permitted. This guidance should be applied on a modified retrospective basis through a cumulative-effect adjustment
directly to retained earnings as of the beginning of the period of adoption. The Company is currently assessing the impact this new standard may have on its Condensed Consolidated Financial Statements.
15. Income Taxes
The effective tax rate
differed from the U.S. federal statutory rate of 35% during the three months ended November 30, 2016 and 2015 primarily due to: (a) income in tax jurisdictions with lower statutory tax rates than the U.S.; (b) tax incentives granted
to sites in Brazil, China, Malaysia, Singapore and Vietnam; and (c) losses in tax jurisdictions with existing valuation allowances. The material tax incentives expire at various dates through fiscal year 2020. Such tax incentives are subject to
conditions with which the Company expects to continue to comply.
19
16. Subsequent Events
The Company has evaluated subsequent events that occurred through the date of the filing of the Companys first quarter of fiscal year
2017
Form 10-Q.
No significant events occurred subsequent to the balance sheet date and prior to the filing date of this report that would have a material impact on the Condensed Consolidated Financial
Statements.
20
JABIL CIRCUIT, INC. AND SUBSIDIARIES
References in this report to the Company, Jabil, we, our, or us mean Jabil
Circuit, Inc. together with its subsidiaries, except where the context otherwise requires. This Quarterly Report on
Form 10-Q
contains certain statements that are, or may be deemed to be, forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act) and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act) which are made in
reliance upon the protections provided by such acts for forward-looking statements. These forward-looking statements (such as when we describe what will, may, or should occur, what we plan,
intend, estimate, believe, expect or anticipate will occur, and other similar statements) include, but are not limited to, statements regarding future sales and operating results, potential
risks pertaining to these future sales and operating results, future prospects, anticipated benefits of proposed (or future) acquisitions, dispositions and new facilities, growth, the capabilities and capacities of business operations, any financial
or other guidance and all statements that are not based on historical fact, but rather reflect our current expectations concerning future results and events. We make certain assumptions when making forward-looking statements, any of which could
prove inaccurate, including, but not limited to, statements about our future operating results and business plans. Therefore, we can give no assurance that the results implied by these forward-looking statements will be realized. Furthermore, the
inclusion of forward-looking information should not be regarded as a representation by the Company or any other person that future events, plans or expectations contemplated by the Company will be achieved. The ultimate correctness of these
forward-looking statements is dependent upon a number of known and unknown risks and events, and is subject to various uncertainties and other factors that may cause our actual results, performance or achievements to be different from any future
results, performance or achievements expressed or implied by these statements. The following important factors, among others, could affect future results and events, causing those results and events to differ materially from those expressed or
implied in our forward-looking statements:
|
|
|
business conditions and growth or declines in our customers industries, the electronic manufacturing services industry and the general economy;
|
|
|
|
variability of our operating results;
|
|
|
|
our dependence on a limited number of major customers;
|
|
|
|
any potential future termination, or substantial winding down, of significant customer relationships;
|
|
|
|
availability of components;
|
|
|
|
our dependence on certain industries;
|
|
|
|
the susceptibility of our production levels to the variability of customer requirements, including seasonal influences on the demand for certain end products;
|
|
|
|
our substantial international operations, and the resulting risks related to our operating internationally, including weak global economic conditions, instability in global credit markets, governmental restrictions
on the transfer of funds to us from our operations outside the U.S. and unfavorable fluctuations in currency exchange rates;
|
|
|
|
the potential consolidation of our customer base, and the potential movement by some of our customers of a portion of their manufacturing from us in order to more fully utilize their excess internal manufacturing
capacity;
|
|
|
|
our ability to successfully negotiate definitive agreements and consummate acquisitions, and to integrate operations following the consummation of acquisitions;
|
|
|
|
our ability to successfully negotiate definitive agreements and consummate dispositions, and to disentangle operations following the consummation of dispositions;
|
|
|
|
our ability to take advantage of our past, current and possible future restructuring efforts to improve utilization and realize savings and whether any such activity will adversely affect our cost structure, our
ability to service customers and our labor relations;
|
|
|
|
our ability to maintain our engineering, technological and manufacturing process expertise;
|
|
|
|
other economic, business and competitive factors affecting our customers, our industry and our business generally; and
|
|
|
|
other factors that we may not have currently identified or quantified.
|
21
For a further list and description of various risks, relevant factors and uncertainties that
could cause future results or events to differ materially from those expressed or implied in our forward-looking statements, see the Managements Discussion and Analysis of Financial Condition and Results of Operations section
contained in this document, as well as the Risk Factors and Managements Discussion and Analysis of Financial Condition and Results of Operations sections contained in our Annual Report on
Form 10-K
for the fiscal year ended August 31, 2016, any subsequent reports on
Form 10-Q
and
Form 8-K
and
other filings with the Securities and Exchange Commission (SEC). Given these risks and uncertainties, the reader should not place undue reliance on these forward-looking statements.
All forward-looking statements included in this Quarterly Report on
Form 10-Q
are made only as
of the date of this Quarterly Report on
Form 10-Q,
and we do not undertake any obligation to publicly update or correct any forward-looking statements to reflect events or circumstances that subsequently
occur, or of which we hereafter become aware. You should read this document and the documents that we incorporate by reference into this Quarterly Report on
Form 10-Q
completely and with the understanding
that our actual future results may be materially different from what we expect. We may not update these forward-looking statements, even if our situation changes in the future. All forward-looking statements attributable to us are expressly
qualified by these cautionary statements.