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 Inc. (the Company) for the fiscal
year ended August 31, 2016. Results for the nine months ended May 31, 2017 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 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.
No potential common shares relating to outstanding stock awards have been
included in the computation of diluted earnings per share as a result of the Companys net loss for the three months ended May 31, 2017. The Company accordingly excluded from the computation of diluted earnings per share 4,230,665
restricted stock awards and 513,693 stock appreciation rights for the three months ended May 31, 2017. For the nine months ended May 31, 2017, 334,152 stock appreciation rights were excluded from the computation of diluted earnings per
share as their effect would have been anti-dilutive. For the three months and nine months ended May 31, 2016, 2,124,084 and 2,454,562 stock appreciation rights, respectively, were excluded from the computation of diluted earnings per share as
their effect would have been anti-dilutive.
b. Dividends
The following table sets forth cash dividends declared by the Company to common stockholders during the nine months ended May 31, 2017 and
2016 (in thousands, except for per share data):
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|
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|
|
|
|
|
|
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
|
|
|
|
|
January 26, 2017
|
|
|
$
|
0.08
|
|
|
$
|
15,051
|
|
|
|
February 15, 2017
|
|
|
|
March 1, 2017
|
|
|
|
|
April 20, 2017
|
|
|
$
|
0.08
|
|
|
$
|
14,840
|
|
|
|
May 15, 2017
|
|
|
|
June 1, 2017
|
|
Fiscal Year 2016:
|
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|
October 14, 2015
|
|
|
$
|
0.08
|
|
|
$
|
15,906
|
|
|
|
November 16, 2015
|
|
|
|
December 1, 2015
|
|
|
|
|
January 21, 2016
|
|
|
$
|
0.08
|
|
|
$
|
15,947
|
|
|
|
February 16, 2016
|
|
|
|
March 1, 2016
|
|
|
|
|
April 21, 2016
|
|
|
$
|
0.08
|
|
|
$
|
15,940
|
|
|
|
May 16, 2016
|
|
|
|
June 1, 2016
|
|
6
3. Inventories
Inventories consist of the following (in thousands):
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|
May 31, 2017
|
|
|
August 31, 2016
|
|
Raw materials
|
|
$
|
1,468,471
|
|
|
$
|
1,302,481
|
|
Work in process
|
|
|
722,833
|
|
|
|
675,867
|
|
Finished goods
|
|
|
567,556
|
|
|
|
510,485
|
|
Reserve for inventory obsolescence
|
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|
(52,330
|
)
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|
(32,221
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)
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|
|
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|
Total inventories, net
|
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$
|
2,706,530
|
|
|
$
|
2,456,612
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|
|
|
|
|
|
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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 $18.4 million and $33.4 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 for the three months and nine months ended May 31, 2017, respectively. During the first quarter of fiscal year 2017, 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
$0.3 million and $0.7 million, which is included in income tax expense within the Condensed Consolidated Statements of Operations for the three months and nine months ended May 31, 2017, respectively. The Company recorded
$13.4 million and $58.5 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 for the three months and
nine months ended May 31, 2016, respectively. The Company recorded tax benefits related to the stock-based compensation expense of $0.1 million and $0.8 million, which is included in income tax expense within the Condensed
Consolidated Statements of Operations for the three months and nine months ended May 31, 2016, respectively.
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. During the nine months ended May 31, 2017 and 2016, the Company awarded approximately 1.8 million and 2.6 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 May 31, 2017, there was $58.5 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 nine months ended May 31, 2017, the Companys five largest customers accounted for approximately 46% of its net revenue and 79 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.
7
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.
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 and transportation, 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, 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. Segment income 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.
8
The following tables set forth operating segment information (in thousands):
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Three months ended
|
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Nine months ended
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May 31, 2017
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May 31, 2016
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May 31, 2017
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May 31, 2016
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Net revenue
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EMS
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$
|
2,819,711
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$
|
2,846,919
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$
|
8,205,812
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$
|
8,228,595
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DMS
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|
1,669,846
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|
1,463,833
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|
5,834,280
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|
|
5,693,728
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$
|
4,489,557
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|
|
$
|
4,310,752
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|
|
$
|
14,040,092
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|
|
$
|
13,922,323
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|
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|
Segment income and reconciliation of income before income tax
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EMS
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$
|
109,783
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$
|
99,758
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|
$
|
297,418
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|
|
$
|
267,717
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|
DMS
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|
4,022
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|
|
|
(12,547
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)
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|
178,121
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|
|
|
254,315
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|
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|
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|
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|
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|
Total segment income
|
|
$
|
113,805
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|
|
$
|
87,211
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|
|
$
|
475,539
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|
|
$
|
522,032
|
|
Reconciling items:
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Amortization of intangibles
|
|
|
9,174
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|
|
|
9,711
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|
|
|
26,262
|
|
|
|
26,150
|
|
Stock-based compensation expense and related charges
|
|
|
18,350
|
|
|
|
13,445
|
|
|
|
33,377
|
|
|
|
58,505
|
|
Restructuring and related charges
|
|
|
32,700
|
|
|
|
4,460
|
|
|
|
113,529
|
|
|
|
8,349
|
|
Distressed customer charges
|
|
|
10,198
|
|
|
|
|
|
|
|
10,198
|
|
|
|
|
|
Other expense
|
|
|
15,821
|
|
|
|
2,412
|
|
|
|
23,872
|
|
|
|
6,346
|
|
Interest income
|
|
|
(3,663
|
)
|
|
|
(2,302
|
)
|
|
|
(8,407
|
)
|
|
|
(6,653
|
)
|
Interest expense
|
|
|
35,443
|
|
|
|
35,212
|
|
|
|
102,087
|
|
|
|
102,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income tax
|
|
$
|
(4,218
|
)
|
|
$
|
24,273
|
|
|
$
|
174,621
|
|
|
$
|
326,826
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
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|
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|
|
|
|
|
|
|
May 31, 2017
|
|
|
August 31, 2016
|
|
Total assets
|
|
|
|
|
|
|
|
|
EMS
|
|
$
|
2,802,613
|
|
|
$
|
2,615,237
|
|
DMS
|
|
|
5,030,763
|
|
|
|
5,012,798
|
|
Other
non-allocated
assets
|
|
|
2,496,273
|
|
|
|
2,694,642
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,329,649
|
|
|
$
|
10,322,677
|
|
|
|
|
|
|
|
|
|
|
As of May 31, 2017, 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 90.6% and 91.3% of net revenue during the three months and nine months ended May 31, 2017,
respectively, compared to 90.4% and 91.0% of net revenue during the three months and nine months ended May 31, 2016, respectively.
6. Notes
Payable, Long-Term Debt and Capital Lease Obligations
Notes payable, long-term debt and capital lease obligations outstanding at
May 31, 2017 and August 31, 2016 are summarized below (in thousands):
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|
|
|
|
|
|
May 31,
2017
|
|
|
August 31,
2016
|
|
8.250% Senior Notes due 2018
|
|
$
|
399,268
|
|
|
$
|
398,552
|
|
5.625% Senior Notes due 2020
|
|
|
396,881
|
|
|
|
396,212
|
|
4.700% Senior Notes due 2022
|
|
|
496,532
|
|
|
|
496,041
|
|
4.900% Senior Notes due 2023
|
|
|
298,511
|
|
|
|
298,329
|
|
Borrowings under credit facilities
|
|
|
100,000
|
|
|
|
|
|
Borrowings under loans
|
|
|
464,674
|
|
|
|
502,210
|
|
Capital lease obligations
|
|
|
27,709
|
|
|
|
28,478
|
|
|
|
|
|
|
|
|
|
|
Total notes payable, long-term debt and capital lease obligations
|
|
|
2,183,575
|
|
|
|
2,119,822
|
|
Less current installments of notes payable, long-term debt and capital lease obligations
|
|
|
538,985
|
|
|
|
45,810
|
|
|
|
|
|
|
|
|
|
|
Notes payable, long-term debt and capital lease obligations, less current installments
|
|
$
|
1,644,590
|
|
|
$
|
2,074,012
|
|
|
|
|
|
|
|
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|
|
9
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 and unamortized debt issuance
costs. The estimated fair values of the Companys publicly traded debt, including the 8.250%, 5.625% and 4.700% senior notes, were approximately $419.1 million, $433.9 million and $531.9 million respectively, at May 31,
2017. 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 $313.1 million, at May 31, 2017. 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 four 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 and nine months ended May 31, 2017 and 2016 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, at a discount, 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 from available cash as payments on the receivables are collected. Net cash proceeds of up to a maximum of $200.0 million and $400.0 million for the North American and foreign
asset-backed securitization programs, respectively, are available at any one time. The foreign asset-backed securitization program was amended to increase the facility limit from $275.0 million to $400.0 million, effective
February 13, 2017.
In connection with the asset-backed securitization programs, the Company sold $2.1 billion and
$6.6 billion of eligible trade accounts receivable during the three months and nine months ended May 31, 2017, respectively. In exchange, the Company received cash proceeds of $1.6 billion and $6.1 billion during the three months
and nine months ended May 31, 2017, 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. The Company
sold $2.0 billion and $5.8 billion of eligible trade accounts receivable during the three months and nine months ended May 31, 2016, respectively. In exchange, the Company received cash proceeds of $1.5 billion and
$5.3 billion during the three months and nine months ended May 31, 2016, respectively, (of which approximately $0.0 million and $3.0 million, respectively, represented new transfers and the remainder represented proceeds from
collections reinvested in revolving-period transfers) and a deferred purchase price receivable. At May 31, 2017 and 2016, the deferred purchase price receivables recorded in connection with the asset-backed securitization programs totaled
approximately $501.3 million and $517.3 million, respectively.
10
The Company recognized pretax losses on the sales of receivables under the asset-backed
securitization programs of approximately $2.5 million and $6.6 million during the three months and nine months ended May 31, 2017, respectively, and approximately $1.3 million and $3.5 million during the three months and
nine months ended May 31, 2016, 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.
b. Trade Accounts Receivable Sale Programs
In connection with four 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, 800.0 million Chinese yuan renminbi (CNY) 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 will 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 will expire on August 31, 2017 unless renewed. The 800.0 million CNY trade accounts
receivable sale program is an uncommitted facility that was entered into on February 15, 2017 and is scheduled to expire on February 15, 2018 unless renewed. 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 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 and nine months ended May 31, 2017, the Company sold $0.5 billion and $2.2 billion of trade accounts
receivable under these programs, respectively, compared to $0.7 billion and $3.0 billion during the three months and nine months ended May 31, 2016, respectively. In exchange, the Company received cash proceeds of $0.5 billion
and $2.2 billion during the three months and nine months ended May 31, 2017, respectively, compared to $0.7 billion and $2.9 billion during the three months and nine months ended May 31, 2016, respectively. The resulting
losses on the sales of trade accounts receivable were approximately $1.5 million and $4.1 million during the three months and nine months ended May 31, 2017, respectively, compared to approximately $1.1 million and
$3.1 million during the three months and nine months ended May 31, 2016, 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 May 31, 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency
Translation
Adjustment
|
|
|
Derivative
Instruments
|
|
|
Actuarial
Loss
|
|
|
Prior
Service
Cost
|
|
|
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
|
|
|
9,512
|
|
|
|
8,647
|
|
|
|
|
|
|
|
|
|
|
|
10,192
|
|
|
|
28,351
|
|
Amounts reclassified from AOCI
|
|
|
5,719
|
|
|
|
11,595
|
|
|
|
|
|
|
|
|
|
|
|
10,139
|
|
|
|
27,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
15,231
|
|
|
|
20,242
|
|
|
|
|
|
|
|
|
|
|
|
20,331
|
|
|
|
55,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2017
|
|
$
|
31,569
|
|
|
$
|
28,026
|
|
|
$
|
(43,587
|
)
|
|
$
|
941
|
|
|
$
|
(1,022
|
)
|
|
$
|
15,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The portion of AOCI reclassified into earnings during the nine months ended May 31, 2017 for foreign
currency translation adjustments was not material. The portion of AOCI reclassified into earnings during the nine months ended May 31, 2017 for derivative instruments was primarily classified as a component of cost of revenue. The portion of
AOCI reclassified into earnings during the nine months ended May 31, 2017 for available for sale securities was due to an other than temporary impairment on securities and was classified as a component of other expense. The tax benefit
(expense) on the derivative instruments component of AOCI, including reclassification adjustments, is not material for the three months and nine months ended May 31, 2017. There was no tax benefit (expense) on the foreign currency translation
adjustment and the available for sale securities components of AOCI, including reclassification adjustments, for the three months and nine months ended May 31, 2017.
11
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 and nine months ended May 31, 2017 and 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
May 31,
2017
|
|
|
May 31,
2016
|
|
|
May 31,
2017
|
|
|
May 31,
2016
|
|
Service cost
|
|
$
|
259
|
|
|
$
|
222
|
|
|
$
|
771
|
|
|
$
|
662
|
|
Interest cost
|
|
|
744
|
|
|
|
1,208
|
|
|
|
2,222
|
|
|
|
3,693
|
|
Expected long-term return on plan assets
|
|
|
(1,127
|
)
|
|
|
(1,383
|
)
|
|
|
(3,365
|
)
|
|
|
(4,243
|
)
|
Recognized actuarial loss
|
|
|
479
|
|
|
|
264
|
|
|
|
1,422
|
|
|
|
790
|
|
Amortization of prior service credit
|
|
|
(34
|
)
|
|
|
(35
|
)
|
|
|
(101
|
)
|
|
|
(104
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
321
|
|
|
$
|
276
|
|
|
$
|
949
|
|
|
$
|
798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the nine months ended May 31, 2017, the Company made contributions of approximately
$6.4 million to its defined benefit pension plans. The Company expects to make total cash contributions of between $6.8 million and $7.6 million to its funded pension plans during the fiscal year ended August 31, 2017.
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. The IRS completed its field examination of the Companys tax returns for fiscal years 2012
through 2014 and issued a Revenue Agents Report on April 19, 2017. The proposed adjustments from both examination periods relate primarily 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 and fiscal years 2012 through 2014 would be approximately $28.6 million and $5.3 million, respectively, after utilization of tax loss carry
forwards available through fiscal year 2014. 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 accrued 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 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
12
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.
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 $178.7 million and $323.3 million at May 31, 2017 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 June 1, 2017 and February 28, 2018.
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 May 31, 2017 and August 31, 2016, was $1.7 billion and $1.7 billion, respectively.
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 May 31, 2017, 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
|
|
$
|
|
|
|
|
19,466
|
|
|
|
|
|
|
$
|
19,466
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign exchange contracts
|
|
|
|
|
|
|
(12,972
|
)
|
|
|
|
|
|
|
(12,972
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
|
6,494
|
|
|
|
|
|
|
$
|
6,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
13
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 May 31, 2017 and August 31, 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Values of Derivative Instruments
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
Balance Sheet
Location
|
|
|
Fair Value at
May 31, 2017
|
|
|
Fair Value at
August 31, 2016
|
|
|
Balance Sheet
Location
|
|
|
Fair Value at
May 31, 2017
|
|
|
Fair Value at
August 31, 2016
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign exchange contracts
|
|
|
Prepaid expenses
and other current
assets
|
|
|
$
|
4,200
|
|
|
$
|
420
|
|
|
|
Accrued
expenses
|
|
|
$
|
1,400
|
|
|
$
|
1,986
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign exchange contracts
|
|
|
Prepaid expenses
and other current
assets
|
|
|
$
|
15,266
|
|
|
$
|
3,850
|
|
|
|
Accrued
expenses
|
|
|
$
|
11,572
|
|
|
$
|
10,801
|
|
As of May 31, 2017 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 and nine months ended May 31, 2017 and 2016. 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 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 and nine months ended May 31, 2017 and 2016 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
14
instruments and accounted for as cash flow hedges. The interest rate swaps were effective on September 30, 2016 and are 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
a. 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 $31.4 million and $108.9 million of restructuring and related charges to the Condensed Consolidated Statement of Operations during the three months and
nine months ended May 31, 2017, respectively. 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 and nine months ended
May 31, 2017 include cash costs of $17.3 million and $43.3 million related to employee severance and benefit costs, respectively, $1.2 million and $5.6 million related to lease costs, respectively, $1.1 million and
$1.4 million of other related costs, respectively, as well as
non-cash
costs related to asset
write-off
costs of $11.8 million and $58.6 million,
respectively.
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 under the 2017 Restructuring Plan. The restructuring and related charges are expected to include
$55.0 million to $75.0 million of employee severance and benefit costs; $110.0 million to $130.0 million of asset
write-off
costs; and $10.0 million of contract termination costs and
other related costs. Since the inception of the 2017 Restructuring Plan, a total of $108.9 million of restructuring and related costs have been recognized. Of the $108.9 million recognized to date, $19.1 million was allocated to the
EMS segment, $65.9 million was allocated to the DMS segment and $23.9 million was not allocated to a segment. The remaining $86.1 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 2017 Restructuring Plan during the three
months and nine months ended May 31, 2017 (in thousands):
2017 Restructuring Plan Three Months Ended May 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Balance at
February 28, 2017
|
|
|
Restructuring
Related
Charges
|
|
|
Asset Write-off
Charge and Other
Non-Cash
Activity
|
|
|
Cash
Payments
|
|
|
Liability Balance
at May 31, 2017
|
|
Employee severance and benefit costs
|
|
$
|
10,337
|
|
|
$
|
17,328
|
|
|
$
|
20
|
|
|
$
|
(5,085
|
)
|
|
$
|
22,600
|
|
Lease costs
|
|
|
3,572
|
|
|
|
1,151
|
|
|
|
26
|
|
|
|
(1,049
|
)
|
|
|
3,700
|
|
Asset
write-off
costs
|
|
|
|
|
|
|
11,838
|
|
|
|
(11,838
|
)
|
|
|
|
|
|
|
|
|
Other related costs
|
|
|
50
|
|
|
|
1,082
|
|
|
|
|
|
|
|
(518
|
)
|
|
|
614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,959
|
|
|
$
|
31,399
|
|
|
$
|
(11,792
|
)
|
|
$
|
(6,652
|
)
|
|
$
|
26,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 Restructuring Plan Nine Months Ended May 31, 2017
|
|
|
|
Liability Balance at
August 31,2016
|
|
|
Restructuring
Related
Charges
|
|
|
Asset Write-off
Charge and Other
Non-Cash
Activity
|
|
|
Cash
Payments
|
|
|
Liability Balance
at May 31, 2017
|
|
Employee severance and benefit costs
|
|
$
|
|
|
|
$
|
43,314
|
|
|
$
|
20
|
|
|
$
|
(20,734
|
)
|
|
$
|
22,600
|
|
Lease costs
|
|
|
|
|
|
|
5,600
|
|
|
|
26
|
|
|
|
(1,926
|
)
|
|
|
3,700
|
|
Asset
write-off
costs
|
|
|
|
|
|
|
58,543
|
|
|
|
(58,543
|
)
|
|
|
|
|
|
|
|
|
Other related costs
|
|
|
|
|
|
|
1,421
|
|
|
|
|
|
|
|
(807
|
)
|
|
|
614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
108,878
|
|
|
$
|
(58,497
|
)
|
|
$
|
(23,467
|
)
|
|
$
|
26,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
The tables below set forth the significant components and activity in the 2017 Restructuring Plan
by reportable segment during the three months and nine months ended May 31, 2017 (in thousands):
2017 Restructuring Plan
Three Months Ended May 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Balance at
February 28, 2017
|
|
|
Restructuring
Related
Charges
|
|
|
Asset
Write-off
Charge and Other
Non-Cash Activity
|
|
|
Cash
Payments
|
|
|
Liability Balance at
May 31, 2017
|
|
EMS
|
|
$
|
471
|
|
|
$
|
11,061
|
|
|
$
|
(1,819
|
)
|
|
$
|
(1,624
|
)
|
|
$
|
8,089
|
|
DMS
|
|
|
3,639
|
|
|
|
17,836
|
|
|
|
(10,188
|
)
|
|
|
(2,334
|
)
|
|
|
8,953
|
|
Other
|
|
|
9,849
|
|
|
|
2,502
|
|
|
|
215
|
|
|
|
(2,694
|
)
|
|
|
9,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,959
|
|
|
$
|
31,399
|
|
|
$
|
(11,792
|
)
|
|
$
|
(6,652
|
)
|
|
$
|
26,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 Restructuring Plan Nine Months Ended May 31, 2017
|
|
|
|
Liability Balance at
August 31, 2016
|
|
|
Restructuring
Related
Charges
|
|
|
Asset
Write-off
Charge and Other
Non-Cash Activity
|
|
|
Cash
Payments
|
|
|
Liability Balance at
May 31, 2017
|
|
EMS
|
|
$
|
|
|
|
$
|
19,118
|
|
|
$
|
(8,542
|
)
|
|
$
|
(2,487
|
)
|
|
$
|
8,089
|
|
DMS
|
|
|
|
|
|
|
65,842
|
|
|
|
(49,937
|
)
|
|
|
(6,952
|
)
|
|
|
8,953
|
|
Other
|
|
|
|
|
|
|
23,918
|
|
|
|
(18
|
)
|
|
|
(14,028
|
)
|
|
|
9,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
108,878
|
|
|
$
|
(58,497
|
)
|
|
$
|
(23,467
|
)
|
|
$
|
26,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
b. 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 $1.3 million and $4.7 million of restructuring and related charges to the Condensed Consolidated Statement of Operations during the three months and nine months ended May 31, 2017,
respectively, compared to $4.5 million and $8.3 million during the three months and nine months ended May 31, 2016, 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 and nine months ended May 31, 2017 include cash costs of
$0.8 million and $3.4 million related to employee severance and benefit costs, respectively, and $0.5 million and $1.2 million of other related costs, respectively, as well as
non-cash
costs related to asset
write-off
costs of $0.0 million and $0.1 million, respectively. The restructuring and related charges during the three months and nine months ended May 31, 2016 include
cash costs of $4.2 million and $7.7 million related to employee severance and benefit costs, respectively, and $0.3 million and $0.6 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 2018 under the 2013 Restructuring Plan. Since the inception of the 2013 Restructuring Plan, a total of $166.5 million of restructuring and related costs
have been recognized. Of the $166.5 million recognized to date, $128.8 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 2018. The remaining $12.5 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 and nine months ended May 31, 2017 and 2016 (in thousands):
2013 Restructuring Plan
Three Months Ended May 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Balance at
February 28, 2017
|
|
|
Restructuring
Related
Charges
|
|
|
Asset
Write-off
Charge and Other
Non-Cash Activity
|
|
|
Cash
Payments
|
|
|
Liability Balance at
May 31, 2017
|
|
Employee severance and benefit costs
|
|
$
|
11,756
|
|
|
$
|
843
|
|
|
$
|
400
|
|
|
$
|
(6,875
|
)
|
|
$
|
6,124
|
|
Lease costs
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
Other related costs
|
|
|
829
|
|
|
|
458
|
|
|
|
51
|
|
|
|
(449
|
)
|
|
|
889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,606
|
|
|
$
|
1,301
|
|
|
$
|
451
|
|
|
$
|
(7,324
|
)
|
|
$
|
7,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
2013 Restructuring Plan Nine Months Ended May 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Balance at
August 31, 2016
|
|
|
Restructuring
Related
Charges
|
|
|
Asset
Write-off
Charge and Other
Non-Cash Activity
|
|
|
Cash
Payments
|
|
|
Liability Balance at
May 31, 2017
|
|
Employee severance and benefit costs
|
|
$
|
17,266
|
|
|
$
|
3,340
|
|
|
$
|
(322
|
)
|
|
$
|
(14,160
|
)
|
|
$
|
6,124
|
|
Lease costs
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
Asset
write-off
costs
|
|
|
|
|
|
|
70
|
|
|
|
(70
|
)
|
|
|
|
|
|
|
|
|
Other related costs
|
|
|
740
|
|
|
|
1,241
|
|
|
|
16
|
|
|
|
(1,108
|
)
|
|
|
889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,027
|
|
|
$
|
4,651
|
|
|
$
|
(376
|
)
|
|
$
|
(15,268
|
)
|
|
$
|
7,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 Restructuring Plan Three Months Ended May 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Balance at
February 29, 2016
|
|
|
Restructuring
Related
Charges
|
|
|
Asset
Write-off
Charge and Other
Non-Cash Activity
|
|
|
Cash
Payments
|
|
|
Liability Balance at
May 31, 2016
|
|
Employee severance and benefit costs
|
|
$
|
18,115
|
|
|
$
|
4,197
|
|
|
$
|
407
|
|
|
$
|
(3,234
|
)
|
|
$
|
19,485
|
|
Lease costs
|
|
|
64
|
|
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
|
21
|
|
Other related costs
|
|
|
871
|
|
|
|
306
|
|
|
|
22
|
|
|
|
(310
|
)
|
|
|
889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
19,050
|
|
|
$
|
4,460
|
|
|
$
|
429
|
|
|
$
|
(3,544
|
)
|
|
$
|
20,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 Restructuring Plan Nine Months Ended May 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Balance at
August 31, 2015
|
|
|
Restructuring
Related
Charges
|
|
|
Asset
Write-off
Charge and Other
Non-Cash Activity
|
|
|
Cash
Payments
|
|
|
Liability Balance at
May 31, 2016
|
|
Employee severance and benefit costs
|
|
$
|
30,047
|
|
|
$
|
7,743
|
|
|
$
|
(404
|
)
|
|
$
|
(17,901
|
)
|
|
$
|
19,485
|
|
Lease costs
|
|
|
64
|
|
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
|
21
|
|
Other related costs
|
|
|
846
|
|
|
|
649
|
|
|
|
|
|
|
|
(606
|
)
|
|
|
889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
30,957
|
|
|
$
|
8,349
|
|
|
$
|
(404
|
)
|
|
$
|
(18,507
|
)
|
|
$
|
20,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
The tables below set forth the significant components and activity in the 2013 Restructuring Plan
by reportable segment during the three months and nine months ended May 31, 2017 and 2016 (in thousands):
2013 Restructuring
Plan Three Months Ended May 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Balance at
February 28, 2017
|
|
|
Restructuring
Related
Charges
|
|
|
Asset
Write-off
Charge and Other
Non-Cash Activity
|
|
|
Cash
Payments
|
|
|
Liability Balance at
May 31, 2017
|
|
EMS
|
|
$
|
12,169
|
|
|
$
|
1,371
|
|
|
$
|
438
|
|
|
$
|
(7,309
|
)
|
|
$
|
6,669
|
|
DMS
|
|
|
437
|
|
|
|
(70
|
)
|
|
|
13
|
|
|
|
(15
|
)
|
|
|
365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,606
|
|
|
$
|
1,301
|
|
|
$
|
451
|
|
|
$
|
(7,324
|
)
|
|
$
|
7,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 Restructuring Plan Nine Months Ended May 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Balance at
August 31, 2016
|
|
|
Restructuring
Related
Charges
|
|
|
Asset
Write-off
Charge and Other
Non-Cash Activity
|
|
|
Cash
Payments
|
|
|
Liability Balance at
May 31, 2017
|
|
EMS
|
|
$
|
17,338
|
|
|
|
4,651
|
|
|
|
(306
|
)
|
|
|
(15,014
|
)
|
|
$
|
6,669
|
|
DMS
|
|
|
689
|
|
|
|
|
|
|
|
(70
|
)
|
|
|
(254
|
)
|
|
|
365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,027
|
|
|
$
|
4,651
|
|
|
$
|
(376
|
)
|
|
$
|
(15,268
|
)
|
|
$
|
7,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 Restructuring Plan Three Months Ended May 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Balance at
February 29, 2016
|
|
|
Restructuring
Related
Charges
|
|
|
Asset
Write-off
Charge and Other
Non-Cash Activity
|
|
|
Cash
Payments
|
|
|
Liability Balance at
May 31, 2016
|
|
EMS
|
|
$
|
17,115
|
|
|
$
|
4,460
|
|
|
$
|
429
|
|
|
$
|
(2,858
|
)
|
|
$
|
19,146
|
|
DMS
|
|
|
1,935
|
|
|
|
|
|
|
|
|
|
|
|
(686
|
)
|
|
|
1,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
19,050
|
|
|
$
|
4,460
|
|
|
$
|
429
|
|
|
$
|
(3,544
|
)
|
|
$
|
20,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 Restructuring Plan Nine Months Ended May 31, 2016
|
|
|
|
|
|
|
Restructuring
|
|
|
Asset
Write-off
|
|
|
|
|
|
|
|
|
|
Liability Balance at
|
|
|
Related
|
|
|
Charge and Other
|
|
|
Cash
|
|
|
Liability Balance at
|
|
|
|
August 31, 2015
|
|
|
Charges
|
|
|
Non-Cash
Activity
|
|
|
Payments
|
|
|
May 31, 2016
|
|
EMS
|
|
$
|
28,834
|
|
|
$
|
7,454
|
|
|
$
|
(395
|
)
|
|
$
|
(16,747
|
)
|
|
$
|
19,146
|
|
DMS
|
|
|
1,960
|
|
|
|
1,014
|
|
|
|
(9
|
)
|
|
|
(1,716
|
)
|
|
|
1,249
|
|
Other
|
|
|
163
|
|
|
|
(119
|
)
|
|
|
|
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
30,957
|
|
|
$
|
8,349
|
|
|
$
|
(404
|
)
|
|
$
|
(18,507
|
)
|
|
$
|
20,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13. Business Acquisitions
Fiscal year 2017
On March 1, 2017,
the Company completed the acquisition of Lewis Engineering, which was not deemed to be significant. The acquired business expanded the Companys capabilities in precision machining, manufacturing and design engineering. The aggregate purchase
price of the acquisition totaled approximately $31.4 million in cash.
18
The acquisition has been accounted for as a business combination using the acquisition method of
accounting. Assets acquired of $32.3 million, including $8.2 million in goodwill and $14.6 million in intangible assets, and liabilities assumed of $0.9 million were recorded at their estimated fair values as of the acquisition
date. The Company is currently evaluating the fair values of the assets and liabilities related to the business combination. The preliminary estimates and measurements are, therefore, subject to change during the measurement period for intangible
assets and tax adjustments. The excess of the purchase price over the fair value of the acquired assets and assumed liabilities of $8.2 million was recorded to goodwill and was fully allocated to the DMS segment. The majority of the goodwill is
currently expected to be deductible for income tax purposes. The Company expensed transaction costs in connection with the acquisition of approximately $0.8 million during the nine months ended May 31, 2017. The results of operations of
the acquired business were included in the Companys condensed consolidated financial results beginning on the date of the acquisition. Pro forma information has not been provided as the acquisition is not deemed to be significant.
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 Condensed 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.
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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 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 Condensed Consolidated 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.
During the second quarter of fiscal year 2017, the FASB issued a new accounting
standard that clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance is effective for the Company beginning in the
first quarter of fiscal year 2019 and will be applied on a prospective basis. Early application is permitted for certain transactions. The impact on the Companys Condensed Consolidated Financial Statements will depend on the facts and
circumstances of any specific future transactions.
During the second quarter of fiscal year 2017, the FASB issued a new accounting
standard to simplify how an entity is required to test goodwill for impairment by eliminating the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the current goodwill impairment test) to measure a goodwill impairment
charge. Goodwill will be considered impaired when the carrying amount of a reporting unit that includes goodwill exceeds its fair value. This guidance is effective for the Company beginning in the first quarter of fiscal year 2021, with early
application permitted. The guidance will be applied on a prospective basis. The Company is currently assessing the impact this new standard may have on its Condensed Consolidated Financial Statements.
Recently issued accounting guidance not discussed above is not applicable or did not have, or is not expected to have, a material impact to
the Company.
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15. Income Taxes
The effective tax rate differed from the U.S. federal statutory rate of 35% during the three months and nine months ended May 31, 2017 and
2016 primarily due to: (a) restructuring costs with minimal related tax benefit; (b) income in tax jurisdictions with lower statutory tax rates than the U.S.; (c) tax incentives granted to sites in Brazil, China, Malaysia, Singapore and
Vietnam; and (d) losses in tax jurisdictions with existing valuation allowances. The material tax incentives expire at various dates through fiscal year 2021. Such tax incentives are subject to conditions with which the Company expects to
continue to comply.
16. Subsequent Events
The Company has evaluated subsequent events that occurred through the date of the filing of the Companys third 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.
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JABIL INC. AND SUBSIDIARIES
References in this report to the Company, Jabil, we, our, or us mean Jabil Inc.
together with its subsidiaries, except where the context otherwise requires. 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:
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business conditions and growth or declines in our customers industries, the electronic manufacturing services industry and the general economy;
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variability of our operating results;
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our dependence on a limited number of major customers;
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any potential future termination, or substantial winding down, of significant customer relationships;
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availability of components;
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our dependence on certain industries;
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the susceptibility of our production levels to the variability of customer requirements, including seasonal influences on the demand for certain end products;
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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;
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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;
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our ability to successfully negotiate definitive agreements and consummate acquisitions, and to integrate operations following the consummation of acquisitions;
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our ability to successfully negotiate definitive agreements and consummate dispositions, and to disentangle operations following the consummation of dispositions;
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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;
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our ability to maintain our engineering, technological and manufacturing process expertise;
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other economic, business and competitive factors affecting our customers, our industry and our business generally; and
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other factors that we may not have currently identified or quantified.
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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.