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, 2017. Results for the six months ended February 28, 2018 are not necessarily an indication of the results that may be expected for the full fiscal year ending August 31, 2018.
2. Earnings Per Share and Dividends
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. The difference between the weighted average number of
basic shares outstanding and the weighted average number of diluted shares outstanding is primarily due to dilutive unvested restricted stock awards and dilutive stock appreciation rights.
Potential shares of common stock are excluded from the computation of diluted earnings per share when their effect would be antidilutive.
Performance-based restricted stock awards are considered dilutive when the related performance criterion have been met assuming the end of the reporting period represents the end of the performance period. All potential shares of common stock are
antidilutive in periods of net loss. Potential shares of common stock not included in the computation of earnings per share because their effect would have been antidilutive or because the performance criterion was not met were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
February 28, 2018
|
|
|
February 28, 2017
|
|
|
February 28, 2018
|
|
|
February 28, 2017
|
|
Stock appreciation rights
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
499
|
|
Restricted stock awards
|
|
|
2,476
|
|
|
|
4,881
|
|
|
|
2,354
|
|
|
|
4,968
|
|
Dividends
The following table sets forth cash dividends declared by the Company to common stockholders during the six months ended February 28, 2018
and 2017 (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 2018:
|
|
|
October 19, 2017
|
|
|
$
|
0.08
|
|
|
$
|
14,588
|
|
|
|
November 15, 2017
|
|
|
|
December 1, 2017
|
|
|
|
|
January 25, 2018
|
|
|
$
|
0.08
|
|
|
$
|
14,272
|
|
|
|
February 15, 2018
|
|
|
|
March 1, 2018
|
|
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
|
|
3. Inventories
Inventories consist of the following (in thousands):
6
|
|
|
|
|
|
|
|
|
|
|
February 28, 2018
|
|
|
August 31, 2017
|
|
Raw materials
|
|
$
|
1,893,693
|
|
|
$
|
1,574,241
|
|
Work in process
|
|
|
873,827
|
|
|
|
822,628
|
|
Finished goods
|
|
|
679,827
|
|
|
|
591,227
|
|
Reserve for excess and obsolete inventory
|
|
|
(59,352
|
)
|
|
|
(46,013
|
)
|
|
|
|
|
|
|
|
|
|
Inventories, net
|
|
$
|
3,387,995
|
|
|
$
|
2,942,083
|
|
|
|
|
|
|
|
|
|
|
4. Stock-Based Compensation and Share Repurchases
The Company recognized stock-based compensation expense within selling, general and administrative expense as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
February 28, 2018
|
|
|
February 28, 2017
|
|
|
February 28, 2018
|
|
|
February 28, 2017
|
|
Restricted stock and stock appreciation rights
|
|
$
|
12,952
|
|
|
$
|
13,751
|
|
|
$
|
56,459
|
|
|
$
|
11,710
|
|
Employee stock purchase plan
|
|
|
2,087
|
|
|
|
1,567
|
|
|
|
3,787
|
|
|
|
3,317
|
|
Other
(1)
|
|
|
|
|
|
|
|
|
|
|
7,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15,039
|
|
|
$
|
15,318
|
|
|
$
|
67,784
|
|
|
$
|
15,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents a
one-time
cash-settled stock award that vested on November 30, 2017.
|
As of February 28, 2018, the shares available to be issued under the 2011 Stock Award and Incentive Plan were 12,573,989.
Restricted Stock Awards
Certain
key employees have been granted time-based, performance-based and market-based restricted stock unit awards. The time-based restricted stock units generally vest on a graded vesting schedule over three years. The performance-based restricted stock
units generally vest on a cliff vesting schedule over three years and up to a maximum of 150%, depending on the specified performance condition and the level of achievement obtained. The performance-based restricted stock units have a vesting
condition that is based upon the Companys cumulative adjusted core earnings per share during the performance period. The market-based restricted stock units generally vest on a cliff vesting schedule over three years and up to a maximum of
200%, depending on the specified performance condition and the level of achievement obtained. The market-based restricted stock units have a vesting condition that is tied to the Companys total shareholder return based on the Companys
stock performance in relation to the companies in the Standard and Poors (S&P) Super Composite Technology Hardware and Equipment Index excluding the Company. During the six months ended February 28, 2018 and 2017, the Company awarded
approximately 1.4 million and 1.8 million time-based restricted stock units, respectively, 0.4 million and 0.6 million performance-based restricted stock units, respectively and 0.4 million and 0.4 million market-based
stock units, respectively.
On October 6, 2017, the Companys Compensation Committee approved the modification of vesting
criteria for certain performance-based restricted stock awards granted in fiscal year 2015. As a result of the modification, 0.8 million awards vested during the first quarter of fiscal year 2018, which resulted in approximately
$24.9 million of stock-based compensation expense recognized.
The following represents the stock-based compensation information for
the period indicated (in thousands):
|
|
|
|
|
|
|
February 28, 2018
|
|
Unrecognized stock-based compensation expenserestricted stock
|
|
$
|
68,280
|
|
Remaining weighted-average period for restricted stock expense
|
|
|
1.5 years
|
|
Share Repurchases
In July 2017, the Companys Board of Directors authorized the repurchase of up to $450.0 million of the Companys common stock
(the 2017 Share Repurchase Program). The 2017 Share Repurchase Program expires on August 31, 2018. As of February 28, 2018, 8.2 million shares had been repurchased for $225.0 million and $225.0 million remains
available under the 2017 Share Repurchase Program.
7
5. Concentration of Risk and Segment Data
Concentration of Risk
Sales of the
Companys products are concentrated among specific customers. During the six months ended February 28, 2018, the Companys five largest customers accounted for approximately 51% of its net revenue and 74 customers accounted for
approximately 90% of its net revenue. Sales to these customers were reported in the Electronics Manufacturing Services (EMS) and Diversified Manufacturing Services (DMS) operating segments.
The Company procures components from a broad group of suppliers. Almost all of the products manufactured by the Company require one or more
components that are available from only a single source.
Segment Data
Net revenue for the operating segments is attributed to the segment in which the service is performed. An operating 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, business interruption and impairment charges, net, 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
the Company would transact with third parties.
The following tables set forth operating segment information (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
February 28,
2018
|
|
|
February 28,
2017
|
|
|
February 28,
2018
|
|
|
February 28,
2017
|
|
Net revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EMS
|
|
$
|
2,870,488
|
|
|
$
|
2,682,811
|
|
|
$
|
5,732,548
|
|
|
$
|
5,386,100
|
|
DMS
|
|
|
2,430,613
|
|
|
|
1,762,826
|
|
|
|
5,154,085
|
|
|
|
4,164,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,301,101
|
|
|
$
|
4,445,637
|
|
|
$
|
10,886,633
|
|
|
$
|
9,550,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income and reconciliation of income before income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EMS
|
|
$
|
95,283
|
|
|
$
|
98,089
|
|
|
$
|
180,993
|
|
|
$
|
187,635
|
|
DMS
|
|
|
83,313
|
|
|
|
54,105
|
|
|
|
224,823
|
|
|
|
174,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment income
|
|
$
|
178,596
|
|
|
$
|
152,194
|
|
|
$
|
405,816
|
|
|
$
|
361,734
|
|
Reconciling items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangibles
|
|
|
(9,890
|
)
|
|
|
(8,766
|
)
|
|
|
(19,869
|
)
|
|
|
(17,088
|
)
|
Distressed customer charge
|
|
|
(14,706
|
)
|
|
|
|
|
|
|
(14,706
|
)
|
|
|
|
|
Stock-based compensation expense and related charges
|
|
|
(15,039
|
)
|
|
|
(15,318
|
)
|
|
|
(67,784
|
)
|
|
|
(15,027
|
)
|
Restructuring and related charges
|
|
|
(5,427
|
)
|
|
|
(44,927
|
)
|
|
|
(16,815
|
)
|
|
|
(80,829
|
)
|
Business interruption and impairment charges, net
|
|
|
(4,002
|
)
|
|
|
|
|
|
|
(11,356
|
)
|
|
|
|
|
Other expense
|
|
|
(10,485
|
)
|
|
|
(3,371
|
)
|
|
|
(16,367
|
)
|
|
|
(8,051
|
)
|
Interest income
|
|
|
5,011
|
|
|
|
2,289
|
|
|
|
8,824
|
|
|
|
4,744
|
|
Interest expense
|
|
|
(37,796
|
)
|
|
|
(33,800
|
)
|
|
|
(74,042
|
)
|
|
|
(66,644
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
86,262
|
|
|
$
|
48,301
|
|
|
$
|
193,701
|
|
|
$
|
178,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
February 28, 2018
|
|
|
August 31, 2017
|
|
Total assets
|
|
|
|
|
|
|
|
|
EMS
|
|
$
|
3,318,119
|
|
|
$
|
2,778,820
|
|
DMS
|
|
|
5,238,401
|
|
|
|
5,290,468
|
|
Other
non-allocated
assets
|
|
|
2,931,737
|
|
|
|
3,026,707
|
|
|
|
|
|
|
|
|
|
|
|
|
$11,488,257
|
|
|
$11,095,995
|
|
|
|
|
|
|
|
|
|
|
As of February 28, 2018, the Company operated in 29 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 91.9% and 92.1% of net revenue during the three months and six months ended February 28,
2018, respectively, compared to 90.9% and 91.7% of net revenue during the three months and six months ended February 28, 2017.
6. Notes Payable,
Long-Term Debt and Capital Lease Obligations
Notes payable, long-term debt and capital lease obligations outstanding as of
February 28, 2018 and August 31, 2017 are summarized below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity
Date
|
|
|
February 28,
2018
|
|
|
August 31,
2017
|
|
8.250% Senior Notes
(1)(2)(3)
|
|
|
Mar 15, 2018
|
|
|
$
|
|
|
|
$
|
399,506
|
|
5.625% Senior Notes
(1)(2)
|
|
|
Dec 15, 2020
|
|
|
|
397,549
|
|
|
|
397,104
|
|
4.700% Senior Notes
(1)(2)
|
|
|
Sep 15, 2022
|
|
|
|
497,023
|
|
|
|
496,696
|
|
4.900% Senior Notes
(1)
|
|
|
Jul 14, 2023
|
|
|
|
298,693
|
|
|
|
298,571
|
|
3.950% Senior Notes
(1)(2)(3)
|
|
|
Jan 12, 2028
|
|
|
|
493,915
|
|
|
|
|
|
Borrowings under credit
facilities
(4)
|
|
|
Nov 8, 2022
|
|
|
|
|
|
|
|
|
|
Borrowings under loans
(4)
|
|
|
Nov 8, 2022
|
|
|
|
494,005
|
|
|
|
458,395
|
|
Capital lease obligations
|
|
|
|
|
|
|
27,451
|
|
|
|
27,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total notes payable, long-term debt and capital lease obligations
|
|
|
|
|
|
|
2,208,636
|
|
|
|
2,078,090
|
|
Less current installments of notes payable, long-term debt and capital lease obligations
|
|
|
|
|
|
|
27,158
|
|
|
|
445,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable, long-term debt and capital lease obligations, less current installments
|
|
|
|
|
|
$
|
2,181,478
|
|
|
$
|
1,632,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The notes are carried at the principal amount of each note, less any unamortized discount and unamortized debt issuance costs.
|
(2)
|
The Senior Notes are the Companys senior unsecured obligations and rank equally with all other existing and future senior unsecured debt obligations.
|
(3)
|
During the three months ended February 28, 2018, the Company issued $500.0 million of publicly registered 3.950% Senior Notes due 2028 (the 3.950%
Senior Notes). The net proceeds from the offering were used for general corporate purposes, including to redeem $400.0 million of the Companys outstanding 8.250% Senior Notes due 2018 and pay related costs and a
make-whole premium.
|
(4)
|
On November 8, 2017, the Company entered into an amended and restated senior unsecured five-year credit agreement. The credit agreement provides for:
(i) the Revolving Credit Facility in the initial amount of $1.8 billion, which may, subject to the lenders discretion, be increased up to $2.3 billion and (ii) a $500.0 million Term Loan Facility (collectively the
Credit Facility). The Credit Facility expires on November 8, 2022. The Revolving Credit Facility is subject to two whole or partial
one-year
extensions, at the lenders discretion.
Interest and fees on the Credit Facility advances are based on the Companys
non-credit
enhanced long-term senior unsecured debt rating as determined by Standard & Poors Ratings Service,
Moodys Investors Service and Fitch Ratings.
|
During the six months ended February 28, 2018, the interest rates on
the Revolving Credit Facility ranged from 2.4% to 4.4% and the interest rates on the Term Loan Facility ranged from 2.6% to 2.9%. Interest is charged at a rate equal to (a) for the Revolving Credit Facility, either 0.000% to 0.575% above the
base rate or 0.975% to 1.575% above the Eurocurrency rate and (b) for the Term Loan Facility, either 0.125% to 0.875% above the base rate or 1.125% to 1.875% above the Eurocurrency rate. The base rate represents the greatest of:
(i) Citibank, N.A.s base rate, (ii) 0.50% above the federal funds rate, and (iii) 1.0% above
one-month
LIBOR, but not less than zero. The Eurocurrency rate represents adjusted LIBOR or adjusted
CDOR, as applicable, for the applicable interest period, but not less than zero.
9
Fees include a facility fee based on the revolving credit commitments of the lenders and a letter
of credit fee based on the amount of outstanding letters of credit.
Additionally, the Companys foreign subsidiaries had various
additional credit facilities that finance their future growth and any corresponding working capital needs.
As of February 28, 2018,
the Company has $2.2 billion in available unused borrowing capacity under its revolving credit facilities.
Debt Covenants
Borrowings under the Companys debt agreements are subject to various covenants that limit the Companys ability to: incur additional
indebtedness, sell assets, effect mergers and certain transactions, and effect certain transactions with subsidiaries and affiliates. In addition, the Revolving Credit Facility and 4.900% Senior Notes contain debt leverage and interest coverage
covenants. The Company is also subject to certain covenants requiring the Company to offer to repurchase the 5.625%, 4.700%, 4.900% or 3.950% Senior Notes upon a change of control. As of February 28, 2018 and August 31, 2017, the Company
was in compliance with its debt covenants.
Fair Value
The estimated fair values of the Companys publicly traded debt, including the 5.625%, 4.700% and 3.950% senior notes, were approximately
$424.4 million, $517.5 million and $480.2 million, respectively, as of February 28, 2018. 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 $306.5 million, as of February 28, 2018. 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 approximate fair value as interest rates on these instruments approximate 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 seven 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 six months ended February 28, 2018 and 2017 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.
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 and its foreign asset-backed securitization program (collectively referred to herein as the asset-backed securitization programs) to special purpose entities, which in turn sell 100% of the receivables to:
(i) conduits administered by unaffiliated financial institutions for the North American asset-backed securitization program and (ii) to an unaffiliated financial institution and a conduit administered by an unaffiliated financial
institution for the foreign asset-backed securitization program. Any portion of the purchase price for the receivables not paid in cash upon the sale occurring is recorded as a deferred purchase price receivable, which is paid from available cash as
payments on the receivables are collected.
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.
10
Following is a summary of the asset-backed securitization programs and key terms:
|
|
|
|
|
|
|
|
|
|
|
Maximum Amount of
Net Cash Proceeds (in
millions)
(1)
|
|
|
Expiration Date
|
|
North American
(2)
|
|
$
|
200.0
|
|
|
|
October 20, 2020
|
|
Foreign
|
|
$
|
400.0
|
|
|
|
May 7, 2018
|
|
(1)
|
Maximum amount available at any one time.
|
(2)
|
On November 9, 2017, the program was extended to October 20, 2020.
|
In connection with the asset-backed securitization programs, the Company recognized the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
February 28, 2018
|
|
|
February 28, 2017
|
|
|
February 28, 2018
|
|
|
February 28, 2017
|
|
Eligible trade accounts receivable sold
|
|
$
|
2,057
|
|
|
$
|
2,156
|
|
|
$
|
4,449
|
|
|
$
|
4,499
|
|
Cash proceeds received
(1)
|
|
$
|
1,507
|
|
|
$
|
1,687
|
|
|
$
|
3,895
|
|
|
$
|
4,028
|
|
Pre-tax
losses on sale of receivables
(2)
|
|
$
|
3
|
|
|
$
|
2
|
|
|
$
|
7
|
|
|
$
|
4
|
|
Deferred purchase price receivables as of February 28
(3)
|
|
$
|
547
|
|
|
$
|
467
|
|
|
$
|
547
|
|
|
$
|
467
|
|
(1)
|
For the three months and six months ended February 28, 2018 and 2017, the amount represented proceeds from collections reinvested in revolving-period transfers
as there were no new transfers during the period.
|
(2)
|
Recorded to other expense within the Condensed Consolidated Statements of Operations.
|
(3)
|
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.
|
The asset-backed securitization programs require compliance with
several covenants. The North American asset-based securitization program covenants include compliance with the interest ratio and debt to EBITDA ratio of the Credit Facility. The foreign asset-backed securitization program covenants include
limitations on certain corporate actions such as mergers and consolidations. As of February 28, 2018 and August 31, 2017, the Company was in compliance with all covenants under the asset-backed securitization programs.
Trade Accounts Receivable Sale Programs
The following is a summary of the seven trade accounts receivable sale programs with unaffiliated financial institutions where the Company may
elect to sell receivables, at a discount, on an ongoing basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Program
|
|
Maximum
Amount (in
millions)
(1)
|
|
|
|
|
|
Type of Facility
|
|
|
Expiration Date
|
A
|
|
$
|
650.0
|
|
|
|
|
|
|
|
Uncommitted
|
|
|
August 31, 2022
(2)
|
B
|
|
$
|
150.0
|
|
|
|
|
|
|
|
Uncommitted
|
|
|
August 31, 2018
|
C
|
|
|
800.0
|
|
|
|
CNY
|
|
|
|
Uncommitted
|
|
|
February 13, 2019
|
D
|
|
$
|
100.0
|
|
|
|
|
|
|
|
Uncommitted
|
|
|
November 1, 2018
(2)
|
E
|
|
$
|
50.0
|
|
|
|
|
|
|
|
Uncommitted
|
|
|
August 25, 2018
|
F
|
|
$
|
110.0
|
|
|
|
|
|
|
|
Uncommitted
|
|
|
January 25, 2019
(3)
|
G
|
|
$
|
40.0
|
|
|
|
|
|
|
|
Uncommitted
|
|
|
February 23, 2023
(2)
|
(1)
|
Maximum amount available at any one time.
|
(2)
|
Any party may elect to terminate the agreement upon 15 days prior notice.
|
(3)
|
The program will be automatically extended through January 25, 2023 unless either party provides 30 days notice of termination.
|
11
In connection with the trade accounts receivable sale programs, the Company recognized the
following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
February 28, 2018
|
|
|
February 28, 2017
|
|
|
February 28, 2018
|
|
|
February 28, 2017
|
|
Trade accounts receivable
sold
(1)
|
|
$
|
1,640
|
|
|
$
|
711
|
|
|
$
|
2,734
|
|
|
$
|
1,655
|
|
Cash proceeds received
|
|
$
|
1,636
|
|
|
$
|
710
|
|
|
$
|
2,728
|
|
|
$
|
1,652
|
|
(1)
|
The resulting losses on the sales of trade accounts receivable during the three months and six months ended February 28, 2018 and 2017 were not material 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, 2017 to February 28, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency
Translation
Adjustment
(1)
|
|
|
Derivative
Instruments
(2)
|
|
|
Actuarial
(Loss) Gain
|
|
|
Prior
Service Cost
|
|
|
Available for
Sale Securities
(3)
|
|
|
Total
|
|
Balance as of August 31, 2017
|
|
$
|
57,582
|
|
|
$
|
29,967
|
|
|
$
|
(33,215
|
)
|
|
$
|
889
|
|
|
$
|
(603
|
)
|
|
|
54,620
|
|
Other comprehensive income (loss) before reclassifications
|
|
|
20,921
|
|
|
|
28,396
|
|
|
|
(431
|
)
|
|
|
|
|
|
|
(1,814
|
)
|
|
|
47,072
|
|
Amounts reclassified from AOCI
|
|
|
|
|
|
|
(15,084
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,084
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
20,921
|
|
|
|
13,312
|
|
|
|
(431
|
)
|
|
|
|
|
|
|
(1,814
|
)
|
|
|
31,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of February 28, 2018
|
|
$
|
78,503
|
|
|
$
|
43,279
|
|
|
$
|
(33,646
|
)
|
|
$
|
889
|
|
|
$
|
(2,417
|
)
|
|
$
|
86,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
There is no tax benefit (expense) related to the foreign currency translation adjustment components of AOCI, including reclassification adjustments, for the three
months and six months ended February 28, 2018.
|
(2)
|
$7.0 million of AOCI reclassified into earnings during the six months ended February 28, 2018 for derivative instruments was classified as a reduction of
income tax expense. The remaining amount reclassified into earnings was primarily classified as a component of cost of revenue. $7.8 million is expected to be reclassified into earnings during the next 6 months and will be classified as a
reduction of income tax expense. The remaining amount expected to be reclassified into earnings will be classified as a component of cost of revenue. The annual tax benefit (expense) for unrealized gains on derivative instruments is not material for
the three months and six months ended February 28, 2018.
|
(3)
|
There is no tax benefit (expense) related to the available for sale securities components of AOCI, including reclassification adjustments, for the three months and
six months ended February 28, 2018.
|
9. 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 (RAR) 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 an
RAR on April 19, 2017. The proposed adjustments in the RAR 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 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 may be 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. However, there can be no assurance that managements beliefs will be realized.
12
10. 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 risk and interest rate risk.
Foreign Currency Risk Management
Forward contracts are put in place to manage the foreign currency risk associated with the anticipated foreign currency
denominated revenues and expenses. A hedging relationship existed with an aggregate notional amount outstanding of $391.8 million and $314.6 million as of February 28, 2018 and August 31, 2017, 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 March 1, 2018 and November 30, 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 as of February 28, 2018 and August 31, 2017, was $2.4 billion and $2.1 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 February 28, 2018, 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
|
|
$
|
|
|
|
|
63,815
|
|
|
|
|
|
|
$
|
63,815
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign exchange contracts
|
|
|
|
|
|
|
(13,666
|
)
|
|
|
|
|
|
|
(13,666
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
|
50,149
|
|
|
|
|
|
|
$
|
50,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 recorded in the Condensed Consolidated Balance Sheets as of February 28, 2018 and August 31, 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Values of Derivative Instruments
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
Balance Sheet
Location
|
|
|
Fair Value as of
February 28, 2018
|
|
|
Fair Value as of
August 31, 2017
|
|
|
Balance Sheet
Location
|
|
|
Fair Value as of
February 28, 2018
|
|
|
Fair Value as of
August 31, 2017
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign exchange contracts
|
|
|
Prepaid expenses
and other current
assets
|
|
|
$
|
19,601
|
|
|
$
|
8,380
|
|
|
|
Accrued
expenses
|
|
|
$
|
396
|
|
|
$
|
1,408
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign exchange contracts
|
|
|
Prepaid expenses
and other current
assets
|
|
|
$
|
44,214
|
|
|
$
|
31,280
|
|
|
|
Accrued
expenses
|
|
|
$
|
13,270
|
|
|
$
|
9,131
|
|
13
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.
During the three months and six months ended February 28, 2018, the Company recognized $22.9 million and $32.7 million,
respectively, in foreign currency losses, which were offset by $31.2 million and $51.0 million of gains, respectively, from related forward contracts. Both the foreign currency losses and gains from forward contracts were recognized in
cost of revenue. For the three months and six months ended February 28, 2017, the amounts were immaterial and were recognized as components of cost of revenue.
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 2016, 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 3.950% Senior Notes. The swaps were accounted for as a cash flow hedge and had a notional amount of $200.0 million. Concurrently with the pricing of the
3.950% Senior Notes, the Company settled the swaps. The fair value of the cash received for the swaps at settlement was $17.2 million. The effective portion of the swaps is recorded in the Companys Consolidated Balance Sheets as a
component of AOCI and is amortized to interest expense in the Companys Consolidated Statements of Operations through January 2028. The effective portions of the swaps amortized to interest expense during the three months ended
February 28, 2018 was not material.
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 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 in the Companys Condensed Consolidated Balance Sheets as a component of AOCI.
11. Restructuring and Related Charges
Following is a summary of the Companys restructuring and related charges (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
February 28, 2018
|
|
|
February 28, 2017
|
|
|
February 28, 2018
|
|
|
February 28, 2017
|
|
Employee severance and benefit costs
|
|
$
|
2,012
|
|
|
$
|
9,097
|
|
|
$
|
5,989
|
|
|
$
|
28,483
|
|
Lease costs
|
|
|
7
|
|
|
|
1,158
|
|
|
|
7
|
|
|
|
4,449
|
|
Asset
write-off
costs
|
|
|
2,451
|
|
|
|
34,135
|
|
|
|
9,263
|
|
|
|
46,775
|
|
Other related costs
|
|
|
957
|
|
|
|
537
|
|
|
|
1,556
|
|
|
|
1,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring and related
charges
(1)(2)
|
|
$
|
5,427
|
|
|
$
|
44,927
|
|
|
$
|
16,815
|
|
|
$
|
80,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes $2.1 million and $4.0 million recorded in the EMS segment, $3.3 million and $36.6 million recorded in the DMS segment and
$0.0 million and $4.4 million of
non-allocated
charges for the three months ended February 28, 2018 and 2017, respectively. Includes $8.0 million and $11.3 million recorded in the EMS
segment, $7.9 million and $48.1 million recorded to the DMS segment and $0.9 million and $21.4 million of
non-allocated
charges for the six months ended February 28, 2018 and 2017,
respectively. Except for asset
write-off
costs, all restructuring and related charges are cash costs.
|
|
(2)
|
Primarily relates to the 2017 Restructuring Plan.
|
14
2017 Restructuring Plan
On September 15, 2016, the Companys Board of Directors formally approved a restructuring plan to better align the Companys
global capacity and administrative support infrastructure 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 2017 Restructuring Plan).
Upon completion of the 2017 Restructuring Plan, the Company expects to
recognize approximately $195.0 million in restructuring and other related costs. The Company has incurred $168.6 million in
costs-to-date
as of
February 28, 2018. The remaining costs for employee severance and benefit costs, asset
write-off
costs and other related costs are anticipated to be incurred during the remainder of fiscal year 2018.
The tables below summarize the Companys liability activity, primarily associated with the 2017 Restructuring Plan
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Severance
and Benefit Costs
|
|
|
Lease Costs
|
|
|
Asset Write-off
Costs
|
|
|
Other
Related Costs
|
|
|
Total
|
|
Balance as of August 31, 2017
|
|
$
|
33,580
|
|
|
$
|
1,665
|
|
|
$
|
|
|
|
$
|
3,143
|
|
|
$
|
38,388
|
|
Restructuring related charges
|
|
|
5,989
|
|
|
|
7
|
|
|
|
9,263
|
|
|
|
1,556
|
|
|
|
16,815
|
|
Asset
write-off
charge and other
non-cash
activity
|
|
|
442
|
|
|
|
|
|
|
|
(9,263
|
)
|
|
|
22
|
|
|
|
(8,799
|
)
|
Cash payments
|
|
|
(18,703
|
)
|
|
|
(125
|
)
|
|
|
|
|
|
|
(2,243
|
)
|
|
|
(21,071
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of February 28, 2018
|
|
$
|
21,308
|
|
|
$
|
1,547
|
|
|
$
|
|
|
|
$
|
2,478
|
|
|
$
|
25,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12. Business Acquisitions
On September 1, 2017, the Company completed the acquisition of True-Tech Corporation (True-Tech) for approximately
$95.9 million in cash. True-Tech is a manufacturer specializing in aerospace, semiconductor and medical machined components.
The
acquisition of True-Tech assets has been accounted for as a business combination using the acquisition method of accounting. Assets acquired of $114.7 million, including $25.9 million in intangible assets and $22.6 million in
goodwill, and liabilities assumed of $18.8 million 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 and assumed liabilities was recorded to
goodwill and was fully allocated to the EMS segment. The majority of the goodwill is currently expected to be deductible for income tax purposes. The results of operations were included in the Companys condensed consolidated financial results
beginning on September 1, 2017. Pro forma information has not been provided as the acquisition of True-Tech is not deemed to be significant.
13.
New Accounting Guidance
Recently Issued Accounting Guidance
During fiscal year 2014, the Financial Accounting Standards Board (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. 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.
The Company has determined that the new standard will result in a change to the timing of
the Companys revenue recognition policy for certain customer contracts to an over time model as opposed to a point in time model upon delivery. Additionally, the Company anticipates the new standard will impact the
Companys accounting for certain fulfillment costs, which include
up-front
costs to prepare for manufacturing activities that are expected to be recovered. Under the new standard, such
up-front
costs would be recognized as an asset and amortized on a systematic basis consistent with the pattern of the transfer of the goods to which the asset relates. The financial impacts of the new standard
cannot be reasonably estimated at this time. The Company is in the process of implementing changes to its processes, policies and internal controls to meet the impact of the new standard and disclosure requirements. The Company expects to adopt the
new guidance under the modified retrospective approach.
15
During 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 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 Consolidated Financial Statements.
During 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 the standard must be adopted using a modified retrospective approach. The adoption of
this standard will impact the Companys Consolidated Balance Sheet. The Company is currently assessing any other impacts this new standard will have on its Consolidated Financial Statements.
During 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 Consolidated Financial Statements.
During
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 Consolidated Financial Statements.
During 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 Consolidated Financial Statements.
During 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 Consolidated Financial Statements will depend on the facts and circumstances of any specific future transactions.
During 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 Consolidated Financial Statements.
During fiscal year 2017, the FASB
issued a new accounting standard which clarifies the scope of accounting for asset derecognition and adds further guidance for recognizing gains and losses from the transfer
of non-financial assets
in contracts with
non-customers.
This guidance is effective for the Company beginning in the first quarter of fiscal year 2019
coincident with the new revenue recognition guidance. The Company is currently assessing the impact this new standard may have on its Consolidated Financial Statements.
During fiscal year 2017, the FASB issued a new accounting standard to improve the financial reporting of hedging relationships to better
portray the economic results of an entitys risk management activities by simplifying the application of hedge accounting and improving the related disclosures in its financial statements. This guidance is effective for the Company beginning in
the first quarter of fiscal year 2020, with early adoption permitted. The guidance must be applied using a modified retrospective approach. The Company is currently assessing the impact this new standard may have on its Consolidated Financial
Statements.
16
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly
referred to as the Tax Cuts and Jobs Act of 2017 (Tax Act). The Tax Act makes broad and complex changes to the U.S. tax code that will affect the Companys fiscal year ending August 31, 2018. The Securities and Exchange
Commission (SEC) staff issued Staff Accounting Bulletin No. 118,
Income Tax Accounting Implications of the Tax Cut and Jobs Act
(SAB 118), which provides guidance on accounting for the tax effects of
the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under Accounting Standards Codification Topic 740, Income Taxes
(ASC 740). In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a companys accounting for certain income
tax effects of the Tax Act is incomplete, but it is able to determine a reasonable estimate, it must record a provisional estimate in its financial statements. If a company cannot determine a provisional estimate to be included in the financial
statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. The Company has applied SAB 118, recorded a provisional estimate related to certain
effects of the Tax Act, and provided required disclosures in Note 14 Income Taxes.
During the second quarter of
fiscal year 2018, the FASB issued a new accounting standard which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act. This guidance is effective for the
Company beginning in the first quarter of fiscal year 2020, with early adoption permitted. The Company is currently assessing the impact this new standard may have on its 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.
14. Income Taxes
The
Tax Act, enacted December 22, 2017, reduced the corporate tax rate, limited or eliminated certain tax deductions, and changed the taxation of foreign earnings of U.S. multinational companies. The enacted changes include a mandatory income
inclusion of the historically untaxed foreign earnings of a U.S. companys foreign subsidiaries and will tax such income at reduced tax rates (mandatory deemed repatriation tax).
For the second quarter of 2018, the Company has made reasonable estimates related to certain impacts of the Tax Act and, in accordance with SAB
118, has recorded a provisional income tax expense of $30.9 million. This provisional expense is mainly comprised of the
one-time
mandatory deemed repatriation tax that will be paid over eight years as
well as the
re-measurement
of the Companys U.S. deferred tax attributes. The calculation of the mandatory deemed repatriation tax is based upon preliminary estimates of post-1986 earnings and profits and
tax pools, utilization of U.S. federal net operating losses and tax credits and the amounts of foreign earnings held in cash and
non-cash
assets.
As a result of the mandatory deemed repatriation tax, the Company will have a substantial amount of previously taxed earnings that can be
distributed to the U.S. without additional U.S. taxation. Additionally, the Tax Act provides for a 100% dividends received deduction for dividends received by U.S. corporations from
10-percent
or more owned
foreign corporations. Therefore, the Company is analyzing its indefinite reinvestment assertion and cash repatriation plan. The Company has made no adjustments to its financial statements in the current quarter with respect to its indefinite
reinvestment assertion, but may do so during the measurement period. A change in assertion could result in a material deferred tax liability associated with foreign withholding taxes that would be incurred upon such future remittances of cash.
Additionally, the Company is still evaluating the Global Intangible
Low-Taxed
Income (GILTI) provisions and the associated election to record its effects as a period cost or a component of deferred
taxes.
The final impact of the Tax Act may differ from the Companys estimates due to, among other items, additional regulatory
guidance that may be issued, changes in interpretations and assumptions, and finalization of calculations of the impact of the Tax Act, including the
on-going
analysis of U.S. tax attributes,
re-measurement
of the Companys U.S. deferred tax attributes and the computation of earnings and profits and tax pools of the Companys foreign subsidiaries. The Company also continues to evaluate its
indefinite reinvestment assertion regarding undistributed earnings and profits as a result of the Tax Act. As the Company finalizes the accounting for the tax effects of the enactment of the Tax Act during the measurement period, the Company will
reflect adjustments to the provisional amounts recorded and record additional tax effects in the periods such adjustments are identified. The Company has not completed its accounting for any aspect of the Tax Act.
As a result of the Tax Act, the Company will be subject to a blended U.S. federal tax rate of 25.7% for the current fiscal year and a 21.0%
U.S. federal tax rate for future years. The effective tax rate differed from the blended U.S. federal statutory rate of 25.7% during the three months and six months ended February 28, 2018 primarily due to the Tax Act, including the
one-time
mandatory deemed repatriation tax and the
re-measurement
of the Companys U.S. deferred tax attributes of $30.9 million, partially offset by a reduction in
unrecognized tax benefits of $16.1 million for the lapse of statute in a
non-U.S.
jurisdiction. Other primary drivers for the difference between the effective tax rate and the blended U.S. federal
statutory rate of 25.7% during the three months and six months ended February 28, 2018 and 2017 are: (a) tax incentives granted to sites in Brazil, China, Malaysia, Singapore and Vietnam; and (b) losses in tax jurisdictions with
existing valuation allowances, including losses from stock-based compensation for the six months ended February 28, 2018.
17
15. Subsequent Events
The Company has evaluated subsequent events that occurred through the date of the filing of the Companys second quarter of fiscal year
2018
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.
18
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). 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, expected capital expenditures and dividends, expected restructuring charges and related savings 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
assumptions 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 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:
|
|
|
fluctuation in our operating results;
|
|
|
|
our dependence on a limited number of customers;
|
|
|
|
our ability to manage growth effectively;
|
|
|
|
competitive factors affecting our customers businesses and ours;
|
|
|
|
the susceptibility of our production levels to the variability of customer requirements;
|
|
|
|
our ability to keep pace with technological changes and competitive conditions;
|
|
|
|
our reliance on a limited number of suppliers for critical components;
|
|
|
|
our exposure to the risks of a substantial international operation; and
|
|
|
|
our ability to achieve the expected profitability from our acquisitions.
|
For a
further list and description of various risks, 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 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, 2017, any
subsequent reports on Form
10-Q
and Form
8-K,
and other filings we make 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 completely and with the understanding that our actual future
results or events may be materially different from what we expect. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.
19