Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are one of the leading providers of worldwide manufacturing services and solutions. We provide comprehensive electronics design, production and product management services to companies in various industries and end markets. We derive substantially all of our revenue from production and product management services (collectively referred to as “manufacturing services”), which encompass the act of producing tangible components that are built to customer specifications and are then provided to the customer.

We have two reporting segments: Electronics Manufacturing Services (“EMS”) and Diversified Manufacturing Services (“DMS”), which are organized based on the economic profiles of the services performed, including manufacturing capabilities, market strategy, margins, return on capital and risk profiles. Our EMS segment is focused around leveraging IT, supply chain design and engineering, technologies largely centered on core electronics, utilizing our large scale manufacturing infrastructure and our ability to serve a broad range of end markets. Our EMS segment is typically a lower-margin but high volume business that produces product at a quicker rate (i.e. cycle time) and in larger quantities and includes customers primarily in the automotive and transportation, capital equipment, computing and storage, defense and aerospace, digital home, industrial and energy, networking and telecommunications, point of sale and printing industries. Our DMS segment is focused on providing engineering solutions, with an emphasis on material sciences and technologies. Our DMS segment is typically a higher-margin business and includes customers primarily in the consumer wearables, healthcare, mobility and packaging industries.

Our cost of revenue includes the cost of electronic components and other materials that comprise the products we manufacture; the cost of labor and manufacturing overhead; and adjustments for excess and obsolete inventory. As a provider of turnkey manufacturing services, we are responsible for procuring components and other materials. This requires us to commit significant working capital to our operations and to manage the purchasing, receiving, inspecting and stocking of materials. Although we bear the risk of fluctuations in the cost of materials and excess scrap, we periodically negotiate cost of materials adjustments with our customers. Net revenue from each product that we manufacture consists of an element based on the costs of materials in that product and an element based on the labor and manufacturing overhead costs allocated to that product. Our gross margin for any product depends on the mix between the cost of materials in the product and the cost of labor and manufacturing overhead allocated to the product.

Our operating results are impacted by the level of capacity utilization of manufacturing facilities; indirect labor costs; and selling, general and administrative expenses. Operating income margins have generally improved during periods of high production volume and high capacity utilization. During periods of low production volume, we generally have reduced operating income margins.

We monitor the current economic environment and its potential impact on both the customers we serve as well as our end markets and closely manage our costs and capital resources so that we can try to respond appropriately as circumstances change.

We have consistently utilized advanced circuit design, production design and manufacturing technologies to meet the needs of our customers. To support this effort, our engineering staff focuses on developing and refining design and manufacturing technologies to meet specific needs of specific customers. Most of the expenses associated with these customer-specific efforts are reflected in our cost of revenue. In addition, our engineers engage in research and development (“R&D”) of new technologies that apply generally to our operations. The expenses of these R&D activities are reflected in the research and development line item within our Consolidated Statement of Operations.

An important element of our strategy is the expansion of our global production facilities. The majority of our revenue and materials costs worldwide are denominated in U.S. dollars, while our labor and utility costs in operations outside the U.S. are denominated in local currencies. We economically hedge certain of these local currency costs, based on our evaluation of the potential exposure as compared to the cost of the hedge, through the purchase of foreign currency exchange contracts. Changes in the fair market value of such hedging instruments are reflected within the Consolidated Statement of Operations and the Consolidated Statement of Comprehensive Income.

See Note 12 – “Concentration of Risk and Segment Data” to the Consolidated Financial Statements.

In September 2017, our operations in Cayey, Puerto Rico received significant hurricane damage. During the fiscal year ended August 31, 2018, we recognized $11.3 million of expenses related to such damages, net of insurance proceeds of $24.9 million. We also expect that the majority of these costs less insurance deductions will ultimately be offset by insurance coverage.

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Summary of Results

The following table sets forth, for the fiscal years ended August 31, 2018, 2017 and 2016, certain key operating results and other financial information (in thousands, except per share data):

		Fiscal Year Ended August 31,
		2018				2017				2016
Net revenue		$	22,095,416			$	19,063,121			$	18,353,086
Gross profit		$	1,706,792			$	1,545,643			$	1,527,704
Operating income		$	542,153			$	410,230			$	522,833
Net income attributable to Jabil Inc.		$	86,330			$	129,090			$	254,095
Earnings per share – basic		$	0.50			$	0.71			$	1.33
Earnings per share – diluted		$	0.49			$	0.69			$	1.32

Key Performance Indicators

Management regularly reviews financial and non-financial performance indicators to assess the Company’s operating results. The following table sets forth, for the quarterly periods indicated, certain of management’s key financial performance indicators:

		Three Months Ended
		August 31, 2018				May 31, 2018				February 28, 2018				November 30, 2017
Sales cycle(1)			1 day				9 days				3 days				(2) days
Inventory turns (annualized)			6 turns				6 turns				6 turns				6 turns
Days in accounts receivable			26 days				26 days				26 days				25 days
Days in inventory(3)			58 days				60 days				62 days				58 days
Days in accounts payable(4)			83 days				77 days				85 days				85 days
		Three Months Ended
		August 31, 2017				May 31, 2017				February 28, 2017				November 30, 2016
Sales cycle(1)			0 days				9 days				11 days				1 day
Inventory turns (annualized)			6 turns				6 turns				7 turns				7 turns
Days in accounts receivable(2)			25 days				29 days				29 days				27 days
Days in inventory(3)			58 days				59 days				55 days				48 days
Days in accounts payable(4)			83 days				79 days				73 days				74 days

(1)	The sales cycle is calculated as the sum of days in accounts receivable and days in inventory, less the days in accounts payable; accordingly, the variance in the sales cycle quarter over quarter is a direct result of changes in these indicators.

(2)	During the three months ended August 31, 2017, the decrease in days in accounts receivable from the prior sequential quarter was primarily due to the timing of sales and collections activity.

(3)

During each of the three months ended August 31, 2018 and May 31, 2018, the decrease in days in inventory from the prior sequential quarter was primarily due to increased sales activity during the quarter. During the three months ended February 28, 2018, the increase in days in inventory from the prior sequential quarter was primarily due to the increase in inventories to support expected sales levels in the third quarter of fiscal year 2018 along with overall increased demand. During the three months ended May 31, 2017, days in inventory increased four days as compared to the prior sequential quarter to support expected sales levels in the fourth quarter of fiscal year 2017. During the three months ended February 28, 2017, days in inventory increased as compared to the prior sequential quarter: (i) as a result of lower production in the DMS segment due to reduced consumer demand in the mobility business and (ii) to support expected revenue levels in the third quarter of fiscal year 2017.

(4)

During the three months ended August 31, 2018, the increase in days in accounts payable from the prior sequential quarter was primarily due to higher materials purchases during the quarter and the timing of purchases and cash payments for purchases during the quarter. During the three months ended May 31, 2018, the decrease in days in accounts payable from the prior sequential quarter was primarily due to the timing of purchases and cash payments for purchases during the quarter. During the three months ended November 30, 2017 and August 31, 2017, the increase in

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days in accounts payable from the prior sequential quarter was primarily due to higher materials purchases during the quarter due to increased demand in the mobility business as well as the timing of purchases and cash payments from purchases during the quarter. During the three months ended May 31, 2017, the increase in days in accounts payable from the prior sequential quarter was primarily due to the timing of purchases and cash payments for purchases during the quarter.

Critical Accounting Policies and Estimates

The preparation of our Consolidated Financial Statements and related disclosures in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires management to make estimates and judgments that affect our reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and assumptions based upon historical experience and various other factors and circumstances. Management believes that our estimates and assumptions are reasonable under the circumstances; however, actual results may vary from these estimates and assumptions under different future circumstances. We have identified the following critical accounting policies that affect the more significant judgments and estimates used in the preparation of our Consolidated Financial Statements. For further discussion of our significant accounting policies, refer to Note 1 – “Description of Business and Summary of Significant Accounting Policies” to the Consolidated Financial Statements.

Revenue Recognition

We derive substantially all of our revenue from production and product management services (collectively referred to as “manufacturing services”), which encompasses the act of producing tangible components that are built to customer specifications, which are then provided to the customer. We recognize manufacturing services revenue when such tangible components are shipped to or the goods are received by the customer, title and risk of ownership have passed, the price to the buyer is fixed or determinable and collectability is reasonably assured (net of estimated returns). We also derive revenue to a lesser extent from electronic design services to certain customers. Revenue from electronic design services is generally recognized upon completion and acceptance by the respective customer. Upfront payments from customers are recorded upon receipt as deferred income and are recognized as revenue as the related manufacturing services are provided.

Effective September 1, 2018, our revenue recognition accounting policies changed in conjunction with the adoption of the new revenue recognition standard. Upon adoption, we recognize revenue over time as manufacturing services are completed for the majority of our contracts with customers, which results in revenue being recognized earlier than under the current guidance. Revenue for all other contracts with customers will be recognized at a point in time, upon transfer of control of the product to the customer, which is effectively no change to our historical current accounting. For further discussion of the new revenue recognition standard, refer to Note 16—“New Accounting Guidance” to the Consolidated Financial Statements.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts related to receivables not expected to be collected from our customers. This allowance is based on management’s assessment of specific customer balances after considering the age of receivables and financial stability of the customer. If there is an adverse change in the financial condition and circumstances of our customers, or if actual defaults are higher than provided for, an addition to the allowance may be necessary.

Inventory Valuation

We purchase inventory based on forecasted demand and record inventory at the lower of cost and net realizable value. Management regularly assesses inventory valuation based on current and forecasted usage, customer inventory-related contractual obligations and other lower of cost and net realizable value considerations. If actual market conditions or our customers’ product demands are less favorable than those projected, additional valuation adjustments may be necessary.

Long-Lived Assets

We review property, plant and equipment and amortizable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of property, plant and equipment is measured by comparing its carrying value to the undiscounted projected cash flows that the asset(s) or asset group(s) are expected to generate. If the carrying amount of an asset or an asset group is not recoverable, we recognize an impairment loss based on the excess of the carrying amount of the long-lived asset or asset group over its respective fair value, which is generally determined as either the present value of estimated future cash flows or the appraised value. The impairment analysis is based on significant assumptions of future results made by management, including revenue and cash flow projections. Circumstances that may lead to impairment of property, plant and equipment include unforeseen decreases in future performance or industry demand and the restructuring of our operations resulting from a change in our business strategy or adverse economic conditions.

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We have recorded intangible assets, including goodwill, in connection with business acquisitions. Estimated useful lives of amortizable intangible assets are determined by management based on an assessment of the period over which the asset is expected to contribute to future cash flows. The fair value of acquired amortizable intangible assets impacts the amounts recorded as goodwill.

We perform a goodwill impairment analysis using the two-step method on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The recoverability of goodwill is measured at the reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, to the fair value of the reporting unit. We determine the fair value of our reporting units based on an average weighting of both projected discounted future results and the use of comparative market multiples. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and a second test is performed to measure the amount of loss, if any.

We perform an indefinite-lived intangible asset impairment analysis on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The recoverability of indefinite-lived intangible assets is measured by comparing the carrying amount to the fair value. We determine the fair value of our indefinite-lived intangible assets principally based on a variation of the income approach, known as the relief from royalty method. If the carrying amount of the indefinite-lived intangible asset exceeds its fair value, the indefinite-lived intangible asset is considered impaired.

We completed our annual impairment test for goodwill and indefinite-lived intangible assets during the fourth quarter of fiscal year 2018 and determined that the fair values of our reporting units and the indefinite-lived intangible assets are substantially in excess of the carrying values and that no impairment existed as of the date of the impairment test. Significant judgments inherent in this analysis included assumptions regarding appropriate revenue growth rates, discount rates and royalty rates.

Income Taxes

We estimate our income tax provision in each of the jurisdictions in which we operate, a process that includes estimating exposures related to examinations by taxing authorities. We must also make judgments regarding the ability to realize deferred tax assets. The carrying value of our net deferred tax assets is based on our belief that it is more likely than not that we will generate sufficient future taxable income in certain jurisdictions to realize these deferred tax assets. A valuation allowance has been established for deferred tax assets that we do not believe meet the “more likely than not” criteria. We assess whether an uncertain tax position taken or expected to be taken in a tax return meets the threshold for recognition and measurement in the Consolidated Financial Statements. Our judgments regarding future taxable income as well as tax positions taken or expected to be taken in a tax return may change due to changes in market conditions, changes in tax laws or other factors. If our assumptions and consequently our estimates change in the future, the valuation allowances and/or tax reserves established may be increased or decreased, resulting in a respective increase or decrease in income tax expense.

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 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. company’s foreign subsidiaries and will effectively tax such income at reduced tax rates (“transition tax”). During fiscal year 2018, we made reasonable estimates related to certain impacts of the Tax Act and, in accordance with the Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cut and Jobs Act (“SAB 118”), recorded a net provisional income tax expense of $142.3 million for the fiscal year ended August 31, 2018. This net provisional expense is mainly comprised of $65.9 million related to the one-time transition tax inclusive of unrecognized tax benefits, $(10.5) million related to the re-measurement of our U.S. deferred tax attributes, and $85.0 million related to the foreign tax impact of a change in indefinite reinvestment assertion on certain earnings from our foreign subsidiaries. As we finalize the accounting for the tax effects of the enactment of the Tax Act during the measurement period, we will reflect adjustments to the provisional amounts recorded and record additional tax effects in the periods such adjustments are identified.

The Internal Revenue Service (“IRS”) completed its field examination of our tax returns for fiscal years 2009 through 2011 and issued a Revenue Agent’s Report (“RAR”) on May 27, 2015, which was updated on June 22, 2016. The IRS completed its field examination of our 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, our income tax payments due for the fiscal years 2009 through 2011

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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.

We disagree with the proposed adjustments and intend 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, we continue 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 that are significantly higher than the amounts accrued for these matters, management currently believes that the resolution will not have a material adverse effect on our financial position, results of operations or cash flows. However, there can be no assurance that management’s beliefs will be realized. For further discussion related to our income taxes, refer to Note 4 — “Income Taxes” to the Consolidated Financial Statements.

Recent Accounting Pronouncements

See Note 16 – “New Accounting Guidance” to the Consolidated Financial Statements for a discussion of recent accounting guidance.

Results of Operations

Net Revenue

Generally, we assess revenue on a global customer basis regardless of whether the growth is associated with organic growth or as a result of an acquisition. Accordingly, we do not differentiate or separately report revenue increases generated by acquisitions as opposed to existing business. In addition, the added cost structures associated with our acquisitions have historically been relatively insignificant when compared to our overall cost structure.

The distribution of revenue across our segments has fluctuated, and will continue to fluctuate, as a result of numerous factors, including the following: fluctuations in customer demand; efforts to diversify certain portions of our business; seasonality in our business; business growth from new and existing customers; specific product performance; and any potential termination, or substantial winding down, of significant customer relationships.

		Fiscal Year Ended August 31,												Change
(dollars in millions)		2018				2017				2016				2018 vs. 2017				2017 vs. 2016
Net revenue		$	22,095.4			$	19,063.1			$	18,353.1				15.9	%			3.9	%

2018 vs. 2017

Net revenue increased during the fiscal year ended August 31, 2018 compared to the fiscal year ended August 31, 2017. Specifically, the DMS segment revenues increased 23% due to (i) a 19% increase in revenues from customers within our mobility business as a result of increased end user product demand, (ii) a 3% increase in revenues due to new business from existing customers in our healthcare business and (iii) a 1% increase in revenues spread across a variety of industries in the DMS segment. EMS segment revenues increased 11% primarily due to (i) a 3% increase in revenues from a new customer and existing customers within our industrial and energy business, (ii) a 3% increase in revenues from customers within our digital home business, (iii) a 3% increase in revenues from existing customers within our capital equipment business and (iv) a 2% increase in revenues spread across a variety of industries in the EMS segment.

2017 vs. 2016

Net revenue increased during the fiscal year ended August 31, 2017 compared to the fiscal year ended August 31, 2016. The DMS segment revenues increased 9% as a result of (i) a 4% increase in revenues due to new business from existing customers in our consumer lifestyles and wearable technologies business, (ii) a 3% increase in revenues due to new business from existing customers in our healthcare business and (iii) a 2% increase in revenues from existing customers within our mobility business. EMS segment revenues remained relatively consistent due to a mix of increases and decreases spread across various industries within the EMS segment, with no one change being significant individually.

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The following table sets forth, for the periods indicated, revenue by segment expressed as a percentage of net revenue:

		Fiscal Year Ended August 31,
		2018				2017				2016
EMS			56	%			58	%			60	%
DMS			44	%			42	%			40	%
Total			100	%			100	%			100	%

The following table sets forth, for the periods indicated, foreign source revenue expressed as a percentage of net revenue:

		Fiscal Year Ended August 31,
		2018				2017				2016
Foreign source revenue			91.7	%			91.4	%			90.7	%

Gross Profit

		Fiscal Year Ended August 31,
(dollars in millions)		2018				2017				2016
Gross profit		$	1,706.8			$	1,545.6			$	1,527.7
Percent of net revenue			7.7	%			8.1	%			8.3	%

2018 vs. 2017

Gross profit decreased as a percent of net revenue during the fiscal year ended August 31, 2018 compared to the fiscal year ended August 31, 2017, primarily due to (i) increased materials costs due to the constrained components market, (ii) increased direct labor costs and (iii) charges related to certain distressed customers in the networking and consumer wearables sectors.

2017 vs. 2016

Gross profit remained relatively consistent as a percent of net revenue during the fiscal year ended August 31, 2017 compared to the fiscal year ended August 31, 2016.

Selling, General and Administrative

		Fiscal Year Ended August 31,												Change
(dollars in millions)		2018				2017				2016				2018 vs. 2017				2017 vs. 2016
Selling, general and administrative		$	1,050.7			$	907.7			$	924.4			$	143.0			$	(16.7	)

2018 vs. 2017

Selling, general and administrative expenses increased during the fiscal year ended August 31, 2018 compared to the fiscal year ended August 31, 2017. During fiscal year 2018, we recognized an additional $32.4 million of stock-based compensation expense due to the modification of certain performance-based restricted stock awards and a one-time cash-settled award while fiscal year 2017 included a $21.0 million reversal of stock-based compensation expense due to decreased expectations for the vesting of certain performance-based restricted stock awards. The remaining increase is primarily driven by an increase in salary and salary related expenses and other costs to support new business growth and development.

2017 vs. 2016

Selling, general and administrative expenses decreased during the fiscal year ended August 31, 2017 compared to the fiscal year ended August 31, 2016. The decrease resulted primarily from a $21.0 million reversal of stock-based compensation expense during fiscal year 2017 due to decreased expectations for the vesting of certain performance-based restricted stock awards. The decrease was partially offset by an increase in salary and salary-related expenses and other costs.

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Research and Development

		Fiscal Year Ended August 31,
(dollars in millions)		2018				2017				2016
Research and development		$	38.5			$	29.7			$	32.0
Percent of net revenue			0.2	%			0.2	%			0.2	%

2018 vs. 2017

Research and development expenses remained relatively consistent as a percent of net revenue during the fiscal year ended August 31, 2018 compared to the fiscal year ended August 31, 2017.

2017 vs. 2016

Research and development expenses remained relatively consistent as a percent of net revenue during the fiscal year ended August 31, 2017 compared to the fiscal year ended August 31, 2016.

Amortization of Intangibles

		Fiscal Year Ended August 31,												Change
(dollars in millions)		2018				2017				2016				2018 vs. 2017				2017 vs. 2016
Amortization of intangibles		$	38.5			$	35.5			$	37.1			$	3.0			$	(1.6	)

2018 vs. 2017

Amortization of intangibles increased during the fiscal year ended August 31, 2018 compared to the fiscal year ended August 31, 2017 primarily due to the incremental additional amortization associated with intangible assets related to the acquisition of True-Tech Corporation (“True-Tech”) that occurred in the first quarter of fiscal year 2018.

2017 vs. 2016

Amortization of intangibles decreased during the fiscal year ended August 31, 2017 compared to the fiscal year ended August 31, 2016 primarily due to certain intangible assets associated with the Plasticos and Shemer acquisitions that were fully amortized during fiscal year 2016.

Restructuring and Related Charges

Following is a summary of our restructuring and related charges:

		Fiscal Year Ended August 31,
(dollars in millions)		2018(2)				2017(2)				2016(3)
Employee severance and benefit costs		$	16.3			$	56.8			$	8.8
Lease costs			1.6				4.0				—
Asset write-off costs			16.2				94.3				1.2
Other related costs			2.8				5.3				1.4
Total restructuring and related charges(1)		$	36.9			$	160.4			$	11.4

(1)	Includes $16.3 million, $51.3 million and $10.7 million recorded in the EMS segment, $16.6 million, $82.4 million and $0.8 million recorded in the DMS segment and $4.0 million, $26.7 million and $(0.1) million of non-allocated charges for the fiscal years ended August 31, 2018, 2017 and 2016, respectively. Except for asset write-off costs, all restructuring and related charges are cash settled.

(2)	Primarily relates to the 2017 Restructuring Plan.

(3)	Costs relate to the 2013 Restructuring Plan, which was substantially complete during fiscal year 2017.

2017 Restructuring Plan

On September 15, 2016, our Board of Directors formally approved a restructuring plan to better align our global capacity and administrative support infrastructure to further optimize organizational effectiveness. This action includes headcount reductions across our selling, general and administrative cost base and capacity realignment in higher cost locations (the “2017 Restructuring Plan”).

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Upon completion of the 2017 Restructuring Plan, we expect to recognize approximately $195.0 million in restructuring and related costs. We incurred $186.4 million of costs-to-date as of August 31, 2018. The remaining costs for employee severance and benefits costs, asset write-off costs and other related costs are anticipated to be incurred through the first half of fiscal year 2019.

The 2017 Restructuring Plan, once complete, is expected to yield annualized cost savings beginning in fiscal year 2019 of approximately $90.0 million. During fiscal year 2018, we realized costs savings of approximately $80.0 million. The annual cost savings is expected to be reflected as a reduction in cost of revenue as well as a reduction of selling, general and administrative expense.

See Note 14 – “Restructuring and Related Charges” to the Consolidated Financial Statements for further discussion of restructuring and related charges for the 2017 Restructuring Plan.

Other Expense

		Fiscal Year Ended August 31,												Change
(dollars in millions)		2018				2017				2016				2018 vs. 2017				2017 vs. 2016
Other expense		$	37.6			$	28.4			$	8.4			$	9.2			$	20.0

2018 vs. 2017

Other expense increased during the fiscal year ended August 31, 2018 compared to the fiscal year ended August 31, 2017, primarily due to an increase in fees associated with the utilization of the asset-backed securitization programs and the new trade accounts receivable sale programs of $16.3 million, costs incurred of $2.6 million in connection with a “make-whole” premium and related expenses for the early redemption of the 8.250% Senior Notes due 2018 and $1.2 million for an other than temporary impairment on a cost method investment. The increase was partially offset by an $11.5 million other than temporary impairment on available for sale securities during the third quarter of fiscal year 2017.

2017 vs. 2016

Other expense increased during the fiscal year ended August 31, 2017 compared to the fiscal year ended August 31, 2016, primarily due to an other than temporary impairment on available for sale securities of $11.5 million, an increase in fees associated with the asset-backed securitization programs of $6.6 million and a $1.5 million loss associated with a cost method investment.

Interest Income

		Fiscal Year Ended August 31,												Change
(dollars in millions)		2018				2017				2016				2018 vs. 2017				2017 vs. 2016
Interest income		$	17.8			$	12.5			$	9.1			$	5.3			$	3.4

2018 vs. 2017

Interest income increased during the fiscal year ended August 31, 2018 compared to the fiscal year ended August 31, 2017 due to increased cash equivalents (investments that are readily convertible to cash with maturity dates of 90 days or less) and higher interest rates.

2017 vs. 2016

Interest income increased during the fiscal year ended August 31, 2017 compared to the fiscal year ended August 31, 2016 due to increased cash equivalents (investments that are readily convertible to cash with maturity dates of 90 days or less).

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Interest Expense

		Fiscal Year Ended August 31,												Change
(dollars in millions)		2018				2017				2016				2018 vs. 2017				2017 vs. 2016
Interest expense		$	149.0			$	138.1			$	136.5			$	10.9			$	1.6

2018 vs. 2017

Interest expense increased during the fiscal year ended August 31, 2018 compared to the fiscal year ended August 31, 2017 due to additional borrowings on the 2017 Revolving Credit Facility and higher interest rates.

2017 vs. 2016

Interest expense remained relatively consistent during the fiscal year ended August 31, 2017 compared to the fiscal year ended August 31, 2016.

Income Tax Expense

		Fiscal Year Ended August 31,												Change
		2018				2017				2016				2018 vs. 2017				2017 vs. 2016
Effective tax rate			76.6	%			50.4	%			34.1	%			26.2	%			16.3	%

2018 vs. 2017

The increase in the effective tax rate during the fiscal year ended August 31, 2018 compared to the fiscal year ended August 31, 2017 was primarily due to $142.3 million of provisional tax expense associated with the Tax Act impacts of the one-time transition tax, re-measurement of our U.S. deferred tax attributes, and a change in the indefinite reinvestment assertion on certain earnings from our foreign subsidiaries. The increase was also driven by the fiscal year 2017 valuation allowance reversals of $27.5 million related to non-U.S. jurisdictions that did not recur in fiscal year 2018. The increase was partially offset by $16.1 million of tax benefits from the lapse of statute in a non-U.S. jurisdiction and $14.8 million related to the release of stranded tax effects previously classified as accumulated other comprehensive income (“AOCI”).

During fiscal year 2018, we made reasonable estimates of the impact related to certain aspects of the Tax Act and, in accordance with the SEC’s SAB118, recorded a provisional income tax expense of approximately $142.3 million. As of August 31, 2018, we believe this is a reasonable estimate related to the Tax Act based on analyses, interpretations, and guidance available at this time. The final impact of the Tax Act may differ from our estimate 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 U.S. deferred tax attributes, analysis of our indefinite reinvestment assertion, and the computation of earnings and profits of our foreign subsidiaries, applicable foreign tax credits and relevant limitations. As we finalize the accounting for the tax effects of the enactment of the Tax Act during the measurement period, we will reflect adjustments to the provisional amounts recorded and record additional tax effects in the periods such adjustments are identified.

2017 vs. 2016

The increase in the effective tax rate during the fiscal year ended August 31, 2017 compared to the fiscal year ended August 31, 2016 was primarily due to decreased income in jurisdictions with low tax rates and increased losses in jurisdictions with existing valuation allowances, which was partially due to an increase in restructuring expense, and increased income in jurisdictions with high tax rates. This effective tax rate increase was partially offset by an income tax benefit of $27.5 million for the reversal of valuation allowances related to non-U.S. jurisdictions.

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Non-GAAP (Core) Financial Measures

The following discussion and analysis of our financial condition and results of operations include certain non-GAAP financial measures as identified in the reconciliation below. The non-GAAP financial measures disclosed herein do not have standard meaning and may vary from the non-GAAP financial measures used by other companies or how we may calculate those measures in other instances from time to time. Non-GAAP financial measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with U.S. GAAP. Also, our “core” financial measures should not be construed as an inference by us that our future results will be unaffected by those items that are excluded from our “core” financial measures.

Management believes that the non-GAAP “core” financial measures set forth below are useful to facilitate evaluating the past and future performance of our ongoing manufacturing operations over multiple periods on a comparable basis by excluding the effects of the amortization of intangibles, stock-based compensation expense and related charges, restructuring and related charges, distressed customer charges, acquisition and integration charges, loss on disposal of subsidiaries, settlement of receivables and related charges, impairment of notes receivable and related charges, goodwill impairment charges, business interruption and impairment charges, net, other than temporary impairment on securities, income (loss) from discontinued operations, gain (loss) on sale of discontinued operations and certain other expenses, net of tax and certain deferred tax valuation allowance charges. Among other uses, management uses non-GAAP “core” financial measures to make operating decisions, assess business performance and as a factor in determining certain employee performance when evaluating incentive compensation.

We determine the tax effect of the items excluded from “core” earnings and “core” basic and diluted earnings per share based upon evaluation of the statutory tax treatment and the applicable tax rate of the jurisdiction in which the pre-tax items were incurred, and for which realization of the resulting tax benefit, if any, is expected. In certain jurisdictions where we do not expect to realize a tax benefit (due to a history of operating losses or other factors resulting in a valuation allowance related to deferred tax assets), a 0% tax rate is applied.

We are reporting “core” operating income, “core” earnings and “core” return on invested capital to provide investors with an additional method for assessing operating income and earnings, by presenting what we believe are our “core” manufacturing operations. A significant portion (based on the respective values) of the items that are excluded for purposes of calculating “core” operating income and “core” earnings also impacted certain balance sheet assets, resulting in a portion of an asset being written off without a corresponding recovery of cash we may have previously spent with respect to the asset. In the case of restructuring and related charges, we may make associated cash payments in the future. In addition, although, for purposes of calculating “core” operating income and “core” earnings, we exclude stock-based compensation expense (which we anticipate continuing to incur in the future) because it is a non-cash expense, the associated stock issued may result in an increase in our outstanding shares of stock, which may result in the dilution of our stockholders’ ownership interest. We encourage you to consider these matters when evaluating the utility of these non-GAAP financial measures.

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Included in the tables below are a reconciliation of the non-GAAP financial measures to the most directly comparable U.S. GAAP financial measures as provided in our Consolidated Financial Statements (in thousands, except for per share data):

		Fiscal Year Ended August 31,
		2018				2017				2016
Operating income (U.S. GAAP)		$	542,153			$	410,230			$	522,833
Amortization of intangibles			38,490				35,524				37,121
Stock-based compensation expense and related charges			98,511				48,544				58,997
Restructuring and related charges			36,902				160,395				11,369
Acquisition and integration charges(1)			8,082				—				—
Distressed customer charges(2)			32,710				10,198				—
Loss on disposal of subsidiaries			—				2,112				—
Business interruption and impairment charges, net(3)			11,299				—				—
Adjustments to operating income			225,994				256,773				107,487
Core operating income (Non-GAAP)		$	768,147			$	667,003			$	630,320
Net income attributable to Jabil Inc. (U.S. GAAP)		$	86,330			$	129,090			$	254,095
Adjustments to operating income			225,994				256,773				107,487
Other than temporary impairment on securities(4)			—				11,539				—
Adjustment for taxes(5)			146,206				(4,726	)			(2,483	)
Core earnings (Non-GAAP)		$	458,530			$	392,676			$	359,099
Earnings per share (U.S. GAAP):
Basic		$	0.50			$	0.71			$	1.33
Diluted		$	0.49			$	0.69			$	1.32
Core earnings per share (Non-GAAP):
Basic		$	2.66			$	2.16			$	1.89
Diluted		$	2.62			$	2.11			$	1.86
Weighted average shares outstanding used in the calculations of earnings per share (U.S. GAAP and Non-GAAP):
Basic			172,237				181,902				190,413
Diluted			175,044				185,838				192,750

(1)	Charges related to our strategic collaboration with a healthcare company.

(2)	Charges during fiscal year 2018 relate to inventory and other assets charges for certain distressed customers in the networking and consumer wearables sectors. Charges during fiscal year 2017 relate to inventory and other assets charges for the disengagement with an energy customer.

(3)	Charges, net of insurance proceeds of $24.9 million, for the fiscal year ended August 31, 2018 relate to business interruption and asset impairment costs associated with damage from Hurricane Maria, which impacted our operations in Cayey, Puerto Rico.

(4)	Relates to an other than temporary impairment on available for sale securities during fiscal year 2017.

(5)	Includes a $142.3 million provisional estimate to account for the effects of the Tax Act for the fiscal year ended August 31, 2018.

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		Fiscal Year Ended
		August 31, 2018				August 31, 2017				August 31, 2016
Numerator:
Operating income (U.S. GAAP)		$	542,153			$	410,230			$	522,833
Tax effect (1)			(300,979	)			(137,087	)			(131,893	)
After-tax operating income			241,174				273,143				390,940
			x1				x1				x1
Annualized after-tax operating income		$	241,174			$	273,143			$	390,940
Core operating income (Non-GAAP)		$	768,147			$	667,003			$	630,320
Tax effect (2)			(144,261	)			(134,930	)			(134,426	)
After-tax core operating income			623,886				532,073				495,894
			x1				x1				x1
Annualized after-tax core operating income		$	623,886			$	532,073			$	495,894
Denominator:
Average total Jabil Inc. stockholders’ equity (3)		$	2,151,886			$	2,395,843			$	2,376,513
Average notes payable and long-term debt, less current installments (3)			2,063,047				1,853,302				1,704,915
Average current installments of notes payable and long-term debt (3)			235,348				245,654				184,388
Average cash and cash equivalents (3)			(1,223,934	)			(1,050,989	)			(913,011	)
Net invested capital base		$	3,226,347			$	3,443,810			$	3,352,805
Return on Invested Capital (U.S. GAAP)			7.5	%			7.9	%			11.7	%
Adjustments noted above			11.8	%			7.6	%			3.1	%
Core Return on Invested Capital (Non-GAAP)			19.3	%			15.5	%			14.8	%

(1)	This amount is calculated by adding the amount of income taxes attributable to its operating income (U.S. GAAP) and its interest expense.

(2)	This amount is calculated by adding the amount of income taxes attributable to its core operating income (Non-GAAP) and its interest expense.

(3)	The average is based on the addition of the account balance at the end of the most recently-ended fiscal year to the account balance at the end of the prior fiscal year for the fiscal years ended August 31, 2018, 2017 and 2016, respectively, and dividing by two.

Quarterly Results (Unaudited)

The following table sets forth certain unaudited quarterly financial information for the 2018 and 2017 fiscal years. In the opinion of management, this information has been presented on the same basis as the audited consolidated financial statements appearing elsewhere, and all necessary adjustments (consisting primarily of normal recurring accruals) have been included in the amounts stated below to present fairly the unaudited quarterly results when read in conjunction with the audited consolidated financial statements and related notes thereto. The operating results for any quarter are not necessarily indicative of results for any future period.

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Fiscal Year 2018

		Three Months Ended
(in thousands, except for per share data)		August 31, 2018				May 31, 2018				February 28, 2018				November 30, 2017
Net revenue		$	5,771,831			$	5,436,952			$	5,301,101			$	5,585,532
Gross profit(1)			442,147				398,227				397,133				469,285
Operating income(1)(2)			153,896				112,971				129,532				145,754
Net (loss) income (1)(2)(3)			(56,608	)			42,702				37,528				63,919
Net (loss) income attributable to Jabil Inc.(1)(2)(3)		$	(57,314	)		$	42,541			$	37,308			$	63,795
(Loss) earnings per share attributable to the stockholders of Jabil Inc.
Basic		$	(0.34	)		$	0.25			$	0.21			$	0.36
Diluted		$	(0.34	)		$	0.25			$	0.21			$	0.35

Fiscal Year 2017

		Three Months Ended
(in thousands, except for per share data)		August 31, 2017				May 31, 2017				February 28, 2017				November 30, 2016
Net revenue		$	5,023,029			$	4,489,557			$	4,445,637			$	5,104,898
Gross profit(1)			425,818				326,415				361,904				431,506
Operating income(1)			118,057				43,383				83,183				165,607
Net income (loss)(1)			46,041				(25,699	)			20,124				86,701
Net income (loss) attributable to Jabil Inc.(1)		$	45,679			$	(25,281	)		$	20,665			$	88,027
Earnings (loss) per share attributable to the stockholders of Jabil Inc.
Basic		$	0.26			$	(0.14	)		$	0.11			$	0.48
Diluted		$	0.25			$	(0.14	)		$	0.11			$	0.47

(1)	Includes a distressed customer charge of $18.0 million, $14.7 million and $10.2 million during the three months ended August 31, 2018, February 28, 2018 and May 31, 2017, respectively.

(2)	Includes $32.4 million of stock-based compensation expense for the modification of certain performance-based restricted stock awards and a one-time cash settled award during the three months ended November 30, 2017.

(3)	Includes $111.4 million and $30.9 million for the three months ended August 31, 2018 and February 28, 2018, respectively, related to the Tax Act.

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Acquisitions and Expansion

As discussed in Note 15 – “Business Acquisitions” to the Consolidated Financial Statements, we completed one acquisition during the fiscal year ended August 31, 2018 and one acquisition during the fiscal year ended August 31, 2017. Acquisitions are accounted for as business combinations using the acquisition method of accounting. Our Consolidated Financial Statements include the operating results of each business from the date of acquisition.

On July 18, 2018 we submitted a binding offer to form a strategic collaboration with Johnson & Johnson Medical Devices Companies that would significantly expand our medical device manufacturing portfolio, diversification and capabilities. The offer has been accepted with respect to the North American sites and is pending applicable consultative processes for sites in Switzerland and Germany.

Seasonality

Production levels for a portion of the DMS segment are subject to seasonal influences. We may realize greater net revenue during our first fiscal quarter which ends on November 30, due to higher demand for consumer-related products during the holiday selling season.

Liquidity and Capital Resources

We believe that our level of liquidity sources, which includes available borrowings under our revolving credit facilities, additional proceeds available under our asset-backed securitization programs and under our uncommitted trade accounts receivable sale programs, cash on hand, funds provided by operations and the access to the capital markets, will be adequate to fund our capital expenditures, the payment of any declared quarterly dividends, share repurchases, any potential acquisitions and our working capital requirements for the next 12 months. We continue to assess our capital structure and evaluate the merits of redeploying available cash to reduce existing debt or repurchase common stock.

Cash and Cash Equivalents

As of August 31, 2018, we had approximately $1.3 billion in cash and cash equivalents. As our growth remains predominantly outside of the United States, a significant portion of such cash and cash equivalents are held by our foreign subsidiaries.

As a result of the Tax Act and after the one-time transition tax on our historically untaxed foreign earnings, the cash and cash equivalents held by our foreign subsidiaries will no longer be subject to U.S. federal income tax consequences upon subsequent repatriation to the United States. As a result, most of our cash and cash equivalents as of August 31, 2018 could be repatriated to the United States without potential tax consequences.

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Notes Payable and Credit Facilities

Following is summary of principal debt payments and debt issuance for our notes payable and credit facilities:

(in thousands)		8.250% Senior Notes(1)				5.625% Senior Notes				4.700% Senior Notes				4.900% Senior Notes				3.950% Senior Notes(1)				Borrowings under revolving credit facilities(2)(3)				Borrowings under loans(2)(3)				Total notes payable and credit facilities
Balance as of August 31, 2016		$	398,552			$	396,212			$	496,041			$	298,329			$	—			$	—			$	502,210			$	2,091,344
Borrowings			—				—				—				—				—				7,434,107				—				7,434,107
Payments			—				—				—				—				—				(7,434,107	)			(43,922	)			(7,478,029	)
Other			954				892				655				242				—				—				107				2,850
Balance as of August 31, 2017			399,506				397,104				496,696				298,571				—				—				458,395				2,050,272
Borrowings			—				—				—				—				498,659				8,778,855				400,000				9,677,514
Payments			(400,000	)			—				—				—				—				(8,778,855	)			(25,907	)			(9,204,762	)
Other			494				891				654				243				(4,451	)			—				(2,156	)			(4,325	)
Balance as of August 31, 2018		$	—			$	397,995			$	497,350			$	298,814			$	494,208			$	—			$	830,332			$	2,518,699
Maturity Date		Mar 15, 2018				Dec 15, 2020				Sep 15, 2022				Jul 14, 2023				Jan 12, 2028				Nov 8, 2022 and Aug 24, 2020(2)(3)				Nov 8, 2022 and Aug 24, 2020(2)(3)
Original Facility/ Maximum Capacity		$	400.0 million			$	400.0 million			$	500.0 million			$	300.0 million			$	500.0 million			$	2.3 billion	(2)(3)		$	851.8 million	(2)(3)

(1)	During the three months ended February 28, 2018, we 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 our outstanding 8.250% Senior Notes due 2018 and pay related costs and a “make-whole” premium.

(2)

On November 8, 2017, we entered into an amended and restated senior unsecured five-year credit agreement for additional working capital to support the continued growth of the business. The credit agreement provides for: (i) a Revolving Credit Facility in the initial amount of $1.8 billion, which may, subject to the lenders’ discretion, be increased to $2.3 billion (“the 2017 Revolving Credit Facility”) and (ii) a $500.0 million Term Loan Facility (“the 2017 Term Loan Facility”), collectively “the 2017 Credit Facility.” The 2017 Credit Facility expires on November 8, 2022. The 2017 Revolving Credit Facility is subject to two whole or partial one-year extensions, at the lenders’ discretion. Interest and fees on the 2017 Credit Facility advances are based on the Company’s non-credit enhanced long-term senior unsecured debt rating as determined by Standard & Poor’s Ratings Service, Moody’s Investors Service and Fitch Ratings

(3)

On August 24, 2018, the Company entered into a senior unsecured two-year credit agreement for additional working capital to support the continued growth of the business. The credit agreement provides for: (i) a Revolving Credit Facility in the initial amount of $150.0 million (“the 2018 Revolving Credit Facility”) and (ii) a $350.0 million Term Loan Facility (“the 2018 Term Loan Facility”), collectively “the 2018 Credit Facility.” The 2018 Credit Facility expires on August 24, 2020.

During the fiscal year ended August 31, 2018, no draws were made on the 2018 Revolving Credit Facility and $350.0 million was borrowed against the 2018 Term Loan Facility. The interest rates on the 2017 Revolving Credit Facility borrowings ranged from 2.4% to 5.2% and the 2017 Term Loan Facility ranged from 2.6% to 3.5% during the fiscal year ended August 31, 2018. The interest rate on the 2018 Term Loan Facility was 3.1% during the fiscal year ended August 31, 2018.

Additionally, our foreign subsidiaries have various additional credit facilities that finance their future growth and any corresponding working capital needs.

We have a shelf registration statement with the SEC registering the potential sale of an indeterminate amount of debt and equity securities in the future to augment our liquidity and capital resources.

Our Senior Notes and our 2017 and 2018 Credit Facilities contain various financial and nonfinancial covenants. A violation of these covenants could negatively impact our liquidity by restricting our ability to borrow under the notes payable and credit facilities and potentially causing acceleration of amounts due under these notes payable and credit facilities. As of August 31, 2018 and 2017, we were in compliance with all covenants under our Senior Notes and the 2017 and 2018 Credit Facilities. Refer to Note 8 – “Notes Payable and Long-Term Debt” to the Consolidated Financial Statements for further details.

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Asset-Backed Securitization and Trade Accounts Receivable Sale Programs

Asset-Backed Securitization Programs

We continuously sell designated pools of trade accounts receivable, at a discount, under our asset-backed securitization programs to special purpose entities, which in turn sell 100% of the receivables to: (i) conduits administered by unaffiliated financial institutions and (ii) an unaffiliated financial institution. 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 underlying receivables are collected.

Following is a summary of our asset-backed securitization programs and key terms:

		Maximum Amount of Net Cash Proceeds (in millions)(1)				Expiration Date
North American		$	200.0				October 20, 2020	(2)
Foreign		$	400.0				September 30, 2021	(3)

(1)	Maximum amount available at any one time.

(2)	On October 9, 2018, the North American asset-backed securitization program was terminated and we repurchased the outstanding receivables.

(3)

On September 21, 2018, the foreign asset-backed securitization program terms were amended and the program was extended to September 30, 2021. Under the terms of the amended agreement, we continuously sell designated pools of trade accounts receivable to a special purpose entity, which in turn sells a portion of the receivables to an unaffiliated financial institution and a conduit administered by an unaffiliated financial institution. In connection with this amendment, there is no longer a deferred purchase price receivable for the foreign asset-backed securitization program.

In connection with our asset-backed securitization programs, during the fiscal year ended August 31, 2018, we sold $8.4 billion eligible trade accounts receivable and we received cash proceeds of $7.8 billion. As of August 31, 2018, we recorded a deferred purchase price receivable of $533.1 million and had up to $16.1 million in available liquidity under our asset-backed securitization programs.

Our asset-backed securitization programs contain various financial and nonfinancial covenants. As of August 31, 2018 and 2017, we were in compliance with all covenants under our asset-backed securitization programs. Refer to Note 2 – “Trade Accounts Receivable Securitization and Sale Programs” to the Consolidated Financial Statements for further details on the programs.

Trade Accounts Receivable Sale Programs

Following is a summary of the nine trade accounts receivable sale programs with unaffiliated financial institutions. Under the programs we may elect to sell receivables and the unaffiliated financial institutions may elect to purchase, at a discount, on an ongoing basis:

Program		Maximum Amount (in millions)(1)				Type of Facility				Expiration Date
A		$	875.0				Uncommitted				August 31, 2022	(2)(3)
B		$	150.0				Uncommitted				November 30, 2018	(4)
C			800.0	CNY			Uncommitted				February 13, 2019
D		$	100.0				Uncommitted				May 4, 2023	(5)
E		$	50.0				Uncommitted				August 25, 2019
F		$	150.0				Uncommitted				January 25, 2019	(6)
G		$	50.0				Uncommitted				February 23, 2023	(3)
H		$	100.0				Uncommitted				August 10, 2019	(7)
I		$	100.0				Uncommitted				July 21, 2019	(8)

(1)	Maximum amount available at any one time.

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(2)	The maximum amount under the program will reduce to $650.0 million on February 1, 2019.

(3)	Any party may elect to terminate the agreement upon 15 days prior notice.

(4)	The program will automatically extend for one year at each expiration date unless either party provides 10 days notice of termination.

(5)	Any party may elect to terminate the agreement upon 30 days prior notice.

(6)	The program will be automatically extended through January 25, 2023 unless either party provides 30 days notice of termination.

(7)	The program will be automatically extended through August 10, 2023 unless either party provides 30 days notice of termination.

(8)	The program will be automatically extended through August 21, 2023 unless either party provides 30 days notice of termination.

During the fiscal year ended August 31, 2018, we sold $5.5 billion of trade accounts receivable under these programs and we received cash proceeds of $5.5 billion. As of August 31, 2018, we had up to $606.0 million in available liquidity under our trade accounts receivable sale programs.

Capital Expenditures

For fiscal year 2019, we anticipate our net capital expenditures will be approximately $800.0 million. Our capital expenditures will support investments in new markets and ongoing maintenance in our DMS and EMS segments. The amount of actual capital expenditures may be affected by general economic, financial, competitive, legislative and regulatory factors, among other things.

Cash Flows

The following table sets forth selected consolidated cash flow information (in thousands):

		Fiscal Year Ended August 31,
		2018				2017				2016
Net cash provided by operating activities		$	933,850			$	1,256,643			$	916,207
Net cash used in investing activities			(798,384	)			(579,465	)			(1,179,981	)
Net cash (used in) provided by financing activities			(47,044	)			(404,546	)			253,512
Effect of exchange rate changes on cash and cash equivalents			(20,392	)			5,228				8,358
Net increase (decrease) in cash and cash equivalents		$	68,030			$	277,860			$	(1,904	)

Operating Activities

Net cash provided by operating activities during the fiscal year ended August 31, 2018 was primarily due to non-cash expenses and increased inventories, accounts receivable and prepaid expenses and other current assets, partially offset by increased accounts payable, accrued expenses and other liabilities. The increase in inventories is largely due to increased demand and supports expected sales levels in the first quarter of fiscal year 2019. The increase in accounts receivable is primarily driven by the timing of sales and cash collections activity as well as increased sales levels. The increase in prepaid expense and other current assets is primarily due to an increase in value added tax receivables, partially offset by a decrease in deferred purchase price receivables due to a decrease in receivables sold and the timing of cash collections. The increase in accounts payable, accrued expenses and other liabilities was primarily due to an increase in materials purchases due to increased demand in the mobility business and the timing of purchases and cash payments.

Investing Activities

Net cash used in investing activities during the fiscal year ended August 31, 2018 consisted primarily of: (i) capital expenditures principally to support ongoing business in the DMS and EMS segments and (ii) cash paid for the acquisition of True-Tech, which were partially offset by proceeds and advances from the sale of property, plant and equipment.

Financing Activities

Net cash used in financing activities during the fiscal year ended August 31, 2018, was primarily due to: (i) payments for debt agreements including the 8.250% Senior Notes, (ii) the repurchase of our common stock, (iii) dividend payments and (iv) treasury stock minimum tax withholding related to vesting of restricted stock. Net cash used in financing activities was partially offset by: (i) borrowings under debt agreements including the 3.950% Senior Notes and the 2018 Credit Facility and (ii) net proceeds from the exercise of stock options and issuance of common stock under the employee stock purchase plan.

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Dividends and Share Repurchases

Following is a summary of the dividends and share repurchases for the fiscal years ended August 31, 2018, 2017 and 2016 (in thousands):

		Dividends Paid(1)				Share Repurchases(2)				Total
Fiscal year 2016		$	62,436			$	148,185			$	210,621
Fiscal year 2017		$	59,959			$	306,397			$	366,356
Fiscal year 2018		$	57,833			$	450,000			$	507,833
Total		$	180,228			$	904,582			$	1,084,810

(1)	The difference between dividends declared and dividends paid is due to dividend equivalents for unvested restricted stock units that are paid at the time the awards vest.

(2)	Excludes commissions.

We currently expect to continue to declare and pay regular quarterly dividends of an amount similar to our past declarations. However, the declaration and payment of future dividends are discretionary and will be subject to determination by our Board of Directors (the “Board”) each quarter following its review of our financial performance.

During fiscal years 2017 and 2016, our Board authorized the repurchase of $450.0 million and $400.0 million, respectively, of our common stock under share repurchase programs, which were repurchased during fiscal years 2016, 2017 and 2018.

In June 2018, the Board authorized the repurchase of up to $350.0 million of our common stock (the “2018 Share Repurchase Program”). This authorization expires on August 31, 2019. As of August 31, 2018, no shares had yet been repurchased under this authorization and $350.0 million remained available under the 2018 Share Repurchase Program.

Contractual Obligations

Our contractual obligations as of August 31, 2018 are summarized below. As disclosed below, while we have certain non-cancelable purchase order obligations for property, plant and equipment, we generally do not enter into non-cancelable purchase orders for materials until we receive a corresponding purchase commitment from our customer. Non-cancelable purchase orders do not typically extend beyond the normal lead time of several weeks, at most. Purchase orders beyond this time frame are typically cancelable.

		Payments due by period (in thousands)
		Total				Less than 1 year				1-3 years				3-5 years				After 5 years
Notes payable and long-term debt		$	2,518,699			$	25,197			$	815,949			$	1,183,159			$	494,394
Future interest on notes payable and long-term debt(1)			516,046				112,359				197,964				112,316				93,407
Operating lease obligations			562,911				126,038				179,075				115,709				142,089
Capital lease obligations			26,468				1,326				3,002				2,814				19,326
Non-cancelable purchase order obligations(2)			288,281				271,613				12,632				4,036				—
Pension and postretirement contributions and payments(3)			6,802				799				1,076				1,322				3,605
Other(4)			73,999				18,161				31,913				10,493				13,432
Total contractual obligations(5)		$	3,993,206			$	555,493			$	1,241,611			$	1,429,849			$	766,253

(1)	Consists of interest on notes payable and long-term debt outstanding as of August 31, 2018. Certain of our notes payable and long-term debt pay interest at variable rates. We have applied estimated interest rates to determine the value of these expected future interest payments.

(2)	Consists of purchase commitments entered into as of August 31, 2018 for property, plant and equipment pursuant to legally enforceable and binding agreements.

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(3)	Includes the estimated company contributions to funded pension plans during fiscal year 2019 and the expected benefit payments for unfunded pension and postretirement plans from fiscal years 2019 through 2028. These future payments are not recorded on the Consolidated Balance Sheets but will be recorded as incurred.

(4)	Includes (i) a $35.7 million capital commitment, (ii) a $19.5 million obligation related to a new human resource system and (iii) an $18.8 million provisional estimate of the one-time transition tax as a result of the Tax Act, in accordance with SAB 118, that will be paid over eight years.

(5)	As of August 31, 2018, we have $6.2 million and $130.6 million recorded as a current and a long-term liability, respectively, for uncertain tax positions. We are not able to reasonably estimate the timing of payments, or the amount by which our liability for these uncertain tax positions will increase or decrease over time, and accordingly, this liability has been excluded from the above table.

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