filings.toolsItem 15. Exhibits and Financial Statement Schedules
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Item 15. Exhibits and Financial Statement Schedules
(a)The following documents are filed as part of this Report:
| 1 | Financial Statements. Our consolidated financial statements, and related notes thereto, with the independent registered public accounting firm reports thereon are included in Part IV of this report on the pages indicated by the Index to Consolidated Financial Statements and Schedule. |
| 2 | Financial Statement Schedule. Our financial statement schedule is included in Part IV of this report on the page indicated by the Index to Consolidated Financial Statements and Schedule. This financial statement schedule should be read in conjunction with our consolidated financial statements, and related notes thereto. |
Schedules not listed in the Index to Consolidated Financial Statements and Schedule have been omitted because they are not applicable, not required, or the information required to be set forth therein is included in the consolidated financial statements or notes thereto.
| 3 | Exhibits. See Item 15(b) below. |
(b)Exhibits. The following exhibits are included as part of, or incorporated by reference into, this Report.
EXHIBIT LIST
| 32.1* | Section 1350 Certification by the Chief Executive Officer of the Registrant. | ||||||||||||||||||||||||||||||||||
| 32.2* | Section 1350 Certification by the Chief Financial Officer of the Registrant. | ||||||||||||||||||||||||||||||||||
| 101 | The following financial information from Jabil’s Annual Report on Form 10-K for the fiscal period ended August 31, 2022, formatted in Inline XBRL: (i) Consolidated Balance Sheets as of August 31, 2022 and August 31, 2021; (ii) Consolidated Statement of Operations for the fiscal years ended August 31, 2022, 2021 and 2020; (iii) Consolidated Statements of Comprehensive Income for the fiscal years ended August 31, 2022, 2021 and 2020; (iv) Consolidated Statements of Comprehensive Stockholders’ Equity for the fiscal years ended August 31, 2022, 2021 and 2020; (v) Consolidated Statements of Cash Flows for the fiscal years ended August 31, 2022, 2021 and 2020; and (vi) Notes to Consolidated Financial Statements. | ||||||||||||||||||||||||||||||||||
| 104 | Cover Page Interactive Data File (Embedded within the inline XBRL Document in Exhibit 101). | ||||||||||||||||||||||||||||||||||
| † | Indicates management compensatory plan, contract of arrangement. | ||||||||||||||||||||||||||||||||||
| * | Filed or furnished herewith. | ||||||||||||||||||||||||||||||||||
| ** | Certain portions of this exhibit have been redacted pursuant to Item 601(b)(10)(iv) of Regulation S-K. Jabil agrees to furnish supplementally an unredacted copy of the exhibit to the Securities and Exchange Commission upon request. | ||||||||||||||||||||||||||||||||||
Certain instruments with respect to long-term debt of the Company and its consolidated subsidiaries are not filed herewith pursuant to Item 601(b)(4)(iii) of Regulation S-K since the total amount of securities authorized under each such instrument does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis. The Company agrees to furnish a copy of any such instrument to the SEC upon request.
(c)Financial Statement Schedules. See Item 15(a) above.
JABIL INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
| Management’s Report on Internal Control over Financial Reporting | 47 | ||||
| Reports of Independent Registered Public Accounting Firm (Ernst & Young LLP; PCAOB ID: 42) | 48 | ||||
| Consolidated Financial Statements: | |||||
| Consolidated Balance Sheets – August 31, 2022 and 2021 | 51 | ||||
| Consolidated Statements of Operations – Fiscal years ended August 31, 2022, 2021, and 2020 | 52 | ||||
| Consolidated Statements of Comprehensive Income – Fiscal years ended August 31, 2022, 2021, and 2020 | 53 | ||||
| Consolidated Statements of Stockholders’ Equity – Fiscal years ended August 31, 2022, 2021, and 2020 | 54 | ||||
| Consolidated Statements of Cash Flows – Fiscal years ended August 31, 2022, 2021, and 2020 | 55 | ||||
| Notes to Consolidated Financial Statements | 56 | ||||
| Financial Statement Schedule: | |||||
| Schedule II – Valuation and Qualifying Accounts | 87 |
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of Jabil Inc. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule13a-15(f) of the Securities Exchange Act of 1934, as amended.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision of and with the participation of the Chief Executive Officer and the Chief Financial Officer, the Company’s management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting as of August 31, 2022. Management based this assessment on the framework as established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included an evaluation of the design of the Company’s internal control over financial reporting and testing of the effectiveness of its internal control over financial reporting.
Based on this assessment, management has concluded that, as of August 31, 2022, the Company maintained effective internal control over financial reporting.
Ernst & Young LLP, the Company’s independent registered public accounting firm, issued an audit report on the effectiveness of the Company’s internal control over financial reporting which follows this report.
October 25, 2022
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Jabil Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Jabil Inc. and subsidiaries’ internal control over financial reporting as of August 31, 2022, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Jabil Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of August 31, 2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of August 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended August 31, 2022, and the related notes and financial statement schedule listed in the Index at Item 15(a), and our report dated October 25, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
| /s/ ERNST & YOUNG LLP | ||
Tampa, Florida
October 25, 2022
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Jabil Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Jabil Inc. and subsidiaries (the Company) as of August 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended August 31, 2022, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at August 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended August 31, 2022, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of August 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated October 25, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
| Uncertain Tax Positions | |||||
| Description of the Matter | As disclosed in Note 15 to the consolidated financial statements, the Company operates in a complex multinational tax environment and is subject to laws and regulations in various jurisdictions regarding intercompany transactions. Uncertain tax positions may arise from interpretations and judgments made by the Company in the application of the relevant laws, regulations, and tax rulings. The Company uses significant judgment in (1) determining whether the technical merits of tax positions for certain intercompany transactions are more-likely-than-not to be sustained and (2) measuring the related amount of tax benefit that qualifies for recognition. Auditing the tax positions related to certain intercompany transactions was challenging because the recognition and measurement of the tax positions is highly judgmental and is based on interpretations of laws, regulations and tax rulings. | ||||
| How We Addressed the Matter in Our Audit | We tested internal controls over the Company’s process to assess the technical merits of tax positions related to certain intercompany transactions and also tested internal controls over the Company’s process to determine the application of the relevant laws, regulations and tax rulings, including management’s process to recognize and measure the related tax positions. In testing the recognition and measurement criteria, we involved tax professionals to assist in assessing the technical merits of the Company’s tax positions. In addition, we used our knowledge of and experience with the application of domestic and international income tax laws by the relevant tax authorities to evaluate the Company’s accounting for those tax positions. We also assessed the Company’s assumptions and data used to measure the amount of tax benefit that qualifies for recognition and tested the clerical accuracy of the calculations. Lastly, we evaluated the Company’s income tax disclosures included in Note 15 in relation to the Company’s uncertain tax positions. |
| /s/ ERNST & YOUNG LLP | ||
We have served as the Company’s auditor since 2010.
Tampa, Florida
October 25, 2022
JABIL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions, except for share data)
| August 31, 2022 | August 31, 2021 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 1,478 | $ | 1,567 | |||||||
| Accounts receivable, net of allowance for credit losses | 3,995 | 3,141 | |||||||||
| Contract assets | 1,196 | 998 | |||||||||
| Inventories, net of reserve for excess and obsolete inventory | 6,128 | 4,414 | |||||||||
| Prepaid expenses and other current assets | 1,111 | 757 | |||||||||
| Total current assets | 13,908 | 10,877 | |||||||||
| Property, plant and equipment, net of accumulated depreciation | 3,954 | 4,075 | |||||||||
| Operating lease right-of-use asset | 500 | 390 | |||||||||
| Goodwill | 704 | 715 | |||||||||
| Intangible assets, net of accumulated amortization | 158 | 182 | |||||||||
| Deferred income taxes | 199 | 176 | |||||||||
| Other assets | 294 | 239 | |||||||||
| Total assets | $ | 19,717 | $ | 16,654 | |||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Current installments of notes payable and long-term debt | $ | 300 | $ | — | |||||||
| Accounts payable | 8,006 | 6,841 | |||||||||
| Accrued expenses | 5,272 | 3,734 | |||||||||
| Current operating lease liabilities | 119 | 108 | |||||||||
| Total current liabilities | 13,697 | 10,683 | |||||||||
| Notes payable and long-term debt, less current installments | 2,575 | 2,878 | |||||||||
| Other liabilities | 272 | 334 | |||||||||
| Non-current operating lease liabilities | 417 | 333 | |||||||||
| Income tax liabilities | 182 | 178 | |||||||||
| Deferred income taxes | 122 | 111 | |||||||||
| Total liabilities | 17,265 | 14,517 | |||||||||
| Commitments and contingencies | |||||||||||
| Equity: | |||||||||||
| Jabil Inc. stockholders’ equity: | |||||||||||
| Preferred stock, $0.001 par value, authorized 10,000,000 shares; no shares issued and outstanding | — | — | |||||||||
| Common stock, $0.001 par value, authorized 500,000,000 shares; 270,891,715 and 267,418,092 shares issued and 135,493,980 and 144,496,077 shares outstanding at August 31, 2022 and August 31, 2021, respectively | — | — | |||||||||
| Additional paid-in capital | 2,655 | 2,533 | |||||||||
| Retained earnings | 3,638 | 2,688 | |||||||||
| Accumulated other comprehensive loss | (42) | (25) | |||||||||
| Treasury stock at cost, 135,397,735 and 122,922,015 shares as of August 31, 2022 and August 31, 2021, respectively | (3,800) | (3,060) | |||||||||
| Total Jabil Inc. stockholders’ equity | 2,451 | 2,136 | |||||||||
| Noncontrolling interests | 1 | 1 | |||||||||
| Total equity | 2,452 | 2,137 | |||||||||
| Total liabilities and equity | $ | 19,717 | $ | 16,654 |
See accompanying notes to Consolidated Financial Statements.
JABIL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except for per share data)
| Fiscal Year Ended August 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Net revenue | $ | 33,478 | $ | 29,285 | $ | 27,266 | |||||||||||
| Cost of revenue | 30,846 | 26,926 | 25,335 | ||||||||||||||
| Gross profit | 2,632 | 2,359 | 1,931 | ||||||||||||||
| Operating expenses: | |||||||||||||||||
| Selling, general and administrative | 1,154 | 1,213 | 1,175 | ||||||||||||||
| Research and development | 33 | 34 | 43 | ||||||||||||||
| Amortization of intangibles | 34 | 47 | 56 | ||||||||||||||
| Restructuring, severance and related charges | 18 | 10 | 157 | ||||||||||||||
| Operating income | 1,393 | 1,055 | 500 | ||||||||||||||
| Loss on debt extinguishment | 4 | — | — | ||||||||||||||
| (Gain) loss on securities | — | (2) | 49 | ||||||||||||||
| Other expense (income) | 12 | (11) | 31 | ||||||||||||||
| Interest income | (5) | (6) | (15) | ||||||||||||||
| Interest expense | 151 | 130 | 174 | ||||||||||||||
| Income before income tax | 1,231 | 944 | 261 | ||||||||||||||
| Income tax expense | 235 | 246 | 204 | ||||||||||||||
| Net income | 996 | 698 | 57 | ||||||||||||||
| Net income attributable to noncontrolling interests, net of tax | — | 2 | 3 | ||||||||||||||
| Net income attributable to Jabil Inc. | $ | 996 | $ | 696 | $ | 54 | |||||||||||
| Earnings per share attributable to the stockholders of Jabil Inc.: | |||||||||||||||||
| Basic | $ | 7.06 | $ | 4.69 | $ | 0.36 | |||||||||||
| Diluted | $ | 6.90 | $ | 4.58 | $ | 0.35 | |||||||||||
| Weighted average shares outstanding: | |||||||||||||||||
| Basic | 141.2 | 148.5 | 151.6 | ||||||||||||||
| Diluted | 144.4 | 152.1 | 155.3 |
See accompanying notes to Consolidated Financial Statements.
JABIL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
| Fiscal Year Ended August 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Net income | $ | 996 | $ | 698 | $ | 57 | |||||||||||
| Other comprehensive (loss) income: | |||||||||||||||||
| Change in foreign currency translation | (68) | 17 | (21) | ||||||||||||||
| Change in derivative instruments: | |||||||||||||||||
| Change in fair value of derivatives | 1 | 35 | (6) | ||||||||||||||
| Adjustment for net losses (gains) realized and included in net income | 32 | (41) | 14 | ||||||||||||||
| Total change in derivative instruments | 33 | (6) | 8 | ||||||||||||||
| Change in available for sale securities: | |||||||||||||||||
| Unrealized loss on available for sale securities | — | — | (36) | ||||||||||||||
| Adjustment for net losses realized and included in net income | — | — | 36 | ||||||||||||||
| Total change in available for sale securities | — | — | — | ||||||||||||||
| Actuarial gain | 14 | 17 | 62 | ||||||||||||||
| Prior service credit (cost) | 4 | (19) | — | ||||||||||||||
| Total other comprehensive (loss) income | (17) | 9 | 49 | ||||||||||||||
| Comprehensive income | $ | 979 | $ | 707 | $ | 106 | |||||||||||
| Comprehensive income attributable to noncontrolling interests | — | 2 | 3 | ||||||||||||||
| Comprehensive income attributable to Jabil Inc. | $ | 979 | $ | 705 | $ | 103 |
See accompanying notes to Consolidated Financial Statements.
JABIL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions)
| Fiscal Year Ended August 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Total stockholders’ equity, beginning balances | $ | 2,137 | $ | 1,825 | $ | 1,900 | |||||||||||
| Common stock: | — | — | — | ||||||||||||||
| Additional paid-in capital: | |||||||||||||||||
| Beginning balances | 2,533 | 2,414 | 2,305 | ||||||||||||||
| Shares issued under employee stock purchase plan | 45 | 39 | 30 | ||||||||||||||
| Purchase of noncontrolling interest | — | (14) | — | ||||||||||||||
| Recognition of stock-based compensation | 77 | 94 | 79 | ||||||||||||||
| Ending balances | 2,655 | 2,533 | 2,414 | ||||||||||||||
| Retained earnings: | |||||||||||||||||
| Beginning balances | 2,688 | 2,041 | 2,037 | ||||||||||||||
| Declared dividends | (46) | (49) | (50) | ||||||||||||||
| Net income attributable to Jabil Inc. | 996 | 696 | 54 | ||||||||||||||
| Ending balances | 3,638 | 2,688 | 2,041 | ||||||||||||||
| Accumulated other comprehensive loss: | |||||||||||||||||
| Beginning balances | (25) | (34) | (83) | ||||||||||||||
| Total other comprehensive (loss) income | (17) | 9 | 49 | ||||||||||||||
| Ending balances | (42) | (25) | (34) | ||||||||||||||
| Treasury stock: | |||||||||||||||||
| Beginning balances | (3,060) | (2,610) | (2,372) | ||||||||||||||
| Purchases of treasury stock under employee stock plans | (44) | (22) | (23) | ||||||||||||||
| Treasury shares purchased | (696) | (428) | (215) | ||||||||||||||
| Ending balances | (3,800) | (3,060) | (2,610) | ||||||||||||||
| Noncontrolling interests: | |||||||||||||||||
| Beginning balances | 1 | 14 | 13 | ||||||||||||||
| Net income attributable to noncontrolling interests, net of tax | — | 2 | 3 | ||||||||||||||
| Purchase of noncontrolling interests | — | (12) | — | ||||||||||||||
| Declared dividends to noncontrolling interests | — | (3) | (2) | ||||||||||||||
| Ending balances | 1 | 1 | 14 | ||||||||||||||
| Total stockholders’ equity, ending balances | $ | 2,452 | $ | 2,137 | $ | 1,825 |
See accompanying notes to Consolidated Financial Statements.
JABIL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
| Fiscal Year Ended August 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Cash flows provided by operating activities: | |||||||||||||||||
| Net income | $ | 996 | $ | 698 | $ | 57 | |||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||
| Depreciation and amortization | 925 | 876 | 795 | ||||||||||||||
| Restructuring and related charges | (1) | 5 | 41 | ||||||||||||||
| Recognition of stock-based compensation expense and related charges | 81 | 102 | 83 | ||||||||||||||
| Deferred income taxes | (13) | (13) | 29 | ||||||||||||||
| Loss on sale of property, plant and equipment | — | 14 | 29 | ||||||||||||||
| Provision for allowance for doubtful accounts and notes receivable | — | 6 | 32 | ||||||||||||||
| (Gain) loss on securities | — | (2) | 49 | ||||||||||||||
| Other, net | 10 | 13 | 22 | ||||||||||||||
| Change in operating assets and liabilities, exclusive of net assets acquired: | |||||||||||||||||
| Accounts receivable | (878) | (283) | (136) | ||||||||||||||
| Contract assets | (214) | 116 | (105) | ||||||||||||||
| Inventories | (1,725) | (1,276) | (77) | ||||||||||||||
| Prepaid expenses and other current assets | (367) | (90) | (144) | ||||||||||||||
| Other assets | (29) | (43) | (11) | ||||||||||||||
| Accounts payable, accrued expenses and other liabilities | 2,866 | 1,310 | 593 | ||||||||||||||
| Net cash provided by operating activities | 1,651 | 1,433 | 1,257 | ||||||||||||||
| Cash flows used in investing activities: | |||||||||||||||||
| Acquisition of property, plant and equipment | (1,385) | (1,159) | (983) | ||||||||||||||
| Proceeds and advances from sale of property, plant and equipment | 544 | 366 | 187 | ||||||||||||||
| Cash paid for business and intangible asset acquisitions, net of cash | (18) | (50) | (147) | ||||||||||||||
| Repurchase of sold receivables | — | (99) | — | ||||||||||||||
| Cash receipts on repurchased receivables | 4 | 95 | — | ||||||||||||||
| Other, net | (3) | (4) | 22 | ||||||||||||||
| Net cash used in investing activities | (858) | (851) | (921) | ||||||||||||||
| Cash flows used in financing activities: | |||||||||||||||||
| Borrowings under debt agreements | 3,767 | 1,724 | 12,777 | ||||||||||||||
| Payments toward debt agreements | (3,890) | (1,613) | (12,544) | ||||||||||||||
| Payments to acquire treasury stock | (696) | (428) | (215) | ||||||||||||||
| Dividends paid to stockholders | (48) | (50) | (50) | ||||||||||||||
| Net proceeds from exercise of stock options and issuance of common stock under employee stock purchase plan | 45 | 39 | 30 | ||||||||||||||
| Treasury stock minimum tax withholding related to vesting of restricted stock | (44) | (22) | (23) | ||||||||||||||
| Other, net | (22) | (63) | (40) | ||||||||||||||
| Net cash used in financing activities | (888) | (413) | (65) | ||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | 6 | 4 | (40) | ||||||||||||||
| Net (decrease) increase in cash and cash equivalents | (89) | 173 | 231 | ||||||||||||||
| Cash and cash equivalents at beginning of period | 1,567 | 1,394 | 1,163 | ||||||||||||||
| Cash and cash equivalents at end of period | $ | 1,478 | $ | 1,567 | $ | 1,394 | |||||||||||
| Supplemental disclosure information: | |||||||||||||||||
| Interest paid, net of capitalized interest | $ | 150 | $ | 124 | $ | 183 | |||||||||||
| Income taxes paid, net of refunds received | $ | 209 | $ | 211 | $ | 164 |
See accompanying notes to Consolidated Financial Statements.
JABIL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Description of Business and Summary of Significant Accounting Policies
Jabil Inc. (together with its subsidiaries, herein referred to as the “Company”) is one of the leading providers of manufacturing services and solutions. The Company provides comprehensive electronics design, production and product management services to companies in various industries and end markets. The Company’s services combine a highly automated, continuous flow manufacturing approach with advanced electronic design and design for manufacturability technologies. The Company is headquartered in St. Petersburg, Florida and has manufacturing operations principally in the Americas, Europe and Asia.
Significant accounting policies followed by the Company are as follows:
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts and operations of the Company, and its wholly-owned and majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in preparing the consolidated financial statements. The Company has made certain reclassification adjustments to conform prior periods’ Consolidated Financial Statements and Notes to the Consolidated Financial Statements to the current presentation.
Use of Accounting Estimates
Management is required to make estimates and assumptions during the preparation of the consolidated financial statements and accompanying notes in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from these estimates and assumptions.
Cash and Cash Equivalents
Cash equivalents consist of investments that are readily convertible to cash with original maturities of 90 days or less.
Accounts Receivable
Accounts receivable consist of trade receivables and other miscellaneous receivables. The Company maintains an allowance for credit losses based on historical losses, the age of past due receivables, credit quality of our customers, current economic conditions, and other factors that may affect our ability to collect from customers. Bad debts are charged to this allowance after all attempts to collect the balance are exhausted. As the financial condition and circumstances of the Company’s customers change, adjustments to the allowance for credit losses are made as necessary.
Contract Balances
Timing of revenue recognition may differ from the timing of invoicing to customers. The Company records an asset when revenue is recognized prior to invoicing a customer (“contract assets”) while a liability is recognized when a customer provides consideration prior to the Company transferring control of the goods or services (“contract liabilities”). Amounts recognized as contract assets are generally transferred to receivables in the succeeding quarter due to the short-term nature of the manufacturing cycle. Contract assets are classified separately on the Consolidated Balance Sheets and transferred to receivables when right to payment becomes unconditional.
The Company maintains an allowance for credit losses related to contract assets based on historical losses, credit quality of our customers, current economic conditions, and other factors that may affect our ability to collect from our customers.
Inventories
Inventories are stated at the lower of cost (on a first in, first out (FIFO) basis) and net realizable value. Inventory is valued 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 customer product demands are less favorable than those projected, additional valuation adjustments may be necessary.
Fulfillment Costs
The Company capitalizes costs incurred to fulfill its contracts that i) relate directly to the contract or anticipated contracts, ii) are expected to generate or enhance the Company’s resources that will be used to satisfy the performance obligation under the
contract, and iii) are expected to be recovered through revenue generated from the contract. Capitalized fulfillment costs are amortized to cost of revenue as the Company satisfies the related performance obligations under the contract with approximate lives ranging from 1 year to 3 years. These costs, which are included in prepaid expenses and other current assets and other assets on the Consolidated Balance Sheets, generally represent upfront costs incurred to prepare for manufacturing activities.
The Company assesses the capitalized fulfillment costs for impairment at the end of each reporting period. The Company will recognize an impairment loss to the extent the carrying amount of the capitalized costs exceeds the recoverable amount. Recoverability is assessed by considering the capitalized fulfillment costs in relation to the forecasted profitability of the related manufacturing performance obligations.
As of August 31, 2022 and 2021, capitalized costs to fulfill were $175 million and $133 million, respectively. Amortization of fulfillment costs were $74 million, $58 million and $57 million during the fiscal years ended August 31, 2022, 2021 and 2020, respectively.
Property, Plant and Equipment, net
Property, plant and equipment is capitalized at cost and depreciated using the straight-line depreciation method over the estimated useful lives of the respective assets. Estimated useful lives for major classes of depreciable assets are as follows:
| Asset Class | Estimated Useful Life | ||||
| Buildings | Up to 35 years | ||||
| Leasehold improvements | Shorter of lease term or useful life of the improvement | ||||
| Machinery and equipment | 2 to 10 years | ||||
| Furniture, fixtures and office equipment | 5 years | ||||
| Computer hardware and software | 3 to 7 years | ||||
| Transportation equipment | 3 years |
Maintenance and repairs are expensed as incurred. The cost and related accumulated depreciation of assets sold or retired is removed from the accounts and any resulting gain or loss is reflected in the Consolidated Statements of Operations as a component of operating income.
Leases
The Company has lease agreements that contain both lease and non-lease components. For lease agreements entered into or reassessed beginning in fiscal year 2020, the Company has elected the practical expedient to combine lease and non-lease components for building and real estate leases.
The Company primarily has leases for buildings, machinery and equipment with lease terms ranging from 1 year to 34 years. Leases for other classes of assets are not significant. For any leases with an initial term in excess of 12 months, the Company determines whether an arrangement is a lease at contract inception by evaluating if the contract conveys the right to use and control the specific property or equipment. Certain lease agreements contain purchase or renewal options. These options are included in the lease term when it is reasonably certain that the Company will exercise that option. Generally, the Company’s lease agreements do not contain material restrictive covenants.
Right-of-use assets represent the right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized based on the present value of future lease payments over the lease term at the lease commencement date. When determining the present value of future payment, the Company uses the incremental borrowing rate when the implicit rate is not readily determinable. Any payment deemed probable under residual value guarantees is included in lease payments. Any variable payments, other than those that depend on an index or rate, are excluded from right-of-use assets and lease liabilities.
Leases with an initial term of 12 months or less are not recorded as right-of-use assets and lease liabilities in the Consolidated Balance Sheet. Lease expense for these leases is recognized on a straight-line basis over the lease term.
Certain equipment and buildings held under finance leases are classified as property, plant and equipment and the related obligation is recorded as accrued expenses and other liabilities on the Consolidated Balance Sheets. Amortization of assets held under finance leases is included in depreciation expense in the Consolidated Statements of Operations.
Goodwill and Other Intangible Assets
The Company accounts for goodwill in a business combination as the excess of the cost over the fair value of net assets acquired and is assigned to the reporting unit in which the acquired business will operate. The Company tests goodwill and indefinite-lived intangible assets for impairment during the fourth quarter of each fiscal year or whenever events or changes in circumstances indicate the carrying amount 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. The Company may elect to perform a qualitative assessment to determine whether it is more likely than not that a reporting unit is impaired. If the qualitative assessment is not performed or if the Company determines that it is not more likely than not that the fair value of the reporting unit exceeds the carrying value, the Company determines the fair value of its 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 loss recognized in the amount equal to that excess.
The recoverability of indefinite-lived intangible assets is measured by comparing the carrying amount to the fair value. The Company may elect to perform a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible is impaired. If the qualitative assessment is not performed or if the Company determines that it is not more likely than not that the fair value of an indefinite-lived intangible exceeds the carrying value, the Company determines the fair value 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.
Business combinations can also result in other intangible assets being recognized. Finite-lived intangible assets are amortized on either a straight-line or accelerated basis over their estimated useful life and include contractual agreements and customer relationships, tradenames and intellectual property. No significant residual values are estimated for the amortizable intangible assets.
Long-lived Assets
Long-lived assets, such as property, plant and equipment, and finite-lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of the asset or asset group is measured by comparing its carrying amount to the undiscounted future net cash flows the asset is expected to generate. If the carrying amount of an asset or asset group is not recoverable, the Company recognizes 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 the present value of estimated future cash flows or as the appraised value.
Derivative Instruments
All derivative instruments are recorded gross on the Consolidated Balance Sheets at their respective fair values. The accounting for changes in the fair value of a derivative instrument depends on the intended use and designation of the derivative instrument. For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative and the offsetting gain or loss on the hedged item attributable to the hedged risk are recognized in current earnings. For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative instrument is initially reported as a component of accumulated other comprehensive income (“AOCI”), net of tax, and is subsequently reclassified into the line item within the Consolidated Statements of Operations in which the hedged items are recorded in the same period in which the hedged item affects earnings. The ineffective portion of the gain or loss is recognized immediately in current earnings. For derivative instruments that are not designated as hedging instruments, gains and losses from changes in fair values are recognized in earnings. Cash receipts and cash payments related to derivative instruments are recorded in the same category as the cash flows from the items being hedged on the Consolidated Statements of Cash Flows.
Accumulated Other Comprehensive Income
The following table sets forth the changes in AOCI, net of tax, by component during the fiscal year ended August 31, 2022 (in millions):
| Foreign Currency Translation Adjustment | Derivative Instruments | Actuarial Gain (Loss) | Prior Service (Cost) Credit | Total | |||||||||||||||||||||||||||||||
| Balance as of August 31, 2021 | $ | (20) | $ | (36) | $ | 51 | $ | (20) | $ | (25) | |||||||||||||||||||||||||
| Other comprehensive (loss) income before reclassifications | (68) | 1 | 28 | — | (39) | ||||||||||||||||||||||||||||||
| Amounts reclassified from AOCI | — | 32 | (14) | 4 | 22 | ||||||||||||||||||||||||||||||
| Other comprehensive (loss) income**(1)** | (68) | 33 | 14 | 4 | (17) | ||||||||||||||||||||||||||||||
| Balance as of August 31, 2022 | $ | (88) | $ | (3) | $ | 65 | $ | (16) | $ | (42) |
(1)Amounts are net of tax, which are immaterial.
The following table sets forth the amounts reclassified from AOCI into the Consolidated Statements of Operations, and the associated financial statement line item, net of tax, for the periods indicated (in millions):
| Fiscal Year Ended August 31, | ||||||||||||||||||||||||||
| Comprehensive Income Components | Financial Statement Line Item | 2022 | 2021 | 2020 | ||||||||||||||||||||||
| Realized losses (gains) on derivative instruments:(1) | ||||||||||||||||||||||||||
| Foreign exchange contracts | Cost of revenue | $ | 30 | $ | (44) | $ | 15 | |||||||||||||||||||
| Interest rate contracts | Interest expense | 2 | 3 | (1) | ||||||||||||||||||||||
| Actuarial gain | (2) | (14) | (16) | (3) | ||||||||||||||||||||||
| Prior service cost | (2) | 4 | 1 | — | ||||||||||||||||||||||
| Available for sale securities | (Gain) loss on securities | — | — | 36 | ||||||||||||||||||||||
| Total amounts reclassified from AOCI(3) | $ | 22 | $ | (56) | $ | 47 |
(1)The Company expects to reclassify $28 million into earnings during the next twelve months, which will primarily be classified as a component of cost of revenue.
(2)Amounts are included in the computation of net periodic benefit cost. Refer to Note 10 – “Postretirement and Other Employee Benefits” for additional information.
(3)Amounts are net of tax, which are immaterial for the fiscal years ended August 31, 2022, 2021 and 2020.
Foreign Currency Transactions
For the Company’s foreign subsidiaries that use a currency other than the U.S. dollar as their functional currency, the assets and liabilities are translated at exchange rates in effect at the balance sheet date, and revenues and expenses are translated at the average exchange rate for the period. The effects of these translation adjustments are reported in accumulated other comprehensive income. Gains and losses arising from transactions denominated in a currency other than the functional currency of the entity involved are included in operating income.
Revenue Recognition
The Company provides comprehensive electronics design, production and product management services to companies in various industries and end markets. The Company derives substantially all of its revenue from production and product management services (collectively referred to as “manufacturing services”), which encompasses the act of producing tangible products that are built to customer specifications, which are then provided to the customer.
The Company generally enters into manufacturing service contracts with its customers that provide the framework under which business will be conducted and customer purchase orders will be received for specific quantities and with predominantly fixed pricing. As a result, the Company considers its contract with a customer to be the combination of the manufacturing service contract and the purchase order, or any agreements or other similar documents.
The majority of the Company's manufacturing service contracts relate to manufactured products which have no alternative use and for which the Company has an enforceable right to payment for the work completed to date. As a result, revenue is recognized over time when or as the Company transfers control of the promised products or services (known as performance obligations) to its customers. For certain other contracts with customers that do not meet the over time revenue recognition criteria, transfer of control occurs at a point in time which generally occurs upon delivery and transfer of risk and title to the customer.
Most of the Company's contracts have a single performance obligation as the promise to transfer the individual manufactured product or service is capable of being distinct and is distinct within the context of the contract. For the majority of customers, performance obligations are satisfied over time based on the continuous transfer of control as manufacturing services are performed and are generally completed in less than one year.
The Company also derives revenue to a lesser extent from electronic design services to certain customers. Revenue from electronic design services is generally recognized over time as the services are performed.
For the Company’s over time customers, it believes the measure of progress which best depicts the transfer of control is based on costs incurred to date, relative to total estimated cost at completion (i.e., an input method). This method is a faithful depiction of the transfer of goods or services because it results in the recognition of revenue on the basis of the Company's to-date efforts in the satisfaction of a performance obligation relative to the total expected efforts in the satisfaction of the performance obligation. The Company believes that the use of an input method best depicts the transfer of control to the customer, which occurs as the Company incurs costs on its contracts. The transaction price of each performance obligation is generally based upon the contractual stand-alone selling price of the product or service.
Certain contracts with customers include variable consideration, such as periodic cost of materials adjustments, rebates, discounts, or returns. The Company recognizes estimates of this variable consideration that are not expected to result in a significant revenue reversal in the future, primarily based on the most likely level of consideration to be paid to the customer under the specific terms of the underlying programs.
The Company is responsible for procuring certain components from suppliers for the manufacturing of finished goods at the direction of certain customers. If the Company does not obtain control of these components before they are transferred to the customer, the Company accounts for revenue associated with such components on a net basis. Revenue associated with components procured directly from customers is accounted for on a net basis if the components do not constitute a distinct good or service from the customer.
Taxes collected from the Company’s customers and remitted to governmental authorities are presented within the Company’s Consolidated Statement of Operations on a net basis and are excluded from the transaction price. The Company has elected to account for shipping and handling activities related to contracts with customers as costs to fulfill the promise to transfer the goods. Accordingly, the Company records customer payments of shipping and handling costs as a component of net revenue, and classifies such costs as a component of cost of revenue.
Stock-Based Compensation
The Company recognizes stock-based compensation expense, reduced for estimated forfeitures, on a straight-line basis over the requisite service period of the award, which is generally the vesting period for outstanding stock awards.
The stock-based compensation expense for time-based and performance-based restricted stock unit awards (“restricted stock units”) is measured at fair value on the date of grant based on the number of shares expected to vest and the quoted market price of the Company’s common stock. For restricted stock units with performance conditions, stock-based compensation expense is originally based on the number of shares that would vest if the Company achieved 100% of the performance goal, which is the intended outcome at the grant date. Throughout the requisite service period, management monitors the probability of achievement of the performance condition. If it becomes probable, based on the Company’s performance, that more or less than the current estimate of the awarded shares will vest, an adjustment to stock-based compensation expense will be recognized as a change in accounting estimate in the period that such probability changes.
The stock-based compensation expense for market-based restricted stock units is measured at fair value on the date of grant. The market conditions are considered in the grant date fair value using a Monte Carlo valuation model, which utilizes multiple input variables to determine the probability of the Company achieving the specified market conditions. Stock-based compensation expense related to an award with a market condition will be recognized over the requisite service period regardless of whether the market condition is satisfied, provided that the requisite service period has been completed.
The Company currently expects to satisfy share-based awards with registered shares available to be issued.
See Note 12 – “Stockholders’ Equity” for further discussion of stock-based compensation expense.
Income Taxes
Deferred tax assets (“DTA”) and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax rate is recognized in income in the period that includes the enactment date of the rate change. The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. The Company considers future taxable income and ongoing feasible tax planning strategies in assessing the need for the valuation allowance.
The Company records the effects of the Global Intangible Low-Taxed Income (“GILTI”) as a period cost and applies the incremental cash tax savings approach when analyzing the impact GILTI could have on its U.S. valuation allowance. The incremental cash tax savings approach considers the realizable benefit of a net operating loss and deferred tax assets by comparing the incremental cash taxes in the calculation of GILTI with and without the net operating loss and other DTAs.
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 shares of common stock outstanding during the period. The Company’s 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 units.
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 units 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):
| Fiscal Year Ended August 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Restricted stock units | 209.4 | 655.0 | 728.3 | ||||||||||||||
Fair Value of Financial Instruments
Fair value is categorized in one of three levels based on the lowest level of significant input used. Level 1 – quoted market prices in active markets for identical assets and liabilities; Level 2 – inputs other than quoted market prices included in Level 1 that are observable for the asset or liability, either directly or indirectly; and Level 3 – unobservable inputs for the asset or liability.
2. Trade Accounts Receivable Sale Programs
The Company regularly sells designated pools of high credit quality trade accounts receivable under uncommitted trade accounts receivable sale programs to unaffiliated financial institutions without recourse. As these accounts receivable are sold without recourse, the Company does not retain the associated risks following the transfer of such accounts receivable to the respective financial institutions. The Company continues servicing the receivables sold and in exchange receives a servicing fee under each of the trade accounts receivable sale programs. Servicing fees related to each of the trade accounts receivable sale programs recognized during the fiscal years ended August 31, 2022, 2021 and 2020 were not material. The Company does not record a servicing asset or liability on the 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 trade accounts receivable sale programs are accounted for as sales and, accordingly, net receivables sold under the trade accounts receivable sale programs are excluded from accounts receivable on the Consolidated Balance Sheets and are reflected as cash provided by operating activities on the Consolidated Statements of Cash Flows.
The following is a summary of the trade accounts receivable sale programs with unaffiliated financial institutions where the Company may elect to sell receivables and the unaffiliated financial institution may elect to purchase, at a discount, on an
ongoing basis (in millions):
| Program | Maximum Amount**(1)** | Type of Facility | Expiration Date | ||||||||||||||||||||
| A | $ | 700 | Uncommitted | December 5, 2022 | (2) | ||||||||||||||||||
| B | $ | 150 | Uncommitted | November 30, 2022 | |||||||||||||||||||
| C | 400 | CNY | Uncommitted | August 31, 2023 | |||||||||||||||||||
| D | $ | 150 | Uncommitted | May 4, 2023 | (3) | ||||||||||||||||||
| E | $ | 150 | Uncommitted | January 25, 2023 | (3) | ||||||||||||||||||
| F | $ | 50 | Uncommitted | February 23, 2023 | (4) | ||||||||||||||||||
| G | $ | 100 | Uncommitted | August 10, 2023 | (3) | ||||||||||||||||||
| H | $ | 550 | Uncommitted | December 4, 2022 | (5) | ||||||||||||||||||
| I | $ | 135 | Uncommitted | April 11, 2023 | (6) | ||||||||||||||||||
| J | 100 | CHF | Uncommitted | December 5, 2022 | (2) | ||||||||||||||||||
| K | $ | 65 | Uncommitted | January 23, 2023 |
(1)Maximum amount of trade accounts receivable that may be sold under a facility at any one time.
(2)The program will be automatically extended through December 5, 2025 unless either party provides 30 days notice of termination.
(3)Any party may elect to terminate the agreement upon 30 days prior notice.
(4)Any party may elect to terminate the agreement upon 15 days prior notice.
(5)The program will be automatically extended through December 5, 2024 unless either party provides 30 days notice of termination.
(6)The program will be automatically extended through April 11, 2025 unless either party provides 30 days notice of termination.
In connection with the trade accounts receivable sale programs, the Company recognized the following (in millions):
| Fiscal Year Ended August 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Trade accounts receivable sold | $ | 8,513 | $ | 4,654 | $ | 8,457 | |||||||||||
| Cash proceeds received | $ | 8,504 | $ | 4,651 | $ | 8,440 | |||||||||||
| Pre-tax losses on sale of receivables(1) | $ | 9 | $ | 3 | $ | 17 |
(1)Recorded to other expense within the Consolidated Statements of Operations.
3. Inventories
Inventories consist of the following (in millions):
| August 31, 2022 | August 31, 2021 | ||||||||||
| Raw materials | $ | 4,918 | $ | 3,142 | |||||||
| Work in process | 687 | 677 | |||||||||
| Finished goods | 605 | 680 | |||||||||
| Reserve for excess and obsolete inventory | (82) | (85) | |||||||||
| Inventories, net | $ | 6,128 | $ | 4,414 |
4. Property, Plant and Equipment
Property, plant and equipment consists of the following (in millions):
| August 31, 2022 | August 31, 2021 | ||||||||||
| Land and improvements | $ | 108 | $ | 143 | |||||||
| Buildings | 1,191 | 1,216 | |||||||||
| Leasehold improvements | 1,362 | 1,249 | |||||||||
| Machinery and equipment | 5,627 | 5,216 | |||||||||
| Furniture, fixtures and office equipment | 241 | 234 | |||||||||
| Computer hardware and software | 860 | 819 | |||||||||
| Transportation equipment | 10 | 9 | |||||||||
| Construction in progress | 179 | 222 | |||||||||
| Property, plant and equipment | 9,578 | 9,108 | |||||||||
| Less accumulated depreciation and amortization | 5,624 | 5,033 | |||||||||
| Property, plant and equipment, net | $ | 3,954 | $ | 4,075 |
Depreciation and maintenance and repair expenses were as follows for the periods indicated (in millions):
| Fiscal Year Ended August 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Depreciation expense | $ | 891 | $ | 828 | $ | 739 | |||||||||||
| Maintenance and repair expense | $ | 395 | $ | 381 | $ | 334 |
As of August 31, 2022 and 2021, the Company had $472 million and $703 million, respectively, included in accounts payable for the acquisition of property, plant and equipment, which is considered a non-cash investing activity in the Consolidated Statements of Cash Flows.
5. Leases
The following table sets forth the amount of lease assets and lease liabilities included on the Company's Consolidated Balance Sheets, as of the periods indicated (in millions):
| Financial Statement Line Item | August 31, 2022 | August 31, 2021 | ||||||||||||||||||
| Assets | ||||||||||||||||||||
| Operating lease assets(1) | Operating lease right-of-use assets | $ | 500 | $ | 390 | |||||||||||||||
| Finance lease assets(2) | Property, plant and equipment, net | 368 | 318 | |||||||||||||||||
| Total lease assets | $ | 868 | $ | 708 | ||||||||||||||||
| Liabilities | ||||||||||||||||||||
| Current | ||||||||||||||||||||
| Operating lease liabilities | Current operating lease liabilities | $ | 119 | $ | 108 | |||||||||||||||
| Finance lease liabilities | Accrued expenses | 120 | 96 | |||||||||||||||||
| Non-current | ||||||||||||||||||||
| Operating lease liabilities | Non-current operating lease liabilities | 417 | 333 | |||||||||||||||||
| Finance lease liabilities | Other liabilities | 198 | 223 | |||||||||||||||||
| Total lease liabilities | $ | 854 | $ | 760 |
(1)Net of accumulated amortization of $249 million and $165 million as of August 31, 2022 and 2021, respectively.
(2)Net of accumulated amortization of $110 million and $41 million as of August 31, 2022 and 2021, respectively.
The following table is a summary of expenses related to leases included on the Company's Consolidated Statements of Operations, for the periods indicated (in millions):
| Fiscal Year Ended August 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Operating lease cost | $ | 143 | $ | 119 | |||||||
| Finance lease cost | |||||||||||
| Amortization of leased assets | 70 | 27 | |||||||||
| Interest on lease liabilities | 6 | 5 | |||||||||
| Other | 22 | 27 | |||||||||
| Net lease cost(1) | $ | 241 | $ | 178 |
(1)Lease costs are primarily recognized in cost of revenue.
The following table is a summary of the weighted-average remaining lease terms and weighted-average discount rates of the Company's leases, as of the periods indicated:
| August 31, 2022 | August 31, 2021 | ||||||||||||||||||||||
| Weighted-average remaining lease term | Weighted-average discount rate | Weighted-average remaining lease term | Weighted-average discount rate | ||||||||||||||||||||
| Operating leases | 5.3 years | 3.19 | % | 5.6 years | 3.09 | % | |||||||||||||||||
| Finance leases | 2.6 years | 2.84 | % | 3.4 years | 2.51 | % | |||||||||||||||||
The following table sets forth other supplemental information related to the Company's lease portfolio (in millions):
| Fiscal Year Ended August 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
| Operating cash flows for operating leases(1) | $ | 123 | $ | 121 | |||||||
| Operating cash flows for finance leases(1) | $ | 6 | $ | 5 | |||||||
| Financing activities for finance leases(2) | $ | 120 | $ | 39 | |||||||
| Non-cash right-of-use assets obtained in exchange for new lease liabilities: | |||||||||||
| Operating leases | $ | 229 | $ | 141 | |||||||
| Finance leases | $ | 127 | $ | 190 |
(1)Included in accounts payable, accrued expenses and other liabilities in Operating Activities of the Company's Consolidated Statements of Cash Flows.
(2)Included in payments toward debt agreements in Financing Activities of the Company's Consolidated Statements of Cash Flows.
The future minimum lease payments under operating and finance leases as of August 31, 2022 were as follows (in millions):
| Fiscal Year Ended August 31, | Operating Leases**(1)** | Finance Leases**(1)(2)** | Total | ||||||||||||||
| 2023 | $ | 130 | $ | 126 | $ | 256 | |||||||||||
| 2024 | 102 | 46 | 148 | ||||||||||||||
| 2025 | 78 | 63 | 141 | ||||||||||||||
| 2026 | 60 | 83 | 143 | ||||||||||||||
| 2027 | 43 | 6 | 49 | ||||||||||||||
| Thereafter | 174 | 14 | 188 | ||||||||||||||
| Total minimum lease payments | $ | 587 | $ | 338 | $ | 925 | |||||||||||
| Less: Interest | (51) | (20) | (71) | ||||||||||||||
| Present value of lease liabilities | $ | 536 | $ | 318 | $ | 854 |
(1)Excludes $78 million of payments related to leases signed but not yet commenced. Additionally, certain leases signed but not yet commenced contain residual value guarantees and purchase options not deemed probable.
(2)Excludes $194 million of residual value guarantees that could potentially come due in future periods. The Company does not believe it is probable that any amounts will be owed under these guarantees. Therefore, no amounts related to
the residual value guarantees are included in the lease payments used to measure the right-of-use assets and lease liabilities.
6. Goodwill and Other Intangible Assets
The Company completed its annual impairment analysis for goodwill and indefinite-lived intangible assets during the fourth quarter of fiscal year 2022. The qualitative assessment was performed and the Company determined that it is more likely than not that the fair values of the reporting units and the indefinite-lived intangible assets were in excess of the carrying values and that no impairment existed as of the date of the impairment analysis.
The following table presents the changes in goodwill allocated to the Company’s reportable segments, Electronics Manufacturing Services (“EMS”) and Diversified Manufacturing Services (“DMS”), during the fiscal years ended August 31, 2022 and 2021 (in millions):
| EMS | DMS | Total | |||||||||||||||
| Balance as of August 31, 2020 | $ | 74 | $ | 623 | $ | 697 | |||||||||||
| Acquisitions and adjustments | — | 17 | 17 | ||||||||||||||
| Change in foreign currency exchange rates | — | 1 | 1 | ||||||||||||||
| Balance as of August 31, 2021 | 74 | 641 | 715 | ||||||||||||||
| Acquisitions and adjustments | 6 | 1 | 7 | ||||||||||||||
| Change in foreign currency exchange rates | (1) | (17) | (18) | ||||||||||||||
| Balance as of August 31, 2022 | $ | 79 | $ | 625 | $ | 704 |
The following table is a summary of the Company’s gross goodwill balances and accumulated impairments as of the periods indicated (in millions):
| August 31, 2022 | August 31, 2021 | ||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Impairment | Gross Carrying Amount | Accumulated Impairment | ||||||||||||||||||||
| Goodwill | $ | 1,724 | $ | 1,020 | $ | 1,735 | $ | 1,020 |
The following table presents the Company’s total purchased intangible assets as of August 31, 2022 and 2021 (in millions):
| Weighted Average Amortization Period (in years) | August 31, 2022 | August 31, 2021 | |||||||||||||||||||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||||||||||||||||||||||||||
| Contractual agreements and customer relationships | 12 | $ | 302 | $ | (231) | $ | 71 | $ | 304 | $ | (217) | $ | 87 | ||||||||||||||||||||||||||||
| Intellectual property | 9 | 198 | (173) | 25 | 191 | (169) | 22 | ||||||||||||||||||||||||||||||||||
| Finite-lived trade names | Not applicable | 78 | (67) | 11 | 78 | (56) | 22 | ||||||||||||||||||||||||||||||||||
| Trade names | Indefinite | 51 | — | 51 | 51 | — | 51 | ||||||||||||||||||||||||||||||||||
| Total intangible assets | 12 | $ | 629 | $ | (471) | $ | 158 | $ | 624 | $ | (442) | $ | 182 |
Intangible asset amortization for fiscal years 2022, 2021 and 2020 was approximately $34 million, $47 million and $56 million, respectively. The estimated future amortization expense is as follows (in millions):
| Fiscal Year Ended August 31, | |||||
| 2023 | $ | 31 | |||
| 2024 | 17 | ||||
| 2025 | 15 | ||||
| 2026 | 12 | ||||
| 2027 | 12 | ||||
| Thereafter | 20 | ||||
| Total | $ | 107 |
7. Notes Payable and Long-Term Debt
Notes payable and long-term debt outstanding as of August 31, 2022 and 2021 are summarized below (in millions):
| Maturity Date | August 31, 2022 | August 31, 2021 | |||||||||||||||
| 4.700% Senior Notes(1)(2)(3) | Sep 15, 2022 | $ | — | $ | 499 | ||||||||||||
| 4.900% Senior Notes(1) | Jul 14, 2023 | 300 | 300 | ||||||||||||||
| 3.950% Senior Notes(1)(2) | Jan 12, 2028 | 497 | 496 | ||||||||||||||
| 3.600% Senior Notes(1)(2) | Jan 15, 2030 | 496 | 495 | ||||||||||||||
| 3.000% Senior Notes(1)(2) | Jan 15, 2031 | 592 | 591 | ||||||||||||||
| 1.700% Senior Notes(1)(2)(4) | Apr 15, 2026 | 497 | 496 | ||||||||||||||
| 4.250% Senior Notes(1)(2)(3) | May 15, 2027 | 493 | — | ||||||||||||||
| Borrowings under credit facilities(5)(6) | Jan 22, 2024 and Jan 22, 2026 | — | — | ||||||||||||||
| Borrowings under loans(4) | Jul 31, 2026 | — | 1 | ||||||||||||||
| Total notes payable and long-term debt | 2,875 | 2,878 | |||||||||||||||
| Less current installments of notes payable and long-term debt | 300 | — | |||||||||||||||
| Notes payable and long-term debt, less current installments | $ | 2,575 | $ | 2,878 |
(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 Company’s senior unsecured obligations and rank equally with all other existing and future senior unsecured debt obligations.
(3)On May 4, 2022, the Company issued $500 million of registered 4.250% Senior Notes due 2027 (the “Green Bonds” or the “4.250% Senior Notes”). On May 31, 2022, the net proceeds from the offering were used to redeem the Company’s 4.700% Senior Notes due in 2022 and pay the applicable “make-whole” premium and accrued interest. In addition, the Company intends to allocate an amount equal to the net proceeds from this offering to finance or refinance eligible expenditures under the Company’s new green financing framework.
(4)On April 14, 2021, the Company issued $500 million of publicly registered 1.700% Senior Notes due 2026 (the “1.700% Senior Notes”). The Company used the net proceeds for general corporate purposes, including repayment of the prior $300 million Term Loan Facility.
(5)On April 28, 2021, the Company entered into an amendment (the “Amendment”) to its senior unsecured credit agreement dated as of January 22, 2020 (the “Credit Facility”). The Amendment, among other things, (i) increased the commitments available under the three-year revolving credit facility (the “Three-Year Revolving Credit Facility”) from $700 million to $1.2 billion, (ii) instituted certain sustainability-linked adjustments to the interest rates applicable to borrowings under the Credit Facility and (iii) extended the termination date of the Three-Year Revolving Credit Facility to January 22, 2024, and of the Five-Year Revolving Credit Facility of $2.0 billion to January 22, 2026.
(6)As of August 31, 2022, the Company has $3.8 billion in available unused borrowing capacity under its revolving credit facilities. The Credit Facility acts as the back-up facility for commercial paper outstanding, if any. The Company has a borrowing capacity of up to $3.2 billion under its commercial paper program, which was increased from $1.8 billion on February 18, 2022.
In the ordinary course of business, the Company has letters of credit and surety bonds with banks and insurance companies outstanding of $73 million as of August 31, 2022. Unused letters of credit were $77 million as of August 31, 2022. Letters of credit and surety bonds are generally available for draw down in the event the Company does not perform.
Debt Maturities
Debt maturities as of August 31, 2022 are as follows (in millions):
| Fiscal Year Ended August 31, | |||||
| 2023 | $ | 300 | |||
| 2024 | — | ||||
| 2025 | — | ||||
| 2026 | 497 | ||||
| 2027 | 493 | ||||
| Thereafter | 1,585 | ||||
| Total | $ | 2,875 |
Debt Covenants
Borrowings under the Company’s debt agreements are subject to various covenants that limit the Company’s 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 facilities and the 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 4.900%, 3.950%, 3.600%, 3.000%, 1.700% or 4.250% Senior Notes upon a change of control. As of August 31, 2022 and 2021, the Company was in compliance with its debt covenants.
Fair Value
Refer to Note 17 – “Fair Value Measurements” for the estimated fair values of the Company’s notes payable and long-term debt.
8. Asset-Backed Securitization Programs
Global asset-backed securitization program - Effective August 20, 2021, the global securitization program (formerly referred to as the North American asset-backed securitization program) terms were amended to: (i) add a foreign entity to the program, (ii) increase the maximum amount of net cash proceeds available at any one time from $390 million to $600 million and (iii) extend the expiration date of the program to November 25, 2024. As of August 31, 2022, the Company had no available liquidity under its global asset-backed securitization program.
Certain entities participating in the global asset-backed securitization program continuously sell designated pools of trade accounts receivable to a special purpose entity, which in turn sells certain of the receivables at a discount to conduits administered by an unaffiliated financial institution on a monthly basis. In addition, the foreign entity participating in the global asset-backed securitization program sells certain receivables at a discount to conduits administered by an unaffiliated financial institution on a daily basis.
The special purpose entity in the global asset-backed securitization program is a wholly-owned subsidiary of the Company and is included in the Company’s Consolidated Financial Statements. Certain unsold receivables covering up to the maximum amount of net cash proceeds available under the domestic, or U.S., portion of the global asset-backed securitization program are pledged as collateral to the unaffiliated financial institution as of August 31, 2022.
Foreign asset-backed securitization program - The Company terminated the foreign asset-backed securitization program on June 28, 2021. In connection with the termination, the Company paid approximately $167 million in cash, which consisted of: (i) $68 million for the remittance of collections received prior to June 28, 2021, in the Company’s role as servicer of sold receivables and (ii) a repurchase of $99 million of all previously sold receivables, at fair value, that remained outstanding as of June 28, 2021. As of August 31, 2021, the Company had substantially collected the repurchased receivables from customers.
Global and foreign asset-backed securitization programs- The Company continues servicing the receivables sold and in exchange receives a servicing fee under the global asset-backed securitization programs. Servicing fees related to each of the asset-backed securitization programs recognized during the fiscal years ended August 31, 2022, 2021 and 2020 were not material. The Company does not record a servicing asset or liability on the 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 asset-backed securitization programs are accounted for as sales and, accordingly, net receivables sold under the asset-backed securitization programs are excluded from accounts receivable on the Consolidated Balance Sheets and are reflected as cash provided by operating activities on the Consolidated Statements of Cash Flows.
In connection with the asset-backed securitization programs, the Company recognized the following (in millions):
| Fiscal Year Ended August 31, | |||||||||||||||||
| 2022 | 2021**(3)** | 2020 | |||||||||||||||
| Trade accounts receivable sold | $ | 3,932 | $ | 4,222 | $ | 4,333 | |||||||||||
| Cash proceeds received(1) | $ | 3,919 | $ | 4,202 | $ | 4,314 | |||||||||||
| Proceeds due from bank | $ | — | $ | 10 | $ | — | |||||||||||
| Pre-tax losses on sale of receivables(2) | $ | 13 | $ | 10 | $ | 19 |
(1)The amounts primarily represent proceeds from collections reinvested in revolving-period transfers.
(2)Recorded to other expense within the Consolidated Statements of Operations.
(3)Includes trade accounts receivable sold and cash proceeds received under the foreign asset-backed securitization program through June 28, 2021, except for $99 million of previously sold receivables that were repurchased.
The global asset-backed securitization program requires compliance with several covenants including compliance with the interest ratio and debt to EBITDA ratio of the Credit Facility. As of August 31, 2022 and 2021, the Company was in compliance with all covenants under the global asset-backed securitization program. As of August 31, 2020, the Company was in compliance with all covenants under the foreign asset-backed securitization program.
9. Accrued Expenses
Accrued expenses consist of the following (in millions):
| August 31, 2022 | August 31, 2021 | ||||||||||
| Inventory deposits | $ | 1,586 | $ | 711 | |||||||
| Accrued compensation and employee benefits | 806 | 827 | |||||||||
| Contract liabilities(1) | 796 | 559 | |||||||||
| Other accrued expenses | 2,084 | 1,637 | |||||||||
| Accrued expenses | $ | 5,272 | $ | 3,734 |
(1)Revenue recognized during the fiscal years ended August 31, 2022 and 2021 that was included in the contract liability balance as of August 31, 2021 and 2020 was $312 million and $365 million, respectively.
10. Postretirement and Other Employee Benefits
Postretirement Benefits
The Company has a qualified defined benefit pension plan for employees of Jabil Circuit UK Limited (the “UK plan”). The UK plan, which is closed to new participants, provides benefits based on average employee earnings over a three-year service period preceding retirement and length of employee service. The Company’s policy is to contribute amounts sufficient to meet minimum funding requirements as set forth in UK employee benefit and tax laws plus such additional amounts as are deemed appropriate by the Company.
As a result of the third closing of the Johnson & Johnson Medical Devices Companies (“JJMD”) acquisition, the Company assumed a pension obligation for employees in Switzerland (the “Switzerland plan”). The Switzerland plan, which is a qualified defined benefit pension plan, provides benefits based on average employee earnings over an approximately 8 year service period preceding retirement and length of employee service. The Company’s policy is to contribute amounts sufficient to meet minimum funding requirements as set forth in Switzerland employee benefit and tax laws plus such additional amounts as are deemed appropriate by the Company.
Additionally, as a result of acquiring various other operations in Europe, Asia and Mexico the Company assumed both qualified and unfunded nonqualified retirement benefits covering eligible employees who meet age and service requirements (the “other plans”).
The UK plan, Switzerland plan and other plans are collectively referred to herein as the “plans.”
Benefit Obligation and Plan Assets
The projected benefit obligations (“PBO”) and plan assets, changes to the PBO and plan assets and the funded status of the plans as of and for the fiscal years ended August 31 are as follows (in millions):
| Fiscal Year Ended August 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Change in PBO | |||||||||||
| Beginning PBO | $ | 587 | $ | 559 | |||||||
| Service cost | 25 | 25 | |||||||||
| Interest cost | 4 | 5 | |||||||||
| Actuarial (gain) loss | (119) | 2 | |||||||||
| Settlements paid from plan assets(1) | (28) | (44) | |||||||||
| Total benefits paid | (13) | (17) | |||||||||
| Plan participants’ contributions | 21 | 25 | |||||||||
| Plan amendments | — | 24 | |||||||||
| Acquisitions | — | 8 | |||||||||
| Effect of conversion to U.S. dollars | (45) | — | |||||||||
| Ending PBO | $ | 432 | $ | 587 | |||||||
| Change in plan assets | |||||||||||
| Beginning fair value of plan assets | 576 | 538 | |||||||||
| Actual return on plan assets | (68) | 55 | |||||||||
| Acquisitions | — | — | |||||||||
| Settlements paid from plan assets(1) | (28) | (44) | |||||||||
| Employer contributions | 16 | 17 | |||||||||
| Benefits paid from plan assets | (12) | (15) | |||||||||
| Plan participants’ contributions | 21 | 25 | |||||||||
| Effect of conversion to U.S. dollars | (46) | — | |||||||||
| Ending fair value of plan assets | $ | 459 | $ | 576 | |||||||
| Funded (unfunded) status | $ | 27 | $ | (11) | |||||||
| Amounts recognized in the Consolidated Balance Sheets | |||||||||||
| Accrued benefit liability, current | $ | 1 | $ | 1 | |||||||
| Accrued benefit asset, noncurrent | $ | 28 | $ | — | |||||||
| Accrued benefit liability, noncurrent | $ | — | $ | 10 | |||||||
| Accumulated other comprehensive loss(2) | |||||||||||
| Actuarial gain, before tax | $ | (85) | $ | (69) | |||||||
| Prior service cost, before tax | $ | 18 | $ | 23 |
(1)The settlements recognized during fiscal years 2022 and 2021 relate primarily to the Switzerland plan.
(2)The Company anticipates amortizing $14 million and $4 million, before tax, of net actuarial gain and prior service costs balances, respectively, to net periodic cost in fiscal year 2023.
Accumulated Benefit Obligation
The following table summarizes the total accumulated benefit obligations (“ABO”), the ABO and fair value of plan assets for defined benefit pension plans with ABO in excess of plan assets, and the PBO and fair value of plan assets for defined benefit pension plans with PBO in excess of plan assets for fiscal years 2022 and 2021 (in millions):
| August 31, 2022 | August 31, 2021 | ||||||||||
| ABO | $ | 417 | $ | 563 | |||||||
| Plans with ABO in excess of plan assets | |||||||||||
| ABO | $ | 41 | $ | 59 | |||||||
| Fair value of plan assets | $ | 19 | $ | 26 | |||||||
| Plans with PBO in excess of plan assets | |||||||||||
| PBO | $ | 51 | $ | 74 | |||||||
| Fair value of plan assets | $ | 19 | $ | 26 |
Net Periodic Benefit Cost
The following table provides information about the net periodic benefit cost for the plans for fiscal years 2022, 2021 and 2020 (in millions):
| Fiscal Year Ended August 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Service cost(1) | $ | 25 | $ | 25 | $ | 25 | |||||||||||
| Interest cost(2) | 4 | 5 | 3 | ||||||||||||||
| Expected long-term return on plan assets(2) | (17) | (16) | (15) | ||||||||||||||
| Recognized actuarial gain(2) | (6) | (10) | (3) | ||||||||||||||
| Amortization of actuarial gains(2)(3) | (8) | (6) | — | ||||||||||||||
| Net settlement loss(2) | 1 | 1 | — | ||||||||||||||
| Amortization of prior service costs(2) | 4 | 1 | — | ||||||||||||||
| Net periodic benefit cost | $ | 3 | $ | — | $ | 10 |
(1)Service cost is recognized in cost of revenue in the Condensed Consolidated Statement of Operations.
(2)Components are recognized in other expense in the Condensed Consolidated Statement of Operations.
(3)Actuarial gains and losses are amortized using a corridor approach. The gain/loss corridor is equal to 10 percent of the greater of the projected benefit obligation and the fair value of plan assets. Gains and losses in excess of the corridor are generally amortized over the average future working lifetime of the plan participants.
Assumptions
Weighted-average actuarial assumptions used to determine net periodic benefit cost and PBO for the plans for the fiscal years 2022, 2021 and 2020 were as follows:
| Fiscal Year Ended August 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Net periodic benefit cost: | |||||||||||||||||
| Expected long-term return on plan assets(1) | 3.0 | % | 2.9 | % | 3.0 | % | |||||||||||
| Rate of compensation increase | 2.2 | % | 2.1 | % | 2.0 | % | |||||||||||
| Discount rate | 0.7 | % | 0.8 | % | 0.5 | % | |||||||||||
| PBO: | |||||||||||||||||
| Expected long-term return on plan assets | 3.6 | % | 3.0 | % | 2.9 | % | |||||||||||
| Rate of compensation increase | 2.1 | % | 2.2 | % | 2.1 | % | |||||||||||
| Discount rate(2) | 2.6 | % | 0.7 | % | 0.8 | % |
(1)The expected return on plan assets assumption used in calculating net periodic benefit cost is based on historical return experience and estimates of future long-term performance with consideration to the expected investment mix of the plan.
(2)The discount rate is used to state expected cash flows relating to future benefits at a present value on the measurement date. This rate represents the market rate for high-quality fixed income investments whose timing would match the cash outflow of retirement benefits. Other assumptions include demographic factors such as retirement, mortality and turnover.
Plan Assets
The Company has adopted an investment policy for a majority of plan assets, which was set by plan trustees who have the responsibility for making investment decisions related to the plan assets. The plan trustees oversee the investment allocation, including selecting professional investment managers and setting strategic targets. The investment objectives for the assets are (1) to acquire suitable assets that hold the appropriate liquidity in order to generate income and capital growth that, along with new contributions, will meet the cost of current and future benefits under the plan, (2) to limit the risk of the plan assets from failing to meet the plan liabilities over the long-term and (3) to minimize the long-term costs under the plan by maximizing the return on the plan assets.
Investment policies and strategies governing the assets of the plans are designed to achieve investment objectives with prudent risk parameters. Risk management practices include the use of external investment managers; the maintenance of a portfolio diversified by asset class, investment approach and security holdings; and the maintenance of sufficient liquidity to meet benefit obligations as they come due. Within the equity securities class, the investment policy provides for investments in a broad range of publicly traded securities including both domestic and international stocks. Within the debt securities class, the investment policy provides for investments in corporate bonds as well as fixed and variable interest debt instruments. The Company currently expects to achieve a target mix of 40% equity and 60% debt securities in fiscal year 2023.
Fair Value
The fair values of the plan assets held by the Company by asset category are as follows (in millions):
| August 31, 2022 | August 31, 2021 | ||||||||||||||||||||||||||||
| Fair Value Hierarchy | Fair Value | Asset Allocation | Fair Value | Asset Allocation | |||||||||||||||||||||||||
| Asset Category | |||||||||||||||||||||||||||||
| Cash and cash equivalents(1) | Level 1 | $ | 13 | 3 | % | $ | 15 | 3 | % | ||||||||||||||||||||
| Equity Securities: | |||||||||||||||||||||||||||||
| Global equity securities(2)(3) | Level 2 | 197 | 43 | % | 222 | 39 | % | ||||||||||||||||||||||
| Debt Securities: | |||||||||||||||||||||||||||||
| Corporate bonds(3) | Level 2 | 203 | 44 | % | 262 | 45 | % | ||||||||||||||||||||||
| Government bonds(3) | Level 2 | 34 | 7 | % | 58 | 10 | % | ||||||||||||||||||||||
| Other Investments: | |||||||||||||||||||||||||||||
| Insurance contracts(4) | Level 3 | 12 | 3 | % | 19 | 3 | % | ||||||||||||||||||||||
| Fair value of plan assets | $ | 459 | 100 | % | $ | 576 | 100 | % |
(1)Carrying value approximates fair value.
(2)Investments in equity securities by companies incorporated, listed or domiciled in developed and/or emerging market countries.
(3)Investments in global equity securities, corporate bonds, government securities and government bonds are valued using the quoted prices of securities with similar characteristics.
(4)Consist of an insurance contract that guarantees the payment of the funded pension entitlements, as well as provides a profit share to the Company. The profit share in this contract is not based on actual investments, but, instead on a notional investment portfolio that is expected to return a pre-defined rate. Insurance contract assets are recorded at fair value and is determined based on the cash surrender value of the insured benefits which is the present value of the guaranteed funded benefits. Insurance contracts are valued using unobservable inputs (Level 3 inputs), primarily by discounting expected future cash flows relating to benefits paid from a notional investment portfolio in order to determine the cash surrender value of the policy. The unobservable inputs consist of estimated future benefits to be paid throughout the duration of the policy and estimated discount rates, which both have an immaterial impact on the fair value estimate of the contract.
Cash Flows
The Company expects to make cash contributions between $23 million and $28 million to its funded pension plans during fiscal year 2023. The estimated future benefit payments, which reflect expected future service, are as follows (in millions):
| Fiscal Year Ended August 31, | Amount | ||||
| 2023 | $ | 34 | |||
| 2024 | $ | 28 | |||
| 2025 | $ | 30 | |||
| 2026 | $ | 29 | |||
| 2027 | $ | 29 | |||
| 2028 through 2032 | $ | 141 |
Profit Sharing, 401(k) Plan and Defined Contribution Plans
The Company provides retirement benefits to its domestic employees who have completed a 30-day period of service through a 401(k) plan that provides a matching contribution by the Company. The Company also has defined contribution benefit plans for certain of its international employees. The Company contributed approximately $63 million, $56 million and $56 million for defined contribution plans for the fiscal years ended August 31, 2022, 2021 and 2020, respectively.
11. Derivative Financial Instruments and Hedging Activities
The Company is directly and indirectly affected by changes in certain market conditions. These changes in market conditions may adversely impact the Company’s 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 $1.4 billion and $1.5 billion as of August 31, 2022 and 2021, 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 September 1, 2022 and August 31, 2023.
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 August 31, 2022 and 2021, was $3.4 billion and $3.6 billion, respectively.
Refer to Note 17 – “Fair Value Measurements” for the fair values and classification of the Company’s derivative instruments.
The gains and losses recognized in earnings due to amounts 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, which are the same line items in which the hedged items are recorded.
The following table presents the net (losses) gains from forward contracts recorded in the Consolidated Statements of Operations for the periods indicated (in millions):
| Derivatives Not Designated as Hedging Instruments Under ASC 815 | Location of (Loss) Gain on Derivatives Recognized in Net Income | Amount of (Loss) Gain Recognized in Net Income on Derivatives | ||||||||||||||||||||||||
| Fiscal Year Ended August 31, | ||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | ||||||||||||||||||||||||
| Forward foreign exchange contracts(1) | Cost of revenue | $ | (71) | $ | 140 | $ | 42 |
(1)For the fiscal years ended August 31, 2022, the Company recognized $87 million of foreign currency gains in cost of revenue, which are offset by the losses from the forward foreign exchange contracts. For the fiscal years ended 2021 and 2020, the Company recognized $105 million and $47 million, respectively, of foreign currency losses in cost of revenue, which are offset by the gains from the forward foreign exchange contracts.
Interest Rate Risk Management
The Company periodically enters into interest rate swaps to manage interest rate risk associated with the Company’s borrowings.
Cash Flow Hedges
The following table presents the interest rate swaps outstanding as of August 31, 2022, which have been designated as hedging instruments and accounted for as cash flow hedges (in millions):
| Interest Rate Swap Summary | Hedged Interest Rate Payments | Aggregate Notional Amount | Effective Date | Expiration Date | ||||||||||||||||||||||
| Forward Interest Rate Swap | ||||||||||||||||||||||||||
| Anticipated Debt Issuance | Fixed | $ | 150 | May 24, 2021 | July 31, 2024 | (1)(2) | ||||||||||||||||||||
| Anticipated Debt Issuance | Fixed | $ | 100 | August 8, 2022 | July 31, 2024 | (1)(2) |
(1)The contracts will be settled with the respective counterparties on a net basis at the expiration date for the forward interest rate swap.
(2)If the anticipated debt issuance occurs before July 31, 2024, the contracts will be terminated simultaneously with the debt issuance.
Contemporaneously with the issuance of the 4.250% Senior Notes, in April 2022 the Company settled cash flow hedges with an aggregate notional amount of $250 million and $170 million, with effective dates of November 2020 and March 2022,
respectively. The cash received for the cash flow hedges at settlement was $46 million. The settled cash flow hedges are recorded in the Condensed Consolidated Balance Sheets as a component of AOCI and are amortized to interest expense in the Condensed Consolidated Statements of Operations.
Contemporaneously with the issuance of the 3.000% Senior Notes in July 2020, the Company amended interest rate swap agreements with a notional amount of $200 million, with mandatory termination dates from August 15, 2020 through February 15, 2022 (the “2020 Extended Interest Rate Swaps”). In addition, the Company entered into interest rate swaps to offset future exposures of fluctuations in the fair value of the 2020 Extended Interest Rate Swaps (the “Offsetting Interest Rate Swaps”). The change in fair value of the 2020 Extended Interest Rate Swaps and Offsetting Interest Rate Swaps was recorded in the Consolidated Statements of Operations through the maturity date of February 15, 2022, as an adjustment to interest expense.
12. Stockholders’ Equity
The Company recognized stock-based compensation expense within selling, general and administrative expense as follows (in millions):
| Fiscal Year Ended August 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Restricted stock units | $ | 67 | $ | 91 | $ | 74 | |||||||||||
| Employee stock purchase plan | 14 | 11 | 9 | ||||||||||||||
| Total | $ | 81 | $ | 102 | $ | 83 |
Equity Compensation Plan
The 2021 Equity Incentive Plan (the “2021 EIP”) provides for the grant of restricted stock awards, restricted stock unit awards and other stock-based awards. The maximum aggregate number of shares that are available for issuance under the 2021 EIP is 11,000,000.
Following is a reconciliation of the shares available to be issued under the 2021 EIP as of August 31, 2022:
| Shares Available for Grant | |||||
| Balance as of August 31, 2021 | 10,981,300 | ||||
| Restricted stock units granted, net of forfeitures(1) | (1,007,006) | ||||
| Balance as of August 31, 2022 | 9,974,294 |
(1)Represents the maximum number of shares that can be issued based on the achievement of certain performance criteria.
Restricted Stock Units
Certain key employees have been granted time-based, performance-based and market-based restricted stock units. The time-based restricted stock units granted 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 Company’s 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 Company’s total shareholder return based on the Company’s stock performance in relation to the companies in the Standard and Poor’s (S&P) Super Composite Technology Hardware and Equipment Index excluding the Company.
The following table summarizes restricted stock units activity from August 31, 2021 through August 31, 2022:
| Shares | Weighted- Average Grant-Date Fair Value | ||||||||||
| Outstanding as of August 31, 2021 | 5,909,131 | $ | 36.51 | ||||||||
| Changes during the period | |||||||||||
| Shares granted(1) | 1,306,995 | $ | 68.11 | ||||||||
| Shares vested | (2,503,143) | $ | 28.66 | ||||||||
| Shares forfeited | (299,989) | $ | 42.90 | ||||||||
| Outstanding as of August 31, 2022 | 4,412,994 | $ | 49.87 |
(1)For those shares granted that are based on the achievement of certain performance criteria, the amount represents the maximum number of shares that can vest. During the fiscal year ended August 31, 2022, the Company awarded approximately 0.7 million time-based restricted stock units, 0.2 million performance-based restricted stock units and 0.2 million market-based restricted stock units based on target performance criteria.
The following table represents the restricted stock units and stock appreciation rights (“SARS”) stock-based compensation information for the periods indicated (in millions):
| Fiscal Year Ended August 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Intrinsic value of SARS exercised | $ | — | $ | — | $ | 2 | |||||||||||
| Fair value of restricted stock units vested | $ | 72 | $ | 69 | $ | 56 | |||||||||||
| Tax benefit for stock compensation expense(1) | $ | 2 | $ | 1 | $ | 1 | |||||||||||
| Unrecognized stock-based compensation expense — restricted stock units | $ | 34 | |||||||||||||||
| Remaining weighted-average period for restricted stock units expense | 1.4 years |
(1)Classified as income tax expense within the Consolidated Statements of Operations.
Employee Stock Purchase Plan
The maximum aggregate number of shares available for issuance under the 2011 Employee Stock Purchase Plan (the “ESPP”) is 23,000,000.
Employees are eligible to participate in the ESPP after 90 days of employment with the Company. The ESPP permits eligible employees to purchase common stock through payroll deductions, which may not exceed 10% of an employee’s compensation, as defined in the ESPP, at a price equal to 85% of the fair value of the common stock at the beginning or end of the offering period, whichever is lower. The ESPP is intended to qualify under Section 423 of the Internal Revenue Code. As of August 31, 2022, 11,031,290 shares remained available for issue under the 2011 ESPP.
The fair value of shares issued under the ESPP was estimated on the commencement date of each offering period using the Black-Scholes option pricing model. The following weighted-average assumptions were used in the model for each respective period:
| Fiscal Year Ended August 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Expected dividend yield | 0.3 | % | 0.5 | % | 0.4 | % | |||||||||||
| Risk-free interest rate | 0.1 | % | 0.1 | % | 1.9 | % | |||||||||||
| Expected volatility(1) | 29.6 | % | 32.9 | % | 30.7 | % | |||||||||||
| Expected life | 0.5 years | 0.5 years | 0.5 years |
(1)The expected volatility was estimated using the historical volatility derived from the Company’s common stock.
Dividends
The following table sets forth certain information relating to the Company’s cash dividends declared to common stockholders during fiscal years 2022 and 2021:
| (in millions, 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 2022: | October 21, 2021 | $ | 0.08 | $ | 12 | November 15, 2021 | December 1, 2021 | ||||||||||||||||||||||
| January 20, 2022 | $ | 0.08 | $ | 12 | February 15, 2022 | March 2, 2022 | |||||||||||||||||||||||
| April 21, 2022 | $ | 0.08 | $ | 12 | May 16, 2022 | June 2, 2022 | |||||||||||||||||||||||
| July 21, 2022 | $ | 0.08 | $ | 11 | August 15, 2022 | September 2, 2022 | |||||||||||||||||||||||
| Fiscal Year 2021: | October 15, 2020 | $ | 0.08 | $ | 12 | November 16, 2020 | December 2, 2020 | ||||||||||||||||||||||
| January 21, 2021 | $ | 0.08 | $ | 12 | February 15, 2021 | March 2, 2021 | |||||||||||||||||||||||
| April 22, 2021 | $ | 0.08 | $ | 12 | May 14, 2021 | June 2, 2021 | |||||||||||||||||||||||
| July 22, 2021 | $ | 0.08 | $ | 12 | August 13, 2021 | September 2, 2021 |
Common Stock Outstanding
The following represents the common stock outstanding for the fiscal year ended:
| Fiscal Year Ended August 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Common stock outstanding: | |||||||||||||||||
| Beginning balances | 144,496,077 | 150,330,358 | 153,520,380 | ||||||||||||||
| Shares issued upon exercise of stock options | — | 9,321 | 56,999 | ||||||||||||||
| Shares issued under employee stock purchase plan | 970,480 | 1,288,397 | 1,106,852 | ||||||||||||||
| Vesting of restricted stock | 2,503,143 | 2,290,104 | 2,259,623 | ||||||||||||||
| Purchases of treasury stock under employee stock plans | (713,667) | (622,703) | (621,250) | ||||||||||||||
| Treasury shares purchased(1)(2) | (11,762,053) | (8,799,400) | (5,992,246) | ||||||||||||||
| Ending balances | 135,493,980 | 144,496,077 | 150,330,358 |
(1)In July 2021, the Board of Directors approved an authorization for the repurchase of up to $1.0 billion of the Company’s common stock (the “2022 Share Repurchase Program”). As of August 31, 2022, 12.4 million shares had been repurchased for $737 million and $263 million remains available under the 2022 Share Repurchase Program.
(2)In September 2022, the Board of Directors approved an authorization for the repurchase of up to $1.0 billion of the Company’s common stock (the “2023 Share Repurchase Program”).
13. Concentration of Risk and Segment Data
Concentration of Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and trade receivables. The Company maintains cash and cash equivalents with various domestic and foreign financial institutions. Deposits held with the financial institutions may exceed the amount of insurance provided on such deposits, but may generally be redeemed upon demand. The Company performs periodic evaluations of the relative credit standing of the financial institutions and attempts to limit exposure with any one institution. For trade receivables, the Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company maintains an allowance for expected credit losses on trade receivables.
Sales of the Company’s products are concentrated among specific customers. For fiscal year 2022, the Company’s five largest customers accounted for approximately 44% of its net revenue and 79 customers accounted for approximately 90% of its net revenue. As the Company is a provider of manufacturing services and solutions and products are built based on customer specifications, it is impracticable to provide revenues from external customers for each product and service. Sales to the following customers that accounted for 10% or more of the Company’s net revenues, expressed as a percentage of consolidated net revenue, and the percentage of accounts receivable for the customers, were as follows:
| Percentage of Net Revenue Fiscal Year Ended August 31, | Percentage of Accounts Receivable as of August 31, | |||||||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | 2022 | 2021 | ||||||||||||||||||||||||||||
| Apple, Inc.(1) | 19 | % | 22 | % | 20 | % | * | * | ||||||||||||||||||||||||
| Amazon.com(2) | 11 | % | * | 11 | % | * | * |
- Amount was less than 10% of total.
(1)Sales to this customer were reported in the DMS operating segment.
(2)Sales to this customer were reported primarily in the EMS operating segment.
The Company procures components from a broad group of suppliers. Some of the products manufactured by the Company require one or more components that are available from only a single source.
Segment Data
Operating segments are defined as components of an enterprise that engage in business activities from which they may earn revenues and incur expenses; for which separate financial information is available; and whose operating results are regularly reviewed by the chief operating decision maker (“CODM”) to assess the performance of the individual segment and make decisions about resources to be allocated to the segment.
The Company derives its revenue from providing comprehensive electronics design, production and product management services. The CODM evaluates performance and allocates resources on a segment basis. The Company’s operating segments consist of two segments – EMS and DMS, which are also the Company’s reportable segments. The segments are organized based on the economic profiles of the services performed, including manufacturing capabilities, market strategy, margins, return on capital and risk profiles.
The EMS segment is focused around leveraging IT, supply chain design and engineering, technologies largely centered on core electronics, utilizing the Company’s large scale manufacturing infrastructure and the ability to serve a broad range of end markets. The EMS segment is a high volume business that produces product at a quicker rate (i.e. cycle time) and in larger quantities and includes customers primarily in the 5G, wireless and cloud, digital print and retail, industrial and semi-cap, and networking and storage industries.
The DMS segment is focused on providing engineering solutions, with an emphasis on material sciences, technologies and healthcare. The DMS segment includes customers primarily in the automotive and transportation, connected devices, healthcare and packaging, and mobility industries.
Net revenue for the operating segments is attributed to the segment in which the service is performed. An operating segment’s 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, severance and related charges, distressed customer charges, acquisition and integration charges, loss on disposal of subsidiaries, settlement of receivables and related charges, impairment of notes receivable and related charges, goodwill impairment charges, business interruption and impairment charges, net, loss on debt extinguishment, (gain) loss on securities, income (loss) from discontinued operations, gain (loss) on sale of discontinued operations, other expense (excluding certain components of net periodic benefit cost), 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, contract assets, inventories, net, customer-related property, plant and equipment, intangible assets net of accumulated amortization and goodwill. All other non-segment assets are reviewed on a global basis by management. Transactions between operating segments are generally recorded at amounts that approximate those at which we would transact with third parties.
The following table presents the Company’s revenues disaggregated by segment (in millions):
| Fiscal Year Ended August 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| EMS | DMS | Total | EMS | DMS | Total | EMS | DMS | Total | |||||||||||||||||||||||||||||||||||||||||||||
| Timing of transfer | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Point in time | $ | 6,112 | $ | 6,818 | $ | 12,930 | $ | 4,464 | $ | 7,183 | $ | 11,647 | $ | 4,363 | $ | 6,068 | $ | 10,431 | |||||||||||||||||||||||||||||||||||
| Over time | 10,625 | 9,923 | 20,548 | 9,440 | 8,198 | 17,638 | 9,730 | 7,105 | 16,835 | ||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 16,737 | $ | 16,741 | $ | 33,478 | $ | 13,904 | $ | 15,381 | $ | 29,285 | $ | 14,093 | $ | 13,173 | $ | 27,266 |
The following tables set forth operating segment information (in millions):
| Fiscal Year Ended August 31, | ||||||||||||||||||||
| 2022 | 2021 | 2020 | ||||||||||||||||||
| Segment income and reconciliation of income before income tax | ||||||||||||||||||||
| EMS | $ | 727 | $ | 509 | $ | 374 | ||||||||||||||
| DMS | 816 | 732 | 490 | |||||||||||||||||
| Total segment income | $ | 1,543 | $ | 1,241 | $ | 864 | ||||||||||||||
| Reconciling items: | ||||||||||||||||||||
| Amortization of intangibles | (34) | (47) | (56) | |||||||||||||||||
| Stock-based compensation expense and related charges | (81) | (102) | (83) | |||||||||||||||||
| Restructuring, severance and related charges | (18) | (10) | (157) | |||||||||||||||||
| Distressed customer charges | — | — | (15) | |||||||||||||||||
| Business interruption and impairment charges, net | — | 1 | (6) | |||||||||||||||||
| Acquisition and integration charges | — | (4) | (31) | |||||||||||||||||
| Loss on debt extinguishment | (4) | — | — | |||||||||||||||||
| Gain (loss) on securities | — | 2 | (49) | |||||||||||||||||
| Other expense (net of periodic benefit cost) | (29) | (13) | (47) | |||||||||||||||||
| Interest income | 5 | 6 | 15 | |||||||||||||||||
| Interest expense | (151) | (130) | (174) | |||||||||||||||||
| Income before income tax | $ | 1,231 | $ | 944 | $ | 261 |
| August 31, 2022 | August 31, 2021 | |||||||||||||
| Total assets: | ||||||||||||||
| EMS | $ | 5,402 | $ | 4,340 | ||||||||||
| DMS | 8,881 | 8,228 | ||||||||||||
| Other non-allocated assets | 5,434 | 4,086 | ||||||||||||
| Total | $ | 19,717 | $ | 16,654 |
The Company operates in more than 30 countries worldwide. Sales to unaffiliated customers are based on the Company location that maintains the customer relationship and transacts the external sale. The following tables set forth external net revenue, net of intercompany eliminations, and long-lived asset information where individual countries represent a material portion of the total (in millions):
| Fiscal Year Ended August 31, | ||||||||||||||||||||
| 2022 | 2021 | 2020 | ||||||||||||||||||
| External net revenue: | ||||||||||||||||||||
| Singapore | $ | 7,916 | $ | 7,943 | $ | 6,512 | ||||||||||||||
| Mexico | 5,630 | 4,323 | 4,686 | |||||||||||||||||
| China | 5,272 | 4,666 | 4,583 | |||||||||||||||||
| Malaysia | 2,709 | 2,121 | 1,903 | |||||||||||||||||
| Ireland | 1,135 | 748 | 746 | |||||||||||||||||
| Other | 5,427 | 4,669 | 4,088 | |||||||||||||||||
| Foreign source revenue | 28,089 | 24,470 | 22,518 | |||||||||||||||||
| U.S. | 5,389 | 4,815 | 4,748 | |||||||||||||||||
| Total | $ | 33,478 | $ | 29,285 | $ | 27,266 |
| August 31, 2022 | August 31, 2021 | |||||||||||||
| Long-lived assets: | ||||||||||||||
| China | $ | 1,758 | $ | 2,046 | ||||||||||
| Mexico | 492 | 361 | ||||||||||||
| Malaysia | 328 | 281 | ||||||||||||
| Switzerland | 208 | 217 | ||||||||||||
| Singapore | 138 | 128 | ||||||||||||
| Hungary | 114 | 125 | ||||||||||||
| Vietnam | 104 | 103 | ||||||||||||
| Taiwan | 101 | 106 | ||||||||||||
| Other | 553 | 526 | ||||||||||||
| Long-lived assets related to foreign operations | 3,796 | 3,893 | ||||||||||||
| U.S. | 1,020 | 1,079 | ||||||||||||
| Total | $ | 4,816 | $ | 4,972 |
14. Restructuring, Severance and Related Charges
Following is a summary of the Company’s restructuring, severance and related charges (in millions):
| Fiscal Year Ended August 31, | ||||||||||||||||||||
| 2022**(1)** | 2021 | 2020 | ||||||||||||||||||
| Employee severance and benefit costs | $ | 18 | $ | 5 | $ | 94 | ||||||||||||||
| Lease costs | — | (1) | 8 | |||||||||||||||||
| Asset write-off costs | — | 5 | 33 | |||||||||||||||||
| Other costs | — | 1 | 22 | |||||||||||||||||
| Total restructuring, severance and related charges(2)(3) | $ | 18 | $ | 10 | $ | 157 |
(1)Recorded during the fiscal year ended August 31, 2022 for headcount reduction activities.
(2)As the Company continued to optimize its cost structure and improve operational efficiencies, $57 million of employee severance and benefit costs was incurred in connection with a reduction in the worldwide workforce during the fiscal year ended August 31, 2020. The remaining amount primarily relates to the 2020 Restructuring Plan, which was complete as of August 31, 2021.
(3)Includes $1 million, $0 million and $62 million recorded in the EMS segment, $10 million, $9 million and $76 million recorded in the DMS segment and $7 million, $1 million and $19 million of non-allocated charges for the fiscal years ended August 31, 2022, 2021 and 2020, respectively. Except for asset write-off costs, all restructuring, severance and related charges are cash costs.
2020 Restructuring Plan
On September 20, 2019, the Company’s Board of Directors formally approved a restructuring plan to realign the Company’s global capacity support infrastructure, particularly in the Company’s mobility footprint in China, in order to optimize organizational effectiveness. This action included headcount reductions and capacity realignment (the “2020 Restructuring Plan”).
The 2020 Restructuring Plan, totaling $86 million in restructuring and other related costs, was complete as of August 31, 2021.
15. Income Taxes
Provision for Income Taxes
Income (loss) before income tax expense is summarized below (in millions):
| Fiscal Year Ended August 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Domestic(1) | $ | (116) | $ | (271) | $ | (452) | |||||||||||
| Foreign(1) | 1,347 | 1,215 | 713 | ||||||||||||||
| Total | $ | 1,231 | $ | 944 | $ | 261 |
(1)Includes the elimination of intercompany foreign dividends paid to the U.S.
Income tax expense (benefit) is summarized below (in millions):
| Fiscal Year Ended August 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Current: | |||||||||||||||||
| Domestic - federal | $ | 7 | $ | 7 | $ | (3) | |||||||||||
| Domestic - state | 2 | 3 | 1 | ||||||||||||||
| Foreign | 239 | 252 | 180 | ||||||||||||||
| Total current | 248 | 262 | 178 | ||||||||||||||
| Deferred: | |||||||||||||||||
| Domestic - federal | (25) | 2 | (10) | ||||||||||||||
| Foreign | 12 | (18) | 36 | ||||||||||||||
| Total deferred | (13) | (16) | 26 | ||||||||||||||
| Total income tax expense | $ | 235 | $ | 246 | $ | 204 |
Reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate is summarized below:
| Fiscal Year Ended August 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| U.S. federal statutory income tax rate | 21.0 | % | 21.0 | % | 21.0 | % | |||||||||||
| State income taxes, net of federal tax benefit | 0.7 | 0.2 | (2.6) | ||||||||||||||
| Impact of foreign tax rates(1)(2) | (4.0) | (4.6) | (0.9) | ||||||||||||||
| Permanent differences | 1.2 | (0.4) | 3.2 | ||||||||||||||
| Income tax credits(1) | (0.5) | (0.4) | (2.5) | ||||||||||||||
| Changes in tax rates on deferred tax assets and liabilities(3) | — | — | 10.3 | ||||||||||||||
| Valuation allowance(4) | (3.3) | 1.3 | 16.8 | ||||||||||||||
| Equity compensation | (0.5) | 0.6 | 2.2 | ||||||||||||||
| Impact of intercompany charges and dividends | 3.6 | 4.4 | 15.0 | ||||||||||||||
| Global Intangible Low-Taxed Income | 1.1 | 3.0 | 13.7 | ||||||||||||||
| Other, net | (0.2) | 0.9 | 2.0 | ||||||||||||||
| Effective income tax rate | 19.1 | % | 26.0 | % | 78.2 | % |
(1)The Company has been granted tax incentives for various subsidiaries in China, Malaysia, Singapore and Vietnam, which primarily expire at various dates through fiscal year 2031 and are subject to certain conditions with which the Company expects to comply. These tax incentives resulted in a tax benefit of approximately $80 million ($0.57 per basic weighted average shares outstanding), $51 million ($0.34 per basic weighted average shares outstanding) and $43 million ($0.28 per basic weighted average shares outstanding) during the fiscal years ended August 31, 2022, 2021 and 2020, respectively.
(2)For the fiscal years ended August 31, 2022 and August 31, 2021, the impact of foreign tax rates was primarily related to increased income in low tax rate jurisdictions.
(3)For the fiscal year ended August 31, 2020, the changes in tax rates on deferred tax assets and liabilities was primarily due to the re-measurement of deferred tax assets related to an extension of a non-U.S. tax incentive of $21 million.
(4)For the fiscal year ended August 31, 2022, the valuation allowance change was primarily due to an income tax benefit of $26 million for the reversal of a portion of the U.S. valuation allowance and decreased deferred tax assets with corresponding valuation allowances due to the liquidation of certain non-U.S. subsidiaries. The valuation allowance change for the fiscal years ended August 31, 2021 and 2020 was primarily due to the change in deferred tax assets for sites with existing valuation allowances.
Deferred Tax Assets and Liabilities
Significant components of the deferred tax assets and liabilities are summarized below (in millions):
| August 31, 2022 | August 31, 2021 | ||||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss carryforwards | $ | 176 | $ | 200 | |||||||
| Receivables | 4 | 8 | |||||||||
| Inventories | 16 | 14 | |||||||||
| Compensated absences | 13 | 13 | |||||||||
| Accrued expenses | 106 | 115 | |||||||||
| Property, plant and equipment | 66 | 71 | |||||||||
| Domestic tax credits | 11 | 11 | |||||||||
| Foreign jurisdiction tax credits | 4 | 10 | |||||||||
| Equity compensation | 10 | 10 | |||||||||
| Domestic interest carryforwards | 4 | 4 | |||||||||
| Cash flow hedges | — | 10 | |||||||||
| Capital loss carryforwards | 20 | 20 | |||||||||
| Revenue recognition | 32 | 36 | |||||||||
| Operating and finance lease liabilities | 72 | 60 | |||||||||
| Other | 27 | 19 | |||||||||
| Total deferred tax assets before valuation allowances | 561 | 601 | |||||||||
| Less valuation allowances | (281) | (353) | |||||||||
| Net deferred tax assets | $ | 280 | $ | 248 | |||||||
| Deferred tax liabilities: | |||||||||||
| Unremitted earnings of foreign subsidiaries | $ | 57 | $ | 60 | |||||||
| Intangible assets | 25 | 27 | |||||||||
| Operating lease assets | 111 | 92 | |||||||||
| Other | 10 | 4 | |||||||||
| Total deferred tax liabilities | $ | 203 | $ | 183 | |||||||
| Net deferred tax assets | $ | 77 | $ | 65 |
Based on the Company’s historical operating income, projection of future taxable income, scheduled reversal of taxable temporary differences, and tax planning strategies, management believes it is more likely than not that the Company will realize the benefit of its deferred tax assets, net of valuation allowances recorded. The net decrease in valuation allowances for the fiscal year ended August 31, 2022 is primarily due to the reversal of a portion of the U.S. valuation allowance and the change in deferred tax assets for sites with existing valuation allowances. The Company’s assessment that led to the partial release of the U.S. valuation allowance considered all available positive and negative evidence including, among other evidence, the impact of historical operating results and the impact of projected future taxable income upon application of the incremental cash tax savings approach for GILTI.
As of August 31, 2022, the Company intends to indefinitely reinvest the remaining earnings from its foreign subsidiaries for which a deferred tax liability has not already been recorded. The accumulated earnings are the most significant component of the basis difference which is indefinitely reinvested. As of August 31, 2022, the indefinitely reinvested earnings in foreign subsidiaries upon which taxes had not been provided were approximately $2.9 billion. The estimated amount of the unrecognized deferred tax liability on these reinvested earnings was approximately $0.2 billion.
Tax Carryforwards
The amount and expiration dates of income tax net operating loss carryforwards, tax credit carryforwards, and tax capital loss carryforwards, which are available to reduce future taxes, if any, as of August 31, 2022 are as follows (in millions):
| Last Fiscal Year of Expiration | Amount | ||||||||||
| Income tax net operating loss carryforwards:(1) | |||||||||||
| Domestic - federal | 2038 or indefinite | $ | 13 | ||||||||
| Domestic - state | 2042 or indefinite | $ | 54 | ||||||||
| Foreign | 2037 or indefinite | $ | 567 | ||||||||
| Tax credit carryforwards:(1) | |||||||||||
| Domestic - federal | 2032 | $ | 7 | ||||||||
| Domestic - state | 2027 or indefinite | $ | 4 | ||||||||
| Foreign(2) | Indefinite | $ | 4 | ||||||||
| Tax capital loss carryforwards:(3) | |||||||||||
| Domestic - federal | 2026 | $ | 76 |
(1)Net of unrecognized tax benefits.
(2)Calculated based on the deferral method and includes foreign investment tax credits.
(3)The tax capital loss carryforwards were primarily from an impairment of an investment that was deemed worthless for tax purposes.
Unrecognized Tax Benefits
Reconciliation of the unrecognized tax benefits is summarized below (in millions):
| Fiscal Year Ended August 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Beginning balance | $ | 241 | $ | 190 | $ | 164 | |||||||||||
| Additions for tax positions of prior years | 22 | 15 | 10 | ||||||||||||||
| Reductions for tax positions of prior years | (21) | (3) | (9) | ||||||||||||||
| Additions for tax positions related to current year(1) | 36 | 36 | 27 | ||||||||||||||
| Cash settlements | (3) | — | (1) | ||||||||||||||
| Reductions from lapses in statutes of limitations | (3) | (2) | (1) | ||||||||||||||
| Reductions from non-cash settlements with taxing authorities | (9) | — | (2) | ||||||||||||||
| Foreign exchange rate adjustment | (10) | 5 | 2 | ||||||||||||||
| Ending balance | $ | 253 | $ | 241 | $ | 190 | |||||||||||
| Unrecognized tax benefits that would affect the effective tax rate (if recognized) | $ | 150 | $ | 139 | $ | 109 |
(1)The additions for the fiscal years ended August 31, 2022, 2021 and 2020 are primarily related to taxation of certain intercompany transactions.
The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. The Company’s accrued interest and penalties were approximately $30 million as of August 31, 2022 and 2021. The Company recognized interest and penalties of approximately $0 million, $7 million and $4 million during the fiscal years ended August 31, 2022, 2021 and 2020, respectively.
It is reasonably possible that the August 31, 2022 unrecognized tax benefits could decrease during the next 12 months by $18 million, primarily related to taxing authority agreements associated with intercompany transactions.
The Company is no longer subject to U.S. federal tax examinations for fiscal years before August 31, 2018. In major non-U.S. and state jurisdictions, the Company is no longer subject to income tax examinations for fiscal years before August 31, 2012 and August 31, 2009, respectively.
16. Business Acquisitions
During fiscal year 2018, the Company and Johnson & Johnson Medical Devices Companies (“JJMD”) entered into a framework agreement to form a strategic collaboration and expand its existing relationship. The strategic collaboration expands the Company’s medical device manufacturing portfolio, diversification and capabilities. During the fiscal year ended August
31, 2019, under the terms of the framework agreement, the Company completed the initial and second closings of its acquisition of certain assets of JJMD.
On September 30, 2019, under the terms of the framework agreement, the Company completed the third closing of its acquisition of certain assets of JJMD. The aggregate purchase price paid for the third closing was approximately $113 million in cash. For the third closing, total assets acquired of $196 million, including $81 million in contract assets, $34 million in inventory and $56 million in goodwill, and total liabilities assumed of $83 million, including $74 million of pension obligations, were recorded at their estimated fair values as of the acquisition date. There were no intangible assets identified in this acquisition and the goodwill is primarily attributable to the assembled workforce. The majority of the goodwill is currently not expected to be deductible for income tax purposes.
On October 26, 2020, under the terms of the framework agreement, the Company completed the fourth closing of its acquisition of certain assets of JJMD. The aggregate purchase price paid for the fourth closing was approximately $19 million in cash. Total assets acquired of $30 million and total liabilities assumed of $11 million were recorded at their estimated fair values as of the acquisition date.
The acquisitions of the JJMD assets were accounted for as separate business combinations for each closing using the acquisition method of accounting. The results of operations were included in the Company’s consolidated financial results beginning on September 30, 2019 for the third closing and October 26, 2020 for the fourth closing. The Company believes it is impracticable to provide pro forma information for the acquisitions of the JJMD assets.
17. Fair Value Measurements
Fair Value Measurements on a Recurring Basis
The following table presents the fair value of the Company's financial assets and liabilities measured at fair value by hierarchy level on a recurring basis as of the periods indicated (in millions):
| Fair Value Hierarchy | August 31, 2022 | August 31, 2021 | ||||||||||||||||||
| Assets: | ||||||||||||||||||||
| Cash and cash equivalents: | ||||||||||||||||||||
| Cash equivalents | Level 1 | (1) | $ | 14 | $ | 36 | ||||||||||||||
| Prepaid expenses and other current assets: | ||||||||||||||||||||
| Short-term investments | Level 1 | 16 | 18 | |||||||||||||||||
| Forward foreign exchange contracts: | ||||||||||||||||||||
| Derivatives designated as hedging instruments (Note 11) | Level 2 | (2) | 3 | 9 | ||||||||||||||||
| Derivatives not designated as hedging instruments (Note 11) | Level 2 | (2) | 13 | 20 | ||||||||||||||||
| Other assets: | ||||||||||||||||||||
| Forward interest rate swap: | ||||||||||||||||||||
| Derivatives designated as hedging instruments (Note 11) | Level 2 | (3) | 13 | 9 | ||||||||||||||||
| Liabilities: | ||||||||||||||||||||
| Accrued expenses: | ||||||||||||||||||||
| Forward foreign exchange contracts: | ||||||||||||||||||||
| Derivatives designated as hedging instruments (Note 11) | Level 2 | (2) | $ | 32 | $ | 6 | ||||||||||||||
| Derivatives not designated as hedging instruments (Note 11) | Level 2 | (2) | 76 | 9 | ||||||||||||||||
| Interest rate swaps: | ||||||||||||||||||||
| Derivatives not designated as hedging instruments (Note 11) | Level 2 | (3) | — | 3 | ||||||||||||||||
| Extended interest rate swap not designated as a hedging instrument (Note 11) | Level 2 | (4) | — | 10 | ||||||||||||||||
| Other liabilities: | ||||||||||||||||||||
| Forward interest rate swap: | ||||||||||||||||||||
| Derivatives designated as hedging instruments (Note 11) | Level 2 | (3) | — | 7 |
(1)Consist of investments that are readily convertible to cash with original maturities of 90 days or less.
(2)The Company’s 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.
(3)Fair value measurements are based on the contractual terms of the derivatives and use observable market-based inputs. The interest rate swaps are valued using a discounted cash flow analysis on the expected cash flows of each derivative using observable inputs including interest rate curves and credit spreads.
(4)The 2020 Extended Interest Rate Swaps are considered a hybrid instrument and the Company elected the fair value option for reporting. Fair value measurements are based on the contractual terms of the contract and use observable market-based inputs. The interest rate swaps are valued using a discounted cash flow analysis on the expected cash flows using observable inputs including interest rate curves and credit spreads.
Assets Held for Sale
The following table presents the assets held for sale (in millions):
| August 31, 2022 | August 31, 2021 | |||||||||||||||||||
| Carrying Amount | Carrying Amount | |||||||||||||||||||
| Assets held for sale (1) | $ | — | $ | 61 |
(1)During the fiscal year ended August 31, 2022, the Company sold assets held for sale with a carrying value of $61 million.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, trade accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses approximate fair value because of the short-term nature of these financial instruments. The carrying amounts of borrowings under credit facilities and under loans approximates fair value as interest rates on these instruments approximates current market rates.
Notes payable and long-term debt is carried at amortized cost; however, the Company estimates the fair value of notes payable and long-term debt for disclosure purposes. The following table presents the carrying amounts and fair values of the Company's notes payable and long-term debt, by hierarchy level as of the periods indicated (in millions):
| August 31, 2022 | August 31, 2021 | |||||||||||||||||||||||||||||||
| Fair Value Hierarchy | Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||||||||||||||||||
| Notes payable and long-term debt: (Note 7) | ||||||||||||||||||||||||||||||||
| 4.700% Senior Notes | Level 2 | (1) | $ | — | $ | — | $ | 499 | $ | 521 | ||||||||||||||||||||||
| 4.900% Senior Notes | Level 3 | (2) | $ | 300 | $ | 300 | $ | 300 | $ | 322 | ||||||||||||||||||||||
| 3.950% Senior Notes | Level 2 | (1) | $ | 497 | $ | 471 | $ | 496 | $ | 555 | ||||||||||||||||||||||
| 3.600% Senior Notes | Level 2 | (1) | $ | 496 | $ | 440 | $ | 495 | $ | 541 | ||||||||||||||||||||||
| 3.000% Senior Notes | Level 2 | (1) | $ | 592 | $ | 500 | $ | 591 | $ | 618 | ||||||||||||||||||||||
| 1.700% Senior Notes | Level 2 | (1) | $ | 497 | $ | 446 | $ | 496 | $ | 504 | ||||||||||||||||||||||
| 4.250% Senior Notes | Level 2 | (1) | $ | 493 | $ | 483 | $ | — | $ | — |
(1)The fair value estimates are based upon observable market data.
(2)This fair value estimate is based on the Company’s indicative borrowing cost derived from discounted cash flows.
Refer to Note 10 - “Postretirement and Other Employee Benefits” for disclosure surrounding the fair value of the Company’s pension plan assets.
18. Commitments and Contingencies
Legal Proceedings
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 Company’s financial position, results of operations or cash flows.
19. New Accounting Guidance
New accounting guidance adopted during the period did not have a material impact to the Company.
Recently issued accounting guidance is not applicable or did not have, or is not expected to have, a material impact to the Company.
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