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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
 
FORM 10-Q
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number: 001-14063
 
jabillogoa05.jpg
JABIL INC.
(Exact name of registrant as specified in its charter)
 
Delaware
 
38-1886260
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
10560 Dr. Martin Luther King, Jr. Street North, St. Petersburg, Florida 33716
(Address of principal executive offices) (Zip Code)
(727) 577-9749
(Registrant’s telephone number, including area code) 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol(s)
Name of each exchange on which registered
Common Stock, $0.001 par value per share
JBL
New York Stock Exchange
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
  
Smaller reporting company
 
 
Emerging growth company

1


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
As of January 1, 2020, there were 152,089,713 shares of the registrant’s Common Stock outstanding.

2

Table of Contents

JABIL INC. AND SUBSIDIARIES INDEX
 
Item 1.
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 



Table of Contents

PART I—FINANCIAL INFORMATION
 
Item 1.
Financial Statements
JABIL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except for share data)

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Table of Contents

 
November 30,
2019
(Unaudited)
 
August 31,
2019
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
719,842

 
$
1,163,343

Accounts receivable, net of allowance for doubtful accounts of $30,343 as of November 30, 2019 and $17,221 as of August 31, 2019
3,596,145

 
2,745,226

Contract assets
1,060,580

 
911,940

Inventories, net
3,342,198

 
3,023,003

Prepaid expenses and other current assets
533,466

 
501,573

Total current assets
9,252,231

 
8,345,085

Property, plant and equipment, net of accumulated depreciation of $4,221,124 as of November 30, 2019 and $4,110,496 as of August 31, 2019
3,450,211

 
3,333,750

Operating lease right-of-use asset
405,895

 

Goodwill
678,391

 
622,255

Intangible assets, net of accumulated amortization of $353,988 as of November 30, 2019 and $337,841 as of August 31, 2019
240,849

 
256,853

Deferred income taxes
203,945

 
198,827

Other assets
213,441

 
213,705

Total assets
$
14,444,963


$
12,970,475

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Current installments of notes payable and long-term debt
$
375,180

 
$
375,181

Accounts payable
5,920,277

 
5,166,780

Accrued expenses
3,167,951

 
2,990,144

Current operating lease liabilities
98,640

 

Total current liabilities
9,562,048


8,532,105

Notes payable and long-term debt, less current installments
2,115,715

 
2,121,284

Other liabilities
319,369

 
163,821

Non-current operating lease liabilities
337,981

 

Income tax liabilities
143,187

 
136,689

Deferred income taxes
117,370

 
115,818

Total liabilities
12,595,670


11,069,717

Commitments and contingencies

 

Equity:
 
 
 
Jabil Inc. stockholders’ equity:
 
 
 
Preferred stock, $0.001 par value, authorized 10,000,000 shares; no shares issued and no shares outstanding

 

Common stock, $0.001 par value, authorized 500,000,000 shares; 262,337,466 and 260,406,796 shares issued and 152,300,356 and 153,520,380 shares outstanding as of November 30, 2019 and August 31, 2019, respectively
262

 
260

Additional paid-in capital
2,332,307

 
2,304,552

Retained earnings
2,064,758

 
2,037,037

Accumulated other comprehensive loss
(74,322
)
 
(82,794
)
Treasury stock at cost, 110,037,110 and 106,886,416 shares as of November 30, 2019 and August 31, 2019, respectively
(2,487,319
)
 
(2,371,612
)
Total Jabil Inc. stockholders’ equity
1,835,686


1,887,443

Noncontrolling interests
13,607

 
13,315

Total equity
1,849,293

 
1,900,758

Total liabilities and equity
$
14,444,963

 
$
12,970,475

See accompanying notes to Condensed Consolidated Financial Statements.

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Table of Contents

JABIL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share data)
(Unaudited)
 
Three months ended
 
November 30,
2019
 
November 30,
2018
Net revenue
$
7,505,698

 
$
6,506,275

Cost of revenue
6,951,859

 
5,986,625

Gross profit
553,839

 
519,650

Operating expenses:
 
 
 
Selling, general and administrative
328,899

 
278,126

Research and development
10,770

 
11,143

Amortization of intangibles
16,140

 
7,646

Restructuring and related charges
45,251

 
6,025

Operating income
152,779

 
216,710

Other expense
11,172

 
13,550

Interest income
(5,944
)
 
(4,379
)
Interest expense
44,911

 
42,652

Income before income tax
102,640

 
164,887

Income tax expense
61,926

 
40,813

Net income
40,714

 
124,074

Net income attributable to noncontrolling interests, net of tax
292

 
474

Net income attributable to Jabil Inc.
$
40,422

 
$
123,600

Earnings per share attributable to the stockholders of Jabil Inc.:
 
 
 
Basic
$
0.26

 
$
0.77

Diluted
$
0.26

 
$
0.76

Weighted average shares outstanding:
 
 
 
Basic
153,100

 
161,557

Diluted
156,462

 
163,670

See accompanying notes to Condensed Consolidated Financial Statements.

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Table of Contents

JABIL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(Unaudited)
 
Three months ended
 
November 30,
2019
 
November 30,
2018
Net income
$
40,714

 
$
124,074

Other comprehensive (loss) income:
 
 
 
Change in foreign currency translation
(529
)
 
377

Change in derivative instruments:
 
 
 
Change in fair value of derivatives
10,945

 
(18,469
)
Adjustment for net losses realized and included in net income
6,883

 
14,185

Total change in derivative instruments
17,828

 
(4,284
)
Unrealized loss on available for sale securities
(8,827
)
 
(8,745
)
Actuarial gain

 
103

Total other comprehensive income (loss)
8,472

 
(12,549
)
Comprehensive income
$
49,186

 
$
111,525

Comprehensive income attributable to noncontrolling interests
292

 
474

Comprehensive income attributable to Jabil Inc.
$
48,894

 
$
111,051

See accompanying notes to Condensed Consolidated Financial Statements.

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Table of Contents

JABIL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
(Unaudited)
 
Three months ended
 
November 30,
2019
 
November 30,
2018
Total stockholders' equity, beginning balances
$
1,900,758

 
$
1,963,380

Common stock:
 
 
 
Beginning balances
260

 
257

Vesting of restricted stock
2

 
2

Ending balances
262

 
259

Additional paid-in capital:
 
 
 
Beginning balances
2,304,552

 
2,218,673

Shares issued under employee stock purchase plan

 
8

Vesting of restricted stock
(2
)
 
(2
)
Recognition of stock-based compensation
27,757

 
17,148

Ending balances
2,332,307

 
2,235,827

Retained earnings:
 
 
 
Beginning balances
2,037,037

 
1,760,097

Declared dividends
(12,701
)
 
(13,101
)
Cumulative effect adjustment for adoption of new accounting standards

 
40,855

Net income attributable to Jabil Inc.
40,422

 
123,600

Ending balances
2,064,758

 
1,911,451

Accumulated other comprehensive loss:
 
 
 
Beginning balances
(82,794
)
 
(19,399
)
Other comprehensive income (loss)
8,472

 
(12,549
)
Ending balances
(74,322
)
 
(31,948
)
Treasury stock:
 
 
 
Beginning balances
(2,371,612
)
 
(2,009,371
)
Purchases of treasury stock under employee stock plans
(19,317
)
 
(9,715
)
Treasury shares purchased
(96,390
)
 
(204,587
)
Ending balances
(2,487,319
)
 
(2,223,673
)
Noncontrolling interests:
 
 
 
Beginning balances
13,315

 
13,123

Net income attributable to noncontrolling interests
292

 
474

Ending balances
13,607

 
13,597

Total stockholders' equity, ending balances
$
1,849,293

 
$
1,905,513


See accompanying notes to Condensed Consolidated Financial Statements.

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Table of Contents

JABIL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 
 
Three months ended
 
November 30,
2019
 
November 30,
2018
Cash flows provided by (used in) operating activities:
 
 
 
Net income
$
40,714

 
$
124,074

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Depreciation and amortization
202,859

 
188,836

Restructuring and related charges
18,347

 
184

Recognition of stock-based compensation expense and related charges
30,223

 
17,249

Deferred income taxes
(6,645
)
 
4,371

Provision for allowance for doubtful accounts
10,413

 
856

Other, net
1,179

 
43,426

Change in operating assets and liabilities, exclusive of net assets acquired:
 
 
 
Accounts receivable
(863,210
)
 
(600,630
)
Contract assets
(68,322
)
 
(761,910
)
Inventories
(286,775
)
 
242,506

Prepaid expenses and other current assets
(31,413
)
 
(103,040
)
Other assets
(8,162
)
 
(2,528
)
Accounts payable, accrued expenses and other liabilities
981,736

 
754,913

Net cash provided by (used in) operating activities
20,944

 
(91,693
)
Cash flows used in investing activities:
 
 
 
Acquisition of property, plant and equipment
(230,393
)
 
(231,513
)
Proceeds and advances from sale of property, plant and equipment
23,209

 
10,227

Cash paid for business and intangible asset acquisitions, net of cash
(116,767
)
 

Cash receipts on sold receivables

 
96,846

Other, net
(1,779
)
 
(6,812
)
Net cash used in investing activities
(325,730
)

(131,252
)
Cash flows used in financing activities:
 
 
 
Borrowings under debt agreements
1,779,801

 
3,071,559

Payments toward debt agreements
(1,787,243
)
 
(3,078,197
)
Payments to acquire treasury stock
(96,390
)
 
(204,587
)
Dividends paid to stockholders
(13,731
)
 
(14,528
)
Treasury stock minimum tax withholding related to vesting of restricted stock
(19,317
)
 
(9,715
)
Other, net

 
8

Net cash used in financing activities
(136,880
)
 
(235,460
)
Effect of exchange rate changes on cash and cash equivalents
(1,835
)
 
4,865

Net decrease in cash and cash equivalents
(443,501
)

(453,540
)
Cash and cash equivalents at beginning of period
1,163,343

 
1,257,949

Cash and cash equivalents at end of period
$
719,842

 
$
804,409

See accompanying notes to Condensed Consolidated Financial Statements.

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Table of Contents

JABIL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary to present fairly the information set forth therein have been included. Jabil Inc. (the “Company”) has made certain reclassification adjustments to conform prior periods’ Condensed Consolidated Financial Statements to the current presentation. The accompanying unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and footnotes included in the Annual Report on Form 10-K of the Company for the fiscal year ended August 31, 2019. Results for the three months ended November 30, 2019 are not necessarily an indication of the results that may be expected for the full fiscal year ending August 31, 2020.
2. Trade Accounts Receivable Securitization and Sale Programs
The Company regularly sells designated pools of trade accounts receivable under a foreign asset-backed securitization program, a North American asset-backed securitization program and uncommitted trade accounts receivable sale programs (collectively referred to herein as the “programs”). The Company continues servicing the receivables sold and in exchange receives a servicing fee under each of the programs. Servicing fees related to each of the programs recognized during the three months ended November 30, 2019 and 2018 were not material. The Company does not record a servicing asset or liability on the Condensed Consolidated Balance Sheets as the Company estimates that the fee it receives to service these receivables approximates the fair market compensation to provide the servicing activities.
Transfers of the receivables under the programs are accounted for as sales and, accordingly, net receivables sold under the programs are excluded from accounts receivable on the Condensed Consolidated Balance Sheets and are reflected as cash provided by operating activities on the Condensed Consolidated Statements of Cash Flows.
Asset-Backed Securitization Programs
The Company continuously sells designated pools of trade accounts receivable, at a discount, under its foreign asset-backed securitization program and its North American asset-backed securitization program to special purpose entities, which in turn sell certain of the foreign asset-backed receivables to an unaffiliated financial institution and a conduit administered by an unaffiliated financial institution and certain of the North American asset-backed receivables to conduits administered by an unaffiliated financial institution on a monthly basis.
The special purpose entity in the foreign asset-backed securitization program is a separate bankruptcy-remote entity whose assets would be first available to satisfy the creditor claims of the unaffiliated financial institution. The Company is deemed the primary beneficiary of this special purpose entity as the Company has both the power to direct the activities of the entity that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive the benefits that could potentially be significant to the entity from the transfer of the trade accounts receivable into the special purpose entity. Accordingly, the special purpose entity associated with the foreign asset-backed securitization program is included in the Company’s Condensed Consolidated Financial Statements. As of November 30, 2019, the special purpose entity has liabilities for which creditors do not have recourse to the general credit of the Company (primary beneficiary). The liabilities cannot exceed the maximum amount of net cash proceeds under the foreign asset-backed securitization program.
The foreign asset-backed securitization program contains a guarantee of payment by the special purpose entity, in an amount approximately equal to the net cash proceeds under the program. No liability has been recorded for obligations under the guarantee as of November 30, 2019.
The special purpose entity in the North American asset-backed securitization program is a wholly-owned subsidiary of the Company and is included in the Company’s Condensed Consolidated Financial Statements. Certain unsold receivables covering the maximum amount of net cash proceeds available under the North American asset-backed securitization program are pledged as collateral to the unaffiliated financial institution as of November 30, 2019.
Following is a summary of the asset-backed securitization programs and key terms:    

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Maximum Amount of
Net Cash Proceeds (in millions)
(1)

Expiration
Date
North American
$
390.0


November 22, 2021
Foreign
$
400.0


September 30, 2021
 
(1) 
Maximum amount available at any one time.
In connection with the asset-backed securitization programs, the Company recognized the following (in millions):
 
Three months ended
 
November 30, 2019
 
November 30, 2018(3)
Trade accounts receivable sold
$
1,162

 
$
750

Cash proceeds received(1)
$
1,156

 
$
744

Pre-tax losses on sale of receivables(2)
$
6

 
$
6

 
(1) 
The amounts primarily represent proceeds from collections reinvested in revolving-period transfers.
(2) 
Recorded to other expense within the Condensed Consolidated Statements of Operations.
(3) 
Excludes $650.3 million of trade accounts receivable sold, $488.1 million of cash and $13.9 million of net cash received prior to the amendment of the foreign asset-backed securitization program and under the previous North American asset-backed securitization program which occurred during the first quarter of fiscal year 2019.
The asset-backed securitization programs require compliance with several covenants. The North American asset-backed securitization program covenants include compliance with the interest ratio and debt to EBITDA ratio of the five-year unsecured credit facility amended as of November 8, 2017 (the “2017 Credit Facility”). The foreign asset-backed securitization program covenants include limitations on certain corporate actions such as mergers and consolidations. As of November 30, 2019 and August 31, 2019, the Company was in compliance with all covenants under the asset-backed securitization programs.
Trade Accounts Receivable Sale Programs
The following is a summary of the 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:
Program (10)
Maximum
Amount
(in millions)
(1)
 
 
Type of
Facility
 
Expiration
Date
A
$
800.0

 
 
Uncommitted
 
August 31, 2022(2)
B
$
150.0

 
 
Uncommitted
 
November 30, 2020(3)
C
800.0

CNY
 
Uncommitted
 
June 30, 2020
D
$
150.0

 
 
Uncommitted
 
May 4, 2023(4)
E
$
50.0

 
 
Uncommitted
 
August 25, 2020
F
$
150.0

 
 
Uncommitted
 
January 25, 2020(5)
G
$
50.0

 
 
Uncommitted
 
February 23, 2023(2)
H
$
100.0

 
 
Uncommitted
 
August 10, 2020(6)
I
$
100.0

 
 
Uncommitted
 
July 21, 2020(7)
J
$
740.0

 
 
Uncommitted
 
February 28, 2020(8)
K
$
110.0

 
 
Uncommitted
 
April 11, 2020(9)
 
(1) 
Maximum amount available at any one time.
(2) 
Any party may elect to terminate the agreement upon 15 days prior notice.
(3) 
The program will automatically extend for one year at each expiration date unless either party provides 10 days notice of termination.
(4) 
Any party may elect to terminate the agreement upon 30 days prior notice.
(5) 
The program will be automatically extended through January 25, 2023 unless either party provides 30 days notice of termination.

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(6) 
The program will be automatically extended through August 10, 2023 unless either party provides 30 days notice of termination.
(7) 
The program will be automatically extended through August 21, 2023 unless either party provides 30 days notice of termination.
(8) 
As of the date of this filing, program J is no longer being utilized as it has been replaced with a new $500.0 million program (see footnote 10 below for details).
(9) 
The program will be automatically extended each year through April 11, 2025 unless either party provides 30 days notice of termination.
(10) 
The Company entered into two new trade accounts receivable sale programs on December 5, 2019 with maximum amounts of $500.0 million and CHF 100.0 million, respectively.
In connection with the trade accounts receivable sale programs, the Company recognized the following (in millions):
 
Three months ended
 
November 30, 2019
 
November 30, 2018
Trade accounts receivable sold
$
1,962

 
$
1,834

Cash proceeds received
$
1,957

 
$
1,826

Pre-tax losses on sale of receivables(1)
$
5

 
$
8

 
(1) 
Recorded to other expense within the Condensed Consolidated Statement of Operations.
3. Inventories
Inventories consist of the following (in thousands):
 
November 30, 2019
 
August 31, 2019
Raw materials
$
2,566,716

 
$
2,310,081

Work in process
418,750

 
468,217

Finished goods
447,983

 
314,258

Reserve for excess and obsolete inventory
(91,251
)
 
(69,553
)
Inventories, net
$
3,342,198

 
$
3,023,003


4. Leases
Effective September 1, 2019, the Company adopted Accounting Standards Update No. 2016-02 (“ASU 2016-02”), Leases (Topic 842) using the modified retrospective approach and also elected to apply the package of practical expedients, which among other things, allows entities to maintain the historical lease classification for existing leases. The Company has lease agreements that contain both lease and non-lease components. For lease agreements entered into or reassessed after the adoption of ASU 2016-02, 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 and real estate with lease terms ranging from 1 year to 36 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 residual value guarantees or 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.

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Upon adoption of ASU 2016-02, the Company recorded $414.6 million and $437.5 million of right-of-use assets and lease liabilities, respectively, related to its existing operating lease portfolio. The accounting for the Company's finance leases remained substantially unchanged and balances were not significant on the adoption date. The adoption of this standard did not have a material impact on the Consolidated Statements of Operations or the Consolidated Statements of Cash Flows.
The following table sets forth the amount of lease assets and lease liabilities included on the Company's Condensed Consolidated Balance Sheets, as of the period indicated (in thousands):
 
 
Financial Statement Line Item
 
November 30, 2019
Assets
 
 
 
 
Operating lease assets (1)
 
Operating lease right-of-use assets
 
$
405,895

Finance lease assets (2)
 
Property, plant and equipment, net
 
152,846

Total lease assets
 
 
 
$
558,741

Liabilities
 
 
 
 
Current
 
 
 
 
Operating lease liabilities
 
Current operating lease liabilities
 
$
98,640

Finance lease liabilities
 
Accrued expenses
 
6,635

Non-current
 
 
 
 
Operating lease liabilities
 
Non-current operating lease liabilities
 
337,981

Finance lease liabilities
 
Other liabilities
 
154,801

Total lease liabilities
 
 
 
$
598,057

 
(1) 
Net of accumulated amortization of $24.6 million.
(2) 
Net of accumulated amortization of $8.1 million.
The following table is a summary of expenses and income related to leases included on the Company's Condensed Consolidated Statements of Operations, for the period indicated (in thousands):
 
November 30, 2019
Operating lease cost
$
27,735

Finance lease cost
 
Amortization of leased assets
1,136

Interest on lease liabilities
1,189

Other
2,691

Net lease cost(1)

$
32,751

 
(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 period indicated:
 
November 30, 2019
 
Weighted-average remaining lease term
 
Weighted-average discount rate
Operating leases
5.7 years
 
3.25
%
Finance leases
6.5 years
 
4.35
%

The following table sets forth other supplemental information related to the Company's lease portfolio (in thousands):

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Table of Contents

 
November 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows from operating leases(1)
$
26,864

Operating cash flows from finance leases(1)
1,189

Financing activities from finance leases(2)
1,120

Non-cash right-of-use assets obtained in exchange for new lease liabilities:
 
Operating leases
17,901

Finance leases
111,591

 
(1) 
Included in accounts payable, accrued expenses and other liabilities in Operating Activities of the Company's Condensed Consolidated Statements of Cash Flows.
(2) 
Included in payments toward debt agreements in Financing Activities of the Company's Condensed Consolidated Statements of Cash Flows.
The future minimum lease payments under operating and finance leases as of November 30, 2019 were as follows (in thousands):
Twelve months ended November 30,
Operating Leases(1)
 
Finance Leases
 
Total
2020
$
110,223

 
$
11,635

 
$
121,858

2021
93,597

 
11,676

 
105,273

2022
75,609

 
12,140

 
87,749

2023
56,764

 
11,694

 
68,458

2024
46,447

 
11,829

 
58,276

Thereafter
103,899

 
132,235

 
236,134

Total minimum lease payments
$
486,539

 
$
191,209

 
$
677,748

Less: Interest
(49,918
)
 
(29,773
)
 
(79,691
)
Present value of lease liabilities
$
436,621

 
$
161,436

 
$
598,057

 
(1) 
Excludes $18.4 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.
As disclosed in the Company’s Form 10-K for the fiscal year ended August 31, 2019, the future minimum lease payments of non-cancelable operating leases prior to the adoption of ASU 2016-02 were as follows (in thousands):
Fiscal Year Ending August 31,
Amount
2020
$
118,312

2021
102,915

2022
84,729

2023
63,206

2024
51,091

Thereafter
182,932

Total minimum lease payments
$
603,185


Total operating lease expense prior to the adoption of ASU 2016-02 was approximately $125.4 million, $130.2 million and $117.2 million for fiscal years 2019, 2018 and 2017, respectively.


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5. Notes Payable and Long-Term Debt
Notes payable and long-term debt outstanding as of November 30, 2019 and August 31, 2019 are summarized below (in thousands): 
 
 
Maturity
Date
 
November 30,
2019
 
August 31,
2019
5.625% Senior Notes
 
Dec 15, 2020
 
399,109

 
398,886

4.700% Senior Notes
 
Sep 15, 2022
 
498,169

 
498,004

4.900% Senior Notes
 
Jul 14, 2023
 
299,118

 
299,057

3.950% Senior Notes
 
Jan 12, 2028
 
494,978

 
494,825

Borrowings under credit facilities(1)
 
Nov 8, 2022 and Aug 24, 2020
 

 

Borrowings under loans
 
Nov 8, 2022 and Aug 24, 2020
 
799,521

 
805,693

Total notes payable and long-term debt
 
 
 
2,490,895

 
2,496,465

Less current installments of notes payable and long-term debt
 
 
 
375,180

 
375,181

Notes payable and long-term debt, less current installments
 
 
 
$
2,115,715

 
$
2,121,284

 
(1) 
As of November 30, 2019, the Company has $2.6 billion in available unused borrowing capacity under its revolving credit facilities. The revolving credit facility supports commercial paper outstanding, if any. The Company has a borrowing capacity of up to $1.8 billion under its commercial paper program.
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 5.625%, 4.700%, 4.900% or 3.950% Senior Notes upon a change of control. As of November 30, 2019 and August 31, 2019, the Company was in compliance with its debt covenants.
Fair Value
Refer to Note 16 – “Fair Value Measurements” for the estimated fair values of the Company’s notes payable and long-term debt.

6. Accrued Expenses
Accrued expenses consist of the following (in thousands):
 
November 30, 2019
 
August 31, 2019
Contract liabilities(1)
$
488,337

 
$
511,329

Accrued compensation and employee benefits
650,820

 
600,907

Other accrued expenses
2,028,794

 
1,877,908

Accrued expenses
$
3,167,951

 
$
2,990,144

 
(1) 
Revenue recognized during the three months ended November 30, 2019 that was included in the contract liability balance as of September 1, 2019 was $101.4 million.


7. Postretirement and Other Employee Benefits
Postretirement Benefits
Net Periodic Benefit Cost

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The following table provides information about the net periodic benefit cost for all plans for the three months ended November 30, 2019 and 2018 (in thousands):
 
Three months ended
 
November 30, 2019
 
November 30, 2018
Service cost (1)
$
4,463

 
$
295

Interest cost (2)
763

 
885

Expected long-term return on plan assets (2)
(2,786
)
 
(1,352
)
Recognized actuarial loss (2)
223

 
208

Amortization of prior service credit (2)
(11
)
 
(12
)
Net periodic benefit cost
$
2,652

 
$
24

 
(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.

Acquired Plan
As a result of the third closing of the 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 years 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.
The following tables provide information only related to the Switzerland plan as of the acquisition date, September 30, 2019, and are preliminary estimates.
Benefit Obligation and Plan Assets
The benefit obligations and plan assets, changes to the benefit obligation and plan assets and the funded status of the Switzerland plan as of September 30, 2019 are as follows (in thousands):
 
September 30, 2019
Ending projected benefit obligation
$
(404,297
)
Ending fair value of plan assets
$
345,473

Unfunded status
$
(58,824
)

 
 
 
Cash Flows
The Company expects to make cash contributions between $9.5 million and $11.7 million to its Switzerland pension plan during fiscal year 2020. The estimated future benefit payments, which reflect expected future service, are as follows (in thousands):
Fiscal Year Ended August 31,
Amount
2020
$
24,698

2021
21,698

2022
20,098

2023
18,398

2024
17,298

2025 through 2029
82,992


Accumulated Benefit Obligation
The following table provides information for the Switzerland plan with an accumulated benefit obligation as of September 30, 2019 (in thousands):

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September 30, 2019
Projected benefit obligation
$
(404,297
)
Accumulated benefit obligation
$
(394,427
)
Fair value of plan assets
$
345,473



8. 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 $284.2 million and $334.1 million as of November 30, 2019 and August 31, 2019, respectively. The related forward foreign exchange contracts have been designated as hedging instruments and are accounted for as cash flow hedges. The forward foreign exchange contract transactions will effectively lock in the value of anticipated foreign currency denominated revenues and expenses against foreign currency fluctuations. The anticipated foreign currency denominated revenues and expenses being hedged are expected to occur between December 1, 2019 and November 30, 2020.

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 November 30, 2019 and August 31, 2019, was $3.1 billion and $2.5 billion, respectively.
 

 
 
 
 
 
 
 
 
 
 
 
 

Refer to Note 16 – “Fair Value Measurements” for the fair values and classification of the Company’s derivative instruments.
The gains and losses recognized in earnings due to hedge ineffectiveness and the amount excluded from effectiveness testing were not material for all periods presented and are included as components of net revenue, cost of revenue and selling, general and administrative expense, which are the same line items in which the hedged items are recorded.

The following table presents the gains and losses from forward contracts recorded in the Condensed Consolidated Statements of Operations for the periods indicated (in thousands):
Derivatives Not Designated as Hedging Instruments Under ASC 815
 
Location of Gain (Loss) on Derivatives Recognized in Net Income
 
Amount of Gain (Loss) Recognized in Net Income on Derivatives
 
 
 
 
Three months ended
 
 
 
 
November 30, 2019
 
November 30, 2018
Forward foreign exchange contracts(1)
 
Cost of revenue
 
$
26,718

 
$
(6,986
)
 
(1) 
During the three months ended November 30, 2019, the Company recognized $28.9 million of foreign currency losses in cost of revenue, which are offset by the gains from the forward foreign exchange contracts. During the three months ended November 30, 2018, the Company recognized $4.5 million of foreign currency gains in cost of revenue, which are offset by the losses 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

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The following table presents the interest rate swaps outstanding as of November 30, 2019, which have been designated as hedging instruments and accounted for as cash flow hedges:
Interest Rate Swap Summary
Hedged Interest Rate Payments
 
Aggregate Notional Amount (in millions)
 
Effective Date
 
Expiration Date (1)
 
Forward Interest Rate Swap
 
 
 
 
 
 
 
 
Anticipated Debt Issuance
Fixed
 
$
200.0

 
October 22, 2018
 
December 15, 2020
(2) 
Interest Rate Swaps(3)
 
 
 
 
 
 
 
 
2017 Term Loan Facility
Variable
 
$
200.0

 
October 11, 2018
 
August 31, 2020
 
2018 Term Loan Facility
Variable
 
$
350.0

 
August 24, 2018
 
August 24, 2020
 
 
(1) 
The contracts will be settled with the respective counterparties on a net basis at the expiration date for the forward interest rate swap and at each settlement date for the interest rate swaps.
(2) 
If the anticipated debt issuance occurs before December 15, 2020, the contracts will be terminated simultaneously with the debt issuance.
(3) 
The Company pays interest based upon a fixed rate as agreed upon with the respective counterparties and receives variable rate interest payments based on the one-month LIBOR for the $500.0 million Term Loan Facility, expiring on November 8, 2022 (the “2017 Term Loan Facility”), for which $200.0 million is hedged, and based on the three-month LIBOR for the $350.0 million Term Loan Facility, which expires on August 24, 2020 (the “2018 Term Loan Facility”).
9. Accumulated Other Comprehensive Income

The following table sets forth the changes in accumulated other comprehensive (loss) income (“AOCI”), net of tax, by component for the three months ended November 30, 2019 (in thousands):
 
 
Foreign
Currency
Translation
Adjustment
 
Derivative
Instruments
 
Actuarial
Loss
 
Prior
Service Cost
 
Available for
Sale Securities
 
Total
Balance as of August 31, 2019
$
(14,298
)
 
$
(39,398
)
 
$
(28,033
)
 
$
(608
)
 
$
(457
)
 
(82,794
)
Other comprehensive (loss) income before reclassifications
(529
)
 
10,945

 

 

 
(8,827
)
 
1,589

Amounts reclassified from AOCI

 
6,883

 

 

 

 
6,883

Other comprehensive (loss) income(1)
(529
)
 
17,828

 

 

 
(8,827
)
 
8,472

Balance as of November 30, 2019
$
(14,827
)
 
$
(21,570
)
 
$
(28,033
)
 
$
(608
)
 
$
(9,284
)
 
$
(74,322
)


(1) 
Amounts are net of tax, which are immaterial.

The following table sets forth the amounts reclassified from AOCI into the Condensed Consolidated Statements of Operations, and the associated financial statement line item, net of tax, for the periods indicated (in thousands):
 
 
 
 
Three months ended
Comprehensive Income Components
 
Financial Statement Line Item
 
November 30,
2019
 
November 30,
2018
Realized losses (gains) on derivative instruments:(1)
 
 
 
 
 
 
Foreign exchange contracts
 
Cost of revenue
 
$
7,314

 
$
14,615

Interest rate contracts
 
Interest expense
 
(431
)
 
(430
)
Total amounts reclassified from AOCI(2)
 
 
 
$
6,883

 
$
14,185

 
(1) 
The Company expects to reclassify $5.0 million into earnings during the next twelve months, which will primarily be classified as a component of cost of revenue.
(2) 
Amounts are net of tax, which are immaterial for the three months ended November 30, 2019 and 2018.
10. Stockholders’ Equity
The Company recognized stock-based compensation expense within selling, general and administrative expense as follows (in thousands):
 
Three months ended
 
November 30, 2019
 
November 30, 2018
Restricted stock units
$
28,183

 
$
15,051

Employee stock purchase plan
2,040

 
2,198

Total
$
30,223

 
$
17,249


As of November 30, 2019, the shares available to be issued under the 2011 Stock Award and Incentive Plan were 10,494,288.
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 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. During the three months ended November 30, 2019 and 2018, the Company awarded approximately 1.1 million and 1.5 million time-based restricted stock units, respectively, 0.3 million and 0.4 million performance-based restricted stock units, respectively and 0.3 million and 0.4 million market-based restricted stock units, respectively.
The following represents the stock-based compensation information for the period indicated (in thousands):
 
Three months ended
 
November 30, 2019
Unrecognized stock-based compensation expense—restricted stock units
$
79,953

Remaining weighted-average period for restricted stock units expense
1.5 years


Common Stock Outstanding
The following represents the common stock outstanding for the periods indicated:
 
Three months ended
 
November 30, 2019
 
November 30, 2018
Common stock outstanding:
 
 
 
Beginning balances
153,520,380

 
164,588,172

Shares issued upon exercise of stock options
13,930

 

Shares issued under employee stock purchase plan

 
354

Vesting of restricted stock
1,916,740

 
1,686,163

Purchases of treasury stock under employee stock plans
(530,417
)
 
(407,447
)
Treasury shares purchased(1)
(2,620,277
)
 
(7,880,346
)
Ending balances
152,300,356

 
157,986,896



(1) 
In September 2019, the Company’s Board of Directors authorized the repurchase of up to $600.0 million of the Company’s common stock as part of a two-year capital allocation framework (the “2020 Share Repurchase Program”). As of November 30, 2019, 2.6 million shares had been repurchased for $96.4 million and $503.6 million remains available under the 2020 Share Repurchase Program.

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11. Concentration of Risk and Segment Data
Concentration of Risk
Sales of the Company’s products are concentrated among specific customers. During the three months ended November 30, 2019, the Company’s five largest customers accounted for approximately 49% of its net revenue and 65 customers accounted for approximately 90% of its net revenue. Sales to these customers were reported in the Electronics Manufacturing Services (“EMS”) and Diversified Manufacturing Services (“DMS”) operating segments.
The Company procures components from a broad group of suppliers. Some of the products manufactured by the Company require one or more components that are available from only a single source.
Segment Data
Net revenue for the operating segments is attributed to the segment in which the service is performed. An operating 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 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, restructuring of securities loss, goodwill impairment charges, business interruption and impairment charges, net, 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. 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 thousands):
 
 
Three months ended
 
November 30, 2019
 
November 30, 2018
 
EMS
 
DMS
 
Total
 
EMS
 
DMS
 
Total
Timing of transfer
 
 
 
 
 
 
 
 
 
 
 
Point in time
$
1,390,910

 
$
1,869,479

 
$
3,260,389

 
$
420,661

 
$
2,101,651

 
$
2,522,312

Over time
3,026,642

 
1,218,667

 
4,245,309

 
3,082,442

 
901,521

 
3,983,963

Total
$
4,417,552

 
$
3,088,146

 
$
7,505,698

 
$
3,503,103

 
$
3,003,172

 
$
6,506,275



The following table sets forth operating segment information (in thousands):


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Table of Contents

 
Three months ended
 
November 30, 2019
 
November 30, 2018
Segment income and reconciliation of income before income tax
 
 
 
EMS
$
104,700

 
$
84,095

DMS
172,615

 
169,565

Total segment income
$
277,315

 
$
253,660

Reconciling items:
 
 
 
Amortization of intangibles
(16,140
)
 
(7,646
)
Stock-based compensation expense and related charges
(30,223
)
 
(17,249
)
Restructuring and related charges
(45,251
)
 
(6,025
)
Distressed customer charge
(14,963
)
 

Business interruption and impairment charges, net(1)

 
2,860

Acquisition and integration charges
(16,134
)
 
(8,890
)
Other expense (net of periodic benefit cost)
(12,997
)
 
(13,550
)
Interest income
5,944

 
4,379

Interest expense
(44,911
)
 
(42,652
)
Income before income tax
$
102,640

 
$
164,887

 
(1)Charges, net of insurance proceeds of $2.9 million for the three months ended November 30, 2018, relate to business interruption and asset impairment costs associated with damage from Hurricane Maria, which impacted our operations in Cayey, Puerto Rico.
 

As of November 30, 2019, the Company operated in 30 countries worldwide. Sales to unaffiliated customers are based on the Company’s location that maintains the customer relationship and transacts the external sale.
The following table sets forth, for the periods indicated, foreign source revenue expressed as a percentage of net revenue:
 
Three months ended
 
November 30, 2019
 
November 30, 2018
Foreign source revenue
81.8
%
 
92.7
%

12. Restructuring and Related Charges
Following is a summary of the Company’s restructuring and related charges (in thousands):
 
Three months ended
 
November 30, 2019(2)
 
November 30, 2018(3)
Employee severance and benefit costs
$
18,781