JABIL INC - Quarter Report: 2017 May (Form 10-Q)

Form 10-Q

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 May 31, 2017

☐	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

LOGO

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)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐ (Do not check if a smaller reporting company)	Smaller reporting company	☐

		Emerging growth company	☐

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 June 21, 2017, there were 179,242,687 shares of the registrant’s Common Stock outstanding.

JABIL INC. AND SUBSIDIARIES INDEX


Part I – Financial Information
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets at May 31, 2017 and August 31, 2016	1
	Condensed Consolidated Statements of Operations for the three months and nine months ended May 31, 2017 and 2016	2
	Condensed Consolidated Statements of Comprehensive Income for the three months and nine months ended May 31, 2017 and 2016	3
	Condensed Consolidated Statements of Stockholders’ Equity at May 31, 2017 and August 31, 2016	4
	Condensed Consolidated Statements of Cash Flows for the nine months ended May 31, 2017 and 2016	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	36

Part II – Other Information
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3.	Defaults Upon Senior Securities	37
Item 4.	Mine Safety Disclosures	37
Item 5.	Other Information	37
Item 6.	Exhibits	38
	Signatures	40

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements


JABIL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except for share data)
	May 31,
	2017			August 31,
	(Unaudited)			2016
ASSETS
Current assets:
Cash and cash equivalents	$	743,931		$	912,059
Accounts receivable, net of allowance for doubtful accounts of $14,267 at May 31, 2017 and $11,094 at August 31, 2016		1,445,148			1,359,610
Inventories		2,706,530			2,456,612
Prepaid expenses and other current assets		997,752			1,120,100

Total current assets		5,893,361			5,848,381
Property, plant and equipment, net of accumulated depreciation of $3,024,934 at May 31, 2017 and $2,721,972 at August 31, 2016		3,210,107			3,331,879
Goodwill		603,689			594,773
Intangible assets, net of accumulated amortization of $259,444 at May 31, 2017 and $232,618 at August 31, 2016		292,845			296,954
Deferred income taxes		189,881			148,859
Other assets		139,766			101,831

Total assets	$	10,329,649		$	10,322,677


LIABILITIES AND EQUITY

Current liabilities:
Current installments of notes payable, long-term debt and capital lease obligations	$	538,985		$	45,810
Accounts payable		3,641,247			3,593,195
Accrued expenses		1,937,003			1,929,051

Total current liabilities		6,117,235			5,568,056
Notes payable, long-term debt and capital lease obligations, less current installments		1,644,590			2,074,012
Other liabilities		80,943			78,018
Income tax liabilities		92,197			90,804
Deferred income taxes		51,841			54,290

Total liabilities		7,986,806			7,865,180

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; 252,656,479 and 249,763,699 shares issued and 179,463,376 and 186,998,472 shares outstanding at May 31, 2017 and August 31, 2016, respectively		253			250
Additional paid-in capital		2,078,833			2,034,525
Retained earnings		1,698,704			1,660,820
Accumulated other comprehensive income (loss)		15,927			(39,877	)
Treasury stock at cost, 73,193,103 and 62,765,227 shares at May 31, 2017 and August 31, 2016, respectively		(1,466,240	)		(1,217,547	)

Total Jabil Inc. stockholders’ equity		2,327,477			2,438,171
Noncontrolling interests		15,366			19,326

Total equity		2,342,843			2,457,497

Total liabilities and equity	$	10,329,649		$	10,322,677

See accompanying notes to Condensed Consolidated Financial Statements.

JABIL INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except for per share data)

(Unaudited)


	Three months ended						Nine months ended
	May 31,			May 31,			May 31,			May 31,
	2017			2016			2017			2016
Net revenue	$	4,489,557		$	4,310,752		$	14,040,092		$	13,922,323
Cost of revenue		4,163,142			3,989,665			12,920,267			12,718,268

Gross profit		326,415			321,087			1,119,825			1,204,055
Operating expenses:
Selling, general and administrative		233,884			239,646			665,879			716,097
Research and development		7,274			7,675			21,982			24,431
Amortization of intangibles		9,174			9,711			26,262			26,150
Restructuring and related charges		32,700			4,460			113,529			8,349

Operating income		43,383			59,595			292,173			429,028
Other expense		15,821			2,412			23,872			6,346
Interest income		(3,663	)		(2,302	)		(8,407	)		(6,653	)
Interest expense		35,443			35,212			102,087			102,509

(Loss) income before income tax		(4,218	)		24,273			174,621			326,826
Income tax expense		21,481			18,434			93,495			110,639

Net (loss) income		(25,699	)		5,839			81,126			216,187
Net (loss) income attributable to noncontrolling interests, net of tax		(418	)		626			(2,285	)		159

Net (loss) income attributable to Jabil Inc.	$	(25,281	)	$	5,213		$	83,411		$	216,028

(Loss) earnings per share attributable to the stockholders of Jabil Inc.
Basic	$	(0.14	)	$	0.03		$	0.46		$	1.13

Diluted	$	(0.14	)	$	0.03		$	0.45		$	1.12

Weighted average shares outstanding:
Basic		181,038			191,206			182,982			190,841

Diluted		181,038			193,069			186,621			193,058

Cash dividends declared per common share	$	0.08		$	0.08		$	0.24		$	0.24

See accompanying notes to Condensed Consolidated Financial Statements.

JABIL INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(Unaudited)


	Three months ended						Nine months ended
	May 31,			May 31,			May 31,			May 31,
	2017			2016			2017			2016
Net (loss) income	$	(25,699	)	$	5,839		$	81,126		$	216,187
Other comprehensive income:
Foreign currency translation adjustment		11,727			18,734			15,231			(5,433	)
Changes in fair value of derivative instruments, net of tax		(2,009	)		(2,021	)		8,647			(15,834	)
Reclassification of net losses realized and included in net income related to derivative instruments, net of tax		201			6,812			11,595			29,762
Unrealized gain (loss) on available for sale securities		4,548			(621	)		10,192			(3,748	)
Reclassification of losses on available for sale securities into net income		10,139			—			10,139			—

Total other comprehensive income		24,606			22,904			55,804			4,747

Comprehensive (loss) income	$	(1,093	)	$	28,743		$	136,930		$	220,934
Comprehensive (loss) income attributable to noncontrolling interests		(418	)		626			(2,285	)		159

Comprehensive (loss) income attributable to Jabil Inc.	$	(675	)	$	28,117		$	139,215		$	220,775

See accompanying notes to Condensed Consolidated Financial Statements.

JABIL INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except for share data)

(Unaudited)


	Jabil Inc. Stockholders’ Equity
	Common Stock											Accumulated
						Additional						Other
	Shares			Par		Paid-in			Retained			Comprehensive			Treasury			Noncontrolling			Total
	Outstanding			Value		Capital			Earnings			(Loss) Income			Stock			Interests			Equity
Balance at August 31, 2016		186,998,472		$	250	$	2,034,525		$	1,660,820		$	(39,877	)	$	(1,217,547	)	$	19,326		$	2,457,497
Shares issued upon exercise of stock options		108,941			—		—			—			—			—			—			—
Shares issued under employee stock purchase plan		710,832			1		11,246			—			—			—			—			11,247
Vesting of restricted stock awards		2,073,007			2		(2	)		—			—			—			—			—
Purchases of treasury stock under employee stock plans		(526,540	)		—		—			—			—			(11,558	)		—			(11,558	)
Treasury shares purchased		(9,901,336	)		—		—			—			—			(237,135	)		—			(237,135	)
Recognition of stock-based compensation		—			—		33,064			—			—			—			—			33,064
Declared dividends		—			—		—			(45,527	)		—			—			—			(45,527	)
Comprehensive income		—			—		—			83,411			55,804			—			(2,285	)		136,930
Declared dividends to noncontrolling interests		—			—		—			—			—			—			(1,500	)		(1,500	)
Foreign currency adjustments attributable to noncontrolling interests		—			—		—			—			—			—			(175	)		(175	)

Balance at May 31, 2017		179,463,376			253	$	2,078,833		$	1,698,704		$	15,927		$	(1,466,240	)	$	15,366		$	2,342,843

See accompanying notes to Condensed Consolidated Financial Statements.

JABIL INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)


	Nine months ended
	May 31,			May 31,
	2017			2016
Cash flows from operating activities:
Net income	$	81,126		$	216,187
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		570,557			512,972
Restructuring and related charges		58,613			—
Recognition of stock-based compensation expense and related charges		33,377			58,505
Deferred income taxes		(44,916	)		(24,403	)
Loss on sale of property, plant and equipment		1,362			13,229
Other, net		24,928			6,408
Change in operating assets and liabilities, exclusive of net assets acquired:
Accounts receivable		(85,761	)		180,830
Inventories		(216,149	)		229,187
Prepaid expenses and other current assets		100,397			(131,682	)
Other assets		(28,852	)		(7,466	)
Accounts payable, accrued expenses and other liabilities		38,341			(565,558	)

Net cash provided by operating activities		533,023			488,209

Cash flows from investing activities:
Acquisition of property, plant and equipment		(482,739	)		(668,505	)
Proceeds from sale of property, plant and equipment		43,437			18,710
Cash paid for business and intangible asset acquisitions, net of cash		(36,620	)		(206,039	)
Issuance of notes receivable		—			(29,300	)
Other, net		(1,360	)		(5,250	)

Net cash used in investing activities		(477,282	)		(890,384	)

Cash flows from financing activities:
Borrowings under debt agreements		5,432,503			4,748,060
Payments toward debt agreements		(5,370,936	)		(4,268,839	)
Payments to acquire treasury stock		(237,135	)		(54,567	)
Dividends paid to stockholders		(45,550	)		(47,122	)
Net proceeds from exercise of stock options and issuance of common stock under employee stock purchase plan		11,246			10,660
Treasury stock minimum tax withholding related to vesting of restricted stock		(11,558	)		(10,490	)
Other, net		(1,496	)		(1,958	)

Net cash (used in) provided by financing activities		(222,926	)		375,744

Effect of exchange rate changes on cash and cash equivalents		(943	)		(541	)

Net decrease in cash and cash equivalents		(168,128	)		(26,972	)
Cash and cash equivalents at beginning of period		912,059			913,963

Cash and cash equivalents at end of period	$	743,931		$	886,991

See accompanying notes to Condensed Consolidated Financial Statements.

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. The Company has made certain reclassification adjustments to conform prior periods’ Condensed Consolidated Financial Statements to the current presentation. The accompanying unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and footnotes included in the Annual Report on Form 10-K of Jabil Inc. (the “Company”) for the fiscal year ended August 31, 2016. Results for the nine months ended May 31, 2017 are not necessarily an indication of the results that may be expected for the full fiscal year ending August 31, 2017.

2. Earnings Per Share and Dividends

a. Earnings Per Share

The Company calculates its basic earnings per share by dividing net income attributable to Jabil Inc. by the weighted average number of common shares outstanding during the period. The Company’s diluted earnings per share is calculated in a similar manner, but includes the effect of dilutive securities. To the extent these securities are anti-dilutive, they are excluded from the calculation of diluted earnings per share.

No potential common shares relating to outstanding stock awards have been included in the computation of diluted earnings per share as a result of the Company’s net loss for the three months ended May 31, 2017. The Company accordingly excluded from the computation of diluted earnings per share 4,230,665 restricted stock awards and 513,693 stock appreciation rights for the three months ended May 31, 2017. For the nine months ended May 31, 2017, 334,152 stock appreciation rights were excluded from the computation of diluted earnings per share as their effect would have been anti-dilutive. For the three months and nine months ended May 31, 2016, 2,124,084 and 2,454,562 stock appreciation rights, respectively, were excluded from the computation of diluted earnings per share as their effect would have been anti-dilutive.

b. Dividends

The following table sets forth cash dividends declared by the Company to common stockholders during the nine months ended May 31, 2017 and 2016 (in thousands, except for per share data):


	Dividend Declaration Date		Dividend per Share		Total of Cash Dividends Declared		Date of Record for Dividend Payment		Dividend Cash Payment Date
Fiscal Year 2017:		October 20, 2016	$	0.08	$	15,248		November 15, 2016		December 1, 2016
		January 26, 2017	$	0.08	$	15,051		February 15, 2017		March 1, 2017
		April 20, 2017	$	0.08	$	14,840		May 15, 2017		June 1, 2017
Fiscal Year 2016:		October 14, 2015	$	0.08	$	15,906		November 16, 2015		December 1, 2015
		January 21, 2016	$	0.08	$	15,947		February 16, 2016		March 1, 2016
		April 21, 2016	$	0.08	$	15,940		May 16, 2016		June 1, 2016

3. Inventories

Inventories consist of the following (in thousands):


	May 31, 2017			August 31, 2016
Raw materials	$	1,468,471		$	1,302,481
Work in process		722,833			675,867
Finished goods		567,556			510,485
Reserve for inventory obsolescence		(52,330	)		(32,221	)

Total inventories, net	$	2,706,530		$	2,456,612

4. Stock-Based Compensation

The Company recognizes stock-based compensation expense, reduced for estimated forfeitures, on a straight-line basis over the requisite service period of the award, which is generally the vesting period for outstanding stock awards. The Company recorded $18.4 million and $33.4 million of stock-based compensation expense gross of tax effects, which is included in selling, general and administrative expenses within the Condensed Consolidated Statements of Operations for the three months and nine months ended May 31, 2017, respectively. During the first quarter of fiscal year 2017, the Company recorded a $21.0 million reversal to stock-based compensation expense due to decreased expectations for the vesting of certain performance-based restricted stock awards. The Company recorded tax benefits related to the stock-based compensation expense of $0.3 million and $0.7 million, which is included in income tax expense within the Condensed Consolidated Statements of Operations for the three months and nine months ended May 31, 2017, respectively. The Company recorded $13.4 million and $58.5 million of stock-based compensation expense gross of tax effects, which is included in selling, general and administrative expenses within the Condensed Consolidated Statements of Operations for the three months and nine months ended May 31, 2016, respectively. The Company recorded tax benefits related to the stock-based compensation expense of $0.1 million and $0.8 million, which is included in income tax expense within the Condensed Consolidated Statements of Operations for the three months and nine months ended May 31, 2016, respectively.

Certain key employees have been granted time-based, performance-based and market-based restricted stock awards. The time-based restricted awards granted generally vest on a graded vesting schedule over three years. The performance-based restricted awards generally vest on a cliff vesting schedule over three to five years and provide a range of vesting possibilities of up to a maximum of 100% or 150%, depending on the specified performance condition and the level of achievement obtained. The market-based restricted awards generally vest on a cliff vesting schedule over three years and provide a range of vesting possibilities of up to a maximum of 200%. The market-based awards have a vesting condition that is tied to the Company’s stock performance in relation to the Standard and Poor’s (S&P) Super Composite Technology Hardware and Equipment Index. The market conditions are considered in the grant date fair value using a Monte Carlo valuation model, which utilizes multiple input variables to determine the probability of the Company achieving the specified market conditions. During the nine months ended May 31, 2017 and 2016, the Company awarded approximately 1.8 million and 2.6 million time-based restricted stock units, respectively, 0.6 million and 1.3 million performance-based restricted stock units, respectively and 0.4 million and 0.4 million market-based stock units, respectively.

At May 31, 2017, there was $58.5 million of total unrecognized stock-based compensation expense related to restricted stock awards. This expense is expected to be recognized over a weighted-average period of 1.5 years.

5. Concentration of Risk and Segment Data

a. Concentration of Risk

Sales of the Company’s products are concentrated among specific customers. During the nine months ended May 31, 2017, the Company’s five largest customers accounted for approximately 46% of its net revenue and 79 customers accounted for approximately 90% of its net revenue. Sales to these customers were reported in the Electronics Manufacturing Services (“EMS”) and Diversified Manufacturing Services (“DMS”) operating segments.

The Company procures components from a broad group of suppliers. Almost all of the products manufactured by the Company require one or more components that are available from only a single source.

Production levels for a portion of the DMS segment are subject to seasonal influences. The Company may realize greater net revenue during its first fiscal quarter due to higher demand for consumer related products manufactured in the DMS segment during the holiday selling season. Therefore, quarterly results should not be relied upon as necessarily being indicative of results for the entire fiscal year.

b. Segment Data

Operating segments are defined as components of an enterprise that engage in business activities from which they may earn revenues and incur expenses; for which separate financial information is available; and whose operating results are regularly reviewed by the chief operating decision maker to assess the performance of the individual segment and make decisions about resources to be allocated to the segment.

The Company derives its revenue from providing comprehensive electronics design, production and product management services. The chief operating decision maker evaluates performance and allocates resources on a segment basis. The Company’s operating segments consist of two segments – EMS and DMS, which are also the Company’s reportable segments. The EMS segment is focused around leveraging IT, supply chain design and engineering, technologies largely centered on core electronics, sharing of the Company’s large scale manufacturing infrastructure and the ability to serve a broad range of end markets. The EMS segment includes customers primarily in the automotive and transportation, capital equipment, computing and storage, digital home, industrial and energy, networking and telecommunications, point of sale and printing industries. The DMS segment is focused on providing engineering solutions and a focus on material sciences and technologies. The DMS segment includes customers primarily in the consumer lifestyles and wearable technologies, defense and aerospace, healthcare, mobility and packaging industries.

Net revenue for the operating segments is attributed to the segment in which the service is performed. An operating 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 costs and certain purchase accounting adjustments, loss on disposal of subsidiaries, settlement of receivables and related charges, impairment of notes receivable and related charges, goodwill impairment charges, income (loss) from discontinued operations, gain (loss) on sale of discontinued operations, other expense, interest income, interest expense, income tax expense or adjustment for net income (loss) attributable to noncontrolling interests. Total segment assets are defined as accounts receivable, inventories, net customer-related property, plant and equipment, intangible assets net of accumulated amortization and goodwill. All other non-segment assets are reviewed on a global basis by management. Transactions between operating segments are generally recorded at amounts that approximate those at which we would transact with third parties.

The following tables set forth operating segment information (in thousands):


	Three months ended						Nine months ended
	May 31, 2017			May 31, 2016			May 31, 2017			May 31, 2016
Net revenue
EMS	$	2,819,711		$	2,846,919		$	8,205,812		$	8,228,595
DMS		1,669,846			1,463,833			5,834,280			5,693,728

	$	4,489,557		$	4,310,752		$	14,040,092		$	13,922,323

Segment income and reconciliation of income before income tax
EMS	$	109,783		$	99,758		$	297,418		$	267,717
DMS		4,022			(12,547	)		178,121			254,315

Total segment income	$	113,805		$	87,211		$	475,539		$	522,032
Reconciling items:
Amortization of intangibles		9,174			9,711			26,262			26,150
Stock-based compensation expense and related charges		18,350			13,445			33,377			58,505
Restructuring and related charges		32,700			4,460			113,529			8,349
Distressed customer charges		10,198			—			10,198			—
Other expense		15,821			2,412			23,872			6,346
Interest income		(3,663	)		(2,302	)		(8,407	)		(6,653	)
Interest expense		35,443			35,212			102,087			102,509

(Loss) income before income tax	$	(4,218	)	$	24,273		$	174,621		$	326,826


	May 31, 2017		August 31, 2016
Total assets
EMS	$	2,802,613	$	2,615,237
DMS		5,030,763		5,012,798
Other non-allocated assets		2,496,273		2,694,642

	$	10,329,649	$	10,322,677

As of May 31, 2017, the Company operated in 28 countries worldwide. Sales to unaffiliated customers are based on the Company’s location that maintains the customer relationship and transacts the external sale. Total foreign net revenue represented 90.6% and 91.3% of net revenue during the three months and nine months ended May 31, 2017, respectively, compared to 90.4% and 91.0% of net revenue during the three months and nine months ended May 31, 2016, respectively.

6. Notes Payable, Long-Term Debt and Capital Lease Obligations

Notes payable, long-term debt and capital lease obligations outstanding at May 31, 2017 and August 31, 2016 are summarized below (in thousands):


	May 31, 2017		August 31, 2016
8.250% Senior Notes due 2018	$	399,268	$	398,552
5.625% Senior Notes due 2020		396,881		396,212
4.700% Senior Notes due 2022		496,532		496,041
4.900% Senior Notes due 2023		298,511		298,329
Borrowings under credit facilities		100,000		—
Borrowings under loans		464,674		502,210
Capital lease obligations		27,709		28,478

Total notes payable, long-term debt and capital lease obligations		2,183,575		2,119,822
Less current installments of notes payable, long-term debt and capital lease obligations		538,985		45,810

Notes payable, long-term debt and capital lease obligations, less current installments	$	1,644,590	$	2,074,012

The $400.0 million of 8.250% senior unsecured notes, $400.0 million of 5.625% senior unsecured notes, $500.0 million of 4.700% senior unsecured notes and $300.0 million of 4.900% senior unsecured notes outstanding are carried at the principal amount of each note, less any unamortized discount and unamortized debt issuance costs. The estimated fair values of the Company’s publicly traded debt, including the 8.250%, 5.625% and 4.700% senior notes, were approximately $419.1 million, $433.9 million and $531.9 million respectively, at May 31, 2017. The fair value estimates are based upon observable market data (Level 2 criteria). The estimated fair value of the Company’s private debt, the 4.900% senior notes, was approximately $313.1 million, at May 31, 2017. This fair value estimate is based on the Company’s indicative borrowing cost derived from discounted cash flows (Level 3 criteria). The carrying amounts of borrowings under credit facilities and under loans approximates fair value as interest rates on these instruments approximates current market rates.

7. Trade Accounts Receivable Securitization and Sale Programs

The Company regularly sells designated pools of trade accounts receivable under two asset-backed securitization programs and four uncommitted trade accounts receivable sale programs (collectively referred to herein as the “programs”). The Company continues servicing the receivables sold and in exchange receives a servicing fee under each of the programs. Servicing fees related to each of the programs recognized during the three months and nine months ended May 31, 2017 and 2016 were not material. The Company does not record a servicing asset or liability on the Condensed Consolidated Balance Sheets as the Company estimates that the fee it receives to service these receivables approximates the fair market compensation to provide the servicing activities.

Transfers of the receivables under the programs are accounted for as sales and, accordingly, net receivables sold under the programs are excluded from accounts receivable on the Condensed Consolidated Balance Sheets and are reflected as cash provided by operating activities on the Condensed Consolidated Statements of Cash Flows.

a. Asset-Backed Securitization Programs

The Company continuously sells designated pools of trade accounts receivable, at a discount, under its North American asset-backed securitization program, currently scheduled to expire on October 20, 2017, and its foreign asset-backed securitization program, currently scheduled to expire on May 1, 2018, (collectively referred to herein as the “asset-backed securitization programs”) to special purpose entities, which in turn sell 100% of the receivables to conduits administered by unaffiliated financial institutions (for the North American asset-backed securitization program) and to an unaffiliated financial institution and a conduit administered by an unaffiliated financial institution (for the foreign asset-backed securitization program). The special purpose entity in the North American asset-backed securitization program is a wholly-owned subsidiary of the Company. The special purpose entity in the foreign asset-backed securitization program is a separate bankruptcy-remote entity whose assets would be first available to satisfy the creditor claims of the unaffiliated financial institution. The Company is deemed the primary beneficiary of this special purpose entity as the Company has both the power to direct the activities of the entity that most significantly impact the 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 entities associated with these asset-backed securitization programs are included in the Company’s Condensed Consolidated Financial Statements. Any portion of the purchase price for the receivables which is not paid in cash upon the sale taking place is recorded as a deferred purchase price receivable, which is paid from available cash as payments on the receivables are collected. Net cash proceeds of up to a maximum of $200.0 million and $400.0 million for the North American and foreign asset-backed securitization programs, respectively, are available at any one time. The foreign asset-backed securitization program was amended to increase the facility limit from $275.0 million to $400.0 million, effective February 13, 2017.

In connection with the asset-backed securitization programs, the Company sold $2.1 billion and $6.6 billion of eligible trade accounts receivable during the three months and nine months ended May 31, 2017, respectively. In exchange, the Company received cash proceeds of $1.6 billion and $6.1 billion during the three months and nine months ended May 31, 2017, respectively, (which represented proceeds from collections reinvested in revolving-period transfers as there were no new transfers during these periods) and a deferred purchase price receivable. The Company sold $2.0 billion and $5.8 billion of eligible trade accounts receivable during the three months and nine months ended May 31, 2016, respectively. In exchange, the Company received cash proceeds of $1.5 billion and $5.3 billion during the three months and nine months ended May 31, 2016, respectively, (of which approximately $0.0 million and $3.0 million, respectively, represented new transfers and the remainder represented proceeds from collections reinvested in revolving-period transfers) and a deferred purchase price receivable. At May 31, 2017 and 2016, the deferred purchase price receivables recorded in connection with the asset-backed securitization programs totaled approximately $501.3 million and $517.3 million, respectively.

The Company recognized pretax losses on the sales of receivables under the asset-backed securitization programs of approximately $2.5 million and $6.6 million during the three months and nine months ended May 31, 2017, respectively, and approximately $1.3 million and $3.5 million during the three months and nine months ended May 31, 2016, respectively, which are recorded to other expense within the Condensed Consolidated Statements of Operations.

The deferred purchase price receivables recorded under the asset-backed securitization programs are recorded initially at fair value as prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets and are valued using unobservable inputs (Level 3 inputs), primarily discounted cash flows, and due to their credit quality and short-term maturity the fair values approximated book values. The unobservable inputs consist of estimated credit losses and estimated discount rates, which both have an immaterial impact on the fair value calculations of the deferred purchase price receivables.

b. Trade Accounts Receivable Sale Programs

In connection with four separate trade accounts receivable sale programs with unaffiliated financial institutions, the Company may elect to sell, at a discount, on an ongoing basis, up to a maximum of $650.0 million, $150.0 million, 800.0 million Chinese yuan renminbi (“CNY”) and $100.0 million, respectively, of specific trade accounts receivable at any one time. The $650.0 million trade accounts receivable sale program is an uncommitted facility that will expire on August 31, 2017 (as the agreement was automatically extended on October 31, 2016), although any party may elect to terminate the agreement upon 15 days prior notice. The $150.0 million trade accounts receivable sale program is an uncommitted facility that will expire on August 31, 2017 unless renewed. The 800.0 million CNY trade accounts receivable sale program is an uncommitted facility that was entered into on February 15, 2017 and is scheduled to expire on February 15, 2018 unless renewed. The $100.0 million trade accounts receivable sale program is an uncommitted facility that is scheduled to expire on October 31, 2017 (as the agreement was automatically extended on October 31, 2016), although any party may elect to terminate the agreement upon 15 days prior notice. The $100.0 million trade accounts receivable sale program will be automatically extended until November 1, 2018, unless any party gives no less than 30 days prior notice that the agreement should not be extended.

During the three months and nine months ended May 31, 2017, the Company sold $0.5 billion and $2.2 billion of trade accounts receivable under these programs, respectively, compared to $0.7 billion and $3.0 billion during the three months and nine months ended May 31, 2016, respectively. In exchange, the Company received cash proceeds of $0.5 billion and $2.2 billion during the three months and nine months ended May 31, 2017, respectively, compared to $0.7 billion and $2.9 billion during the three months and nine months ended May 31, 2016, respectively. The resulting losses on the sales of trade accounts receivable were approximately $1.5 million and $4.1 million during the three months and nine months ended May 31, 2017, respectively, compared to approximately $1.1 million and $3.1 million during the three months and nine months ended May 31, 2016, respectively, and were recorded to other expense within the Condensed Consolidated Statements of Operations.

8. Accumulated Other Comprehensive Income

The following table sets forth the changes in accumulated other comprehensive income (“AOCI”), net of tax, by component from August 31, 2016 to May 31, 2017 (in thousands):


	Foreign Currency Translation Adjustment		Derivative Instruments		Actuarial Loss			Prior Service Cost		Available for Sale Securities			Total
Balance at August 31, 2016	$	16,338	$	7,784	$	(43,587	)	$	941	$	(21,353	)	$	(39,877	)
Other comprehensive income (loss) before reclassifications		9,512		8,647		—			—		10,192			28,351
Amounts reclassified from AOCI		5,719		11,595		—			—		10,139			27,453

Other comprehensive income		15,231		20,242		—			—		20,331			55,804

Balance at May 31, 2017	$	31,569	$	28,026	$	(43,587	)	$	941	$	(1,022	)	$	15,927

The portion of AOCI reclassified into earnings during the nine months ended May 31, 2017 for foreign currency translation adjustments was not material. The portion of AOCI reclassified into earnings during the nine months ended May 31, 2017 for derivative instruments was primarily classified as a component of cost of revenue. The portion of AOCI reclassified into earnings during the nine months ended May 31, 2017 for available for sale securities was due to an other than temporary impairment on securities and was classified as a component of other expense. The tax benefit (expense) on the derivative instruments component of AOCI, including reclassification adjustments, is not material for the three months and nine months ended May 31, 2017. There was no tax benefit (expense) on the foreign currency translation adjustment and the available for sale securities components of AOCI, including reclassification adjustments, for the three months and nine months ended May 31, 2017.

9. Postretirement and Other Employee Benefits

The Company sponsors defined benefit pension plans in several countries in which it operates. The pension obligations relate primarily to the following: (a) a funded retirement plan in the United Kingdom and (b) both funded and unfunded retirement plans, mainly in Austria, France, Germany, The Netherlands, Poland, and Taiwan, which provide benefits based upon years of service and compensation at retirement.

The following table provides information about net periodic benefit cost for the pension plans during the three months and nine months ended May 31, 2017 and 2016 (in thousands):


	Three months ended						Nine months ended
	May 31, 2017			May 31, 2016			May 31, 2017			May 31, 2016
Service cost	$	259		$	222		$	771		$	662
Interest cost		744			1,208			2,222			3,693
Expected long-term return on plan assets		(1,127	)		(1,383	)		(3,365	)		(4,243	)
Recognized actuarial loss		479			264			1,422			790
Amortization of prior service credit		(34	)		(35	)		(101	)		(104	)

Net periodic benefit cost	$	321		$	276		$	949		$	798

During the nine months ended May 31, 2017, the Company made contributions of approximately $6.4 million to its defined benefit pension plans. The Company expects to make total cash contributions of between $6.8 million and $7.6 million to its funded pension plans during the fiscal year ended August 31, 2017.

10. Commitments and Contingencies

The Company is party to certain lawsuits in the ordinary course of business. The Company does not believe that these proceedings, individually or in the aggregate, will have a material adverse effect on the Company’s financial position, results of operations or cash flows.

The Internal Revenue Service (“IRS”) completed its field examination of the Company’s tax returns for fiscal years 2009 through 2011 and issued a Revenue Agent’s Report on May 27, 2015, which was updated on June 22, 2016. The IRS completed its field examination of the Company’s tax returns for fiscal years 2012 through 2014 and issued a Revenue Agent’s Report on April 19, 2017. The proposed adjustments from both examination periods relate primarily to U.S. taxation of certain intercompany transactions. If the IRS ultimately prevails in its positions, the Company’s income tax payment due for the fiscal years 2009 through 2011 and fiscal years 2012 through 2014 would be approximately $28.6 million and $5.3 million, respectively, after utilization of tax loss carry forwards available through fiscal year 2014. Also, the IRS has proposed interest and penalties with respect to fiscal years 2009 through 2011. The IRS may make similar claims in future audits with respect to these types of transactions. At this time, anticipating the amount of any future IRS proposed adjustments, interest, and penalties is not practicable.

The Company disagrees with the proposed adjustments and intends to vigorously contest these matters through the applicable IRS administrative and judicial procedures, as appropriate. As the final resolution of the proposed adjustments remains uncertain, the Company continues to provide for the uncertain tax positions based on the more likely than not standard. While the resolution of the issues may result in tax liabilities, interest and penalties, which are significantly higher than the amounts accrued for these matters, management currently believes that the resolution will not have a material adverse effect on the Company’s financial position, results of operations or cash flows. Despite this belief, an unfavorable resolution could have a material adverse effect on the Company’s results of operations and financial condition.

11. Derivative Financial Instruments and Hedging Activities

The Company is directly and indirectly affected by changes in certain market conditions. These changes in market conditions may adversely impact the 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 fluctuation risk and interest rate risk.

All derivative instruments are recorded gross on the Condensed Consolidated Balance Sheets at their respective fair values. The accounting for changes in the fair value of a derivative instrument depends on the intended use and designation of the derivative instrument. For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative and the offsetting gain or loss on the hedged item attributable to the hedged risk are recognized in current earnings. For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative instrument is initially reported as a component of AOCI, net of tax, and is subsequently reclassified into the line item within the Condensed Consolidated

Statements of Operations in which the hedged items are recorded in the same period in which the hedged item affects earnings. The ineffective portion of the gain or loss is recognized immediately in current earnings. For derivative instruments that are not designated as hedging instruments, gains and losses from changes in fair values are recognized in earnings. Cash receipts and cash payments related to derivative instruments are recorded in the same category as the cash flows from the items being hedged on the Condensed Consolidated Statements of Cash Flows.

a. Foreign Currency Risk Management

Forward contracts are put in place to manage the foreign currency risk associated with the anticipated foreign currency denominated revenues and expenses. A hedging relationship existed with an aggregate notional amount outstanding of $178.7 million and $323.3 million at May 31, 2017 and August 31, 2016, respectively. The related forward foreign exchange contracts have been designated as hedging instruments and are accounted for as cash flow hedges. The forward foreign exchange contract transactions will effectively lock in the value of anticipated foreign currency denominated revenues and expenses against foreign currency fluctuations. The anticipated foreign currency denominated revenues and expenses being hedged are expected to occur between June 1, 2017 and February 28, 2018.

In addition to derivatives that are designated as hedging instruments and qualify for hedge accounting, the Company also enters into forward contracts to economically hedge transactional exposure associated with commitments arising from trade accounts receivable, trade accounts payable, fixed purchase obligations and intercompany transactions denominated in a currency other than the functional currency of the respective operating entity. The aggregate notional amount of these outstanding contracts at May 31, 2017 and August 31, 2016, was $1.7 billion and $1.7 billion, respectively.

The following table presents the Company’s assets and liabilities related to forward foreign exchange contracts measured at fair value on a recurring basis as of May 31, 2017, aggregated by the level in the fair-value hierarchy in which those measurements are classified (in thousands):


	Level 1		Level 2			Level 3		Total
Assets:
Forward foreign exchange contracts	$	—		19,466			—	$	19,466
Liabilities:
Forward foreign exchange contracts		—		(12,972	)		—		(12,972	)

Total	$	—		6,494			—	$	6,494

The 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.

The following table presents the fair values of the Company’s derivative instruments located on the Condensed Consolidated Balance Sheets utilized for foreign currency risk management purposes at May 31, 2017 and August 31, 2016 (in thousands):


	Fair Values of Derivative Instruments
	Asset Derivatives						Liability Derivatives
	Balance Sheet Location		Fair Value at May 31, 2017		Fair Value at August 31, 2016		Balance Sheet Location		Fair Value at May 31, 2017		Fair Value at August 31, 2016
Derivatives designated as hedging instruments:
Forward foreign exchange contracts		Prepaid expenses and other current assets	$	4,200	$	420		Accrued expenses	$	1,400	$	1,986
Derivatives not designated as hedging instruments:
Forward foreign exchange contracts		Prepaid expenses and other current assets	$	15,266	$	3,850		Accrued expenses	$	11,572	$	10,801

As of May 31, 2017 and August 31, 2016, the Company also included gains and losses in AOCI related to changes in fair value of its derivatives utilized for foreign currency risk management purposes and designated as hedging instruments. These gains and losses were not material and the portion that is expected to be reclassified into earnings during the next 12 months will be classified as components of net revenue, cost of revenue and selling, general and administrative expense.

The gains and losses recognized in earnings due to hedge ineffectiveness and the amount excluded from effectiveness testing were not material for all periods presented and are included as components of net revenue, cost of revenue and selling, general and administrative expense.

The Company recognized gains and losses in earnings related to changes in fair value of derivatives utilized for foreign currency risk management purposes and not designated as hedging instruments during the three months and nine months ended May 31, 2017 and 2016. These amounts were not material and were recognized as components of cost of revenue.

b. Interest Rate Risk Management

The Company periodically enters into interest rate swaps to manage interest rate risk associated with the Company’s borrowings.

Cash Flow Hedges

During the fourth quarter of fiscal year 2007, the Company entered into forward interest rate swap transactions to hedge the fixed interest rate payments for an anticipated debt issuance, which was the issuance of the 8.250% Senior Notes. The swaps were accounted for as a cash flow hedge and had a notional amount of $400.0 million. Concurrently with the pricing of the 8.250% Senior Notes, the Company settled the swaps by its payment of $43.1 million. The ineffective portion of the swaps was immediately recorded to interest expense within the Condensed Consolidated Statements of Operations. The effective portion of the swaps is recorded on the Company’s Condensed Consolidated Balance Sheets as a component of AOCI and is being amortized to interest expense within the Company’s Condensed Consolidated Statements of Operations over the life of the 8.250% Senior Notes, which is through March 15, 2018. The effective portions of the swaps amortized to interest expense during the three months and nine months ended May 31, 2017 and 2016 were not material. Existing losses related to interest rate risk management hedging arrangements that are expected to be reclassified into earnings during the next 12 months are not material.

During the fourth quarter of fiscal year 2016, the Company entered into forward starting swap transactions to hedge the fixed interest rate payments for an anticipated debt issuance. The forward starting swaps have an aggregate notional amount of $200.0 million and have been designated as hedging instruments and accounted for as cash flow hedges. The forward starting swaps are scheduled to expire on March 15, 2018. If the anticipated debt issuance occurs before March 15, 2018, the contracts will be terminated simultaneously with the debt issuance. The contracts will be settled with the respective counterparties on a net basis at the time of termination or expiration. Changes in the fair value of the forward starting swap transactions are recorded on the Company’s Condensed Consolidated Balance Sheets as a component of AOCI.

During the fourth quarter of fiscal year 2016, the Company entered into interest rate swap transactions to hedge the variable interest rate payments for the Term Loan Facility. In connection with this transaction, the Company will pay interest based upon a fixed rate as agreed upon with the respective counterparties and receive variable rate interest payments based on the one-month LIBOR. The interest rate swaps have an aggregate notional amount of $200.0 million and have been designated as hedging

instruments and accounted for as cash flow hedges. The interest rate swaps were effective on September 30, 2016 and are scheduled to expire on June 30, 2019. The contracts will be settled with the respective counterparties on a net basis at each settlement date. Changes in the fair value of the interest rate swap transactions are recorded on the Company’s Condensed Consolidated Balance Sheets as a component of AOCI.

12. Restructuring and Related Charges

a. 2017 Restructuring Plan

In conjunction with the restructuring plan that was approved by the Company’s Board of Directors on September 15, 2016 (the “2017 Restructuring Plan”), the Company charged $31.4 million and $108.9 million of restructuring and related charges to the Condensed Consolidated Statement of Operations during the three months and nine months ended May 31, 2017, respectively. The 2017 Restructuring Plan is intended to better align the Company’s global capacity and administrative support infrastructure in order to further optimize organizational effectiveness. This action includes headcount reductions across the Company’s Selling, General and Administrative cost base and capacity realignment in higher cost locations. The restructuring and related charges during the three months and nine months ended May 31, 2017 include cash costs of $17.3 million and $43.3 million related to employee severance and benefit costs, respectively, $1.2 million and $5.6 million related to lease costs, respectively, $1.1 million and $1.4 million of other related costs, respectively, as well as non-cash costs related to asset write-off costs of $11.8 million and $58.6 million, respectively.

The Company currently expects to recognize approximately $195.0 million in pre-tax restructuring and other related costs over the course of the Company’s fiscal years 2017 and 2018 under the 2017 Restructuring Plan. The restructuring and related charges are expected to include $55.0 million to $75.0 million of employee severance and benefit costs; $110.0 million to $130.0 million of asset write-off costs; and $10.0 million of contract termination costs and other related costs. Since the inception of the 2017 Restructuring Plan, a total of $108.9 million of restructuring and related costs have been recognized. Of the $108.9 million recognized to date, $19.1 million was allocated to the EMS segment, $65.9 million was allocated to the DMS segment and $23.9 million was not allocated to a segment. The remaining $86.1 million of the restructuring and related costs expected to be recognized reflects the Company’s intention only and restructuring decisions, and the timing of such decisions, at certain plants are still subject to the finalization of timetables for the transition of functions and consultation with the Company’s employees and their representatives.

The tables below set forth the significant components and activity in the 2017 Restructuring Plan during the three months and nine months ended May 31, 2017 (in thousands):

2017 Restructuring Plan – Three Months Ended May 31, 2017


	Liability Balance at February 28, 2017		Restructuring Related Charges		Asset Write-off Charge and Other Non-Cash Activity			Cash Payments			Liability Balance at May 31, 2017
Employee severance and benefit costs	$	10,337	$	17,328	$	20		$	(5,085	)	$	22,600
Lease costs		3,572		1,151		26			(1,049	)		3,700
Asset write-off costs		—		11,838		(11,838	)		—			—
Other related costs		50		1,082		—			(518	)		614

Total	$	13,959	$	31,399	$	(11,792	)	$	(6,652	)	$	26,914


2017 Restructuring Plan – Nine Months Ended May 31, 2017
	Liability Balance at August 31,2016		Restructuring Related Charges		Asset Write-off Charge and Other Non-Cash Activity			Cash Payments			Liability Balance at May 31, 2017
Employee severance and benefit costs	$	—	$	43,314	$	20		$	(20,734	)	$	22,600
Lease costs		—		5,600		26			(1,926	)		3,700
Asset write-off costs		—		58,543		(58,543	)		—			—
Other related costs		—		1,421		—			(807	)		614

Total	$	—	$	108,878	$	(58,497	)	$	(23,467	)	$	26,914

The tables below set forth the significant components and activity in the 2017 Restructuring Plan by reportable segment during the three months and nine months ended May 31, 2017 (in thousands):

2017 Restructuring Plan – Three Months Ended May 31, 2017


	Liability Balance at February 28, 2017		Restructuring Related Charges		Asset Write-off Charge and Other Non-Cash Activity			Cash Payments			Liability Balance at May 31, 2017
EMS	$	471	$	11,061	$	(1,819	)	$	(1,624	)	$	8,089
DMS		3,639		17,836		(10,188	)		(2,334	)		8,953
Other		9,849		2,502		215			(2,694	)		9,872

Total	$	13,959	$	31,399	$	(11,792	)	$	(6,652	)	$	26,914


2017 Restructuring Plan – Nine Months Ended May 31, 2017
	Liability Balance at August 31, 2016		Restructuring Related Charges		Asset Write-off Charge and Other Non-Cash Activity			Cash Payments			Liability Balance at May 31, 2017
EMS	$	—	$	19,118	$	(8,542	)	$	(2,487	)	$	8,089
DMS		—		65,842		(49,937	)		(6,952	)		8,953
Other		—		23,918		(18	)		(14,028	)		9,872

Total	$	—	$	108,878	$	(58,497	)	$	(23,467	)	$	26,914

b. 2013 Restructuring Plan

In conjunction with the restructuring plan that was approved by the Company’s Board of Directors in fiscal year 2013 (the “2013 Restructuring Plan”), the Company charged $1.3 million and $4.7 million of restructuring and related charges to the Condensed Consolidated Statement of Operations during the three months and nine months ended May 31, 2017, respectively, compared to $4.5 million and $8.3 million during the three months and nine months ended May 31, 2016, respectively. The 2013 Restructuring Plan is intended to better align the Company’s manufacturing capacity in certain geographies and to reduce the Company’s worldwide workforce in order to reduce operating expenses. The restructuring and related charges during the three months and nine months ended May 31, 2017 include cash costs of $0.8 million and $3.4 million related to employee severance and benefit costs, respectively, and $0.5 million and $1.2 million of other related costs, respectively, as well as non-cash costs related to asset write-off costs of $0.0 million and $0.1 million, respectively. The restructuring and related charges during the three months and nine months ended May 31, 2016 include cash costs of $4.2 million and $7.7 million related to employee severance and benefit costs, respectively, and $0.3 million and $0.6 million of other related costs, respectively.

The Company currently expects to recognize approximately $179.0 million in pre-tax restructuring and other related costs over the course of the Company’s fiscal years 2013 through 2018 under the 2013 Restructuring Plan. Since the inception of the 2013 Restructuring Plan, a total of $166.5 million of restructuring and related costs have been recognized. Of the $166.5 million recognized to date, $128.8 million was allocated to the EMS segment, $28.8 million was allocated to the DMS segment and $8.9 million was not allocated to a segment. A majority of the total restructuring costs are related to employee severance and benefit arrangements. The charges related to the 2013 Restructuring Plan, excluding asset write-off costs, are currently expected to result in cash expenditures of approximately $157.4 million that have been or will be payable over the course of the Company’s fiscal years 2013 through 2018. The remaining $12.5 million of the restructuring and related costs expected to be recognized reflects the Company’s intention only and restructuring decisions, and the timing of such decisions, at certain plants are still subject to the finalization of timetables for the transition of functions and consultation with the Company’s employees and their representatives.

The tables below set forth the significant components and activity in the 2013 Restructuring Plan during the three months and nine months ended May 31, 2017 and 2016 (in thousands):

2013 Restructuring Plan – Three Months Ended May 31, 2017


	Liability Balance at February 28, 2017		Restructuring Related Charges		Asset Write-off Charge and Other Non-Cash Activity		Cash Payments			Liability Balance at May 31, 2017
Employee severance and benefit costs	$	11,756	$	843	$	400	$	(6,875	)	$	6,124
Lease costs		21		—		—		—			21
Other related costs		829		458		51		(449	)		889

Total	$	12,606	$	1,301	$	451	$	(7,324	)	$	7,034

2013 Restructuring Plan – Nine Months Ended May 31, 2017


	Liability Balance at August 31, 2016		Restructuring Related Charges		Asset Write-off Charge and Other Non-Cash Activity			Cash Payments			Liability Balance at May 31, 2017
Employee severance and benefit costs	$	17,266	$	3,340	$	(322	)	$	(14,160	)	$	6,124
Lease costs		21		—		—			—			21
Asset write-off costs		—		70		(70	)		—			—
Other related costs		740		1,241		16			(1,108	)		889

Total	$	18,027	$	4,651	$	(376	)	$	(15,268	)	$	7,034

2013 Restructuring Plan – Three Months Ended May 31, 2016


	Liability Balance at February 29, 2016		Restructuring Related Charges			Asset Write-off Charge and Other Non-Cash Activity		Cash Payments			Liability Balance at May 31, 2016
Employee severance and benefit costs	$	18,115	$	4,197		$	407	$	(3,234	)	$	19,485
Lease costs		64		(43	)		—		—			21
Other related costs		871		306			22		(310	)		889

Total	$	19,050	$	4,460		$	429	$	(3,544	)	$	20,395

2013 Restructuring Plan – Nine Months Ended May 31, 2016


	Liability Balance at August 31, 2015		Restructuring Related Charges			Asset Write-off Charge and Other Non-Cash Activity			Cash Payments			Liability Balance at May 31, 2016
Employee severance and benefit costs	$	30,047	$	7,743		$	(404	)	$	(17,901	)	$	19,485
Lease costs		64		(43	)		—			—			21
Other related costs		846		649			—			(606	)		889

Total	$	30,957	$	8,349		$	(404	)	$	(18,507	)	$	20,395

The tables below set forth the significant components and activity in the 2013 Restructuring Plan by reportable segment during the three months and nine months ended May 31, 2017 and 2016 (in thousands):

2013 Restructuring Plan – Three Months Ended May 31, 2017


	Liability Balance at February 28, 2017		Restructuring Related Charges			Asset Write-off Charge and Other Non-Cash Activity		Cash Payments			Liability Balance at May 31, 2017
EMS	$	12,169	$	1,371		$	438	$	(7,309	)	$	6,669
DMS		437		(70	)		13		(15	)		365

Total	$	12,606	$	1,301		$	451	$	(7,324	)	$	7,034

2013 Restructuring Plan – Nine Months Ended May 31, 2017


	Liability Balance at August 31, 2016		Restructuring Related Charges		Asset Write-off Charge and Other Non-Cash Activity			Cash Payments			Liability Balance at May 31, 2017
EMS	$	17,338		4,651		(306	)		(15,014	)	$	6,669
DMS		689		—		(70	)		(254	)		365

Total	$	18,027	$	4,651	$	(376	)	$	(15,268	)	$	7,034

2013 Restructuring Plan – Three Months Ended May 31, 2016


	Liability Balance at February 29, 2016		Restructuring Related Charges			Asset Write-off Charge and Other Non-Cash Activity			Cash Payments			Liability Balance at May 31, 2016
EMS	$	17,115	$	4,460		$	429		$	(2,858	)	$	19,146
DMS		1,935		—			—			(686	)		1,249

Total	$	19,050	$	4,460		$	429		$	(3,544	)	$	20,395


2013 Restructuring Plan – Nine Months Ended May 31, 2016
			Restructuring			Asset Write-off
	Liability Balance at		Related			Charge and Other			Cash			Liability Balance at
	August 31, 2015		Charges			Non-Cash Activity			Payments			May 31, 2016
EMS	$	28,834	$	7,454		$	(395	)	$	(16,747	)	$	19,146
DMS		1,960		1,014			(9	)		(1,716	)		1,249
Other		163		(119	)		—			(44	)		—

Total	$	30,957	$	8,349		$	(404	)	$	(18,507	)	$	20,395

13. Business Acquisitions

Fiscal year 2017

On March 1, 2017, the Company completed the acquisition of Lewis Engineering, which was not deemed to be significant. The acquired business expanded the Company’s capabilities in precision machining, manufacturing and design engineering. The aggregate purchase price of the acquisition totaled approximately $31.4 million in cash.

The acquisition has been accounted for as a business combination using the acquisition method of accounting. Assets acquired of $32.3 million, including $8.2 million in goodwill and $14.6 million in intangible assets, and liabilities assumed of $0.9 million were recorded at their estimated fair values as of the acquisition date. The Company is currently evaluating the fair values of the assets and liabilities related to the business combination. The preliminary estimates and measurements are, therefore, subject to change during the measurement period for intangible assets and tax adjustments. The excess of the purchase price over the fair value of the acquired assets and assumed liabilities of $8.2 million was recorded to goodwill and was fully allocated to the DMS segment. The majority of the goodwill is currently expected to be deductible for income tax purposes. The Company expensed transaction costs in connection with the acquisition of approximately $0.8 million during the nine months ended May 31, 2017. The results of operations of the acquired business were included in the Company’s condensed consolidated financial results beginning on the date of the acquisition. Pro forma information has not been provided as the acquisition is not deemed to be significant.

Fiscal year 2016

On November 25, 2015, the Company entered into a master purchase agreement for certain assets and liabilities of various legal entities, collectively referred to as “Hanson”. On January 13, 2016, the Company completed the acquisition of the assets for approximately $139.2 million in cash, plus the assumption of certain liabilities of $230.0 million (such liabilities were subsequently paid in February 2016 and classified in our Condensed Consolidated Statement of Cash Flows as a component of cash flows from operating activities), with the exception of the real property, which closed on July 7, 2016, for approximately $33.3 million. Hanson is engaged in the business of manufacturing certain parts for customers in the DMS segment.

The acquisition of certain Hanson assets has been accounted for as a business combination using the acquisition method of accounting. Assets acquired of $406.4 million, including $276.8 million in property, plant and equipment, $129.6 million in goodwill and intangible assets assigned to customer relationships, liabilities assumed of $230.0 million and $3.9 million of deferred tax liabilities were recorded at their estimated fair values as of the acquisition date. The excess of the purchase price over the fair value of the acquired assets was recorded to goodwill and was fully allocated to the DMS segment. None of the goodwill is currently expected to be deductible for income tax purposes. A customer relationship was valued using the multi-period excess earnings method under the income approach. The results of operations were included in the Company’s condensed consolidated financial results beginning on January 13, 2016. Pro forma information has not been provided as the acquisition of Hanson is not deemed to be significant.

During the first quarter of fiscal year 2016, the Company completed two additional acquisitions (Inala Technologies Limited and various legal entities collectively referred to as “Shemer Companies”) which were not deemed to be significant individually or in the aggregate. The acquired businesses expanded the Company’s capabilities in capital equipment, networking and telecommunications, and printing. The aggregate purchase price of these acquisitions totaled approximately $72.3 million in cash.

These two acquisitions have been accounted for as business combinations using the acquisition method of accounting. Assets acquired of $92.2 million, including $19.3 million in goodwill and $31.4 million in intangible assets, and liabilities assumed of $19.9 million were recorded at their estimated fair values as of the acquisition dates. The excess of the purchase prices over the fair values of the acquired assets and assumed liabilities of $19.3 million was recorded to goodwill and was fully allocated to the EMS segment. None of the goodwill is currently expected to be deductible for income tax purposes. The results of operations of the acquired businesses were included in the Company’s condensed consolidated financial results beginning on the date of the acquisitions. Pro forma information has not been provided as the acquisitions are not deemed to be significant individually or in the aggregate.

14. New Accounting Guidance

Recently Issued Accounting Guidance

During the third quarter of fiscal year 2014, the FASB issued an accounting standard which will supersede existing revenue recognition guidance under current U.S. GAAP. The new standard is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. During the fourth quarter of fiscal year 2015, the FASB issued an accounting standard deferring the effective date of this accounting guidance by one year. Therefore, the accounting standard is effective for the Company in the first quarter of fiscal year 2019. Companies may use either a full retrospective or a modified retrospective approach to adopt this standard and management is currently evaluating which transition approach to use. The Company is currently in the process of assessing what impact this new standard may have on its Condensed Consolidated Financial Statements.

During the second quarter of fiscal year 2016, the FASB issued a new accounting standard to address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. This guidance is effective for the Company beginning in the first quarter of fiscal year 2019. Early application is permitted only for certain provisions, and the update must be applied by means of a cumulative-effect adjustment to the Condensed Consolidated Balance Sheet as of the beginning of the fiscal year of adoption and applied prospectively to equity investments that exist as of the date of adoption of the standard. The Company is currently assessing the impact this new standard may have on its Condensed Consolidated Financial Statements.

During the second quarter of fiscal year 2016, the FASB issued a new accounting standard revising lease accounting. The new guidance requires organizations to recognize lease assets and lease liabilities on the consolidated balance sheet and disclose key information regarding leasing arrangements. This guidance is effective for the Company beginning in the first quarter of fiscal year 2020. Early application of the new standard is permitted and must be adopted using a modified retrospective approach. The adoption of this standard will impact the Company’s Condensed Consolidated Balance Sheet. The Company is currently assessing any other impacts this new standard will have on its Condensed Consolidated Financial Statements.

During the fourth quarter of fiscal year 2016, the FASB issued an accounting standard, which replaces the existing incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This guidance is effective for the Company beginning in the first quarter of fiscal year 2021 and early adoption is permitted beginning in the first quarter of fiscal year 2020. This guidance must be applied using a modified retrospective or prospective transition method, depending on the area covered by this accounting standard. The Company is currently assessing the impact this new standard may have on its Condensed Consolidated Financial Statements.

During the fourth quarter of fiscal year 2016, the FASB issued a new accounting standard to address the presentation of certain transactions within the statement of cash flows with the objective of reducing the existing diversity in practice. This guidance is effective for the Company beginning in the first quarter of fiscal year 2019 and early adoption is permitted. The Company is currently assessing the impact this new standard may have on its Condensed Consolidated Financial Statements.

During the first quarter of fiscal year 2017, the FASB issued a new accounting standard to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. The new standard eliminates the exception for an intra-entity transfer of an asset other than inventory and requires an entity to recognize the income tax consequences when the transfer occurs. This guidance is effective for the Company beginning in the first quarter of fiscal year 2019 and early adoption is permitted. This guidance should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company is currently assessing the impact this new standard may have on its Condensed Consolidated Financial Statements.

During the second quarter of fiscal year 2017, the FASB issued a new accounting standard that clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance is effective for the Company beginning in the first quarter of fiscal year 2019 and will be applied on a prospective basis. Early application is permitted for certain transactions. The impact on the Company’s Condensed Consolidated Financial Statements will depend on the facts and circumstances of any specific future transactions.

During the second quarter of fiscal year 2017, the FASB issued a new accounting standard to simplify how an entity is required to test goodwill for impairment by eliminating the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the current goodwill impairment test) to measure a goodwill impairment charge. Goodwill will be considered impaired when the carrying amount of a reporting unit that includes goodwill exceeds its fair value. This guidance is effective for the Company beginning in the first quarter of fiscal year 2021, with early application permitted. The guidance will be applied on a prospective basis. The Company is currently assessing the impact this new standard may have on its Condensed Consolidated Financial Statements.

Recently issued accounting guidance not discussed above is not applicable or did not have, or is not expected to have, a material impact to the Company.

15. Income Taxes

The effective tax rate differed from the U.S. federal statutory rate of 35% during the three months and nine months ended May 31, 2017 and 2016 primarily due to: (a) restructuring costs with minimal related tax benefit; (b) income in tax jurisdictions with lower statutory tax rates than the U.S.; (c) tax incentives granted to sites in Brazil, China, Malaysia, Singapore and Vietnam; and (d) losses in tax jurisdictions with existing valuation allowances. The material tax incentives expire at various dates through fiscal year 2021. Such tax incentives are subject to conditions with which the Company expects to continue to comply.

16. Subsequent Events

The Company has evaluated subsequent events that occurred through the date of the filing of the Company’s third quarter of fiscal year 2017 Form 10-Q. No significant events occurred subsequent to the balance sheet date and prior to the filing date of this report that would have a material impact on the Condensed Consolidated Financial Statements.

JABIL INC. AND SUBSIDIARIES

References in this report to “the Company,” “Jabil,” “we,” “our,” or “us” mean Jabil Inc. together with its subsidiaries, except where the context otherwise requires. This Quarterly Report on Form 10-Q contains certain statements that are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) which are made in reliance upon the protections provided by such acts for forward-looking statements. These forward-looking statements (such as when we describe what “will,” “may,” or “should” occur, what we “plan,” “intend,” “estimate,” “believe,” “expect” or “anticipate” will occur, and other similar statements) include, but are not limited to, statements regarding future sales and operating results, potential risks pertaining to these future sales and operating results, future prospects, anticipated benefits of proposed (or future) acquisitions, dispositions and new facilities, growth, the capabilities and capacities of business operations, any financial or other guidance and all statements that are not based on historical fact, but rather reflect our current expectations concerning future results and events. We make certain assumptions when making forward-looking statements, any of which could prove inaccurate, including, but not limited to, statements about our future operating results and business plans. Therefore, we can give no assurance that the results implied by these forward-looking statements will be realized. Furthermore, the inclusion of forward-looking information should not be regarded as a representation by the Company or any other person that future events, plans or expectations contemplated by the Company will be achieved. The ultimate correctness of these forward-looking statements is dependent upon a number of known and unknown risks and events, and is subject to various uncertainties and other factors that may cause our actual results, performance or achievements to be different from any future results, performance or achievements expressed or implied by these statements. The following important factors, among others, could affect future results and events, causing those results and events to differ materially from those expressed or implied in our forward-looking statements:

•

business conditions and growth or declines in our customers’ industries, the electronic manufacturing services industry and the general economy;

•

variability of our operating results;

•

our dependence on a limited number of major customers;

•

any potential future termination, or substantial winding down, of significant customer relationships;

•

availability of components;

•

our dependence on certain industries;

•

the susceptibility of our production levels to the variability of customer requirements, including seasonal influences on the demand for certain end products;

•

our substantial international operations, and the resulting risks related to our operating internationally, including weak global economic conditions, instability in global credit markets, governmental restrictions on the transfer of funds to us from our operations outside the U.S. and unfavorable fluctuations in currency exchange rates;

•

the potential consolidation of our customer base, and the potential movement by some of our customers of a portion of their manufacturing from us in order to more fully utilize their excess internal manufacturing capacity;

•

our ability to successfully negotiate definitive agreements and consummate acquisitions, and to integrate operations following the consummation of acquisitions;

•

our ability to successfully negotiate definitive agreements and consummate dispositions, and to disentangle operations following the consummation of dispositions;

•

our ability to take advantage of our past, current and possible future restructuring efforts to improve utilization and realize savings and whether any such activity will adversely affect our cost structure, our ability to service customers and our labor relations;

•

our ability to maintain our engineering, technological and manufacturing process expertise;

•

other economic, business and competitive factors affecting our customers, our industry and our business generally; and

•

other factors that we may not have currently identified or quantified.

For a further list and description of various risks, relevant factors and uncertainties that could cause future results or events to differ materially from those expressed or implied in our forward-looking statements, see the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section contained in this document, as well as the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections contained in our Annual Report on Form 10-K for the fiscal year ended August 31, 2016, any subsequent reports on Form 10-Q and Form 8-K and other filings with the Securities and Exchange Commission (“SEC”). Given these risks and uncertainties, the reader should not place undue reliance on these forward-looking statements.

All forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date of this Quarterly Report on Form 10-Q, and we do not undertake any obligation to publicly update or correct any forward-looking statements to reflect events or circumstances that subsequently occur, or of which we hereafter become aware. You should read this document and the documents that we incorporate by reference into this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We may not update these forward-looking statements, even if our situation changes in the future. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are one of the leading providers of worldwide electronic manufacturing services and solutions. We provide comprehensive electronics design, production and product management services to companies in the automotive and transportation, capital equipment, consumer lifestyles and wearable technologies, computing and storage, defense and aerospace, digital home, healthcare, industrial and energy, mobility, networking and telecommunications, packaging, point of sale and printing industries. We serve our customers primarily with dedicated business units that combine highly automated, continuous flow manufacturing with advanced electronic design and design for manufacturability. We currently depend, and expect to continue to depend, upon a relatively small number of customers for a significant percentage of our net revenue and upon their growth, viability and financial stability. Based on net revenue, for the nine months ended May 31, 2017, our largest customers include Apple, Inc., Cisco Systems, Inc., GoPro, Inc., Hewlett-Packard Company, Ingenico S.A., LM Ericsson Telephone Company, NetApp, Inc., Nokia Networks, Valeo S.A. and Zebra Technologies Corporation. For the nine months ended May 31, 2017, we had net revenues of approximately $14.0 billion and net income attributable to Jabil Inc. of approximately $83.4 million.

We offer our customers comprehensive electronics design, production and product management services that are responsive to their manufacturing and supply chain management needs. Our business units are capable of providing our customers with varying combinations of the following services:

•

integrated design and engineering;

•

component selection, sourcing and procurement;

•

automated assembly;

•

design and implementation of product testing;

•

parallel global production;

•

enclosure services;

•

systems assembly, direct order fulfillment and configure to order; and

•

injection molding, metal, plastics, precision machining and automation.

We currently conduct our operations in facilities that are located in Austria, Belgium, Brazil, Canada, China, Finland, France, Germany, Hungary, India, Ireland, Israel, Italy, Japan, Malaysia, Mexico, The Netherlands, Poland, Russia, Scotland, Singapore, South Africa, South Korea, Spain, Taiwan, Ukraine, the U.S. and Vietnam. Our global manufacturing production sites allow customers to manufacture products simultaneously in the optimal locations for their products. Our services allow customers to reduce manufacturing costs, improve supply-chain management, reduce inventory obsolescence, lower transportation costs and reduce product fulfillment time. Our global presence is key to assessing our business opportunities.

Our reportable operating segments consist of two segments: Electronics Manufacturing Services (“EMS”) and Diversified Manufacturing Services (“DMS”). Our EMS segment is focused around leveraging IT, supply chain design and engineering, technologies largely centered on core electronics, sharing of our large scale manufacturing infrastructure and the ability to serve a broad range of end markets. Our EMS segment includes customers primarily in the automotive and transportation, capital equipment, computing and storage, digital home, industrial and energy, networking and telecommunications, point of sale and printing industries. Our DMS segment is focused on providing engineering solutions and a focus on material sciences and technologies. Our DMS segment includes customers primarily in the consumer lifestyles and wearable technologies, defense and aerospace, healthcare, mobility and packaging industries.

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

Summary of Results

The following table sets forth, for the three months and nine months ended May 31, 2017 and 2016, certain key operating results and other financial information (in thousands, except per share data):


	Three months ended					Nine months ended
	May 31, 2017			May 31, 2016		May 31, 2017		May 31, 2016
Net revenue	$	4,489,557		$	4,310,752	$	14,040,092	$	13,922,323
Gross profit	$	326,415		$	321,087	$	1,119,825	$	1,204,055
Operating income	$	43,383		$	59,595	$	292,173	$	429,028
Net (loss) income attributable to Jabil Inc.	$	(25,281	)	$	5,213	$	83,411	$	216,028
(Loss) earnings per share—basic	$	(0.14	)	$	0.03	$	0.46	$	1.13
(Loss) earnings per share—diluted	$	(0.14	)	$	0.03	$	0.45	$	1.12
Cash dividend per share—declared	$	0.08		$	0.08	$	0.24	$	0.24

Key Performance Indicators

Management regularly reviews financial and non-financial performance indicators to assess the Company’s operating results.

The following table sets forth, for the quarterly periods indicated, certain of management’s key financial performance indicators:

Three Months Ended

May 31,
2017

February 28,
2017

November 30,
2016

August 31,
2016

Sales cycle

9 days

11 days

1 day

3 days

Inventory turns (annualized)

6 turns

7 turns

Days in accounts receivable

29 days

27 days

28 days

Days in inventory

59 days

55 days

48 days

54 days

Days in accounts payable

79 days

73 days

74 days

79 days

The sales cycle is calculated as the sum of days in accounts receivable and days in inventory, less the days in accounts payable; accordingly, the variance in the sales cycle quarter over quarter is a direct result of changes in these indicators. During the three months ended May 31, 2017, days in accounts receivable remained consistent compared to the prior sequential quarter. During the three months ended May 31, 2017, days in inventory increased 4 days as compared to the prior sequential quarter to support expected sales levels in the fourth quarter of fiscal year 2017. During the three months ended May 31, 2017, days in accounts payable increased 6 days from the prior sequential quarter primarily due to higher materials purchases during the quarter and the timing of purchases and cash payments for purchases. During the three months ended May 31, 2017, inventory turns, on an annualized basis, remained relatively consistent with the prior sequential quarter. The changes in the sales cycle during the three months ended May 31, 2017, are due to the changes in accounts receivable, accounts payable and inventory that are discussed above.

Critical Accounting Policies and Estimates

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

policies, refer to Note 1 — “Description of Business and Summary of Significant Accounting Policies” to the Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the fiscal year ended August 31, 2016.

Recent Accounting Pronouncements

See Note 14 – “New Accounting Guidance” to the Condensed Consolidated Financial Statements for a discussion of recent accounting guidance.

Results of Operations

The following table sets forth, for the three months and nine months ended May 31, 2017 and 2016, certain statements of operations data expressed as a percentage of net revenue:


	Three months ended						Nine months ended
	May 31, 2017			May 31, 2016			May 31, 2017			May 31, 2016
Net revenue		100.0	%		100.0	%		100.0	%		100.0	%
Cost of revenue		92.7			92.6			92.0			91.4

Gross profit		7.3			7.4			8.0			8.6
Operating expenses:
Selling, general and administrative		5.2			5.5			4.7			5.1
Research and development		0.2			0.2			0.2			0.2
Amortization of intangibles		0.2			0.2			0.2			0.2
Restructuring and related charges		0.7			0.1			0.8			0.1

Operating income		1.0			1.4			2.1			3.0
Other expense		0.4			0.1			0.2			0.0
Interest income		(0.1	)		(0.1	)		(0.1	)		(0.0	)
Interest expense		0.8			0.8			0.7			0.7

(Loss) income before income tax		(0.1	)		0.6			1.3			2.3
Income tax expense		0.5			0.4			0.7			0.8

Net (loss) income		(0.6	)		0.2			0.6			1.5
Net loss attributable to noncontrolling interests, net of tax		(0.0	)		0.0			(0.0	)		0.0

Net (loss) income attributable to Jabil Inc.		(0.6	)%		0.2	%		0.6	%		1.5	%

The Three Months And Nine Months Ended May 31, 2017 Compared to the Three Months And Nine Months Ended May 31, 2016

Net Revenue. Net revenue increased 4.1% to $4.5 billion during the three months ended May 31, 2017, compared to $4.3 billion during the three months ended May 31, 2016. Specifically, the DMS segment revenues increased 14% due to an 8% increase in revenues from existing customers within our mobility business and a 6% increase in revenues due to new business from existing customers in our healthcare business. EMS segment revenues decreased 1% due to a mix of increases and decreases spread across various industries within the EMS segment, with no one change being significant individually.

Net revenue remained relatively consistent at $14.0 billion during the nine months ended May 31, 2017, compared to $13.9 billion during the nine months ended May 31, 2016. The DMS segment revenues increased 3% as a result of a 4% increase in revenues due to new business from existing customers in our consumer lifestyles and wearable technologies business and a 3% increase in revenues due to new business from existing customers in our healthcare business, partially offset by a 4% decrease in revenues from existing customers within our mobility business due to weakened end user product demand. EMS segment revenues remained relatively consistent due to a mix of increases and decreases spread across various industries within the EMS segment, with no one change being significant individually.

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

The distribution of revenue across our segments has fluctuated, and will continue to fluctuate, as a result of numerous factors, including but not limited to the following: fluctuations in customer demand as a result of recessionary and other conditions, such as the less than anticipated product demand that we have experienced in our mobility business; efforts to de-emphasize the economic performance of certain portions of our business; seasonality in our business; business growth from new and existing customers; specific product performance; and any potential termination, or substantial winding down, of significant customer relationships.

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


	Three months ended						Nine months ended
	May 31, 2017			May 31, 2016			May 31, 2017			May 31, 2016
EMS		63	%		66	%		58	%		59	%
DMS		37	%		34	%		42	%		41	%

Total		100	%		100	%		100	%		100	%

Foreign source revenue represented 90.6% and 91.3% of our net revenue for the three months and nine months ended May 31, 2017, respectively, compared to 90.4% and 91.0% of net revenue for the three months and nine months ended May 31, 2016. We currently expect our foreign source revenue to remain relatively consistent as compared to current levels over the course of the next 12 months.

Gross Profit. Gross profit increased to $326.4 million (7.3% of net revenue) and decreased to $1.1 billion (8.0% of net revenue) during the three months and nine months ended May 31, 2017, respectively, compared to $321.1 million (7.4% of net revenue) and $1.2 billion (8.6% of net revenue) during the three months and nine months ended May 31, 2016, respectively. Gross profit on an absolute basis and as a percentage of net revenue remained relatively consistent during the three months ended May 31, 2017 as compared to the three months ended May 31, 2016. The decrease in gross profit on an absolute basis and as a percentage of revenue during the nine months ended May 31, 2017 is primarily due to revenues from existing customers in our DMS segment within the mobility business decreasing at a higher rate than certain of our fixed costs.

Selling, General and Administrative. Selling, general and administrative expenses remained relatively consistent at $233.9 million (5.2% of net revenue) during the three months ended May 31, 2017 compared to $239.6 million (5.5% of net revenue) during the three months ended May 31, 2016. Selling, general and administrative expenses decreased to $665.9 million (4.7% of net revenue) during the nine months ended May 31, 2017 compared to $716.1 million (5.1% of net revenue) during the nine months ended May 31, 2016. The decrease was primarily a result of a $21.0 million reversal to stock-based compensation expense during the first quarter of fiscal year 2017 due to decreased expectations for the vesting of certain performance-based restricted stock awards. The remaining decrease was primarily driven by a reduction in salary and salary related expenses and other costs.

Research and Development. Research and development expenses remained relatively consistent at $7.3 million (0.2% of net revenue) and $22.0 million (0.2% of net revenue) during the three months and nine months ended May 31, 2017, respectively, compared to $7.7 million (0.2% of net revenue) and $24.4 million (0.2% of net revenue) during the three months and nine months ended May 31, 2016, respectively.

Amortization of Intangibles. Amortization of intangibles remained relatively consistent at $9.2 million and $26.3 million during the three months and nine months ended May 31, 2017, respectively, compared to $9.7 million and $26.2 million during the three months and nine months ended May 31, 2016, respectively.

Restructuring and Related Charges.

2017 Restructuring Plan

In conjunction with the 2017 Restructuring Plan, we charged $31.4 million and $108.9 million of restructuring and related charges to the Condensed Consolidated Statements of Operations during the three months and nine months ended May 31, 2017, respectively. The restructuring and related charges during the three months and nine months ended May 31, 2017 include cash costs of $17.3 million and $43.3 million related to employee severance and benefit costs, respectively, $1.2 million and $5.6 million related to lease costs, respectively, and $1.1 million and $1.4 million of other related costs, respectively, as well as non-cash costs related to asset write-off costs of $11.8 million and $58.6 million, respectively.

We currently expect to recognize approximately $195.0 million in pre-tax restructuring and other related costs over the course of the Company’s fiscal years 2017 and 2018 under the 2017 Restructuring Plan. The restructuring and related charges are expected to include $55.0 million to $75.0 million of employee severance and benefit costs; $110.0 million to $130.0 million of asset write-off costs; and $10.0 million of contract termination costs and other related costs. Since the inception of the 2017 Restructuring Plan, a total of $108.9 million of restructuring and related costs have been recognized as of May 31, 2017. The remaining $86.1 million of the restructuring and related costs expected to be recognized reflects our intention only and restructuring decisions, and the timing of such decisions, at certain plants are still subject to the finalization of timetables for the transition of functions and consultation with our employees and their representatives.

The 2017 Restructuring Plan, once complete, is expected to yield annualized cost savings in the range of $70.0 million to $90.0 million and is expected to occur in fiscal year 2019. We have begun to realize a portion of these costs savings and we expect to realize cost savings in the range of $20.0 million to $30.0 million in fiscal year 2017. The annual cost savings is expected to be reflected as a reduction in cost of revenue as well as a reduction of selling, general and administrative expense.

2013 Restructuring Plan

In conjunction with the 2013 Restructuring Plan, we charged $1.3 million and $4.7 million of restructuring and related charges to the Condensed Consolidated Statements of Operations during the three months and nine months ended May 31, 2017, respectively, compared to $4.5 million and $8.3 million during the three months and nine months ended May 31, 2016, respectively. The restructuring and related charges during the three months and nine months ended May 31, 2017 include cash costs of $0.8 million and $3.4 million related to employee severance and benefit costs, respectively, and $0.5 million and $1.2 million of other related costs, respectively, as well as non-cash costs related to asset write-off costs of $0.0 million and $0.1 million, respectively. The restructuring and related charges during the three months and nine months ended May 31, 2016 include cash costs of $4.2 million and $7.7 million related to employee severance and benefit costs, respectively, and $0.3 million and $0.6 million of other related costs, respectively.

Upon its completion, the 2013 Restructuring Plan is expected to yield annualized cost savings of approximately $76.8 million. The expected avoided annual costs consist of a reduction in employee related expenses of $72.5 million, a reduction in depreciation expense associated with asset disposals of $3.1 million, and a reduction in rent expense associated with leased buildings when our lease obligations have been released of approximately $1.2 million. The majority of these annual cost savings are expected to be reflected as a reduction in cost of revenue as well as a reduction of selling, general and administrative expense. These annual costs savings are expected to be partially offset by decreased revenues and incremental costs expected to be incurred by those plants to which certain production will be shifted. After considering these partial cost savings offsets, we expect the annual cost savings realized to be approximately $65.0 million.

For further discussion of restructuring and related charges related to the 2017 and 2013 Restructuring Plans, refer to Note 12 – “Restructuring and Related Charges” to the Condensed Consolidated Financial Statements.

Other Expense. Other expense increased to $15.8 million during the three months ended May 31, 2017 compared to $2.4 million during the three months ended May 31, 2016, primarily due to an other than temporary impairment on available for sale securities of $11.5 million. Other expense increased to $23.9 million during the nine months May 31, 2017 compared to $6.3 million during the nine months May 31, 2016. The increase is primarily due to an other than temporary impairment on available for sale securities of $11.5 million, an increase in fees associated with the asset-backed securitization programs of $4.4 million and the remaining change relates to a loss associated with a cost method investment.

Interest Income. Interest income remained relatively consistent over the prior periods at $3.7 million and $8.4 million during the three months and nine months ended May 31, 2017, respectively, compared to $2.3 million and $6.7 million during the three months and nine months ended May 31, 2016, respectively.

Interest Expense. Interest expense remained relatively consistent at $35.4 million and $102.1 million during the three months and nine months ended May 31, 2017, respectively, compared to $35.2 million and $102.5 million during the three months and nine months ended May 31, 2016, respectively.

Income Tax Expense. Income tax expense reflects an effective tax rate of (509.3)% and 53.5% for the three months and nine months ended May 31, 2017, respectively, compared to an effective tax rate of 75.9% and 33.9% for the three months and nine months ended May 31, 2016, respectively.

The effective tax rate for the three months ended May 31, 2017 decreased from the effective tax rate for the three months ended May 31, 2016 primarily due to the overall net loss despite having income in certain high tax-rate jurisdictions. The reduction in income, driven in part by an increase in restructuring expense, primarily occurred in tax jurisdictions in which little tax benefit has been recorded due to existing valuation allowances.

The effective tax rate for the nine months ended May 31, 2017 increased from the effective tax rate for the nine months ended May 31, 2016 primarily due to decreased income in jurisdictions with low tax rates or existing valuation allowances, driven in part by an increase in restructuring expense.

Non-U.S. GAAP Core Financial Measures

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

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

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

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

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


	Three months ended						Nine months ended
	May 31, 2017			May 31, 2016			May 31, 2017			May 31, 2016
Operating income (U.S. GAAP)	$	43,383		$	59,595		$	292,173		$	429,028
Amortization of intangibles		9,174			9,711			26,262			26,150
Stock-based compensation expense and related charges		18,350			13,445			33,377			58,505
Restructuring and related charges		32,700			4,460			113,529			8,349
Distressed customer charges		10,198			—			10,198			—

Core operating income (Non-U.S. GAAP)	$	113,805		$	87,211		$	475,539		$	522,032

Net (loss) income attributable to Jabil Inc. (U.S. GAAP)	$	(25,281	)	$	5,213		$	83,411		$	216,028
Amortization of intangibles		9,174			9,711			26,262			26,150
Stock-based compensation expense and related charges		18,350			13,445			33,377			58,505
Restructuring and related charges		32,700			4,460			113,529			8,349
Distressed customer charges		10,198			—			10,198			—
Other than temporary impairment on securities		11,539			—			11,539			—
Adjustments for taxes		431			(866	)		(2,793	)		(2,842	)

Core earnings (Non-U.S. GAAP)	$	57,111		$	31,963		$	275,523		$	306,190

(Loss) earnings per share (U.S. GAAP):
Basic	$	(0.14	)	$	0.03		$	0.46		$	1.13

Diluted	$	(0.14	)	$	0.03		$	0.45		$	1.12

Core earnings per share (Non-U.S. GAAP):
Basic	$	0.32		$	0.17		$	1.51		$	1.60

Diluted	$	0.31		$	0.17		$	1.48		$	1.59

Weighted average shares outstanding used in the calculations of earnings per share (U.S. GAAP):
Basic		181,038			191,206			182,982			190,841

Diluted		181,038			193,069			186,621			193,058

Weighted average shares outstanding used in the calculations of earnings per share (Non-U.S. GAAP):
Basic		181,038			191,206			182,982			190,841

Diluted		184,940			193,069			186,621			193,058

Core operating income increased 30.5% to $113.8 million and decreased 8.9% to $475.5 million during the three months and nine months ended May 31, 2017, respectively, compared to $87.2 million and $522.0 million during the three months and nine months ended May 31, 2016, respectively. Core earnings increased 78.7% to $57.1 million and decreased 10.0% to $275.5 million during the three months and nine months ended May 31, 2017, respectively, compared to $32.0 million and $306.2 million during the three months and nine months ended May 31, 2016, respectively. These variances were the result of the same factors described above in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – The Three Months And Nine Months Ended May 31, 2017 Compared to the Three Months And Nine Months Ended May 31, 2016.”

Acquisitions and Expansion

As discussed in Note 13 – “Business Acquisitions” to the Condensed Consolidated Financial Statements, we completed one acquisition during the three months ended May 31, 2017 and three acquisitions during the fiscal year ended August 31, 2016. Acquisitions are accounted for as business combinations using the acquisition method of accounting. Our Condensed Consolidated Financial Statements include the operating results of each business from the date of acquisition.

Seasonality

Production levels for a portion of the DMS segment are subject to seasonal influences. We may realize greater net revenue during our first fiscal quarter due to higher demand for consumer related products manufactured in the DMS segment during the holiday selling season. Therefore, quarterly results should not be relied upon as necessarily being indicative of results for the entire fiscal year.

Liquidity and Capital Resources

At May 31, 2017, our principal sources of liquidity consisted of cash, available borrowings under our credit facilities, our asset-backed securitization programs and our uncommitted trade accounts receivable sale programs.

Cash Flows

The following table sets forth selected consolidated cash flow information during the nine months ended May 31, 2017 and 2016 (in thousands):


	Nine months ended
	May 31, 2017			May 31, 2016
Net cash provided by operating activities	$	533,023		$	488,209
Net cash used in investing activities		(477,282	)		(890,384	)
Net cash (used in) provided by financing activities		(222,926	)		375,744
Effect of exchange rate changes on cash and cash equivalents		(943	)		(541	)

Net decrease in cash and cash equivalents	$	(168,128	)	$	(26,972	)

Net cash provided by operating activities during the nine months ended May 31, 2017 was approximately $533.0 million. This resulted primarily from net income of $81.1 million, $570.6 million in non-cash depreciation and amortization expense, a $100.4 million decrease in prepaid expenses and other current assets, $58.6 million in non-cash restructuring and related charges and $33.4 million of recognized stock-based compensations expense and related charges; which were partially offset by a $216.1 million increase in inventories and a $85.8 million increase in accounts receivable. The decrease in prepaid expenses and other current assets was primarily due to a decrease in value added tax receivables along with a decrease in the deferred purchase price receivable under our foreign asset-backed securitization program due to an increase in funding related to the increase in the facility limit from $275.0 million to $400.0 million and the timing of cash collections. The increase in inventories is to support expected sales levels in the fourth quarter of fiscal year 2017. The increase in accounts receivable is primarily driven by the timing of sales and cash collections activity.

Net cash used in investing activities during the nine months ended May 31, 2017 was $477.3 million. This consisted primarily of capital expenditures of $482.7 million principally to support ongoing business in the DMS and EMS segments and $36.6 million of cash paid for business and intangible asset acquisitions, net of cash received, partially offset by $43.4 million of proceeds from the sale of property, plant and equipment.

Net cash used in financing activities during the nine months ended May 31, 2017 was $222.9 million. This resulted from our receipt of approximately $5.4 billion of proceeds from borrowings under existing debt agreements, which primarily included an aggregate of $4.9 billion of borrowings under the Revolving Credit Facility and $497.5 million under credit facilities with foreign subsidiaries. This was offset by repayments in an aggregate amount of approximately $5.4 billion, which primarily included an aggregate of $4.9 billion of repayments under the Revolving Credit Facility and $397.5 million under credit facilities with foreign subsidiaries. In addition, during the nine months ended May 31, 2017 we paid $237.1 million, including commissions, to repurchase 9,901,336 of our common shares, we paid $45.6 million in dividends to stockholders and we paid $11.6 million (the equivalent of 526,540 of our common shares) to the IRS on behalf of certain employees to satisfy minimum tax obligations related to the vesting of certain restricted stock awards (as consideration for these payments to the IRS, we withheld $11.6 million of employee-owned common stock related to this vesting).

Sources

We may need to finance day-to-day working capital needs, as well as future growth and any corresponding working capital needs, with additional borrowings under our Revolving Credit Facility and our other revolving credit facilities described below, as well as additional public and private offerings of our debt and equity. Currently, we have a shelf registration statement with the SEC registering the potential sale of an indeterminate amount of debt and equity securities in the future, from time-to-time over the three years following the registration, to augment our liquidity and capital resources. The current shelf registration statement will expire in the first quarter of fiscal year 2018 at which time we currently anticipate filing a new shelf registration statement. Any future sale or issuance of equity or convertible debt securities could result in dilution to current or future shareholders. Further, we may issue debt

securities that have rights and privileges senior to those of holders of ordinary shares, and the terms of this debt could impose restrictions on operations, increase debt service obligations, limit our flexibility as a result of debt service requirements and restrictive covenants, potentially negatively affect our credit ratings, and limit our ability to access additional capital or execute our business strategy. We continue to assess our capital structure and evaluate the merits of redeploying available cash to reduce existing debt or repurchase common shares.

We regularly sell designated pools of trade accounts receivable under two asset-backed securitization programs and four uncommitted trade accounts receivable sale programs (collectively referred to herein as the “programs”). 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. Discussion of each of the programs is included in the following paragraphs. In addition, refer to Note 7 – “Trade Accounts Receivable Securitization and Sale Programs” to the Condensed Consolidated Financial Statements for further details on the programs.

a. Asset-Backed Securitization Programs

We continuously sell designated pools of trade accounts receivable, at a discount, under our asset-backed securitization programs to special purpose entities, which in turn sell 100% of the receivables to conduits administered by unaffiliated financial institutions (for the North American asset-backed securitization program) and to an unaffiliated financial institution and a conduit administered by an unaffiliated financial institution (for the foreign asset-backed securitization program). Any portion of the purchase price for the receivables which is not paid in cash upon the sale taking place is recorded as a deferred purchase price receivable, which is paid from available cash as payments on the receivables are collected. Net cash proceeds up to a maximum of $200.0 million for the North American asset-backed securitization program, currently scheduled to expire on October 20, 2017, are available at any one time. Net cash proceeds up to a maximum of $400.0 million for the foreign asset-backed securitization program, currently scheduled to expire on May 1, 2018, are available at any one time. The foreign asset-backed securitization program was amended to increase the facility limit from $275.0 million to $400.0 million, effective February 13, 2017.

In connection with our asset-backed securitization programs, at May 31, 2017, we sold $1.1 billion of eligible trade accounts receivable, which represents the face amount of total sold outstanding receivables at that date. In exchange, we received cash proceeds of $583.0 million and a deferred purchase price receivable. At May 31, 2017, the deferred purchase price receivable in connection with the asset-backed securitization programs totaled $501.3 million. The deferred purchase price receivable was recorded initially at fair value as prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets.

b. Trade Accounts Receivable Sale Programs

In connection with four separate trade accounts receivable sale programs with unaffiliated financial institutions, we may elect to sell, at a discount, on an ongoing basis, up to a maximum of $650.0 million, $150.0 million, 800.0 million Chinese yuan renminbi (“CNY”) and $100.0 million, respectively, of specific trade accounts receivable at any one time. The $650.0 million trade accounts receivable sale program is an uncommitted facility that will expire on August 31, 2017 (as the agreement was automatically extended on October 31, 2016), although any party may elect to terminate the agreement upon 15 days prior notice. The $150.0 million trade accounts receivable sale program is an uncommitted facility that will expire on August 31, 2017 unless renewed. The 800.0 million CNY trade accounts receivable sale program is an uncommitted facility that was entered into on February 15, 2017 and is scheduled to expire on February 15, 2018 unless renewed. The $100.0 million trade accounts receivable sale program is an uncommitted facility that is scheduled to expire on October 31, 2017 (as the agreement was automatically extended on October 31, 2016), although any party may elect to terminate the agreement upon 15 days prior notice. The $100.0 million trade accounts receivable sale program will be automatically extended until November 1, 2018, unless any party gives no less than 30 days prior notice that the agreement should not be extended.

During the three months and nine months ended May 31, 2017, we sold $0.5 billion and $2.2 billion of trade accounts receivable under these programs, respectively, and we received cash proceeds of $0.5 billion and $2.2 billion during the three months and nine months ended May 31, 2017, respectively.

Notes payable, long-term debt and capital lease obligations outstanding at May 31, 2017 and August 31, 2016 are

summarized below (in thousands):


	May 31, 2017		August 31, 2016
8.250% Senior Notes due 2018		399,268		398,552
5.625% Senior Notes due 2020		396,881		396,212
4.700% Senior Notes due 2022		496,532		496,041
4.900% Senior Notes due 2023		298,511		298,329
Borrowings under credit facilities		100,000		—
Borrowings under loans		464,674		502,210
Capital lease obligations		27,709		28,478

Total notes payable, long-term debt and capital lease obligations		2,183,575		2,119,822
Less current installments of notes payable, long-term debt and capital lease obligations		538,985		45,810

Notes payable, long-term debt and capital lease obligations, less current installments	$	1,644,590	$	2,074,012

At May 31, 2017 and August 31, 2016, we were in compliance with all covenants under our debt agreements and our asset-backed securitization programs.

Uses

At May 31, 2017, we had approximately $743.9 million in cash and cash equivalents. As our growth remains predominantly outside of the United States, a significant portion of such cash and cash equivalents are held by our foreign subsidiaries. We estimate that approximately $589.6 million of the cash and cash equivalents held by our foreign subsidiaries could not be repatriated to the United States without potential income tax consequences.

For discussion of our cash management and risk management policies see “Quantitative and Qualitative Disclosures About Market Risk.”

We currently anticipate that during the next 12 months, our capital expenditures, which do not include any amounts spent on acquisitions, will be in the range of $500.0 million to $600.0 million, principally to support ongoing business in the DMS and EMS segments. The amounts used to fund such capital expenditures will not be available to be deployed elsewhere by us. We believe that our level of resources, which include cash on hand, available borrowings under our revolving credit facilities, additional proceeds available under our trade accounts receivable securitization programs and potentially available under our uncommitted trade accounts receivable sale programs and funds provided by operations, will be adequate to fund these capital expenditures, the payment of any declared quarterly dividends, any potential acquisitions, debt repayments and our working capital requirements for the next 12 months.

Our 8.250% Senior Notes of $400.0 million will mature on March 15, 2018. We believe that our cash on hand and available borrowing under our credit facilities will be adequate to fund the payment of the 8.250% Senior Notes. However, we anticipate that we will enter into a new borrowing agreement to repay our $400.0 million 8.250% Senior Notes.

In June 2016, our Board of Directors authorized the repurchase of up to $400.0 million of our common shares. The share repurchase program expires on August 31, 2017. During the fourth quarter of fiscal year 2016, we repurchased 4.9 million shares, which utilized $93.7 million of the $400.0 million authorized by our Board of Directors. During the nine months ended May 31 2017, we repurchased 10.0 million shares, which utilized an additional $236.9 million of the $400.0 million authorized by our Board of Directors.

On October 20, 2016, January 26, 2017 and April 20, 2017, our Board of Directors approved payment of a quarterly dividend of $0.08 per share to shareholders of record as of November 15, 2016, February 15, 2017 and May 15, 2017. Of the total cash dividend declared on October 20, 2016 of $15.2 million, $14.7 million was paid on December 1, 2016. The remaining $0.5 million is related to dividend equivalents on unvested restricted stock units that will be payable at the time the awards vest. Of the total cash dividend declared on January 26, 2017 of $15.1 million, $14.6 million was paid on March 1, 2017. The remaining $0.5 million is related to dividend equivalents on unvested restricted stock units that will be payable at the time the awards vest. Of the total cash dividend declared on April 20, 2017 of $14.8 million, $14.4 million was paid on June 1, 2017. The remaining $0.4 million is related to dividend equivalents on unvested restricted stock units that will be payable at the time the awards vest. We currently expect to continue to

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

Our $200.0 million North American asset-backed securitization program is scheduled to expire on October 20, 2017, and our $400.0 million foreign asset-backed securitization program, amended to increase the facility limit from $275.0 million to $400.0 million, effective February 13, 2017, is scheduled to expire on May 1, 2018. We may be unable to renew either or both of these programs. We can offer no assurance under the $650.0 million, $150.0 million, 800.0 million CNY or the $100.0 million uncommitted sales programs that if we attempt to sell receivables under such programs in the future that we will receive funding from the associated banks which would require us to utilize other available sources of liquidity, including our revolving credit facilities.

Our working capital requirements and capital expenditures could continue to increase in order to support future expansions of our operations through construction of greenfield operations or acquisitions. It is possible that future expansions may be significant and may require the payment of cash. Future liquidity needs will also depend on fluctuations in levels of inventory and shipments, changes in customer order volumes and timing of expenditures for new equipment.

Should we desire to consummate significant additional acquisition opportunities or undertake significant additional expansion activities, our capital needs would increase and could possibly result in our need to increase available borrowings under our revolving credit facilities or access public or private debt and equity markets. There can be no assurance, however, that we would be successful in raising additional debt or equity on terms that we would consider acceptable.

Contractual Obligations

Our contractual obligations for short and long-term debt arrangements and capital lease obligations; future interest on notes payable, long-term debt and capital lease obligations; future minimum lease payments under non-cancelable operating lease arrangements; non-cancelable purchase order obligations for property, plant and equipment; and pension and postretirement contributions and payments as of May 31, 2017 are summarized below. While, as disclosed below, we have certain non-cancelable purchase order obligations for property, plant and equipment, we generally do not enter into non-cancelable purchase orders for materials until we receive a corresponding purchase commitment from our customer. Non-cancelable purchase orders do not typically extend beyond the normal lead time of several weeks at most. Purchase orders beyond this time frame are typically cancelable.


	Payments due by period (in thousands)
	Total		Less than 1 year		1-3 years		4-5 years		After 5 years
Notes payable, long-term debt and capital lease obligations	$	2,183,575	$	538,985	$	102,940	$	725,710	$	815,940
Future interest on notes payable, long-term debt and capital lease obligations ^(a)		373,436		99,988		148,506		92,825		32,117
Operating lease obligations		520,283		95,426		153,208		107,777		163,872
Non-cancelable purchase order obligations ^(b)		283,967		283,502		465		—		—
Pension and postretirement contributions and payments ^(c)		9,199		3,441		1,100		1,325		3,333

Total contractual cash obligations ^(d)	$	3,370,460	$	1,021,342	$	406,219	$	927,637	$	1,015,262

^(a)	Certain of our notes payable and long-term debt pay interest at variable rates. In the contractual obligations table above, we have elected to apply estimated interest rates to determine the value of these expected future interest payments.

^(b)	Consists of purchase commitments entered into as of May 31, 2017 for property, plant and equipment pursuant to legally enforceable and binding agreements.

^(c)

Includes the estimated company contributions to funded pension plans for the annualized three month period following the third quarter of fiscal year 2017 and the expected benefit payments for unfunded pension and postretirement plans through 2026. These future payments are not recorded on the Condensed Consolidated Balance Sheets but will be recorded when paid.

^(d)

At May 31, 2017, we have $92.2 million recorded as a long-term liability for uncertain tax positions. We are not able to reasonably estimate the timing of payments, or the amount by which our liability for these uncertain tax positions will increase or decrease over time, and accordingly, this liability has been excluded from the above table.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency Exchange Risks

We transact business in various foreign countries and are, therefore, subject to risk of foreign currency exchange rate fluctuations. We enter into forward contracts to economically hedge transactional exposure associated with commitments arising from trade accounts receivable, trade accounts payable, intercompany transactions and fixed purchase obligations denominated in a currency other than the functional currency of the respective operating entity. We do not, and do not intend to use derivative financial instruments for speculative purposes. All derivative instruments are recorded on our Condensed Consolidated Balance Sheets at their respective fair values. At May 31, 2017, except for certain foreign currency contracts with a notional amount outstanding of $178.7 million and a fair value of $4.2 million recorded in prepaid expenses and other current assets and $1.4 million recorded in accrued expenses, the forward contracts have not been designated as accounting hedges and, therefore, changes in fair value are recorded within our Condensed Consolidated Statements of Operations.

The aggregate notional amount of outstanding contracts at May 31, 2017 that are not designated as accounting hedges was $1.7 billion. The fair values of these contracts amounted to a $15.3 million asset recorded in prepaid expenses and other current assets and a $11.6 million liability recorded to accrued expenses on our Condensed Consolidated Balance Sheets.

The forward contracts (both those that are designated as accounting hedging instruments and those that are not) will generally expire in less than three months, with nine months being the maximum term of the contracts outstanding at May 31, 2017. The change in fair value related to contracts designated as accounting hedging instruments will be reflected in the revenue or expense line in which the underlying transaction occurs within our Condensed Consolidated Statements of Operations. The change in fair value related to contracts not designated as accounting hedging instruments will be reflected in cost of revenue within our Condensed Consolidated Statements of Operations. The forward contracts are denominated in Brazilian reais, British pounds, Chinese yuan renminbi, Euros, Hungarian forints, Indian rupees, Israeli shekel, Japanese yen, Malaysian ringgits, Mexican pesos, Polish zlotys, Russian rubles, Singapore dollars, South African rand, Swedish krona, Swiss francs, Taiwan dollars and U.S. dollars.

Based on our overall currency rate exposures as of May 31, 2017, including the derivative financial instruments intended to hedge the nonfunctional currency-denominated monetary assets and liabilities, an immediate 10% hypothetical change of foreign currency exchange rates would not have a material effect on our Condensed Consolidated Financial Statements.

Interest Rate Risk

A portion of our exposure to market risk for changes in interest rates relates to our domestic investment portfolio. We do not, and do not intend to, use derivative financial instruments for speculative purposes. We place cash and cash equivalents with various major financial institutions. We protect our invested principal funds by limiting default risk, market risk and reinvestment risk. We mitigate these risks by generally investing in investment grade securities and by frequently positioning the portfolio to try to respond appropriately to a reduction in credit rating of any investment issuer, guarantor or depository to levels below the credit ratings dictated by our investment policy. The portfolio typically includes only marketable securities with active secondary or resale markets to ensure portfolio liquidity. At May 31, 2017, there were no significant outstanding investments.

During the fourth quarter of fiscal year 2016, we entered into forward starting swap transactions to hedge the fixed interest rate payments for an anticipated debt issuance. The forward starting swaps have an aggregate notional amount of $200.0 million and have been designated as hedging instruments and accounted for as cash flow hedges. The forward starting swaps are scheduled to expire on March 15, 2018. If the anticipated debt issuance occurs before March 15, 2018, the contracts will be terminated simultaneously with the debt issuance. The contracts will be settled with the respective counterparties on a net basis at the time of termination or expiration. Changes in the fair value of the forward starting swap transactions are recorded on our Condensed Consolidated Balance Sheets as a component of accumulated other comprehensive income (“AOCI”).

During the fourth quarter of fiscal year 2016, we entered into interest rate swap transactions to hedge the variable interest rate payments for the Term Loan Facility. In connection with this transaction, we will pay interest based upon a fixed rate as agreed upon with the respective counterparties and receive variable rate interest payments based on the one-month LIBOR. The interest rate swaps have an aggregate notional amount of $200.0 million and have been designated as hedging instruments and accounted for as cash flow hedges. The interest rate swaps were effective on September 30, 2016 and are scheduled to expire on June 30, 2019. The contracts will be settled with the respective counterparties on a net basis at each settlement date. Changes in the fair value of the interest rate swap transactions are recorded on our Condensed Consolidated Balance Sheets as a component of AOCI.

We pay interest on several of our outstanding borrowings at interest rates that fluctuate based upon changes in various base interest rates. There were $562.5 million in borrowings outstanding under these facilities at May 31, 2017. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” and Note 6 — “Notes Payable, Long-Term Debt and Capital Lease Obligations” to the Condensed Consolidated Financial Statements for additional information regarding our outstanding debt obligations. The effect of an immediate hypothetical 10% change in variable interest rates would not have a material effect on our Condensed Consolidated Financial Statements.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation required by Rules 13a-15 and 15d-15 under the Exchange Act (the “Evaluation”), under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15 and 15d-15 under the Exchange Act (“Disclosure Controls”) as of May 31, 2017. Based on the Evaluation, our CEO and CFO concluded that the design and operation of our Disclosure Controls were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) accumulated and communicated to our senior management, including our CEO and CFO, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

For our fiscal quarter ended May 31, 2017, we did not identify any modifications to our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Many of the components of our internal controls over financial reporting are evaluated on an ongoing basis by our finance organization to ensure continued compliance with the Exchange Act. The overall goals of these various evaluation activities are to monitor our internal controls over financial reporting and to modify them as necessary. We intend to maintain our internal controls over financial reporting as dynamic processes and procedures that we adjust as circumstances merit, and we have reached our conclusions set forth above, notwithstanding certain improvements and modifications.

Limitations on the Effectiveness of Controls and Other Matters

Our management, including our CEO and CFO, does not expect that our Disclosure Controls and internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls may be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Notwithstanding the foregoing limitations on the effectiveness of controls, we have nonetheless reached the conclusions set forth above on our disclosure controls and procedures and our internal control over financial reporting.

CEO and CFO Certifications

Exhibits 31.1 and 31.2 are the Certifications of the CEO and the CFO, respectively. The Certifications are required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the “Section 302 Certifications”). This Item of this report, which you are currently reading contains the information concerning the Evaluation referred to in the Section 302 Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings

We are party to certain lawsuits in the ordinary course of business. We do not believe that these proceedings, individually or in the aggregate, will have a material adverse effect on our financial position, results of operations or cash flows.

Item 1A.

Risk Factors

For information regarding risk factors that could affect our business, results of operations, financial condition or future results, see Part I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended August 31, 2016. For further information on our forward-looking statements see Part I of this Quarterly Report on Form 10-Q.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information relating to our repurchase of common stock during the three months ended May 31, 2017:


Period	Total Number of Shares Purchased⁽¹⁾		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program⁽²⁾		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (in thousands)
March 1, 2017 – March 31, 2017		499,852	$	28.84		485,000	$	140,980
April 1, 2017 – April 30, 2017		1,694,494	$	28.83		1,683,628	$	92,447
May 1, 2017 – May 31, 2017		795,122	$	29.04		794,103	$	69,387

Total		2,989,468	$	28.88		2,962,731	$	69,387

⁽¹⁾	The purchases include amounts that are attributable to shares surrendered to us by employees to satisfy, in connection with the vesting of restricted stock awards and the exercise of stock options and stock appreciation rights, their tax withholding obligations.

⁽²⁾

In June 2016, our Board of Directors authorized the repurchase of up to $400.0 million of our common shares. The share repurchase program expires on August 31, 2017. During the fourth quarter of fiscal year 2016, we repurchased 4.9 million shares, which utilized $93.7 million of the $400.0 million authorized by our Board of Directors. During the first, second and third quarters of fiscal year 2017, we repurchased 5.3 million shares, 1.7 million shares and 3.0 million shares, respectively, which utilized an additional $236.9 million of the $400.0 million authorized by our Board of Directors.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

None.

Item 6.

Exhibits


Exhibit No.		Description

3.1		— Registrant’s Certificate of Incorporation, as amended.

3.2		— Registrant’s Bylaws, as amended.

4.1(1)		— Form of Certificate for Shares of the Registrant’s Common Stock.

4.2(2)		— Indenture, dated January 16, 2008, with respect to Senior Debt Securities of the Registrant, between the Registrant and The Bank of New York Mellon Trust Company, N.A. (formerly known as The Bank of New York Trust Company, N.A.), as trustee.

4.3(3)		— Form of 8.250% Registered Senior Notes issued on July 18, 2008.

4.4(4)		— Form of 7.750% Registered Senior Notes issued on August 11, 2009.

4.5(5)		— Form of 5.625% Registered Senior Notes issued on November 2, 2010.

4.6(6)		— Form of 4.700% Registered Senior Notes issued on August 3, 2012.

4.7(4)		— Officers’ Certificate of the Registrant pursuant to the Indenture, dated August 11, 2009.

4.8(5)		— Officers’ Certificate of the Registrant pursuant to the Indenture, dated November 2, 2010.

4.9(6)		— Officers’ Certificate of the Registrant pursuant to the Indenture, dated August 3, 2012.

31.1		— Rule 13a-14(a)/15d-14(a) Certification by the Chief Executive Officer of the Registrant.

31.2		— Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial Officer of the Registrant.

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.INS		— XBRL Instance Document.

101.SCH		— XBRL Taxonomy Extension Schema Document.

101.CAL		— XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF		— XBRL Taxonomy Extension Definitions Linkbase Document.

101.LAB		— XBRL Taxonomy Extension Label Linkbase Document.

101.PRE		— XBRL Taxonomy Extension Presentation Linkbase Document.

(1)	Incorporated by reference to exhibit Amendment No. 1 to the Registration Statement on Form S-1 (File No. 33-58974) filed by the Registrant on March 17, 1993.

(2)	Incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 001-14063) filed by the Registrant on January 17, 2008.

(3)	Incorporated by reference to the Registrant’s Annual Report on Form 10-K (File No. 001-14063) for the fiscal year ended August 31, 2008.

(4)	Incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 001-14063) filed by the Registrant on August 12, 2009.

(5)	Incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 001-14063) filed by the Registrant on November 2, 2010.

(6)	Incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 001-14063) filed by the Registrant on August 6, 2012.

Certain instruments with respect to long-term debt of the Registrant 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 Registrant and its subsidiaries on a consolidated basis. The Registrant agrees to furnish a copy of any such instrument to the Securities and Exchange Commission upon request.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	JABIL INC. Registrant

Date: June 30, 2017	By:	/s/ MARK T. MONDELLO
		Mark T. Mondello Chief Executive Officer

Date: June 30, 2017	By:	/s/ FORBES I.J. ALEXANDER
		Forbes I.J. Alexander Chief Financial Officer

Exhibit Index


Exhibit No.		Description

3.1	—	Registrant’s Certificate of Incorporation, as amended.

3.2	—	Registrant’s Bylaws, as amended.

31.1	—	Rule 13a-14(a)/15d-14(a) Certification by the Chief Executive Officer of the Registrant.

31.2	—	Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial Officer of the Registrant.

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.INS	—	XBRL Instance Document.

101.SCH	—	XBRL Taxonomy Extension Schema Document.

101.CAL	—	XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF	—	XBRL Taxonomy Extension Definitions Linkbase Document.

101.LAB	—	XBRL Taxonomy Extension Label Linkbase Document.

101.PRE	—	XBRL Taxonomy Extension Presentation Linkbase Document.