1
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) ofthe Securities
----- Exchange Act of 1934 For the quarterly period ended May 31, 1996.
----- 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: 0-21308
JABIL CIRCUIT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 38-1886260
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
10800 Roosevelt Blvd
St. Petersburg, FL 33716
(Address of principal executive offices, including zip code)
Registrant's Telephone No., including area code: (813) 577-9749
________________________________
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 X No ___
As of May 31, 1996, there were 17,753,120 shares of the
Registrant's Common Stock outstanding.
2
JABIL CIRCUIT, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
-----------------------------
Item 1. Financial Statements
Consolidated Balance Sheets at
May 31, 1996 and August 31,1995...................... 3
Consolidated Statements of Operations
for the nine months ended May 31, 1996 and 1995...... 4
Consolidated Statements of Cash Flows
for the nine months ended May 31, 1996 and 1995...... 5
Notes to Consolidated Financial
Statements........................................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................... 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form
8-K.................................................. 14
Signatures............................................ 15
3
JABIL CIRCUIT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except for share and per share data)
August 31, May 31,
1995 1996
----------- ----------
(UNAUDITED)
ASSETS
Current assets
Cash $5,486 $28,004
Accounts receivable - Net 116,472 98,706
Inventories 91,658 59,390
Refundable income taxes 2,043 - -
Prepaid expenses and other current assets 701 714
Deferred income taxes 1,837 3,243
------- -------
Total current assets 218,197 190,057
Property, plant and equipment, net 61,722 71,891
Other assets 1,042 1,517
------- -------
$280,961 $263,465
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Note payable to bank $73,000 --
Current installments of long term debt 7,474 $5,008
Current installments of capital leases 656 501
Accounts payable 90,612 55,054
Accrued expenses 13,122 19,915
------- -------
Total current liabilities 184,864 80,478
Long term debt, less current installments 26,343 57,913
Capital leases, less current installments 1,589 1,169
Deferred income taxs 3,625 3,254
Deferred grant revenue 4,945 3,412
------- -------
Total liabilities 221,366 146,226
Stockholders' equity
Common stock 15 18
Additional paid in capital 16,718 56,509
Retained earnings 42,970 60,760
------- -------
59,703 117,287
Less:
Unearned compensation from grant
of stock option 108 48
------- -------
Net stockholders' equity 59,595 117,239
$280,961 $263,465
======== ========
4
JABIL CIRCUIT, INC. AND SUBSIDIARIES
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,
1995 1996 1995 1996
Net revenue $132,441 $219,701 $354,079 $689,184
Cost of revenue 124,610 201,142 331,387 635,039
------- ------- ------- -------
Gross profit 7,831 18,559 22,692 54,145
Operating expenses:
Selling, general
and administrative 4,464 6,612 13,217 18,243
Research and development 405 576 1,228 1,503
------- ------- ------- -------
Operating income 2,962 11,371 8,247 34,399
Interest expense 1,521 1,768 4,268 6,754
------- ------- ------ -------
Income before income tax 1,441 9,603 3,979 27,645
Income taxes 207 3,366 1,685 9,855
------- ------- ------- -------
Net income $1,234 $6,237 $2,294 $17,790
======= ======= ======= =======
Net income per share $0.08 $0.33 $0.15 $0.98
======= ======= ======= =======
Weighted average number of
shares of common stock and
common stock equivilents 15,533 18,893 15,463 18,226
======= ======= ======= =======
5
JABIL CIRCUIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Nine months ended
May 31, May 31,
1995 1996
Cash flows from operating activities: ------- -------
Net income $2,294 $17,790
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 8,350 12,862
Recognition of grant revenue (427) (1,613)
Deferred income taxes (610) (1,777)
Gain on sale of property (70) (1)
Foreign currency translation (gain) loss 43 80
Changes in operating assets and liabilities:
Accounts receivable (5,898) 17,766
Inventories (28,007) 32,268
Prepaid expenses and other current assets (297) 236
Refundable income taxes (365) 2,043
Other assets (938) (475)
Accounts payable and accrued expenses 34,756 (28,765)
------- -------
Net cash provided by (used in) operating activities 8,831 50,414
Cash flows from investing activities:
Acquisition of property,plant and equipment (13,389) (23426)
Proceeds from sale of property andequipment 391 207
------- -------
Net cash used in investing activities (12,998) (23,219)
Cash flows from financing activities:
Increase/(Decrease) in note payable 1,900 (73,000)
Proceeds from long-term debt 7,080 59,889
Payments of long-term debt (3,038) (30,785)
Payments of capital lease obligations (683) (575)
Net proceeds from issuance of common stock 515 39,794
Proceeds from Scottish grant 2,675 0
------- -------
Net cash provided/(used) by financing activities 8,449 (4,677)
Net increase (decrease) in cash 4,282 22,518
Cash at beginning of period 1,798 5,486
------- -------
Cash at end of period $6,080 $28,004
======= =======
Supplemental disclosure information:
Cash Paid:
Interest 4,458 7,169
======= =======
Income taxes 2,660 7,383
======= =======
Non-Cash Investing and Financing activities:
Tax benefit ofoptions exercised 266 111
======= =======
Capital lease obligations incurred to 2373 0
======= =======
6
Jabil Circuit Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1) Summary of Significant Accounting Policies
A) Basis of Presentation
The accompanying consolidated financial statements of Jabil
Circuit, Inc. and subsidiaries ("the Company") are unaudited and
have been prepared based upon prescribed guidance of the
Securities and Exchange Commission ("SEC"). As such, they do not
include all disclosures required by generally accepted
accounting principles, and should be read in conjunction with
the annual audited consolidated statements as of and for the
year ended August 31, 1995 contained in the Company's 1995
annual report on Form 10-K. In the opinion of management, the
accompanying consolidated financial statements include all
adjustments, consisting of normal and recurring adjustments
necessary for a fair presentation of the financial position,
results of operations and cash flows for the periods presented
when read in conjunction with the annual audited consolidated
financial statements and related notes thereto. The results of
operations for the nine month period ended May 31, 1996 are not
necessarily indicative of the results that should be expected
for a full fiscal year.
B) Net Income Per Share
Net income per share is computed using the weighted average
number of common shares and dilutive common equivalent shares
outstanding during the applicable period. Common equivalent
shares consist of stock options, using the treasury stock
method.
2) Public Stock offering
The Company completed a secondary public offering of 4,025,000
shares on November 3, 1995 in which the Company sold 2,875,000
shares (including an over-allotment option of 375,000 shares)
and certain selling stockholders sold 1,150,000 shares. Net
proceeds to the Company (net of underwriters' discounts,
commissions and other offering costs of $350,000) were
approximately $39,152,500.
3) Debt
In May 1996 , the Company completed a private placement of $50
million Senior Notes due 2004. The Notes have a fixed interest
rate of 6.89%, with interest payable on a semi-annual basis.
Principal is payable in six equal annual installments beginning
May 30, 1999.
7
4) Note Payable to Bank
In May 1996 the Company renegotiated their secured line of
credit facility and has established a $60,000,000 unsecured
revolving credit facility with a syndicate of banks
("Revolver"). At May 31, 1996 there were no borrowings under the
revolver and the entire $60,000,000 was available. Under the
terms of the Revolver, borrowings may be made under either
Floating Rate Loans, or Eurodollar rate loans. The Company pays
interest on outstanding floating rate loans at the bank's prime
rate. The Company pays interest on outstanding Eurodollar loans
at the London Interbank Offering Rate (LIBOR) in effect at the
loan inception date plus a factor of .75% to 1.25% depending on
the company's funded debt to total capitalization ratios. The
Company pays a commitment fee on the unused portion of the
Revolver at .175% to .25% depending on the Company's funded debt
to total capitalization ratios.
5) Commitments and Contingencies
At May 31, 1996 the Company had outstanding approximately
$1,000,000 in equipment purchase commitments.
During the 1993 and 1994 fiscal years, the Company and Epson
America, Inc. ("Epson") entered into several written and oral
agreements and purchase orders providing for the joint
development by the parties, and manufacture by the Company, of
notebook computers pursuant to specifications provided by Epson.
Pursuant to the parties' agreements, the Company procured
materials for production. The Company contends that Epson
breached the agreement by refusing to honor its purchase
commitments citing production delays resulting from the
unavailability of certain components and defects in certain
materials supplied to the Company. On December 23, 1994, the
Company instituted a breach of contract action against Epson in
the Circuit Court of the Sixth Judicial Circuit of the State of
Florida, requesting certain specified and unspecified monetary
damages, including damages in an amount equal to $6,278,282,
representing unpaid receivables, and incidental and
consequential damages, including, among others, loss of design
and development costs, costs of unused or specially purchased
inventory and lost profits. Such action was subsequently removed
to the United States District Court for the Middle District of
Florida. On July 21, 1995, Epson filed a counterclaim citing
damages in excess of $52 million for, among other things, breach
of contract and negligent misrepresentation. The Company
mitigated damages arising from Epson's breach by selling
notebook computers to an electronics distributor. Epson contends
that the Jabil computer manual furnished with these computers
infringed certain Epson copyrights. The Company expects
discovery to conclude during the fourth quarter of fiscal 1996
and the trial to commence later in the 1996 calendar year.
8
The parties have been unsuccessful in mediating or arbitrating
their dispute, despite participation in multiple mediation and
non-binding arbitration sessions. The Company intends to pursue
aggressively its legal claims and contest vigorously Epson's
counterclaims. The Company believes strongly in the validity of
its claims and believes that any potential exposure to the Company
is substantially less than the $52 million claimed by Epson.
However, such litigation may result in substantial costs and
diversion of resources and, given the uncertainties inherent
in litigation, could have a material adverse effect on the Company's
operating results and financial condition, if decided adversely to
the Company.
9
JABIL CIRCUIT, INC. AND SUBSIDIARIES
THIS MANAGEMENT'S DICSUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS CONTAINS TREND ANALYSIS AND A NUMBER OF FORWARD LOOKING
STATEMENTS. THESE STATEMENTS ARE BASED ON CURRENT EXPECTATIONS AND ACTUAL
RESULTS MAY DIFFER MATERIALLY. AMONG THE FACTORS WHICH COULD CAUSE ACTUAL
RESULTS TO VARY ARE THOSE DESCRIBED IN "BUSINESS FACTORS" BELOW.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following table sets forth, for the three months and nine
months ended May 31, 1995 and May 31, 1996, certain items as a
percentage of net revenue. The table and the discussion and
analysis that follows should be read in conjunction with the
consolidated financial statements and notes thereto that appear
on pages 3 through 7 of this report.
Three months ended Nine months ended
------------------ -----------------
May 31, May 31, May 31, May 31,
1995 1996 1995 1996
Net revenue 100.0% 100.0% 100.0% 100.0%
Cost of revenue 94.1% 91.6% 93.6% 92.2%
Gross profit 5.9% 8.4% 6.4% 7.8%
Operating expenses:
Selling, general and administrative 3.4% 3.0% 3.7% 2.6%
Research and development 0.3% 0.3% 0.4% 0.2%
Operating income 2.2% 5.1% 2.3% 5.0%
Interest expense 1.1% 0.8% 1.2% 1.0%
Income before income taxes 1.1% 4.3% 1.1% 4.0%
Income taxes 0.2% 1.5% 0.5% 1.4%
Net income 0.9% 2.8% 0.6% 2.6%
10
The Company's net revenue for the third quarter and first nine
months of fiscal 1996 increased 65.9% and 94.6% to $220 million
and $689 million respectively from $132 million and $354 million
in the third quarter and first nine months of fiscal 1995.
These increases were due primarily to increased demand from
established customers. Foreign source revenue represented 28%
and 33% of net revenue for the third quarter and first nine
months of fiscal 1996, compared to 25% and 14% for the same
periods of fiscal 1995. Quarterly and year to date increases in
foreign sales are attributable to increased sales from the
Company's foreign operations in Scotland and Malaysia along with
increased exports to customer's foreign sites.
Gross margin increased to 8.4% and 7.8% for the third quarter
and first nine months of fiscal 1996 from 5.9% and 6.4% for the
comparable periods of fiscal 1995. This increase was primarily
a result of increased utilization of the Company's domestic and
foreign manufacturing facilities. Additionally, 1995 third
quarter and year to date margins were reduced by the effect of
valuation reserves related to the Epson project which reduced
gross margins 2.0% and 1.1% of revenues, respectively.
Selling, general and administrative expenses decreased to 3.0%
and 2.6% in the third quarter and first nine months of fiscal
1996 compared to 3.4% and 3.7% in the same periods of fiscal
year 1995. In absolute dollars, these expenses increased over
the comparable periods of fiscal 1995 by $2.1 million and $5.0
million due to increases in certain variable expenses including
increased staffing to support increased revenue levels, the
addition of the Company's Malaysia operation, and certain
non-recurring costs associated with the private placement of
debt.
Research and development expenses of 0.3% in the third quarter
were consistent as a percentage of net revenue with those in
fiscal 1995 while decreasing for the first nine months of fiscal
1996 to 0.2% as compared to 0.3% for the same period of fiscal
1995. In absolute dollars, the expenses were up slightly in
fiscal 1996 due to the expansion of circuit design activities.
Interest expense increased $0.2 million and $2.5 million,
respectively in the third quarter and first nine months of
fiscal 1996 to $1.8 million and $6.8 million from $1.5 million
and $4.3 million in the comparable periods of fiscal 1995. This
increase was due to additional short-term and long-term
borrowings required to support the Company's increased
activities, international expansion, and to a lesser extent,
higher effective interest rates.
11
The Company's effective tax rate increased to 35.1% for the
third quarter of fiscal 1996 from 14.4% in fiscal 1995. The
lower effective rate in the third quarter of fiscal 1995 was a
result of the utilization of loss carryforwards against the
income of the Company's foreign subsidiary in Scotland. The
effective rate for the first nine months of fiscal 1996 was
35.6% as compared to 42.4% for the first nine months of fiscal
1995. This rate difference was primarily due to net operating
losses at the Company's foreign subsidiary in Scotland which
could not be utilized to offset other Company earnings for U.S.
income tax purposes in the first nine months of fiscal 1995. The
effective tax rate for fiscal 1996 was slightly above the U.S.
regulatory rate of 35% due to domestic state income taxes which
were slightly offset by lower effective tax rates at the
Company's foreign subsidiaries.
Liquidity and Capital Resources
At May 31, 1996 the Company's principal sources of liquidity
consisted of cash and available borrowings under the Company's
credit facilities. The Company and its subsidiaries have
committed line of credit facilities in place with a syndicate of
banks that provide up to $60 million of working capital
borrowing capacity.
The Company generated $50.4 million of cash in operating
activities for the nine months ended May 31, 1996. This increase
in cash was primarily due to decreases in inventories of $32.3
million and accounts receivable of $17.8 million, depreciation
and amortization of $12.9 million and net income of $17.8
million offset by a decrease in accounts payable of $28.8
million.
Net cash used in investing activities of $23.2 million for the
nine months ended May 31, 1996 was a result of the Company's
capital expenditures for equipment at both domestic and foreign
operations in order to support increased activities.
12
The company used $4.7 million of cash in financing activities
for the nine months ended May 31, 1996. This was attributable
to a $73 million reduction in borrowings under the company's
line of credit facilities and a $30.8 million reduction in
certain long term debt offset by $39.8 million received from the
Company's secondary public offering completed November 3, 1995
and $ 59.9 million in proceeds from long term debt. At May 31,
1996 there were no borrowings under the working capital facility
versus $73.0 million at August 31, 1995.
In May 1996 , the Company completed a private placement of $50
million Senior Notes due 2004.
At May 31, 1996, borrowing capacity of $60.0 million was
available under the working capital facility which expires in
1998.
The Company believes that funds provided by operations and
available under the credit agreements combined with trade credit
from its vendors and proceeds from the secondary public
offering and debt financing will be sufficient to satisfy its
currently anticipated working capital and capital expenditure
requirements for the next twelve months.
Business Factors
Due to the nature of turnkey manufacturing and the Company's
relatively small number of customers, the Company's quarterly
operating results are affected by the levels and timing of
orders; the level of capacity utilization of its manufacturing
facilities and associated fixed costs; fluctuations in materials
costs; and by the mix of materials costs versus manufacturing
costs. Similarly, operating results are affected by price
competition; level of experience in manufacturing a particular
product; degree of automation used in the assembly process;
efficiencies achieved by the Company in managing inventories and
fixed assets; timing of expenditures in anticipation of
increased sales; customer product delivery requirements; and
shortages of components or labor. In the past, some of the
Company's customers have terminated their manufacturing
arrangement with the Company, and other customers have
significantly reduced or delayed the volume of manufacturing
services ordered from the Company. Any such termination of a
manufacturing relationship or change, reduction or delay in
orders could have an adverse affect of the Company's results of
operations.
13
In particular, Quantum Corporation announced in January 1996
the cancellation of orders to Jabil for the manufacture of
subassemblies for its high end disk drive products. This
cancellation is expected to have an adverse impact on the
Company's Malaysian plant over the next quarter. In light of
this event and uncertain general industry conditions for the
second half of calendar 1996 for computer equipment
manufacturers, the Company's management intends to closely
monitor manufacturing costs and to maintain flexibility in order
to respond to changing business conditions and uncertainty.
There can be no assurance that these events plus changing
business conditions and uncertainties will not have an adverse
effect on the Company's results of operations or financial
condition.
Litigation
During the 1993 and 1994 fiscal years, the Company and Epson
America, Inc. ("Epson") entered into serveral written and oral
agreements and purchase orders providing for the joint development
by the parties, and manufacture by the Company, of notebook computers
pursuant to specifications provided by Epson. Pursuant to the parties'
agreements, the Company procured materials for production. The Company
contends that Epson breached the agreement by refusing to honor its
purchase commitments citing production delays resulting from the
unavailability of certain components and defects in certain materials
supplied to the Company. On December 23, 1994, the Company instituted
a breach of contract action against Epson in the Circuit Court of the
Sixth Judicial Circuit of the State of Florida, requesting certain
specified and unspecified monetary damages, including damages in an
amount equal to $6,278,282, representing unpaid receivables, and
incidental and consequential damanges, including, among others, loss
of design and development costs, costs of unused or specially purchased
inventory and lost profits. Such action was subsequently removed to
the United States District Court for the Middle District of Florida.
On July 21, 1995, Epson filed a counterclaim citing damages in excess
of $52 million for, among other things, breach of contract and negligent
misrepresention. The Company mitigated damages arising from Epson's
breach by selling notebook computers to an electronics distributor.
Epson contends that the Jabil computer manual furnished with these
computers infringed certain Epson copyrights. The Company expects
discovery to conclude during the second quarter of fiscal 1996 and
the trial to commence later in 1996 calendar year. The parties have
been unsuccessful in mediating or arbitrating their dispute, despite
participation in multiple mediation and non binding arbitration
sessions. The Company intends to pursue aggressively its legal claims
and contest vigorously Epson's counterclaims. The Company believes
strongly in the validity of its claims and believes that any potential
exposure to the Company is substantially less than the $52 million
claimed by Epson.However, such litigation may result in substatial
costs and diversion of resources and, given the uncertainties inherent
in litigation, could have a material adverse effect on the Company's
operating results and financial condition, if decided adversely to
the Company.
14
JABIL CIRCUIT, INC. AND SUBSIDIARIES
Part II - OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
10.53 Note purchase agreement and notes dated May 30, 1996,
between the registrant , certain lenders and NBD Bank as
collateral agent.
10.54 Loan agreementdated May 30, 1996, between registrant and
certain banks and NBD Bank as agent for the banks.
11.1 Statement re Computation of Net Income per Share
(b) Form 8-K
No Reports on Form 8-K were filed by the Registrant
during the quarter ended May 31, 1995.
15
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Jabil Circuit, Inc.
-------------------
Registrant
Date: 7/12/96 /s/ Thomas A. Sansone
---------------------
Thomas A. Sansone
President
Date: 7/12/96 /s/ Ronald J. Rapp
----------------------
Ronald J. Rapp
Chief Financial Officer