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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended November 30, 1999.
[ ] 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.
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(Exact name of registrant as specified in its charter)
DELAWARE 38-1886260
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10560 Ninth Street North
St. Petersburg, FL 33716
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(Address of principal executive offices, including zip code)
Registrant's Telephone No., including area code: (727) 577-9749
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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 January 5, 2000, there were 86,865,711 shares of the
Registrant's Common Stock outstanding.
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JABIL CIRCUIT, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at
August 31, 1999 and November 30, 1999................................ 3
Consolidated Statements of Earnings for the three months
ended November 30, 1998 and 1999......................................4
Consolidated Statements of Comprehensive Income for the
three months ended November 30, 1998 and 1999.........................5
Consolidated Statements of Cash Flows
for the three months ended November 30, 1998 and 1999.................6
Notes to Consolidated Financial Statements............................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.........................11
Item 3. Quantitative and Qualitative Disclosure About
Market Risk...........................................................14
PART II. OTHER INFORMATION
Item 2. Changes in Securities.................................................14
Item 6. Exhibits and Reports on Form 8-K......................................14
Signatures............................................................15
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PART I. FINANCIAL INFORMATION
JABIL CIRCUIT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
August 31, November 30,
1999 1999
----------- ------------
ASSETS
Current assets
Cash and cash equivalents $ 125,949 $ 43,254
Short-term investments 27,176 4,870
Accounts receivable - Net 261,078 318,647
Inventories 217,840 299,477
Prepaid expenses and other current assets 14,794 22,765
Deferred income taxes 13,896 13,500
----------- -----------
Total current assets 660,733 702,513
Property, plant and equipment, net 353,522 396,295
Other assets 20,786 39,940
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$ 1,035,041 $ 1,138,748
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current installments of long term debt $ 9,610 $ 8,333
Short-term debt 21,501 1,588
Accounts payable 300,093 384,571
Accrued expenses 59,186 62,648
Income taxes payable 20,511 15,141
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Total current liabilities 410,901 472,281
Long term debt, less current installments 34,712 33,333
Deferred income taxes 10,199 21,276
Deferred grant revenue 1,798 3,731
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Total liabilities 457,610 530,621
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Stockholders' equity
Common stock 87 87
Additional paid-in capital 296,396 300,929
Retained earnings 281,166 307,654
Cumulative translation adjustment (218) (543)
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Total stockholders' equity 577,431 608,127
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$ 1,035,041 $ 1,138,748
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See Accompanying Notes to Consolidated Financial Statements
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JABIL CIRCUIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except for per share data)
(Unaudited)
Three months ended
November 30,
-----------------------------
1998 1999
--------- ---------
Net revenue $ 495,115 $ 689,822
Cost of revenue 440,420 616,435
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Gross profit 54,695 73,387
Operating expenses:
Selling, general and administrative 20,825 27,051
Research and development 1,457 1,182
Amortization of intangibles 357 599
Acquisition-related charge -- 5,153
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Operating income 32,056 39,402
Interest income (329) (1,180)
Interest expense 1,929 565
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Income before income taxes 30,456 40,017
Income taxes 10,440 13,529
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Net income $ 20,016 $ 26,488
========= =========
Earnings per share:
Basic $ 0.25 $ 0.30
========= =========
Diluted $ 0.24 $ 0.29
========= =========
Common shares used in the calculations
of earnings per share:
Basic 79,689 87,410
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Diluted 82,778 91,389
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See Accompanying Notes to Consolidated Financial Statements
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JABIL CIRCUIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, except for per share data)
(Unaudited)
Three months ended
November 30, 1999
--------------------------
1998 1999
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Net Income $ 20,016 $ 26,488
Other comprehensive income (loss):
Foreign currency translation adjustments -- (325)
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Comprehensive income $ 20,016 $ 26,163
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See Accompanying Notes to Consolidated Financial Statements
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JABIL CIRCUIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Three months ended
November 30,
-----------------------------
1998 1999
--------- ---------
Cash flows from operating activities:
Net income $ 20,016 $ 26,488
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 12,964 23,006
Recognition of grant revenue (201) (317)
Deferred income taxes 1,895 11,473
Loss on sale of property 700 219
Changes in operating assets and liabilities:
Accounts receivable (53,763) (54,384)
Inventories (24,820) (78,297)
Prepaid expenses and other current assets (2,130) (7,938)
Other assets 240 (1,011)
Accounts payable and accrued expenses 66,116 85,435
Income taxes payable 5,583 (5,370)
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Net cash provided (used) by operating activities 26,600 (696)
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Cash flows from investing activities:
Net cash paid for business acquisition -- (27,386)
Acquisition of property, plant and equipment (35,792) (61,884)
Proceeds from sale of property and equipment 218 750
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Net cash used in investing activities (35,574) (88,520)
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Cash flows from financing activities:
Repayment of note payable to bank (256) (19,913)
Payments of long-term debt (1,674) (2,656)
Sale of short-term investments -- 22,306
Net proceeds from issuance of common stock 141 4,533
Proceeds from Scottish grant 395 2,251
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Net cash provided (used) by financing activities (1,394) 6,521
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Net increase (decrease) in cash and cash equivalents (10,368) (82,695)
Cash and cash equivalents at beginning of period 28,897 125,949
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Cash and cash equivalents at end of period $ 18,529 $ 43,254
========= =========
See Accompanying Notes to Consolidated Financial Statements
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JABIL CIRCUIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements of Jabil Circuit,
Inc. and subsidiaries 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,
1999 contained in our 1999 annual report on Form 10-K. In our opinion, the
accompanying consolidated financial statements include all adjustments,
consisting of only 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 three-month period ended November 30, 1999
are not necessarily indicative of the results that should be expected for a
full fiscal year.
EARNINGS PER SHARE
The following table sets forth the calculation of basic and diluted
earnings per share (in thousands, except per share data):
Three months ended
In thousands November 30,
1998 1999
-------------------------
Net income $20,016 $26,488
Weighted-average shares-Basic 79,689 87,410
Effect of dilutive securities:
Employee stock options 3,089 3,979
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Weighted-average shares -Diluted 82,778 91,389
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Basic EPS $ 0.25 $ 0.30
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Diluted EPS $ 0.24 $ 0.29
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For the three-month periods ended November 30, 1998 and 1999, options
to purchase 80,000 and 198,690, respectively, shares of common stock were
outstanding during the period but were not included in the computation of
diluted earnings per share because the options' exercise prices were
greater than the average market price of the common shares, and therefore,
their effect would be antidilutive.
COMMITMENTS AND CONTINGENCIES
We were named as a defendant, along with 87 other companies engaged in
the electronics and other industries, in a patent infringement lawsuit
filed by the Lemelson Medical, Education & Research Foundation Limited
Partnership ("Lemelson") in the U.S. District Court for the District of
Arizona on February 26, 1999. The defendants include certain of our
suppliers, customers and competitors. The complaint alleges that Jabil and
the other defendants are each infringing upon as many as 18 patents held by
Lemelson relating to the defendants' manufacturing processes and products.
The complaint seeks to enjoin the defendants from further alleged acts of
infringement, an unspecified amount of damages to compensate Lemelson for
alleged past infringement, together with interest and costs, such damages
to be trebled due to alleged willful infringement, reasonable attorney's
fees, and such other relief that the court may award. We, along with
several other defendants, jointly hired legal counsel to represent us in
the litigation and filed an answer to the complaint denying the substantive
allegations in the complaint and raising various affirmative defenses.
Lemelson has offered to license the patents alleged to be infringed. Based
on our understanding of the terms that Lemelson has made available to
certain licensees, we believe that obtaining a license from Lemelson under
the same or similar terms would not have a material adverse effect on our
results of operations or financial condition. We have not yet determined,
however, whether to seek such a license, and we cannot assure you that, if
sought, we would be offered the same or similar terms or that the ultimate
resolution of this matter will not have a material adverse effect on us.
We are party to certain other lawsuits in the ordinary course of
business. We do not believe that these proceedings, individually or in
aggregate, are material or that any adverse outcomes of these lawsuits will
have a material adverse effect on our financial position or results of
operations.
NEW ACCOUNTING PRONOUNCEMENTS
Statement 133 - Accounting for Derivative Instruments and Hedging
Activities. Statement 133 establishes methods of accounting for derivative
financial instruments and hedging activities related to those instruments
as well as other hedging activities. We are currently evaluating this
Statement and have yet to form an opinion on whether its adoption will have
any significant impact on our consolidated financial statements. We will be
required to implement Statement 133 for our fiscal year ending August 31,
2001.
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NOTE 2. BUSINESS COMBINATIONS
On September 1, 1999 we acquired, through our Jabil Global Services
subsidiary, the net assets of EFTC Services, Inc., an electronic product
service and repair business. Jabil Global Services continues to offer
repair and warranty services for existing and future customers from its
hub-based operations in Memphis, Tennessee; Louisville, Kentucky; and
Tampa, Florida. The purchase price of approximately $27 million was paid in
cash. The acquisition was accounted for as a purchase and resulted in
approximately $18 million of goodwill, which is being amortized on a
straight-line basis over a period of 15 years. The consolidated financial
statements include the operating results of the acquired business from the
date of acquisition. Pro forma results of operations have not been
presented because the effect of the acquisition was not material.
On September 13, 1999 we issued approximately 5.6 million shares of
our common stock for all the outstanding common stock of GET Manufacturing,
Inc., a China-based electronics manufacturing services provider. In
connection with the merger we recorded a one-time acquisition-related
charge of $5.2 million ($4.7 million after-tax) consisting of key employee
severance and legal and professional fees associated with the merger.
Substantially all of the costs have been incurred by November 30, 1999. The
business combination was accounted for as a pooling-of-interests and,
accordingly, our historical consolidated financial statements presented
herein have been restated to include the accounts and results of operations
of GET Manufacturing, Inc. There were no significant adjustments to conform
GET Manufacturing, Inc.'s methods of accounting with that of Jabil Circuit,
Inc. In addition, there were no transactions between the two companies
prior to the combination.
A reconciliation of the previously reported results for the three months
ended November 30, 1998 to the results in this form 10-Q is as follows (in
thousands):
Three months ended November 30, 1998
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As previously reported GET Manufacturing, Inc. As restated
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Net revenue $447,941 47,174 $495,115
Net income $ 19,286 730 $ 20,016
NOTE 3. BALANCE SHEET DETAIL
The components of inventories consist of the following:
In thousands August 31, November 30,
1999 1999
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Finished goods $ 29,192 $ 47,602
Work-in-process 30,728 38,900
Raw materials 157,920 212,975
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$217,840 $299,477
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NOTE 4. SEGMENT INFORMATION
We derive our revenue from providing manufacturing services to major
electronic OEM's on a contract basis. Operating segments consist of our
manufacturing locations. The services provided, the manufacturing
processes, class of customers and the order fulfillment process is similar
and generally interchangeable across manufacturing locations. We have
aggregated our operating segments into the Electronic Manufacturing
Services segment.
The following table sets forth segment information (in thousands):
Three Months Ended
November 30,
1998 1999
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Net revenue $495,115 $689,822
Income before income tax $ 33,504 $ 53,934
Corporate allocations (3,048) (13,917)
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$ 30,456 $ 40,017
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August 31, November 30,
1999 1999
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Long-lived assets $332,751 $436,235
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JABIL CIRCUIT, INC. AND SUBSIDIARIES
We make "forward-looking statements" within the "safe harbor"
provision of the Private Securities Litigation Reform Act of 1995 throughout
this Quarterly Report on Form 10-Q and in the documents we incorporate by
reference herein. You can identify these statements by forward-looking words
such as "may," "will," "expect," "anticipate," "believe," "estimate," "plan"
and "continue" or similar words. We have based these statements on our current
expectations about future events. Although we believe that our expectations
reflected in or suggested by our forward-looking statements are reasonable, we
cannot assure you that these expectations will be achieved. Our actual results
may differ materially from what we currently expect. Important factors which
could cause our actual results to differ materially from the forward-looking
statements in this document are set forth in the following "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this document and the "Factors Affecting Future Results" section
in our Annual Report on Form 10-K for the fiscal year ended August 31, 1999
filed with Securities and Exchange Commission.
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
All prior year historical financial information has been restated to
reflect the merger with GET Manufacturing, Inc. in the first fiscal quarter
of 2000 which was accounted for as a pooling of interests.
Our net revenue for the first quarter of fiscal 2000 increased 39% to
$690 million from $495 million in the first quarter of fiscal 1999. This
increase from the previous fiscal year was primarily due to increased
production of communications and personal computer products. Foreign source
revenue represented 44% of net revenue for the first quarter of fiscal 2000
compared to 39% for the same period of fiscal 1999. The increase in foreign
source revenue was attributable to increased production at our
international locations.
Gross margin decreased to 10.6% for the first quarter of fiscal 2000
from 11.0% for the same period of fiscal 1999 reflecting a higher content
of material-based revenue and underutilization of assets in certain
international factories.
Selling, general and administrative expenses in the first quarter of
fiscal 2000 decreased to 3.9% of net revenue compared to 4.2% in the prior
fiscal year, while increasing in absolute dollars from $20.8 million in the
first quarter of fiscal 1999 to $27.1 million in the first quarter of
fiscal 2000. The dollar increases were primarily due to increased staffing
and related departmental expenses at all our locations as well as increased
information systems staff to support the expansion of our business.
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Research and development expenses decreased to 0.2% of net revenue for
the first quarter of fiscal 2000 as compared to 0.3% for the same period of
fiscal 1999. In absolute dollars, the expenses decreased approximately $0.3
million versus the same period of fiscal 1999.
Amortization of intangibles remained a constant 0.1% of sales, while
increasing from $0.4 million to $0.6 million. This increase is attributable
to the $18 million of goodwill resulting from the EFTC Services, Inc
acquisition. We are amortizing the goodwill on a straight-line basis over
fifteen years.
During the first quarter of fiscal 2000, we completed a merger with
GET Manufacturing, Inc. and recorded a one-time acquisition-related charge
of $5.2 million ($4.7 million after-tax) consisting of key employee
severance and legal and professional fees associated with the merger.
Interest income increased approximately $0.9 million in the first
quarter of fiscal 2000 to $1.2 million as compared to $0.3 million in the
first quarter of fiscal 1999 as a result of increased cash on hand.
Interest expense decreased approximately $1.4 million in the first
three months of fiscal 2000 to $0.6 million as compared to $1.9 million in
the first three months of fiscal 1999 as result of the principal payment on
our private placement debt of approximately $8.3 million made in the fourth
quarter of fiscal 1999 and decreased borrowings to support working capital
needs.
Our effective tax rate decreased to 33.8% in the first quarter of
fiscal 2000 from 34.3% in the first quarter of fiscal 1999. The tax rate is
predominantly a function of the mix of domestic versus international income
from operations. Our international operations are being taxed at a lower
rate than in the United States, primarily due to the tax holiday granted to
our Malaysian subsidiary.
BUSINESS FACTORS
Due to the nature of turnkey manufacturing and our relatively small
number of customers, our quarterly operating results are affected by the
level and timing of orders, the level of capacity utilization of our
manufacturing facilities and associated fixed costs, fluctuations in
material costs, and by the mix of material 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 we achieve 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 our customers
have terminated their manufacturing arrangement with us, and other
customers have significantly reduced or delayed the volume of manufacturing
services ordered from us. Any such termination of a manufacturing
relationship or change, reduction or delay in orders could have an adverse
effect on our results of operations.
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LIQUIDITY AND CAPITAL RESOURCES
At November 30, 1999, our principal sources of liquidity consisted of
cash and available borrowings under our credit facilities. We have
committed line of credit facilities in place with a syndicate of banks that
provide up to $225 million of working capital borrowing capacity. As of
November 30, 1999, we were not utilizing our revolving credit facility.
We used $0.7 million of cash in operating activities for the three
months ended November 30, 1999. The use of cash was primarily due to an
increase in inventories of $78.3 million, an increase of $54.4 million in
accounts receivable, offset by net income of $26.5 million, depreciation
and amortization of $23.0 million, and increases in accounts payable and
accrued expenses of $85.4 million.
Net cash used in investing activities of $88.5 million for the three
months ended November 30, 1999 consisted of our capital expenditures of
$61.9 million for equipment worldwide in order to support increased
activities and cash paid in the EFTC Services, Inc. acquisition of $27.4
million.
On September 13, 1999 we issued approximately 5.6 million shares of
our common stock for all the outstanding common stock of GET Manufacturing,
Inc., a China-based electronics manufacturing services provider.
We believe that cash on-hand, funds provided by operations and
available borrowings under the credit facility will be sufficient to
satisfy our currently anticipated working capital and capital expenditure
requirements for the next twelve months.
"YEAR 2000" READINESS
We are continuing to actively take steps to ensure that our global
information technology infrastructure and business system applications,
manufacturing equipment and systems are Year 2000 compliant. While not all
possible Year 2000-date related disruption scenarios have been experienced,
and there is a possibility of disruptions in the future, through the date
of this report, we have not experienced material disruption or other
significant problems. We are continuing to evaluate and mitigate our
exposure where appropriate.
We are unable to fully determine the effect of a failure of our own
systems or those of third parties with whom we do business, but any
significant failures could have a material adverse effect on our financial
position, results of operations and cash flows.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our market risk during the
three months ended November 30, 1999. Market risk information is contained
under the caption "Quantitative And Qualitative Disclosures About Market
Risk" of our 1999 Annual Report on Form 10-K for the fiscal year ended
August 31, 1999 and is incorporated herein by reference.
PART II - OTHER INFORMATION
ITEM 2: CHANGES IN SECURITIES
On September 13, 1999, we completed the acquisition of 100% of the
voting common stock of GET Manufacturing, Inc., a corporation organized
under the laws of the British Virgin Islands, through the issuance of
approximately 5.6 million shares of our common stock. The acquisition was
made pursuant to an agreement and plan of merger between the us, JG
Acquisition, Inc., a Michigan corporation and a wholly-owned subsidiary of
ours, GET Manufacturing, Inc., and Mr. Shin Fang. The 5.6 million shares of
common stock issued by us in exchange for 100% of the voting common stock
of GET was not registered under the Securities Act of 1933, as amended, in
reliance upon an exception provided by Rule 506 of Regulation D and/or
Regulation S promulgated under the Securities Act of 1933, as amended (the
"Act") and/or Section 4(2) of the Act, and applicable state securities
laws.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule.
(b) Reports on Form 8-K
1. September 28, 1999, November 29, 1999,
and December 10, 1999 regarding the GET
Manufacturing merger.
2. December 20, 1999 regarding financial
results for the first quarter of fiscal
2000.
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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 Circuit, Inc.
Registrant
Date: January 14, 2000 By: /s/ Timothy L. Main
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Timothy L. Main
President
Date: January 14, 2000 By: /s/ Chris A. Lewis
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Chris A. Lewis
Chief Financial Officer
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