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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 May 31, 1998.
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 June 30, 1998, there were 37,185,048 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, 1997 and May 31, 1998.................................. 3
Consolidated Statements of Earnings for the three months
and nine months ended May 31, 1997 and 1998....................... 4
Consolidated Statements of Cash Flows
for the nine months ended May 31, 1997 and 1998................... 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.................................. 11
Signatures........................................................ 11
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PART I. FINANCIAL INFORMATION
JABIL CIRCUIT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
August 31, May 31,
1997 1998
------------- --------------
(Unaudited)
ASSETS
Current assets
Cash $ 45,457 $ 43,348
Accounts receivable - Net 116,987 123,863
Inventories 96,187 83,651
Prepaid expenses and other current assets 776 1,532
Deferred income taxes 6,591 6,046
------------ --------------
Total current assets 265,998 258,440
Property, plant and equipment, net 139,520 185,880
Other assets 385 1,097
------------ -------------
$ 405,903 $ 445,417
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current installments of long term debt $ 2,475 $ 8,333
Accounts payable 125,741 100,232
Accrued expenses 34,248 35,252
Income taxes payable 6,186 7,171
------------ -------------
Total current liabilities 168,650 150,988
Long term debt, less current installments 50,000 41,667
Deferred income taxes 3,663 3,824
Deferred grant revenue 2,105 2,429
------------ -------------
Total liabilities 224,418 198,908
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Stockholders' equity
Common stock 37 37
Additional paid-in capital 61,632 70,165
Retained earnings 119,816 176,307
------------ -------------
Total stockholders' equity 181,485 246,509
$ 405,903 $ 445,417
============ =============
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 Nine months ended
May 31, May 31,
---------------------------- -----------------------
1997 1998 1997 1998
---------- ----------- -------- --------
Net revenue $247,637 $309,599 $672,894 $959,799
Cost of revenue 215,603 269,826 591,292 834,621
-------- -------- -------- --------
Gross profit 32,034 39,773 81,602 125,178
Operating expenses:
Selling, general and administrative 9,252 12,941 24,897 36,876
Research and development 723 1,065 2,232 2,856
-------- -------- -------- --------
Operating income 22,059 25,767 54,473 85,446
Interest expense, net 406 722 1,453 2,569
-------- -------- -------- --------
Income before income taxes 21,653 25,045 53,020 82,877
Income taxes 7,081 7,764 18,561 26,386
-------- -------- -------- --------
Net income $ 14,572 $ 17,281 $ 34,459 $ 56,491
======== ======== ======== ========
Basic earnings per share $ 0.40 $ 0.46 $ 0.95 $ 1.52
======== ======== ======== ========
Diluted earnings per share $ 0.38 $ 0.45 $ 0.90 $ 1.46
======== ======== ======== ========
Common shares used in the calculations
of basic earnings per share 36,503 37,167 36,118 37,089
======== ======== ======== ========
Common and common equivalent shares
used in the calculations of diluted
earnings per share 38,392 38,615 38,201 38,618
======== ======== ======== ========
See Accompanying Notes to Consolidated Financial Statements
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JABIL CIRCUIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For the nine months
ended May 31,
------------------------
1997 1998
--------- ---------
Cash flows from operating activities:
Net income $ 34,459 56,491
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 16,211 23,545
Recognition of grant revenue (1,518) 324
Deferred income taxes (2,438) 706
(Gain) loss on sale of property 430 638
Changes in operating assets and liabilities:
Accounts receivable (10,357) (6,876)
Inventories (32,075) 12,536
Prepaid expenses and other current assets (146) (756)
Other assets (194) (721)
Accounts payable and accrued expenses 39,643 (16,406)
-------- --------
Net cash provided by operating activities 44,015 69,481
-------- --------
Cash flows from investing activities:
Acquisition of property, plant and equipment (63,143) (70,862)
Proceeds from sale of property and equipment 377 328
-------- --------
Net cash used in investing activities (62,766) (70,534)
-------- --------
Cash flows from financing activities:
Increase in note payable to bank 3,227 --
Payments of long-term debt (3,913) (2,475)
Payments of capital lease obligations (1,586) --
Net proceeds from issuance of common stock 3,213 1,419
Proceeds from Scottish grant 922 --
-------- --------
Net cash provided (used) by financing activities 1,863 (1,056)
-------- --------
Net increase (decrease) in cash (16,888) (2,109)
Cash at beginning of period 73,319 45,457
-------- --------
Cash at end of period $ 56,431 $ 43,348
======== ========
Non-cash transactions:
Tax benefit of options exercised $ 1,103 $ 7,114
======== ========
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 ("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, 1997 contained in the Company's
1997 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, 1998 are not necessarily indicative of the results that should be
expected for a full fiscal year.
EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standards No. 128
(SFAS 128), "Earnings per Share," in the second quarter of fiscal 1998.
Under SFAS 128, the Company presents two earnings per share (EPS)
amounts. Basic EPS is calculated based on net earnings available to
common shareholders and the weighted-average number of shares
outstanding during the reported period. Diluted EPS includes additional
dilution from potential common stock, such as stock issuable pursuant
to the exercise of stock options outstanding. All earnings per share
amounts for all periods have been presented, and where necessary,
restated to conform to the Statement 128 requirements.
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In thousands Three months ended Nine months ended
May 31, May 31,
1997 1998 1997 1998
--------- ------- ------- -------
Numerator:
Net income $14,572 $17,281 $34,459 $56,491
Denominator:
Denominator for basic EPS-
weighted-average shares 36,503 37,167 36,118 37,089
Effect of dilutive securities:
Employee stock options 1,889 1,448 2,083 1,529
----------------------------------------------------
Denominator for diluted EPS-adjusted
weighted-average shares 38,392 38,615 38,201 38,618
====================================================
Basic EPS $ 0.40 $ 0.46 $ 0.95 $ 1.52
====================================================
Diluted EPS $ 0.38 $ 0.45 $ 0.90 $ 1.46
====================================================
For the three-month and nine-month periods ended May 31, 1998, options
to purchase 60,000 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, the effect
would be antidilutive. For the three-month and nine-month periods ended
May 31, 1997, 40,000 and 42,000, respectively, antidilutive options
existed.
COMMITMENTS AND CONTINGENCIES
At May 31, 1998, the Company had approximately $25 million in new
facility and equipment purchase commitments outstanding.
The Company is party to certain lawsuits in the ordinary course of
business. Management does 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 the Company's
financial statements.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income. Statement 130
establishes standards for reporting comprehensive income. The Statement
defines comprehensive income as the change in equity of an enterprise
except those resulting from shareholder transactions. All components of
comprehensive income are required to be reported in a new financial
statement that is displayed with equal prominence as existing financial
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statements. The Company will be required to adopt this statement
September 1, 1998. As the Statement addresses reporting and
presentation issues only, there will be no impact on earnings from its
adoption.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, Disclosures About Segments of an Enterprise and
Related Information. Statement 131 establishes standards for related
disclosures about the products and services, geographic areas, and
major customers of an enterprise. The Company will be required to adopt
this Statement for financial statements for the fiscal year ending
August 31, 1998. As this Statement addresses reporting and disclosure
issues only, there will be no impact on earnings from its adoption.
NOTE 2. PROPOSED ACQUISITION
In May 1998, The Company signed a Memorandum of Understanding with
Hewlett-Packard Company to acquire HP's Laserjet Solutions Group
Formatter Manufacturing Organization (FMO). Under the terms of the
memorandum, the Company will acquire the printed-circuit assembly
assets of the FMO operations in Boise, Idaho and Bergamo, Italy and
offer employment to the 600 employees of those operations. The closing
is subject to the completion of due diligence and other terms and
conditions and is expected to be completed in August 1998.
NOTE 3. BALANCE SHEET DETAIL
The components of inventories consist of the following:
In thousands August 31, May 31,
1997 1998
---------- ------
(Unaudited)
Finished goods 5,594 5,222
Work-in-process 15,160 17,616
Raw materials 75,433 60,813
------ ------
96,187 83,651
====== ======
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JABIL CIRCUIT, INC. AND SUBSIDIARIES
This Management's Discussion 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 Company's net revenue for the third quarter and first nine months
of fiscal 1998 increased 25% and 43% to $310 million and $960 million,
respectively from $248 million and $673 million in the third quarter and first
nine months of fiscal 1997. This increase from the previous fiscal year was
primarily due to increased production of communications and computer peripherals
products. Foreign source revenue represented 33% of net revenue for the third
quarter and first nine months of fiscal 1998 compared to 26% and 31%,
respectively, for the same periods of fiscal 1997. The increase in foreign
source revenue was attributable to increased production at the Company's foreign
locations.
Gross margin decreased to 12.8% for the third quarter of fiscal 1998
from 12.9% for the same period of fiscal 1997, reflecting a comparable business
mix from the prior year. Gross margin increased to 13.0% for the first nine
months of fiscal 1998 as compared to 12.1% for the same period of the prior
fiscal year. This increase resulted from a shift in product mix to higher
value-added products.
Selling, general and administrative expenses in the third quarter of
fiscal 1998 increased to 4.2% of net revenue compared to 3.7% in the prior
fiscal year, while increasing in absolute dollars from $9.3 million in fiscal
1997 to $12.9 million in fiscal 1998. Selling, general and administrative
expenses increased to 3.8% of net revenue in the first nine months of fiscal
1998 from 3.7% as compared with the same period of the prior fiscal year, while
increasing in absolute dollars from $24.9 million in fiscal 1997 to $36.9
million in fiscal 1998. The dollar increases were primarily due to increased
staffing and related departmental expenses at all the Company's locations along
with increased information systems staff to support the expansion of the
Company's business.
Research and development expenses remained a constant 0.3% of net
revenue for the third quarter and first nine months of fiscal 1998 as compared
to the same periods of fiscal 1997. In absolute dollars, the expenses increased
approximately $342,000 and $624,000, respectively, versus the same periods of
fiscal 1997 due to the expansion of circuit design activities.
Interest expense increased approximately $0.3 million and $1.1 million,
respectively, in the third quarter and first nine months of fiscal 1998 to $0.7
million and $2.6 million due to an increase in short-term borrowings and
decreased interest income earned on cash balances.
The Company's effective tax rate decreased to 31.0% and 31.8% in the
third quarter and first nine months, respectively, of fiscal 1998 from 32.7% and
35.0% in the third quarter and first
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nine months of fiscal 1997. The fiscal 1998 tax rate is lower primarily due to
the granting of "pioneer" tax status to the Company's Malaysia subsidiary. This
status allows tax-free treatment of the subsidiary's income for the period
November 1, 1995 to October 30, 2000.
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 level and timing of orders, the level of capacity utilization of
its 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 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 on the
Company's results of operations.
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 1998, 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 $100 million of working capital
borrowing capacity.
The Company generated $69.5 million of cash in operating activities for
the nine months ended May 31, 1998. The generation of cash was primarily due to
net income of $56.5 million, depreciation and amortization of $23.5 million and
a decrease of $12.5 million in inventories, offset by an increase in accounts
receivable of $6.9 million and a decrease in accounts payable and accrued
expenses of $16.4 million.
Net cash used in investing activities of $70.5 million for the nine
months ended May 31, 1998 was a result of the Company's capital expenditures for
equipment worldwide in order to support increased activities and the
construction of new manufacturing facilities.
Net cash of $1.1 million was used by financing activities for the nine
months ended May 31, 1998. This was primarily attributable to $2.5 million in
payments of long-term debt, offset by $1.4 million in net proceeds from the
issuance of common stock.
The Company believes that cash on-hand, funds provided by operations
and available borrowings under the credit facility will be sufficient to satisfy
its currently anticipated working capital and capital expenditure requirements
for the next twelve months.
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JABIL CIRCUIT, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by
the Registrant during the quarter ended
May 31, 1998.
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: July 8, 1998 By: /s/ Thomas A. Sansone
------------ ------------------------
Thomas A. Sansone
President
Date: July 8, 1998 By: /s/ Chris A. Lewis
------------ ------------------------
Chris A. Lewis
Chief Financial Officer
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