1
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, 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: (727) 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 January 6, 1999, there were 37,319,175 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
August 31, 1998 and November 30, 1998....................................................... 3
Consolidated Statements of Earnings for the three months
ended November 30, 1998..................................................................... 4
Consolidated Statements of Cash Flows
for the three months ended November 30, 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............................................................ 12
Signatures.................................................................................. 12
2
3
PART I. FINANCIAL INFORMATION
JABIL CIRCUIT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
August 31, November 30,
1998 1998
---------- ------------
(Unaudited)
[S] [C] [C]
ASSETS
Current assets
Cash $ 23,139 $ 13,016
Accounts receivable - Net 126,276 180,793
Inventories 123,097 146,272
Prepaid expenses and other current assets 1,772 3,367
Deferred income taxes 16,095 14,960
-------- --------
Total current assets 290,379 358,408
Property, plant and equipment, net 224,680 246,496
Other assets 11,644 11,405
-------- --------
$526,703 $616,309
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current installments of long term debt $ 8,333 $ 8,333
Accounts payable 132,601 192,764
Accrued expenses 40,460 43,939
Income taxes payable 5,325 10,908
-------- --------
Total current liabilities 186,719 255,944
Long term debt, less current installments 81,667 81,667
Deferred income taxes 7,724 8,484
Deferred grant revenue 2,227 2,421
-------- --------
Total liabilities 278,337 348,516
-------- --------
Stockholders' equity
Common stock 37 37
Additional paid-in capital 71,580 71,721
Retained earnings 176,749 196,035
-------- --------
Total stockholders' equity 248,366 267,793
$526,703 $616,309
======== ========
See Accompanying Notes to Consolidated Financial Statements
3
4
JABIL CIRCUIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(UNAUDITED)
Three months ended
November 30,
----------------------
1997 1998
-------- ---------
Net revenue $319,512 $447,941
Cost of revenue 278,167 397,366
-------- --------
Gross profit 41,345 50,575
Operating expenses:
Selling, general and administrative 11,077 18,318
Research and development 912 1,066
-------- --------
Operating income 29,356 31,191
Interest expense, net 713 1,520
-------- --------
Income before income taxes 28,643 29,671
Income taxes 9,572 10,385
-------- --------
Net income $ 19,071 $ 19,286
======== ========
Basic earnings per share $ 0.52 $ 0.52
======== ========
Diluted earnings per share $ 0.49 $ 0.50
======== ========
Common shares used in the calculations
of basic earnings per share 37,019 37,283
======== ========
Common and common equivalent shares
used in the calculations of diluted
earnings per share 38,675 38,827
======== ========
See Accompanying Notes to Consolidated Financial Statements
4
5
JABIL CIRCUIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Three months ended
November 30,
----------------------
1997 1998
------- ---------
Cash flows from operating activities:
Net income $ 19,071 $ 19,286
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 7,128 11,507
Recognition of grant revenue (203) (201)
Deferred income taxes 706 1,895
Loss on sale of property 18 718
Changes in operating assets and liabilities:
Accounts receivable (17,370) (54,517)
Inventories (15,592) (23,175)
Prepaid expenses and other current assets (25) (1,595)
Other assets (784) 32
Accounts payable and accrued expenses 28,544 69,225
-------- --------
Net cash provided by operating activities 21,493 23,175
-------- --------
Cash flows from investing activities:
Acquisition of property, plant and equipment (31,418) (34,006)
Proceeds from sale of property and equipment 10 172
-------- --------
Net cash used in investing activities (31,408) (33,834)
-------- --------
Cash flows from financing activities:
Increase in note payable to bank 10,000 --
Payments of long-term debt (2,475) --
Net proceeds from issuance of common stock 84 141
Proceeds from Scottish grant -- 395
-------- --------
Net cash provided by financing activities 7,609 536
-------- --------
Net decrease in cash (2,306) (10,123)
Cash at beginning of period 45,457 23,139
-------- --------
Cash at end of period $ 43,151 $ 13,016
======== ========
See Accompanying Notes to Consolidated Financial Statements
5
6
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, 1998 contained in
the Company's 1998 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
three-month period ended November 30, 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.
6
7
In thousands Three months ended
November 30,
1997 1998
----------- ------------
Numerator:
Net income $19,071 $19,286
Denominator:
Denominator for basic EPS-
weighted-average shares 37,019 37,283
Effect of dilutive securities:
Employee stock options 1,656 1,544
------- -------
Denominator for diluted EPS-adjusted
weighted-average shares 38,675 38,827
======= =======
Basic EPS $ 0.52 $ 0.52
======= =======
Diluted EPS $ 0.49 $ 0.50
======= =======
For the three-month periods ended November 30, 1997 and 1998,
options to purchase 20,000 and 40,000, 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, the effect would be antidilutive.
COMMITMENTS AND CONTINGENCIES
At November 30, 1998, the Company had approximately $40
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
Effective September 1, 1998, the Company adopted 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. During the three months ended November 30,
1998, changes in stockholders' equity consisted of net income and the
exercise of stock
7
8
options. Accordingly, comprehensive income as defined by Statement
130 was equal to net income as shown in the accompanying unaudited
Consolidated Statement of Earnings.
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 in its 1999 annual
consolidated financial statements. As this Statement addresses
reporting and disclosure issues only, there will be no impact on
earnings from its adoption.
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. The Company is
currently evaluating this Statement and has yet to form an opinion on
whether its adoption will have any significant impact on the Company's
consolidated financial statements. The Company will be required to
implement Statement 133 for its fiscal year ending August 31, 2000.
Statement of Position 98-5 Reporting on the Costs of Start Up
Activities. SOP 98-5 establishes standards on the financial reporting
of start-up costs and organization costs. SOP 98-5 requires costs of
start-up activities and organization costs to be expensed as incurred.
The SOP is effective for financial statements for fiscal years
beginning after December 15, 1998. As the Company has historically
made a practice of expensing costs related to both the establishment
of greenfield manufacturing facilities and the set-up of production
lines as such costs are incurred, it does not anticipate that the
adoption of SOP 98-5 will have any material impact on its consolidated
financial statements.
NOTE 2. BALANCE SHEET DETAIL
The components of inventories consist of the following:
In thousands August 31, November 30,
1998 1998
--------- ------------
(Unaudited)
Finished goods 5,823 2,799
Work-in-process 15,955 12,748
Raw materials 101,319 130,725
------- -------
123,097 146,272
======= =======
8
9
JABIL CIRCUIT, INC. AND SUBSIDIARIES
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains certain forward-looking statements within the
meaning of that term in Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. Factors
that could cause actual events or results to differ materially from those
referenced in such forward-looking statements include those described in the
section herein entitled "Factors Affecting Future Results" and in the Company's
other filings with the Securities and Exchange Commission. The words "believe,"
"expect," "intend," "anticipate," "plan" and similar expressions and variations
thereof identify certain of such forward-looking statements, which speak only
as of the dates on which they are made. The Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise. Readers are cautioned that any
such forward-looking statements are not guarantees of future performance and
involve risks and uncertainties, and that actual events and results may differ
materially from those indicated in the forward-looking statements as a result
of various factors. Readers are cautioned not to place undue reliance on any
forward-looking statements.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company's net revenue for the first quarter of fiscal 1999
increased 40% to $448 million from $320 million in the first quarter of fiscal
1998. This increase from the previous fiscal year was primarily due to
increased production of communications products as well as incremental revenue
due to the recent HP acquisition. Foreign source revenue represented 32% of net
revenue for the first quarter of fiscal 1999 compared to 34% for the same
period of fiscal 1998. The decrease in foreign source revenue was attributable
to increased production at the Company's domestic locations in addition to the
incremental revenue due to the recent acquisition of certain manufacturing and
related assets comprising the "Formatter Manufacturing Organization" business
unit of Hewlett-Packard Company ("HP acquisition").
Gross margin decreased to 11.3% for the first quarter of fiscal 1999
from 12.9% for the same period of fiscal 1998 reflecting a higher content of
material-based revenue from the HP acquisition, underutilization of assets in
certain international factories, offset in part by the recovery of costs
associated with defective materials from a supplier.
Selling, general and administrative expenses in the first quarter of
fiscal 1999 increased to 4.1% of net revenue compared to 3.5% in the prior
fiscal year, while increasing in absolute dollars from $11.1 million in the
first quarter of fiscal 1998 to $18.3 million in the first quarter of fiscal
1999. The dollar increases were primarily due to increased staffing and related
departmental expenses at all the Company's locations, increased information
systems staff to support the expansion of the Company's business, and staffing
at the acquired HP sites.
Research and development expenses decreased to 0.2% of net revenue for
the first quarter of fiscal 1999 as compared to 0.3% for the same period of
fiscal 1998. In absolute dollars, the expenses increased approximately $0.2
million versus the same period of fiscal 1998 due to the expansion of circuit
design activities.
9
10
Interest expense increased approximately $0.8 million in the first
quarter of fiscal 1999 to $1.5 million as a result of increased borrowings to
support the HP acquisition and increase working capital requirements.
The Company's effective tax rate increased to 35.0% in the first
quarter of fiscal 1999 from 33.4% in the first quarter of fiscal 1998. The
fiscal 1999 tax rate is higher primarily due to increased levels of domestic
income as compared to the same period of fiscal 1998.
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 November 30, 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 $225 million
of working capital borrowing capacity. As of November 30, 1998, the Company was
utilizing $40 million of its revolving credit facility.
The Company generated $23.2 million of cash in operating activities
for the three months ended November 30, 1998. The generation of cash was
primarily due to net income of $19.3 million, depreciation and amortization of
$11.5 million, an increase of $54.5 million in accounts receivable, an increase
in inventories of $23.2 million and an increase in accounts payable and accrued
expenses of $69.2 million.
Net cash used in investing activities of $33.8 million for the three
months ended November 30, 1998 was a result of the Company's capital
expenditures for equipment worldwide in order to support increased activities.
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.
10
11
"YEAR 2000" READINESS
The Company is aware of and is addressing the Year 2000 issue. The
Year 2000 issue creates risks for the Company from unforeseen problems in its
own computer systems and from third parties with whom the Company deals.
Failure of the Company's and/or third parties computer systems, manufacturing
equipment and control systems could have a material adverse effect on the
Company's results from operations.
The Company is actively taking steps to ensure that its global
information technology infrastructure and business system applications,
manufacturing equipment and systems will be Year 2000 compliant while seeking
adequate assurances from third parties with whom the Company conducts business
with, that any such systems shall be Year 2000 compliant. A global team,
overseen by a corporate officer, has been formed and has implemented a
proactive multi-phase approach, which includes assessing the scope of work,
prioritizing, certifying compliance, and testing compliance.
As of the end of fiscal 1998 the Company was substantially complete
in its compliance certification process of its global information technology
infrastructure. Most of the Company's global business systems are currently
being replaced by a Year 2000 compliant application; this process is expected
to be complete by January 1, 2000. As a contingency, however, legacy systems
have been upgraded to be Year 2000 compliant and are in the process of being
tested.
As of the end of fiscal 1998, manufacturing and test equipment and
local plant business systems had been identified and prioritized in terms of
Year 2000 compliance. As of November 30, 1998, 85% of all equipment and systems
had been certified as compliant. It is anticipated that the remaining 15% will
be certified by the end of the first calendar quarter of 1999, at which time
compliance testing and verification will commence.
The Company is also in the process of assessing its suppliers. The
initial phase of the assessment has been completed as of the end of calendar
1998. Early in calendar 1999, the Company anticipates validating its suppliers'
representations where deemed appropriate, and will develop sourcing contingency
plans in areas where the Company assesses that supplier readiness is
insufficient.
The Company estimates the cost to complete its remediation to be
approximately $3 million. The Company is unable to fully determine the effect
of failure of its own systems or those of third parties with which it does
business, but any significant failures could have an material adverse effect on
the Company's financial position, results of operations and cash flows.
11
12
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
November 30, 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: January 14, 1999 By: /s/ Thomas A. Sansone
---------------- ---------------------
Thomas A. Sansone
President
Date: January 14, 1999 By: /s/ Chris A. Lewis
---------------- ------------------
Chris A. Lewis
Chief Financial Officer
12