Jabil Circuit, Inc. — Fiscal 2013 Form 10-K Summary
Business context and reporting period
Jabil is a global electronic manufacturing services and solutions provider, offering design, engineering, manufacturing, supply-chain, systems assembly, and aftermarket services. Operations are organized into Diversified Manufacturing Services (DMS), Enterprise & Infrastructure (E&I), and High Velocity Systems (HVS), with facilities in 31 countries and approximately 177,000 employees.
The filing covers the fiscal year ended August 31, 2013. The fourth quarter ended August 31, 2013 and included two months of results from the July 1, 2013 acquisition of Nypro Inc. The filing was dated October 28, 2013.
Key financial metrics
| Metric | FY2013 | FY2012 |
|---|---|---|
| Net revenue | $18.337 billion | $17.152 billion |
| Gross profit | $1.360 billion | $1.309 billion |
| Gross margin | 7.4% | 7.6% |
| Operating income | $511.4 million | $621.9 million |
| Operating margin | 2.8% | 3.6% |
| Net income attributable to Jabil | $371.5 million | $394.7 million |
| Diluted EPS | $1.79 | $1.87 |
| Net cash provided by operating activities | $1.214 billion | $634.2 million |
| Capital expenditures | $736.9 million | $497.7 million |
| Cash paid for acquisitions | $650.1 million | $125.1 million |
Revenue increased 6.9%, driven primarily by existing-customer growth and new program wins. DMS revenue increased 9%, E&I revenue increased 9%, and HVS revenue increased 1%. Segment revenue mix was 45% DMS, 30% E&I, and 25% HVS.
Fourth-quarter revenue was $4.815 billion, compared with $4.338 billion in the comparable quarter of fiscal 2012. Fourth-quarter net income attributable to Jabil was $127.0 million, or $0.61 diluted EPS, compared with $82.8 million, or $0.39 diluted EPS, in the prior-year quarter. Fourth-quarter operating income was $88.4 million, including $61.1 million of restructuring charges.
Liquidity, cash flow, debt, and balance sheet
- Cash and cash equivalents were $1.011 billion at August 31, 2013, down from $1.217 billion in 2012.
- Total notes payable, long-term debt, and capital lease obligations were $1.906 billion, including $215.5 million classified as current.
- Debt included $1.605 billion of senior notes, $200.0 million of borrowings under credit facilities, $58.4 million of loans, and $35.5 million of capital lease obligations.
- Jabil reported approximately $1.1 billion of available liquidity under revolving credit facilities and up to $192.3 million under receivables securitization and sale programs.
- Working capital declined to $955.8 million from $1.780 billion, primarily reflecting higher current liabilities and acquisition-related activity.
- Operating cash flow increased substantially, supported by a $486.0 million increase in accounts payable and accrued expenses, a $50.2 million decrease in inventories, and non-cash depreciation and amortization.
- Investing cash use increased to $1.374 billion, primarily because of capital expenditures and the Nypro acquisition.
- Jabil paid $67.2 million in dividends and repurchased approximately $129.3 million of common stock during fiscal 2013. Quarterly dividends were $0.08 per share.
Material changes versus the prior comparable period
- Despite higher revenue and gross profit, operating income declined 17.8% and diluted EPS declined from $1.87 to $1.79.
- Margin pressure reflected $89.5 million of restructuring charges, $25.6 million of impairment charges related to a notes receivable from a former customer, $13.5 million of Nypro-related professional fees, higher interest expense, and acquisition-related costs.
- Interest expense increased to $121.1 million from $106.1 million, primarily due to additional debt and the 4.700% Senior Notes issued in fiscal 2012.
- The effective tax rate fell to 4.1% from 22.2%, primarily because of a $104.0 million partial release of the U.S. valuation allowance related to deferred tax liabilities acquired with Nypro and the release of a non-U.S. valuation allowance.
- Core operating income, a non-U.S. GAAP measure, declined 2.1% to $721.1 million; core earnings declined 7.3% to $469.9 million.
- Jabil completed the $679.5 million acquisition of Nypro, adding precision plastics, tooling, injection molding, design, healthcare, packaging, and consumer electronics capabilities. Nypro contributed $183.2 million of revenue and a net loss of $8.8 million after acquisition.
- Foreign-source revenue represented 86.0% of total revenue, compared with 85.6% in fiscal 2012.
Guidance, outlook, commentary, risks, and unusual items
- Management expected fiscal 2014 capital expenditures of approximately $250 million to $350 million, principally for maintenance, information technology upgrades, and DMS growth. Management believed available cash, borrowing capacity, receivables programs, and operating cash flow would fund expected needs for the next 12 months.
- The 2013 Restructuring Plan is expected to generate approximately $188.0 million of pre-tax charges during fiscal years 2013–2015, including estimated cash expenditures of $140 million to $160 million excluding asset write-offs. Expected annualized savings were approximately $70.9 million before offsets and approximately $65.0 million after expected revenue and transition-cost offsets.
- Jabil was terminating or substantially winding down its relationship with BlackBerry. BlackBerry represented 12% of fiscal 2013 revenue, and no reserve had been recorded because a loss was not considered probable. Potential restructuring and related costs had not been finalized and could materially affect results.
- The five largest customers represented approximately 53% of revenue; Apple represented 19% and BlackBerry 12%. This concentration exposes results to customer demand, pricing, product transitions, insolvency, cancellations, and insourcing decisions.
- Order backlog declined to approximately $3.9 billion from $5.1 billion. Management cautioned that customers may cancel or reschedule orders, making backlog a limited indicator of future revenue.
- Major risks include component shortages and single-source suppliers, rapid product life cycles, pricing pressure, capacity utilization, international operations, foreign exchange, labor and regulatory matters, cybersecurity and information-system disruptions, environmental liabilities, tax changes, acquisition integration, restructuring execution, and potential customer losses.
- Debt ratings were BBB- from Fitch and Standard & Poor’s and Ba1 from Moody’s. Moody’s classified the senior notes as below investment grade, while Fitch and Standard & Poor’s classified them as investment grade.
- Jabil reported no material legal proceedings, no material subsequent events through the filing date, and unqualified audit opinions on both the consolidated financial statements and internal control over financial reporting. The internal-control evaluation excluded Nypro, which represented 13.7% of consolidated assets at year-end.
Most important facts for an investor to verify
- Whether the BlackBerry wind-down produced the restructuring, inventory, asset impairment, or customer-transition costs contemplated in the filing.
- Whether the 2013 Restructuring Plan achieved the projected approximately $65 million of net annual savings and whether additional charges were required.
- Nypro’s post-acquisition revenue, profitability, cash generation, integration costs, goodwill, and intangible-asset valuation.
- Renewal or replacement of receivables facilities expiring in late 2013 and the availability of uncommitted funding sources.
- Debt maturities, interest-rate exposure, covenant compliance, and the effect of any credit-rating changes.
- Customer concentration, backlog quality, order cancellations, and changes in Apple, BlackBerry, and other major-customer programs.
- Inventory aging, component availability, accounts receivable collectability, and exposure to obsolete or customer-specific materials.
- The sustainability of the unusually low 4.1% effective tax rate, tax incentives, valuation allowances, and approximately $222.2 million of unrecognized tax benefits.