Jabil Inc. Fiscal 2015 Form 10-K Summary
Business context and reporting period
Jabil Circuit, Inc. provides worldwide electronics manufacturing, design, engineering, supply-chain and product-management services. Its two reportable segments are Electronics Manufacturing Services (EMS) and Diversified Manufacturing Services (DMS). The filing covers the fiscal year ended August 31, 2015; the fourth quarter ended August 31, 2015 is included in the annual results.
- Operations span 27 countries, with approximately 161,000 employees.
- Revenue mix was approximately 60% EMS and 40% DMS, compared with 67% and 33%, respectively, in fiscal 2014.
- Apple represented 24% of fiscal 2015 net revenue, up from 18% in fiscal 2014. The five largest customers represented approximately 50% of revenue.
Financial performance and key metrics
| Metric | Fiscal 2015 | Fiscal 2014 | Change |
|---|---|---|---|
| Net revenue | $17.899 billion | $15.762 billion | Up 13.6% |
| Gross profit | $1.503 billion | $1.026 billion | Up 46.6% |
| Gross margin | 8.4% | 6.5% | Up 1.9 percentage points |
| Operating income | $555.4 million | $204.1 million | Up 172.2% |
| Operating margin | 3.1% | 1.2% | Up 1.9 percentage points |
| Net income attributable to Jabil | $284.0 million | $241.3 million | Up 17.7% |
| Diluted EPS | $1.45 | $1.19 | Up 21.8% |
| Cash flow from operations | $1.240 billion | $498.9 million | Up $741.4 million |
| Capital expenditures | $963.1 million | $624.1 million | Up $339.1 million |
DMS revenue increased 39%, principally from stronger mobility-related demand. EMS revenue increased 1%, with telecommunications and automotive growth largely offset by reduced mobility handset activity following Jabil’s disengagement from BlackBerry.
Fiscal fourth-quarter revenue was $4.681 billion, gross profit was $376.6 million, operating income was $150.4 million and net income attributable to Jabil was $87.7 million. Fourth-quarter gross margin was 8.0% and operating margin was 3.2%.
At August 31, 2015, cash and cash equivalents were $914.0 million, total debt and capital lease obligations were $1.670 billion, and working capital was $191.2 million. Available liquidity included approximately $1.8 billion under revolving credit facilities, $500.0 million under the term-loan facility and up to $235.2 million under receivables programs.
Material changes versus the prior comparable period
- Revenue growth was driven primarily by DMS mobility programs and improved telecommunications and automotive demand.
- Gross margin expanded because of a more favorable business mix, increased DMS revenue, cost control and productivity improvements.
- SG&A increased to $862.6 million from $675.7 million, reflecting higher headcount and support costs. Fiscal 2014 benefited from a $45.8 million reversal of stock-based compensation expense; fiscal 2015 included $62.6 million of stock-based compensation expense.
- Restructuring charges declined to $33.1 million from $85.4 million. The 2014 Restructuring Plan was completed; the 2013 plan remained in progress.
- Income from continuing operations rose to $294.2 million from a $1.6 million loss. The fiscal 2014 result was affected by a 102.2% effective tax rate and other unusual items.
- Fiscal 2014 included a $223.3 million after-tax gain on the sale of the Aftermarket Services business. Fiscal 2015 included an $8.6 million after-tax loss from discontinued operations, making total net-income comparisons less representative of ongoing operations.
- Jabil completed six acquisitions in fiscal 2015 for approximately $228.0 million in aggregate cash consideration, including the $111.0 million acquisition of Plasticos.
- Operating cash flow improved substantially, but investing cash usage increased to $1.121 billion because of capital expenditures and acquisitions. Inventories increased to $2.507 billion from $2.008 billion, primarily to support expected demand.
Guidance, outlook, commentary and risks
- Management expected fiscal 2016 capital expenditures of approximately $800 million to $1.0 billion, principally for capacity, infrastructure, DMS investments and EMS support.
- Management stated that cash, available borrowing capacity, receivables programs and operating cash flow were expected to fund capital expenditures, dividends, potential acquisitions and working-capital needs for the following 12 months.
- The company expected to continue quarterly dividends at approximately $0.08 per share, although future dividends remain discretionary.
- The $312.0 million 7.750% Senior Notes were due July 15, 2016. Management expected cash and available credit capacity to fund repayment, while noting that it might access debt markets.
- The 2013 Restructuring Plan was expected to generate approximately $65.0 million of annual net cost savings after offsets, with approximately $179.0 million of total pre-tax restructuring and related costs expected over the plan period.
- The IRS proposed adjustments concerning fiscal 2009–2011 intercompany transactions. Management estimated potential tax due of approximately $34.6 million before additional interest and penalties if the IRS prevailed, but stated that it intended to contest the matter.
- Key risks include customer concentration, short-term and cancellable production commitments, pricing pressure, component shortages, inventory obsolescence, international operations and currency exposure, restructuring execution, acquisition integration, regulatory and environmental compliance, product liability, intellectual property claims, cybersecurity, tax disputes and access to financing.
- Foreign-source revenue represented 88.0% of fiscal 2015 revenue. Approximately $773.4 million of foreign cash could not be repatriated without potential tax consequences.
- Backlog was approximately $5.0 billion at August 31, 2015, but customers may cancel or reschedule orders; management cautioned that backlog is not necessarily indicative of future sales.
Important facts for investors to verify
- Whether Apple and other major customers sustain current volumes and pricing, given the concentration of revenue.
- Execution of the planned $800 million to $1.0 billion fiscal 2016 capital program and resulting utilization, margins and free cash flow.
- Repayment or refinancing of the $312.0 million notes due in 2016 and the availability of revolving-credit and receivables-financing programs.
- Progress, remaining cash costs and realized savings from the 2013 Restructuring Plan.
- Inventory growth, receivables collections and reliance on receivables securitization and sale programs.
- Resolution of the IRS examination and potential future tax exposures, including approximately $154.6 million of unrecognized tax benefits at August 31, 2015.
- The sustainability of reported earnings excluding the fiscal 2014 discontinued-operations gain and other unusual items.
- Integration and profitability of the six fiscal 2015 acquisitions, including preliminary purchase-accounting estimates.
- Management’s internal-control conclusion was unqualified, but the fiscal 2015 assessment excluded the newly acquired operations representing 3.9% of consolidated assets and 0.6% of consolidated revenue.