Jabil Circuit, Inc. (Jabil) - 10-K Summary
Business Context and Reporting Period
Company: Jabil Circuit, Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: August 31, 2010
Business Overview: Jabil is a leading provider of worldwide electronic manufacturing services (EMS), design, production, product management, and aftermarket services. Operations span 22 countries across the Americas, Europe, and Asia. The company serves diverse industries including aerospace, automotive, computing, consumer, defense, medical, and telecommunications.
Segment Structure: As of August 31, 2010, operations were reported in three segments: Consumer, Electronic Manufacturing Services (EMS), and Aftermarket Services (AMS). Effective September 1, 2010, the company reorganized into Diversified Manufacturing Services (DMS), Enterprise & Infrastructure (E&I), and High Velocity Systems (HVS).
Key Financial Metrics
| Metric | Fiscal 2010 | Fiscal 2009 | Change |
|---|---|---|---|
| Net Revenue | $13.41 billion | $11.68 billion | +14.8% |
| Gross Profit | $1.00 billion | $0.72 billion | +39.7% |
| Gross Margin | 7.5% | 6.2% | +130 bps |
| Operating Income | $327.6 million | ($910.2 million) Loss | Significant Improvement |
| Net Income (Attributable to Jabil) | $168.8 million | ($1.17 billion) Loss | Significant Improvement |
| Diluted EPS | $0.78 | ($5.63) | N/A |
| Operating Cash Flow | $427.4 million | $557.3 million | -23.3% |
| Total Debt (Long-term + Current) | $1.19 billion | $1.23 billion | -3.2% |
| Cash and Equivalents | $744.3 million | $876.3 million | -15.1% |
| Working Capital | $1.05 billion | $0.99 billion | +6.0% |
Material Changes vs. Prior Period
- Revenue Growth: Net revenue increased 14.8% driven by growth in instrumentation/medical (+38%), networking (+16%), and mobility (+18%) sectors. This was partially offset by a decline in telecommunications and "other" sectors (which included the divested automotive business).
- Profitability Recovery: The company returned to profitability, reporting $168.8 million in net income compared to a $1.17 billion loss in 2009. The 2009 loss was heavily impacted by a $1.02 billion non-cash goodwill impairment charge, which did not recur in 2010.
- Divestitures:
- Automotive: Sold Jabil Circuit Automotive, SAS in Q1 2010, recording a $15.7 million loss on disposition.
- France/Italy: Sold operations in Italy and France in Q4 2010, recording an $8.9 million loss on disposition. The divested units had generated $298.6 million in revenue YTD.
- Restructuring: Continued execution of the 2009 Restructuring Plan, incurring $7.7 million in charges in 2010 (vs. $53.7 million in 2009). The plan aims to reduce headcount by ~4,000 and yield $55 million in annualized savings.
- Stock-Based Compensation: Increased significantly to $104.6 million in 2010 from $44.0 million in 2009, primarily due to changes in vesting estimates for performance-based restricted stock.
Guidance, Outlook, and Risks
- Outlook: Management expects foreign source revenue to remain consistent (approx. 84.7% of total) over the next 12 months. Capital expenditures are anticipated to range between $325 million and $375 million for the next 12 months.
- Liquidity: The company maintains $800 million in available liquidity under its revolving credit facility and up to $187.6 million under trade receivable securitization programs. Several securitization programs expire in March, May, and August 2011, requiring renewal.
- Key Risks:
- Customer Concentration: Top 5 customers accounted for 45% of net revenue; top 48 accounted for 90%.
- Component Shortages: Industry-wide shortages of semiconductors and other components are causing extended lead times and increased inventory levels.
- Tax Contingency: The IRS proposed adjustments for fiscal years 2003-2005 that could result in an additional $70.2 million tax liability plus interest/penalties. Jabil intends to contest this vigorously.
- International Operations: 84.7% of revenue is foreign, exposing the company to currency fluctuations, political instability, and regulatory changes.
Investor Verification Checklist
- Customer Concentration: Verify the stability of relationships with top customers (Cisco, Research in Motion, Apple, etc.) given the 45% revenue concentration.
- Inventory Levels: Review the $969 million increase in inventory (to $2.09 billion) to assess obsolescence risk amidst component shortages.
- Tax Dispute: Monitor the status of the IRS audit regarding fiscal years 2003-2005 and potential impact on future tax provisions.
- Debt Renewals: Track the renewal status of asset-backed securitization programs expiring in 2011.
- Restructuring Savings: Confirm realization of the projected $55 million annualized cost savings from the 2009 Restructuring Plan.