Jabil Inc. 2009 Form 10-K Summary
Business Context and Reporting Period
This Annual Report on Form 10-K covers the fiscal year ended August 31, 2009. Jabil Inc. is a leading global provider of electronic manufacturing services (EMS), design, production, product management, and aftermarket services. The company operates through three divisions: Consumer, Electronic Manufacturing Services (EMS), and Aftermarket Services (AMS). Operations are conducted in 24 countries, with significant revenue derived from international markets (83.8% in 2009).
Key Financial Metrics
| Metric | Fiscal 2009 | Fiscal 2008 |
|---|---|---|
| Net Revenue | $11.68 billion | $12.78 billion |
| Gross Profit | $718.8 million (6.2% margin) | $867.8 million (6.8% margin) |
| Operating Loss | $(910.2) million | $251.4 million income |
| Net Loss | $(1.17) billion | $133.9 million income |
| Loss Per Share (Basic) | $(5.63) | $0.65 |
| Cash and Equivalents | $876.3 million | $772.9 million |
| Total Debt | $1.23 billion | $1.37 billion |
| Working Capital | $990.9 million | $1.09 billion |
Material Changes vs. Prior Period
- Revenue Decline: Net revenue decreased 8.6% to $11.7 billion, driven by a deteriorating macro-economic environment and reduced customer demand across most sectors. Notable declines included display products (-45%), networking (-27%), and automotive (-25%). The mobility sector was a primary growth driver (+50%).
- Goodwill Impairment: The company recorded a massive non-cash goodwill impairment charge of $1.02 billion. This included $400.4 million for the Consumer segment and $622.4 million for the EMS segment, leaving no goodwill in these reporting units.
- Restructuring: Jabil implemented a 2009 Restructuring Plan to align capacity with demand, reducing the workforce by approximately 4,500 employees. Charges related to this plan totaled $53.7 million in 2009, with expected total costs of $64.0 million.
- Margin Compression: Gross margin declined to 6.2% from 6.8% as revenue fell faster than fixed costs could be reduced.
Guidance, Outlook, and Risks
Outlook: Management notes signs of stabilization in credit markets and a positive impact from global economic stimulus programs, particularly in China. However, uncertainty remains regarding the timing of a full economic recovery. The company expects foreign source revenue to slightly increase as a percentage of total revenue in fiscal 2010.
Key Risks and Contingencies:
- Customer Concentration: The top five customers accounted for 43% of net revenue in 2009. A reduction in sales to any major customer could materially impact results.
- Customer Insolvency: Two customers filed for bankruptcy in 2009, leading to an increased allowance for doubtful accounts ($15.5 million).
- Legal Proceedings: The company is defending a putative shareholder class action regarding historical stock option grant practices. While the SEC investigation was closed without enforcement action, the class action appeal is pending.
- Asset Disposal: In September 2009, Jabil agreed to sell its Western European automotive subsidiary, anticipating a loss on disposal of $15.0 to $25.0 million.
- Debt Covenants: The company is subject to restrictive financial covenants regarding debt-to-EBITDA ratios. While compliant as of August 31, 2009, future downturns could impact compliance.
Investor Verification Checklist
- Goodwill Valuation: Verify the assumptions used in the impairment testing for the remaining $25.1 million of goodwill in the AMS segment.
- Customer Concentration: Monitor the financial health and order volumes of the top five customers, which represent nearly half of total revenue.
- Restructuring Execution: Track the realization of the projected $55.0 million in annualized cost savings from the 2009 Restructuring Plan.
- Liquidity Position: Confirm the renewal status of the U.S. and foreign asset-backed securitization programs, which expire in March 2010.
- Legal Exposure: Review the status of the shareholder class action appeal regarding stock option backdating.