Jabil Circuit, Inc. (Jabil) - 10-Q Summary
Business Context and Reporting Period
This filing is a Quarterly Report on Form 10-Q for Jabil Circuit, Inc., a leading provider of worldwide electronic manufacturing services and solutions. The report covers the quarterly and six-month periods ended February 28, 2006. The Company operates through four segments: Americas, Europe, Asia, and Services. As of March 20, 2006, there were 209,486,180 shares of Common Stock outstanding.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended Feb 28, 2006 | Six Months Ended Feb 28, 2006 |
|---|---|---|
| Net Revenue | $2,314,962 | $4,719,369 |
| Gross Profit | $184,648 | $380,470 |
| Gross Margin | 8.0% | 8.1% |
| Operating Income | $83,346 | $172,169 |
| Net Income | $69,021 | $145,911 |
| Diluted EPS | $0.32 | $0.69 |
| Cash and Equivalents (Balance Sheet) | $918,622 (as of Feb 28, 2006) | |
| Long-Term Debt (less current) | $325,835 (as of Feb 28, 2006) | |
| Operating Cash Flow (6 months) | $149,407 |
Material Changes vs. Prior Period
- Revenue Growth: Net revenue increased 34.9% for the quarter and 33.0% for the six-month period compared to the same periods in fiscal 2005. Growth was driven by increased sales across most industry sectors, particularly consumer products (86% increase QoQ) and instrumentation/medical products (57% increase QoQ).
- Profitability: Net income rose 50% for the quarter and 43% for the six-month period. Operating income increased 44% for the quarter.
- Margin Compression: Gross profit margin decreased slightly to 8.0% (quarter) and 8.1% (six months) from 8.2% and 8.3% in the prior year, attributed to a higher portion of materials-based revenue and a shift to lower-cost regions.
- Stock-Based Compensation: The Company adopted SFAS 123R effective September 1, 2005. This resulted in the recognition of stock-based compensation expense in earnings, contributing to the increase in Selling, General, and Administrative (SG&A) expenses.
- Amortization: Amortization of intangibles decreased significantly ($5.7M vs $10.4M for the quarter) due to the full amortization of certain acquisition-related agreements.
Outlook, Risks, and Unusual Items
- Acquisitions: The Company consummated the acquisition of Celetronix International, Ltd. on March 31, 2006 (subsequent event), for approximately $150 million in cash plus other consideration, to expand its presence in India. Several immaterial acquisitions were also made during the quarter.
- Capital Expenditures: Management anticipates capital expenditures of $200 million to $300 million for the next twelve months, primarily for machinery and expansion in China and Eastern Europe.
- Liquidity: The Company maintains a $500 million unsecured revolving credit facility and an accounts receivable securitization program with up to $250 million in net cash proceeds available. No borrowings were outstanding on the revolver as of February 28, 2006.
- Risks: Key risks include dependence on a limited number of major customers (e.g., Cisco, HP, IBM), foreign currency fluctuations (84.4% of revenue is foreign-sourced), component shortages, and the integration of acquired businesses.
- Restructuring: No new restructuring charges were incurred in the period. Remaining liabilities from prior restructuring programs total approximately $2.7 million.
Investor Verification Checklist
- Customer Concentration: Verify the stability of revenue from top customers (Cisco, HP, IBM, etc.) given the Company's high dependence on a limited number of clients.
- Foreign Currency Exposure: Assess the impact of exchange rate fluctuations on the 84% of revenue derived from international operations.
- Acquisition Integration: Monitor the integration and profitability of the recent Celetronix acquisition and other recent purchases.
- Component Supply Chain: Evaluate risks related to single-source components and potential shortages affecting production schedules.
- Working Capital Trends: Review the increase in inventory ($164.5M increase in cash flow usage) and accounts receivable to ensure alignment with forecasted demand.