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Jabil Circuit, Inc. - 10-K Filing Summary

Business Context and Reporting Period

Company: Jabil Circuit, Inc. (Jabil)
Filing Type: Form 10-K (Annual Report)
Period Ended: August 31, 2001
Business Overview: Jabil is a leading global provider of electronic manufacturing services (EMS), designing and manufacturing circuit board assemblies and systems for OEMs in communications, computer, automotive, and consumer industries. The company operates facilities in the U.S., Europe, Asia, and Latin America.

Key Financial Metrics

Note: Fiscal 2001 results include significant non-recurring charges (see Material Changes).

Material Changes vs. Prior Period

• Revenue Growth: Net revenue increased 21.7% to $4.3 billion, driven by a 41.0% increase in communications products and a 59.9% increase in consumer products. This was partially offset by a 9.5% decline in computer products due to softening demand.
• Margin Compression: Gross margin declined to 9.1% from 10.1%, attributed to a higher mix of material-based revenue and lower capacity utilization.
• Non-Recurring Charges: Operating income was reduced by $33.9 million in charges:
  • Restructuring: $27.4 million related to workforce reductions, facility resizing, and asset write-offs due to the economic downturn.
  • Acquisition Costs: $6.6 million related to the Marconi acquisition.
• Debt Structure: Long-term debt increased significantly to $361.7 million, primarily due to the issuance of $345 million in 20-year convertible subordinated notes in May 2001.
• Backlog: Order backlog decreased to $799.4 million from $1.2 billion at the end of fiscal 2000.

Outlook, Risks, and Management Commentary

• Acquisitions: Jabil completed the acquisition of Marconi operations in England and Italy ($172 million) and the U.S. portion ($34 million). The German portion is expected to close in fiscal 2002. A subsequent acquisition of Intel assets in Malaysia was announced in October 2001.
• Accounting Changes: The company plans to early adopt FASB Statements 141 and 142 in fiscal 2002, which will eliminate goodwill amortization and require annual impairment testing. This may impact future earnings.
• Liquidity: The company maintains strong liquidity with $430.7 million in cash, a $750 million revolving credit facility (unused), and a $100 million receivables securitization program. Management believes resources are adequate for fiscal 2002 capital expenditures (estimated >$100 million).
• Key Risks:
  • Customer Concentration: Top four customers accounted for 53% of revenue; Cisco (23%) and Dell (14%) are major clients.
  • Component Shortages: Dependence on single-source suppliers for critical components poses operational risks.
  • International Exposure: Over 50% of revenue is derived from international operations, exposing the company to currency fluctuations and geopolitical risks.
  • Order Volatility: Customers do not commit to long-term schedules, making capacity planning difficult.

Investor Verification Checklist

• Adjusted Earnings: Verify the company's "adjusted" operating income of $197.7 million and net income of $144.3 million (excluding restructuring and acquisition charges) to assess core operational performance.
• Goodwill Impairment: Monitor the impact of adopting FAS 142 on the $154.8 million goodwill balance and potential future impairment charges.
• Customer Concentration: Assess the stability of relationships with Cisco and Dell, which together represent 37% of total revenue.
• Debt Service: Review the terms of the new $345 million convertible notes and the company's ability to service debt if interest rates rise or cash flows decline.
• Capacity Utilization: Evaluate the effectiveness of the restructuring program in aligning capacity with the reduced demand environment.