Jabil Inc. 10-Q Filing Summary
Business Context and Reporting Period
Company: Jabil Circuit, Inc. (Jabil Inc.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: May 31, 2009 (Third Quarter of Fiscal Year 2009)
Business Overview: Jabil is a leading provider of worldwide electronic manufacturing services (EMS), design, production, product management, and aftermarket services. Operations are conducted in 22 countries across three segments: Consumer, Electronic Manufacturing Services (EMS), and Aftermarket Services (AMS).
Key Financial Metrics
| Metric (in thousands) | Three Months Ended May 31, 2009 | Nine Months Ended May 31, 2009 | Nine Months Ended May 31, 2008 |
|---|---|---|---|
| Net Revenue | $2,615,101 | $8,885,010 | $9,514,829 |
| Gross Profit | $148,589 | $527,848 | $637,801 |
| Gross Margin | 5.7% | 5.9% | 6.7% |
| Operating (Loss)/Income | $(7,807) | $(953,346) | $163,622 |
| Net (Loss)/Income | $(28,762) | $(1,170,719) | $76,401 |
| Diluted EPS | $(0.14) | $(5.66) | $0.37 |
| Cash and Equivalents | $768,915 | Balance Sheet Item (May 31, 2009) | |
| Total Debt (Current + Long-Term) | $1,220,426 | Balance Sheet Item (May 31, 2009) | |
| Operating Cash Flow (9mo) | $387,442 |
Material Changes vs. Prior Period
- Revenue Decline: Net revenue decreased 15.3% in the quarter and 6.6% for the nine-month period compared to the prior year, driven by reduced customer demand due to the global economic downturn. Significant declines occurred in display, automotive, and networking sectors.
- Goodwill Impairment: The company recorded a massive non-cash goodwill impairment charge of $1.023 billion for the nine months ended May 31, 2009. This included $400.4 million for the Consumer segment and $622.4 million for the EMS segment, resulting in zero remaining goodwill for these units.
- Restructuring Charges: Under the "2009 Restructuring Plan," the company incurred $48.8 million in restructuring and impairment costs for the nine-month period, primarily related to employee severance ($42.2 million) and fixed asset impairments ($6.4 million). This plan aims to reduce the workforce by approximately 2,500 employees.
- Profitability: The company shifted from a net income of $76.4 million in the prior year's nine-month period to a net loss of $1.17 billion, largely due to the goodwill impairment and restructuring charges.
Guidance, Outlook, and Risks
- Restructuring Outlook: Management expects total pre-tax restructuring and impairment costs for the 2009 plan to be approximately $64.0 million, with annualized cost savings of roughly $55.0 million upon completion.
- Capital Expenditures: Anticipated capital expenditures for the next twelve months are projected to be between $150.0 million and $250.0 million.
- Liquidity: The company maintains cash of approximately $769 million and access to credit facilities. Management believes current resources are adequate to fund operations, dividends, and restructuring for the next 12 months.
- Key Risks:
- Customer Concentration: The top five customers accounted for 43% of net revenue for the nine months ended May 31, 2009.
- Customer Bankruptcies: The filing notes the bankruptcy filings of Nortel Networks and Visteon Corporation, leading to increased provisions for doubtful accounts.
- Goodwill Risk: Further declines in stock price or market capitalization could trigger additional impairment charges.
- Legal Proceedings: Ongoing litigation related to historical stock option grants and a putative shareholder class action remain pending, though the SEC has closed its informal inquiry without recommending enforcement action.
Investor Verification Checklist
- Goodwill Valuation: Verify the assumptions used in the impairment testing for the remaining AMS segment goodwill ($23.7 million) given the volatility in the company's stock price.
- Restructuring Execution: Monitor the actual realization of the projected $55.0 million in annualized cost savings from the 2009 Restructuring Plan.
- Customer Exposure: Assess the financial stability of the top five customers, particularly those in the automotive and telecommunications sectors, given recent bankruptcies in the supply chain.
- Cash Flow Sustainability: Review the ability to maintain positive operating cash flow ($387 million for 9 months) amidst continued revenue declines and high fixed costs.
- Debt Covenants: Confirm continued compliance with financial covenants (Debt-to-EBITDA and Interest Coverage) under the Credit Facility and securitization programs.