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: February 28, 2009 (Second Quarter of Fiscal Year 2009)
Business Overview: Jabil is a leading provider of worldwide electronic manufacturing services and solutions, operating in three segments: Consumer, Electronic Manufacturing Services (EMS), and Aftermarket Services (AMS). The company operates in 22 countries, with approximately 83% of revenue derived from foreign sources.
Key Financial Metrics
| Metric | Three Months Ended Feb 28, 2009 | Six Months Ended Feb 28, 2009 | Three Months Ended Feb 29, 2008 | Six Months Ended Feb 29, 2008 |
|---|---|---|---|---|
| Net Revenue | $2,887.4 million | $6,269.9 million | $3,058.6 million | $6,426.6 million |
| Gross Profit | $155.5 million (5.4%) | $379.3 million (6.0%) | $187.9 million (6.1%) | $427.6 million (6.7%) |
| Operating (Loss)/Income | $(705.6) million | $(945.5) million | $1.6 million | $100.5 million |
| Net (Loss)/Income | $(866.1) million | $(1,142.0) million | $(24.0) million | $38.0 million |
| Diluted EPS | $(4.19) | $(5.53) | $(0.12) | $0.18 |
| Cash and Equivalents | $774.9 million (as of Feb 28, 2009) | |||
| Total Debt | $1,242.7 million (as of Feb 28, 2009) | |||
| Operating Cash Flow (6mo) | $309.0 million |
Material Changes vs. Prior Period
- Revenue Decline: Net revenue decreased 5.6% in the quarter and 2.4% for the six-month period compared to the prior year, driven by reduced customer demand across most sectors (Display, Networking, Automotive) due to the global macro-economic downturn.
- Goodwill Impairment: The company recorded a massive non-cash goodwill impairment charge of $705.1 million for the quarter and $1.023 billion for the six months. This resulted from the Consumer and EMS reporting units' carrying values exceeding their fair values due to declining market capitalization and customer demand. The Consumer unit goodwill is fully impaired; the EMS unit impairment is preliminary.
- Restructuring Charges: A new "2009 Restructuring Plan" was initiated to reduce the workforce by approximately 3,000 employees. Charges of $32.7 million were recorded for the quarter and six months, primarily for severance and fixed asset impairments. The company expects total costs for this plan to reach approximately $65.0 million.
- Margin Compression: Gross profit margin declined to 5.4% from 6.1% in the prior year quarter, attributed to revenue declining faster than fixed costs and excess capacity.
Guidance, Outlook, and Risks
- Outlook: Management expects reduced customer demand to continue for at least the next several fiscal quarters. The company anticipates realizing cost savings from the 2009 Restructuring Plan starting in the third quarter of fiscal 2009.
- Goodwill Analysis: The company expects to finalize the goodwill impairment analysis for the EMS reporting unit in the fiscal quarter ending May 31, 2009. Material adjustments to the preliminary charge are possible.
- Liquidity: The company maintains cash of $774.9 million and access to credit facilities. Management believes resources are adequate to fund operations, capital expenditures ($130M-$160M expected), and dividends for the next 12 months.
- Legal Proceedings: A putative shareholder class action regarding historical stock option grants was dismissed with prejudice on January 26, 2009, but plaintiffs have appealed. The company continues to cooperate with a U.S. Attorney's office investigation regarding stock option practices.
- Customer Concentration: The top five customers accounted for approximately 42% of net revenue for the six months ended February 28, 2009. The bankruptcy of Nortel Networks resulted in a $6.1 million allowance for doubtful accounts.
Investor Verification Checklist
- Finalize Goodwill Impairment: Verify the final amount of the goodwill impairment charge for the EMS reporting unit expected in the next quarter (May 31, 2009).
- Restructuring Execution: Monitor the progress of the 2009 Restructuring Plan and the realization of the projected $55.0 million in annualized cost savings.
- Customer Demand Trends: Assess the impact of the global recession on key customers (Cisco, HP, Research in Motion) and the potential for further order reductions.
- Legal Resolution: Track the outcome of the appeal regarding the dismissed shareholder class action and the status of the U.S. Attorney's investigation.
- Credit Rating Impact: Review any potential downgrades in credit ratings (currently BB+/Ba1) and their effect on borrowing costs and covenant compliance.