1 SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 10-Q (Mark One) X Quarterly report pursuant to Section 13 or 15(d) ofthe Securities ----- Exchange Act of 1934 For the quarterly period ended May 31, 1996. ----- Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______________ to ______________. Commission file number: 0-21308 JABIL CIRCUIT, INC. (Exact name of registrant as specified in its charter) DELAWARE 38-1886260 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) identification No.) 10800 Roosevelt Blvd St. Petersburg, FL 33716 (Address of principal executive offices, including zip code) Registrant's Telephone No., including area code: (813) 577-9749 ________________________________ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes X No ___ As of May 31, 1996, there were 17,753,120 shares of the Registrant's Common Stock outstanding.
2 JABIL CIRCUIT, INC. AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION ----------------------------- Item 1. Financial Statements Consolidated Balance Sheets at May 31, 1996 and August 31,1995...................... 3 Consolidated Statements of Operations for the nine months ended May 31, 1996 and 1995...... 4 Consolidated Statements of Cash Flows for the nine months ended May 31, 1996 and 1995...... 5 Notes to Consolidated Financial Statements........................................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................... 9 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K.................................................. 14 Signatures............................................ 15
3 JABIL CIRCUIT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except for share and per share data) <TABLE> <CAPTION> August 31, May 31, 1995 1996 ----------- ---------- (UNAUDITED) <S> <C> <C> ASSETS Current assets Cash $5,486 $28,004 Accounts receivable - Net 116,472 98,706 Inventories 91,658 59,390 Refundable income taxes 2,043 - - Prepaid expenses and other current assets 701 714 Deferred income taxes 1,837 3,243 ------- ------- Total current assets 218,197 190,057 Property, plant and equipment, net 61,722 71,891 Other assets 1,042 1,517 ------- ------- $280,961 $263,465 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Note payable to bank $73,000 -- Current installments of long term debt 7,474 $5,008 Current installments of capital leases 656 501 Accounts payable 90,612 55,054 Accrued expenses 13,122 19,915 ------- ------- Total current liabilities 184,864 80,478 Long term debt, less current installments 26,343 57,913 Capital leases, less current installments 1,589 1,169 Deferred income taxs 3,625 3,254 Deferred grant revenue 4,945 3,412 ------- ------- Total liabilities 221,366 146,226 Stockholders' equity Common stock 15 18 Additional paid in capital 16,718 56,509 Retained earnings 42,970 60,760 ------- ------- 59,703 117,287 Less: Unearned compensation from grant of stock option 108 48 ------- ------- Net stockholders' equity 59,595 117,239 $280,961 $263,465 ======== ======== </TABLE>
4 JABIL CIRCUIT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except for per share data) (Unaudited) Three months ended Nine months ended May 31, May 31, May 31, May 31, 1995 1996 1995 1996 Net revenue $132,441 $219,701 $354,079 $689,184 Cost of revenue 124,610 201,142 331,387 635,039 ------- ------- ------- ------- Gross profit 7,831 18,559 22,692 54,145 Operating expenses: Selling, general and administrative 4,464 6,612 13,217 18,243 Research and development 405 576 1,228 1,503 ------- ------- ------- ------- Operating income 2,962 11,371 8,247 34,399 Interest expense 1,521 1,768 4,268 6,754 ------- ------- ------ ------- Income before income tax 1,441 9,603 3,979 27,645 Income taxes 207 3,366 1,685 9,855 ------- ------- ------- ------- Net income $1,234 $6,237 $2,294 $17,790 ======= ======= ======= ======= Net income per share $0.08 $0.33 $0.15 $0.98 ======= ======= ======= ======= Weighted average number of shares of common stock and common stock equivilents 15,533 18,893 15,463 18,226 ======= ======= ======= =======
5 JABIL CIRCUIT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) Nine months ended May 31, May 31, 1995 1996 Cash flows from operating activities: ------- ------- Net income $2,294 $17,790 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 8,350 12,862 Recognition of grant revenue (427) (1,613) Deferred income taxes (610) (1,777) Gain on sale of property (70) (1) Foreign currency translation (gain) loss 43 80 Changes in operating assets and liabilities: Accounts receivable (5,898) 17,766 Inventories (28,007) 32,268 Prepaid expenses and other current assets (297) 236 Refundable income taxes (365) 2,043 Other assets (938) (475) Accounts payable and accrued expenses 34,756 (28,765) ------- ------- Net cash provided by (used in) operating activities 8,831 50,414 Cash flows from investing activities: Acquisition of property,plant and equipment (13,389) (23426) Proceeds from sale of property andequipment 391 207 ------- ------- Net cash used in investing activities (12,998) (23,219) Cash flows from financing activities: Increase/(Decrease) in note payable 1,900 (73,000) Proceeds from long-term debt 7,080 59,889 Payments of long-term debt (3,038) (30,785) Payments of capital lease obligations (683) (575) Net proceeds from issuance of common stock 515 39,794 Proceeds from Scottish grant 2,675 0 ------- ------- Net cash provided/(used) by financing activities 8,449 (4,677) Net increase (decrease) in cash 4,282 22,518 Cash at beginning of period 1,798 5,486 ------- ------- Cash at end of period $6,080 $28,004 ======= ======= Supplemental disclosure information: Cash Paid: Interest 4,458 7,169 ======= ======= Income taxes 2,660 7,383 ======= ======= Non-Cash Investing and Financing activities: Tax benefit ofoptions exercised 266 111 ======= ======= Capital lease obligations incurred to 2373 0 ======= =======
6 Jabil Circuit Inc. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1) Summary of Significant Accounting Policies A) Basis of Presentation The accompanying consolidated financial statements of Jabil Circuit, Inc. and subsidiaries ("the Company") are unaudited and have been prepared based upon prescribed guidance of the Securities and Exchange Commission ("SEC"). As such, they do not include all disclosures required by generally accepted accounting principles, and should be read in conjunction with the annual audited consolidated statements as of and for the year ended August 31, 1995 contained in the Company's 1995 annual report on Form 10-K. In the opinion of management, the accompanying consolidated financial statements include all adjustments, consisting of normal and recurring adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented when read in conjunction with the annual audited consolidated financial statements and related notes thereto. The results of operations for the nine month period ended May 31, 1996 are not necessarily indicative of the results that should be expected for a full fiscal year. B) Net Income Per Share Net income per share is computed using the weighted average number of common shares and dilutive common equivalent shares outstanding during the applicable period. Common equivalent shares consist of stock options, using the treasury stock method. 2) Public Stock offering The Company completed a secondary public offering of 4,025,000 shares on November 3, 1995 in which the Company sold 2,875,000 shares (including an over-allotment option of 375,000 shares) and certain selling stockholders sold 1,150,000 shares. Net proceeds to the Company (net of underwriters' discounts, commissions and other offering costs of $350,000) were approximately $39,152,500. 3) Debt In May 1996 , the Company completed a private placement of $50 million Senior Notes due 2004. The Notes have a fixed interest rate of 6.89%, with interest payable on a semi-annual basis. Principal is payable in six equal annual installments beginning May 30, 1999.
7 4) Note Payable to Bank In May 1996 the Company renegotiated their secured line of credit facility and has established a $60,000,000 unsecured revolving credit facility with a syndicate of banks ("Revolver"). At May 31, 1996 there were no borrowings under the revolver and the entire $60,000,000 was available. Under the terms of the Revolver, borrowings may be made under either Floating Rate Loans, or Eurodollar rate loans. The Company pays interest on outstanding floating rate loans at the bank's prime rate. The Company pays interest on outstanding Eurodollar loans at the London Interbank Offering Rate (LIBOR) in effect at the loan inception date plus a factor of .75% to 1.25% depending on the company's funded debt to total capitalization ratios. The Company pays a commitment fee on the unused portion of the Revolver at .175% to .25% depending on the Company's funded debt to total capitalization ratios. 5) Commitments and Contingencies At May 31, 1996 the Company had outstanding approximately $1,000,000 in equipment purchase commitments. During the 1993 and 1994 fiscal years, the Company and Epson America, Inc. ("Epson") entered into several written and oral agreements and purchase orders providing for the joint development by the parties, and manufacture by the Company, of notebook computers pursuant to specifications provided by Epson. Pursuant to the parties' agreements, the Company procured materials for production. The Company contends that Epson breached the agreement by refusing to honor its purchase commitments citing production delays resulting from the unavailability of certain components and defects in certain materials supplied to the Company. On December 23, 1994, the Company instituted a breach of contract action against Epson in the Circuit Court of the Sixth Judicial Circuit of the State of Florida, requesting certain specified and unspecified monetary damages, including damages in an amount equal to $6,278,282, representing unpaid receivables, and incidental and consequential damages, including, among others, loss of design and development costs, costs of unused or specially purchased inventory and lost profits. Such action was subsequently removed to the United States District Court for the Middle District of Florida. On July 21, 1995, Epson filed a counterclaim citing damages in excess of $52 million for, among other things, breach of contract and negligent misrepresentation. The Company mitigated damages arising from Epson's breach by selling notebook computers to an electronics distributor. Epson contends that the Jabil computer manual furnished with these computers infringed certain Epson copyrights. The Company expects discovery to conclude during the fourth quarter of fiscal 1996 and the trial to commence later in the 1996 calendar year.
8 The parties have been unsuccessful in mediating or arbitrating their dispute, despite participation in multiple mediation and non-binding arbitration sessions. The Company intends to pursue aggressively its legal claims and contest vigorously Epson's counterclaims. The Company believes strongly in the validity of its claims and believes that any potential exposure to the Company is substantially less than the $52 million claimed by Epson. However, such litigation may result in substantial costs and diversion of resources and, given the uncertainties inherent in litigation, could have a material adverse effect on the Company's operating results and financial condition, if decided adversely to the Company.
9 JABIL CIRCUIT, INC. AND SUBSIDIARIES THIS MANAGEMENT'S DICSUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTAINS TREND ANALYSIS AND A NUMBER OF FORWARD LOOKING STATEMENTS. THESE STATEMENTS ARE BASED ON CURRENT EXPECTATIONS AND ACTUAL RESULTS MAY DIFFER MATERIALLY. AMONG THE FACTORS WHICH COULD CAUSE ACTUAL RESULTS TO VARY ARE THOSE DESCRIBED IN "BUSINESS FACTORS" BELOW. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table sets forth, for the three months and nine months ended May 31, 1995 and May 31, 1996, certain items as a percentage of net revenue. The table and the discussion and analysis that follows should be read in conjunction with the consolidated financial statements and notes thereto that appear on pages 3 through 7 of this report. Three months ended Nine months ended ------------------ ----------------- May 31, May 31, May 31, May 31, 1995 1996 1995 1996 Net revenue 100.0% 100.0% 100.0% 100.0% Cost of revenue 94.1% 91.6% 93.6% 92.2% Gross profit 5.9% 8.4% 6.4% 7.8% Operating expenses: Selling, general and administrative 3.4% 3.0% 3.7% 2.6% Research and development 0.3% 0.3% 0.4% 0.2% Operating income 2.2% 5.1% 2.3% 5.0% Interest expense 1.1% 0.8% 1.2% 1.0% Income before income taxes 1.1% 4.3% 1.1% 4.0% Income taxes 0.2% 1.5% 0.5% 1.4% Net income 0.9% 2.8% 0.6% 2.6%
10 The Company's net revenue for the third quarter and first nine months of fiscal 1996 increased 65.9% and 94.6% to $220 million and $689 million respectively from $132 million and $354 million in the third quarter and first nine months of fiscal 1995. These increases were due primarily to increased demand from established customers. Foreign source revenue represented 28% and 33% of net revenue for the third quarter and first nine months of fiscal 1996, compared to 25% and 14% for the same periods of fiscal 1995. Quarterly and year to date increases in foreign sales are attributable to increased sales from the Company's foreign operations in Scotland and Malaysia along with increased exports to customer's foreign sites. Gross margin increased to 8.4% and 7.8% for the third quarter and first nine months of fiscal 1996 from 5.9% and 6.4% for the comparable periods of fiscal 1995. This increase was primarily a result of increased utilization of the Company's domestic and foreign manufacturing facilities. Additionally, 1995 third quarter and year to date margins were reduced by the effect of valuation reserves related to the Epson project which reduced gross margins 2.0% and 1.1% of revenues, respectively. Selling, general and administrative expenses decreased to 3.0% and 2.6% in the third quarter and first nine months of fiscal 1996 compared to 3.4% and 3.7% in the same periods of fiscal year 1995. In absolute dollars, these expenses increased over the comparable periods of fiscal 1995 by $2.1 million and $5.0 million due to increases in certain variable expenses including increased staffing to support increased revenue levels, the addition of the Company's Malaysia operation, and certain non-recurring costs associated with the private placement of debt. Research and development expenses of 0.3% in the third quarter were consistent as a percentage of net revenue with those in fiscal 1995 while decreasing for the first nine months of fiscal 1996 to 0.2% as compared to 0.3% for the same period of fiscal 1995. In absolute dollars, the expenses were up slightly in fiscal 1996 due to the expansion of circuit design activities. Interest expense increased $0.2 million and $2.5 million, respectively in the third quarter and first nine months of fiscal 1996 to $1.8 million and $6.8 million from $1.5 million and $4.3 million in the comparable periods of fiscal 1995. This increase was due to additional short-term and long-term borrowings required to support the Company's increased activities, international expansion, and to a lesser extent, higher effective interest rates.
11 The Company's effective tax rate increased to 35.1% for the third quarter of fiscal 1996 from 14.4% in fiscal 1995. The lower effective rate in the third quarter of fiscal 1995 was a result of the utilization of loss carryforwards against the income of the Company's foreign subsidiary in Scotland. The effective rate for the first nine months of fiscal 1996 was 35.6% as compared to 42.4% for the first nine months of fiscal 1995. This rate difference was primarily due to net operating losses at the Company's foreign subsidiary in Scotland which could not be utilized to offset other Company earnings for U.S. income tax purposes in the first nine months of fiscal 1995. The effective tax rate for fiscal 1996 was slightly above the U.S. regulatory rate of 35% due to domestic state income taxes which were slightly offset by lower effective tax rates at the Company's foreign subsidiaries. Liquidity and Capital Resources At May 31, 1996 the Company's principal sources of liquidity consisted of cash and available borrowings under the Company's credit facilities. The Company and its subsidiaries have committed line of credit facilities in place with a syndicate of banks that provide up to $60 million of working capital borrowing capacity. The Company generated $50.4 million of cash in operating activities for the nine months ended May 31, 1996. This increase in cash was primarily due to decreases in inventories of $32.3 million and accounts receivable of $17.8 million, depreciation and amortization of $12.9 million and net income of $17.8 million offset by a decrease in accounts payable of $28.8 million. Net cash used in investing activities of $23.2 million for the nine months ended May 31, 1996 was a result of the Company's capital expenditures for equipment at both domestic and foreign operations in order to support increased activities.
12 The company used $4.7 million of cash in financing activities for the nine months ended May 31, 1996. This was attributable to a $73 million reduction in borrowings under the company's line of credit facilities and a $30.8 million reduction in certain long term debt offset by $39.8 million received from the Company's secondary public offering completed November 3, 1995 and $ 59.9 million in proceeds from long term debt. At May 31, 1996 there were no borrowings under the working capital facility versus $73.0 million at August 31, 1995. In May 1996 , the Company completed a private placement of $50 million Senior Notes due 2004. At May 31, 1996, borrowing capacity of $60.0 million was available under the working capital facility which expires in 1998. The Company believes that funds provided by operations and available under the credit agreements combined with trade credit from its vendors and proceeds from the secondary public offering and debt financing will be sufficient to satisfy its currently anticipated working capital and capital expenditure requirements for the next twelve months. Business Factors Due to the nature of turnkey manufacturing and the Company's relatively small number of customers, the Company's quarterly operating results are affected by the levels and timing of orders; the level of capacity utilization of its manufacturing facilities and associated fixed costs; fluctuations in materials costs; and by the mix of materials costs versus manufacturing costs. Similarly, operating results are affected by price competition; level of experience in manufacturing a particular product; degree of automation used in the assembly process; efficiencies achieved by the Company in managing inventories and fixed assets; timing of expenditures in anticipation of increased sales; customer product delivery requirements; and shortages of components or labor. In the past, some of the Company's customers have terminated their manufacturing arrangement with the Company, and other customers have significantly reduced or delayed the volume of manufacturing services ordered from the Company. Any such termination of a manufacturing relationship or change, reduction or delay in orders could have an adverse affect of the Company's results of operations.
13 In particular, Quantum Corporation announced in January 1996 the cancellation of orders to Jabil for the manufacture of subassemblies for its high end disk drive products. This cancellation is expected to have an adverse impact on the Company's Malaysian plant over the next quarter. In light of this event and uncertain general industry conditions for the second half of calendar 1996 for computer equipment manufacturers, the Company's management intends to closely monitor manufacturing costs and to maintain flexibility in order to respond to changing business conditions and uncertainty. There can be no assurance that these events plus changing business conditions and uncertainties will not have an adverse effect on the Company's results of operations or financial condition. Litigation During the 1993 and 1994 fiscal years, the Company and Epson America, Inc. ("Epson") entered into serveral written and oral agreements and purchase orders providing for the joint development by the parties, and manufacture by the Company, of notebook computers pursuant to specifications provided by Epson. Pursuant to the parties' agreements, the Company procured materials for production. The Company contends that Epson breached the agreement by refusing to honor its purchase commitments citing production delays resulting from the unavailability of certain components and defects in certain materials supplied to the Company. On December 23, 1994, the Company instituted a breach of contract action against Epson in the Circuit Court of the Sixth Judicial Circuit of the State of Florida, requesting certain specified and unspecified monetary damages, including damages in an amount equal to $6,278,282, representing unpaid receivables, and incidental and consequential damanges, including, among others, loss of design and development costs, costs of unused or specially purchased inventory and lost profits. Such action was subsequently removed to the United States District Court for the Middle District of Florida. On July 21, 1995, Epson filed a counterclaim citing damages in excess of $52 million for, among other things, breach of contract and negligent misrepresention. The Company mitigated damages arising from Epson's breach by selling notebook computers to an electronics distributor. Epson contends that the Jabil computer manual furnished with these computers infringed certain Epson copyrights. The Company expects discovery to conclude during the second quarter of fiscal 1996 and the trial to commence later in 1996 calendar year. The parties have been unsuccessful in mediating or arbitrating their dispute, despite participation in multiple mediation and non binding arbitration sessions. The Company intends to pursue aggressively its legal claims and contest vigorously Epson's counterclaims. The Company believes strongly in the validity of its claims and believes that any potential exposure to the Company is substantially less than the $52 million claimed by Epson.However, such litigation may result in substatial costs and diversion of resources and, given the uncertainties inherent in litigation, could have a material adverse effect on the Company's operating results and financial condition, if decided adversely to the Company.
14 JABIL CIRCUIT, INC. AND SUBSIDIARIES Part II - OTHER INFORMATION Item 6: Exhibits and Reports on Form 8-K (a) Exhibits 10.53 Note purchase agreement and notes dated May 30, 1996, between the registrant , certain lenders and NBD Bank as collateral agent. 10.54 Loan agreementdated May 30, 1996, between registrant and certain banks and NBD Bank as agent for the banks. 11.1 Statement re Computation of Net Income per Share (b) Form 8-K No Reports on Form 8-K were filed by the Registrant during the quarter ended May 31, 1995.
15 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Jabil Circuit, Inc. ------------------- Registrant Date: 7/12/96 /s/ Thomas A. Sansone --------------------- Thomas A. Sansone President Date: 7/12/96 /s/ Ronald J. Rapp ---------------------- Ronald J. Rapp Chief Financial Officer