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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file number:
August 31, 1996 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, Florida 33716
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (813) 577-9749
______________________
Securities registered pursuant to Section 12b of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value per share
(Title of Class)
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 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 __
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K. /X/
The aggregate market value of the voting stock held by non-affiliates of
the Registrant (based on the closing sale price of the Common Stock as reported
on the Nasdaq National Market on November 22, 1996) was approximately
$242,276,302. For purposes of this determination, shares of Common Stock held
by each officer and director and by each person who owns 5% or more of the
outstanding Common Stock have been excluded in that such persons may be deemed
to be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes. The number of outstanding shares
of the Registrant's Common Stock as of the close of business on November 22,
1996, was 17,905,823.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's definitive Proxy Statement for the 1996 Annual Meeting
of Stockholders to be held on January 23, 1997 is incorporated by reference in
Part III of this Annual Report on Form 10-K to the extent stated herein.
PART I
Item 1. Business
General
Jabil Circuit, Inc. ("Jabil" or the "Company") is an independent
supplier of turnkey manufacturing services for circuit board assemblies,
subsystems and systems to major original equipment manufacturers ("OEM's") in
the personal computer, computer peripherals, communications and automotive
industries. The Company's manufacturing services combine a high volume, highly
automated manufacturing approach with advanced design and manufacturing
technologies. Management believes the Company is a leader in offering expanded
turnkey services such as circuit and production design and in the early
implementation of new manufacturing technologies. In fiscal 1996, virtually all
of the Company's net revenue was derived from circuit boards utilizing surface
mount technology, and certain of the products manufactured by the Company
incorporated new advanced technologies such as tape automated bonding.
In recent years, the contract manufacturing industry has grown
significantly. The Company believes that this growth has resulted from an
increase in the number of major OEMs adopting an external manufacturing
strategy, the growth of these OEMs and the growth of the electronics industry
in general. The demand for external manufacturing has been driven by the desire
of OEMs to access leading manufacturing technologies and capabilities and to
focus their efforts on core competencies, such as product development and
marketing. The outsourcing of manufacturing services has also enabled major
OEMs to reduce their time to volume and working capital requirements and
improve inventory management.
The foundation of the Company's strategy is the creation and support of
long-term manufacturing partnerships with leading electronics OEMs. Jabil
offers its customers a complete turnkey solution, including circuit and
production design; component selection, sourcing and procurement; automated
assembly; design and implementation of product test and shipment to points of
end user distribution. The Jabil turnkey approach enables a customer to
transfer virtually all internal manufacturing responsibilities to an outside
source.
An element of this strategy is to provide localized production of the
global products produced for OEMs in the major markets of the European
Community and Asia. The Company opened a production facility in Scotland in
fiscal 1993 to service regional demand in Europe and a production facility in
Malaysia in fiscal 1996 to service the Asian portion of demand for global
products of the Company's customers. The Company anticipates that these
overseas locations will produce assemblies primarily for consumption within the
region served as opposed to production for export outside of the region.
The Company was incorporated in Delaware on February 21, 1992 to succeed
to the business of a Michigan corporation named "Jabil Circuit Co., Inc." that
was incorporated in 1969. Unless the context otherwise requires, the "Company"
and "Jabil" refer to Jabil Circuit, Inc., a Delaware corporation, its
predecessor and its subsidiaries. The Company's executive offices are located
at 10800 Roosevelt Blvd., St. Petersburg, Florida 33716, and its telephone
number is (813) 577-9749.
Manufacturing Services
The Jabil Approach to Manufacturing
In order to achieve high levels of manufacturing performance, the
Company has adopted the following approach:
Work Cells. Manufacturing activities are organized on the basis of
"work cells" under the leadership of project managers, with dedicated
production lines consisting of equipment, production workers, supervisors and
engineers. A work cell is typically dedicated to the needs of a single customer
and is empowered to formulate strategies tailored to its customers' needs. The
work cell approach enables the Company to grow incrementally without disrupting
the production of other work cells and without significantly adding to
management bureaucracy. Production design is led by work cell members rather
than a separate engineering department. As a result, work cell members have
direct responsibility for manufacturing results and time to volume production,
promoting a sense of individual commitment and ownership.
Project Managers. Coordination of all manufacturing and related
engineering is conducted by a single project manager for each customer
relationship. Project managers have the authority to develop customer
relationships, make design strategy decisions and production commitments,
establish pricing and implement production and circuit design changes. Project
managers are also responsible for assisting customers with strategic planning
for their future products, including developing cost and technology goals.
These managers operate on an autonomous basis, with complete responsibility for
the development of customer relationships and direct profit and loss
responsibility for work cell performance.
Continuous Flow. The Company has adopted a highly automated "continuous
flow" approach where different pieces of equipment are joined directly or by
conveyor to create an in-line assembly process, in contrast to a "batch"
approach, where individual pieces of assembly equipment are operated as free
standing workcenters. Continuous flow manufacturing provides significant cost
reduction and quality improvement when applied to volume manufacturing. The
elimination of queue times prior to sequential operations results in increased
manufacturing velocity, because complex assemblies can be completed within
minutes of the first component placement.
Computer Integration. The Company supports all aspects of its
manufacturing activities with computerized control and monitoring systems.
Component inspection and vendor quality are monitored electronically. Materials
planning, purchasing, stockroom and shop floor control systems are supported
through a computerized Manufacturing Resources Planning ("MRP") system,
providing instantaneous visibility to material availability and real time
tracking of work in process. Manufacturing processes are supported by a real
time, computerized statistical process control ("SPC") system. In-circuit test,
functional test and final burn-in are all monitored and analyzed using other
proprietary systems. Production design centers located in each domestic
facility are supported by advanced CAD/CAE systems. These CAD/CAE systems
support automated test design and, using Jabil's proprietary computer-
integrated manufacturing software, manufacturing equipment programming. Many of
the Company's computer systems are networked, allowing a sharing of data and
programs. For example, employees in Florida can instantaneously access data
relating to Jabil's operations in other locations. More importantly, the
Company's customers can remotely access the Company's computer systems to
monitor real time yields, inventory positions, work in process status and
vendor quality data for their products. See "Technology."
Design Activities
Production Design. The Company engages in significant production design
activities. Production design is the process of designing the circuit board
using CAD and CAE tools, concurrently with component package selection and the
development of the bill of materials, approved vendors list, assembly equipment
configuration and processes, solder processes, in-circuit test and functional
test, test fixture design, "burn-in" and reliability monitoring plan. The
production design process improves manufacturability and generally eliminates
conflicts between disciplines while the product is still in the design phase.
Overall board costs are considered in connection with assembly costs, materials
costs and availability, process yield considerations and targeted sources for
board production. In this way, total costs can be minimized prior to production
launch. Management believes the Company's production design process greatly
accelerates time to volume production.
The process generally includes computer simulation and optimization of
electrical signal speed and circuit timing, simulation of thermal
characteristics and minimization of radio frequency interference ("RFI")
emissions. This computer simulation activity greatly reduces the risks of
subsequent engineering revisions and enhances attainment of time to volume
production goals.
Circuit Design. The Company initiates circuit design activities for
certain of its customers. Circuit design involves the creation of electronic
circuit architecture, which ordinarily include application specific integrated
circuit ("ASIC") selection and implementation, circuit function and speed
analysis, schematic development, net list generation and firmware development.
To date, the Company's circuit design activities have resulted in designs for
personal computers, notebook computers, cellular telephone accessories and
proprietary electronic products for use in automotive applications. The
resulting products are usually offered to existing or prospective customers on
an exclusive basis in exchange for the customer's commitment to use Jabil to
manufacture the product. The goals of the Company's circuit design activities
are to create a more stable stream of volume turnkey manufacturing and an
elevated level of strategic partnering with principal customers. The Company
has recently added staff and equipment to create a product validation and
network stress laboratory to accelerate the time to market of advanced network
environment computers. In fiscal 1996, approximately 20% of the Company's net
revenue was derived from products for which the Company provided circuit design.
Other Design Services. The Company procures additional mechanical and
other design services from external engineering firms in response to the needs
of its customers. The Company's engineering staff coordinates the efforts of
these external engineering firms to ensure integration of the external portions
of the design with the overall production and product design to achieve optimal
product manufacturability and efficiency.
System Assembly and Test
The Company offers system assembly and test services to its customers.
The Company maintains significant system assembly capacity and believes that
this segment will continue to develop.
Technology
The Company believes that its experience and expertise in advanced
manufacturing technologies and its investment in state-of-the-art manufacturing
equipment are a significant competitive advantage, enabling Jabil to cost
effectively provide customers with reliable and high-quality leading edge
products and processes. Among the technologies in which the Company has invested
are:
Surface Mount Technology. Surface mount technology ("SMT") is a method
of assembling printed circuit boards on which components are fixed directly to
the surface of the board instead of being inserted and soldered into plated
holes in the board (the latter method being commonly known as "pin through hole"
or "PTH"). SMT offers the advantages of miniaturization and significant cost
reductions. The higher density also allows shorter signal lengths, with
resulting increases in signal speed potential and thermal performance. SMT
packages are generally more resistant to vibration and often broadcast lower
levels of electrical emissions which cause RFI (Radio Frequency Interference).
Tape Automated Bonding. Tape automated bonding ("TAB") technology is a
complementary process to SMT and involves the use of semiconductors which are
attached to a gold or tin plated copper lead frame using a complex bumping and
thermocompression mass bonding method. The result is a component which can be
directly mounted on the surface of the circuit board and which can be
electrically tested prior to assembly onto the substrate. TAB is well suited
for applications involving high manufacturing volumes, high lead counts,
component pre-testing and high electrical speeds.
Chip on Board. Chip on board ("COB") technology utilizes unpackaged or
"bare" semiconductor die which are wire bonded onto the surface of the printed
circuit board, one wire at a time, and then sealed with an epoxy glob. COB
often results in lower component and assembly costs, although it requires more
costly gold pads on the substrate, cannot cost effectively be tested prior to
assembly and cannot be repaired following epoxy encapsulation. COB is well
suited for applications involving small chip count and lead count products. The
Company is currently engaged in preliminary research and development of COB
technology.
Thin Substrate Processes. Thin substrate processes involve the use of
specialized placement, rigidization and soldering techniques to achieve the
automated assembly and soldering of multilayer substrates having a thickness of
less than .020 of an inch. These substrates are commonly used in the design of
thin products, such as PCMCIA cards and cellular telephones. The lack of
stiffness typical in these substrates makes assembly with conventional
processing techniques difficult and expensive. The Company has a patent
application pending covering processes associated with these applications. See
"Proprietary Rights."
Reflow Solder of Mixed Technology Circuit Boards. Reflow soldering of
PTH devices utilizing SMT soldering processes (sometimes referred to as "Mixed
Technology Reflow" or "Reflow/reflow") involves the placement of PTH devices
through solder paste, with subsequent reflow using SMT processes to form solder
joints. Mixed Technology Reflow eliminates design miniaturization constraints
required by conventional wave solder processes used for PTH devices, allows
surface mounted devices to be soldered using the higher yielding reflow
processes, and reduces processing costs. Mixed Technology Reflow requires
significant product specific materials engineering, design of the substrate for
the process and specialized reflow soldering techniques.
Application Specific Robotic Assembly. Application specific robotic
assembly ("Robotics") involves the use of computer controlled robotic arms with
custom designed transfer mechanisms, feeders, sensors and grippers to perform
assembly functions ordinarily performed manually. Although intensive in capital
and engineering, the use of Robotics to replace manual operations promotes
higher yields, relieves assemblers from repetitive motion injuries and offers
significant cost reduction for long lived products.
Computer Integrated Manufacturing. Computer integrated manufacturing
("CIM") involves the direct link of CAD data to computer controlled assembly
and test equipment used to produce the product. By directly linking CAD data
files to production machines, waste generated in adjusting processes is
reduced, higher levels of mechanical precision are attained in placement and
test fixturing programs, and generally, cost is lowered with improved time to
volume production.
Customers and Marketing
In fiscal 1996, the Company's turnkey manufacturing revenue was
distributed over the following industry segments: personal computers (36%), disk
drives and other computer peripherals (25%), communications (30%) and automotive
(9%). A small number of customers have historically comprised a major portion of
the Company's net revenue. The table below sets forth the respective portion of
net revenue for the applicable period attributable to customers who accounted
for more than 10% of net revenue in any respective period.
Percentage of Net Revenue
Year ended August 31
--------------------
1994 1995 1996
---- ---- ----
Hewlett Packard Company.................... * 28% 20%
NEC Technologies, Inc...................... 28% 14% 15%
Quantum Corporation........................ 16% 17% 23%
3Com....................................... * * 11%
Cisco Systems Inc. ........................ * * 10%
* less than 10% of net revenues
In fiscal 1994, 1995 and 1996, 16, 18 and 18 customers, respectively,
accounted for substantially all the Company's net revenue. The Company expects
to continue to depend upon a relatively small number of customers for a
significant percentage of its net revenue. Significant reductions or delays in
sales to any of the Company's large customers would have a material adverse
effect on the Company's results of operations. 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. There can be no assurance that
present or future customers will not terminate their manufacturing arrangements
with the Company or significantly change, reduce or delay the amount of
manufacturing services ordered from the Company or that the Company will not
terminate arrangements with customers. Any such termination of a manufacturing
relationship by the Company or its customers or change, reduction or delay in
orders could have a material adverse effect on the Company's results of
operations. See Note 10 of Notes to Consolidated Financial Statements.
The Company has pursued diversification of its customer base and sought
multiple customers in the markets it serves. The Company's principal sources of
new business are the expansion of existing relationships, referrals, and direct
sales through its 27 project managers and executive staff. The Company does not
rely on sales or manufacturers' representatives. Project managers, supported by
the executive staff, identify and attempt to develop relationships with
potential customers who meet a certain profile. This profile includes financial
stability, need for technology driven turnkey manufacturing, anticipated unit
volume and long term relationship stability. Unlike traditional sales managers,
project managers are responsible for ongoing management of production for their
customers.
The Company is dependent upon the continued growth, viability and
financial stability of its customers, which are in turn substantially dependent
on the growth of the personal computer, computer peripherals, communications and
automotive industries. These industries have been characterized by rapid
technological change, short product life cycles, pricing and margin pressures.
In addition, many of the Company's customers in these industries are affected by
general economic conditions. The factors affecting the personal computer,
computer peripherals, communications and automotive industries in general,
and/or the Company's customers in particular, could have a material adverse
effect on the Company's results of operations. In addition, the Company
generates significant accounts receivable in connection with providing
manufacturing services to its customers. If one or more of the Company's
customers were to become insolvent or otherwise were unable to pay for the
manufacturing services provided by the Company, the Company's operating results
and financial condition would be adversely affected.
International Expansion
A key element in the Company's strategy is to provide localized
production of the global products produced for OEMs in the major consuming
regions of the European Community and Asia. In order to offer this localized
production, in fiscal 1993 the Company established a manufacturing facility in
Livingston, Scotland, which began volume production in May 1993. The Scotland
facility targets existing European customers, those North American customers
having significant sales in the European Community and potential European
customers who meet the profile discussed above.
Additionally, in response to customer requests, in March 1995 the
Company formed a corporation under the laws of Malaysia and in May 1995 leased a
facility in Penang, Malaysia. This operation began volume production in October,
1995. This facility enables the Company to provide manufacturing services, to
the Asian market, from an Asian location in order to reduce costs, freight and
duties, provide a more competitive cost structure for these markets and to serve
as a low cost manufacturing source for new and existing customers. See Note 10
of Notes to Consolidated Financial Statements.
The Company's international operations may be subject to a number of
other risks, including fluctuations in the value of currencies, export duties,
import controls and trade barriers (including quotas), restrictions on the
transfer of funds, employee turnover, work stoppages, longer payment cycles,
greater difficulty in accounts receivable collection, and burdens of complying
with a wide variety of foreign laws. In addition, net operating losses incurred
by foreign manufacturing facilities cannot be utilized by the Company to reduce
U.S. income taxes.
Competition
Competition in the contract manufacturing industry is intense. The
Company competes against numerous domestic and foreign manufacturers, including
SCI Systems, Inc., Solectron Corporation, Avex, Inc., Flextronics International,
DII Group and divisions of Intel. In addition, the Company may in the future
encounter competition from other large electronic manufacturers which are
selling, or may begin to sell, contract manufacturing services. Several of the
Company's competitors have international operations and some have substantially
greater manufacturing, financial, research and development and marketing
resources than the Company. The Company also faces competition from the
manufacturing operations of its current and potential customers, who are
continually evaluating the merits of manufacturing products internally versus
the merits of external manufacturing.
The Company believes that the primary bases of competition in its
targeted markets are capability, price, manufacturing quality, advanced
manufacturing technology, design expertise, time to volume, reliable delivery
and regionally dispersed manufacturing. Management believes the Company competes
favorably with respect to these factors. To remain competitive, the Company must
continue to provide technologically advanced manufacturing services, maintain
quality levels, offer flexible delivery schedules, deliver finished products on
a reliable basis and compete favorably on the basis of price. There can be no
assurance that the Company will be able to compete favorably with respect to
these factors in the future.
Backlog
The Company's order backlog at August 31, 1996 was approximately $210
million, compared to backlog of $437 million at August 31, 1995. Although the
backlog consists of firm purchase orders, the level of backlog at any particular
time is not necessarily indicative of future sales. Given the nature of the
Company's relationships with its customers, it frequently allows customers to
cancel or reschedule deliveries. Although the Company may seek to negotiate fees
to cover the costs of such cancellations or rescheduling, it may not be
successful in doing so.
The level and timing of orders placed by a customer of the Company
varies due to the customer's attempts to balance its inventory, design changes,
changes in the customer's manufacturing strategy, acquisitions of or
consolidations among customers and variation in demand for the customer's
products due to, among other things, product life cycles, competitive conditions
or general economic conditions. The Company's inability to forecast the level of
customer orders with certainty makes it difficult to schedule production and
maximize utilization of manufacturing capacity. In the past, the Company has
been required to increase staffing and other expenses in order to meet the
anticipated demand of its customers. Anticipated orders from the Company's
customers have, in the past, failed to materialize in certain instances or
delivery schedules have been deferred as a result of changes in the customer's
business needs, thereby adversely affecting the Company's results of operations.
On other occasions, customers have required rapid increases in production which
have placed an excessive burden on the Company's resources. Such customer order
fluctuations and deferrals have had a material adverse effect on the Company's
results of operations in the past, and there can be no assurance that the
Company will not experience such effects in the future.
Research and Development
To meet the increasingly sophisticated needs of its customers, Jabil
continually works to develop and refine new manufacturing processes, enhance
production design and develop new circuit designs. For fiscal 1994, 1995 and
1996, the Company expended $1,768,000, $1,819,000, and $2,112,000, respectively,
on research and development activities.
Manufacturing Processes
The Company conducts research and development in connection with the
development and refinement of new manufacturing processes that the Company
believes have near term commercial potential. This research and development
activity, which is accounted for as a research and development expense, is
performed primarily at Jabil's advanced engineering facility in San Jose,
California. Other manufacturing process developments and refinements are made in
connection with providing manufacturing services for particular customers and
related expenses are charged to cost of revenue.
Production Design
Jabil performs research and development for its customers in connection
with providing production design. This ongoing research and development is
associated with providing manufacturing services to these customers and is
charged to cost of revenue.
Circuit Design
From time to time, the Company performs research and development related
to new products on a project-by-project basis. The research and development
consists of design of the circuit board assembly and the related production
design necessary to manufacture the circuit board assembly in the most cost-
effective and reliable manner. The Company expenses these costs to research and
development expense. To date, substantially all of the Company's research and
development expenditures have related to internal research and development
activities.
The market for the Company's manufacturing services is characterized by
rapidly changing technology and continuing process development. The Company is
continually evaluating the advantages and feasibility of new manufacturing
processes, such as TAB, chip on board and thin substrate processes. The Company
believes that its future success will depend upon its ability to develop and
market manufacturing services which meet changing customer needs, maintain
technological leadership and successfully anticipate or respond to technological
changes in manufacturing processes on a cost-effective and timely basis. There
can be no assurance that the Company's process development efforts will be
successful.
Components
The Company procures components from a broad group of suppliers,
determined on an assembly-by-assembly basis. Almost all the products
manufactured by Jabil require one or more components that are ordered from only
one source, and most assemblies require components that are available from only
a single source. Some of these components are allocated in response to supply
shortages. The Company attempts to ensure continuity of supply of these
components. In cases where unanticipated customer demand or supply shortages
occur, the Company attempts to arrange for alternative sources of supply, where
available, or defers planned production to meet the anticipated availability of
the critical component. In some cases, supply shortages will substantially
curtail production of all assemblies using a particular component. In addition,
at various times there have been industry wide shortages of electronic
components, particularly memory and logic devices. There can be no assurance
that such shortfalls will not have a material adverse effect on the Company's
results of operations in the future.
Proprietary Rights
The Company regards its manufacturing processes and circuit designs as
proprietary trade secrets and confidential information. Jabil relies largely
upon a combination of trade secret laws, non-disclosure agreements with its
customers and suppliers and its internal security systems, confidentiality
procedures and employee confidentiality agreements to maintain the trade secrecy
of its circuit designs and manufacturing processes. Although the Company takes
steps to protect its trade secrets, there can be no assurance that
misappropriation will not occur.
The Company currently has nine patents and three patent applications
pending. However, Jabil believes that the rapid pace of technological change
makes patent protection less significant than such factors as the knowledge and
experience of management and personnel and the Company's ability to develop,
enhance and market manufacturing services.
The Company licenses some technology from third parties which it uses in
providing manufacturing services to its customers. The Company believes that
such licenses are generally available on commercial terms from a number of
licensors. Generally, the agreements governing such technology grant to Jabil
non-exclusive, worldwide licenses with respect to the subject technology and
terminate upon a material breach by the Company.
Although the Company does not believe that its circuit designs or
manufacturing processes infringe on the proprietary rights of third parties,
there can be no assurance that third parties will not assert infringement claims
against the Company in the future with respect to current or future designs or
processes. Any such assertion may require the Company to enter into an expensive
royalty arrangement or result in costly litigation.
Employees
As of August 31, 1996, the Company had 2,649 full-time employees. This
compares to 2,661 full-time employees at August 31, 1995. None of the Company's
employees are represented by a union. The Company believes its relationships
with employees are good.
Recruitment of personnel in the contract manufacturing industry is
highly competitive. The Company believes that its future success will depend, in
part, on its ability to continue to attract and retain highly skilled technical
and management personnel. The Company does not have employment agreements or
noncompetition agreements with its key employees. Although to date the Company
has been successful in retaining key managerial and technical employees, the
loss of services of certain of these key employees could have a material adverse
effect on the Company.
Item 2. Properties
The Company owns a 108,000 square foot facility in St. Petersburg,
Florida, which houses its corporate staff in addition to volume production
operations. Similar manufacturing operations are conducted in a 125,000 square
foot facility located in Auburn Hills, Michigan, which is also owned by the
Company, and in leased facilities located in Livingston and Bathgate, Scotland,
aggregating 70,000 square feet. The Company also leases a 75,000 square foot
facility for final assembly operations in St. Petersburg, a 12,500 square foot
facility in St. Petersburg for storage of components and work in process, a
30,000 square foot warehouse space in Auburn Hills, and a 60,000 square foot
manufacturing facility in Penang, Malaysia. Design and prototype manufacturing
activities are conducted in a 13,500 square foot facility leased in San Jose,
California.
The Company is subject to a variety of environmental regulations
relating to the use, storage, discharge and disposal of hazardous chemicals used
during its manufacturing process. Although the Company is currently in
substantial compliance with all material environmental regulations, any failure
by the Company to comply with present and future regulations could subject it to
future liabilities or the suspension of production. In addition, such
regulations could restrict the Company's ability to expand its facilities or
could require the Company to acquire costly equipment or to incur other
significant expense to comply with environmental regulations.
Item 3. Legal Proceedings
During the 1994 fiscal year, the Company instituted a breach of
contract action against Epson of America Inc. requesting certain specified and
unspecified monetary damages. On July 21, 1995, Epson filed a counterclaim
citing damages for, among other things,breach of contract and negligent
misrepresentation. The Company expects discovery to conclude during the first
half of fiscal 1997 and the trial to commence in the second half fiscal 1997 in
the United States District Court for the Middle District of Florida. The
parties have been unsucessful in mediating or arbitratig the 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 amount claimed by Epson. The company believes that adequate
provision has been made in its consolidated financial statements for
adverse exposure related to this matter. However, such litigation may result in
substantial costs and diversion of resources and, given 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.
The Company is party to certain other lawsuits in the ordinary course of
business. Management does not believe that these proceedings, individually or in
the aggregate, are material or that any adverse outcomes of these lawsuits will
have a material adverse effect on the Company's financial statement.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's stockholders during
the fourth quarter covered by this report.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Common Stock of the Company trades publicly on The Nasdaq National
Market under the symbol JBIL. The following table sets forth, for the periods
indicated, the high and low closing sales prices per share for the Company's
Common Stock as reported by the Nasdaq National Market.
High Low
---- ---
Year Ended August 31, 1995
First Quarter (September 1, 1994--November 30, 1994) $ 6.75 $ 4.63
Second Quarter (December 1, 1994--February 28, 1995) $ 5.75 $ 3.88
Third Quarter (March 1, 1995--May 31, 1995) $ 6.75 $ 4.81
Fourth Quarter (June 1, 1995--August 31, 1995) $ 14.25 $ 6.00
Year Ended August 31, 1996
First Quarter (September 1, 1995--November 30, 1995) $ 22.13 $ 12.00
Second Quarter (December 1, 1995--February 29, 1996) $ 23.00 $ 5.88
Third Quarter (March 1, 1996--May 31, 1996) $ 14.63 $ 7.75
Fourth Quarter (June 1, 1996--August 31, 1996) $ 14.00 $ 8.63
As of August 31, 1996, there were approximately 633 holders of record of
the Company's Common Stock.
The Company has never paid cash dividends on its capital stock and does
not anticipate paying any cash dividends in the foreseeable future. The terms of
the Company's $4,000,000 industrial revenue bond prohibit the Company from
paying dividends in the form of cash or property. The bond has a term of twenty
years and is scheduled to mature on December 1, 2008. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and Note 6 of Notes to Consolidated Financial
Statements.
Item 6. Selected Consolidated Financial Data
The information set forth below is not necessarily indicative of the
results of future operations and should be read in conjunction with the
consolidated financial statements and notes thereto appearing in Item 8 of this
report.
Item 6. Selected Consolidated Financial Data (continued)
Years Ended August 31,
------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(in thousands, except for per share amounts)
Consolidated Statement of Operations Data:
Net revenue.............................$ 173,145 $ 334,662 $ 375,815 $ 559,474 $ 863,285
Cost of revenue........................ 156,263 304,454 351,608 523,338 790,311
------- ------- ------- ------- -------
Gross profit............................ 16,882 30,208 24,207 36,136 72,974
Selling, general and administrative.... 9,202 11,812 14,038 17,898 25,456
Research and development............... 894 1,663 1,768 1,819 2,112
------- ------- ------- ------- -------
Operating income........................ 6,786 16,733 8,401 16,419 45,406
Interest expense, net.................. 1,794 3,288 3,470 6,347 7,333
------- ------- ------- ------- -------
Income before income taxes.............. 4,992 13,445 4,931 10,072 38,073
Income taxes........................... 1,794 5,300 2,363 2,792 13,724
------- ------- ------- ------- -------
Net income..............................$ 3,198 $ 8,145 $ 2,568 $ 7,280 $ 24,349
======== ======== ======== ========= ========
Net income per share $ 0.27 $ 0.59 $ 0.17 $ 0.47 $ 1.34
Number of shares used in computing
per share amounts 12,054 13,892 15,447 15,550 18,167
August 31,
-------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(in thousands)
Consolidated Balance Sheet Data:
Working capital........................ $ 13,824 $ 29,116 $ 27,639 $ 33,333 $ 115,758
Total assets........................... 60,354 115,763 174,318 280,961 299,940
Notes payable to bank and current
installments of long-term obligations.... 8,463 20,369 48,562 81,130 2,451
Long-term obligations, excluding current
installments............................. 8,325 18,176 18,215 27,932 58,371
Net stockholders' equity................. 25,094 47,553 51,231 59,595 124,234
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Overview
The Company provides high volume turnkey manufacturing services using
surface mount technology for leading electronics OEMs in the personal computer,
disk drive and peripherals, communications and automotive industries. In turnkey
manufacturing, unlike manufacturing on consignment, the Company is responsible
for procuring the components utilized in the manufacturing process. The
component procurement responsibility requires the Company to provide significant
working capital, materials management, purchasing, receiving inspection and
stockroom management. This approach transfers the economic risks of materials
cost fluctuations, excess scrap and inventory obsolescenceto the Company.The
Company believes that turkey manufacturing generates higher net revenue than
consignment manufacturing due to the generation of revenue from materials as
well as labor and manufactuing overhead, but also results in lower gross margins
than consignment manufacturing because the Company generally realizes lower
gross margins on material-based revenue than on manufacturing based revenue.
The Company's annual and quarterly operating results are affected by a
number of factors. The primary factors affecting operating results are the level
and timing of customer orders, fluctuations in materials costs and the mix of
materials costs versus labor and manufacturing overhead costs. The level and
timing of orders placed by a customer vary due to the customer's attempts to
balance its inventory, design changes, changes in a customer's manufacturing
strategy, acquisitions of or consolidations among customers, and variation in
demand for a customer's products due to, among other things, product life
cycles, competitive conditions and general economic conditions. In the past,
changes in orders from customers have had a significant effect on results of
operations due to corresponding changes in the level of overhead absorption.
Other factors affecting the Company's annual and quarterly operating results
include price competition, the Company's level of experience in manufacturing a
particular product, the degree of automation used in the assembly process, the
efficiencies achieved by the Company in managing inventories and fixed assets,
the timing of expenditures in anticipation of increased sales, customer product
delivery requirements and shortages of components or labor.
Operating results are also affected by the level of capacity utilization
of manufacturing facilities, indirect labor and selling, general and
administrative expenses. Accordingly, gross margins and operating income margins
have generally improved during periods of high volume and high capacity
utilization. Jabil generally has idle capacity and reduced operating margins
during periods of lower-volume production.
The Company has continued to depend upon a relatively small number of
customers for a significant percentage of its net revenue. Significant
reductions in sales to any of the Company's large customers would have a
material adverse effect on the Company's results of operations. In the past,
including fiscal year 1996 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. There can be no assurance that present or future customers
will not terminate their manufacturing arrangements with the Company or
significantly change, reduce or delay the amount 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 effect on the
Company's results of operations or financial condition. See Note 10 of Notes to
Consolidated Financial Statements.
Results of Operations
The following table sets forth, for the periods indicated, certain
operating data as a percentage of net revenue:
Years Ended August 31,
-------------------------
1994 1995 1996
---- ---- ----
Net revenue............................ 100.0% 100.0% 100.0
Cost of revenue........................ 93.6 93.6 91.5
------ ------ ------
Gross margin........................... 6.4 6.4 8.5
Selling, general and administrative.... 3.7 3.2 2.9
Research and development............... 0.5 0.3 0.3
------- ------ ------
Operating income....................... 2.2 2.9 5.3
Interest expense, net.................. 0.9 1.1 0.9
------- ------ ------
Income before income taxes............. 1.3 1.8 4.4
Income taxes........................... 0.6 0.5 1.6
------- ------ ------
Net income............................. 0.7 1.3 2.8
======= ====== ======
Net Revenue
Net revenue increased 48.9% over fiscal 1994 to $559.5 million in fiscal
1995. The increase was due primarily to manufacturing services provided to
established customers plus the addition of four new customers which more than
offset the loss of certain customers. Net revenue increased 54.3% over fiscal
1995 to $863.3 million in fiscal 1996. The increase was due primarily to
manufacturing services provided to established customers, the addition of five
new customers and the addition of new divisions within existing customers.
Foreign source revenue represented 6.7% of net revenue for fiscal 1994,
and 21.3% of net revenue for fiscal 1995. Foreign source revenue represented
30.9% of net revenue for fiscal 1996 compared to 21.3% for fiscal 1995. The
increase in foreign source revenue in fiscal 1996 was primarily due to increased
sales to existing customers, and a shift of geographic locations for an existing
customer. See Note 10 of Notes to Consolidated Financial Statements.
Gross Margin
Cost of revenue includes the cost of materials and the cost of labor and
manufacturing overhead, as well as provisions for inventory adjustments. The
Company's various customers typically require different manufacturing services.
Different manufacturing services have different gross margins depending upon (i)
the mix of materials costs versus manufacturing costs, and (ii) the Company's
experience in manufacturing a particular product. The Company typically realizes
better gross margins on manufacturing-based revenue than it does on materials-
based revenue, and better gross margins on manufacturing services for products
with which it has more experience due to the increased efficiencies achieved
over time. Gross margins also fluctuate due to changes in materials costs.
Gross Margin (continued)
Gross margin remained constant at 6.4% in fiscal 1994 and 1995. Gross
margins in both periods were negatively impacted by write-offs related to the
Epson product. Gross margins in 1995 were also negatively impacted by
underutilization of the Company's system assembly operations. Gross margin
increased to 8.5% in fiscal 1996. The increase in gross margin was primarily
attributable to a shift to more manufacturing based revenues and increased
capacity utilization in fiscal 1996.
Selling, General and Administrative
Selling, general and administrative expenses decreased from 3.7% of net
revenue in fiscal 1994 to 3.2% of net revenue in fiscal 1995. In absolute
dollars, these expenses increased from $14.0 million in fiscal 1994 to $17.9
million in fiscal 1995. This increase was primarily due to increased staffing to
support higher revenue levels. Selling, general and administrative expenses
decreased from 3.2% of net revenue in fiscal 1995 to 2.9% of net revenue in
fiscal 1996. In absolute dollars these expenses increased from $17.9 million in
fiscal 1995 to $25.5 million in fiscal 1996. This increase was primarily due to
increased staffing to support higher revenues and the addition of the Company's
Malaysia operation.
Research and Development
Research and development expenses in fiscal 1995 increased slightly in
absolute dollars, reflecting an increase in design-based activity, but remained
the same at 0.3% of net revenue in fiscal 1995 and fiscal 1996.
Interest Expense
Net interest expense increased from $3.5 million in fiscal 1994 to $6.3
million in fiscal 1995 due primarily to increased borrowing levels and, to a
lesser extent, higher interest rates. Interest expense increased to $7.3 million
in fiscal 1996 due primarily to increased borrowings, offset by somewhat lower
interest rates and a significant reduction of borrowings in the fourth quarter.
See Notes 5, 6 and 7 of Notes to Consolidated Financial Statements.
Income Taxes
The Company's effective tax rate decreased from 47.9% in fiscal 1994 to
27.7% in fiscal 1995. This reduction in the effective tax rate was attributable
to the utilization of loss carryforwards against the 1995 income of the
Company's Scottish subsidiary. The Company's effective tax rate increased to
36.0% in fiscal 1996 primarily due to the decrease in the availability of net
operating losses of foreign subsidiaries. See Note 8 of Notes to Consolidated
Financial Statements.
Quarterly Results
The following tables set forth certain unaudited quarterly financial
information for the 1995 and 1996 fiscal years. In the opinion of management,
this information has been presented on the same basis as the audited
consolidated financial statements appearing elsewhere, and all necessary
adjustments (consisting of normal recurring adjustments and certain non-
recurring adjustments) have been included in the amounts stated below to present
fairly the unaudited quarterly results when read in conjunction with the audited
consolidated financial statements of the Company and related notes thereto. The
operating results for any quarter are not necessarily indicative of results for
any future period.
Fiscal 1995 Fiscal 1996
--------------------------------------- ----------------------------------------
Nov. 30, Feb. 28, May 31, Aug. 31, Nov. 30, Feb. 29, May 31, Aug. 31,
1994 1995 1995 1995 1995 1996 1996 1996
(in thousands, except per share amounts)
Net revenue................ $107,191 $114,447 $132,441 $205,395 $233,855 $235,628 $219,701 $174,101
Cost of revenue........... 98,127 108,651 124,610 191,950 216,537 217,360 201,142 155,272
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit............... 9,064 5,796 7,831 13,445 17,318 18,268 18,559 18,829
Selling, general and
administrative........... 4,089 4,663 4,464 4,682 5,561 6,070 6,612 7,213
Research and development... 349 474 405 591 399 528 576 609
----- ----- ----- ----- ----- ----- ----- -----
Operating income........... 4,626 659 2,962 8,172 11,358 11,670 11,371 11,007
Interest expense........... 1,350 1,398 1,521 2,078 2,663 2,323 1,768 611
----- ----- ----- ----- ------ ------ ------ -----
Income (loss) before income
taxes..................... 3,276 (739) 1,441 6,094 8,695 9,347 9,603 10,396
Income Tax expense......... 1,450 28 207 1,107 3,480 3,009 3,366 3,869
----- ----- ----- ----- ----- ----- ----- -----
Net income (loss).......... $ 1,826 $ (767) $ 1,234 $ 4,987 $ 5,215 $ 6,338 $ 6,237 $ 6,527
======= ======== ======= ======= ======= ======= ======= ======= =
Net income (loss) per share $ 0.12 $ (0.05) $ 0.08 $ 0.32 $ 0.31 $ 0.34 $ 0.34 $ 0.35
Number of shares used in
computing net income per
share.......................... 15,469 14,549 15,533 15,813 16,777 18,520 18,608 18,763
Liquidity and Capital Resources
During the three fiscal years ended August 31, 1996, the Company
primarily funded operations through borrowings under credit facilities with
several banks, a secondary public offering in fiscal 1996, and a private
placement of debt in 1996. During the most recent fiscal year, the Company
experienced significant growth in net revenue while generating significant cash
flows from operations.
At August 31, 1996, the Company's principal sources of liquidity
consisted of cash and available borrowings under the Company's credit
facilities.
Net cash provided by operating activities for the year ended August 31,
1996 was $100.1 million. This consisted primarily of $24.3 million of net
income, $18.2 million of depreciation, $28.8 million of decreases in accounts
receivable and $26.8 million of decreases in inventories.
Liquidity and Capital Resources (continued)
Net cash used in investing activities of $26.9 million for the year ended
August 31, 1996 was primarily a result of the Company's capital expenditures for
equipment and facilities domestically, in Scotland, and in Malaysia to support
increased manufacturing activities.
Net cash used by financing activities of $5.3 million for the year ended
August 31, 1996 resulted from $58.0 million proceeds of term debt, and $40.1
million proceeds from issuance of common stock offset by $32.6 million in
payments of term debt and $73.0 million in payments of notes payable. See Notes
5 and 6 of Notes to Consolidated Financial Statements.
The Company believes that current cash balances, available borrowings,
and funds provided by operations will be sufficient to satisfy working capital
requirements for the next twelve months.
Item 8. Financial Statements and Supplemental Data
Certain information required by this item is included on page 16 in Item
7 of Part II of this Report under the heading "Quarterly Results" and is
incorporated into this item by reference. All other information required by this
item is included on pages 23 to 39 in Item 14 of Part IV of this Report and is
incorporated into this item by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Company
Information regarding the directors of the Company is incorporated by
reference to the information set forth under the caption "Proposal No. 1:
Election of Directors" in the Company's Proxy Statement for the 1996 Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission
(the "Commission") within 120 days after the end of the Company's fiscal year
ended August 31, 1996.
Executive Officers of the Company
At October 31, 1996 the executive officers of the Company are as follows:
Name Age Position
William D. Morean 40 Chief Executive Officer and Chairman of the
Board
Thomas A. Sansone 47 President and Director
Ronald J. Rapp 43 Chief Financial Officer and Director
Linda V. Moore 49 Corporate Secretary and General Counsel
Wesley B. Edwards 43 Vice President, Operations
Timothy L. Main 38 Vice President, Business Development
Frank Krajcirovic 48 Vice President, Quality Control
Paul H. Bittner 51 Vice President, Advanced Engineering
David S. Ebeling 54 Vice President, Procurement
Randon A. Haight 46 Vice President, Business Development, Europe
Chris A. Lewis 36 Treasurer
Officers are appointed by the Board of Directors and serve at the
discretion of the Board. Each executive officer is a full-time employee of the
Company. There are no family relationships among the officers and directors of
the Company.
Mr. Morean has served as Chief Executive Officer and Chairman of the
Board since 1988 and as a director since 1978. Mr. Morean joined the Company in
1977 and assumed management of day-to-day operations the following year. Prior
to serving as Chief Executive Officer and Chairman of the Board, Mr. Morean
served as President and Vice President and held various operating positions.
Mr. Sansone has served as President of the Company since September 1988
and as a director since 1983. Mr. Sansone joined the Company in 1983 as Vice
President. Prior to joining Jabil, Mr. Sansone was a practicing attorney.
Mr. Rapp has served as Chief Financial Officer and Treasurer since August
1988 and as a director since September 1988. Mr. Rapp joined the Company in 1983
as Controller and was promoted to Treasurer in 1984. Prior to joining Jabil,
Mr. Rapp was the Corporate Controller for Van Pelt Corporation, a wholesale
distributor of steel tubing products. Before joining Van Pelt, Mr. Rapp was a
certified public accountant with the accounting firm of Ernst & Ernst.
Ms. Moore has served as Corporate Secretary and General Counsel since
joining the Company in March 1989. Prior to joining Jabil, Ms. Moore was the
Corporate Counsel to El Camino Resources, a capital equipment lessor, from March
1987 to March 1989. Before joining El Camino Resources, Ms. Moore was Assistant
General Counsel at NFC Leasing and CMI Corporation, both capital equipment
lessors.
Mr. Edwards has been Vice President, Operations since July 1994 and has
served in that capacity since May 1994. Mr. Edwards joined the Company as
Manufacturing Manager of its Michigan facility in July 1988 and was promoted to
Operations Manager of the Florida facility in July 1989.
Mr. Main has served as Vice President, Business Development since May
1991. Mr. Main joined the Company in April 1987 as a Production Control Manager,
was promoted to Operations Manager in September 1987 and to Project Manager in
July 1989. Prior to joining the Company, Mr. Main was a commercial lending
officer, international division, for the National Bank of Detroit.
Mr. Krajcirovic has been Vice President, Quality Control since June 1988.
Mr. Krajcirovic joined the Company in 1982 as a Quality Engineer, was promoted
to Manager of Quality in 1983, and was promoted to Director of Quality in
September 1987. Prior to joining Jabil, Mr. Krajcirovic held various reliability
engineering positions with Massey Ferguson, Inc., a farm equipment manufacturer,
and Fundimensions, Inc., Lionel Division, a toy manufacturer.
Mr. Bittner has been Vice President, Advanced Engineering since January
1992. Mr. Bittner joined the Company in 1986 as Manufacturing Engineering
Manager, was promoted to Director of Manufacturing Engineering in April 1987,
and was promoted to Vice President, Manufacturing Engineering, in June 1988.
Prior to joining Jabil, Mr. Bittner held various positions with United
Technologies Automotive Electronics Group.
Mr. Ebeling joined Jabil as Vice President, Procurement in November 1992.
Prior to joining Jabil, he held the position of Director of Procurement, Quality
& Traffic at NEC Technology, a manufacturer of personal computers, printers and
monitors from July 1988 to November 1992. He also held the position of Director
of Materials at Eastman Kodak from 1986 until July 1988, and held similar
positions at Unisys, Wang Labs and Motorola prior to 1986.
Mr. Haight has served as Vice President, Business Development, Europe
since May 1992. Mr. Haight joined the Company as a Project Manager in July 1989.
Prior to joining Jabil, Mr. Haight was the President of Cardinal Automotive, an
automobile customizer, from December 1987 to July 1989. Before joining Cardinal
Automotive, Mr. Haight was a Group Manager at Terry Barr Sales, Inc., a
manufacturers' representative to the automotive industry.
Mr. Lewis joined Jabil as Treasurer in June 1995. From July 1989 to May
1995, Mr. Lewis was U.S. Controller of Peek PLC, a high technology manufacturing
group. Prior to July 1989, Mr. Lewis was with the accounting firm of KPMG Peat
Marwick and is a certified public accountant.
Item 11. Executive Compensation
Information regarding executive compensation is incorporated by reference
to the information set forth under the captions "Proposal No. 1: Election of
Directors -- Compensation of Directors" and "Executive Officer Compensation" in
the Company's Proxy Statement for the 1996 Annual Meeting of Stockholders to be
filed with the Commission within 120 days after the end of the Company's fiscal
year ended August 31, 1996.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information regarding security ownership of certain beneficial owners
and management is incorporated by reference to the information set forth under
the caption "Other Information--Share Ownership by Principal Stockholders and
Management" in the Company's Proxy Statement for the 1996 Annual Meeting of
Stockholders to be filed with the Commission within 120 days after the end of
the Company's fiscal year ended August 31, 1996.
Item 13. Certain Relationships and Related Transactions
Information regarding certain relationships and related transactions is
incorporated by reference to the information set forth under the caption
"Certain Transactions" in the Company's Proxy Statement for the 1996 Annual
Meeting of Stockholders to be filed with the Commission within 120 days after
the end of the Company's fiscal year ended August 31, 1996.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this Report:
1. Financial Statements. The consolidated financial statements, and
related notes thereto, of the Company with independent auditors'
report thereon are included in Part IV of this Report on the pages
indicated by the Index to Consolidated Financial Statements and
Schedules as presented on page 21 of this Report.
2. Financial Statement Schedules. The consolidated financial statement
schedules of the Company are included in Part IV of this Report on
the pages indicated by the Index to Consolidated Financial Statements
and Schedules as presented on page 21 of this Report. The
independent auditors' report as presented on page 22 of this
Report also applies to the consolidated financial statement
schedules. These consolidated financial statement schedules should be
read in conjunction with the consolidated financial statements, and
related notes thereto, of the Company.
Schedules not listed in the Index to Consolidated Financial
Statements and Schedules have been omitted because they are not
applicable, not required, or the information required to be set forth
therein is included in the consolidated financial statements or notes
thereto.
3. Exhibits. See Item 14(c) below.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the
Company during the last quarter of the fiscal year ended August 31,
1996.
(c) Exhibits. The exhibits listed on the accompanying exhibit index
immediately following the financial statement schedules are filed as
part of, or incorporated by reference into, this Report.
(d) Financial Statement Schedules. See Item 14(a) above.
JABIL CIRCUIT, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Page
----
Independent Auditors' Report........................................... 22
Consolidated Financial Statements:
Consolidated Balance Sheets--August 31, 1994 and 1995............. 23
Consolidated Statements of Operations--Years ended August
31, 1993, 1994, and 1995....................................... 24
Consolidated Statements of Stockholders' Equity--Years ended
August 31, 1993, 1994, and 1995............................... 25
Consolidated Statements of Cash Flows--Years ended August
31, 1993, 1994, and 1995....................................... 26
Notes to Consolidated Financial Statements....................... 27
Consolidated Financial Statement Schedules:
Schedule VIII -- Valuation and Qualifying Accounts............... S-1
Schedule IX -- Short Term Borrowings........................... S-2
INDEPENDENT AUDITORS' REPORT
The Board of Directors
JABIL CIRCUIT, INC.:
We have audited the consolidated financial statements of Jabil Circuit,
Inc. and subsidiaries as listed in the accompanying index. In connection with
our audits of the consolidated financial statements, we also have audited the
financial statement schedules as listed in the accompanying index. These
consolidated financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Jabil
Circuit, Inc. and subsidiaries as of August 31, 1995 and 1996, and the results
of their operations and their cash flows for each of the years in the three-year
period ended August 31, 1995, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly, in all material respects, the information set forth
therein.
St. Petersburg, Florida
October 7, 1996 /s/ KPMG Peat Marwick LLP
--------------------------
JABIL CIRCUIT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except for share and per share data)
August 31,
----------
1995 1996
---- ----
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 5,486 $ 73,319
Accounts receivable, less allowance for doubtful accounts of $669
in 1995 and $1,170 in 1996 (Note 6 and 10)...................... 116,472 84,839
Inventories (Notes 3 and 6)........................................ 91,658 64,869
Refundable income taxes............................................ 2,043 - -
Prepaid expenses and other current assets.......................... 701 340
Deferred income taxes (Note 8)..................................... 1,837 3,971
-------- --------
Total current assets............................................ 218,197 227,338
Property, plant and equipment, net (Notes 4, 6 and 7)............. 61,722 70,704
Other assets......................................................... 1,042 1,898
-------- --------
$280,961 $299,940
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank (Note 5)...................................... $ 73,000 $ - -
Current installments of long-term debt (Note 6).................... 7,474 1,979
Current installments of capital lease obligations (Note 7)......... 656 472
Accounts payable................................................... 90,612 78,600
Accrued expenses................................................... 13,122 24,550
Income taxes payable............................................... - - 5,979
-------- -------
Total current liabilities....................................... 184,864 111,580
Long-term debt, less current installments (Note 6)................... 26,343 57,257
Capital lease obligations, less current installments (Note 7)........ 1,589 1,114
Deferred income taxes (Note 8)....................................... 3,625 2,883
Deferred grant revenue............................................... 4,945 2,872
--------- -------
Total liabilities............................................... 221,366 175,706
--------- -------
Stockholders' equity (Notes 2 and 9):
Preferred stock, $.001 par value, authorized 1,000,000 shares;
no shares issued and outstanding................................... - - - -
Common stock, $.001 par value, authorized 20,000,000 shares
in 1995 and 60,000,000 shares in 1996; issued and outstanding,
14,774,907 shares in 1995, and 17,798,223 in 1996.................. 15 18
Additional paid-in capital......................................... 16,718 56,924
Retained earnings.................................................. 42,970 67,319
--------- -------
59,703 124,261
Less unearned compensation from grant of stock option........... 108 27
Net stockholders' equity........................................ 59,595 124,234
Commitments and contingencies (Notes 7, 10 and 11)...................
--------- -------
$280,961 $299,940
========= ========
See accompanying notes to consolidated financial statements.
JABIL CIRCUIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share data)
Years ended August 31,
--------------------------
1994 1995 1996
---- ---- ----
Net revenue (Note 10)................................................ $ 375,815 $ 559,474 $ 863,285
Cost of revenue.................................................... 351,608 523,338 790,311
--------- --------- ---------
Gross profit......................................................... 24,207 36,136 72,974
Operating expenses:
Selling, general and administrative................................ 14,038 17,898 25,456
Research and development........................................... 1,768 1,819 2,112
--------- --------- ---------
Operating income..................................................... 8,401 16,419 45,406
Interest expense, net................................................ 3,470 6,347 7,333
--------- --------- ---------
Income before income taxes........................................... 4,931 10,072 38,073
Income taxes (Note 8)................................................ 2,363 2,792 13,724
--------- --------- ---------
Net income........................................................... $ 2,568 $ 7,280 $ 24,349
========= ========= =========
Net income per share................................................. $ .17 $ .47 $ 1.34
--------- --------- ---------
Weighted average number of shares of common stock and
common stock equivalents........................................... 15,447 15,550 18,167
========= ========= =========
See accompanying notes to consolidated financial statements.
JABIL CIRCUIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except for share data)
Unearned
Common Stock Additional Notes receivable compensation Net
Shares paid-in Retained from employee for from grant of stockholders
outstanding Par value capital earnings purchase of stock stock option equity
----------- --------- ---------- -------- ----------------- ------------- -------------
Balance at August 31, 1993....... 13,904,573 $14 $14,728 $33,122 $(39) $(272) $47,553
Exercise of stock options
(Note 9)....................... 362,720 -- 232 -- -- -- 232
Repayment of note receivable
from employee -- -- -- -- 39 -- 39
Amortization of unearned
compensation .................. -- -- -- -- -- 82 82
Shares issued under Employee
Stock Purchase Plan (Note 9)... 91,229 -- 524 -- -- -- 524
Tax benefit of options exercised -- -- 233 -- -- -- 233
Net income....................... -- -- 2,568 -- -- 2,568
---------- --------- ---------- -------- ---------------- -------------- -------------
Balance at August 31, 1994....... 14,358,522 14 15,717 35,690 -- (190) 51,231
Exercise of stock options
(Note 9)....................... 296,126 1 325 -- -- -- 326
Amortization of unearned
compensation .................. -- -- -- -- -- 82 82
Shares issued under Employee
Stock Purchase Plan (Note 9)... 120,259 -- 409 -- -- -- 409
Tax benefit of options exercised. -- -- 267 -- -- -- 267
Net income....................... -- -- -- 7,280 -- -- 7,280
---------- --------- ---------- -------- ---------------- -------------- -------------
Balance at August 31, 1995....... 14,774,907 15 16,718 42,970 -- (108) 59,595
Exercise of stock options
(Note 9)....................... 64,900 -- 268 -- -- -- 268
Secondary Public Offering
(Note 2)....................... 2,875,000 3 39,149 -- -- -- 39,152
Amortization of unearned
compensation .................. -- -- -- -- -- 81 81
Shares issued under Employee
Stock Purchase Plan (Note 9)... 83,416 -- 678 -- -- -- 678
Tax benefit of options exercised. -- -- 111 -- -- -- 111
Net income....................... -- -- -- 24,349 -- -- 24,349
---------- -------- ---------- -------- ---------------- -------------- -------------
Balance at August 31, 1996....... 17,798,223 $ 18 $ 56,924 $ 67,319 $ -- $ (27) $ 124,234
========== ======== ========== ======== ================ ============== =============
See accompanying notes to consolidated financial statements.
JABIL CIRCUIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years ended August 31,
----------------------
1994 1995 1996
---- ---- ----
Cash flows from operating activities:
Net income.................................................. $ 2,568 $ 7,280 $ 24,349
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization............................. 9,460 11,991 18,210
Recognition of grant revenue.............................. (225) (1,103) (2,073)
Deferred income taxes..................................... (844) 2,275 (2,876)
Gain on sale of property.................................. (118) (56) 168
Change in operating assets and liabilities:
Accounts receivable...................................... (28,050) (44,659) 28,828
Inventories.............................................. (23,314) (36,747) 26,789
Prepaid expenses and other current assets................ 544 (488) 361
Refundable income taxes.................................. (132) (1,644) 2,154
Other assets............................................. (193) (586) (1,241)
Accounts payable and accrued expenses.................... 25,862 50,689 (584)
Income taxes payable..................................... 35 -- 5,979
------- -------- -------
Net cash (used) provided by operating activities....... (14,407) (13,048) 100,064
Cash flows from investing activities:
Acquisition of property, plant and equipment................ (15,398) (25,821) (27,252)
Proceeds from sale of property and equipment................ 155 397 358
-------- -------- --------
Net cash used in investing activities.................... (15,243) (25,424) (26,894)
Cash flows from financing activities:
Increase (decrease) in note payable to bank................. 27,700 29,400 (73,000)
Proceeds from long-term debt................................ 5,000 15,142 57,994
Payments of long-term debt.................................. (3,873) (4,792) (32,575)
Payments of capital lease obligations....................... (595) (1,000) (659)
Net proceeds from issuance of common stock.................. 756 735 40,098
Repayment of note receivable from officer/employee.......... 39 -- --
Proceeds from grants........................................ 1,104 2,675 2,805
------- -------- --------
Net cash provided (used) by financing activities......... 30,131 42,160 (5,337)
------- -------- --------
Net increase in cash.......................................... 481 3,688 67,833
Cash at beginning of period................................... 1,317 1,798 5,486
------- -------- --------
Cash at end of period......................................... $ 1,798 $ 5,486 $73,319
------- -------- --------
Supplemental disclosure information:
Interest paid............................................... $ 3,151 $ 6,163 $ 7,639
======= ======= ========
Income taxes paid, net of refunds received.................. $ 3,304 $ 2,428 $ 9,578
======= ======= ========
Long term obligations incurred to acquire property, plant and
equipment................................................ $ -- $ 3,535 $ --
======= ======= ========
Tax benefit of options exercised............................ $ 233 $ 267 $ 111
======= ======= ========
See accompanying notes to consolidated financial statements.
JABIL CIRCUIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
a. Consolidation
The consolidated financial statements include the accounts and operations
of Jabil Circuit, Inc. and its wholly owned subsidiaries Jabil Circuit Limited,
a corporation organized on December 24, 1992 under the laws of the United
Kingdom and Jabil Circuit SDN BHD, a corporation organized on March 18, 1995
under the laws of Malaysia (together the "Company"). All significant
intercompany accounts and transactions have been eliminated in preparing the
consolidated financial statements.
b. Revenue Recognition
The Company recognizes revenue typically at the time of product shipment.
Such revenue is recorded net of estimated product return and warranty costs. At
August 31, 1995 and 1996, such estimated amounts for returns and warranties are
not considered material.
c. Accounting Estimates
Management is required to make estimates and assumptions during the
preparation of the consolidated financial statements in conformity with
generally accepted accounting principals. These estimates and assumptions
effect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the dates of the consolidated financial
statements. They also affect the reported amount of net income. Actual results
could differ from these estimates and assumptions.
d. Inventories
Inventories are stated at the lower of cost (first in, first out (FIFO)
method) or market.
e. Property, Plant and Equipment
Property, plant and equipment is stated at cost and depreciated and
amortized on the straight-line method over the estimated useful lives of the
respective assets, primarily thirty-five years for buildings and five years for
other assets. Maintenance and repairs are charged to expense as incurred.
f. Cash Equivalents
The Company considers all highly liquid instruments with original
maturities of 90 days or less to be cash equivalents for financial statement
purposes. At August 31, 1996 cash equivalents totaled approximately
$54,679,000.
g Grant Revenue
During the years ended August 31, 1993 and 1994, the Company was awarded
certain grants related to the development of its Scottish operations. Grant
funds are earned as certain milestones are met, and are being amortized
over two to five year periods. During the year ended August 31, 1995 the
Company attained all milestones related to certain of the grants. Based on this
achievement, the company changed the amortization of these grants from five
years to two years. The effect of this change in amortization was an increase
of approximately $342,000 to operating income for the year ended
August 31, 1995.
h. Income Taxes
The Company accounts for income taxes in accordance with the provisions
of Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes." Under the asset and liability method of Statement 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under Statement 109, the effect on deferred tax assets
and liabilities of a change in the tax rate is recognized in income in the
period that includes the enactment date of the rate change.
JABIL CIRCUIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Summary of Significant Accounting Policies (continued)
i. Profit Sharing and 401(k) Plan
The Company has a contributory profit-sharing plan with a 401(k) feature.
Company contributions are at the discretion of the Company's Board of Directors.
To participate, an employee must have completed a 12-month period of service in
which the employee worked at least 1,000 hours. Vesting is immediate. The
Company contributed approximately $649,000, $1,091,000, and $1,650,000 for the
years ended August 31, 1994, 1995, 1996, respectively.
j. Foreign Currency Transactions
Gains or losses on foreign currency transactions are included in the
determination of net income. To date, such amounts have not been material.
k. 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
related period. Common equivalent shares consist of stock options, using the
treasury stock method.
l. Accounting for Stock Based Compensation
During the years ended August 31, 1994, 1995 and 1996, the Company
accounted for stock based compensation using intrinsic value based method as
prescribed by Accounting Principals Board Opinion No. 25 Accounting for Stock
Issued to Employees.
In October of 1995, the Financial Accounting Standards Board (FASB)
issuedStatement of Financial Accounting Standard No. 123 (SFAS 123) Accounting
for Stock Based Compensation effective for transactions entered into during
fiscal years beginning after December 15, 1995. SFAS 123 provides alternatives
for the methods used by entities to record compensation expense associated with
its stock based compensation plans. Additionally, SFAS 123 provides further
guidance on the disclosure requirements relating to stock based compensation
plans. Management believes that it will most likely adopt the disclosure
provisions of SFAS 123 and as such, the adoption will not have a material
impact on the financial condition or results of operations of the Company.
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 underwriter's discounts,
commissions and other offering costs of approximately $350,000) were
approximately $39,152,000.
3. Inventories
Inventories consist of the following (in thousands):
August 31,
----------
1995 1996
---- ----
Raw materials...................................................... $ 71,764 $ 54,197
Work in process.................................................... 19,763 7,685
Finished goods..................................................... 131 2,987
-------- --------
$ 91,658 $ 64,869
======== ========
JABIL CIRCUIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Property, Plant and Equipment
Property, plant and equipment consists of the following (in thousands):
August 31,
----------
1995 1996
---- ----
Land and improvements............................................... $ 5,233 $ 6,006
Buildings........................................................... 12,301 12,262
Leasehold improvements.............................................. 1,054 3,346
Machinery and equipment............................................. 72,369 89,695
Furniture, fixtures and office equipment............................ 10,641 13,979
Transportation equipment............................................ 1,239 1,817
Construction in progress............................................ 207 826
------- -------
103,044 127,931
Less accumulated depreciation and amortization...................... 41,322 57,227
------- -------
$61,722 $70,704
======= =======
Maintenance and repairs expense was approximately $2,498,000, $2,652,000
and $4,320,000 for the years ended August 31, 1994, 1995 and 1996, respectively.
5. Note Payable to Bank
In May 1996, the Company renegotiated its secured line of credit
facility and established a $60,000,000 unsecured revolving credit facility
with a syndicate of banks ("Revolver"). At August 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 banks' prime rate and 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 ratio. 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 ratio. The Revolver expires on May 30, 1998. As of
August 31, 1996, the Company was in compliance with the covenants contained in
the Revolver.
JABIL CIRCUIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Long-Term Debt
Long-term debt consists of the following (in thousands):
August 31,
----------
1995 1996
---- ----
Term loans(a)....................................................... $25,971 $53,916
Industrial revenue bonds(b)......................................... 3,005 2,676
Mortgage (c)........................................................ 2,869 2,644
Other............................................................... 1,972 ---
------- -------
Total long-term debt.............................................. 33,817 59,236
Less current installments of long-term debt....................... 7,474 1,979
------- ------
Long-term debt, less current installments......................... $26,343 $57,257
======= =======
(a) 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
annualinstallments beginning May 30, 1999. The Company's Scottish subsidiary
entered into a $5.7 million Term Loan Facility with Heller Financial in March
1995. The Term Loan is secured by eligible accounts receivable, inventories,
and machinery and equipment. Under the terms of the $5.7 million Term Loan
Facility, the principal balance is paid monthly, over a four year period.
Interest is based on LIBOR plus 3.25% (8.68% at August 31, 1996). At August 31,
1996, the outstanding balance of the Term Loan was approximately $3,916,000.
(b) The Company has borrowed an aggregate of $5,880,000 pursuant to two
industrial revenue bonds related to development of its Florida facility, one
dated June 1, 1983 in the principal amount of $1,880,000 (the "1983 Bond") with
a term of fifteen years (through June 1, 1998) and a second dated August 29,
1988 in the principal amount of $4,000,000 (the "1988 Bond") with a term of
twenty years (through December 1, 2008). Interest on the 1983 Bond and the 1988
Bond currently accrues at a rate of 91.7% of prime per annum and prime plus
1.0%, respectively (7.57% and 9.25% respectively at August 31, 1996). Principal
payments on the 1983 Bond and 1988 Bond of $32,000 and $50,000, respectively,
are made quarterly plus accrued interest. The balance of the bonds at August 31,
1996 was approximately $226,000 and $2,450,000, respectively.
JABIL CIRCUIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Long-Term Debt (continued)
(c) The Company obtained a $3,375,000 mortgage in December 1992 from NBD
Bank in connection with the construction of its Auburn Hills, Michigan facility.
The Company pays interest on outstanding borrowings at 7.65% per annum. The
mortgage is to be repaid in 19 quarterly installments of $56,000 plus interest
through December 31, 1997, with a final balloon payment of $2,306,000 due on
March 31, 1998.
The agreements related to the obligations described above contain a
number of restrictive financial and/or other covenants. In all cases, the
Company was in compliance with the respective covenants as of August 31, 1996.
Repayment of the 1988 Bond discussed in paragraph (b) and the mortgage discussed
in paragraph (c) has been guaranteed by the Company's Chief Executive Officer
and President. Certain other stockholders have also guaranteed repayment of the
1983 Bond discussed in paragraph (b).
Aggregate annual maturities of long-term debt for the succeeding five
fiscal years are as follows (in thousands):
Amount
------
1997............................................................... $ 1,979
1998............................................................... 4,140
1999............................................................... 9,601
2000............................................................... 8,533
2001............................................................... 8,533
Thereafter......................................................... 26,450
-------
$59,236
=======
JABIL CIRCUIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Leases
The Company, through its Scottish subsidiary, has an equipment lease
facility with Lombard North Central PLC which it entered into in November 1994
(the "Lombard Equipment Lease"). The Lombard Equipment Lease bears interest at
rates of 7.5% and 8.0%. Repayment is required to be made in 20 equal quarterly
installments following the date the equipment is purchased. The Lombard
Equipment Lease transfers ownership of the equipment to the Company at the end
of the lease period. At August 31, 1996 the outstanding balance under the
Lombard Equipment Lease was approximately $1,586,000. Property, plant and
equipment includes the following amounts capitalized under these leases
(in thousands):
August 31,
----------
1995 1996
---- ----
Machinery and equipment......................... $ 6,037 $ 2,022
Less accumulated depreciation................... 3,473 692
------- -------
$ 2,564 $ 1,330
======= =======
The future minimum lease payments under noncancelable leases at August
31, 1996 are as follows (in thousands):
Capital Operating
Year ending August 31, leases leases
- ---------------------- ------- ---------
1997............................... $ 579 $ 2,215
1998............................... 588 1,674
1999............................... 588 1,806
2000............................... 38 433
2001............................... __ 419
Thereafter......................... -- 1,675
------- ---------
Total minimum lease payments....... $ 1,793 $ 8,222
======= =========
Less amounts representing interest. 207
-------
Present value of net minimum lease payments 1,586
Less current installments of capital lease
obligations 472
-------
Capital lease obligations,
less current installments $ 1,114
=======
Total rent expense for operating leases was approximately $780,000,
$1,129,000, and $3,354,000 for the years ended August 31, 1994, 1995, and 1996,
respectively.
JABIL CIRCUIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Income Taxes
As discussed in note 1, the Company accounts for income taxes under
Statement 109. Income tax expense amounted to $2,363,000, $2,792,000, and
$13,724,000 for the years ended August 31, 1994, 1995 and 1996, respectively (an
effective rate of 48%, 28% and 36%, respectively). The actual expense differs
from the "expected" tax expense (computed by applying the U.S. Federal corporate
tax rate of 35% to earnings before income taxes) as follows (in thousands):
Years ended August 31,
----------------------
1994 1995 1996
---- ---- ----
Computed "expected" tax expense..................................... $ 1,726 $ 3,525 $13,326
State taxes, net of Federal benefit................................. 130 63 698
Losses incurred by foreign subsidiaries............................. 573 75 --
Utilization of net operating loss from
Foreign subsidiaries.............................................. -- (1,063) (389)
Nondeductible interest expense...................................... -- 205 (34)
Other, net.......................................................... (66) (13) 123
-------- -------- --------
$ 2,363 $ 2,792 $13,724
======= ======= =======
The components of income tax expense are (in thousands):
Current Deferred Total
------- -------- -----
1994:
Federal........................................................... $ 2,945 $ (780) $ 2,165
State............................................................. 262 (64) 198
------- --------- -------
$ 3,207 $ (844) $ 2,363
======= ========= =======
1995:
Federal........................................................... $ 564 $ 1,653 $ 2,217
State............................................................. (47) 142 95
Foreign........................................................... -- 480 480
-------- -------- -------
$ 517 $ 2,275 $ 2,792
======= ======== =======
1996:
Federal........................................................... $14,496 $ (2,360) $12,136
State............................................................. 1,280 (204) 1,076
Foreign........................................................... 824 (312) 512
------- --------- -------
$16,600 $ (2,876) $13,724
======= ========= =======
JABIL CIRCUIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Income Taxes (continued)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as follows
(in thousands):
August 31,
----------
1995 1996
---- ----
Deferred tax assets:
Accounts receivable, principally due to allowance for doubtful
accounts....................................................... $ 254 $ 406
Grant revenues.................................................... 279 494
Inventories, principally due to reserves and additional costs
inventoried for tax purposes pursuant to the Tax Reform Act of
1986........................................................... 773 701
Compensated absences, principally due to accrual for financial
reporting purposes............................................. 417 661
Accrued expenses, principally due to accruals for financial
reporting purposes............................................. 76 1,596
Other............................................................. 55 130
----- -----
Total gross deferred tax assets................................ 1,854 3,988
Less valuation allowance....................................... 17 17
----- -----
Net deferred tax assets........................................ $1,837 $3,971
====== ======
Deferred tax liabilities:
Property, plant and equipment, principally due to differences in
depreciation and amortization.................................. $3,625 $2,883
====== ======
Management believes that it is more likely than not that the Company
will realize the benefit of its net deferred tax assets.
JABIL CIRCUIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Stock Option and Stock Purchase Plans
Stock Option Plans
As of August 31, 1996, options to purchase a total of 1,017,720 shares
were outstanding under the 1983 and 1989 stock option plans. These plans were
terminated by the Board of Directors in November 1992, and no additional share
options may be issued thereunder. The exercise price of the outstanding options
under these plans is equal to fair market value, as determined by the Company,
on the date of grant.
The Company's 1992 Stock Option Plan (the "1992 Plan") provides for the
granting to employees of incentive stock options within the meaning of Section
422 of the Internal Revenue Code (the "Code") and for the granting of
nonstatutory stock options to employees and consultants of the Company. A total
of 905,000 shares of common stock has been reserved for issuance under the 1992
Plan. As of August 31, 1996 options to purchase 703,280 shares are outstanding
under the 1992 Plan.
The exercise price of all incentive stock options granted under the 1992
Plan is to be at least equal to the fair market value of shares of common stock
on the date of grant. With respect to any participant who owns stock
representing more than 10% of the voting power of all classes of stock of the
Company, the exercise price of any stock option granted is to equal at least
110% of the fair market value on the grant date and the maximum term of the
option may not exceed five years. The term of all other options under the 1992
Plan may not exceed ten years.
JABIL CIRCUIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Stock Option and Stock Purchase Plans
Stock Option Plans (continued)
The following table summarizes option activity through August 31, 1996:
Options Outstanding
-----------------------------------------------------------------
Shares Option
available price Aggregate
for grant Shares per share value
--------- ------ --------- ---------
Balance at August 31, 1993...................... 84,500 2,093,800 $0.40-7.00 $4,332,000
Options granted................................. (8,000) 8,000 8.00 64,000
Options canceled................................ 19,480 (19,480) 7.00 (137,000)
Options exercised............................... -- (362,720) 0.45-7.00 (232,000)
------ ---------- --------- ----------
Balance at August 31, 1994...................... 95,980 1,719,600 $0.40-8.00 $4,027,000
Options authorized.............................. 500,000 -- -- --
Options granted................................. (298,000) 298,000 5.00-6.50 1,531,000
Options canceled................................ 25,000 (92,034) 1.82-7.00 (281,000)
Options exercised............................... -- (296,126) .40-7.00 (326,000)
-------- ---------- ---------- ----------
Balance at August 31, 1995...................... 322,980 1,629,440 $0.40-8.00 $4,951,000
Options granted................................. (175,000) 175,000 8.00-12.88 1,459,000
Options canceled................................ 18,540 (18,540) 5.00-7.00 (104,000)
Options exercised............................... -- (64,900) 1.75-7.00 (268,000)
-------- ---------- ---------- -----------
Balance at August 31, 1996...................... 166,520 1,721,000 $0.40-12.88 $6,038,000
======== ========== =========== ===========
At August 31, 1996, options for 1,380,100 shares were exercisable.
JABIL CIRCUIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Stock Option and Stock Purchase Plans (continued)
Stock Purchase Plan
The Company's 1992 Employee Stock Purchase Plan (the "Purchase Plan") is
intended to qualify under Section 423 of the Code. As of August 31, 1996, a
total of 402,500 shares of Common Stock has been reserved for issuance under the
Purchase Plan.
Employees are eligible to participate after one year of employment with
the Company. The Purchase Plan permits eligible employees to purchase common
stock through payroll deductions, which may not exceed 10% of an employee's
compensation, as defined, at a price equal to 85% of the fair market value of
the Common Stock at the beginning or end of the offering period, whichever is
lower. Unless terminated sooner, the Purchase Plan will terminate ten years from
its effective date. As of August 31, 1996, a total of 318,477 shares had been
issued under the Purchase Plan.
JABIL CIRCUIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Concentration of Risk and Geographic Data
Concentration of Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables. The
Company performs ongoing credit evaluations of its customers and generally does
not require collateral. The Company maintains reserves for potential credit
losses.
Sales of the Company's products are concentrated among specific
customers. Sales to the following customers, expressed as a percentage of
consolidated net revenue, and the percentage of accounts receivable for each
customer, were as follows (in thousands):
Percentage of
Accounts Receivable
-------------------
Year ended August 31, August 31, August 31,
---------------------
1994 1995 1996 1995 1996
---- ---- ---- ---- ----
Hewlett Packard Company(1)...................... * 28% 20% 30% *
NEC Technologies Inc............................ 28% 14% 15% * 24%
Quantum Corporation............................. 16% 17% 23% 30% 21%
3Com............................................ * * 11% * *
Cisco Systems.................................. * * 10% * *
* Amount was less than 10% of total
(1) Includes activity related to a subcontractor of Hewlett Packard Company.
JABIL CIRCUIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Concentration of Risk and Geographic Data (continued)
Geographic Data
The Company has defined the three geographic regions for the segments in
which it operates: North America, Europe and Asia. The following data does not
consider fully the extent of interrelated activities between the regions
including product development, manufacturing, engineering, marketing and
corporate management. Accordingly, the following amounts are not necessarily
indicative of the operating contribution of the segments. The following table
sets forth information concerning these geographic segments (in thousands):
Years ended August 31
1995 1996
---- -----
Sales to Unaffiliated Customers:
North America............................................... $459,179 $595,941
Europe...................................................... 100,295 161,195
Asia........................................................ -0- 106,149
Export Sales................................................ 27,973 88,150
Operating Income (Loss):
North America............................................... 12,085 40,811
Europe...................................................... 4,547 3,244
Asia........................................................ (213) 1,351
Identifiable Assets:
North America, including corporate.......................... 219,504 239,582
Europe...................................................... 61,299 48,022
Asia........................................................ 158 12,336
Foreign source revenue for the years ended August 31, 1994, 1995 and 1996
was approximately 7%, 21% and 31%, respectively.
JABIL CIRCUIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Litigation
During the 1994 fiscal year, the Company instutited a breach of contract
action against Epson of America, Inc. requesting certain specified and
unspecified monetary damages. On July 21, 1995, Epson filed a counterclaim
citing damages for, among other things, breach of contract and negligent
misrepresentation. The Company currently expects discovery to conclude
during the first half of fiscal 1997 and the trial to commence in the second
half fiscal 1997 in the United States District Court for the Middle District of
Florida. The parties have been unsuccessful in mediating or arbitrating
the 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 amount claimed by Epson. The
Company believes that adequate provision has been made in its consolidated
financial statements for adverse exposure related to this matter. 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.
The Company is party to certain other lawsuits in the ordinary course of
business. Management does not believe that these proceedings, individually or in
the aggregate, are material or that any adverse outcomes of these lawsuits will
have a materially adverse effect on the Company's financial statements.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized on this day of
November, 1996.
JABIL CIRCUIT, INC.
By: /s/ THOMAS A. SANSONE
Thomas A. Sansone, President
POWER OF ATTORNEY
KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Thomas A. Sansone and Ronald J.
Rapp and each of them, jointly and severally, his attorneys-in-fact, each with
full power of substitution, for him in any and all capacities, to sign any and
all amendments to this Report on Form 10-K, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each said
attorneys-in-fact or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report on Form 10-K has been signed below by the following persons on
behalf of the Registration and in the capacities and on the dates indicated:
Signature Title Date
/s/ WILLIAM D. MOREAN Chief Executive Officer November 25, 1996
William D. Morean (Principal Executive Officer)
and Chairman of the Board
/s/ THOMAS A. SANSONE President and Director November 25, 1996
Thomas A. Sansone
/s/ RONALD J. RAPP Chief Financial Officer and November 25, 1996
Ronald J. Rapp Director (Principal Financial
and Accounting Officer)
/s/ STEVEN A. RAYMUND Director November 25, 1996
Steven A. Raymund
/s/ LAWRENCE J. MURPHY Director November 25, 1996
Lawrence J. Murphy
/s/ MEL S. LAVITT Director November 25, 1996
Mel S. Lavitt
Exhibit Index
3.1(1) -- Registrant's Certificate of Incorporation, as amended.
3.2(1) -- Registrant's Bylaws.
4.1(2) -- Form of Certificate for Shares of Registrant's Common Stock.
4.2(1) -- Form of Agreement and Plan of Merger between Jabil Circuit
Co., Inc., a Michigan corporation, and Jabil Circuit, Inc.,
a Delaware corporation.
10.1(1)(12) -- 1983 Stock Option Plan and forms of agreement used
thereunder.
10.2(1)(12) -- 1989 Non-Qualified Stock Option Plan and forms of agreement
used thereunder.
10.3(1)(12) -- 1992 Stock Option Plan and forms of agreement used
thereunder.
10.4(1)(12) -- 1992 Employee Stock Purchase Plan and forms of agreement
used thereunder.
10.5(1)(12) -- Restated cash or deferred profit sharing plan under section
401(k).
10.6(1)(12) -- Form of Indemnification Agreement between Registrant and its
officers and directors.
10.8(1) -- Term Loan between Registrant and Chrysler Capital
Corporation dated November 15, 1990.
10.10(1) -- Term Loan between Registrant and NBD Bank, N.A. dated June
30, 1992.
10.11(1) -- Term Loan between Registrant and NBD Bank, N.A. dated as of
December 11, 1992.
10.14(1) -- Master Equipment Lease Agreement between Registrant and
ELLCO Leasing Corporation, and the related schedules
thereto, dated October 1, 1990.
10.16(1) -- Lease for 2220 Lundy Avenue, San Jose, California, between
Registrant and Lundy Associates dated April 1, 1992.
10.18(1) -- $1,880,000 Pinellas County Industry Council Industrial
Development Revenue Bonds, Series 1983.
10.19(1) -- $4,000,000 Pinellas County Industry Council Industrial
Development Revenue Bonds, Series 1988.
10.20(1) -- Real Estate Purchase Agreement between Registrant and the
Morean Investment Partnership dated August 24, 1988, for the
purchase of the manufacturing facility located in St.
Petersburg Florida, and the related documents thereto.
10.21(1) -- Agreement of Sale between Registrant and Metro Tech
Associates Limited Partnership dated December 10, 1991, for
the facility located in Auburn Hills, Michigan.
10.23(1) -- Junior Mortgage Loan dated December 29, 1992 between
Registrant and Barnett Bank of Pinellas County.
10.24(1) -- Construction Loan Agreement dated as of December 1, 1992
between Registrant and NBD Bank, N.A.
10.25(1) -- Letter Agreement date November 27, 1992 between Registrant
and Scottish Office Industry Department relating to
L5,000,000 grant to establish Scottish facility.
10.26(1) -- Lease Agreement dated December 22, 1992 between Registrant
and Lothian and Edinburgh Enterprise Limited for facilities
at Fleming Road, Livingston, Scotland, as amended.
10.27(1)+ -- Basic Order Agreement between Registrant and Quantum
Corporation dated March 2, 1992.
10.29(3) -- Term Loan between Registrant and Sun Trust (previously known
as Sun Bank of Tampa Bay) dated April 16, 1993.
10.32(4) -- Joint Venture Agreement dated August 17, 1993 between
Registrant and Noise Cancellation Technologies.
10.33(5) -- Lease Agreement between Connie and Vincent Dotolo and Jabil
Circuit, Inc. dated November 30, 1993.
10.34(6)(12)-- Amendment to 1989 Non-Qualified Stock Option Plan.
10.40(7) -- Renewal dated March 21, 1994 of Lease for 2220 Lundy Avenue,
San Jose, California, between Registrant and Lundy
Associates.
10.41(7) -- Term Loan between Registrant and NBD Bank, N.A. dated May 2,
1994.
10.42(8) -- First Amendment to Term Loan between Registrant and NBD Bank
N.A. dated September 20, 1994.
10.43(8) -- Agreement of Sale between Registrant and Metro North
Technology Park dated September 24, 1994.
10.44(9) -- Capital Lease between Jabil Circuit Limited and Lombard
North Central PLC dated November 25, 1994.
10.48(10) -- Lease dated March 30, 1995, for 2 Inchmuir Road, Whitehill
Industrial Estate, Bathgate, West Lothian, Scotland between
Registrant and C&W Assets Ltd.
10.49(10) -- Closing Package dated April 7, 1995, for purchase of Lot 6,
Gateway Industrial Park, St. Petersburg, Florida between
Registrant and City of St. Petersburg.
10.50(10) -- Term Promissory Note dated April 21, 1995, between
Registrant and Heller Financial, Inc.
10.51(10) -- Tenancy Agreement dated May 12, 1995, for Plot 63, Mukim 12,
Daerah Barat Daya, Penang, Malaysia between Registrant and
Mastex Sendirian Berhard.
10.52(10) -- Loan Agreement dated May 30, 1995, between Registrant and
NBD Bank, N.A.
10.53(11) -- Epson/Jabil Retrofit Agreement dated February 17, 1995
between Registrant and Epson America, Inc.
10.54(11) -- Agreement dated July 1, 1995 between the Registrant and
Motorola Ltd.
10.55(11) -- Development Agreement dated as of September 15, 1993 between
Hewlett-Packard France and Registrant
10.56(11) -- International Purchase Agreement dated as of September 23,
1993 between Hewlett-Packard France and Registrant
10.57(11) -- Letter of Intent dated as of July 1, 1994 between Hewlett-
Packard France and Registrant
10.58(11) -- Product Purchase Agreement dated as of October 1, 1994
between Hewlett-Packard France and Registrant.
10.59(13) -- First Amendment to Loan Agreement dated July 31, 1995,
between Registrant and NBD Bank, N.A.
10.60(13) -- Lease Agreement dated September 8, 1995, between Registrant
and Connie and Vincent Dotolo.
10.61(14) -- Note Purchase Agreement and Notes dated May 30, 1996 between
registrant and certain lenders and NBD Bank as collateral
agent.
10.62(14) -- Loan Agreement dated May 30, 1996 between registrant and
certain banks and NBD Bank as agent for Banks.
11.1 -- Statements of Computation of Earnings Per Share.
23.1 -- Independent Auditors' Consent.
24.1 -- Power of Attorney (see Page 39).
__________
+ Confidential treatment has been previously granted as to portions of this
exhibit. The confidential portions which were omitted from these exhibits
were filed separately with the Securities and Exchange Commission.
++ Confidential treatment has been requested as to portions of this exhibit.
The confidential portions which have been omitted from these exhibits have
been filed separately with the Securities and Exchange Commission.
(1) Incorporated by reference to the Registration Statement on Form S-1 filed
by the Registrant on March 3, 1993 (File No. 33-58974).
(2) Incorporated by reference to Amendment No. 1 to the Registration Statement
on Form S-1 filed by the Registrant on March 17, 1993 (File No. 33-58974).
(3) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q filed on July 15, 1993.
(4) Incorporated by reference to the Registrant's Annual Report on Form 10-K
filed on November 26, 1993.
(5) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q filed on January 14, 1994.
(6) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q filed on April 13, 1994.
(7) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q filed on July 7, 1994.
(8) Incorporated by reference to the Registrant's Annual Report on Form 10-K
filed November 29, 1994.
(9) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q filed December 20, 1994.
(10) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q filed June 21, 1995.
(11) Incorporated by reference to the Registration Statement on Form S-1 filed
by the Registrant on September 15, 1995.
(12) Indicates management compensatory plan, contract or arrangement.
(13) Incorporated by reference to the Registrant's Annual Report on Form 10-K
filed November 10, 1995.
(14) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q filed July 15, 1996.
Except as noted, each exhibit listed in this index is incorporated by
reference to the exhibit of the same number.
SCHEDULE VIII
JABIL CIRCUIT, INC. AND SUBSIDIARIES
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Additions
Balance at charged to Balance at
beginning cost and end of
of period expense Write-offs period
---------- ---------- ----------- ---------
Year ended August 31, 1994:
Allowance for uncollectible accounts
receivable..................................... $ 200 $ 33 $ 33 $ 200
Inventory Reserve................................. $ 1,197 $ 4,887 $ 926 $ 5,158
========== ========== =========== ========
Year ended August 31, 1995:
Allowance for uncollectible accounts
receivable..................................... $ 200 $ 837 $ 368 $ 669
Inventory Reserve................................. $ 5,158 $ 5,034 $ 9,219 $ 973
========== ========== =========== ========
Year ended August 31, 1996:
Allowance for uncollectible accounts
receivable..................................... $ 669 501 0 $ 1,170
Inventory Reserve................................. $ 973 $ 5,178 $ 3,850 $ 2,301
========== ======= ======= ========
SCHEDULE IX
JABIL CIRCUIT, INC. AND SUBSIDIARIES
SCHEDULE OF SHORT TERM BORROWINGS
(in thousands)
Weighted
Balance at Weighted Maximum balance Average balance average interest
end of average outstanding during outstanding during rate during
period interest rate the period(1) the period(1) the period(1)
---------- ------------- ------------------ ------------------ ----------------
Year ended August 31, 1994 --
Note payable to bank $43,600 6.69% $55,800 $25,415 6.19%
========== ============= ================== ================== ================
Year ended August 31, 1995 --
Note payable to bank $73,000 8.57% $77,000 $47,925 8.20%
========== ============= ================== ================== ================
Year ended August 31, 1996 --
Note payable to bank $ -- $ -- $94,000 $45,412 9.00%
========== ============= ================== ================== ================
__________
(1) Computed based on daily balances.
EXHIBIT 11.1
JABIL CIRCUIT, INC. AND SUBSIDIARIES
STATEMENTS OF COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share amounts)
Years ended August 31,
----------------------
1994 1995 1996
---- ---- ----
Net income........................................................ $ 2,568 $ 7,280 $24,349
======= ======= =======
Computation of weighted average common and common equivalent
shares outstanding:
Common stock...................................................... 14,156 14,589 17,229
Options........................................................... 1,291 961 938
------- ------- -------
Total number of shares used in computing per share
amounts......................................................... 15,447 15,550 18,167
======= ======= =======
Net income per share.............................................. $ .17 $ .47 $ 1.34
======= ======= =======
Exhibit 23.1
The Board of Directors
Jabil Circuit , Inc.
We consent to the incorporation by refrence in the registration statement
(No. 33-63820) on Form S-8 of Jabil Circuit, Inc. of our report dated October 7,
1996, relating to the consolidated balance sheets of Jabil Circuit, Inc. and
subsidiaries as of August 31, 1995 and 1996, and the related consolidated
statements of operations, stockholders equity, and cash flows and related
schedules for each of the years in the three-year period ended August 31, 1996,
which report appears in the August 31, 1995 annual report on form 10-K of Jabil
Circuit, INC.
St. Petersburg, Florida
November 26, 1996 /s/ KPMG Peat Marwick LLP
-------------------------