How did Jabil's profitability change in fiscal 2008?

Net income rose to $133.9 million, or $0.65 per diluted share, from $73.2 million, or $0.35, in fiscal 2007. Operating income increased to $251.4 million from $181.9 million, though the filing notes restructuring and impairment charges of $54.8 million in fiscal 2008 compared with $72.4 million the prior year.

How concentrated is Jabil's customer base?

The five largest customers accounted for approximately 47% of fiscal 2008 net revenue, and 44 customers accounted for about 90%. Cisco Systems represented 16% and Hewlett-Packard 11% of net revenue. The filing states that customers may cancel or reschedule orders, and that losing a major customer could materially affect results.

What is the status of the stock option investigations and litigation?

The derivative actions were settled and dismissed in April 2008 with no monetary damages paid by the company. A securities class action remains pending, with the court's ruling on the motion to dismiss the Second Amended Complaint awaited. The SEC informal inquiry and U.S. Attorney's office review are ongoing, and the company cannot predict their outcome.

What are the company's main debt obligations and refinancing risks?

Total notes payable, long-term debt and lease obligations were $1.37 billion at August 31, 2008. These include $400.0 million of 8.250% Senior Notes due 2018, $300.0 million of 5.875% Senior Notes due 2010, and $380.0 million outstanding under the term portion of the Credit Facility. The North American and foreign securitization programs expire in March and April 2009, and renewal may depend on market conditions.

What does the 2006 Restructuring Plan involve and what remains to be recognized?

The plan, initiated in the fourth quarter of fiscal 2006, realigns manufacturing capacity from higher-cost geographies. Through August 31, 2008, it produced restructuring and impairment charges of $209.1 million, against an expected total of about $250.0 million. The company expects net annualized cost savings of approximately $30.0 to $40.0 million by the second half of fiscal 2009, with remaining costs recognized mainly in fiscal 2009.

JBL 10-K FY2008 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed October 29, 2008. Cited figures are marked; the original filing is the authoritative source.

Jabil Circuit, Inc. (now Jabil Inc.) reported net revenue of $12.78 billion^a for fiscal year ended August 31, 2008, up from $12.29 billion in fiscal 2007, with net income of $133.9 million, or $0.65 per diluted share, compared with $73.2 million, or $0.35 per diluted share, a year earlier.

Gross profit rose to $867.8 million^b (6.8% of net revenue) and operating income to $251.4 million, while interest expense increased to $94.3 million on higher average debt levels tied to acquisition financing. Growth was driven by stronger share with existing programs, new customers, and acquisitions including Nokia Siemens Networks manufacturing operations, partly offset by a 23% decline in mobility product sales. The company's five largest customers accounted for approximately 47% of net revenue, with Cisco Systems (16%) and Hewlett-Packard (11%) the largest individual customers in fiscal 2008.

Foreign source revenue was 79.6% of net revenue. Cash and equivalents were $772.9 million^c, and total debt, notes payable and long-term lease obligations were $1.37 billion. Operating cash flow was $411.9 million, while capital expenditures were $337.5 million.

Management expects capital expenditures of $250.0 million to $300.0 million^d over the next twelve months and anticipates quarterly dividends of $0.07 per share to continue. Investors should weigh the company's dependence on a small customer base, its below-investment-grade credit ratings (BB+ or Ba1 from the three agencies, after S&P's April 2008 downgrade), ongoing SEC and U.S. Attorney inquiries related to historical stock option grants and revenue recognition, and the 2006 Restructuring Plan, which carries total expected charges of approximately $250.0 million with remaining costs to be recognized mainly in fiscal 2009.

02—Key points

Key Highlights

Net revenue rose to $12.78 billion in fiscal 2008 from $12.29 billion, an increase of 4.0% per the filing, driven by stronger market share, new customers, and acquisitions.
Net income was $133.9 million ($0.65 diluted EPS) versus $73.2 million ($0.35) in fiscal 2007; gross margin improved to 6.8% from 6.6% of net revenue.
Customer concentration remains high: five largest customers were about 47% of net revenue, and 44 customers accounted for about 90%.
Interest expense climbed to $94.3 million from $86.1 million, reflecting higher average debt including acquisition-related borrowings; the 8.250% Senior Notes due 2018 were issued for $400.0 million.
Credit ratings were downgraded: S&P cut to BB+ in April 2008, following Fitch (October 2007) and Moody's (February 2007), keeping the company below investment grade.
Operating cash flow was $411.9 million, and capital expenditures were $337.5 million; cash and cash equivalents ended at $772.9 million.
Ongoing regulatory and litigation matters include an SEC informal inquiry, a U.S. Attorney subpoena, and a securities class action (amended to add KPMG as a defendant) concerning historical stock option grants.

03—Questions

Frequently Asked Questions

How did Jabil's profitability change in fiscal 2008?
Net income rose to $133.9 million, or $0.65 per diluted share, from $73.2 million, or $0.35, in fiscal 2007. Operating income increased to $251.4 million from $181.9 million, though the filing notes restructuring and impairment charges of $54.8 million in fiscal 2008 compared with $72.4 million the prior year.
How concentrated is Jabil's customer base?
The five largest customers accounted for approximately 47% of fiscal 2008 net revenue, and 44 customers accounted for about 90%. Cisco Systems represented 16% and Hewlett-Packard 11% of net revenue. The filing states that customers may cancel or reschedule orders, and that losing a major customer could materially affect results.
What is the status of the stock option investigations and litigation?
The derivative actions were settled and dismissed in April 2008 with no monetary damages paid by the company. A securities class action remains pending, with the court's ruling on the motion to dismiss the Second Amended Complaint awaited. The SEC informal inquiry and U.S. Attorney's office review are ongoing, and the company cannot predict their outcome.
What are the company's main debt obligations and refinancing risks?
Total notes payable, long-term debt and lease obligations were $1.37 billion at August 31, 2008. These include $400.0 million of 8.250% Senior Notes due 2018, $300.0 million of 5.875% Senior Notes due 2010, and $380.0 million outstanding under the term portion of the Credit Facility. The North American and foreign securitization programs expire in March and April 2009, and renewal may depend on market conditions.
What does the 2006 Restructuring Plan involve and what remains to be recognized?
The plan, initiated in the fourth quarter of fiscal 2006, realigns manufacturing capacity from higher-cost geographies. Through August 31, 2008, it produced restructuring and impairment charges of $209.1 million, against an expected total of about $250.0 million. The company expects net annualized cost savings of approximately $30.0 to $40.0 million by the second half of fiscal 2009, with remaining costs recognized mainly in fiscal 2009.

04—Continue

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