Today Jabil Circuit, Inc. (NYSE:JBL), announced preliminary, unaudited financial results for its second quarter of fiscal year 2014. As a result of the anticipated sale of Jabil’s aftermarket services business, this business is reported as "discontinued operations" in the unaudited financial results for all periods presented.

The company reported second quarter revenue of $3.6 billion.

Jabil’s three reporting segments delivered the following revenue results for the company’s second fiscal quarter:

  • Diversified Manufacturing Services: $1.6 billion.
  • Enterprise & Infrastructure: $1.2 billion.
  • High Velocity Systems: $0.8 billion.

Generally accepted accounting principles (GAAP) operating income for the second quarter was $3.6 million and GAAP net diluted loss per share was ($0.19). The company indicated that $32.2 million in restructuring costs during the quarter impacted GAAP operating income.

As defined below, core operating income was $60.4 million and core diluted earnings per share was $0.10.

“We completed our second quarter largely as planned, with steady progress on finalizing our previously announced divestiture and winding down our relationship with our second largest customer,” said Mark T. Mondello, Chief Executive Officer. “The steadfast dedication of our global workforce has contributed to our ongoing performance despite the challenges we have faced,” he added.

(Definitions used: "GAAP" means U.S. generally accepted accounting principles. Jabil defines core operating income as GAAP operating income before amortization of intangibles, stock-based compensation expense and related charges, restructuring and related charges, impairment of notes receivable and related charges, goodwill impairment charges, certain distressed customer charges, settlement of receivables and related charges, loss on disposal of subsidiaries and acquisition costs and purchase accounting adjustments. Jabil defines core earnings as GAAP net income before amortization of intangibles, stock-based compensation expense and related charges, restructuring and related charges, impairment of notes receivable and related charges, goodwill impairment charges, certain distressed customer charges, settlement of receivables and related charges, loss on disposal of subsidiaries, acquisition costs and purchase accounting adjustments, income (loss) from discontinued operations, certain other expenses, net of tax and certain deferred tax valuation allowance charges. Jabil defines core diluted earnings per share as core earnings divided by the weighted average number of outstanding diluted shares determined under GAAP. Jabil calculates core return on invested capital by annualizing its after-tax core operating income for its most recently-ended quarter and dividing that by a two quarter average net invested capital base. Jabil reports core operating income, core earnings, core diluted and basic earnings per share and core return on invested capital to provide investors an additional method for assessing operating income, earnings, diluted earnings per share and return on invested capital from what it believes are its core manufacturing operations. See the accompanying reconciliation of Jabil's core operating income to its GAAP operating income, its calculation of core earnings and core diluted earnings per share to its GAAP net income and GAAP earnings per share, its calculation of core return on invested capital and additional information in the supplemental information.)

Quarterly Results

  

Q2 2014

  

Q2 2013

Net revenue $3.6 billion $4.2 billion
GAAP operating income $3.6 million $133.0 million
GAAP net (loss) income ($38.7) million $88.5 million
GAAP net diluted (loss) earnings per share ($0.19) $0.43
GAAP return on invested capital 0.1% 15.1%
Core operating income $60.4 million $151.5 million
Core earnings $20.3 million $94.0 million
Core diluted earnings per share $0.10 $0.45
Core return on invested capital 6.2% 17.7%

Business Update

Jabil provided guidance for its third quarter of fiscal year 2014, which began on March 1, 2014.

Net revenue               $3.5 billion to $3.7 billion

GAAP operating (loss) income

($35) million to $25 million

GAAP net earnings per share $0.74 to $1.04 per diluted share
Core operating income $20 million to $60 million
Core (loss) earnings per share

($0.20) to $0.00 per diluted share

(GAAP net earnings per share for the third quarter of fiscal year 2014 are currently estimated to include $0.03 per share for amortization of intangibles, $0.07 per share for stock-based compensation expense and related charges, $0.16 to $0.06 per share for restructuring and related charges and income from discontinued operations of $1.20 per share.)

Year over Year Third Quarter Segment Revenue Guidance:

  • Diversified Manufacturing Services consistent.
  • Enterprise & Infrastructure to decline 5 percent.
  • High Velocity Systems to decline 40 percent.

“As we move through the back half of the fiscal year, I’m encouraged and pleased with activities surrounding multiple program ramps from new business wins,” said Mondello. “At a time when legacy EMS business is showing very modest growth, we are fortunate to have the scale and technical capabilities which allow us to embrace new growth opportunities,” Mondello stated. Management provided fiscal year 2015 guidance of $1.65 to $1.95 core earnings per share.

FORWARD-LOOKING STATEMENT: This news release contains forward-looking statements, including those regarding our anticipated financial results for our second quarter of fiscal year 2014; our currently expected third quarter of fiscal year 2014 net revenue (including that of our segments), core operating income, GAAP operating (loss) income, core and GAAP earnings (loss) per share results and the components thereof; our currently expected fiscal year 2015 core earnings per share; our activities surrounding multiple program ramps from new business wins; and our scale and technical capabilities to allow us to embrace new growth opportunities. The statements in this news release are based on current expectations, forecasts and assumptions involving risks and uncertainties that could cause actual outcomes and results to differ materially. These risks and uncertainties include, but are not limited to: our determination as we finalize our financial results for our second quarter of fiscal year 2014 that our financial results and conditions differ from our current preliminary unaudited numbers set forth herein; fluctuations in our stock’s market price; fluctuations in operating results and cash flows; unexpected, adverse seasonal impacts on demand; changes in macroeconomic conditions, both in the U.S. and internationally; the occurrence of, success and expected financial results from, the expected multiple product ramps; our financial performance during and after the current economic conditions; our ability to maintain and improve costs, quality and delivery for our customers; risks and costs inherent in litigation; whether our realignment of our capacity will adversely affect our cost structure, ability to service customers and labor relations; our ability to take advantage of perceived benefits of offering customers vertically integrated services; changes in technology; competition; anticipated growth for us and our industry that may not occur; managing rapid growth; managing rapid declines in customer demand and other related customer challenges that may occur; our ability to successfully consummate acquisitions and divestitures; managing the integration of businesses we acquire; risks associated with international sales and operations; retaining key personnel; our dependence on a limited number of large customers; business and competitive factors generally affecting the electronic manufacturing services industry, our customers and our business; other factors that we may not have currently identified or quantified; and other risks, relevant factors and uncertainties identified in our Annual Report on Form 10-K for the fiscal year ended August 31, 2013, subsequent Reports on Forms 10-Q and 8-K and our other securities filings. Jabil disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Supplemental Information: The financial results disclosed in this release include certain measures calculated and presented in accordance with GAAP. In addition to the GAAP financial measures, Jabil provides supplemental, non-GAAP financial measures to facilitate evaluation of Jabil's core operating performance. The non-GAAP financial measures disclosed in this release exclude certain amounts that are included in the most directly comparable GAAP measures. The non-GAAP or core financial measures disclosed in this release do not have standard meanings and may vary from the non-GAAP financial measures used by other companies. Management believes core financial measures (which exclude the effects of the amortization of intangibles, stock-based compensation expense and related charges, restructuring and related charges, impairment of notes receivable and related charges, goodwill impairment charges, certain distressed customer charges, settlement of receivables and related charges, loss on disposal of subsidiaries, acquisition costs and purchase accounting adjustments, income from discontinued operations, certain other expenses, net of tax and certain deferred tax valuation allowance charges) are a useful measure that facilitates evaluating the past and future performance of Jabil's ongoing operations on a comparable basis. Jabil reports core operating income, core return on invested capital, core earnings and core diluted and basic earnings per share to provide investors an additional method for assessing operating income, earnings and earnings per share from what it believes are its core manufacturing operations. Included in this release are Condensed Consolidated Statements of Operations as well as a reconciliation of the disclosed core financial measures to the most directly comparable GAAP financial measures.

Company Conference Call Information: Jabil will hold a conference call to discuss the second quarter of fiscal year 2014 earnings today at 4:30 p.m. ET live on the Internet at http://www.jabil.com. The call will be recorded and archived on the web at http://www.jabil.com. A taped replay of the conference call will also be available March 19, 2014 at approximately 7:30 p.m. ET through midnight on March 26, 2014. To access the replay, call (855) 859-2056 from within the United States, or (404) 537-3406 outside the United States. The pass code is: 9550088. An archived webcast of the conference call will be available at http://www.jabil.com/investors/.

About Jabil

Jabil is an electronic product solutions company providing comprehensive electronics design and manufacturing product management services to global electronics and technology companies. Offering complete product supply chain management from facilities in 24 countries (excluding the AMS discontinued operations), Jabil provides comprehensive, individualized-focused solutions to customers in a broad range of industries. Jabil common stock is traded on the New York Stock Exchange under the symbol, “JBL”. Further information is available on Jabil’s website: jabil.com.

JABIL CIRCUIT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 
  February 28,  
2014

(Unaudited)

August 31,

2013

ASSETS
Current assets:
Cash and cash equivalents $ 675,129 $ 1,011,373
Accounts receivable, net 941,059 1,167,254
Inventories 1,821,815 2,118,583
Prepaid expenses and other current assets 905,719 1,136,003
Income taxes receivable 25,978 12,269
Deferred income taxes 53,591 45,532
Assets of discontinued operations   539,388     329,231  
Total current assets 4,962,679 5,820,245
Property, plant and equipment, net 2,331,970 2,309,298
Goodwill and intangible assets, net 625,282 609,445
Deferred income taxes 88,946 91,383
Other assets 119,331 100,801
Non-current assets of discontinued operations   —     222,609  
Total assets $ 8,128,208   $ 9,153,781  
 
LIABILITIES AND EQUITY
Current liabilities:
Current installments of notes payable, long-term debt and capital lease obligations $ 160,839 $ 215,448
Accounts payable 2,461,765 3,191,145
Accrued expenses 1,082,498 1,216,737
Income taxes payable 9,973 37,631
Deferred income taxes 1,014 6,004
Liabilities of discontinued operations   198,906     197,469  
Total current liabilities 3,914,995 4,864,434
Notes payable, long-term debt and capital lease obligations, less current installments 1,675,322 1,690,418
Other liabilities 74,058 77,145
Income tax liabilities 85,702 76,315
Deferred income taxes 57,707 58,047
Non-current liabilities of discontinued operations   —     31,855  
Total liabilities   5,807,784     6,798,214  
Commitments and contingencies

Equity:

Jabil Circuit, Inc. stockholders’ equity:
Preferred stock — —
Common stock 243 238
Additional paid-in capital 1,851,781 1,853,409
Retained earnings 1,116,461 1,071,175
Accumulated other comprehensive income 94,571 81,248
Treasury stock, at cost   (767,679 )   (670,783 )
Total Jabil Circuit, Inc. stockholders’ equity   2,295,377     2,335,287  
Noncontrolling interests   25,047     20,280  
Total equity   2,320,424     2,355,567  
Total liabilities and equity $ 8,128,208   $ 9,153,781  
 

JABIL CIRCUIT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except for per share data)

(Unaudited)

 

 

  Three months ended   Six months ended
February 28,   February 28, February 28,   February 28,
2014 2013 2014

2013

  

 

Net revenue $ 3,577,315 $ 4,166,355 $ 7,918,271 $ 8,536,236
Cost of revenue   3,364,165     3,877,833     7,371,567   7,936,795  
Gross profit 213,150 288,522 546,704 599,441
Operating expenses:
Selling, general and administrative 164,522 145,622 306,707 294,238
Research and development 6,604 7,655 15,658 14,862
Amortization of intangibles 6,180 2,204 12,501 4,370
Restructuring and related charges   32,203     —     53,206   —  
Operating income 3,641 133,041 158,632 285,971
Interest and other, net   33,367     30,331     67,143   61,000  
(Loss) income from continuing operations before tax (29,726 ) 102,710 91,489 224,971
Income tax expense   2,539     27,418     22,112   59,003  
(Loss) income from continuing operations, net of tax (32,265 ) 75,292 69,377 165,968
(Loss) income from discontinued operations, net of tax   (6,251 )   12,797     10,172   27,705  
Net (loss) income (38,516 ) 88,089 79,549 193,673
Net income (loss) attributable to noncontrolling interests, net of tax   151     (444 )   294   (707 )
Net (loss) income attributable to Jabil Circuit, Inc. $ (38,667 ) $ 88,533   $ 79,255 $ 194,380  
 
(Loss) earnings per share attributable to the stockholders of Jabil Circuit, Inc.:
Basic:
(Loss) income from continuing operations, net of tax $ (0.16 ) $ 0.37   $ 0.34 $ 0.82  
(Loss) income from discontinued operations, net of tax $ (0.03 ) $ 0.06   $ 0.05 $ 0.14  
Net (loss) income $ (0.19 ) $ 0.44   $ 0.39 $ 0.96  
Diluted:
(Loss) income from continuing operations, net of tax $ (0.16 ) $ 0.37   $ 0.33 $ 0.80  
(Loss) income from discontinued operations, net of tax $ (0.03 ) $ 0.06   $ 0.05 $ 0.13  
Net (loss) income $ (0.19 ) $ 0.43   $ 0.38 $ 0.94  
 
Weighted average shares outstanding:
Basic   205,251     202,458     205,005   203,393  
Diluted   205,251     206,804     206,892   207,474  
 
JABIL CIRCUIT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Six months ended
February 28,
2014		   February 28,
2013
Cash flows from operating activities:
Net income $ 79,549 $ 193,673
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 247,169 195,022
Recognition of stock-based compensation expense and related charges (7,821 ) 36,513
Deferred income taxes (28,265 ) 860
Restructuring and related charges 24,915 —
Excess tax benefits related to stock awards (714 ) (330 )
Other, net 11,128 4,989
Changes in operating assets and liabilities, exclusive of net assets acquired:
Accounts receivable 187,030 (172,161 )
Inventories 342,794 (222,645 )
Prepaid expenses and other current assets 235,557 (6,349 )
Other assets (33,749 ) (2,799 )
Accounts payable and accrued expenses (912,599 ) 288,004
Income taxes   (10,378 )   (9,093 )
 
Net cash provided by operating activities   134,616     305,684  
 
Cash flows from investing activities:
Acquisition of property, plant and equipment (286,349 ) (371,472 )
Proceeds from sale of property, plant and equipment 12,945 9,504
Cash paid for business and intangible asset acquisitions, net of cash acquired — (5,862 )
Investments in non-marketable equity securities   —     (2,942 )
 
Net cash used in investing activities   (273,404 )   (370,772 )
 
Cash flows from financing activities:
Borrowings under debt agreements 3,789,192 2,178,021
Payments towards debt agreements (3,860,319 ) (2,091,043 )
Dividends paid to stockholders (35,792 ) (34,748 )
Cash paid to purchase noncontrolling interest (1,720 ) —
Sale of noncontrolling interest, net of cash disposed (1,783 ) —
Net proceeds from exercise of stock options and issuance of common stock under employee stock purchase plan 7,697 10,867
Payments to acquire treasury stock (64,051 ) (129,262 )
Treasury stock minimum tax withholding related to vesting of restricted stock (32,845 ) (20,221 )
Capital contribution to noncontrolling interest — 316
Excess tax benefit related to stock awards   714     330  
 
Net cash used in financing activities   (198,907 )   (85,740 )
 
Effect of exchange rate changes on cash and cash equivalents   1,451     (4,773 )
 
Net decrease in cash and cash equivalents (336,244 ) (155,601 )
Cash and cash equivalents at beginning of period   1,011,373     1,217,256  
 
Cash and cash equivalents at end of period $ 675,129   $ 1,061,655  
 
JABIL CIRCUIT, INC. AND SUBSIDIARIES
SUPPLEMENTAL DATA
RECONCILIATION OF GAAP FINANCIAL RESULTS TO NON-GAAP MEASURES
(in thousands, except for per share data)
(Unaudited)
  Three months ended   Six months ended
February 28,   February 28, February 28,   February 28,
2014 2013 2014 2013

 

Operating income (GAAP) $ 3,641 $ 133,041 $ 158,632 $ 285,971
Amortization of intangibles 6,180 2,204 12,501 4,370
Distressed customer charge 3,742 — 3,742 —
Stock-based compensation expense and related charges 14,652 16,274 (7,934) 33,186
Restructuring and related charges 32,203 — 53,206 —
Core operating income (Non-GAAP) $ 60,418 $ 151,519 $ 220,147 $ 323,527
 
Net (loss) income attributable to Jabil Circuit, Inc. (GAAP) $ (38,667) $ 88,533 $ 79,255 $ 194,380
Amortization of intangibles, net of tax 8,250 2,205 9,423 4,371
Distressed customer charge, net of tax 2,337 — 2,337 —
Stock-based compensation expense and related charges, net of tax 14,192 16,064 (8,413) 32,783
Restructuring and related charges, net of tax 27,892 — 45,589 —

Acquisition costs and purchase accounting adjustments, net of tax

— — (9,064) —
Loss (income) from discontinued operations, net of tax 6,251 (12,797) (10,172) (27,705)
Core earnings (Non-GAAP) $ 20,255 $ 94,005 $ 108,955 $ 203,829
 
Net (loss) earnings per share: (GAAP)
Basic $ (0.19) $ 0.44 $ 0.39 $ 0.96
Diluted $ (0.19) $ 0.43 $ 0.38 $ 0.94
 
Core earnings per share: (Non-GAAP)
Basic $ 0.10 $ 0.46 $ 0.53 $ 1.00
Diluted $ 0.10 $ 0.45 $ 0.53 $ 0.98
 
Weighted average shares outstanding used in the calculations of earnings per share (GAAP):
Basic 205,251 202,458 205,005 203,393
Diluted 205,251 206,804 206,892 207,474
 
Weighted average shares outstanding used in the calculations of earnings per share (Non-GAAP):        
Basic 205,251 202,458 205,005 203,393
Diluted 206,622 206,804 206,892 207,474

JABIL CIRCUIT, INC. AND SUBSIDIARIES
SUPPLEMENTAL DATA
RECONCILIATION OF GAAP FINANCIAL RESULTS TO NON-GAAP MEASURES
(in thousands)

(Unaudited)

CALCULATION OF RETURN ON INVESTED CAPITAL AND

CORE RETURN ON INVESTED CAPITAL

The Company calculates: (1) its "Return on Invested Capital" by annualizing its "after-tax GAAP operating income" for its most recently-ended quarter and dividing that by a two quarter average of its "net invested capital asset base" and (2) its "Core Return on Invested Capital" by annualizing its "after-tax non-GAAP core operating income" for its most recently-ended quarter and dividing that by a two quarter average of its "net invested capital asset base."

The Company calculates: (1) its "after-tax GAAP operating income" by subtracting a certain tax effect (the calculation of which is explained below) from its GAAP operating income and (2) its "after-tax non-GAAP core operating income" by subtracting a certain tax effect (the calculation of which is explained below) from its non-GAAP core operating income. See elsewhere in this earnings release for a reconciliation of the Company's non-GAAP core operating income to its GAAP operating income.

The Company calculates "net invested capital asset base" as the sum of the averages (the calculations of which are explained below) of (1) its stockholders’ equity, (2) the non-current portion of its notes payable, long-term debt and capital lease obligations and (3) the current portion of its notes payable, long-term debt and capital lease obligations, less the average (the calculation of which is explained below) of its cash and cash equivalents.

The following table reconciles (1) "Return on Invested Capital," as calculated using "after-tax GAAP operating income" to (2) "Core Return on Invested Capital," as calculated using "after-tax non-GAAP core operating income":

  Three months ended

February 28,

   February 28,
  2014       2013  
Numerator:
Operating income (GAAP) $ 3,641 $ 133,041
Tax effect (1)   (2,410 )     (27,727 )
After-tax operating income 1,231 105,314
x4   x4
Annualized after-tax operating income $ 4,924     $ 421,256  
 
Core operating income (Non-GAAP) $ 60,418 $ 151,519
Tax effect (2)   (7,016 )     (27,892 )
After-tax core operating income 53,402 123,627
x4   x4
Annualized after-tax core operating income $ 213,608     $ 494,508  
 
Denominator:
Average total Jabil Circuit, Inc. stockholders’ equity (3) $ 2,343,125 $ 2,124,908
Average notes payable, long-term debt and capital lease obligations, less current installments (3) 1,676,578 1,654,883
Average current installments of notes payable, long-term debt and capital lease obligations (3) 139,035 59,624
Average cash and cash equivalents (3)   (722,176 )     (1,045,845 )
Net invested capital asset base $ 3,436,562     $ 2,793,570  
 
Return on Invested Capital (GAAP) 0.1 % 15.1 %
Adjustments noted above 6.1 % 2.6 %
Core Return on Invested Capital (Non-GAAP) 6.2 % 17.7 %

(1) This amount is calculated by adding the amount of income taxes attributable to its operating income (GAAP) and its interest expense.

(2) This amount is calculated by adding the amount of income taxes attributable to its core operating income (Non-GAAP) and its interest expense.

(3) The average is based on the addition of the account balance at the end of the most recently-ended quarter to the account balance at the end of the prior quarter and dividing by two.