(Mark one) | ||
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the fiscal year ended August 31, | ||
or | ||
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to |
Delaware | 38-1886260 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
10560 Dr. Martin Luther King, Jr. Street North, St. Petersburg, Florida (Address of principal executive offices) | 33716 (Zip Code) |
Title of each class | Name of each exchange on which registered | |
Common Stock, $0.001 par value per share | New York Stock Exchange | |
Series A Preferred Stock Purchase Rights | New York Stock Exchange |
No þ27, 200428, 2005 was approximately $4.6$4.4 billion. For purposes of this determination, shares of Common Stock held by each officer and director and by each person who owns 10% 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 October 15, 2004,17, 2005, was 201,501,195.204,687,559. The Registrant does not have any non-voting stock outstanding.20042005 Annual Meeting of Stockholders to be held on January 20, 200519, 2006 is incorporated by reference in Part III of this Annual Report on Form 10-K to the extent stated herein.
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References in this report to “the Company”, “Jabil”, “we”, “our”, or “us” mean Jabil Circuit, Inc. together with its subsidiaries, except where the context otherwise requires. This Annual Report on Form 10-K contains certain statements that are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and are made in reliance upon the protections provided by such acts for forward-looking statements. These forward-looking statements (such as when we describe what “will”, “may” or “should” occur, what we “plan”, “intend”, “estimate”, “believe”, “expect” or “anticipate” will occur, and other similar statements) include, but are not limited to, statements regarding future sales and operating results, future prospects, anticipated benefits of proposed (or future) acquisitions and new facilities, growth, the capabilities and capacities of business operations, any financial or other guidance and all statements that are not based on historical fact, but rather reflect our current expectations concerning future results and events. We make certain assumptions when making forward-looking statements, any of which could prove inaccurate, including, but not limited to, statements about our future operating results and business plans. Therefore, we can give no assurance that the results implied by these forward-looking statements will be realized. Furthermore, the inclusion of forward-looking information should not be regarded as a representation by the Company or any other person that future events, plans or expectations contemplated by the Company will be achieved. The ultimate correctness of these forward-looking statements is dependent upon a number of known and unknown risks and events, and is subject to various uncertainties and other factors that may cause our actual results, performance or achievements to be different from any future results, performance or achievements expressed or implied by these statements. The following important factors, among others, could affect future results and events, causing those results and events to differ materially from those expressed or implied in our forward-looking statements:Item 1. Business Business business conditions and growth in our customers’ industries, the electronic manufacturing services industry and the general economy, variability of operating results, our dependence on a limited number of major customers, the potential consolidation of our customer base, availability of components, dependence on certain industries, seasonality, variability of customer requirements, our ability to successfully negotiate definitive agreements and consummate acquisitions, and to integrate operations following consummation of acquisitions, our ability to take advantage of our past restructuring efforts to improve utilization and realize savings, other economic, business and competitive factors affecting our customers, our industry and business generally and other factors that we may not have currently identified or quantified. • business conditions and growth in our customers’ industries, the electronic manufacturing services industry and the general economy; • variability of operating results; • our dependence on a limited number of major customers; • the potential consolidation of our customer base; • availability of components; • dependence on certain industries; • seasonality; • variability of customer requirements; • our ability to successfully negotiate definitive agreements and consummate acquisitions, and to integrate operations following consummation of acquisitions; • our ability to take advantage of our past restructuring efforts to improve utilization and realize savings; • other economic, business and competitive factors affecting our customers, our industry and our business generally; and • other factors that we may not have currently identified or quantified. “Factors Affecting Future Results”“Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections contained elsewhere in this document. Given these risks and uncertainties, the reader should not place undue reliance on these forward-looking statements.
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The Company
The Company |
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• | integrated design and engineering; | |
• | component selection, sourcing and procurement; | |
• | automated assembly; | |
• | design and implementation of product testing; | |
• | parallel global production; | |
• | enclosure services; | |
• | systems assembly, | |
• | repair and warranty. |
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Industry Background |
EMS Industry Background
The EMS industrywhich we operate is composed of companies that provide a range of manufacturing services for OEMs.to companies that utilize electronics components. The EMS industry experienced rapid change and growth over most ofthrough the past decade1990’s as an increasing number of OEMs have chosencompanies chose to outsource an increasing portion, and, in some cases, all of their manufacturing requirements. In mid-2001, the EMS industry’s revenue declined as a result of significant cut-backs in customer production requirements, which was consistent with the overall global economic downturn at that time. Industry revenues have slowly increased over the last year as customer production requirements generally began to stabilize in 2003 and OEMscompanies continue to turn to outsourcing versus internal manufacturing. We believe further growth opportunities exist for EMS providersthe industry to penetrate the worldwide electronics markets. Factors driving OEMscompanies to favor outsourcing to EMS providers include:
• | Reduced Product Cost. |
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• | Accelerated Product Time-to-Market and Time-to-Volume. | |
• | Access to Advanced Design and Manufacturing Technologies.Customers | |
• | Improved Inventory Management and Purchasing Power. | |
• | Reduced Capital Investment in Manufacturing. |
Our Strategy
Our Strategy |
• | Establish and Maintain Long-Term Customer Relationships.Our core strategy is to establish and maintain long-term relationships with leading |
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product lines and services. In addition, we have a focused effort to identify and develop relationships with new customers who meet our profile. | ||
• | Utilize | |
• | Expand Parallel Global Production.Our ability to produce the same product on a global scale is a significant requirement of our customers. We believe that parallel global production is a key strategy to reduce obsolescence risk and secure the lowest landed costs while simultaneously supplying products of equivalent or comparable quality throughout the world. Consistent with this strategy, we have established or acquired operations in Austria, Belgium, Brazil, China, England, France, Hungary, India, Ireland, Italy, Japan, Malaysia, Mexico, the Netherlands, Poland, Scotland, Singapore, Taiwan, and Ukraine to increase our European, Asian and Latin American presence. | |
• | Offer Systems Assembly, |
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reducing total work-in-process and finished goods inventory. These services are available at all of our manufacturing locations. | ||
• | Pursue Selective Acquisition Opportunities. |
• | ||
• | Business Unit Management.Our Business Unit Managers coordinate all financial, manufacturing and engineering commitments for each of our customers at a particular manufacturing facility. Our Business Unit Directors oversee local Business Unit Managers and coordinate on a worldwide basis all financial, manufacturing and engineering commitments for each of our customers that have global production requirements. Jabil’s Business Unit Management has the authority, within high-level parameters set by executive management, to develop customer relationships, make design strategy decisions and production commitments, establish pricing, and implement production and electronic design changes. Business Unit Managers and Directors are also responsible for assisting customers with strategic planning for future products, including developing cost and technology goals. These Managers and Directors operate autonomously |
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• | Continuous Flow.We use a highly automated, continuous flow approach where different pieces of equipment are joined directly or by conveyor to create an in-line assembly process. This process is in contrast to a batch approach, where individual pieces of assembly equipment are operated as freestanding work-centers. The elimination of waiting time prior to sequential operations results in faster manufacturing, which improves production efficiencies and quality control, and reduces inventory work-in-process. Continuous flow manufacturing provides cost reductions and quality improvement when applied to volume manufacturing. | |
• | Computer Integration.We support all aspects of our manufacturing activities with advanced computerized control and monitoring systems. Component inspection and vendor quality are monitored electronically in real-time. Materials planning, purchasing, stockroom and shop floor control systems are supported through a computerized Manufacturing Resource Planning system, providing customers with a continuous ability to monitor material availability and track work-in-process on a real-time basis. Manufacturing processes are supported by a real-time, computerized statistical process control system, whereby customers can remotely access our computer systems to monitor real-time yields, inventory positions, work-in-process status and vendor quality data. See “Technology” and |
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• | Supply Chain Management.We make available an electronic commerce system/electronic data interchange and web-based tools for our customers and suppliers to implement a variety of supply chain management programs. Most of our customers utilize these tools to share demand and product forecasts and deliver purchase orders. We use these tools with most of our suppliers for just-in-time delivery, supplier-managed inventory and consigned supplier-managed inventory. |
• | Electronic Design.Our electronic design team provides electronic circuit design services, including application-specific integrated circuit design and firmware development. These services have been used to develop a variety of circuit designs for cellular telephone accessories, notebook and personal computers, servers, radio frequency products, video set-top boxes, optical communications products, personal digital assistants, communication broadband products, and automotive and consumer appliance controls. | |
• | Industrial Design Services.Our industrial design team assists in designing the “look and feel” of the plastic and metal enclosures that house printed circuit board (“PCB”) assemblies and systems. | |
• | Mechanical Design.Our mechanical engineering design team specializes in three-dimensional design and analysis of electronic and optical assemblies using state of the art modeling and analytical tools. The mechanical team has extended Jabil’s product offering capabilities to include all aspects of industrial design, advance mechanism development and tooling management. | |
• | Computer Assisted Design.Our computer assisted design (“CAD”) team provides | |
• | Product Validation. Our product validation team provides complete product and process validation. This includes system test, product safety, regulatory compliance and reliability. |
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• | Product Solutions.The goal of our |
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McAllen, Texas.
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Customers and Marketing
Customers and Marketing |
Year Ended August 31, | Fiscal Year Ended August 31, | |||||||||||||||||||||||
2004 | 2003 | 2002 | 2005 | 2004 | 2003 | |||||||||||||||||||
Royal Philips Electronics | 18% | 15% | * | 14% | 18% | 15% | ||||||||||||||||||
Nokia Corporation | 13% | * | * | |||||||||||||||||||||
Hewlett-Packard Company | 10% | * | 11% | |||||||||||||||||||||
Cisco Systems, Inc. | 12% | 16% | 24% | * | 12% | 16% | ||||||||||||||||||
Hewlett-Packard Company | * | 11% | * | |||||||||||||||||||||
Marconi Communications plc | * | * | 13% |
* | less than 10% of net revenue |
Fiscal Year Ended | ||||||||||||||||||||||||
Year Ended August 31, | August 31, | |||||||||||||||||||||||
2004 | 2003 | 2002 | 2005 | 2004 | 2003 | |||||||||||||||||||
Consumer | 25% | 20% | 8% | 29% | 25% | 20% | ||||||||||||||||||
Instrumentation and medical | 16% | 12% | 7% | |||||||||||||||||||||
Networking | 20% | 23% | 30% | 15% | 20% | 23% | ||||||||||||||||||
Computing and Storage | 13% | 15% | 13% | |||||||||||||||||||||
Instrumentation and Medical | 12% | 7% | 5% | |||||||||||||||||||||
Computing and storage | 12% | 13% | 15% | |||||||||||||||||||||
Telecommunications | 11% | 14% | 23% | 9% | 11% | 14% | ||||||||||||||||||
Peripherals | 8% | 6% | 8% | |||||||||||||||||||||
Automotive | 8% | 9% | 7% | 7% | 8% | 9% | ||||||||||||||||||
Peripherals | 6% | 8% | 10% | |||||||||||||||||||||
Other | 5% | 4% | 4% | 4% | 5% | 4% | ||||||||||||||||||
100% | 100% | 100% | 100% | 100% | 100% | |||||||||||||||||||
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International Operations
International Operations |
Financial Information About Business Segments
Financial Information about Business Segments |
Competition9
The EMS industry
Competition |
In addition, in recent years, original design manufacturer (“ODM”) companies that provide design and manufacturing services to OEMs, have significantly increased their share of outsourced manufacturing services provided to OEMs in markets such as notebook and desktop computers, personal computer motherboards, and consumer electronic products. Competition from ODMs may increase if our business in these markets grows or if ODMs expand further into or beyond these markets.
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outsourcing.
Backlog
Backlog |
Seasonality
Seasonality |
Components Procurement
Components Procurement |
Proprietary Rights10
Proprietary Rights |
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Employees
Employees |
Geographic Information
Geographic Information |
Environmental
Environmental |
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Executive Officers of the Registrant
Executive Officers of the Registrant |
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Meheryar “Mike” Dastoor(age 38)39) was named Controller in June 2004. Dastoor joined Jabil in 2000 as Regional Controller — Asia Pacific. Prior to joining Jabil, Dastoor was a Regional Financial Controller for Inchcape PLC. Dastoor joined Inchcape in 1993. He holds a degree in Finance and Accounting from the University of Bombay. Dastoor is a Chartered Accountant from the Institute of Chartered Accountants in England and Wales.
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Item 2. | Properties |
described in Note 13 — “Restructuring and Impairment Charges” to the Consolidated Financial Statements, certain of our facilities are no longer used in our business operations, as identified in the tables below. We believe that our properties are generally in good condition, are well maintained and are generally suitable and adequate to carry out our business at expected capacity for the foreseeable future. The table below lists the locations and square footage for our facilities as of August 31, 2004:2005:
Approximate | Type of Interest | |||||||||||||
Location | Square Footage | (Leased/Owned) | Description of Use | |||||||||||
Auburn Hills, Michigan | Owned | Manufacturing, Design | ||||||||||||
Auburn Hills, Michigan | 12,000 | Leased | Support | |||||||||||
Billerica, Massachusetts(1) | 503,000 | Leased | Prototype Manufacturing | |||||||||||
Boise, Idaho(2) | 353,000 | Owned | Manufacturing | |||||||||||
Louisville, Kentucky | 138,000 | Leased | Repair | |||||||||||
McAllen, Texas | 100,000 | Leased | ||||||||||||
Memphis, Tennessee | Leased | Manufacturing, Repair | ||||||||||||
Leased | ||||||||||||||
San Jose, California(1) | 281,000 | Leased | Prototype Manufacturing | |||||||||||
St. Joe, Michigan | 5,000 | Leased | Support | |||||||||||
St. Petersburg, Florida | Leased | Manufacturing, Support | ||||||||||||
St. Petersburg, Florida | 299,000 | Owned | Manufacturing, Design, Repair, Support | |||||||||||
Tempe, Arizona | 191,000 | Owned | ||||||||||||
Manufacturing | ||||||||||||||
Belo Horizonte, Brazil | Leased | Manufacturing | ||||||||||||
Chihuahua, Mexico | 1,025,000 | Owned | Manufacturing | |||||||||||
Guadalajara, Mexico | 363,000 | Owned | Manufacturing | |||||||||||
Manaus, Brazil | Leased | Manufacturing | ||||||||||||
Reynosa, Mexico | 410,000 | Owned | Repair | |||||||||||
Reynosa, Mexico | 158,000 | Leased | Manufacturing | |||||||||||
Sao Paulo, Brazil | 35,000 | Leased | Repair | |||||||||||
Tijuana, Mexico(3) | 63,000 | Leased | Support | |||||||||||
Total | ||||||||||||||
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Gotemba, Japan | 138,000 | Leased | Manufacturing | ||||||||
Hsinchu, Taiwan | 21,000 | Leased | Design | ||||||||
Huangpu, China | Owned | Manufacturing, Design, Support | |||||||||
Panyu, China | 210,000 | Owned | Manufacturing | ||||||||
Penang, Malaysia | Owned | Manufacturing, Design, Repair | |||||||||
Leased | Support | ||||||||||
Ranjangaon, India | 175,000 | Owned | Manufacturing | ||||||||
Shanghai, China | 352,000 | Owned | Manufacturing, Design, Repair | ||||||||
Shenzhen, China | 762,000 | Leased | Manufacturing, Support | ||||||||
Sheung Shui, Hong Kong, China | 1,000 | Leased | Support | ||||||||
Singapore City, Singapore | Leased | Manufacturing | |||||||||
Tokyo, Japan | 2,000 | Leased | Design, Support | ||||||||
Wuxi, China(4) | 453,000 | Owned | Manufacturing | ||||||||
Total Asia | |||||||||||
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Approximate | Type of Interest | ||||||||||||
Location | Square Footage | (Leased/Owned) | Description of Use | ||||||||||
Amsterdam, The Netherlands | 90,000 | Leased | Repair | ||||||||||
Ayr, Scotland | 430,000 | Owned | Manufacturing | ||||||||||
Bergamo, Italy | 68,000 | Leased | Manufacturing | ||||||||||
Brest, France | 389,000 | Owned | Manufacturing | ||||||||||
Bruges, Belgium | 116,000 | Leased | Manufacturing | ||||||||||
Bydgoszcz, Poland | 57,000 | Leased | Repair | ||||||||||
Coventry, England | Leased | Repair, Support | |||||||||||
Dublin, Ireland | Leased | Repair | |||||||||||
Eindhoven, The Netherlands | Leased | Support | |||||||||||
Genova, Italy | 4,000 | Leased | Support | ||||||||||
Hasselt, Belgium | Leased | Prototype Manufacturing, Design | |||||||||||
Kwidzyn, Poland | Owned | Manufacturing | |||||||||||
Livingston, Scotland | 130,000 | Owned | Manufacturing | ||||||||||
Marcianise, Italy | 262,000 | Leased | Manufacturing | ||||||||||
Meung-sur-Loire, France | 111,000 | Leased | Manufacturing | ||||||||||
Szombathely, Hungary | Leased | Manufacturing | |||||||||||
Szombathely, Hungary(4) | 127,000 | Owned | Repair | ||||||||||
Tiszaujvaros, Hungary | 409,000 | Owned | Manufacturing | ||||||||||
Uzhgorod, Ukraine | Leased | Manufacturing | |||||||||||
Vienna, Austria | 99,000 | Leased | Prototype Manufacturing, Design | ||||||||||
Total Europe | |||||||||||||
Total Facilities at August 31, | |||||||||||||
(1) | A portion of this facility is no longer used in our business operations. |
(2) | This facility is no longer used in our business operations. |
(3) | This facility is no longer used in our business operations and has been subleased to an unrelated third party. |
(4) | This facility is currently under construction. Square footage indicated is expected total upon completion. |
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Certifications
Certifications |
• | Aerospace Standard AS9100 | |
• | Automotive Standard TS16949 — Auburn Hills, Michigan; Chihuahua, Mexico; Huangpu, China; Meung-sur-Loire, France; Tiszaujvaros, Hungary; and Vienna, Austria | |
• | Medical Standard | |
• | Occupational Health & Safety Management System Standard OHSAS 18001 — Ayr, Scotland; Brest, France; Huangpu, China; Manaus, Brazil; Penang, Malaysia; Shenzhen, China; Singapore City, Singapore; St. Petersburg, Florida | |
• | Telecommunications Standard TL |
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PART II
Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
High | Low | |||||||||||||||||
Year Ended August 31, 2005 | Year Ended August 31, 2005 | |||||||||||||||||
First Quarter (September 1, 2004 — November 30, 2004) | $ | 26.04 | $ | 20.33 | ||||||||||||||
Second Quarter (December 1, 2004 — February 28, 2005) | $ | 27.08 | $ | 21.80 | ||||||||||||||
High | Low | Third Quarter (March 1, 2005 — May 31, 2005) | $ | 29.73 | $ | 25.87 | ||||||||||||
Fourth Quarter (June 1, 2005 — August 31, 2005) | $ | 32.88 | $ | 28.30 | ||||||||||||||
Year Ended August 31, 2004 | Year Ended August 31, 2004 | Year Ended August 31, 2004 | ||||||||||||||||
First Quarter (September 1, 2003 — November 30, 2003) | $ | 31.65 | $ | 25.43 | First Quarter (September 1, 2003 — November 30, 2003) | $ | 31.65 | $ | 25.43 | |||||||||
Second Quarter (December 1, 2003 — February 29, 2004) | $ | 32.40 | $ | 24.75 | Second Quarter (December 1, 2003 — February 29, 2004) | $ | 32.40 | $ | 24.75 | |||||||||
Third Quarter (March 1, 2004 — May 31, 2004) | $ | 31.49 | $ | 24.60 | Third Quarter (March 1, 2004 — May 31, 2004) | $ | 31.49 | $ | 24.60 | |||||||||
Fourth Quarter (June 1, 2004 — August 31, 2004) | $ | 29.10 | $ | 19.18 | Fourth Quarter (June 1, 2004 — August 31, 2004) | $ | 29.10 | $ | 19.18 | |||||||||
Year Ended August 31, 2003 | ||||||||||||||||||
First Quarter (September 1, 2002 — November 30, 2002) | $ | 23.65 | $ | 11.13 | ||||||||||||||
Second Quarter (December 1, 2002 — February 28, 2003) | $ | 22.69 | $ | 14.51 | ||||||||||||||
Third Quarter (March 1, 2003 — May 31, 2003) | $ | 21.50 | $ | 15.28 | ||||||||||||||
Fourth Quarter (June 1, 2003 — August 31, 2003) | $ | 28.20 | $ | 20.41 |
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2005.
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Item 6. |
Fiscal Year Ended August 31, | |||||||||||||||||||||
2005 | 2004 | 2003 | 2002 | 2001 | |||||||||||||||||
(In thousands, except for per share data) | |||||||||||||||||||||
Consolidated Statement of Earnings Data: | |||||||||||||||||||||
Net revenue | $ | 7,524,386 | $ | 6,252,897 | $ | 4,729,482 | $ | 3,545,466 | $ | 4,330,655 | |||||||||||
Cost of revenue | 6,895,880 | 5,714,517 | 4,294,016 | 3,210,875 | 3,936,589 | ||||||||||||||||
Gross profit | 628,506 | 538,380 | 435,466 | 334,591 | 394,066 | ||||||||||||||||
Selling, general and administrative | 278,866 | 263,504 | 243,663 | 203,845 | 184,112 | ||||||||||||||||
Research and development | 22,507 | 13,813 | 9,906 | 7,864 | 6,448 | ||||||||||||||||
Amortization of intangibles | 39,762 | 43,709 | 36,870 | 15,113 | 5,820 | ||||||||||||||||
Acquisition-related charges | — | 1,339 | (1) | 15,266 | (2) | 7,576 | (3) | 6,558 | (4) | ||||||||||||
Restructuring and impairment charges | — | — | 85,308 | (2) | 52,143 | (3) | 27,366 | (4) | |||||||||||||
Operating income | 287,371 | 216,015 | 44,453 | 48,050 | 163,762 | ||||||||||||||||
Other loss (income) | — | 6,370 | (1) | (2,600 | )(2) | — | — | ||||||||||||||
Interest income | (13,774 | ) | (7,237 | ) | (6,920 | ) | (9,761 | ) | (8,243 | ) | |||||||||||
Interest expense | 24,773 | 19,369 | 17,019 | 13,055 | 5,857 | ||||||||||||||||
Income before income taxes | 276,372 | 197,513 | 36,954 | 44,756 | 166,148 | ||||||||||||||||
Income tax expense (benefit) | 44,525 | 30,613 | (6,053 | ) | 10,041 | 47,631 | |||||||||||||||
Net income | $ | 231,847 | $ | 166,900 | $ | 43,007 | $ | 34,715 | $ | 118,517 | |||||||||||
Earnings per share: | |||||||||||||||||||||
Basic | $ | 1.14 | $ | 0.83 | $ | 0.22 | $ | 0.18 | $ | 0.62 | |||||||||||
Diluted | $ | 1.12 | $ | 0.81 | $ | 0.21 | $ | 0.17 | $ | 0.59 | |||||||||||
Common shares used in the calculations of earnings per share: | |||||||||||||||||||||
Basic | 202,501 | 200,430 | 198,495 | 197,396 | 191,862 | ||||||||||||||||
Diluted | 207,526 | 205,849 | 202,103 | 200,782 | 202,223 | ||||||||||||||||
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August 31, | ||||||||||||||||||||
2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Consolidated Balance Sheet Data: | ||||||||||||||||||||
Working capital | $ | 1,117,806 | $ | 1,023,591 | $ | 830,729 | $ | 994,962 | $ | 942,023 | ||||||||||
Total assets | $ | 4,077,262 | $ | 3,329,356 | $ | 3,244,745 | $ | 2,547,906 | $ | 2,357,578 | ||||||||||
Current installments of notes payable, long-term debt and long-term lease obligations | $ | 674 | $ | 4,412 | $ | 347,237 | $ | 8,692 | $ | 8,333 | ||||||||||
Notes payable, long-term debt and long-term lease obligations, less current installments | $ | 326,580 | $ | 305,194 | $ | 297,018 | $ | 354,668 | $ | 361,667 | ||||||||||
Total stockholders’ equity | $ | 2,135,217 | $ | 1,819,340 | $ | 1,588,476 | $ | 1,506,966 | $ | 1,414,076 | ||||||||||
Cash dividends paid | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
(1) | During 2004, we recorded acquisition-related charges of $1.3 million ($1.0 million after-tax) primarily in connection with the | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(2) | During 2003, we recorded acquisition-related charges of $15.3 million ($9.8 million after-tax) in connection with
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This Annual Report on Form 10-K contains certain statements that are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and are made in reliance upon the protections provided by such acts for forward-looking statements. These forward-looking statements (such as when we describe what “will”, “may” or “should” occur, what we “plan”, “intend”, “estimate”, “believe”, “expect” or “anticipate” will occur, and other similar statements) include, but are not limited to, statements regarding future sales and operating results, future prospects, anticipated benefits of proposed (or future) acquisitions and new facilities, growth, the capabilities and capacities of business operations, any financial or other guidance and all statements that are not based on historical fact, but rather reflect our current expectations concerning future results and events. We make certain assumptions when making forward-looking statements, any of which could prove inaccurate, including, but not limited to, statements about our future operating results and business plans. Therefore, we can give no assurance that the results implied by these forward-looking statements will be realized. Furthermore, the inclusion of forward-looking information should not be regarded as a representation by the Company or any other person that future events, plans or expectations contemplated by the Company will be achieved. The ultimate correctness of these forward-looking statements is dependent upon a number of known and unknown risks and events, and is subject to various uncertainties and other factors that may cause our actual results, performance or achievements to be different from any future results, performance or achievements expressed or implied by these statements. The following important factors, among others, could affect future results and events, causing those results and events to differ materially from those expressed or implied in our forward-looking statements:
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• | variability of operating | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
• | our dependence on a limited number of major | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
• | the potential consolidation of our customer | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
• | availability of | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
• | dependence on certain | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
• | seasonality; | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
• | variability of customer | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
• | our ability to successfully negotiate definitive agreements and consummate acquisitions, and to integrate operations following consummation of | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
• | our ability to take advantage of our past restructuring efforts to improve utilization and realize | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
• | other economic, business and competitive factors affecting our customers, our industry and business | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
• | other factors that we may not have currently identified or quantified. |
19
20
Summary of |
Fiscal Year Ended August 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Net revenue | $ | 7,524,386 | $ | 6,252,897 | $ | 4,729,482 | ||||||
Gross profit | $ | 628,506 | $ | 538,380 | $ | 435,466 | ||||||
Operating income | $ | 287,371 | $ | 216,015 | $ | 44,453 | ||||||
Net income | $ | 231,847 | $ | 166,900 | $ | 43,007 | ||||||
Basic earnings per share | $ | 1.14 | $ | 0.83 | $ | 0.22 | ||||||
Diluted earnings per share | $ | 1.12 | $ | 0.81 | $ | 0.21 |
21
|
Three Months Ended | ||||||||||||||||
August 31, | May 31, | February 28, | November 30, | |||||||||||||
2005 | 2005 | 2005 | 2004 | |||||||||||||
Sales cycle | 17 days | 20 days | 23 days | 28 days | ||||||||||||
Inventory turns | 9 turns | 10 turns | 9 turns | 9 turns | ||||||||||||
Days in accounts receivable | 42 days | 42 days | 42 days | 52 days | ||||||||||||
Days in inventory | 39 days | 37 days | 39 days | 40 days | ||||||||||||
Days in accounts payable | 64 days | 59 days | 58 days | 64 days |
Three Months Ended | ||||||||||||||||
August 31, | May 31, | February 29, | November 30, | |||||||||||||
2004 | 2004 | 2004 | 2003 | |||||||||||||
Sales cycle | 26 days | 26 days | 26 days | 33 days | ||||||||||||
Inventory turns | 9 turns | 9 turns | 8 turns | 9 turns | ||||||||||||
Days in accounts receivable | 43 days | 40 days | 42 days | 52 days | ||||||||||||
Days in inventory | 40 days | 40 days | 45 days | 39 days | ||||||||||||
Days in accounts payable | 57 days | 54 days | 61 days | 58 days |
22
Net revenue for fiscal year 2004 increased 32 percent to $6.3 billion compared to $4.7 billion for fiscal year 2003. Our sales levels during fiscal year 2004 improved across all industry sectors, demonstrating our continued trend of industry sector and customer diversification. The increase in our net revenue base year-over-year represents stronger demand from existing programs, as well as organic growth from new and existing customers.
The following table sets forth, for the fiscal year ended August 31, certain key operating results and other financial information (in thousands, except per share data).
Fiscal Year Ended | ||||||||||||
August 31, | August 31, | August 31, | ||||||||||
2004 | 2003 | 2002 | ||||||||||
Net revenue | $ | 6,252,897 | $ | 4,729,482 | $ | 3,545,466 | ||||||
Gross profit | $ | 538,380 | $ | 435,466 | $ | 334,591 | ||||||
Operating income | $ | 216,015 | $ | 44,453 | $ | 48,050 | ||||||
Net income | $ | 166,900 | $ | 43,007 | $ | 34,715 | ||||||
Basic earnings per share | $ | 0.83 | $ | 0.22 | $ | 0.18 | ||||||
Diluted earnings per share | $ | 0.81 | $ | 0.21 | $ | 0.17 |
Management regularly reviews financial and non-financial performance indicators to assess the Company’s operating results. The following table sets forth, for the quarterly periods indicated, certain of management’s key financial performance indicators.
Three Months Ended | ||||||||||||||||
August 31, | May 31, | February 29, | November 30, | |||||||||||||
2004 | 2004 | 2004 | 2003 | |||||||||||||
Sales cycle | 26 days | 26 days | 26 days | 33 days | ||||||||||||
Inventory turns | 9 turns | 9 turns | 8 turns | 9 turns | ||||||||||||
Days in accounts receivable | 43 days | 40 days | 42 days | 52 days | ||||||||||||
Days in inventory | 40 days | 40 days | 45 days | 39 days | ||||||||||||
Days in accounts payable | 57 days | 54 days | 61 days | 58 days |
Three Months Ended | ||||||||||||||||
August 31, | May 31, | February 28, | November 30, | |||||||||||||
2003 | 2003 | 2003 | 2002 | |||||||||||||
Sales cycle | 37 days | 41 days | 42 days | 36 days | ||||||||||||
Inventory turns | 9 turns | 9 turns | 8 turns | 9 turns | ||||||||||||
Days in accounts receivable | 53 days | 53 days | 53 days | 49 days | ||||||||||||
Days in inventory | 39 days | 40 days | 46 days | 41 days | ||||||||||||
Days in accounts payable | 55 days | 52 days | 57 days | 54 days |
The sales cycle is calculated as the sum of days in accounts receivable and days in inventory, less the days in accounts payable; accordingly, the variance in the sales cycle quarter over quarter is a direct result of changes in these indicators. Days in accounts receivable have increased three days during the three months ended August 31, 2004 primarily as a result of timing of sales. The days in accounts receivable for
20
Critical Accounting Policies and Estimates
The preparation of our financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and judgments that affect our reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and assumptions based upon historical experience and various other factors and circumstances. Management believes that our estimates and assumptions are reasonable under the circumstances; however, actual results may vary from these estimates and assumptions under different future circumstances. We have identified the following critical accounting policies that affect the more significant judgments and estimates used in the preparation of our consolidated financial statements. For further discussion of our significant accounting policies, refer to Note 1 — “Description of Business and Summary of Significant Accounting Policies” to the Consolidated Financial Statements.
Revenue Recognition |
Allowance for Doubtful Accounts |
Inventory Valuation |
Long-Lived Assets |
23
Restructuring and Impairment Charges |
Pension and Postretirement Benefits |
Income Taxes |
24
Fiscal Year Ended | ||||||||||||
August 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Net revenue | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
Cost of revenue | 91.7 | 91.4 | 90.8 | |||||||||
Gross profit | 8.3 | 8.6 | 9.2 | |||||||||
Selling, general and administrative | 3.7 | 4.2 | 5.2 | |||||||||
Research and development | 0.3 | 0.2 | 0.2 | |||||||||
Amortization of intangibles | 0.5 | 0.7 | 0.8 | |||||||||
Acquisition-related charges | — | — | 0.3 | |||||||||
Restructuring and impairment charges | — | — | 1.8 | |||||||||
Operating income | 3.8 | 3.5 | 0.9 | |||||||||
Other loss (income) | — | 0.1 | (0.1 | ) | ||||||||
Interest income | (0.2 | ) | (0.1 | ) | (0.1 | ) | ||||||
Interest expense | 0.3 | 0.3 | 0.3 | |||||||||
Income before income taxes | 3.7 | 3.2 | 0.8 | |||||||||
Income tax expense (benefit) | 0.6 | 0.5 | (0.1 | ) | ||||||||
Net income | 3.1 | % | 2.7 | % | 0.9 | % | ||||||
25
Fiscal Year Ended | ||||||||||||
August 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Automotive | 7% | 8% | 9% | |||||||||
Computing and storage | 12% | 13% | 15% | |||||||||
Consumer | 29% | 25% | 20% | |||||||||
Instrumentation and medical | 16% | 12% | 7% | |||||||||
Networking | 15% | 20% | 23% | |||||||||
Peripherals | 8% | 6% | 8% | |||||||||
Telecommunications | 9% | 11% | 14% | |||||||||
Other | 4% | 5% | 4% | |||||||||
Total | 100% | 100% | 100% | |||||||||
26
27
28
29
Fiscal Year 2005 | Fiscal Year 2004 | ||||||||||||||||||||||||||||||||
Aug. 31, | May 31, | Feb. 28, | Nov. 30, | Aug. 31, | May 31, | Feb. 29, | Nov. 30, | ||||||||||||||||||||||||||
2005 | 2005 | 2005 | 2004 | 2004 | 2004 | 2004 | 2003 | ||||||||||||||||||||||||||
(In thousands, except per share data) | |||||||||||||||||||||||||||||||||
Net revenue | $ | 2,036,590 | $ | 1,938,415 | $ | 1,716,006 | $ | 1,833,375 | $ | 1,626,177 | $ | 1,625,850 | $ | 1,491,876 | $ | 1,508,994 | |||||||||||||||||
Cost of revenue | 1,865,476 | 1,776,333 | 1,575,555 | 1,678,517 | 1,488,488 | 1,489,935 | 1,360,549 | 1,375,545 | |||||||||||||||||||||||||
Gross profit | 171,114 | 162,082 | 140,451 | 154,858 | 137,689 | 135,915 | 131,327 | 133,449 | |||||||||||||||||||||||||
Selling, general and administrative | 72,952 | 71,688 | 66,137 | 68,089 | 65,596 | 65,913 | 65,986 | 66,009 | |||||||||||||||||||||||||
Research and development | 4,746 | 5,667 | 6,175 | 5,919 | 4,405 | 3,318 | 3,184 | 2,906 | |||||||||||||||||||||||||
Amortization of intangibles | 7,360 | 11,491 | 10,365 | 10,545 | 10,806 | 10,792 | 11,952 | 10,159 | |||||||||||||||||||||||||
Acquisition-related charges | — | — | — | — | — | — | — | 1,339 | |||||||||||||||||||||||||
Restructuring and impairment charges | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||
Operating income | 86,056 | 73,236 | 57,774 | 70,305 | 56,882 | 55,892 | 50,205 | 53,036 | |||||||||||||||||||||||||
Other loss | — | — | — | — | — | 6,370 | — | — | |||||||||||||||||||||||||
Interest income | (4,767 | ) | (4,214 | ) | (2,928 | ) | (1,865 | ) | (1,679 | ) | (2,087 | ) | (1,815 | ) | (1,656 | ) | |||||||||||||||||
Interest expense | 6,733 | 6,972 | 5,682 | 5,386 | 4,249 | 5,584 | 4,776 | 4,760 | |||||||||||||||||||||||||
Income before income taxes | 84,090 | 70,478 | 55,020 | 66,784 | 54,312 | 46,025 | 47,244 | 49,932 | |||||||||||||||||||||||||
Income tax expense | 13,558 | 11,125 | 8,973 | 10,869 | 10,054 | 5,894 | 7,229 | 7,436 | |||||||||||||||||||||||||
Net income | $ | 70,532 | $ | 59,353 | $ | 46,047 | $ | 55,915 | $ | 44,258 | $ | 40,131 | $ | 40,015 | $ | 42,496 | |||||||||||||||||
Earnings per share: | |||||||||||||||||||||||||||||||||
Basic | $ | 0.35 | $ | 0.29 | $ | 0.23 | $ | 0.28 | $ | 0.22 | $ | 0.20 | $ | 0.20 | $ | 0.21 | |||||||||||||||||
Diluted | $ | 0.34 | $ | 0.29 | $ | 0.22 | $ | 0.27 | $ | 0.22 | $ | 0.19 | $ | 0.19 | $ | 0.20 | |||||||||||||||||
Common shares used in the calculations of earnings per share: | |||||||||||||||||||||||||||||||||
Basic | 203,941 | 202,666 | 201,930 | 201,467 | 201,110 | 200,716 | 200,267 | 199,626 | |||||||||||||||||||||||||
Diluted | 209,813 | 207,736 | 206,459 | 205,843 | 205,165 | 206,371 | 214,738 | 213,940 | |||||||||||||||||||||||||
30
Fiscal Year 2005 | Fiscal Year 2004 | ||||||||||||||||||||||||||||||||
Aug. 31, | May 31, | Feb. 28, | Nov. 30, | Aug. 31, | May 31, | Feb. 29, | Nov. 30, | ||||||||||||||||||||||||||
2005 | 2005 | 2005 | 2004 | 2004 | 2004 | 2004 | 2003 | ||||||||||||||||||||||||||
Net revenue | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||||
Cost of revenue | 91.6 | 91.6 | 91.8 | 91.6 | 91.5 | 91.6 | 91.2 | 91.2 | |||||||||||||||||||||||||
Gross profit | 8.4 | 8.4 | 8.2 | 8.4 | 8.5 | 8.4 | 8.8 | 8.8 | |||||||||||||||||||||||||
Selling, general and administrative | 3.6 | 3.7 | 3.9 | 3.7 | 4.0 | 4.1 | 4.4 | 4.4 | |||||||||||||||||||||||||
Research and development | 0.2 | 0.3 | 0.4 | 0.3 | 0.3 | 0.2 | 0.2 | 0.2 | |||||||||||||||||||||||||
Amortization of intangibles | 0.4 | 0.6 | 0.6 | 0.6 | 0.7 | 0.7 | 0.8 | 0.6 | |||||||||||||||||||||||||
Acquisition-related charges | — | — | — | — | — | — | — | 0.1 | |||||||||||||||||||||||||
Restructuring and impairment charges | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||
Operating income | 4.2 | 3.8 | 3.3 | 3.8 | 3.5 | 3.4 | 3.4 | 3.5 | |||||||||||||||||||||||||
Other loss | — | — | — | — | — | 0.4 | — | — | |||||||||||||||||||||||||
Interest income | (0.2 | ) | (0.2 | ) | (0.2 | ) | (0.1 | ) | (0.1 | ) | (0.1 | ) | (0.1 | ) | (0.1 | ) | |||||||||||||||||
Interest expense | 0.3 | 0.4 | 0.3 | 0.3 | 0.3 | 0.3 | 0.3 | 0.3 | |||||||||||||||||||||||||
Income before income taxes | 4.1 | 3.6 | 3.2 | 3.6 | 3.3 | 2.8 | 3.2 | 3.3 | |||||||||||||||||||||||||
Income tax expense | 0.7 | 0.6 | 0.5 | 0.6 | 0.6 | 0.3 | 0.5 | 0.5 | |||||||||||||||||||||||||
Net income | 3.4 | % | 3.0 | % | 2.7 | % | 3.0 | % | 2.7 | % | 2.5 | % | 2.7 | % | 2.8 | % | |||||||||||||||||
31
Fiscal Year Ended August 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Net cash provided by operating activities | $ | 590,001 | $ | 451,241 | $ | 263,493 | ||||||
Net cash used in investing activities | (488,694 | ) | (205,593 | ) | (517,493 | ) | ||||||
Net cash provided by (used in) financing activities | 60,940 | (318,440 | ) | 312,420 | ||||||||
Effect of exchange rate changes on cash | 12,502 | (5,634 | ) | 593 | ||||||||
Net increase (decrease) in cash and cash equivalents | $ | 174,749 | $ | (78,426 | ) | $ | 59,013 | |||||
32
33
34
35
Payments Due by Period (In thousands) | ||||||||||||||||||||
Less than | 1-3 | 4-5 | After | |||||||||||||||||
Contractual Obligations | Total | 1 Year | Years | Years | 5 Years | |||||||||||||||
Notes payable, long-term debt and long-term lease obligations | $ | 327,254 | $ | 674 | $ | 11,186 | $ | 315,394 | $ | — | ||||||||||
Operating lease obligations | 145,347 | 34,448 | 51,886 | 34,160 | 24,853 | |||||||||||||||
Total | $ | 472,601 | $ | 35,122 | $ | 63,072 | $ | 349,554 | $ | 24,853 | ||||||||||
36
• | adverse changes in general economic conditions; | |
• | the level and timing of customer orders; | |
• | the level of capacity utilization of our manufacturing facilities and associated fixed costs; | |
• | the composition of the costs of revenue between materials, labor and manufacturing overhead; | |
• | price competition; | |
• | our level of experience in manufacturing a particular product; | |
• | the degree of automation used in our assembly process; | |
• | the efficiencies achieved in managing inventories and fixed assets; | |
• | fluctuations in materials costs and availability of materials; | |
• | seasonality in customers’ product requirements; and | |
• | the timing of expenditures in anticipation of increased sales, customer product delivery requirements and shortages of components or labor. |
37
• | The inability of our customers to adapt to rapidly changing technology and evolving industry standards, which result in short product life cycles. | |
• | The inability of our customers to develop and market their products, some of which are new and untested, the potential that our customers’ products may become obsolete or the failure of our customers’ products to gain widespread commercial acceptance. | |
• | Recessionary periods in our customers’ markets. |
38
• | variation in demand for our customers’ products; | |
• | our customers’ attempts to manage their inventory; | |
• | electronic design changes; | |
• | changes in our customers’ manufacturing strategy; and | |
• | acquisitions of or consolidations among customers. |
39
• | respond more quickly to new or emerging technologies; | |
• | have greater name recognition, critical mass and geographic market presence; | |
• | be better able to take advantage of acquisition opportunities; | |
• | adapt more quickly to changes in customer requirements; | |
• | devote greater resources to the development, promotion and sale of their services; and | |
• | be better positioned to compete on price for their services. |
40
• | difficulties in staffing and managing foreign operations; | |
• | political and economic instability; | |
• | unexpected changes in regulatory requirements and laws; | |
• | longer customer payment cycles and difficulty collecting accounts receivable export duties, import controls and trade barriers (including quotas); | |
• | governmental restrictions on the transfer of funds to us from our operations outside the United States; | |
• | burdens of complying with a wide variety of foreign laws and labor practices; | |
• | fluctuations in currency exchange rates, which could affect local payroll, utility and other expenses; and | |
• | inability to utilize net operating losses incurred by our foreign operations against future income in the same jurisdiction. |
• | Financial risks, such as (1) potential liabilities of the acquired businesses; (2) costs associated with integrating acquired operations and businesses; (3) the dilutive effect of the issuance of additional equity securities; (4) the incurrence of additional debt; (5) the financial impact of valuing goodwill and other intangible assets involved in any acquisitions, potential future impairment write-downs of goodwill and the amortization of other intangible assets; (6) possible adverse tax and accounting effects; and (7) the risk that we spend substantial amounts purchasing these manufacturing facilities and assume significant contractual and other obligations with no guaranteed levels of revenue or that we may have to close facilities at our cost. |
41
• | Operating risks, such as (1) the diversion of management’s attention to the assimilation of the businesses to be acquired; (2) the risk that the acquired businesses will fail to maintain the quality of services that we have historically provided; (3) the need to implement financial and other systems and add management resources; (4) the risk that key employees of the acquired businesses will leave after the acquisition; (5) unforeseen difficulties in the acquired operations; and (6) the impact on us of any unionized work force we may acquire or any labor disruptions that might occur. |
• | The integration into our business of the acquired assets and facilities may be time-consuming and costly. | |
• | We, rather than the divesting company, may bear the risk of excess capacity. | |
• | We may not achieve anticipated cost reductions and efficiencies. | |
• | We may be unable to meet the expectations of the divesting company as to volume, product quality, timeliness and cost reductions. | |
• | If demand for the divesting company’s products declines, it may reduce the volume of purchases and we may not be able to sufficiently reduce the expenses of operating the facility or use the facility to provide services to other customers. |
42
• | hire, retain and expand our qualified engineering and technical personnel; | |
• | maintain technological leadership; | |
• | develop and market manufacturing services that meet changing customer needs; and | |
• | successfully anticipate or respond to technological changes in manufacturing processes on a cost-effective and timely basis. |
43
44
45
46
• | make it difficult for us to obtain any necessary financing in the future for other acquisitions, working capital, capital expenditures, debt service requirements or other purposes; | |
• | limit our flexibility in planning for, or reacting to changes in, our business; and | |
• | make us more vulnerable in the event of a downturn in our business. |
47
• | a “poison pill” shareholder rights plan; | |
• | a statutory restriction on the ability of shareholders to take action by less than unanimous written consent; and | |
• | a statutory restriction on business combinations with some types of interested shareholders. |
48
49
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
50
Item 8. | Financial Statements and Supplementary Data |
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
Item 9A. | Controls and Procedures |
51
Item 9B. | Other Information |
52
Item 10. | Directors and Executive Officers of the Registrant |
Jabil Circuit, Inc. | |
Attention: Investor Relations | |
10560 Dr. Martin Luther King, Jr. Street North | |
St. Petersburg, Florida 33716 | |
Telephone: (727) 577-9749 |
53
Item 11. | Executive Compensation |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
Number of Securities | ||||||||||||
Number of Securities to | Weighted-Average | Remaining Available | ||||||||||
Be Issued upon Exercise | Exercise Price of | for Future Issuance | ||||||||||
of Outstanding Options, | Outstanding Options, | Under Equity | ||||||||||
Plan Category | Warrants and Rights | Warrants and Rights | Compensation Plans | |||||||||
Equity compensation plans approved by security holders: | ||||||||||||
1992 Stock Option Plan | 7,615,381 | 18.29 | — | |||||||||
1992 Employee Stock Purchase Plan | NA | NA | — | |||||||||
2002 Stock Option Plan | 10,797,058 | 22.05 | 6,193,324 | |||||||||
2002 CSOP Plan | 204,536 | 16.42 | 384,063 | |||||||||
2002 FSOP Plan | 315,130 | 24.12 | 84,030 | |||||||||
2002 Employee Stock Purchase Plan | NA | NA | 517,528 | |||||||||
Restricted Stock Awards | 435,000 | 24.21 | NA | |||||||||
Equity compensation plans not approved by security holders: | ||||||||||||
2001 Stock Award Plan | NA | NA | 88,350 | |||||||||
Total | 19,367,105 | 7,267,295 | ||||||||||
54
Item 13. | Certain Relationships and Related Transactions |
Item 14. | Principal Accounting Fees and Services |
Item 15. | Exhibits, Financial Statement Schedules |
1. Financial Statements. Our consolidated financial statements, and related notes thereto, with the independent registered public accounting firm report thereon are included in Part IV of this report on the pages indicated by the Index to Consolidated Financial Statements and Schedule as presented on page 56 of this report. | |
2. Financial Statement Schedule. Our financial statement schedule is included in Part IV of this report on the page indicated by the Index to Consolidated Financial Statements and Schedule as presented on page 56 of this report. This financial statement schedule should be read in conjunction with our consolidated financial statements, and related notes thereto. | |
Schedules not listed in the Index to Consolidated Financial Statements and Schedule 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 15(b) below. |
55
57 | |||
58 | |||
60 | |||
Consolidated Financial Statements: | |||
61 | |||
62 | |||
63 | |||
64 | |||
65 | |||
66 | |||
Financial Statement Schedule: | |||
101 |
56
57
58
/s/ KPMG LLP |
59
/s/ KPMG LLP |
60
August 31, | ||||||||||
2005 | 2004 | |||||||||
ASSETS | ||||||||||
Current assets: | ||||||||||
Cash and cash equivalents (note 1) | $ | 796,071 | $ | 621,322 | ||||||
Accounts receivable, less allowance for doubtful accounts of $3,967 in 2005 and $6,147 in 2004 (note 9) | 955,353 | 777,357 | ||||||||
Inventories (note 2) | 818,435 | 656,681 | ||||||||
Prepaid expenses and other current assets | 75,335 | 70,143 | ||||||||
Deferred income taxes (note 6) | 40,741 | 57,172 | ||||||||
Total current assets | 2,685,935 | 2,182,675 | ||||||||
Property, plant and equipment, net (note 3) | 880,736 | 776,353 | ||||||||
Goodwill (notes 4 and 12) | 384,239 | 294,566 | ||||||||
Intangible assets, net (notes 4 and 12) | 69,062 | 57,860 | ||||||||
Deferred income taxes (note 6) | 24,727 | 5,923 | ||||||||
Other assets | 32,563 | 11,979 | ||||||||
Total assets | $ | 4,077,262 | $ | 3,329,356 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||
Current liabilities: | ||||||||||
Current installments of notes payable, long-term debt and long-term lease obligations (note 5) | $ | 674 | $ | 4,412 | ||||||
Accounts payable | 1,339,866 | 937,636 | ||||||||
Accrued compensation and employee benefits | 126,020 | 109,849 | ||||||||
Other accrued expenses | 98,746 | 103,569 | ||||||||
Income taxes payable | 2,823 | 3,618 | ||||||||
Total current liabilities | 1,568,129 | 1,159,084 | ||||||||
Notes payable, long-term debt and long-term lease obligations less current installments (note 5) | 326,580 | 305,194 | ||||||||
Other liabilities (notes 7 and 10) | 47,336 | 45,738 | ||||||||
Total liabilities | 1,942,045 | 1,510,016 | ||||||||
Commitments and contingencies (note 11) | ||||||||||
Stockholders’ equity (note 8): | ||||||||||
Preferred stock, $.001 par value, authorized 10,000,000 shares; no shares issued and outstanding | — | — | ||||||||
Common stock, $.001 par value, authorized 500,000,000 shares; issued and outstanding 204,492,131 shares in 2005, and 201,298,830 shares in 2004 | 204 | 201 | ||||||||
Additional paid-in capital | 1,041,884 | 976,129 | ||||||||
Retained earnings | 1,021,800 | 789,953 | ||||||||
Unearned compensation (note 8) | (8,774 | ) | — | |||||||
Accumulated other comprehensive income | 80,103 | 53,057 | ||||||||
Total stockholders’ equity | 2,135,217 | 1,819,340 | ||||||||
Total liabilities and stockholders’ equity | $ | 4,077,262 | $ | 3,329,356 | ||||||
61
Fiscal Year Ended August 31, | |||||||||||||
2005 | 2004 | 2003 | |||||||||||
Net revenue (note 9) | $ | 7,524,386 | $ | 6,252,897 | $ | 4,729,482 | |||||||
Cost of revenue | 6,895,880 | 5,714,517 | 4,294,016 | ||||||||||
Gross profit | 628,506 | 538,380 | 435,466 | ||||||||||
Operating expenses: | |||||||||||||
Selling, general and administrative | 278,866 | 263,504 | 243,663 | ||||||||||
Research and development | 22,507 | 13,813 | 9,906 | ||||||||||
Amortization of intangibles (note 4) | 39,762 | 43,709 | 36,870 | ||||||||||
Acquisition-related charges (note 12) | — | 1,339 | 15,266 | ||||||||||
Restructuring and impairment charges (note 13) | — | — | 85,308 | ||||||||||
Operating income | 287,371 | 216,015 | 44,453 | ||||||||||
Other loss (income) | — | 6,370 | (2,600 | ) | |||||||||
Interest income | (13,774 | ) | (7,237 | ) | (6,920 | ) | |||||||
Interest expense | 24,773 | 19,369 | 17,019 | ||||||||||
Income before income taxes | 276,372 | 197,513 | 36,954 | ||||||||||
Income tax expense (benefit) (note 6) | 44,525 | 30,613 | (6,053 | ) | |||||||||
Net income | $ | 231,847 | $ | 166,900 | $ | 43,007 | |||||||
Earnings per share: | |||||||||||||
Basic | $ | 1.14 | $ | 0.83 | $ | 0.22 | |||||||
Diluted | $ | 1.12 | $ | 0.81 | $ | 0.21 | |||||||
Common shares used in the calculations of earnings per share: | |||||||||||||
Basic | 202,501 | 200,430 | 198,495 | ||||||||||
Diluted | 207,526 | 205,849 | 202,103 | ||||||||||
62
Fiscal Year Ended August 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Net income | $ | 231,847 | $ | 166,900 | $ | 43,007 | ||||||
Other comprehensive income (loss): | ||||||||||||
Foreign currency translation adjustment | 37,377 | 25,586 | 26,861 | |||||||||
Change in fair market value of derivative instruments, net of tax | (274 | ) | 1,139 | (865 | ) | |||||||
Minimum pension liability, net of tax (note 7) | (10,057 | ) | 5,253 | (5,294 | ) | |||||||
Comprehensive income | $ | 258,893 | $ | 198,878 | $ | 63,709 | ||||||
63
Common Stock | Accumulated | |||||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||||||
Shares | Par | Paid-In | Retained | Unearned | Comprehensive | Stockholders’ | ||||||||||||||||||||||
Outstanding | Value | Capital | Earnings | Compensation | Income (Loss) | Equity | ||||||||||||||||||||||
Balance at August 31, 2002 | 197,950,937 | $ | 198 | $ | 926,345 | $ | 580,046 | $ | — | $ | 377 | $ | 1,506,966 | |||||||||||||||
Shares issued to non-employees under stock option plans | — | — | 86 | — | — | — | 86 | |||||||||||||||||||||
Shares issued upon exercise of stock options | 825,394 | 1 | 8,147 | — | — | — | 8,148 | |||||||||||||||||||||
Shares issued under employee stock purchase plan | 569,627 | — | 8,877 | — | — | — | 8,877 | |||||||||||||||||||||
Tax benefit of options exercised | — | — | 690 | — | — | — | 690 | |||||||||||||||||||||
Comprehensive income | — | — | — | 43,007 | — | 20,702 | 63,709 | |||||||||||||||||||||
Balance at August 31, 2003 | 199,345,958 | 199 | 944,145 | 623,053 | — | 21,079 | 1,588,476 | |||||||||||||||||||||
Shares issued upon exercise of stock options | 1,506,579 | 2 | 19,922 | — | — | — | 19,924 | |||||||||||||||||||||
Shares issued under employee stock purchase plan | 446,293 | — | 8,967 | — | — | — | 8,967 | |||||||||||||||||||||
Tax benefit of options exercised | — | — | 3,095 | — | — | — | 3,095 | |||||||||||||||||||||
Comprehensive income | — | — | — | 166,900 | — | 31,978 | 198,878 | |||||||||||||||||||||
Balance at August 31, 2004 | 201,298,830 | 201 | 976,129 | 789,953 | — | 53,057 | 1,819,340 | |||||||||||||||||||||
Shares issued upon exercise of stock options | 2,727,004 | 3 | 40,661 | — | — | — | 40,664 | |||||||||||||||||||||
Shares issued under employee stock purchase plan | 466,297 | — | 9,723 | — | — | — | 9,723 | |||||||||||||||||||||
Issuance of restricted stock awards | — | — | 10,529 | — | (10,529 | ) | — | — | ||||||||||||||||||||
Recognition of unearned compensation | — | — | — | 1,755 | — | 1,755 | ||||||||||||||||||||||
Tax benefit of options exercised | — | — | 4,842 | — | — | — | 4,842 | |||||||||||||||||||||
Comprehensive income | — | — | — | 231,847 | — | 27,046 | 258,893 | |||||||||||||||||||||
Balance at August 31, 2005 | 204,492,131 | $ | 204 | $ | 1,041,884 | $ | 1,021,800 | $ | (8,774 | ) | $ | 80,103 | $ | 2,135,217 | ||||||||||||||
64
Fiscal Year Ended August 31, | ||||||||||||||
2005 | 2004 | 2003 | ||||||||||||
Cash flows from operating activities: | ||||||||||||||
Net income | $ | 231,847 | $ | 166,900 | $ | 43,007 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||
Depreciation and amortization | 220,123 | 221,668 | 224,439 | |||||||||||
Recognition of deferred grant proceeds | (1,199 | ) | (1,649 | ) | (1,809 | ) | ||||||||
Amortization of discount on note receivable | (1,002 | ) | — | — | ||||||||||
Recognition of stock-based compensation | 1,880 | — | — | |||||||||||
Deferred income taxes | 4,609 | (43,142 | ) | (28,958 | ) | |||||||||
Write-off of unamortized debt issuance costs | — | 6,370 | — | |||||||||||
Accrued interest on deferred acquisition payments | — | — | 760 | |||||||||||
Imputed interest on acquisition payments | — | — | 395 | |||||||||||
Non-cash restructuring charges | — | — | 56,444 | |||||||||||
(Recovery) provision for doubtful accounts | (936 | ) | 1,039 | 3,227 | ||||||||||
Tax benefit of options exercised | 4,842 | 3,095 | 690 | |||||||||||
Loss (Gain) on sale of property | 2,731 | 2,306 | (202 | ) | ||||||||||
Change in operating assets and liabilities, exclusive of net assets acquired: | ||||||||||||||
Accounts receivable | (31,070 | ) | 1,489 | (286,644 | ) | |||||||||
Inventories | (106,291 | ) | (133,907 | ) | 68,640 | |||||||||
Prepaid expenses and other current assets | 21,203 | (5,396 | ) | (26,189 | ) | |||||||||
Other assets | 1,689 | 3,585 | (3,838 | ) | ||||||||||
Accounts payable and accrued expenses | 244,083 | 197,963 | 194,702 | |||||||||||
Income taxes payable | (2,508 | ) | 30,920 | 18,829 | ||||||||||
Net cash provided by operating activities | 590,001 | 451,241 | 263,493 | |||||||||||
Cash flows from investing activities: | ||||||||||||||
Net cash paid for business and intangible asset acquisitions | (216,060 | ) | (1,492 | ) | (415,166 | ) | ||||||||
Cash disbursements for notes receivable | (26,356 | ) | — | — | ||||||||||
Cash disbursement for purchase option | (3,809 | ) | — | — | ||||||||||
Acquisition of property, plant and equipment | (256,849 | ) | (217,741 | ) | (117,215 | ) | ||||||||
Proceeds from sale of property, plant and equipment | 14,380 | 13,640 | 14,888 | |||||||||||
Net cash used in investing activities | (488,694 | ) | (205,593 | ) | (517,493 | ) | ||||||||
Cash flows from financing activities: | ||||||||||||||
Borrowings under debt agreements | 117,708 | 81 | 165,186 | |||||||||||
Payments toward debt agreements and capital lease obligations | (102,466 | ) | (347,412 | ) | (167,086 | ) | ||||||||
Payment related to termination of interest rate swap agreement | (4,564 | ) | — | — | ||||||||||
Net proceeds from issuance of long-term debt | — | — | 297,209 | |||||||||||
Net proceeds from issuance of common stock under option and employee purchase plans | 50,262 | 28,891 | 17,111 | |||||||||||
Net cash provided by (used in) financing activities | 60,940 | (318,440 | ) | 312,420 | ||||||||||
Effect of exchange rate changes on cash | 12,502 | (5,634 | ) | 593 | ||||||||||
Net increase (decrease) in cash and cash equivalents | 174,749 | (78,426 | ) | 59,013 | ||||||||||
Cash and cash equivalents at beginning of period | 621,322 | 699,748 | 640,735 | |||||||||||
Cash and cash equivalents at end of period | $ | 796,071 | $ | 621,322 | $ | 699,748 | ||||||||
Supplemental disclosure information: | ||||||||||||||
Interest paid | $ | 21,987 | $ | 19,232 | $ | 14,367 | ||||||||
Income taxes paid, net of refunds received | $ | 45,455 | $ | 33,848 | $ | 6,937 | ||||||||
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1. | Description of Business and Summary of Significant Accounting
Jabil Circuit, Inc. (together with its subsidiaries, herein referred to as the “Company”) is an independent provider of electronic manufacturing services and solutions. The Company provides comprehensive electronics design, production, product management and repair services to companies in the aerospace, automotive, computing, consumer, defense, industrial, instrumentation, medical, networking, peripherals, storage and telecommunications industries. The Company’s services combine a highly automated, continuous flow manufacturing approach with advanced electronic design and design for manufacturability technologies. The Company is headquartered in St. Petersburg, Florida and has manufacturing operations in the Americas, Europe and Asia. Significant accounting policies followed by the Company are as follows:
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b. Use of Accounting Estimates |
c. Cash and |
d. Inventories |
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e. Property, Plant and Equipment, net |
Asset Class | Estimated Useful Life | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Buildings | 35 years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Leasehold improvements | Shorter of
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Machinery and equipment | 5 to 7 years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Furniture, fixtures and office equipment | 5 years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Computer hardware and software | 3 to | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Transportation equipment
Maintenance and repairs are expensed as incurred. The cost and related accumulated depreciation of assets sold or retired are removed from the accounts and any resulting gain or loss is reflected in the consolidated statement of earnings as a component of operating income.
Assets |
Restructuring and Impairment Charges.There were no restructuring and impairment charges incurred during fiscal year 2004. During fiscal year 2003, we continued a restructuring program to reduce our cost structure and further align our manufacturing capacity with geographic production demands of our customers. This restructuring program resulted in restructuring and impairment charges of $85.3 million for fiscal year 2003.
As of August 31, 2004, liabilities related to our restructuring activities totaled approximately $10.7 million. Approximately $5.9 million of this total is expected to be paid out within the next twelve months for severance and benefit payments related to the remaining restructuring activities and lease commitment costs. The remaining balance, consisting of lease commitment costs, is expected to be paid out through August 31, 2006.
As a result of the restructuring activities completed through August 31, 2003, we realized a cumulative cost savings of approximately $24.0 million during fiscal year 2004. This cost savings consisted of $19.2 million reduction in cost of revenue due to a reduction in employee payroll and benefit expense of $11.6 million and $7.6 million in depreciation expense, and $4.8 million reduction in selling, general and administrative expenses.
The restructuring programs discussed above and in Note 13 — “Restructuring and Impairment Charges” to the Consolidated Financial Statements have allowed us to align our production capacity and shift our geographic footprint to meet current customer requirements. As a result, particularly in light of emerging increases in customer demand, we currently have no plans for additional material restructuring activities. However, we continuously evaluate our operations and cost structure relative to general economic conditions, market demands and cost competitiveness, and our geographic footprint as it relates to our customers’ production requirements. A change in any of these factors could result in additional restructuring and impairment charges in the future.
Other Loss (Income).During fiscal year 2004, we recorded a $6.4 million loss on the write-off of unamortized debt issuance costs, which resulted from the redemption of our convertible subordinated notes in May 2004. See Note 5 — “Notes Payable, Long-Term Debt and Long-Term Lease Obligations” to the Consolidated Financial Statements for further discussion of the redemption. During fiscal year 2003, we recorded $2.6 million of other income related to proceeds received in the first quarter of fiscal year 2003 in connection with facility closure costs.
Interest Income.Interest income increased to $7.2 million in fiscal year 2004 from $6.9 million in fiscal year 2003. The increase was primarily due to higher average cash balances, partially offset by lower interest yields on cash deposits and short-term investments.
25
Interest Expense.Interest expense increased to $19.4 million in fiscal year 2004, from $17.0 million in fiscal year 2003. This increase was primarily a result of the issuance of our $300.0 million, seven-year, 5.875% senior notes in the fourth quarter of fiscal year 2003, which are effectively converted to a variable rate by our interest rate swap. This increase was partially offset by the redemption of our 1.75% convertible subordinated notes in May 2004. See Note 5 — “Notes Payable, Long-Term Debt and Long-Term Lease Obligations” to the Consolidated Financial Statements.
Income Taxes.Income tax expense reflects an effective tax rate of 15.5% for fiscal year 2004, as compared to an income tax benefit of 16.4% for fiscal year 2003. The tax rate is predominantly a function of the mix of tax rates in the various jurisdictions in which we do business. The amount of restructuring charges recorded during fiscal year 2003, and the fact that the income taxes associated with the restructuring charges were calculated using the effective tax rates in the jurisdictions in which those charges were incurred, resulted in an income tax benefit in the prior fiscal year. In addition, as the proportion of our income derived from foreign sources has increased, our effective tax rate, excluding the impact of restructuring charges, has decreased. Our international operations have historically been taxed at a lower rate than in the United States, primarily due to tax incentives, including tax holidays, granted to our sites in Malaysia, China, Brazil, Poland, Ukraine and Hungary that expire at various dates through 2012. Such tax holidays are subject to conditions with which we expect to continue to comply. See Note 6 — “Income Taxes” to the Consolidated Financial Statements.
Fiscal Year Ended August 31, 2003 Compared to Fiscal Year Ended August 31, 2002
Net Revenue.Our net revenue increased 33.4% to $4.7 billion for fiscal year 2003, up from $3.5 billion in fiscal year 2002. The increase was primarily due to a 218% increase in production of consumer products, an 80% increase in production of instrumentation and medical products, a 72% increase in production of automotive products, a 54% increase in production of computing and storage products and a 4% increase in production of networking products due to the addition of new customers, acquisitions and organic growth in those industry sectors. The increase in the consumer industry sector was primarily due to the acquisition of certain operations of Philips during fiscal year 2003. These increases were offset in part by an 18% decrease in production of telecommunications products due to reduced demand in this industry sector.
Foreign source revenue represented 80.7% of our net revenue for fiscal year 2003 and 60.6% of net revenue for fiscal year 2002. The increase in foreign source revenue was primarily attributable to incremental revenue resulting from our acquisitions in France and Scotland during late fiscal year 2002, and our acquisitions in Austria, Brazil, Belgium, China, Hungary, India, Japan, Malaysia, Mexico, Poland and Singapore during fiscal year 2003.
Gross Profit.Gross profit decreased slightly to 9.2% in fiscal year 2003 from 9.4% in fiscal year 2002 primarily due to a decrease in the portion of manufacturing-based revenue and the mix of value-add based revenue from our acquisitions, partially offset by cost reductions realized from our restructuring activities.
Selling, General and Administrative.Selling, general and administrative expenses increased to $243.7 million (5.2% of net revenue) in fiscal year 2003 from $203.8 million (5.7% of net revenue) in fiscal year 2002. The absolute dollar increase was primarily attributable to operations acquired in late fiscal year 2002 and fiscal year 2003 and to operations in facilities for which construction was completed during fiscal year 2003. The decrease as a percentage of net revenue was due primarily to the increased revenue base in fiscal year 2003.
R&D.R&D expenses in fiscal year 2003 increased to $9.9 million from $7.9 million in fiscal year 2002 but remained at 0.2% of net revenue for each of the fiscal years ended August 31, 2003 and 2002. Despite the economic conditions faced in the respective time period, we continued to engage in R&D activities, including design of circuit board assemblies and the related production process, development of new products and new failure analysis techniques at our historical levels.
26
Amortization of Intangibles.We recorded $36.9 million of amortization of intangibles in fiscal year 2003 as compared to $15.1 million in fiscal year 2002. The increase was attributable to acquired amortizable intangible assets resulting from our acquisitions in late fiscal year 2002 and fiscal year 2003. For additional information regarding purchased intangibles, see “Acquisitions and Expansion” below, Note 1(f) — “Description of Business and Summary of Significant Accounting Policies — Goodwill and Other Intangible Assets.”
h. Revenue Recognition |
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i. Income Taxes |
j. Earnings Per Share |
Fiscal Year Ended August 31, | |||||||||||||
2005 | 2004 | 2003 | |||||||||||
Numerator: | |||||||||||||
Net income | $ | 231,847 | $ | 166,900 | $ | 43,007 | |||||||
Denominator: | |||||||||||||
Weighted-average common shares outstanding — basic | 202,501 | 200,430 | 198,495 | ||||||||||
Dilutive common shares issuable upon exercise of stock options | 4,590 | 5,419 | 3,608 | ||||||||||
Dilutive unvested common shares associated with restricted stock awards | 435 | — | — | ||||||||||
Weighted average shares outstanding — diluted | 207,526 | 205,849 | 202,103 | ||||||||||
Earnings per common share: | |||||||||||||
Basic | $ | 1.14 | $ | 0.83 | $ | 0.22 | |||||||
Diluted | $ | 1.12 | $ | 0.81 | $ | 0.21 | |||||||
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k. Foreign Currency Transactions |
l. Profit Sharing, 401(k) Plan and Defined Contribution Plans |
m. Stock-Based Compensation |
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70
Fiscal Year Ended August 31, | |||||||||||||
2005 | 2004 | 2003 | |||||||||||
Reported net income | $ | 231,847 | $ | 166,900 | $ | 43,007 | |||||||
Total stock-based employee compensation expense included in the determination of reported net income, net of related tax effects | 1,354 | — | — | ||||||||||
Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects | (99,936 | ) | (45,531 | ) | (34,181 | ) | |||||||
Pro forma net income for calculation of diluted earnings per share | $ | 133,265 | $ | 121,369 | $ | 8,826 | |||||||
Earnings per common share: | |||||||||||||
Reported net income per share — basic | $ | 1.14 | $ | 0.83 | $ | 0.22 | |||||||
Pro forma net income per share — basic | $ | 0.66 | $ | 0.61 | $ | 0.04 | |||||||
Reported net income per share — diluted | $ | 1.12 | $ | 0.81 | $ | 0.21 | |||||||
Pro forma net income per share — diluted | $ | 0.64 | $ | 0.59 | $ | 0.04 | |||||||
n. Comprehensive Income |
August 31, | ||||||||
2005 | 2004 | |||||||
Foreign currency translation adjustment | $ | 90,201 | $ | 52,824 | ||||
Accumulated derivative net losses, net of tax | — | 274 | ||||||
Minimum pension liability, net of tax | (10,098 | ) | (41 | ) | ||||
$ | 80,103 | $ | 53,057 | |||||
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o. Warranty Provision |
p. Derivative Instruments |
q. Intellectual Property Guarantees |
2. | Inventories |
August 31, | ||||||||
2005 | 2004 | |||||||
Raw materials | $ | 573,756 | $ | 441,968 | ||||
Work in process | 148,455 | 133,005 | ||||||
Finished goods | 96,224 | 81,708 | ||||||
$ | 818,435 | $ | 656,681 | |||||
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3. | Property, Plant and Equipment |
August 31, | ||||||||
2005 | 2004 | |||||||
Land and improvements | $ | 74,296 | $ | 70,769 | ||||
Buildings | 372,536 | 361,513 | ||||||
Leasehold improvements | 43,792 | 40,165 | ||||||
Machinery and equipment | 770,840 | 645,631 | ||||||
Furniture, fixtures and office equipment | 45,857 | 43,976 | ||||||
Computer hardware and software | 208,762 | 178,438 | ||||||
Transportation equipment | 6,160 | 5,224 | ||||||
Construction in progress | 72,642 | 1,722 | ||||||
1,594,885 | 1,347,438 | |||||||
Less accumulated depreciation and amortization | 714,149 | 571,085 | ||||||
$ | 880,736 | $ | 776,353 | |||||
4. | Goodwill and Other Intangible
|
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Gross Carrying | Accumulated | Net Carrying | |||||||||||
August 31, 2005 | Amount | Amortization | Amount | ||||||||||
Contractual agreements & customer relationships | $ | 202,629 | $ | (133,800 | ) | $ | 68,829 | ||||||
Patents | 800 | (567 | ) | 233 | |||||||||
Total | $ | 203,429 | $ | (134,367 | ) | $ | 69,062 | ||||||
Gross Carrying | Accumulated | Net Carrying | |||||||||||
August 31, 2004 | Amount | Amortization | Amount | ||||||||||
Contractual agreements & customer relationships | $ | 151,660 | $ | (94,113 | ) | $ | 57,547 | ||||||
Patents | 800 | (487 | ) | 313 | |||||||||
Total | $ | 152,460 | $ | (94,600 | ) | $ | 57,860 | ||||||
Fiscal Year Ending August 31, | Amount | ||||
2006 | $ | 21,922 | |||
2007 | 12,237 | ||||
2008 | 7,629 | ||||
2009 | 4,211 | ||||
2010 | 4,209 | ||||
Thereafter | 18,854 | ||||
Total | $ | 69,062 | |||
Acquisitions and | |||||||||||||||||
Balance at | Purchase Accounting | Foreign Currency | Balance at | ||||||||||||||
Reportable Segment | August 31, 2004 | Adjustments | Impact | August 31, 2005 | |||||||||||||
Americas | $ | 34,770 | $ | 81,162 | $ | 3,385 | $ | 119,317 | |||||||||
Europe | 171,932 | 47 | 3,316 | 175,295 | |||||||||||||
Asia | 65,239 | — | (139 | ) | 65,100 | ||||||||||||
Other non-reportable segment | 22,625 | 1,928 | (26 | ) | 24,527 | ||||||||||||
Total | $ | 294,566 | $ | 83,137 | $ | 6,536 | $ | 384,239 | |||||||||
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August 31, | ||||||||
2005 | 2004 | |||||||
Borrowings under revolving credit facility(a) | $ | — | $ | — | ||||
Borrowings under revolving credit facility with Japanese bank(b) | — | — | ||||||
Borrowings under revolving credit facility with Ukrainian bank(c) | 97 | 81 | ||||||
Long-term capital lease obligations(d) | 710 | 1,113 | ||||||
Loan from Japanese bank due 2008(e) | — | 14,551 | ||||||
Loan from Indian bank due 2008(f) | 9,093 | — | ||||||
Loan from Hungarian bank due 2008(g) | 22,106 | — | ||||||
5.875% Senior Notes due 2010(h) | 295,248 | 293,861 | ||||||
Total notes payable, long-term debt and long-term lease obligations | 327,254 | 309,606 | ||||||
Less current installments of notes payable, long-term debt and long-term lease obligations | 674 | 4,412 | ||||||
Notes payable, long-term debt and long-term lease obligations, less current installments | $ | 326,580 | $ | 305,194 | ||||
(a) | ||
The following table sets forth certain unaudited quarterly financial information for the 2004 and 2003 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) 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 and related notes thereto. The operating results for any quarter are not necessarily indicative of results for any future period.
Fiscal Year 2004 | Fiscal Year 2003 | ||||||||||||||||||||||||||||||||
Aug. 31, | May 31, | Feb. 29, | Nov. 30, | Aug. 31, | May 31, | Feb. 28, | Nov. 30, | ||||||||||||||||||||||||||
2004 | 2004 | 2004 | 2003 | 2003 | 2003 | 2003 | 2002 | ||||||||||||||||||||||||||
(In thousands, except per share data) | |||||||||||||||||||||||||||||||||
Net revenue | $ | 1,626,177 | $ | 1,625,850 | $ | 1,491,876 | $ | 1,508,994 | $ | 1,296,015 | $ | 1,219,304 | $ | 1,145,917 | $ | 1,068,246 | |||||||||||||||||
Cost of revenue | 1,488,488 | 1,489,935 | 1,360,549 | 1,375,545 | 1,175,611 | 1,106,673 | 1,041,030 | 970,702 | |||||||||||||||||||||||||
Gross profit | 137,689 | 135,915 | 131,327 | 133,449 | 120,404 | 112,631 | 104,887 | 97,544 | |||||||||||||||||||||||||
Selling, general and administrative | 65,596 | 65,913 | 65,986 | 66,009 | 65,051 | 62,462 | 60,310 | 55,840 | |||||||||||||||||||||||||
Research and development | 4,405 | 3,318 | 3,184 | 2,906 | 2,506 | 2,353 | 2,431 | 2,616 | |||||||||||||||||||||||||
Amortization of intangibles | 10,806 | 10,792 | 11,952 | 10,159 | 12,514 | 8,489 | 9,716 | 6,151 | |||||||||||||||||||||||||
Acquisition-related charges | — | — | — | 1,339 | 3,934 | 3,920 | 3,697 | 3,715 | |||||||||||||||||||||||||
Restructuring and impairment charges | — | — | — | — | 8,958 | 32,863 | 17,128 | 26,359 | |||||||||||||||||||||||||
Operating income | 56,882 | 55,892 | 50,205 | 53,036 | 27,441 | 2,544 | 11,605 | 2,863 | |||||||||||||||||||||||||
Other loss (income) | — | 6,370 | — | — | — | — | — | (2,600 | ) | ||||||||||||||||||||||||
Interest income | (1,679 | ) | (2,087 | ) | (1,815 | ) | (1,656 | ) | (1,684 | ) | (1,465 | ) | (1,847 | ) | (1,924 | ) | |||||||||||||||||
Interest expense | 4,249 | 5,584 | 4,776 | 4,760 | 5,246 | 3,862 | 4,182 | 3,729 | |||||||||||||||||||||||||
Income before income taxes | 54,312 | 46,025 | 47,244 | 49,932 | 23,879 | 147 | 9,270 | 3,658 | |||||||||||||||||||||||||
Income tax expense (benefit) | 10,054 | 5,894 | 7,229 | 7,436 | 3,807 | (4,319 | ) | (842 | ) | (4,699 | ) | ||||||||||||||||||||||
Net income | $ | 44,258 | $ | 40,131 | $ | 40,015 | $ | 42,496 | $ | 20,072 | $ | 4,466 | $ | 10,112 | $ | 8,357 | |||||||||||||||||
Earnings per share: | |||||||||||||||||||||||||||||||||
Basic | $ | 0.22 | $ | 0.20 | $ | 0.20 | $ | 0.21 | $ | 0.10 | $ | 0.02 | $ | 0.05 | $ | 0.04 | |||||||||||||||||
Diluted | $ | 0.22 | $ | 0.19 | $ | 0.19 | $ | 0.20 | $ | 0.10 | $ | 0.02 | $ | 0.05 | $ | 0.04 | |||||||||||||||||
Common shares used in the calculations of earnings per share: | |||||||||||||||||||||||||||||||||
Basic | 201,110 | 200,716 | 200,267 | 199,626 | 199,059 | 198,596 | 198,351 | 197,972 | |||||||||||||||||||||||||
Diluted | 205,165 | 206,371 | 214,738 | 213,940 | 203,980 | 202,132 | 200,726 | 200,099 | |||||||||||||||||||||||||
28
The following table sets forth, for the periods indicated, certain financial information stated as a percentage of net revenue:
Fiscal Year 2004 | Fiscal Year 2003 | ||||||||||||||||||||||||||||||||
Aug. 31, | May 31, | Feb. 28, | Nov. 30, | Aug. 31, | May 31, | Feb. 28, | Nov. 30, | ||||||||||||||||||||||||||
2004 | 2004 | 2004 | 2003 | 2003 | 2003 | 2003 | 2002 | ||||||||||||||||||||||||||
Net revenue | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||||
Cost of revenue | 91.5 | 91.6 | 91.2 | 91.2 | 90.7 | 90.8 | 90.8 | 90.9 | |||||||||||||||||||||||||
Gross profit | 8.5 | 8.4 | 8.8 | 8.8 | 9.3 | 9.2 | 9.2 | 9.1 | |||||||||||||||||||||||||
Selling, general and administrative | 4.0 | 4.1 | 4.4 | 4.4 | 5.0 | 5.1 | 5.3 | 5.2 | |||||||||||||||||||||||||
Research and development | 0.3 | 0.2 | 0.2 | 0.2 | 0.2 | 0.2 | 0.2 | 0.2 | |||||||||||||||||||||||||
Amortization of intangibles | 0.7 | 0.7 | 0.8 | 0.6 | 1.0 | 0.7 | 0.9 | 0.6 | |||||||||||||||||||||||||
Acquisition-related charges | — | — | — | 0.1 | 0.3 | 0.3 | 0.3 | 0.3 | |||||||||||||||||||||||||
Restructuring and impairment charges | — | — | — | — | 0.7 | 2.7 | 1.5 | 2.5 | |||||||||||||||||||||||||
Operating income | 3.5 | 3.4 | 3.4 | 3.5 | 2.1 | 0.2 | 1.0 | 0.3 | |||||||||||||||||||||||||
Other loss (income) | — | 0.4 | — | — | — | — | — | (0.2 | ) | ||||||||||||||||||||||||
Interest income | (0.1 | ) | (0.1 | ) | (0.1 | ) | (0.1 | ) | (0.1 | ) | (0.1 | ) | (0.2 | ) | (0.2 | ) | |||||||||||||||||
Interest expense | 0.3 | 0.3 | 0.3 | 0.3 | 0.4 | 0.3 | 0.4 | 0.3 | |||||||||||||||||||||||||
Income before income taxes | 3.3 | 2.8 | 3.2 | 3.3 | 1.8 | 0.0 | 0.8 | 0.4 | |||||||||||||||||||||||||
Income tax expense (benefit) | 0.6 | 0.3 | 0.5 | 0.5 | 0.3 | (0.4 | ) | (0.1 | ) | (0.4 | ) | ||||||||||||||||||||||
Net income | 2.7 | % | 2.5 | % | 2.7 | % | 2.8 | % | 1.5 | % | 0.4 | % | 0.9 | % | 0.8 | % | |||||||||||||||||
Acquisitions and Expansion
We have made a number of acquisitions that were accounted for using the purchase method of accounting. Our consolidated financial statements include the operating results of each business from the date of acquisition. See “Factors Affecting Future Results — We may not achieve expected profitability from our acquisitions.” For further discussion of our acquisitions, see Note 12 — “Business Acquisitions” to the Consolidated Financial Statements.
Seasonality
Production levels for our consumer and automotive industry sectors are subject to seasonal influences. We may realize greater net revenue during our first fiscal quarter, which includes a majority of the holiday selling season.
Liquidity and Capital Resources
At August 31, 2004, we had cash and cash equivalent balances totaling $621.3 million, total notes payable, long-term debt and capital lease obligations of $309.6 million and $405.5 million available for borrowings under our revolving credit facilities and accounts receivable securitization program.
The following table sets forth, for the fiscal year ended August 31, selected consolidated cash flow information (in thousands):
Fiscal Year Ended August 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
Net cash provided by operating activities | $ | 451,241 | $ | 263,493 | $ | 553,562 | ||||||
Net cash used in investing activities | (205,593 | ) | (517,493 | ) | (350,223 | ) | ||||||
Net cash (used in) provided by financing activities | (318,440 | ) | 312,420 | 6,348 | ||||||||
Effect of exchange rate changes on cash | (5,634 | ) | 593 | 396 | ||||||||
Net (decrease) increase in cash and cash equivalents | $ | (78,426 | ) | $ | 59,013 | $ | 210,083 | |||||
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Net cash provided by operating activities for fiscal year 2004 was $451.2 million. This consisted primarily of $166.9 million of net income, $221.7 million of depreciation and amortization, $198.0 million from increases in accounts payable and accrued expenses and $30.9 million from increases in income taxes payable, offset by increases in inventory of $133.9 million and increases in deferred income taxes of $43.1 million. The increase in inventory was due to increased levels of business during fiscal year 2004 and positioning for estimated future demand. The increase in accounts payable was due to the increase in inventory and timing of purchases near year-end. Additionally, accrued compensation and employee benefits increased over the prior fiscal year due to the increase in number of employees at August 31, 2004.
Net cash used in investing activities of $205.6 million for fiscal year 2004 consisted primarily of our capital expenditures of $217.7 million for construction and equipment worldwide, offset by proceeds from the sale of property and equipment of $13.6 million. Purchases of manufacturing and computer equipment were made to support our ongoing business and to expand certain existing manufacturing locations.
Net cash used in financing activities of $318.4 million for fiscal year 2004 resulted primarily from the redemption of our convertible subordinated notes in May 2004 for $345.0 million and payments on long-term debt and capital lease obligations totaling $2.4 million. These payments were offset slightly by $28.9 million net proceeds from the issuance of common stock under option and employee purchase plans during fiscal year 2004. See Note 5 — “Notes Payable, Long-Term Debt and Long-Term Lease Obligations” and Note 8 — “Stockholders’ Equity” to the Consolidated Financial Statements.
We may need to finance future growth and any corresponding working capital needs with additional borrowings under our revolving credit facilities described below, as well as additional public and private offerings of our debt and equity. During the first quarter of fiscal year 1999, we filed a $750.0 million “shelf” registration statement with the SEC registering the potential sale of debt and equity securities in the future, from time-to-time, to augment our liquidity and capital resources. In June 2000, we sold 13.0 million shares of our common stock pursuant to our “shelf” registration statement, which generated net proceeds of $525.4 million. In August 2000, we increased the amount of securities available to be issued under a shelf registration statement to $1.5 billion.
In May 2001, we issued a total of $345.0 million, 20-year, 1.75% convertible subordinated notes (the “Convertible Notes”) at par, resulting in net proceeds of approximately $337.5 million. The Convertible Notes were issued pursuant to our “shelf” registration statement. The Convertible Notes were to mature on May 15, 2021 and pay interest semiannually on May 15 and November 15. Under the terms of the Convertible Notes, the Note holders had the right to require us to purchase all or a portion of their Convertible Notes on May 15 in the years 2004, 2006, 2009 and 2014 at par plus accrued interest. Additionally, we had the right to redeem all or a portion of the Convertible Notes for cash at any time on or after May 18, 2004. Accordingly, the Convertible Notes were classified as current debt as of August 31, 2003. On May 17, 2004, we paid $70.4 million par value to certain note holders who exercised their right to require us to purchase their Convertible Notes. On May 18, 2004, we paid $274.6 million par value upon exercise of our right to redeem the remaining Convertible Notes outstanding. In addition to the par value of the Convertible Notes, we paid accrued and unpaid interest of approximately $3.1 million to the note holders. As a result of these transactions, we recognized a loss of $6.4 million on the write-off of unamortized issuance costs associated with the Convertible Notes. This loss has been recorded as an other loss in the Consolidated Statement of Earnings for the fiscal year ended August 31, 2004.
In July 2003, we issued a total of $300.0 million, seven-year, 5.875% senior notes (“5.875% Senior Notes”) at 99.803% of par, resulting in net proceeds of approximately $297.2 million. The 5.875% Senior Notes were offered pursuant to our “shelf” registration statement. The 5.875% Senior Notes mature on July 15, 2010 and pay interest semiannually on January 15 and July 15.
Approximately $855.0 million of securities remain registered with the SEC under our shelf registration statement at August 31, 2004.
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In July 2003, we entered into an interest rate swap transaction to effectively convert the fixed interest rate of our 5.875% Senior Notes to a variable rate. The swap, which expires in 2010, is accounted for as a fair value hedge under Statement of Financial Accounting Standards No. 133,Accounting for Derivative Instruments and Certain Hedging Activities(“SFAS 133”). The notional amount of the swap is $300.0 million, which is related to the 5.875% Senior Notes. Under the terms of the swap, we will pay an interest rate equal to the six-month London Interbank Offered Rate (“LIBOR”) rate, set in arrears, plus a fixed spread of 1.945%. In exchange, we will receive a fixed rate of 5.875%. At August 31, 2004, $5.6 million has been recorded in other long-term liabilities to record the fair value of the interest rate swap, with a corresponding decrease to the carrying value of the 5.875% Senior Notes on the Consolidated Balance Sheet.
On May 28, 2003, we negotiated a six-month, 1.8 billion Japanese Yen (“JPY”) (approximately $15.2 million based on currency exchange rates at the time) credit facility for a Japanese subsidiary with a Japanese bank. Under the terms of the credit facility, interest accrued on outstanding borrowings based on the Tokyo Interbank Offered Rate (“TIBOR”) plus a spread of 1.75%. The credit facility was to expire on December 2, 2003 and any outstanding borrowings would then be due and payable. During the fourth quarter of fiscal year 2003, we borrowed 1.8 billion JPY on this facility. The cash proceeds, which translated to $15.2 million based on foreign currency rates in effect at the date of the borrowing, were used to partially fund the acquisition of certain operations of NEC in Gotemba, Japan. On August 28, 2003, we renegotiated the 1.8 billion JPY credit facility by converting it into a five-year term loan (“Japan Term Loan”), with the final principal payment due May 31, 2008. We pay interest on the Japan Term Loan quarterly at a fixed annual rate of 2.97%. The Japan Term Loan requires quarterly repayments of principal of 105 million JPY. The Japan Term Loan requires compliance with financial and operating covenants including maintaining a minimum equity balance at the respective subsidiary level. We were in compliance with the respective covenants as of August 31, 2004.
On May 28, 2003, we negotiated a six-month, 0.6 billion JPY (approximately $5.5 million based on currency exchange rates at August 31, 2004) credit facility for a Japanese subsidiary with a Japanese bank. The facility was to expire on December 2, 2003. During the first quarter of fiscal year 2004 we renewed this existing facility for a term of one year. Under the terms of the facility, we pay interest on outstanding borrowings based on TIBOR plus a spread of 1.75%. The credit facility expires on December 2, 2004 and any outstanding borrowings are then due and payable. We plan to renew this facility in the first quarter of fiscal year 2005. As of August 31, 2004, there were no borrowings outstanding under this facility.
On July 14, 2003, weCompany amended and revised ourits then existing three-year, $295.0 million revolving credit facility, cancelled our then existing 364-day, $305.0 million credit facility and established a three-year, $400.0 million unsecured revolving credit facility with a syndicate of banks (the “Amended(“Amended Revolver”). Under the terms of the Amended Revolver, borrowings cancould be made under either floating rate loans or Eurodollar rate loans. We pay interestInterest accrued on outstanding floating rate loans at the greater of the agent’s prime rate or 0.50% plus the federal funds rate. We pay interestInterest accrued on outstanding Eurodollar loans at the LIBORLondon Interbank Offered Rate (“LIBOR”) in effect at the loan inception plus a spread of 0.65% to 1.35%. We pay aA facility fee based on the committed amount of the Amended Revolver was payable at a rate equal to 0.225% to 0.40%. We also pay aA usage fee was also payable if ourthe borrowings on the Amended Revolver exceedexceeded 33 1/3%1/3% of the aggregate commitment. The usage fee rate rangesranged from 0.125% to 0.25%. The interest spread, facility fee and usage fee arewere determined based on ourthe Company’s general corporate rating or rating of ourits senior unsecured long-term indebtedness as determined by Standard and& Poor’s Rating Service (“S&P”) and Moody’s Investor Service. As of August 31, 2004, the interest spread on the Amended Revolver was 1.325%Service (“Moody’s”). The Amended Revolver expires onhad an expiration date of July 14, 2006 andwhen outstanding borrowings arewould then be due and payable. The Amended Revolver requiresrequired compliance with several financial covenants including a fixed charge coverage ratio, consolidated net worth threshold and indebtedness to EBITDA ratio, as defined in the Amended Revolver. The Amended Revolver requiresrequired compliance with certain operating covenants, which limited, among other things, the Company’s incurrence of additional indebtedness. On March 10, 2005, the Company borrowed $80.0 million under the Amended Revolver to partially fund the acquisition of Varian Electronics Manufacturing (“VEM”), which was consummated on March 11, 2005. This borrowing was repaid in full during the third quarter of fiscal year 2005 from cash provided by operations.
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maximum of $750.0 million at the request of the Company if approved by the lenders. Such requests must be for an increase of at least $50.0 million or an integral multiple thereof, and may only be made once per calendar year. Interest and fees on Unsecured Revolver advances are based on the Company’s senior unsecured long-term indebtedness rating as determined by S&P and Moody’s. Interest is charged at either the base rate or a rate equal to 0.50% to 0.950% above the Eurocurrency rate, where the base rate, available for U.S. dollar advances only, represents the greater of the agent’s prime rate or 0.50% plus the federal funds rate, and the Eurocurrency rate represents the applicable LIBOR, each as more fully defined in the Unsecured Revolver. Fees include a facility fee based on the total commitments of the lenders, a letter of credit fee based on the amount of outstanding letters of credit, and a utilization fee to be added to the interest rate and the letter of credit fee during any period when the aggregate amount of outstanding advances and letters of credit exceeds 50% of the total commitments of the lenders. Based on the Company’s current senior unsecured long-term indebtedness rating as determined by S&P and Moody’s, the current rate of interest plus the applicable facility and utilization fee on a full Eurocurrency rate draw would be 1.00% above the Eurocurrency rate as defined above. Among other things, the Unsecured Revolver contains financial covenants establishing a debt to EBITDA ratio and interest coverage ratio; and contains operating covenants, which limit, among other things,
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(b) | In May 2003, the Company negotiated a
subsidiary with a Japanese bank.
76 JABIL CIRCUIT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In May 2001, the Company issued a total of its $345.0 million, 20-year, 1.75% Convertible Notes at par, resulting in net proceeds of approximately $338.0 million. The Convertible Notes were to mature on May 15, 2021 and paid interest semiannually on May 15 and November 15. On May 17, 2004, the Company paid $70.4 million par value to certain note holders who exercised their right to require the Company to purchase their Convertible Notes. On May 18, 2004, the Company paid $274.6 million par value upon exercise of its right to redeem the remaining Convertible Notes outstanding. In addition to the par value of the Convertible Notes, the Company paid accrued and unpaid interest of approximately $3.1 million to the note holders. As a result of these transactions, the Company recognized a loss of $6.4 million on the write-off of unamortized debt issuance costs associated with the Convertible Notes. This loss was recorded as an other loss in the Consolidated Statement of Earnings for fiscal year ended August 31, 2004. Debt maturities as of August 31, 2005 for the next five years are as follows (in thousands):
77 JABIL CIRCUIT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Income tax expense (benefit) amounted to $44.5 million, $30.6 million and $(6.1) million for the years ended August 31, 2005, 2004 and 2003, respectively (an effective rate of 16.1%, 15.5% and (16.4)%, respectively). The actual expense (benefit) differs from the “expected” tax expense (benefit) (computed by applying the U.S. federal corporate tax rate of 35% to earnings before income taxes) as follows (in thousands):
The domestic and foreign components of income before income taxes were comprised of the following for the years ended August 31 (in thousands):
78 JABIL CIRCUIT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The components of income taxes for the fiscal years ended August 31, 2005, 2004 and 2003 were as follows (in thousands):
The Company has been granted tax incentives, including tax holidays, for its Brazilian, Chinese, Hungarian, Indian, Malaysian, and Polish subsidiaries. These tax incentives, including tax holidays, expire through 2017 and are subject to certain conditions with which the Company expects to comply. These subsidiaries generated income during the fiscal years ended August 31, 2005, 2004, and 2003, resulting in a tax benefit of approximately $36.9 million ($0.18 per share), $27.0 million ($0.13 per share) and $14.3 million ($0.07 per share), respectively. The Company intends to indefinitely re-invest income from all of its foreign subsidiaries. The aggregate undistributed earnings of the Company’s foreign subsidiaries for which no deferred tax liability has been recorded is approximately $762.4 million as of August 31, 2005. Determination of the amount of unrecognized deferred tax liability on these undistributed earnings is not practicable. 79 JABIL CIRCUIT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (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):
Net current deferred tax assets were $40.7 million and $57.2 million at August 31, 2005 and 2004, respectively, and the net non-current deferred tax assets were $24.7 million and $5.9 million at August 31, 2005 and 2004, respectively. The net change in the total valuation allowance for the fiscal years ended August 31, 2005 and 2004 was $0.2 million and $2.0 million, respectively. In addition, at August 31, 2005, the Company has net operating loss carryforwards for federal, state and foreign income tax purposes of approximately $10.4 million, $11.6 million and $0.7 million, respectively, which are available to reduce future taxes, if any. These net operating loss carryforwards expire through the year 2025. Based on the Company’s historical operating income, management believes that it is more likely than not that the Company will realize the benefit of its net deferred tax assets.
During the first quarter of fiscal year 2002, the Company established a defined benefit pension plan for all permanent employees of Jabil Circuit UK Limited. This plan was established in accordance with the terms of the business sale agreement with Marconi Communications plc (“Marconi”). The benefit obligations and plan assets from the terminated Marconi plan were transferred to the newly established defined benefit plan. The plan provides benefits based on average employee earnings over a three-year service period preceding retirement. The Company’s policy is to contribute amounts sufficient to meet 80 JABIL CIRCUIT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) minimum funding requirements as set forth in U.K. employee benefit and tax laws plus such additional amounts as are deemed appropriate by the Company. Plan assets are held in trust and consist of equity and debt securities as detailed below. As a result of acquiring various operations in Austria, Belgium, Brazil, France, Hong Kong/ China, Hungary, India, Japan, the Netherlands, Poland, and Singapore, the Company assumed primarily unfunded retirement benefits to be paid based upon years of service and compensation at retirement. All permanent employees meeting the minimum service requirement are eligible to participate in the plans. Through the Royal Philips Electronics (“Philips”) acquisition in fiscal year 2003, the Company also assumed post-retirement medical benefit plans. The Company uses a May 31 measurement date for the majority of its plans.
The following table provides a reconciliation of the change in the benefit obligations for the plans described above (in thousands of dollars):
Weighted-average actuarial assumptions used to determine the benefit obligations for the plans were as follows:
We evaluate these assumptions on a regular basis taking into consideration current market conditions and historical market data. The discount rate is used to state expected future cash flows at a present value on the measurement date. This rate represents the market rate for high-quality fixed income investments. A lower discount rate would increase the present value of benefit obligations. Other assumptions include demographic factors such as retirement, mortality and turnover. 81 JABIL CIRCUIT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table provides a reconciliation of the changes in the pension plan assets for the year between measurement dates (in thousands of dollars):
The Company’s pension plan weighted-average asset allocations, by asset category, are as follows:
The Company has adopted an investment policy for plan assets designed to meet or exceed the expected rate of return on plan assets assumption. To achieve this, the plan retains professional investment managers that invest plan assets in equity and debt securities. The Company currently expects to maintain the mix of 35% equity and 65% debt securities in fiscal year 2006. Within the equity securities class, the investment policy provides for investments in a broad range of publicly traded securities including both domestic and international stocks. The plan does not hold any of the Company’s stock. Within the debt securities class, the investment policy provides for investments in corporate bonds as well as fixed and variable interest debt instruments. There are no plan assets associated with the other postretirement benefits. 82 JABIL CIRCUIT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table provides a reconciliation of the funded status of the plans to the Consolidated Balance Sheet (in thousands of dollars):
The accumulated benefit obligation for all defined benefit pension plans was $103.6 million and $86.4 million at August 31, 2005 and August 31, 2004, respectively. The following table provides information for pension plans with an accumulated benefit obligation in excess of plan assets (in thousands of dollars):
The following table provides information on the increase in the minimum pension liability included in other comprehensive income (in thousands of dollars):
The minimum pension liability included in other comprehensive income was $14.4 million ($10.1 million, net of tax) and $64.0 thousand ($41.0 thousand, net of tax) at August 31, 2005 and 2004, respectively. 83 JABIL CIRCUIT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table provides information about net periodic benefit cost for the pension and other benefit plans for fiscal years ended August 31 (in thousands of dollars):
Weighted-average actuarial assumptions used to determine net periodic benefit cost for the plans for fiscal years ended August 31 were as follows:
The expected return on plan assets assumption used in calculating net periodic pension cost is based on historical actual return experience and estimates of future long-term performance with consideration to the expected investment mix of the plan assets.
The following table provides information about health care cost trend rates:
Assumed health care cost trend rates have an effect on the amounts reported for the postretirement medical benefit plans. A one percentage point decrease in the assumed health care cost trend rates would reduce total service and interest costs and postretirement benefit obligations by $264.9 thousand and $442.1 thousand, respectively. A one percentage point increase in the assumed health care cost trend rates would increase total service and interest costs and postretirement benefit obligations by $448.4 thousand and $756.8 thousand, respectively.
The Company expects to make cash contributions of between $0.5 million and $0.8 million to its pension plans during fiscal year 2006. The Company does not expect to make cash contributions to its other benefit plans in fiscal year 2006. 84 JABIL CIRCUIT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The estimated future benefit payments, which reflect expected future service, as appropriate, are as follows (in thousands):
The Company’s 1992 Stock Option Plan (the “1992 Plan”) provided for the granting to employees of incentive stock options within the meaning of Section 422 of the Internal Revenue Code and for the granting of non-statutory stock options to employees and consultants of the Company. A total of 23,440,000 shares of common stock were reserved for issuance under the 1992 Plan. The 1992 Plan was adopted by the Board of Directors in November of 1992 and was terminated in October 2002 with the remaining shares transferred into a new plan created in fiscal year 2002. In October 2001, the Company established a new Stock Option Plan (the “2002 Incentive Plan”). The 2002 Incentive Plan was adopted by the Board of Directors in October 2001 and approved by the stockholders in January 2002. The 2002 Incentive Plan provides for the granting of both Section 422 Internal Revenue Code and non-statutory stock options, as well as restricted stock and other stock-based awards. The 2002 Incentive Plan has a total of 19,608,726 shares reserved for grant, including 2,608,726 shares that were transferred from the 1992 Plan when it was terminated in October 2001 and 10,000,000 shares authorized in January 2004. The Company also adopted sub-plans under the 2002 Incentive Plan for its United Kingdom employees (“the CSOP Plan”) and for its French employees (“the FSOP Plan”). The CSOP Plan and FSOP Plan are tax advantaged plans for the Company’s United Kingdom and French employees, respectively. Shares are issued under the CSOP Plan and FSOP Plan from the authorized shares under the 2002 Incentive Plan. Generally, options issued under the 2002 Incentive Plan vest at a rate of 12% after the first six months and 2% per month thereafter, becoming fully vested after a 50 month period. Generally, the exercise price of incentive stock options granted under the 2002 Incentive 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 incentive 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 2002 Incentive Plan may not exceed ten years. 85 JABIL CIRCUIT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The following table summarizes option activity from September 1, 2002 through August 31, 2005:
At August 31, 2005, options for 7,432,801 shares were exercisable under the 1992 Plan and options for 9,367,586 shares were exercisable under the 2002 Incentive Plan. The range of exercise prices, shares, weighted average remaining contractual life and exercise price for the options outstanding as of August 31, 2005 are presented below:
86 JABIL CIRCUIT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The range of exercise prices, shares and weighted average exercise price of the options exercisable at August 31, 2005 are presented below:
The per-share weighted-average fair value of stock options granted during 2005, 2004 and 2003 was $14.61, $18.55 and $8.95, respectively, on the date of the grant using the Black-Scholes option-pricing model. Following are the weighted-average assumptions used for each respective year:
The Company’s 1992 Employee Stock Purchase Plan (the “1992 Purchase Plan”) was adopted by the Board of Directors in November 1992 and approved by the stockholders in December 1992. A total of 5,820,000 shares of common stock were reserved for issuance under the 1992 Purchase Plan. As of August 31, 2005 a total of 5,279,594 shares had been issued under the 1992 Purchase Plan. The 1992 Purchase Plan was terminated in October 2002. In October 2001, the Board of Directors adopted a new Employee Stock Purchase Plan (the “2002 Purchase Plan” and, together with the 1992 Purchase Plan, the “Purchase Plans”), which was approved by the stockholders in January 2002. There are 2,000,000 shares reserved under the 2002 Purchase Plan. As of August 31, 2005, a total of 1,482,472 shares had been issued under the 2002 Purchase Plan. Employees are eligible to participate in the Purchase Plans after 90 days of employment with the Company. The Purchase Plans permit 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. The Purchase Plans are intended to qualify under section 423 of the Internal Revenue Code. Unless terminated sooner, the 2002 Purchase Plan will terminate on August 31, 2012. 87 JABIL CIRCUIT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The per-share weighted-average fair value of stock issued to employees in 2005, 2004, and 2003, respectively, under the Company’s Purchase Plans was $6.26, $7.51 and $5.59, respectively, using the Black-Scholes option-pricing model with the following assumptions:
In February 2001, the Company adopted a new Stock Award Plan. The purpose of the Stock Award Plan is to provide incentives to attract and retain key employees to the Company and motivate such persons to stay with the Company and to increase their efforts to make the business of the Company more successful. A total of 100,000 shares of common stock have been reserved for issuance under the Stock Award Plan. As of August 31, 2005, 11,650 shares have been issued to employees under the Stock Award Plan, of which 5,000 shares have lapsed, leaving 88,350 available for future grants.
During the first quarter of fiscal year 2005, the Company granted unvested common stock awards (“restricted stock”) to certain key employees pursuant to the Jabil Circuit, Inc. 2002 Stock Incentive Plan. The awards are accounted for using the measurement and recognition principles of APB 25. Accordingly, unearned compensation is measured at the date of grant and recognized as compensation expense over the period in which the awards vest. Shares awarded during the first quarter of fiscal year 2005 will vest after five years, but may vest earlier if specific performance criteria are met. The per-share weighted-average fair value of restricted stock awarded during fiscal year 2005 was $24.21. At August 31, 2005, $8.8 million of unearned compensation is recorded as a reduction in stockholders’ equity as a result of the restricted stock awards. For the fiscal year ended August 31, 2005, the Company recorded $1.9 million of stock-based compensation expense in selling, general and administrative expense related to the restricted stock awards, of which $1.8 million was due to amortization of unearned compensation.
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, and trade receivables. The Company maintains cash and cash equivalents with various domestic and foreign financial institutions. Deposits held with the financial institutions may exceed the amount of insurance provided on such deposits, but may generally be redeemed upon demand. The Company performs periodic evaluations of the relative credit standing of the financial institutions and attempts to limit exposure with any one institution. With respect to trade receivables, the Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company maintains an allowance for potential credit losses on trade receivables. 88 JABIL CIRCUIT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 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:
Sales to the above customers were reported in the Americas, Europe and Asia operating segments.
Statement of Financial Accounting Standards No. 131,Disclosures about Segments of an Enterprise and Related Information(“SFAS 131”) establishes standards for reporting information about segments in financial statements. Operating segments are defined as components of an enterprise that engage in business activities from which it may earn revenues and incur expenses; for which separate financial information is available; and whose operating results are regularly reviewed by the chief operating decision maker to assess the performance of the individual segment and make decisions about resources to be allocated to the segment. The Company derives its revenues from providing comprehensive electronics design, production, product management and repair services. Management, including the Chief Executive Officer, evaluates performance and allocates resources on a geographic basis for manufacturing operating segments and on a global basis for the services operating segment. Prior to the first quarter of fiscal year 2005, Jabil managed its business based on four geographic regions, the United States, Europe, Asia and Latin America. During fiscal year 2005, the Company realigned its organizational structure to manage the United States and Latin America as one geographic region, the Americas, and to manage the services groups independently of the regional manufacturing segments. Accordingly, Jabil’s operating segments now consist of four segments — Americas, Europe, Asia and Services — to reflect how the Company manages its business. All prior period disclosures presented below have been restated to reflect this change. The services operating segment, which includes the Company’s repair, design and enclosure integration services, does not meet the requirements of a reportable operating segment and is therefore combined with the Company’s other non-segment activities, where applicable, in the disclosures below. Net revenues for the three manufacturing operating segments are attributed to the region in which the product is manufactured or service is performed. The services provided, manufacturing processes, class of customers and order fulfillment processes are similar and generally interchangeable across the manufacturing operating segments. Net revenues for the services operating segment are on a global basis. An operating segment’s performance is evaluated based upon its pre-tax operating contribution, or segment income. Segment income is defined as net revenue less cost of revenue and segment selling, general and administrative expenses, and does not include research and development costs, intangible amortization, acquisition-related charges, restructuring and impairment charges, other loss (income), interest income, interest expense or income taxes. Segment income also does not include an allocation of corporate selling, general and administrative expenses, as management does not use this information to measure the 89 JABIL CIRCUIT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) performance of the operating segments. Transactions between operating segments are generally recorded at amounts that approximate arm’s length. The following table sets forth operating segment information (in thousands):
90 JABIL CIRCUIT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As noted in Note 13 — “Restructuring and Impairment Charges,” the Company implemented restructuring programs during fiscal years 2003, 2002 and 2001. There were no restructuring and impairment costs incurred during fiscal years 2005 and 2004. Total restructuring and impairment costs of $85.3 million were charged against earnings during fiscal year 2003. Approximately $50.7 million, $25.1 million, $7.0 million and $2.5 million of restructuring and impairment costs were incurred during fiscal year 2003 in the Americas, Europe, Asia and other non-reportable operating segments, respectively. The Company operates in 20 countries worldwide. Sales to unaffiliated customers are based on the Company’s location providing the electronics design, production, product management or repair services. The following table sets forth external net revenue, net of intercompany eliminations, and long-lived asset information where individual countries represent a material portion of the total (in thousands):
91 JABIL CIRCUIT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Total foreign source net revenue was approximately $6.3 billion, $5.3 billion and $3.8 billion for the years ended August 31, 2005, 2004 and 2003, respectively. Total long-lived assets related to the Company’s foreign operations were approximately $993.4 million, $919.2 million and $911.3 million for the years ended August 31, 2005, 2004 and 2003, respectively.
The Company has adopted SFAS 133, as amended by SFAS 138 and SFAS 149. There were no transition amounts recorded upon adoption of SFAS 133 and its related amendments. The Company has used certain derivative instruments to enhance its ability to manage risk relating to cash flow and interest rate exposure. Derivative instruments are entered into for periods consistent with the related underlying exposures and are not entered into for speculative purposes. The Company documents all relationships between derivative instruments and related items, as well as its risk-management objectives and strategies for undertaking various derivative transactions.
The Company enters into forward contracts to hedge against the impact of currency fluctuations on U.S. dollar and foreign currency commitments arising from trade accounts receivable, trade accounts payable and fixed purchase obligations. At August 31, 2005, all forward contracts are marked to market with changes in fair values recorded to the Consolidated Statement of Earnings. At August 31, 2005 the Company had $148.0 million of forward contracts for various currencies. The maximum term of the forward contracts that hedged forecasted transactions was four months. The Company recorded the change in fair value related to cash flow hedges in the Consolidated Statement of Earnings. These contracts will expire during fiscal year 2006, with the resulting change in value being reflected in the Consolidated Statement of Earnings. At August 31, 2004, the Company had $131.0 million of forward contracts for various currencies. The maximum term of the forward contracts that hedged forecasted transactions was seven months. These contracts expired during fiscal year 2005, with the resulting change in value being reflected in the Consolidated Statement of Earnings. See Note 1(n) — “Description of Business and Summary of Significant Accounting Policies — Comprehensive Income.”
The Company has historically used an interest rate swap as part of its interest rate risk management strategy. In July 2003, Jabil entered into an interest rate swap transaction to effectively convert the fixed interest rate of its 5.875% Senior Notes to a variable rate. The swap, which was to expire in 2010, was accounted for as a fair value hedge under Statement of Financial Accounting Standards No. 133, 92 JABIL CIRCUIT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Accounting for Derivative Instruments and Certain Hedging Activities(“SFAS 133”). The notional amount of the swap was $300.0 million, which is related to the 5.875% Senior Notes. Under the terms of the swap, the Company paid an interest rate equal to the six-month London Interbank Offered Rate (“LIBOR”) rate, set in arrears, plus a fixed spread of 1.945%. In exchange, Jabil received a fixed rate of 5.875%. The swap transaction qualified for the shortcut method of recognition under SFAS 133, therefore no portion of the swap was treated as ineffective. The interest rate swap was terminated on June 3, 2005. The fair value of the interest rate swap of $4.5 million was recorded in long-term liabilities, with the corresponding offset recorded as a decrease to the carrying value of the 5.875% Senior Notes, on the Consolidated Balance Sheet at the termination date. In addition, Jabil had recorded $0.4 million of interest receivable from the issuing bank as of the termination date. Upon termination, Jabil made a net $4.1 million cash payment to the issuing bank to derecognize the interest rate swap and the accrued interest. The $4.5 million decrease to the carrying value of the 5.875% Senior Notes on the Consolidated Balance Sheet will be amortized on a straight-line basis to earnings through interest expense over the remaining term of the debt.
The Company leases certain facilities and computer services under non-cancelable operating leases. The future minimum lease payments under non-cancelable operating leases outstanding August 31, 2005 are as follows (in thousands):
Total rent expense for operating leases was approximately $40.7 million, $43.1 million and $40.7 million for the years ended August 31, 2005, 2004 and 2003, respectively.
The Company is party to certain lawsuits in the ordinary course of business. Management does not believe that these proceedings individually or in the aggregate, will have a material adverse effect on the Company’s financial position, results of operations or cash flows.
The Company has made a number of acquisitions that were accounted for under the purchase method of accounting. Accordingly, the operating results of each acquired business are included in the Consolidated Financial Statements of the Company from the respective date of acquisition. In accordance with SFAS 142, goodwill related to the Company’s business acquisitions is not being amortized and is tested for impairment annually during the fourth quarter of each fiscal year and whenever events or 93 JABIL CIRCUIT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) changes in circumstances indicate that the carrying value may not be recoverable from its estimated future cash flows. On November 29, 2004, the Company purchased certain television assembly operations of Philips in Kwidzyn, Poland. The Company acquired these operations in an effort to add assembly operations in the consumer industry sector and further strengthen its relationship with Philips. Simultaneous with the purchase, the Company amended its previously existing supply agreement with Philips to include the acquired operations. The acquisition was accounted for under the purchase method of accounting. Total consideration paid was approximately $20.1 million, based on foreign currency rates in effect at the date of the acquisition. Based on a final third-party valuation, the purchase price resulted in amortizable intangible assets of approximately $2.5 million. On March 11, 2005, the Company purchased the operations of VEM, the electronics manufacturing business segment of Varian, Inc. VEM derives its revenues primarily from customers in the aerospace, communications, and instrumentation and medical industry sectors. The Company acquired the VEM operations in an effort to enhance customer and industry sector diversification by adding additional competencies in targeted industry sectors. The acquisition was accounted for under the purchase method of accounting. Total consideration paid was approximately $202.1 million in cash. Based on a preliminary third-party valuation, which is expected to be completed no later than the third quarter of fiscal year 2006, the purchase price resulted in purchased intangible assets of $41.9 million and goodwill of $81.3 million. The purchased intangible assets (other than goodwill) are currently being amortized over a period of ten years. Pro-forma results of operations, in respect to the acquisitions described above, have not been presented because the effect of these acquisitions was not material on either an individual or an aggregate basis. There were no acquisition-related costs recorded for the year ended August 31, 2005. In connection with acquisitions consummated in fiscal year 2003, acquisition-related costs of $1.3 million were recorded for the year ended August 31, 2004. In connection with acquisitions consummated in fiscal years 2003 and 2002, acquisition-related costs of $15.3 million were recorded for the year ended August 31, 2003. These costs consisted of professional fees and other incremental costs related directly to the integration of the acquired operations.
During the third quarter of fiscal year 2005, the Company entered into several related agreements with an unrelated electronics manufacturing services (“EMS”) provider. The agreements include, but are not limited to, a loan agreement and an agreement and plan of amalgamation. Under the terms of the loan agreement, the Company agreed subject to various conditions to loan the EMS provider a maximum amount of $25.0 million, of which $15.0 million was disbursed upon execution of the agreements. The remaining $10.0 million principal under the loan agreement was transferred to an escrow agent to be disbursed to the EMS provider only upon satisfaction of various requirements as defined in the related escrow agreement. These requirements were satisfied during the fourth quarter of fiscal year 2005 and the remaining $10.0 million principal was disbursed to the EMS provider. The loan, which is evidenced by a promissory note, bears interest at a stated rate of 2.5% per annum from the disbursement date. The principal is due and payable in a single payment on November 1, 2006 and interest is payable annually in arrears on November 1 of each year. The related agreement and plan of amalgamation grants the Company an option to acquire all of the outstanding stock of the EMS provider through amalgamation with a newly-formed subsidiary of the Company (“the purchase option”). The purchase option, which was granted upon execution of the loan 94 JABIL CIRCUIT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) agreement for no additional consideration, allows the Company to demand the amalgamation at any time prior to November 1, 2005, subject to certain potential limited extensions. The agreement and plan of amalgamation also dictates the initial and contingent purchase consideration payable by the Company upon exercise of the purchase option. The purchase option expires on November 1, 2005, subject to certain potential limited extensions. See Note 16 — “Subsequent Event” for discussion of the potential amendment to this agreement and plan of amalgamation. At August 31, 2005, $22.2 million is recorded in long-term other assets related to the note receivable and $3.8 million is recorded in current assets related to the purchase option. The amounts recorded for the assets reflect their respective fair market values, which are based on the results of a third-party valuation.
During fiscal year 2001, a global economic downturn resulted in excess production capacity and a decline in customer demand for the Company’s services. As a result, during the third quarter of fiscal year 2001, the Company implemented a restructuring program to reduce its cost structure. This restructuring program included reductions in workforce, re-sizing of facilities and the transition of certain facilities from high volume manufacturing facilities into new customer development sites. During fiscal year 2001, the Company charged $27.4 million of restructuring and impairment costs against earnings. The macroeconomic conditions facing the Company, and the industry as a whole, continued to deteriorate during fiscal year 2002, resulting in a continued decline in customer demand, additional excess production capacity and customer requirements for a shift in the Company’s geographic production footprint. As a result, additional restructuring programs were implemented during fiscal year 2002. These restructuring programs included reductions in workforce, re-sizing of facilities and the closure of facilities. During fiscal year 2002, the Company charged $52.1 million of restructuring and impairment costs against earnings. During fiscal year 2003, the geographic production demands of the Company’s customers continued to shift. In addition to carrying out a worldwide realignment of capacity and consolidating existing facilities, the Company closed manufacturing operations in Boise, Idaho and Coventry, England. As a result, the Company charged $85.3 million of restructuring and impairment costs against earnings. These restructuring and impairment charges included employee severance and benefit costs of approximately $29.9 million, costs related to lease commitments of approximately $14.9 million, fixed asset impairments of approximately $37.6 million and other restructuring costs of approximately $2.9 million, primarily related to professional fees incurred in connection with the restructuring activities. The table below sets forth the significant components and activity in the restructuring programs during fiscal year 2003 (in thousands):
95 JABIL CIRCUIT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The table below sets forth the significant components and activity in the restructuring programs during fiscal year 2004 (in thousands):
The table below sets forth the significant components and activity in the restructuring programs during fiscal year 2005 (in thousands):
At August 31, 2005, total liabilities of $4.9 million related to these historical restructuring activities are expected to be paid out within the next twelve months.
In February 2004, the Company entered into an asset backed securitization program with a bank, which originally provided for net cash proceeds at any one time of up to $100.0 million on the sale of eligible accounts receivable of certain domestic operations. As a result of an amendment in April 2004, the program was increased to up to $120.0 million of net cash proceeds at any one time. As a result of a second amendment in February 2005, the program was renewed and increased to up to $145.0 million of net cash proceeds at any one time. The program was increased to up to $175.0 million of net cash proceeds at any one time by a third amendment in May 2005. The sale of receivables under this securitization program is accounted for in accordance with Statement of Financial Accounting Standards No. 140,Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (a replacement of FASB Statement No. 125).Under the agreement, the Company continuously sells a designated pool of trade accounts receivable to a wholly-owned subsidiary, which in turn sells an ownership interest in the receivables to a conduit, administered by an unaffiliated financial institution. This wholly-owned subsidiary is a separate bankruptcy-remote entity and its assets would be available first to satisfy the creditor claims of the conduit. As the receivables sold are collected, the Company is able to sell additional receivables up to the maximum permitted amount under the program. The securitization program requires compliance with several financial covenants including an interest coverage ratio and debt to EBITDA ratio, as defined in the securitization agreements, as amended. The Company was in compliance with the respective covenants at August 31, 2005. The securitization agreements, as amended, expire in February 2006 and may be extended on an annual basis. 96 JABIL CIRCUIT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) For each pool of eligible receivables sold to the conduit, the Company retains a percentage interest in the face value of the receivables, which is calculated based on the terms of the agreement. Net receivables sold under this program are excluded from accounts receivable on the Consolidated Balance Sheet and are reflected as cash provided by operating activities on the Consolidated Statement of Cash Flows. The Company continues to service, administer and collect the receivables sold under this program. The Company pays facility fees of 0.30% per annum of the average purchase limit and program fees of up to 0.125% of outstanding amounts. The investors and the securitization conduit have no recourse to the Company’s assets for failure of debtors to pay when due. At August 31, 2005, the Company had sold $261.5 million of eligible accounts receivable, which represents the face amount of total outstanding receivables at that date. In exchange, the Company received cash proceeds of $175.0 million and retained an interest in the receivables of approximately $86.5 million. In connection with the securitization program, the Company recognized pretax losses on the sale of receivables of approximately $4.1 million and $0.8 million during the fiscal years ended August 31, 2005 and 2004, respectively. Note 15. New Accounting Pronouncements In November 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 151,Inventory Costs, an amendment of ARB No. 43, Chapter 4(“SFAS 151”). This statement amends the guidance of ARB. No 43, Chapter 4 “Inventory Pricing” and requires that abnormal amounts of idle facility expense, freight, handling costs, and wasted material be recognized as current period charges. In addition, this statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company does not anticipate that the implementation of this standard will have a material impact on its financial position, results of operations or cash flows. In December 2004, FASB published SFAS 123R. SFAS 123R requires that compensation cost related to share-based payment transactions be recognized in the financial statements. Share-based payment transactions within the scope of SFAS 123R include stock options, restricted stock plans, performance-based awards, stock appreciation rights, and employee share purchase plans. The provisions of SFAS 123R are effective as of the first interim period that begins after June 15, 2005. Accordingly, the Company will implement the revised standard in the first quarter of fiscal year 2006. Currently, the Company accounts for its share-based payment transactions under the provisions of APB 25, which does not necessarily require the recognition of compensation cost in the financial statements. Management continues to assess the implications of this revised standard, which will materially impact the Company’s results of operations in the first quarter of fiscal year 2006 and thereafter. Based on preliminary estimates, the future compensation cost to be recognized for all granted but unvested stock options as of August 31, 2005 as a result of the implementation of SFAS 123R is as follows (in thousands of dollars):
97 JABIL CIRCUIT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The vesting date of 600,000 granted but unvested stock options at August 31, 2005 may be accelerated if the Company meets specific performance goals, as defined in the stock option agreements. If the performance goals are met and the vesting date of these options is accelerated, approximately $7.7 million of the future compensation cost currently included in fiscal years 2007 through 2010 would be recognized in fiscal year 2006. In December 2004, FASB issued Statement of Financial Accounting Standards No. 153,Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions(“SFAS 153”). This statement amends APB Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. Under SFAS 153, if a nonmonetary exchange of similar productive assets meets a commercial-substance criterion and the fair value is determinable, the transaction must be accounted for at fair value resulting in recognition of any gain or loss. The provisions of SFAS 153 are effective for nonmonetary transactions in fiscal periods that begin after June 15, 2005. The Company does not anticipate that the implementation of this standard will have a material impact on its financial position, results of operations or cash flows. In March 2005, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 107 (“SAB 107”), which provides guidance on the interaction between SFAS 123R and certain SEC rules and regulations. SAB 107 was issued to assist issuers in their initial implementation of SFAS 123R and enhance the information received by investors and other users of the financial statements. The Company will consider the guidance provided by SAB 107 as it implements SFAS 123R in the first quarter of fiscal year 2006. In May 2005, FASB issued Statement of Financial Accounting Standards No. 154,Accounting Changes and Error Corrections — a replacement of APB Opinion No. 20 and FASB Statement No. 3(“SFAS 154”). This statement applies to all voluntary changes in accounting principle and changes required by an accounting pronouncement where no specific transition provisions are included. SFAS 154 requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. Retrospective application is limited to the direct effects of the change; the indirect effects should be recognized in the period of the change. This statement carries forward without change the guidance contained in Opinion 20 for reporting the correction of an error in previously issued financial statements and a change in accounting estimate. However, SFAS 154 redefines restatement as the revising of previously issued financial statements to reflect the correction of an error. The provisions of SFAS 154 are effective for accounting changes and correction of errors made in fiscal periods that begin after December 15, 2005, although early adoption is permitted. The Company does not anticipate that the implementation of this standard will have a material impact on its financial position, results of operations or cash flows. Note 16. Subsequent Event Subsequent to August 31, 2005, the Company began negotiating a potential amendment to the agreement and plan of amalgamation discussed in Note 12(b) — “Business Acquisitions and Other Transactions” to reduce the minimum purchase price and modify certain other terms of the agreement. If terms on those issues can be reached, the Company currently anticipates it would exercise the purchase option to acquire all of the outstanding stock of the EMS provider through amalgamation with a newly-formed subsidiary of the Company. The Company would be acquiring these operations to expand its presence in the Southern Asia market. Management currently anticipates that if this transaction occurs, it will close in the second quarter of fiscal year 2006, subject to additional due diligence procedures and regulatory approvals. However, there is no assurance that the Company will ultimately consummate the acquisition. 98 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.
Date: October 27, 2005 99 POWER OF ATTORNEY KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Timothy L. Main and Forbes I.J. Alexander 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 Annual 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 has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
100 SCHEDULE II JABIL CIRCUIT, INC. AND SUBSIDIARIES SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS (in thousands)
See accompanying report of independent registered public accounting firm. 101 EXHIBIT INDEX
102
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