Jabil Circuit, Inc.
JABIL CIRCUIT INC (Form: 10-Q, Received: 07/02/2004 16:17:49)    
 
Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q

(Mark one)

     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 31, 2004

or

     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________to____________

Commission file number: 0-21308  

JABIL CIRCUIT, INC.

(Exact name of registrant as specified in its charter)
     
Delaware
(State or other jurisdiction of
incorporation or organization)
  38-1886260
(I.R.S. Employer
Identification No.)

10560 Dr. Martin Luther King, Jr. Street North, St. Petersburg, Florida 33716
(Address of principal executive offices) (Zip Code)

(727) 577-9749
(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___

Indicate by checkmark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No ___

     As of June 21, 2004, there were 200,953,894 shares of the Registrant’s Common Stock outstanding.



 


Table of Contents

JABIL CIRCUIT, INC. AND SUBSIDIARIES
INDEX

         
PART I. FINANCIAL INFORMATION    
  Financial Statements    
 
  Consolidated Balance Sheets at May 31, 2004 and August 31, 2003   3
 
  Consolidated Statements of Earnings for the three months and nine months ended May 31, 2004 and 2003   4
 
  Consolidated Statements of Comprehensive Income for the three months and nine months ended May 31, 2004 and 2003   5
 
  Consolidated Statements of Cash Flows for the nine months ended May 31, 2004 and 2003   6
 
  Notes to Consolidated Financial Statements   7
  Management's Discussion and Analysis of Financial Condition and Results of Operations   18
  Quantitative and Qualitative Disclosures About Market Risk   36
  Controls and Procedures   37
PART II. OTHER INFORMATION    
  Legal Proceedings   38
  Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities   38
  Defaults Upon Senior Securities   38
  Submission of Matters to a Vote of Security Holders   38
  Other Information   38
  Exhibits and Reports on Form 8-K   39
 
  Signatures   41
  Ex-10.27 Amended Receivables Purchase Agreement
  Ex-31.1 Section 302 CEO Certification
  Ex-31.2 Section 302 CFO Certification
  Ex-32.1 Section 906 CEO Certification
  Ex-32.2 Section 906 CFO Certification

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PART I. FINANCIAL INFORMATION

 

Item 1: FINANCIAL STATEMENTS

 

JABIL CIRCUIT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)

                 
    May 31,   August 31,
    2004   2003
ASSETS   (Unaudited)    
Current assets:
               
Cash and cash equivalents
  $ 596,164     $ 699,748  
Accounts receivable, less allowance for doubtful accounts of $6,873 at May 31, 2004 and $6,299 at August 31, 2003
    720,490       759,696  
Inventories
    656,994       510,218  
Refundable income taxes
    5,922       27,757  
Prepaid expenses and other current assets
    73,807       62,942  
Deferred income taxes
    79,590       33,586  
 
   
 
     
 
 
Total current assets
    2,132,967       2,093,947  
 
               
Property, plant and equipment, net
    742,987       746,204  
Goodwill
    293,271       295,520  
Intangible assets, net
    68,400       85,799  
Other assets
    13,386       23,275  
 
   
 
     
 
 
Total assets
  $ 3,251,011     $ 3,244,745  
 
   
 
     
 
 
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
 
               
Current liabilities:
               
Current installments of notes payable, long-term debt and long-term lease obligations
  $ 4,332     $ 347,237  
Accounts payable
    892,484       712,697  
Accrued expenses
    213,220       203,284  
 
   
 
     
 
 
Total current liabilities
    1,110,036       1,263,218  
 
               
Notes payable, long-term debt and long-term lease obligations, less current installments
    295,192       297,018  
Deferred income taxes
    25,434       19,223  
Other liabilities
    62,328       76,810  
 
   
 
     
 
 
Total liabilities
    1,492,990       1,656,269  
 
   
 
     
 
 
 
               
Stockholders’ equity:
               
Common stock
    201       199  
Additional paid-in capital
    969,400       944,145  
Retained earnings
    745,695       623,053  
Accumulated other comprehensive income, net of tax
    42,725       21,079  
 
   
 
     
 
 
Total stockholders’ equity
    1,758,021       1,588,476  
 
   
 
     
 
 
Total liabilities and stockholders’ equity
  $ 3,251,011     $ 3,244,745  
 
   
 
     
 
 

See accompanying notes to consolidated financial statements.

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JABIL CIRCUIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except for per share data)
(Unaudited)

                                 
    Three months ended   Nine months ended
    May 31,   May 31,   May 31,   May 31,
    2004   2003   2004   2003
Net revenue
  $ 1,625,850     $ 1,219,304     $ 4,626,720     $ 3,433,467  
Cost of revenue
    1,489,935       1,106,673       4,226,029       3,118,405  
 
   
 
     
 
     
 
     
 
 
Gross profit
    135,915       112,631       400,691       315,062  
Operating expenses:
                               
Selling, general and administrative
    65,913       62,462       197,908       178,612  
Research and development
    3,318       2,353       9,408       7,400  
Amortization of intangibles
    10,792       8,489       32,903       24,356  
Acquisition-related charges
          3,920       1,339       11,332  
Restructuring and impairment charges
          32,863             76,350  
 
   
 
     
 
     
 
     
 
 
Operating income
    55,892       2,544       159,133       17,012  
Other loss (income)
    6,370             6,370       (2,600 )
Interest income
    (2,087 )     (1,465 )     (5,558 )     (5,236 )
Interest expense
    5,584       3,862       15,120       11,773  
 
   
 
     
 
     
 
     
 
 
Income before income taxes
    46,025       147       143,201       13,075  
Income tax expense (benefit)
    5,894       (4,319 )     20,559       (9,860 )
 
   
 
     
 
     
 
     
 
 
Net income
  $ 40,131     $ 4,466     $ 122,642     $ 22,935  
 
   
 
     
 
     
 
     
 
 
 
                               
Earnings per share:
                               
Basic
  $ 0.20     $ 0.02     $ 0.61     $ 0.12  
 
   
 
     
 
     
 
     
 
 
Diluted
  $ 0.19     $ 0.02     $ 0.59     $ 0.11  
 
   
 
     
 
     
 
     
 
 
 
                               
Common shares used in the calculations of earnings per share:
                               
Basic
    200,716       198,596       200,203       198,306  
 
   
 
     
 
     
 
     
 
 
Diluted
    206,371       202,132       206,151       201,404  
 
   
 
     
 
     
 
     
 
 

See accompanying notes to consolidated financial statements.

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JABIL CIRCUIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(Unaudited)

                                 
    Three months ended   Nine months ended
    May 31,   May 31,   May 31,   May 31,
    2004   2003   2004   2003
Net income
  $ 40,131     $ 4,466     $ 122,642     $ 22,935  
 
                               
Other comprehensive income:
                               
Foreign currency translation adjustment
    (17,436 )     32,985       20,456       53,520  
Change in fair market value of derivative instruments
    (27 )     1,378       1,190       1,414  
 
   
 
     
 
     
 
     
 
 
Comprehensive income
  $ 22,668     $ 38,829     $ 144,288     $ 77,869  
 
   
 
     
 
     
 
     
 
 

     Accumulated foreign currency translation gains were $47.7 million at May 31, 2004 and $27.2 million at August 31, 2003. Foreign currency translation adjustments primarily consist of adjustments to consolidate subsidiaries that use the local currency as their functional currency.

See accompanying notes to consolidated financial statements.

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JABIL CIRCUIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)

                 
    Nine months ended
    May 31,   May 31,
    2004   2003
Cash flows from operating activities:
               
Net income
  $ 122,642     $ 22,935  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    165,600       166,105  
Recognition of deferred grant proceeds
    (1,237 )     (1,395 )
Deferred income taxes
    (34,192 )     (12,272 )
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
          62,120  
Provision for doubtful accounts
    933       291  
Tax benefit of options exercised
    3,095       690  
Loss on sale of property
    1,941       1,343  
Change in operating assets and liabilities, exclusive of net assets acquired:
               
Accounts receivable
    55,656       (238,524 )
Inventories
    (136,676 )     60,555  
Prepaid expenses and other current assets
    (9,270 )     (15,614 )
Other assets
    2,192       (1,413 )
Accounts payable and accrued expenses
    154,137       133,726  
Income taxes payable
    21,148       16,205  
 
   
 
     
 
 
Net cash provided by operating activities
    352,339       195,907  
 
   
 
     
 
 
Cash flows from investing activities:
               
Net cash paid for business acquisitions
    (1,492 )     (365,415 )
Acquisition of property, plant and equipment
    (140,556 )     (74,096 )
Proceeds from sale of property and equipment
    13,355       11,921  
 
   
 
     
 
 
Net cash used in investing activities
    (128,693 )     (427,590 )
 
   
 
     
 
 
Cash flows from financing activities:
               
Borrowings under bank credit facilities
          150,000  
Payments on debt and capital leases
    (346,332 )     (58,304 )
Net proceeds from issuance of common stock under option and employee purchase plans
    22,162       7,894  
 
   
 
     
 
 
Net cash (used in) provided by financing activities
    (324,170 )     99,590  
 
   
 
     
 
 
Effect of exchange rate changes on cash
    (3,060 )     5,783  
 
   
 
     
 
 
Net decrease in cash and cash equivalents
    (103,584 )     (126,310 )
Cash and cash equivalents at beginning of period
    699,748       640,735  
 
   
 
     
 
 
Cash and cash equivalents at end of period
  $ 596,164     $ 514,425  
 
   
 
     
 
 

See accompanying notes to consolidated financial statements.

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JABIL CIRCUIT, INC. AND SUBSIDIARIES  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 1. Basis of Presentation

     The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary to present fairly the information set forth therein have been included. The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes included in the Annual Report on Form 10-K of Jabil Circuit, Inc. (the “Company”) for the year ended August 31, 2003. Operating results for the nine-month period ended May 31, 2004 are not necessarily an indication of the results that may be expected for the year  
ending August 31, 2004.

Note 2. Inventories

     The components of inventories consist of the following (in thousands):

                 
    May 31,   August 31,
    2004   2003
Raw materials
  $ 431,962     $ 347,627  
Work-in-process
    134,496       104,741  
Finished goods
    90,536       57,850  
 
   
 
     
 
 
Total inventories
  $ 656,994     $ 510,218  
 
   
 
     
 
 
 

Note 3. Earnings Per Share

     The following table sets forth the calculation of basic and diluted earnings per share (in thousands, except per share data):

                                 
    Three months ended   Nine months ended
    May 31,   May 31,   May 31,   May 31,
    2004   2003   2004   2003
Numerator:
                               
Net Income
  $ 40,131     $ 4,466     $ 122,642     $ 22,935  
 
   
 
     
 
     
 
     
 
 
 
                               
Denominator:
                               
Weighted-average shares outstanding — basic
    200,716       198,596       200,203       198,306  
Dilutive common shares issuable upon exercise of stock options
    5,655       3,536       5,948       3,098  
 
   
 
     
 
     
 
     
 
 
Weighted average shares — diluted
    206,371       202,132       206,151       201,404  
 
   
 
     
 
     
 
     
 
 
 
                               
Earnings per common share:
                               
Basic
  $ 0.20     $ 0.02     $ 0.61     $ 0.12  
 
   
 
     
 
     
 
     
 
 
Diluted
  $ 0.19     $ 0.02     $ 0.59     $ 0.11  
 
   
 
     
 
     
 
     
 
 

     For the three months and nine months ended May 31, 2004, options to purchase 660,987 and 655,215 shares of common stock, respectively, were outstanding during the period but were not included in the computation

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of diluted earnings per share because the options’ exercise prices were greater than the average market price of the common shares, and therefore, their effect would be anti-dilutive. For the three months and nine months ended May 31, 2003, options to purchase 4,681,941 and 4,880,324 shares of common stock, respectively, were excluded for the same reason.

     The computation of diluted earnings per share for the three months and nine months ended May 31, 2003 did not include 8,406,960 shares of common stock previously issuable upon the conversion of the Company’s $345 million, 20-year, 1.75% convertible subordinated notes that were redeemed in May 2004 (“Convertible Notes”), as their effect would have been anti-dilutive. The computation of diluted earnings per share for the three months and nine months ended May 31, 2003 also did not include the elimination of $0.9 million and $2.8 million, respectively, in interest expense, net of tax, on the Convertible Notes, which would have been extinguished had the conversion of the Convertible Notes occurred, as the effect of the conversion would have been anti-dilutive. During the third quarter of fiscal year 2004, the Company redeemed the Convertible Notes for cash. For further discussion of the redemption, see Note 12 — “Convertible Debt Redemption.”

Note 4. Stock-Based Compensation

     At May 31, 2004, the Company had four stock-based employee compensation plans that are accounted for under the intrinsic value recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees . No stock-based employee compensation expense is reflected in net income, as all options granted under the plan had an exercise price at least equal to the market value of the underlying stock on the date of the grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition and measurement provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation , to stock-based employee compensation (in thousands, except per share data):

 
                                 
    Three months ended   Nine months ended
    May 31,   May 31,   May 31,   May 31,
    2004   2003   2004   2003
    (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)
Reported net income
  $ 40,131     $ 4,466     $ 122,642     $ 22,935  
Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax
    (9,881 )     (7,265 )     (35,430 )     (23,710 )
 
   
 
     
 
     
 
     
 
 
Pro forma net income for calculation of earnings per share
  $ 30,250     $ (2,799 )   $ 87,212     $ (775 )
 
   
 
     
 
     
 
     
 
 
 
                               
Earnings per common share:
                               
Reported net income per share — basic
  $ 0.20     $ 0.02     $ 0.61     $ 0.12  
 
   
 
     
 
     
 
     
 
 
Pro forma net income per share — basic
  $ 0.15     $ (0.01 )   $ 0.44     $ 0.00  
 
   
 
     
 
     
 
     
 
 
 
                               
Reported net income per share — diluted.
  $ 0.19     $ 0.02     $ 0.59     $ 0.11  
 
   
 
     
 
     
 
     
 
 
Pro forma net income per share — diluted
  $ 0.15     $ (0.01 )   $ 0.42     $ 0.00  
 
   
 
     
 
     
 
     
 
 

The Company uses the Black-Scholes option-pricing model to estimate the fair value of each option on the date of grant. The following weighted-average assumptions were used in the model for the three months and nine months ended May 31, 2004 and 2003:

 
                                 
    Three months ended   Nine months ended
    May 31,   May 31,   May 31,   May 31,
    2004   2003   2004   2003
Stock Option Plans
                               
Expected dividend yield
    0.0 %     0.0 %     0.0 %     0.0 %
Risk-free interest rate
    3.4 %     2.7 %     3.4 %     2.7 %
Expected volatility
    87.7 %     89.0 %     87.7 %     89.0 %
Expected life
  5years   5years   5years   5years

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    Three months ended   Nine months ended
    May 31,   May 31,   May 31,   May 31,
    2004   2003   2004   2003
Employee Stock Purchase Plans
                               
Expected dividend yield
    0.0 %     0.0 %     0.0 %     0.0 %
Risk-free interest rate
    1.0 %     1.1 %     1.0 %     1.1 %
Expected volatility
    41.5 %     89.0 %     41.5 %     89.0 %
Expected life
  0.5 years   0.5 years   0.5 years   0.5 years

Note 5. Segment Information

     The Company derives its revenues from providing manufacturing services to major original equipment manufacturers (“OEMs”) on a contract basis in various countries throughout the world. Operating segments consist of four geographic regions — the United States, Europe, Asia and Latin America. Revenues are attributed to the location in which the product is manufactured. The services provided, manufacturing processes, class of customers and order fulfillment processes are similar and generally interchangeable across operating segments. An operating segment’s performance is evaluated based upon its pre-tax operating contribution. Pre-tax operating contribution 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. The Company does not allocate corporate selling, general and administrative expenses to its segments, as management does not use this information to measure the performance of the operating segments.

     The following table sets forth segment information (in thousands):

 
                                 
    Three months ended   Nine months ended
    May 31,   May 31,   May 31,   May 31
 
    2004       2003       2004       2003  
Net revenue
                               
United States
  $ 263,583     $ 218,629     $ 715,766     $ 783,626  
Europe
    606,749       476,240       1,806,796       1,240,249  
Asia
    540,532       312,724       1,509,360       792,581  
Latin America
    312,886       278,496       858,067       792,446  
Inter-company eliminations
    (97,900 )     (66,785 )     (263,269 )     (175,435 )
 
   
 
     
 
     
 
     
 
 
 
  $ 1,625,850     $ 1,219,304     $ 4,626,720     $ 3,433,467  
 
   
 
     
 
     
 
     
 
 
Depreciation expense
    2004       2003       2004       2003  
United States
  $ 8,273     $ 11,364     $ 24,921     $ 41,069  
Europe
    13,969       14,545       43,644       38,971  
Asia
    9,968       9,061       28,431       26,231  
Latin America
    8,832       10,465       27,983       28,647  
Corporate
    2,780       2,344       7,718       6,831  
 
   
 
     
 
     
 
     
 
 
 
  $ 43,822     $ 47,779     $ 132,697     $ 141,749  
 
   
 
     
 
     
 
     
 
 

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    Three months ended   Nine months ended
    May 31,   May 31,   May 31,   May 31,
Segment income and reconciliation of income before income taxes
    2004       2003       2004       2003  
United States
  $ 16,833     $ 6,304     $ 40,692     $ 32,518  
Europe
    37,615       26,847       119,676       69,240  
Asia
    30,092       28,348       93,451       64,686  
Latin America
    15,663       14,980       37,607       48,114  
Corporate and non-allocated charges
    (54,805 )     (76,146 )     (149,417 )     (201,044 )
Inter-company eliminations
    627       (186 )     1,192       (439 )
 
   
 
     
 
     
 
     
 
 
Income before income taxes
  $ 46,025     $ 147     $ 143,201     $ 13,075  
 
   
 
     
 
     
 
     
 
 
 
Capital expenditures
    2004       2003       2004       2003  
United States
  $ 13,245     $ 1,295     $ 28,242     $ 6,761  
Europe
    15,616       5,995       56,509       12,350  
Asia
    12,327       12,572       28,722       38,986  
Latin America
    7,309       1,973       16,302       14,459  
Corporate
    6,558       506       10,781       1,540  
 
   
 
     
 
     
 
     
 
 
 
  $ 55,055     $ 22,341     $ 140,556     $ 74,096  
 
   
 
     
 
     
 
     
 
 
 
                 
    May 31,   August 31,
    2004   2003
Property, plant and equipment, net
               
United States
  $ 130,748     $ 139,963  
Europe
    200,074       182,674  
Asia
    194,431       195,561  
Latin America
    167,542       179,297  
Corporate
    50,192       48,709  
 
   
 
     
 
 
 
  $ 742,987     $ 746,204  
 
   
 
     
 
 
 
               
Total assets
               
United States
  $ 367,488     $ 338,821  
Europe
    1,335,845       1,465,369  
Asia
    844,154       837,073  
Latin America
    566,357       483,589  
Corporate
    137,167       119,893  
 
   
 
     
 
 
 
  $ 3,251,011     $ 3,244,745  
 
   
 
     
 
 

     As noted in Note 7 — “Restructuring and Impairment Charges,” the Company continued a restructuring program during fiscal year 2003. There were no restructuring and impairment costs incurred during the three months and nine months ended May 31, 2004. Total restructuring and impairment costs of $32.9 million and $76.4 million were charged against earnings during the three months and nine months ended May 31, 2003, respectively. Approximately $19.3 million, $5.2 million, $6.8 million and $1.6 million of restructuring and impairment costs were incurred in the United States, Europe, Asia and Latin America, respectively, during the three months ended May 31, 2003. Approximately $47.0 million, $20.9 million, $6.9 million and $1.6 million of restructuring and impairment costs were incurred in the United States, Europe, Asia and Latin America, respectively, during the nine months ended May 31, 2003.

     Foreign source revenue represented 84.2% and 85.1% of net revenue for the three months and nine months ended May 31, 2004, respectively, compared to 83.6% and 78.6% for the three months and nine months ended May 31, 2003, respectively.

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Note 6. Commitments and Contingencies

Legal Proceedings

     The Company is party to certain lawsuits in the ordinary course of business. The Company does not believe that these proceedings, individually or in the aggregate, will have a material adverse effect on its financial position, results of operations or cash flows.

Warranty Provision

     The Company maintains a provision for limited warranty repair of shipped products, which is established under the terms of specific manufacturing contract agreements. The warranty period varies by product and customer industry sector. The provision represents management’s estimate of probable liabilities, calculated as a function of sales volume and historical repair experience, for each product under warranty. The estimate is reevaluated periodically for accuracy. The balance of the warranty provision was insignificant for all periods presented.

Note 7. Restructuring and Impairment Charges

     During fiscal year 2001, the 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. These restructuring and impairment charges included employee severance and benefit costs of approximately $8.9 million, costs related to lease commitments of approximately $5.6 million, fixed asset impairments of approximately $11.5 million and other restructuring costs of approximately $1.4 million, primarily related to professional fees incurred in connection with the restructuring activities.

     The employee severance and benefit costs included in the Company’s restructuring and impairment costs recorded in fiscal year 2001 were related to the elimination of approximately 3,700 regular employees, the majority of which were engaged in direct manufacturing activities in various manufacturing facilities around the world. Lease commitments consisted primarily of future lease payments subsequent to abandonment as a result of the re-sizing of facilities and the transition of certain facilities from high volume manufacturing facilities into new customer development sites. Fixed asset impairments consisted primarily of the leasehold improvements in the facilities that were subject to restructuring.

     The macroeconomic conditions facing the Company, and the electronic manufacturing services (“EMS”) 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. These restructuring and impairment charges included employee severance and benefit costs of approximately $32.1 million, costs related to lease commitments of approximately $10.6 million, fixed asset impairments of approximately $7.2 million and other restructuring related costs of approximately $2.2 million, primarily related to professional fees incurred in connection with the restructuring activities.

     The employee severance and benefit costs included in the Company’s restructuring and impairment costs recorded in fiscal year 2002 were related to the elimination of approximately 2,800 employees, the majority of which were engaged in direct and indirect manufacturing activities in various manufacturing facilities around the world. Lease commitment costs consisted primarily of future lease payments for facilities vacated because of the consolidation of facilities. The fixed asset impairment charge primarily resulted from a decision made to vacate several smaller facilities in the United States, Europe and Asia.

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     During fiscal year 2003, the geographic production demands of the Company’s customers continued to shift. 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 employee severance and benefit costs included in the Company’s restructuring and impairment costs recorded in fiscal year 2003 were related to the elimination of approximately 2,300 employees, the majority of which were engaged in direct and indirect manufacturing activities in manufacturing facilities in the United States and Europe. Lease commitment costs consist primarily of future lease payments for facilities vacated because of the closure and consolidation of facilities in the United States. The fixed asset impairment charge resulted from the closure of the Boise, Idaho and Coventry, England facilities, as well as a realignment of worldwide capacity due to the restructuring activities carried out during fiscal year 2003.

     The table below sets forth the significant components and activity in the restructuring programs during the three months ended May 31, 2004 (in thousands):

 
                                 
    Balance at   Restructuring        
    February 29,   Related   Cash   Balance at
    2004   Charges   Payments   May 31, 2004
Employee severance and termination benefits
  $ 1,454     $     $ (299 )   $ 1,155  
Lease costs
    12,109             (1,265 )     10,844  
Other
    123             (76 )     47  
 
   
 
     
 
     
 
     
 
 
Total
  $ 13,686     $     $ (1,640 )   $ 12,046  
 
   
 
     
 
     
 
     
 
 

     The table below sets forth the significant components and activity in the restructuring programs during the nine months ended May 31, 2004 (in thousands):

 
                                 
    Balance at   Restructuring        
    August 31,   Related   Cash   Balance at
    2003   Charges   Payments   May 31, 2004
Employee severance and termination benefits
  $ 6,489     $ (14 )   $ (5,320 )   $ 1,155  
Lease costs
    15,046             (4,202 )     10,844  
Other
    160       14       (127 )     47  
 
   
 
     
 
     
 
     
 
 
Total
  $ 21,695     $     $ (9,649 )   $ 12,046  
 
   
 
     
 
     
 
     
 
 

     As of May 31, 2004, liabilities of $6.1 million, primarily for severance and benefit costs related to the remaining restructuring activities and lease commitment costs, are expected to be paid out within the next twelve months. The remaining balance, consisting of lease commitment costs, is expected to be paid out through August 31, 2006.

Note 8. Goodwill and Other Intangible Assets

     The Company accounts for its intangible assets in accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). Under this standard, the Company is required to perform a goodwill impairment test at least on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable from estimated future cash flows. The Company completed the annual impairment test during the fourth quarter of fiscal 2003 and determined that no impairment existed as of the date of the impairment test. Recoverability of goodwill is measured at the reporting unit level, which the Company has determined to be consistent with its operating segments as defined in Note 5 — “Segment Information,” by comparing the reporting unit’s carrying amount, including goodwill, to the fair market value of the reporting unit, based on projected discounted future results. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and a second test is performed to measure the amount of

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impairment loss, if any. To date, the Company has not recognized any impairment of its goodwill in connection with its adoption of SFAS 142.

     All of the Company’s intangible assets, other than goodwill, are subject to amortization over their estimated useful lives. Intangible assets are comprised primarily of contractual agreements, which are being amortized on a straight-line basis over periods of up to five years. No significant residual value is estimated for the intangible assets. The value of the Company’s intangible assets purchased through material business acquisitions are principally determined based on third-party valuations of the net assets acquired. See Note 9 — “Business Acquisitions” for further discussion of these acquisitions. The following tables present the Company’s total purchased intangible assets at May 31, 2004 and August 31, 2003 (in thousands):

 
                         
    Gross        
    Carrying   Accumulated   Net Carrying
May 31, 2004   Amount   Amortization   Amount
Contractual Agreements
  $ 151,394     $ (83,327 )   $ 68,067  
Patents
    800       (467 )     333  
 
   
 
     
 
     
 
 
Total
  $ 152,194     $ (83,794 )   $ 68,400  
 
   
 
     
 
     
 
 
 
                         
    Gross        
    Carrying   Accumulated   Net Carrying
August 31, 2003   Amount   Amortization   Amount
Contractual Agreements
  $ 136,619     $ (51,213 )   $ 85,406  
Patents
    800       (407 )     393  
 
   
 
     
 
     
 
 
Total
  $ 137,419     $ (51,620 )   $ 85,799  
 
   
 
     
 
     
 
 

     Intangible asset amortization for the three months and nine months ended May 31, 2004 was approximately $10.8 million and $32.9 million, respectively. Intangible asset amortization for the three months and nine months ended May 31, 2003, was approximately $8.5 million and $24.4 million, respectively.

     The estimated future amortization expense is as follows (in thousands):

 
         
Fiscal year ending August 31,   Amount
2004 (remaining 3 months)
  $ 10,786  
2005
    35,216  
2006
    14,545  
2007
    5,448  
2008
    2,405  
 
   
 
 
Total
  $ 68,400  
 
   
 
 

     The following table presents the changes in goodwill allocated to the reportable segments during the nine months ended May 31, 2004 (in thousands):

 
                                         
    Balance at                   Foreign   Balance at
    August 31,                   Currency   May 31,
Reportable Segment   2003   Acquired   Adjustments   Impact   2004
United States
Latin America
Europe
Asia
  $ 26,450
16,163
211,444
41,463
    $ 3,430
-
-
-
    $ 31
14,904
(24,298
(5,215


)
)
  $ -
(634
7,915
1,618

)
  $ 29,911
30,433
195,061
37,866
 
   
 
     
 
     
 
     
 
     
 
 
Total
  $ 295,520     $ 3,430     $ (14,578 )   $ 8,899     $ 293,271  
   
 
     
 
     
 
     
 
     
 
 

     The adjustments to goodwill are due primarily to the reallocation of goodwill related to the Royal Philips Electronics (“Philips”) acquisition to the respective reportable segments and revisions in the preliminary valuations for the Philips and NEC Corporation (“NEC”) acquisitions. For further discussion of the Company’s acquisitions, see Note 9 — “Business Acquisitions.”

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Note 9. Business Acquisitions

     The business acquisitions described below have been accounted for under the purchase method of accounting. Accordingly, the operating results of the acquired businesses are included in the Consolidated Financial Statements of the Company from the respective date of acquisition. In accordance with SFAS 142, the goodwill related to the acquisitions is not being amortized and will be tested for impairment annually during the fourth quarter of each fiscal year and whenever events or changes in circumstances indicate that the carrying value may not be recoverable from its estimated future cash flows.

     During the first quarter of fiscal 2003, the Company purchased certain operations of Lucent Technologies of Shanghai in Shanghai, China. The Company acquired these operations in an effort to enhance its competencies in complex optical assembly and design services, to broaden its base of manufacturing for the communications industry in Asia and to strengthen its relationship with Lucent Technologies Inc. (“Lucent”). Simultaneous with the purchase, the Company entered into a three-year supply agreement with Lucent to manufacture optical switching and other communications infrastructure products. Total consideration paid was approximately $83.9 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 purchased intangible assets of $20.5 million and goodwill of $15.5 million. The purchased intangible assets (other than goodwill) are amortized over a period of three years.

     During the first quarter of fiscal year 2003, the Company purchased, through its Jabil Global Services subsidiary, certain operations of Seagate Technology — Reynosa, S. de R.L. de C.V. (“Seagate”) in Reynosa, Mexico. The Company acquired these operations to expand its repair presence in the data storage market and to add a low-cost service site in Latin America. Simultaneous with the purchase, the Company’s wholly-owned subsidiary entered into a two-year renewable agreement to provide repair and warranty services for Seagate’s Personal Storage and Enterprise Storage hard disk drives. Total consideration paid was approximately $26.8 million. Based on a final third-party valuation, the purchase price resulted in purchased intangible assets of $1.8 million, which are amortized over a period of two years.

     During the second quarter of fiscal year 2003, the Company purchased certain operations of Quantum Corporation (“Quantum”) in Penang, Malaysia. The Company acquired these operations in an effort to broaden its base of manufacturing for the computing and storage industry sector in Asia, to expand its mechanical assemble capabilities and to further strengthen its relationship with Quantum. Simultaneous with the purchase, the Company entered into a three-year supply agreement with Quantum to manufacture internal tape drives. Total consideration paid was approximately $16.9 million. Based on a final third-party valuation, the purchase price resulted in purchased intangible assets of $1.1 million, which are amortized over a period of three years.

     During the fourth quarter of fiscal year 2003, the Company purchased certain operations of NEC in Gotemba, Japan. The Company acquired these operations in an effort to provide customer and product industry sector diversification. Simultaneous with the purchase, the Company entered into a five-year agreement with NEC to manufacture and assemble transmission and studio equipment used in television and radio broadcasting, as well as video cameras and systems for monitoring and multimedia applications. Total consideration paid was approximately $63.5 million in cash, 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 purchased intangible assets of approximately $15.4 million and goodwill of approximately $15.4 million. The purchased intangible assets (other than goodwill) are amortized over a period of five years.

     Pro forma results of operations, in respect to the acquisitions described in the preceding four paragraphs, have not been presented because the effects of these acquisitions were not material on either an individual or an aggregate basis.

     During the first quarter of fiscal year 2003, the Company purchased certain operations of Philips in Austria, Brazil, Hong Kong/China, Hungary, Poland and Singapore. The Company completed the purchase of three additional sites in Belgium and India during the second quarter of fiscal year 2003. The Company acquired these operations to broaden its base in the consumer electronics industry, to expand its global footprint and to strengthen its relationship with Philips. Simultaneous with the purchase, the Company entered into a four-year agreement with Philips to provide design and engineering services, new product introduction, prototype and test services, procurement and manufacturing of a wide range of assemblies for consumer products. Total consideration paid was approximately $226.3 million, based on foreign currency rates in effect at the date of the acquisition.

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Based on a final third-party valuation, the purchase price for the acquired sites resulted in purchased intangibles of approximately $36.8 million and goodwill of approximately $95.7 million. The purchased intangible assets (other than goodwill) are amortized over a period of four years.

     The following unaudited pro forma financial information presents the combined results of operations of the Company with the operations acquired from Philips as if the acquisition had occurred as of the beginning of fiscal year 2003 (in thousands, except per share data). The pro forma financial information presented gives effect to certain adjustments, including amortization of goodwill and intangible assets. The pro forma financial information presented is not necessarily indicative of the Company’s results of operations had the transactions been completed at the beginning of the periods presented.

 
                 
    Three months ended   Nine months ended
    May 31,   May 31,
    2003   2003
    (Unaudited)   (Unaudited)
Net revenue
  $ 1,219,304     $ 3,714,881  
 
   
 
     
 
 
Income before taxes
  $ 147     $ 19,274  
 
   
 
     
 
 
Net income
  $ 4,466     $ 27,035  
 
   
 
     
 
 
Earnings per common share:
               
Basic
  $ 0.02     $ 0.14  
 
   
 
     
 
 
Diluted
  $ 0.02     $ 0.13  
 
   
 
     
 
 

     In connection with the acquisitions consummated in fiscal year 2003, acquisition-related costs of zero and $1.3 million were recorded for the three months and nine months ended May 31, 2004, respectively. These costs consisted of professional fees and other incremental costs related directly to the integration of the acquired operations. In connection with the acquisitions consummated in fiscal years 2003 and 2002, acquisition-related costs of $3.9 million and $11.3 million were recorded for the three months and nine months ended May 31, 2003, respectively. These costs consisted of professional fees and other incremental costs related directly to the integration of the acquired operations.

Note 10. Accounts Receivable Securitization

     In February 2004, the Company entered into an asset backed securitization program with a bank, which originally provided for the sale at any one time of up to $100 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 million at any one time. 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 entity, which in turn sells an ownership interest in the receivables to a conduit, administered by an unaffiliated financial institution. This wholly-owned entity 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 we are able to sell additional receivables up to the maximum permitted amount under the program. The securitization program requires compliance with several financial covenants including a fixed charge coverage ratio, consolidated net worth threshold and indebtedness to EBITDA ratio, as defined in the securitization agreement. The Company was in compliance with the respective covenants as of May 31, 2004. The securitization agreement expires in February 2005 and may be extended on an annual basis.

     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 in the Consolidated Balance Sheet and are reflected as cash provided by operating activities in 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.

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     As of May 31, 2004, the Company has sold $200.4 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 $120.0 million and retained an interest in the receivables of approximately $80.4 million. In connection with the securitization program, the Company recognized pretax losses on the sale of receivables of approximately $0.2 million and $0.4 million during the three months and nine months ended May 31, 2004, respectively.

Note 11. Pension and Other Postretirement Benefits

     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 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 invested in accordance with the plan investment strategy, which requires a benchmarked mix of equity and debt securities.

     During the fourth quarter of fiscal year 2002, the Company purchased operations in Brest and Meung-sur-Loire, France from Alcatel Business Systems and Valeo S.A., respectively. During the first and second quarters of fiscal year 2003, the Company purchased certain operations of Philips in Austria, Belgium, Brazil, Hong Kong/China, Hungary, India, Poland and Singapore. During the fourth quarter of fiscal year 2003, the Company purchased certain operations of NEC in Japan. These acquisitions included the assumption of certain 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 Philips acquisition the Company also assumed certain post-retirement medical benefit plans.

     The Company uses a May 31 measurement date for substantially all of the above referenced plans. The following table provides information about net periodic benefit cost for the Company’s pension plans for the three months and nine months ended May 31 (in thousands of dollars):

 
                                 
    Three months ended   Nine months ended
    May 31,   May 31,   May 31,   May 31,
    2004   2003   2004   2003
Service cost
  $ 501     $ 591     $ 1,503     $ 1,772  
Interest cost
    1,064       936       3,193       2,810  
Expected long-term return on plan assets
    (1,042 )     (1,027 )     (3,128 )     (3,082 )
Net curtailment (gain)/loss
          (53 )           (159 )
Recognized actuarial loss
    113             340        
 
   
 
     
 
     
 
     
 
 
Net periodic benefit cost
  $ 636     $ 447     $ 1,908     $ 1,341  
 
   
 
     
 
     
 
     
 
 

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     The following table provides information about net periodic benefit cost for the Company’s other benefit plans for the three months and nine months ended May 31 (in thousands of dollars):

 
                                 
    Three months ended   Nine months ended
    May 31,   May 31,   May 31,   May 31,
    2004   2003   2004   2003
Service cost
  $ 14     $ 7     $ 41     $ 21  
Interest cost
    8       4       24       12  
Expected long-term return on plan assets
                       
Net curtailment (gain)/loss
                       
Recognized actuarial loss
                       
 
   
 
     
 
     
 
     
 
 
Net periodic benefit cost
  $ 22     $ 11     $ 65     $ 33  
 
   
 
     
 
     
 
     
 
 

     For the nine months ended May 31, 2004, the Company has made contributions of approximately $284 thousand to its defined benefit pension plan. The Company presently anticipates total fiscal year 2004 contributions to approximate $325 thousand to $375 thousand.

Note 12. Convertible Debt Redemption

     In May 2001, the Company issued a total of its $345 million, 20-year, 1.75% Convertible Notes at par, resulting in net proceeds of approximately $338 million. The Convertible Notes were to mature on May 15, 2021 and paid interest semiannually on May 15 and November 15. Under the terms of the Convertible Notes, the note holders had the right to require the Company 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, the Company had the right to redeem all or a portion of the Convertible Notes for cash at any time on or after May 18, 2004 at 100% of principal plus accrued interest.

     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 has been recorded as an other loss in the Consolidated Statement of Earnings for the three months and nine months ended May 31, 2004.

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JABIL CIRCUIT, INC. AND SUBSIDIARIES

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 Quarterly Report on Form 10-Q 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. 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: 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 restructuring 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. For a further list and description of various risks, relevant factors and uncertainties that could cause future results or events to differ materially from those expressed or implied in our forward-looking statements, see “Factors Affecting Future Results” below, as well as our Annual Report on Form 10-K for the fiscal year ended August 31, 2003, any subsequent Reports on Form 10-Q and Form 8-K and other filings with the Securities and Exchange Commission.

All forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date of this Quarterly Report on Form 10-Q, and we do not undertake any obligation to publicly update or correct any forward-looking statements to reflect events or circumstances that subsequently occur or which we hereafter become aware of. You should read this document and the documents, if any, that we incorporate by reference into this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We may not update these forward-looking statements, even if our situation changes in the future. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

 

Item 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

     We are one of the leading worldwide independent providers of electronic manufacturing services (“EMS”). We design and manufacture electronic circuit board assemblies and systems for major original equipment manufacturers (“OEMs”) in the automotive, computing and storage, consumer products, instrumentation and medical, networking, peripherals and telecommunications industries. We currently depend, and expect to continue to depend, upon a relatively small number of customers for a significant percentage of our net revenue. Currently, our three largest customers are Royal Philips Electronics (“Philips”), Cisco Systems, Inc. and Hewlett-Packard Company.

     We serve our customers with dedicated work cell business units that combine high volume, highly automated, continuous flow manufacturing with advanced electronic design and design for manufacturability

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technologies. Our work cell business units are capable of providing our customers with varying combinations of the following services:

  integrated design and engineering;
 
  component selection, sourcing and procurement;
 
  automated assembly;
 
  design and implementation of product testing;
 
  parallel global production;
 
  enclosure services;
 
  systems assembly and direct order fulfillment; and
 
  repair and warranty.

     Our operating segments consist of four geographic regions — the United States, Europe, Asia and Latin America. The services provided, manufacturing processes, class of customers and order fulfillment processes are similar and generally interchangeable across operating segments. We currently conduct our operations in facilities that are located in Austria, Belgium, Brazil, China, England, France, Hungary, India, Ireland, Italy, Japan, Malaysia, Mexico, Poland, Scotland, Singapore, the Netherlands and the United States. Our parallel global production strategy provides our customers with the benefits of improved supply-chain management, reduced inventory obsolescence, lowered transportation costs and reduced product fulfillment time.

     The EMS industry experienced rapid change and growth over most of the past decade as an increasing number of OEMs outsourced an increasing portion, and, in some cases, all of their manufacturing requirements. In mid-2001, the industry’s revenue declined as a result of significant cut-backs in its customers’ production requirements, which was consistent with the overall global economic downturn. In response to this industry and global economic downturn, we implemented restructuring programs to reduce our cost structure and further align our manufacturing capacity with the geographic production demands of our customers. Our restructuring activities included reductions in workforce, closure and re-sizing of certain facilities and the transition of certain facilities into new customer development sites. Additionally, we have made concentrated efforts to diversify our industry sectors and customer base through acquisitions and organic growth. Industry revenues have slowly increased over the last year as customer production requirements generally began to stabilize.

Summary of Results

     Revenue for the third quarter of fiscal year 2004 increased 33 percent to $1.6 billion compared to $1.2 billion for the same period of fiscal year 2003. Our sales levels during the third quarter of fiscal year 2004 improved across all industry sectors, demonstrating our continued trend of industry sector and customer diversification. The increase in our 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 three-month and nine-month periods indicated, certain key operating results and other financial information (in thousands, except per share data).

 
                                 
    Three months ended   Nine months ended
    May 31,   May 31,   May 31,   May 31,
    2004   2003   2004   2003
Net revenue
  $ 1,625,850     $ 1,219,304     $ 4,626,720     $ 3,433,467  
Gross profit
  $ 135,915     $ 112,631     $ 400,691     $ 315,062  
Operating income
  $ 55,892     $ 2,544     $ 159,133     $ 17,012  
Net income
  $ 40,131     $ 4,466     $ 122,642     $ 22,935  
Diluted earnings per share
  $ 0.19     $ 0.02     $ 0.59     $ 0.11  

Key Performance Indicators

     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.

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    Three months ended
    May 31,   February 29,   November 30,   August 31,
    2004   2004   2003   2003
Sales cycle
  26 days   26 days   33 days   37 days
Inventory turns
  9 turns   8 turns   9 turns   9 turns
Days in accounts receivable
  40 days   42 days   52 days   53 days
Days in inventory
  40 days   45 days   39 days   39 days
Days in accounts payable
  54 days   61 days   58 days   55 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 decreased two days during the three months ended May 31, 2004 primarily as a result of improved collection efforts during the quarter. The accounts receivable securitization program entered into in February 2004 also contributed one day to the decrease for the three months ended May 31, 2004. This securitization program was also the primary reason for the significant decrease in days in accounts receivable during the three months ended February 29, 2004. Days in inventory have decreased during the three months ended May 31, 2004, primarily as a result of increased emphasis on inventory management. The increase in inventory turns by one day is a direct result of the decrease in days in inventory. Days in accounts payable have decreased primarily as a result of the timing of inventory purchases and payments of accounts payable. The decrease in accounts payable days is in line with the decrease in days in inventory.

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.

Allowance for Doubtful Accounts

     We maintain an allowance for doubtful accounts related to receivables not expected to be collected from our customers. This allowance is based on management’s assessment of specific customer balances, considering the age of receivables and financial stability of the customer. If there is an adverse change in the financial condition of our customers, or if actual defaults are higher than provided for, an addition to the allowance may be necessary.

Inventory Valuation

     We purchase inventory based on forecasted demand and record inventory at the lower of cost or market. Management regularly assesses inventory valuation based on current and forecasted usage and other lower of cost or market considerations. If actual market conditions or our customers’ product demands are less favorable than those projected, additional valuation adjustments may be necessary.

Long-Lived Assets

     We review property, plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of property, plant and equipment is measured by comparing its carrying value to the projected cash flows the property, plant and equipment are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying value of the property exceeds its fair market value. The impairment analysis is based on significant assumptions of future results made by management, including revenue and cash flow

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projections. Circumstances that may lead to impairment of property, plant and equipment include unforeseen decreases in future performance or industry demand and the restructuring of our operations resulting from a change in our business strategy.

     We have recorded intangible assets, including goodwill, principally based on third-party valuations, in connection with material business acquisitions. Estimated useful lives of amortizable intangible assets are determined by management based on an assessment of the period over which the asset is expected to contribute to future cash flows. The allocation of amortizable intangible assets impacts the amounts allocable to goodwill. In accordance with SFAS 142, we are required to perform a goodwill impairment test at least on an annual basis and whenever events or circumstances indicate that the carrying value may not be recoverable from estimated future cash flows. We completed the annual impairment test during the fourth quarter of fiscal 2003 and determined that no impairment existed as of the date of the impairment test. The impairment test is performed at the reporting unit level, which we have determined to be consistent with our operating segments as defined in Note 5 — “Segment Information” to the Consolidated Financial Statements. The impairment analysis is based on assumptions of future results made by management, including revenue and cash flow projections at the reporting unit level. Circumstances that may lead to impairment of goodwill or intangible assets include unforeseen decreases in future performance or industry demand, and the restructuring of our operations resulting from a change in our business strategy. For further information on our intangible assets, including goodwill, refer to Note 8 — “Goodwill and Other Intangible Assets” to the Consolidated Financial Statements.

Restructuring and Impairment Charges

     We have recognized restructuring and impairment charges related to reductions in workforce, re-sizing and closure of facilities and the transition of certain facilities into new customer development sites. These charges were recorded pursuant to formal plans developed and approved by management. The recognition of restructuring and impairment charges requires that we make certain judgments and estimates regarding the nature, timing and amount of costs associated with these plans. The estimates of future liabilities may change, requiring additional restructuring and impairment charges or the reduction of liabilities already recorded. At the end of each reporting period, we evaluate the remaining accrued balances to ensure that no excess accruals are retained and the utilization of the provisions are for their intended purpose in accordance with the restructuring programs. For further discussion of our restructuring programs, refer to Note 7 — “Restructuring and Impairment Charges” to the Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Restructuring and Impairment Charges.”

Pension and Postretirement Benefits

     We have pension and postretirement benefit costs and liabilities, which are developed from actuarial valuations. Actuarial valuations require management to make certain judgments and estimates of discount rates and return on plan assets. 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 is required to represent the market rate for high-quality fixed income investments. A lower discount rate increases the present value of benefit obligations and increases pension expense. When considering the expected long-term rate of return on pension plan assets, we take into account current and expected asset allocations, as well as historical and expected returns on plan assets. Other assumptions include demographic factors such as retirement, mortality and turnover. For further discussion of our pension and postretirement benefits, refer to Note 11 — “Pension and Other Postretirement Benefits” to the Consolidated Financial Statements.

Income Taxes

     We estimate our income tax provision in each of the jurisdictions in which we operate, a process that includes estimating exposures related to examinations by taxing authorities. We must also make judgments regarding the ability to realize the deferred tax assets. The carrying value of our net deferred tax asset is based on our belief that it is more likely than not that we will generate sufficient future taxable income in certain jurisdictions to realize these deferred tax assets. A valuation allowance has been established for deferred tax assets that we do not believe meet the “more likely than not” criteria established by Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. Our judgments regarding future taxable income may change due to changes in market conditions, changes in tax laws or other factors. If our assumptions and consequently our estimates change in the

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future, the valuation allowances we have established may be increased or decreased, resulting in a respective increase or decrease in income tax expense. For further discussion related to our income taxes, refer to Note 6 “Income Taxes” to the Consolidated Financial Statements in our 2003 Annual  
Report on Form 10-K for the fiscal year ended August 31, 2003.

Results of Operations

     The following table sets forth, for the periods indicated, certain statements of earnings data expressed as a percentage of net revenue.

                                 
    Three months ended   Nine months ended
    May 31,   May 31,   May 31,   May 31,
    2004   2003   2004   2003
Net revenue
    100.0 %     100.0 %     100.0 %     100.0 %
Cost of revenue
    91.6 %     90.8 %     91.3 %     90.8 %
 
   
 
     
 
     
 
     
 
 
Gross profit
    8.4 %     9.2 %     8.7 %     9.2 %
Operating expenses:
                               
Selling, general and administrative
    4.1 %     5.1 %     4.3 %     5.2 %
Research and development
    0.2 %     0.2 %     0.2 %     0.2 %
Amortization of intangibles
    0.7 %     0.7 %     0.7 %     0.7 %
Acquisition-related charges
    0.0 %     0.3 %     0.1 %     0.4 %
Restructuring and impairment charges
    0.0 %     2.7 %     0.0 %     2.2 %
 
   
 
     
 
     
 
     
 
 
Operating income
    3.4 %     0.2 %     3.4 %     0.5 %
Other loss (income)
    0.4 %     0.0 %     0.1 %     (0.1 )%
Interest income
    (0.1 )%     (0.1 )%     (0.1 )%     (0.1 )%
Interest expense
    0.3 %     0.3 %     0.3 %     0.3 %
 
   
 
     
 
     
 
     
 
 
Income before income taxes
    2.8 %     0.0 %     3.1 %     0.4 %
Income tax expense (benefit)
    0.3 %     (0.4 )%     0.4 %     (0.3 )%
 
   
 
     
 
     
 
     
 
 
Net income
    2.5 %     0.4 %     2.7 %     0.7 %
 
   
 
     
 
     
 
     
 
 

      Net Revenue . Our net revenue for the three months ended May 31, 2004 increased 33.3% to $1.6 billion, from $1.2 billion for the three months ended May 31, 2003. The increase for the three months ended May 31, 2004 from the same period of the previous fiscal year was due to increased sales levels across all industry sectors. Specific increases include a 159% increase in the sale of instrumentation and medical products; a 37% increase in the sale of consumer products; a 23% increase in the sale of networking products; a 19% increase in the sale of telecommunications products; a 21% increase in the sale of automotive products; a 22% increase in the sale of peripheral products; and a five percent increase in the sale of computing and storage products. The increased sales levels were due to the addition of new customers, acquisitions and organic growth in these industry sectors. The increase in the instrumentation and medical industry sector was primarily attributable to increased sales levels as more companies are electing to outsource their production in these areas.

     Our net revenue for the nine months ended May 31, 2004 increased 34.8% to $4.6 billion, from $3.4 billion for the nine months ended May 31, 2003. The increase for the nine months ended May 31, 2004 from the same period of the previous fiscal year was due to increased sales levels across all industry sectors. Specific increases include a 70% increase in the sale of consumer products; a 208% increase in the sale of instrumentation and medical products; a 12% increase in the sale of networking products; a 14% increase in the sale of computing and storage products; an 18% increase in the sale of automotive products; a six percent increase in the sale of telecommunications products; and a seven percent increase in the sale of peripheral products. The increased sales levels were due to the addition of new customers, acquisitions and organic growth in these industry sectors. The increase in the consumer products industry sector was primarily attributable to the acquisition of certain operations of Philips during fiscal year 2003. The increase in the instrumentation and medical industry sector was primarily attributable to increased sales levels as more companies are electing to outsource their production in these areas.

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     The following table sets forth, for the periods indicated, revenue by industry sector expressed as a percentage of net revenue. The distribution of revenue across our industry sectors has fluctuated, and will continue to fluctuate, as a result of numerous factors, including but not limited to the following: increased business from new and existing customers; fluctuations in customer demand; seasonality, especially in the automotive and consumer products industry sectors; and increased growth in the instrumentation and medical products industry sector as more companies are electing to outsource their production in these areas.

 
                                 
    Three months ended   Nine months ended
    May 31,   May 31,   May 31,   May 31,
    2004   2003   2004   2003
Automotive
    8 %     9 %     8 %     9 %
Computing and Storage
    13 %     16 %     13 %     15 %
Consumer
    22 %     22 %     25 %     20 %
Instrumentation and Medical
    12 %     6 %     11 %     5 %
Networking
    21 %     22 %     20 %     24 %
Peripherals
    7 %     7 %     6 %     8 %
Telecommunications
    12 %     13 %     12 %     15 %
Other
    5 %     5 %     5 %     4 %
 
   
 
     
 
     
 
     
 
 
Total
    100 %     100 %     100 %     100 %
 
   
 
     
 
     
 
     
 
 

     Foreign source revenue represented 84.2% and 85.1% of net revenue for the three months and nine months ended May 31, 2004, respectively. This is compared to 83.6 % and 78.6% for the three months and nine months ended May 31, 2003. The increase in foreign source revenue was primarily attributable to incremental revenue resulting from our acquisitions in Austria, Brazil, Belgium, China, Hungary, India, Japan, Malaysia, Mexico, Poland and Singapore during fiscal year 2003. We expect our foreign source revenue to continue to increase as a percentage of total net revenue.

      Gross Profit . Gross profit decreased to 8.4% of net revenue for the three months ended May 31, 2004, from 9.2% of net revenue for the three months ended May 31, 2003. Gross profit decreased to 8.7% of net revenue for the nine months ended May 31, 2004, from 9.2% of net revenue for the nine months ended May 31, 2003. The percentage decrease for both the three and nine months ended May 31, 2004 versus the same periods of fiscal year 2003 was primarily due to a higher portion of materials-based revenue (driven in part by growth in the consumer industry sector), combined with the continued shift of production to lower cost regions. The mix of value-add based revenue from our acquisitions also contributed to the decrease.

     Additionally, we have been awarded a significant amount of new business during the nine months ended May 31, 2004. The level of activity required to integrate new business into our factories typically has a slightly dilutive impact on gross profit during the initial period of production where certain costs are incurred before any corresponding increase in revenues might occur. As production for the new business increases the contribution to gross profit typically increases. The percentage decrease in gross profit for the three and nine months ended May 31, 2004 versus the same periods of fiscal year 2003 was partially offset by cost reductions realized from our restructuring activities in previous fiscal years.

     In absolute dollars, gross profit for the three months and nine months ended May 31, 2004 increased $23.3 million and $85.6 million, respectively, versus the same periods of fiscal 2003 due to the increased revenue base.

      Selling, General and Administrative . Selling, general and administrative expenses for the three months and nine months ended May 31, 2004 increased to $65.9 million (4.1% of net revenue) and $197.9 million (4.3% of net revenue), respectively, compared to $62.5 million (5.1% of net revenue) and $178.6 million (5.2% of net revenue) for the three months and nine months ended May 31, 2003, respectively. The absolute dollar increases for the three months and nine months ended May 31, 2004 were primarily due to operations acquired during fiscal year 2003 and to operations in facilities for which construction was completed during fiscal year 2003. These increases were partially offset by $1.2 million of quarterly cost reductions realized from our restructuring activities. The decrease as a percentage of net revenue for the three months and nine months ended May 31, 2004 was primarily due to the increased revenue base and the cost reductions realized from our restructuring activities.

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      Amortization of Intangibles . We recorded $10.8 million and $32.9 million of amortization of intangible assets for the three months and nine months ended May 31, 2004, respectively, as compared to $8.5 million and $24.4 million for the three months and nine months ended May 31, 2003, respectively. The increases for both such periods were attributable to acquired amortizable intangible assets resulting from our acquisitions subsequent to November 30, 2002. For additional information regarding purchased intangibles, see Note 8 — “Goodwill and Other Intangible Assets” and Note 9 — “Business Acquisitions” to the Consolidated Financial Statements.

      Restructuring and Impairment Charges . There were no restructuring charges incurred during the three months and nine months ended May 31, 2004. During the first quarter of fiscal year 2003, we continued a restructuring program to reduce our cost structure and further align our manufacturing capacity with the geographic production demands of our customers. This restructuring program resulted in restructuring and impairment charges for the three months and nine months ended May 31, 2003 of $32.9 million and $76.4 million, respectively.

     As of May 31, 2004, liabilities related to our restructuring activities total approximately $12.0 million. Approximately $6.1 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 $6.0 million in the third quarter of fiscal year 2004. This quarterly cost savings consisted of $4.8 million reduction in cost of revenue due to a reduction in employee payroll and benefit expense of $2.9 million and $1.9 million in depreciation expense, and $1.2 million reduction in selling, general and administrative expenses. We expect to continue to realize this level of cost savings in future quarters.

     The restructuring programs discussed above and in Note 7 — “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 the three months and nine months ended May 31, 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 12 — “Convertible Debt Redemption” to the Consolidated Financial Statements for further discussion of the redemption. During the nine months ended May 31, 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 slightly to $2.1 million and $5.6 million for the three months and nine months ended May 31, 2004, respectively, from $1.5 million and $5.2 million for the same periods of fiscal year 2003, respectively. The increases were primarily due to higher average cash balances, partially offset by lower interest yields.

      Interest Expense . Interest expense increased to $5.6 million and $15.1 million for the three months and nine months ended May 31, 2004, respectively, from $3.9 million and $11.8 million for the same periods of fiscal year 2003, respectively, primarily as a result of the issuance of the $300.0 million, seven-year, 5.875% senior notes in the fourth quarter of fiscal year 2003.

      Income Taxes . Income tax expense reflects an effective tax rate of 12.8% and 14.4% for the three months and nine months ended May 31, 2004, respectively, as compared to an income tax benefit of 2,938.1% and 75.4% for the three months and nine months ended May 31, 2003, respectively. 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 the three months and nine months ended May 31, 2003, and the fact that the income taxes associated

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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 those periods. 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 holidays granted to our sites in Malaysia, China and Hungary that expire at various dates through 2010. Such tax holidays are subject to conditions with which we expect to continue to comply.

Acquisitions

     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 9 — “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 sales during our first fiscal quarter, which includes a majority of the holiday selling season. Therefore, quarterly and year-to-date results should not be relied upon as  
necessarily indicative of results for the entire fiscal year.

Liquidity and Capital Resources

     At May 31, 2004, our principal sources of liquidity consisted of cash, available borrowings under our credit facilities and the accounts receivable securitization program. The following table sets forth, for the periods indicated, selected consolidated cash flow information (in thousands).

                 
    Nine months ended
    May 31,   May 31,
    2004   2003
Net cash provided by operating activities
  $ 352,339     $ 195,907  
Net cash used in investing activities
    (128,693 )     (427,590 )
Net cash (used in) provided by financing activities
    (324,170 )     99,590  
Effect of exchange rate changes on cash
    (3,060 )     5,783  
 
   
 
     
 
 
Net decrease in cash and cash equivalents
  $ (103,584 )   $ (126,310 )
 
   
 
     
 
 

     We generated $352.3 million of cash from operating activities for the nine months ended May 31, 2004. This consisted primarily of $122.6 million of net income, $165.6 million of non-cash depreciation and amortization charges, $154.1 million of increases in accounts payable and accrued expenses, $55.7 million of decreases in accounts receivable, $21.1 million of increases in income taxes payable, offset by $136.7 million of increases in inventories and $34.2 million of increases in deferred income taxes. The increase in accounts payable was due to increased emphasis on cash management to match longer customer payment terms in Europe and higher inventory levels. The decrease in the accounts receivable balance was due primarily to the securitization of eligible domestic accounts receivable during the second and third quarters of fiscal year 2004, which resulted in cash proceeds of $120.0 million. This decrease was partially offset by an increased revenue base and longer customer payment terms in Europe. Inventory levels have increased during the nine months ended May 31, 2004 in anticipation of forecasted demand, which includes additional programs from new and existing customers.

     Net cash used in investing activities of $128.7 million for the nine months ended May 31, 2004 primarily consisted of our capital expenditures of $140.6 million for construction and equipment worldwide, offset by proceeds from the sales of property and equipment of $13.4 million. Purchases of manufacturing and computer equipment were made to support our ongoing business.

     Net cash used in financing activities of $324.2 million for the nine months ended May 31, 2004 resulted primarily from the redemption of our Convertible Notes in May 2004 for $345 million and payments on long-term

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debt and capital lease obligations totaling $1.3 million. These payments were offset slightly by $22.2 million net proceeds for the nine-month period from the issuance of common stock under option and employee purchase plans. For further discussion of the Convertible Notes redemption, see Note 12 — “Convertible Debt Redemption” to the Consolidated Financial Statements.

     During the fourth quarter of fiscal year 2003, we amended and revised our then existing credit facility and established a three-year, $400.0 million unsecured revolving credit facility with a syndicate of banks (the “Amended Revolver”). Under the terms of the Amended Revolver, borrowings can be made under either floating rate loans or Eurodollar rate loans. We pay interest on outstanding floating rate loans at the greater of the agent’s prime rate or 0.50% plus the federal funds rate. We pay interest on outstanding Eurodollar loans at the LIBOR in effect at the loan inception plus a spread of 0.65% to 1.35%. We pay a facility fee based on the committed amount of the Amended Revolver at a rate equal to 0.225% to 0.40%. We also pay a usage fee if our borrowings on the Amended Revolver exceed 33-1/3% of the aggregate commitment. The usage fee rate ranges from 0.125% to 0.25%. The interest spread, facility fee and usage fee are determined based on our general corporate rating or rating of our senior unsecured long-term indebtedness as determined by Standard and Poor’s Rating Service and Moody’s Investor Service. As of May 31, 2004, the interest spread on the Amended Revolver was 1.325%. The Amended Revolver expires on July 14, 2006 and outstanding borrowings are then due and payable. The Amended Revolver requires 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 requires compliance with certain operating covenants, which limit, among other things, our incurrence of additional indebtedness. We were in compliance with the respective covenants as of May 31, 2004. As of May 31, 2004, there were no borrowings outstanding on the Amended Revolver.

     During the first quarter of fiscal year 2004, we renewed our existing 0.6 billion Japanese yen (approximately $5.5 million based on currency exchange rates at May 31, 2004) credit facility for a Japanese subsidiary with a Japanese bank. Under the terms of the facility, we pay interest on outstanding borrowings based on the Tokyo Interbank Offered Rate plus a spread of 1.75%. The credit facility expires on December 2, 2004 and any outstanding borrowings are then due and payable. As of May 31, 2004, there were no borrowings outstanding under this facility.

     During the second quarter of fiscal year 2004, we entered into an asset backed securitization program with a bank, which originally provided for the sale at any one time of up to $100 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 million at any one time. Under this agreement, we continuously sell a designated pool of trade accounts receivable to a wholly-owned entity, which in turn sells an ownership interest in the receivables to a conduit, administered by an unaffiliated financial institution. This wholly-owned entity is a separate bankruptcy-remote entity and its assets would be available first to satisfy the claims of the conduit. As the receivables sold are collected we are able to sell additional receivables up to the maximum permitted amount under the program. The securitization program requires compliance with several financial covenants including a fixed charge coverage ratio, consolidated net worth threshold and indebtedness to EBITDA ratio, as defined in the securitization agreement. We were in compliance with the respective covenants as of May 31, 2004. The securitization agreement expires in February 2005 and may be extended on an annual basis. For each pool of eligible receivables sold to the conduit, we retain 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 in the Consolidated Balance Sheet and are reflected as cash provided by operating activities in the Consolidated Statement of Cash Flows. We continue to service, administer and collect the receivables sold under this program. We pay 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. As of May 31, 2004, we have sold $200.4 million of eligible accounts receivable, which represents the face amount of total outstanding receivables at that date. In exchange, we received cash proceeds of $120.0 million and retained an interest in the receivables of approximately $80.4 million. In connection with the securitization program, we recognized pretax losses on the sale of receivables of approximately $0.2 million and $0.4 million during the three months and nine months ended May 31, 2004, respectively.

     During the third quarter of fiscal year 2001, we issued a total of $345 million of our Convertible Notes at par, resulting in net proceeds of approximately $338 million. The Convertible Notes were to mature on May 15, 2021 and paid interest semiannually on May 15 and November 15. Under the terms of the Convertible Notes, the

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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 at 100% of principal plus accrued interest. 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 three months and nine months ended May 31, 2004.

     We currently believe that during the next twelve months, our capital expenditures will be approximately $150 million, principally for machinery and equipment, and expansion in Eastern Europe and China. We believe that our level of resources, which include cash on hand, available borrowings under our Amended Revolver, additional proceeds available under our accounts receivable securitization program and funds provided by operations, will be adequate to fund these capital expenditures and our working capital requirements for the next twelve months. Should we desire to consummate significant additional acquisition opportunities or undertake significant expansion activities, our capital needs would increase and could possibly result in our need to increase available borrowings under our revolving credit facilities or access public or private debt and equity markets. There can be no assurance, however, that we would be successful in raising additional debt or equity on terms that we would consider acceptable.

     Our contractual obligations for future minimum lease payments under non-cancelable lease arrangements and short and long-term debt arrangements as of May 31, 2004 are summarized below. We do not participate in, or secure financing for any unconsolidated limited purpose entities. Non-cancelable purchase commitments do not typically extend beyond the normal lead-time of several weeks at most. Purchase orders beyond this time frame are typically cancelable.

 
                                                                                   
    Payments due by period (in thousands)
Contractual Obligations   Total   Less than 1 Year   1-3 Years   4-5 Years   After 5 Years
Long-term debt and capital lease obligations
  $ 299,524     $ 4,332     $ 8,439     $ 3,980     $ 282,773  
Operating leases
    146,007       33,959       45,925       29,535       36,588  
 
   
 
     
 
     
 
     
 
     
 
 
Total contractual cash obligations
  $ 445,531     $ 38,291     $ 54,364     $ 33,515     $ 319,361  
 
   
 
     
 
     
 
     
 
     
 
 

Factors Affecting Future Results

     As referenced, this Quarterly Report on Form 10-Q includes certain forward-looking statements regarding various matters. The ultimate correctness of those 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 those expressed or implied by those statements. Undue reliance should not be placed on those forward-looking statements. The following important factors, among others, as well as those factors set forth in our other SEC filings from time to time, could affect future results and events, causing results and events to differ materially from those expressed or implied in our forward-looking statements.

Our operating results may fluctuate due to a number of factors, many of which are beyond our control.

     Our annual and quarterly operating results are affected by a number of factors, including:

  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;

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  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; and
 
  the timing of expenditures in anticipation of increased sales, customer product delivery requirements and shortages of components or labor.

     The volume and timing of orders placed by our customers vary due to variation in demand for our customers’ products; our customers’ attempts to manage their inventory; electronic design changes; changes in our customers’ manufacturing strategies; and acquisitions of or consolidations among our customers. In the past, changes in customer orders have had a significant effect on our results of operations due to corresponding changes in the level of our overhead absorption. Any one or a combination of these factors could adversely affect our annual and quarterly results of operations in the future. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Because we depend on a limited number of customers, a reduction in sales to any one of our customers could cause a significant decline in our revenue.

     We currently depend, and expect to continue to depend, upon a relatively small number of customers for a significant percentage of our net revenue and upon their growth, viability and financial stability. Our customers’ industries have experienced rapid technological change, shortening of product life cycles, consolidation, and pricing and margin pressures. Consolidation among our customers may further reduce the number of customers that generate a significant percentage of our revenues and exposes us to increased risks relating to dependence on a small number of customers. A significant reduction in sales to any of our customers or a customer exerting significant pricing and margin pressures on us would have a material adverse effect on our results of operations. In the past, some of our customers have terminated their manufacturing arrangements with us or have significantly reduced or delayed the volume of manufacturing services ordered from us. The industry’s revenue declined in mid-2001 as a result of significant cut backs in its customers’ production requirements, which was consistent with the overall global economic downturn. We cannot assure you that present or future customers will not terminate their manufacturing arrangements with us or significantly change, reduce or delay the amount of manufacturing services ordered from us. If they do, it could have a material adverse effect on our results of operations. In addition, we generate significant account receivables in connection with providing manufacturing services to our customers. If one or more of our customers were to become insolvent or otherwise were unable to pay for the manufacturing services provided by us, our operating results and financial condition would be adversely affected. See “Business — Customers and Marketing” of our 2003 Annual Report on Form 10-K for the fiscal year ended August 31, 2003 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Our customers may be adversely affected by rapid technological change.

     Our customers compete in markets that are characterized by rapidly changing technology, evolving industry standards and continuous improvements in products and services. These conditions frequently result in short product life cycles. Our success will depend largely on the success achieved by our customers in developing and marketing their products. If technologies or standards supported by our customers’ products become obsolete or fail to gain widespread commercial acceptance, our business could be materially adversely affected.

We depend on industries that utilize electronics components, which continually produces technologically advanced products with short life cycles; our inability to continually manufacture such products on a cost-effective basis would harm our business.

     Factors affecting the industries that utilize electronics components in general could seriously harm our customers and, as a result, us. These factors include:

  The inability of our customers to adapt to rapidly changing technology and evolving industry standards, which result in short product life cycles.

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  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.

If any of these factors materialize, our business would suffer.

     In addition, if we are unable to offer technologically advanced, cost effective, quick response manufacturing service to customers, demand for our services will also decline. A substantial portion of our net revenue is derived from our offering of complete service solutions for our customers. For example, if we fail to maintain high-quality design and engineering services, our net revenue may significantly decline.

Most of our customers do not commit to long-term production schedules, which makes it difficult for us to schedule production and achieve maximum efficiency of our manufacturing capacity.

     The volume and timing of sales to our customers may vary due to:

  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.

Due in part to these factors, most of our customers do not commit to firm production schedules for more than one quarter in advance. Our inability to forecast the level of customer orders with certainty makes it difficult to schedule production and maximize utilization of manufacturing capacity. In the past, we have been required to increase staffing and other expenses in order to meet the anticipated demand of our customers. Anticipated orders from many of our customers have, in the past, failed to materialize or delivery schedules have been deferred as a result of changes in our customers’ business needs, thereby adversely affecting our results of operations. On other occasions, our customers have required rapid increases in production, which have placed an excessive burden on our resources. Such customer order fluctuations and deferrals have had a material adverse effect on us in the past, and we may experience such effects in the future. A business downturn resulting from any of these external factors could have a material adverse effect on our operating results. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Our customers may cancel their orders, change production quantities or delay production.

     EMS providers must provide increasingly rapid product turnaround for their customers. We generally do not obtain firm, long-term purchase commitments from our customers and we continue to experience reduced lead-times in customer orders. Customers may cancel their orders, change production quantities or delay production for a number of reasons. The success of our customers’ products in the market affects our business. Cancellations, reductions or delay by a significant customer or by a group of customers could negatively impact our operating results.

     In addition, we make significant decisions, including determining the levels of business that we will seek and accept, production schedules, component procurement commitments, personnel needs and other resource requirements, based on our estimate of customer requirements. The short-term nature of our customers’ commitments and the possibility of rapid changes in demand for their products reduces our ability to accurately estimate the future requirements of those customers.

     On occasion, customers may require rapid increases in production, which can stress our resources and reduce operating margins. In addition, because many of our costs and operating expenses are relatively fixed, a reduction in customer demand can harm our gross profits and operating results.

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We compete with numerous EMS providers and others, including our current and potential customers who may decide to manufacture all of their products internally.

     The EMS business is highly competitive. We compete against numerous domestic and foreign manufacturers, including Celestica, Inc., Flextronics International, Sanmina-SCI Corporation and Solectron Corporation. In addition, we may in the future encounter competition from other large electronic manufacturers that are selling, or may begin to sell, EMS. Most of our competitors have international operations, significant financial resources and some have substantially greater manufacturing, R&D, and marketing resources than us. These competitors may:

  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.

We also face competition from the manufacturing operations of our current and potential customers, who are continually evaluating the merits of manufacturing products internally against the advantages of outsourcing to EMS providers. In addition, in recent years, original design manufacturers, or “ODMs”, companies that provide design and manufacturing services to OEMs, have significantly increased their share of outsourced manufacturing services provided to OEMs in several markets, such as notebook and desktop computers, personal computer motherboards, and consumer electronic products. Competition from ODMs, such as Hon Hai Precision Industry Co., Ltd., may increase if our business in these markets grows or if ODMs expand further into or beyond these markets.

Increased competition may result in decreased demand or prices for our services.

     The EMS industry is highly competitive. We compete against numerous U.S. and foreign EMS providers with global operations, as well as those who operate on a local or regional basis. In addition, current and prospective customers continually evaluate the merits of manufacturing products internally. Some of our competitors have substantially greater managerial, manufacturing, engineering, technical, systems, R&D, sales and marketing resources than we do. Consolidation in the EMS industry results in larger and more geographically diverse competitors who have significant combined resources with which to compete against us.

     We may be operating at a cost disadvantage compared to competitors who have greater direct buying power from component suppliers, distributors and raw material suppliers or who have lower cost structures as a result of their geographic location or the services they provide. As a result, competitors may procure a competitive advantage and obtain business from our customers. Our manufacturing processes are generally not subject to significant proprietary protection. In addition, companies with greater resources or a greater market presence may enter our market or increase their competition with us. We also expect our competitors to continue to improve the performance of their current products or services, to reduce their current products or service sales prices and to introduce new products or services that may offer greater performance and improved pricing. Any of these could cause a decline in sales, loss of market acceptance of our products or services, profit margin compression, or loss of market share.

We derive a substantial portion of our revenues from our international operations, which may be subject to a number of risks and often require more management time and expense to achieve profitability than our domestic operations.

     We derived 84.2% and 85.1% of revenues from international operations for the three months and nine months ended May 31, 2004, respectively. We expect our revenues from international operations to continue to increase. We currently operate outside the United States in Vienna, Austria; Bruges, Brussels and Hasselt, Belgium; Belo Horizonte, Manaus and Sao Paulo, Brazil; Huangpu, Panyu, Shanghai and Shenzhen, China; Coventry, England; Brest and Meung-sur-Loire, France; Szombathely and Tiszaujvaros, Hungary; Pimpri, India; Dublin, Ireland; Bergamo and Marcianise, Italy; Gotemba, Japan; Penang, Malaysia; Chihuahua, Guadalajara and Reynosa, Mexico; Kwidzyn, Poland; Ayr and Livingston, Scotland; Singapore City, Singapore; and Amsterdam, The Netherlands. We continually consider additional opportunities to make foreign acquisitions and construct new foreign facilities. Our international operations may be subject to a number of risks, including:

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  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.

     In addition, several of the countries where we operate have emerging or developing economies, which may be subject to greater currency volatility, negative growth, high inflation, limited availability of foreign exchange and other risks. These factors may harm our results of operations, and any measures that we may implement to reduce the effect of volatile currencies and other risks of our international operations may not be effective. In our experience, entry into new international markets requires considerable management time as well as start-up expenses for market development, hiring and establishing office facilities before any significant revenues are generated. As a result, initial operations in a new market may operate at low margins or may be unprofitable. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

If we do not manage our growth effectively, our profitability could decline.

     We have grown rapidly. Our ability to manage growth effectively will require us to continue to implement and improve our operational, financial and management information systems; continue to develop the management skills of our managers and supervisors; and continue to train, motivate and manage our employees. Our failure to effectively manage growth could have a material adverse effect on our results of operations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

We may not achieve expected profitability from our acquisitions.

     We cannot assure you that we will be able to successfully integrate the operations and management of our recent acquisitions. Similarly, we cannot assure you that we will be able to consummate or, if consummated, successfully integrate the operations and management of future acquisitions. Acquisitions involve significant risks, which could have a material adverse effect on us, including:

  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.
 
  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.

     We have acquired and may continue to pursue the acquisition of manufacturing and supply chain management operations from OEMs. In these acquisitions, the divesting OEM will typically enter a supply arrangement with the acquiror. Therefore, the competition for these acquisitions is intense. In addition, certain

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OEMs may not choose to consummate these acquisitions with us because of our current supply arrangements with other OEMs. If we are unable to attract and consummate some of these acquisition opportunities, our growth could be adversely impacted.

     Arrangements entered into with divesting OEMs typically involve many risks, including the following:

  The integration into our business of the acquired assets and facilities may be time-consuming and costly.
 
  We, rather than the divesting OEM, 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 OEM as to volume, product quality, timeliness and cost reductions.
 
  If demand for the OEM’s products declines, the OEM may reduce its 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 OEMs.

As a result of these and other risks, we may be unable to achieve anticipated levels of profitability under these arrangements, and they may not result in any material revenues or contribute positively to our earnings.

     Our ability to achieve the expected benefits of the outsourcing opportunities associated with these acquisitions is subject to risks, including our ability to meet volume, product quality, timeliness and pricing requirements, and our ability to achieve the OEMs expected cost reduction. In addition, when acquiring manufacturing operations, we may receive limited commitments to firm production schedules. Accordingly, in these circumstances, we may spend substantial amounts purchasing these manufacturing facilities and assume significant contractual and other obligations with no guaranteed levels of revenues. We may also not achieve expected profitability from these arrangements. As a result of these and other risks, these outsourcing opportunities may not be profitable.

We face risks arising from the restructuring of our operations.

     Over the past few years, we have undertaken initiatives to restructure our business operations with the intention of improving utilization and realizing cost savings in the future. These initiatives have included changing the number and location of our production facilities, largely to align our capacity and infrastructure with current and anticipated customer demand. This alignment includes transferring programs from higher cost geographies to lower cost geographies. The process of restructuring entails, among other activities, moving production between facilities, reducing staff levels, realigning our business processes and reorganizing our management. We continue to evaluate our operations and may need to undertake additional restructuring initiatives in the future. If we incur additional restructuring related charges, our financial condition and results of operations may suffer.

We depend on a limited number of suppliers for components that are critical to our manufacturing processes. A shortage of these components or an increase in their price could interrupt our operations and reduce our profits.

     Substantially all of our net revenue is derived from provision of EMS services in which we provide materials procurement. While most of our significant long-term customer contracts permit quarterly or other periodic adjustments to pricing based on decreases and increases in component prices and other factors, we may bear the risk of component price increases that occur between any such re-pricings or, if such re-pricing is not permitted, during the balance of the term of the particular customer contract. Accordingly, certain component price increases could adversely affect our gross profit margins. Almost all of the products we manufacture require one or more components that are available from only a single source. Some of these components are allocated from time to time in response to supply shortages. In some cases, supply shortages will substantially curtail production of all assemblies using a particular component. In addition, at various times industry-wide shortages of electronic components have occurred, particularly of memory and logic devices. Such circumstances have produced insignificant levels of short-term interruption of our operations, but could have a material adverse effect on our results of operations in the future. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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We may not be able to maintain our engineering, technological and manufacturing process expertise.

     The markets for our manufacturing and engineering services are characterized by rapidly changing technology and evolving process development. The continued success of our business will depend upon our ability to:

  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.

Although we believe that our operations use the assembly and testing technologies, equipment and processes that are currently required by our customers, we cannot be certain that we will develop the capabilities required by our customers in the future. The emergence of new technology, industry standards or customer requirements may render our equipment, inventory or processes obsolete or noncompetitive. In addition, we may have to acquire new assembly and testing technologies and equipment to remain competitive. The acquisition and implementation of new technologies and equipment may require significant expense or capital investment, which could reduce our operating margins and our operating results. In facilities that we establish or acquire, we may not be able to maintain our engineering, technological and manufacturing process expertise. Our failure to anticipate and adapt to our customers’ changing technological needs and requirements or to maintain our engineering, technological and manufacturing expertise, could have a material adverse effect on our business.

If we manufacture products containing design or manufacturing defects, or if our manufacturing processes do not comply with applicable statutory and regulatory requirements, demand for our services may decline and we may be subject to liability claims.

     We manufacture and design products to our customers’ specifications, and, in some cases, our manufacturing processes and facilities may need to comply with applicable statutory and regulatory requirements. For example, medical devices that we manufacture or design, as well as the facilities and manufacturing processes that we use to produce them, are regulated by the Food and Drug Administration and non-US counterparts of this agency. Similarly, items we manufacture for customers in defense and aerospace industries, as well as the processes we use to produce them, are regulated by the Department of Defense and the Federal Aviation Authority. In addition, our customers’ products and the manufacturing processes that we use to produce them often are highly complex. As a result, products that we manufacture may at times contain manufacturing or design defects, and our manufacturing processes may be subject to errors or not be in compliance with applicable statutory and regulatory requirements. Defects in the products we manufacture or design, whether caused by a design, manufacturing or component failure or error, or deficiencies in our manufacturing processes, may result in delayed shipments to customers or reduced or cancelled customer orders. If these defects or deficiencies are significant, our business reputation may also be damaged. The failure of the products that we manufacture or our manufacturing processes and facilities to comply with applicable statutory and regulatory requirements may subject us to legal fines or penalties and, in some cases, require us to shut down or incur considerable expense to correct a manufacturing process or facility. In addition, these defects may result in liability claims against us or expose us to liability to pay for the recall of a product. The magnitude of such claims may increase as we expand our medical, automotive, and aerospace and defense manufacturing services, as defects in medical devices, automotive components, and aerospace and defense systems could kill or seriously harm users of these products and others. Even if our customers are responsible for the defects, they may not, or may not have resources to, assume responsibility for any costs or liabilities arising from these defects.

Our increasing design services offerings may increase our exposure to product liability, intellectual property infringement and other claims.

     We have increased our efforts to offer certain design services, primarily those relating to products that we manufacture for our customers. Providing such services can expose us to different or greater potential liabilities than those we face from providing our regular manufacturing services. Historically, we have generally not agreed in our customer contracts to be liable for product design defects. However, with the growth of our design services business, we are assuming some of those risks. As a result, we have increasing exposure to potential product liability claims resulting from injuries resulting from defects in products we design, as well as potential claims that products we design infringe on third-parties’ intellectual property. Such claims could subject us to significant liability for damages and, regardless of

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their merits, could be time-consuming and expensive to resolve. We also may have greater potential exposure with respect to products we design that may be recalled due to product problems. Costs associated with possible product liability claims, intellectual property infringement claims and product recalls could have a material adverse effect on our results of operations.

Any delay in the implementation of our information systems could disrupt our operations and cause unanticipated increases in our costs.

     We have completed the installation of an Enterprise Resource Planning system in a majority of our manufacturing sites and in our corporate location. We are in the process of installing this system in certain of our remaining plants, which will replace the current Manufacturing Resource Planning system, and financial information systems. Any delay in the implementation of these information systems could result in material adverse consequences, including disruption of operations, loss of information and unanticipated increases in cost.

Compliance or the failure to comply with current and future environmental regulations could cause us significant expense.

     We are subject to a variety of federal, state, local and foreign environmental regulations relating to the use, storage, discharge and disposal of hazardous chemicals used during our manufacturing process. If we fail to comply with any present and future regulations, we could be subject to future liabilities or the suspension of production. In addition, such regulations could restrict our ability to expand our facilities or could require us to acquire costly equipment, or to incur other significant expenses to comply with environmental regulations.

Certain of our existing stockholders have significant control.

     As of May 31, 2004, our executive officers, directors and certain of their family members collectively beneficially owned 19.0% of our outstanding common stock, of which William D. Morean, our Chairman of the Board, beneficially owned 14.8%. As a result, our executive officers, directors and certain of their family members have significant influence over (1) the election of our Board of Directors, (2) the approval or disapproval of any other matters requiring stockholder approval, and (3) the affairs and policies of Jabil.

We are subject to the risk of increased taxes.

     We base our tax position upon the anticipated nature and conduct of our business and upon our understanding of the tax laws of the various countries in which we have assets or conduct activities. Our tax position, however, is subject to review and possible challenge by taxing authorities and to possible changes in law. We cannot determine in advance the extent to which some jurisdictions may assess additional tax or interest and penalties on such additional taxes.

     Several countries in which we are located allow for tax holidays or provide other tax incentives to attract and retain business. We have obtained holidays or other incentives where available. Our taxes could increase if certain tax holidays or incentives are retracted, or if they are not renewed upon expiration, or tax rates applicable to us in such jurisdictions are otherwise increased. In addition, further acquisitions may cause our effective tax rate to increase.

Our credit rating is subject to change.

     Our credit is rated by credit rating agencies. For example, our 5.875% Senior Notes were rated Baa3 by Moody’s Investor Service, which is considered “investment grade” debt and BB+ by Standard and Poor’s Rating Service, which is considered one level below “investment grade” debt. If in the future our credit rating is downgraded so that neither credit rating agency rates our 5.875% Senior Notes as “investment grade” debt, such a downgrade may increase our cost of capital should we borrow under our revolving credit facilities, may make it more expensive for us to raise additional capital in the future on terms that are acceptable to us or at all, may negatively impact the price of our common stock and may have other negative implications on our business, many of which are beyond our control.

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We are subject to risks of currency fluctuations and related hedging operations.

     A portion of our business is conducted in currencies other than the U.S. dollar. Changes in exchange rates among other currencies and the U.S. dollar will affect our cost of sales, operating margins and revenues. We cannot predict the impact of future exchange rate fluctuations. We use financial instruments, primarily forward purchase contracts, to hedge U.S. dollar and other currency commitments arising from trade accounts receivable, trade accounts payable and fixed purchase obligations. If these hedging activities are not successful or we change or reduce these hedging activities in the future, we may experience significant unexpected expenses from fluctuations in exchange rates.

An adverse change in the interest rates for our borrowings could adversely affect our financial condition.

     We pay interest on outstanding borrowings under our revolving credit facilities and other long-term debt obligations at interest rates that fluctuate based upon changes in various base interest rates. An adverse change in the base rates upon which our interest rates are determined could have a material adverse effect on our financial position, results of operations and cash flows.

We are exposed to intangible asset risk.

     We have recorded intangible assets, including goodwill, in connection with business acquisitions. We are required to perform goodwill impairment tests at least on an annual basis and whenever events or circumstances indicate that the carrying value may not be recoverable from estimated future cash flows. As a result of our annual and other periodic evaluations, we may determine that the intangible asset values need to be written down to their fair values, which could result in material charges that could be adverse to our operating results and financial position.

Consolidation in industries that utilize electronics components may adversely affect our business.

     In the current economic climate, consolidation in industries that utilize electronics components may further increase as companies combine to achieve further economies of scale and other synergies. Consolidation in industries that utilize electronics components could result in an increase in excess manufacturing capacity as companies seek to divest manufacturing operations or eliminate duplicative product lines. Excess manufacturing capacity has increased, and may continue to increase, pricing and competitive pressures for the EMS industry as a whole and for us in particular. Consolidation could also result in an increasing number of very large companies offering products in multiple industry sectors. The significant purchasing power and market power of these large companies could increase pricing and competitive pressures for us. If one of our customers is acquired by another company that does not rely on us to provide services and has its own production facilities or relies on another provider of similar services, we may lose that customer’s business. Such consolidation among our customers may further reduce the number of customers that generate a significant percentage of our revenues and exposes us to increased risks relating to dependence on a small number of customers. Any of the foregoing results of industry consolidation could adversely affect our business.

Customer relationships with emerging companies may present more risks than with established companies.

     Customer relationships with emerging companies present special risks because such companies do not have an extensive product history. As a result, there is less demonstration of market acceptance of their products making it harder for us to anticipate needs and requirements than with established customers. In addition, due to the current economic environment, additional funding for such companies may be more difficult to obtain and these customer relationships may not continue or materialize to the extent we plan or we previously experienced. This tightening of financing for start-up customers, together with many start-up customers’ lack of prior earnings and unproven product markets increase our credit risk, especially in accounts receivable and inventories. Although we perform ongoing credit evaluations of our customers and adjust our reserves for accounts receivable and inventories for all customers, including start-up customers, based on the information available, these reserves may not be adequate. This risk exists for any new emerging company customers in the future.

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Our stock price may be volatile.

     Our common stock is traded on the New York Stock Exchange. The market price of our common stock has fluctuated substantially in the past and could fluctuate substantially in the future, based on a variety of factors, including future announcements covering us or our key customers or competitors, government regulations, litigation, changes in earnings estimates by analysts, fluctuations in quarterly operating results, or general conditions in the EMS, automotive, computing and storage, consumer products, instrumentation and medical, networking, peripherals and telecommunications industries. Furthermore, stock prices for many companies, and high technology companies in particular, fluctuate widely for reasons that may be unrelated to their operating results. Those fluctuations and general economic, political and market conditions, such as recessions or international currency fluctuations and demand for our services, may adversely affect the market price of our common stock.

Our certificate of incorporation, bylaws and Delaware law may have certain anti-takeover effects.

     The Corporation Law of the State of Delaware and our certificate of incorporation and bylaws each contain certain provisions that may, in effect, discourage, delay or prevent a change of control of Jabil or unsolicited acquisition proposals from taking place.

Generally, we do not have employment agreements with any of our key personnel, the loss of which could hurt our operations.

     Our continued success depends largely on the efforts and skills of our key managerial and technical employees. The loss of the services of certain of these key employees or an inability to attract or retain qualified employees could have a material adverse effect on us. Generally, we do not have employment agreements or non-competition agreements with our key employees.

 

Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Exchange Risks

     We transact business in various foreign countries and are, therefore, subject to risk of foreign currency exchange rate fluctuations. We enter into forward contracts to hedge transactional exposure associated with commitments arising from trade accounts receivable, trade accounts payable and fixed purchase obligations denominated in a currency other than the functional currency of the respective operating entity. All derivative instruments are recorded on the balance sheet at their respective fair market values in accordance with Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended (“SFAS 133”).

     The aggregate notional amount of outstanding contracts as of May 31, 2004 was $97.1 million. The fair value of these contracts amounted to $64.0 thousand and was recorded as a net liability in the Consolidated Balance Sheet. The forward contracts will generally expire in less than three months, with seven months being the maximum term of the contracts outstanding at May 31, 2004. The forward contracts will settle in British pounds, Euro dollars, Hong Kong dollars, Hungarian forints, Japanese yen, Mexican pesos, Polish zloty, Swiss francs and U.S. dollars.

Interest Rate Risk

     A portion of our exposure to market risk for changes in interest rates relates to our investment portfolio. We do not use derivative financial instruments in our investment portfolio. We place cash and cash equivalents with various major financial institutions. We protect our invested principal funds by limiting default risk, market risk and reinvestment risk. We mitigate default risk by generally investing in investment grade securities and by frequently positioning the portfolio to try to respond appropriately to a reduction in credit rating of any investment issuer, guarantor or depository to levels below the credit ratings dictated by our investment policy. The portfolio generally includes only marketable securities with active secondary or resale markets to ensure portfolio liquidity. As of May 31, 2004, the outstanding amount in the investment portfolio was $37.3 million, comprised mainly of money market funds with an average return of one percent.

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     We have issued senior notes with a principal maturity of $300 million due in July 2010. The notes bear a fixed interest rate of 5.875%, which is payable semiannually on January 15 and July 15. We entered into an interest rate swap transaction to effectively convert the fixed interest rate of the 5.875% Senior Notes to a variable rate. The swap, which expires in 2010, is accounted for as a fair value hedge under SFAS 133. The notional amount of the swap is $300 million. Under the terms of the swap, we will pay an interest rate equal to the six-month LIBOR rate, set in arrears, plus a fixed spread of 1.945%. In exchange, we receive a payment based on a fixed rate of 5.875%. At May 31, 2004, $16.7 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.

     We pay interest on outstanding borrowings under our Amended Revolver and our 0.6 million JPY credit facility at interest rates that fluctuate based upon changes in various base interest rates. There were no borrowings outstanding under these revolving credit facilities at May 31, 2004.

     See “Management’s Discussion and Analysis of Financial Condition and Results of Operation — Factors Affecting Future Results — We derive a substantial portion of our revenues from our international operations, which may be subject to a number of risks and often require more management time and expense to achieve profitability than our domestic operations, and — An adverse change in the interest rates for our borrowings could adversely affect our financial condition.”

 

Item 4: CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

     We carried out an evaluation required by Rules 13a-15 and 15d-15 under the Exchange Act (the “Evaluation”), under the supervision and with the participation of our President and Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15 and 15d-15 under the Exchange Act (“Disclosure Controls”). Although we believe that our pre-existing Disclosure Controls, including our internal controls, were adequate to enable us to comply with our disclosure obligations, as a result of such Evaluation, we implemented minor changes, primarily to formalize, document and update the procedures already in place. Based on the Evaluation, our CEO and CFO concluded that, subject to the limitations noted herein, our Disclosure Controls are effective in timely alerting them to material information required to be included in our periodic SEC reports.

Changes in Internal Controls

     There has not been any change in our internal control over financial reporting identified in connection with the Evaluation that occurred during the quarter ended May 31, 2004 that has materially affected, or is reasonably likely to materially affect, those controls.

Limitations on the Effectiveness of Controls

     Our management, including our CEO and CFO, does not expect that our Disclosure Controls and internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.

     The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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CEO and CFO Certifications

     Exhibits 31.1 and 31.2 are the Certifications of the CEO and the CFO, respectively. The Certifications are required in accord with Section 302 of the Sarbanes-Oxley Act of 2002 (the “Section 302 Certifications”). This Item of this report, which you are currently reading is the information concerning the Evaluation referred to in the Section 302 Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.

 

PART II. OTHER INFORMATION

 

Item 1: LEGAL PROCEEDINGS

     We are party to certain lawsuits in the ordinary course of business. We do not believe these proceedings, individually or in the aggregate, will have a material adverse effect on our financial position, results of operations or cash flows.

 

Item 2: CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES

     None.

 

Item 3: DEFAULTS UPON SENIOR SECURITIES

     None.

 

Item 4: SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

 

Item 5: OTHER INFORMATION

     None.

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Item 6: EXHIBITS AND REPORTS ON FORM 8-K

     (a) Exhibits

 
         
3.1(1)
    Registrant’s Certificate of Incorporation, as amended.
3.2(1)
    Registrant’s Bylaws, as amended.
4.1(2)
    Form of Certificate for Shares of Registrant’s Common Stock.
4.2(3)
    Subordinated Debt Indenture, dated as of May 2, 2001, with respect to the Subordinated Debt of the Registrant, between the Registrant and The Bank of New York, as trustee.
4.3(3)
    First Supplemental Indenture, dated as of May 2, 2001, with respect to the 1.75% Convertible Subordinated Notes, due 2021, of the Registrant, between the Registrant and the Bank of New York, as trustee.
4.4(4)
    Rights Agreement, dated as of October 19, 2001, between the Registrant and EquiServe Trust Company, N.A., which includes the form of the Certificate of Designation as Exhibit A, form of the Rights Certificate as Exhibit B, and the Summary of Rights as Exhibit C.
4.5(5)
    Senior Debt Indenture, dated as of July 21, 2003, with respect to the Senior Debt of the Registrant, between the Registrant and The Bank of New York, as trustee.
4.6(5)
    First Supplemental Indenture, dated as of July 21, 2003, with respect to the 5.875% Senior Notes, due 2010, of the Registrant, between the Registrant and The Bank of New York, as trustee.
10.24(6)
    Amendment No. 1 to Amended and Restated Three-year Loan Agreement dated as of February 4, 2004 between the Registrant and certain banks and Bank One, NA, as administrative agent for the banks.
10.25(6)
    Receivables Sale Agreement dated as of February 25, 2004 among Jabil Circuit, Inc, Jabil Circuit of Texas, L.P. and Jabil Global Services, Inc. as originators and Jabil Circuit Financial II, Inc. as buyer.
10.26(6)
    Receivables Purchase Agreement dated as of February 25, 2004 among Jabil Circuit Financial II, Inc. as seller, Jabil Circuit, Inc. as servicer and Jupiter Securitization Corporation, the Financial Institutions and Bank One as agent for Jupiter and the Financial Institutions.
10.27
    Amendment No. 1 to Receivables Purchase Agreement dated as of April 22, 2004 among Jabil Circuit Financial II, Inc. as seller, Jabil Circuit, Inc. as servicer and Jupiter Securitization Corporation, the Financial Institutions and Bank One as agent for Jupiter and the Financial Institutions
31.1
    Rule 13a-14(a)/15d-14(a) Certification by the President and Chief Executive Officer of Jabil Circuit, Inc.
31.2
    Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial Officer of Jabil Circuit, Inc.
32.1
    Section 1350 Certification by the President and Chief Executive Officer of Jabil Circuit, Inc.
32.2
    Section 1350 Certification by the Chief Financial Officer of Jabil Circuit, Inc.

(1)   Incorporated by reference to an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended February 29, 2000.
 
(2)   Incorporated by reference to an exhibit to Amendment No. 1 to the Registration Statement on Form S-1 filed by the Registrant on March 17, 1993 (File No. 33-58974).
 
(3)   Incorporated by reference to the Registrant’s Current Report on Form 8-K filed by the Registrant on May 3, 2001.
 
(4)   Incorporated by reference to the Registrant’s Form 8-A (File No. 001-14063) filed October 19, 2001.
 
(5)   Incorporated by reference to the Registrant’s Current Report on Form 8-K filed by the Registrant on July 21, 2003.
 
(6)   Incorporated by reference to an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended February 29, 2004.

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     (b) Reports on Form 8-K.

1.   During the quarterly period ended May 31, 2004, the Registrant filed a Current Report on Form 8-K dated March 17, 2004, in which it disclosed and furnished under Item 12 of Form 8-K a press release issued by the Registrant announcing its results of operations for the second quarter ended February 29, 2004.

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SIGNATURES

Pursuant to the requirements 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.

     
  Jabil Circuit, Inc.
  Registrant
 
   
Date: July 2, 2004
  By: /s/ Timothy L. Main
  Timothy L. Main
  President/CEO
 
   
Date: July 2, 2004
  By: /s/ Chris A. Lewis
  Chris A. Lewis
  Chief Financial Officer

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Exhibit Index

 
         
Exhibit No.        Description
10.27
    Amendment No. 1 to Receivables Purchase Agreement dated as of April 22, 2004 among Jabil Circuit Financial II, Inc. as seller, Jabil Circuit, Inc. as servicer and Jupiter Securitization Corporation, the Financial Institutions and Bank One as agent for Jupiter and the Financial Institutions.
31.1
    Rule 13a-14(a)/15d-14(a) Certification by the President and Chief Executive Officer of Jabil Circuit, Inc.
31.2
    Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial Officer of Jabil Circuit, Inc.
32.1
    Section 1350 Certification by the President and Chief Executive Officer of Jabil Circuit, Inc.
32.2
    Section 1350 Certification by the Chief Financial Officer of Jabil Circuit, Inc.


 
 
EXHIBIT 10.27

AMENDMENT NO. 1

Dated as of April 22, 2004

to

RECEIVABLES PURCHASE AGREEMENT

Dated as of February 25, 2004

THIS AMENDMENT NO. 1 dated as of April 22, 2004 ("Amendment") is entered into by and among Jabil Circuit Financial II, Inc., a Delaware corporation (the "Seller"), Jabil Circuit, Inc., a Delaware corporation (the "Servicer"), Jupiter Securitization Corporation ("Jupiter"), the financial institutions party hereto (the "Financial Institutions") and Bank One, NA (Main Office Chicago), as Agent (the "Agent"). Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to them in the RPA, as defined below.

PRELIMINARY STATEMENTS

A. The Seller, the Servicer, Jupiter, the Financial Institutions and the Agent are parties to that certain Receivables Purchase Agreement dated as of February 25, 2004 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the "RPA").

B. The parties hereto have agreed to amend the RPA on the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the premises set forth above, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Seller, the Servicer, Jupiter, the Financial Institutions and the Agent agree as follows:

SECTION 1. Amendment to the RPA. Effective as of the date hereof, subject to the satisfaction of the conditions precedent set forth in
Section 2 below, the RPA is hereby amended as follows:

1.1 Section 9.1(f) of the RPA is hereby amended to replace the period at the end of clause (ii) with "; or" and add the following clause (iii) at the end:

(iii) the average of the Dilution Ratios as at the end of such month and the two preceding months shall exceed 8.0%.

1.2 Exhibit I to the RPA is hereby amended to add the following definitions in the appropriate alphabetical order:

"Default Proxy Ratio" means, as at the last day of any calendar month, a percentage equal to (i) the sum of (A) the aggregate Outstanding Balance of all Receivables greater than 90 days past due and less than 121 days past due as of


such day plus (B) the aggregate Outstanding Balance of all Receivables that became Charged-Off Receivables during such month and which have remained unpaid for less than 91 days from the original invoice date, divided by (ii) the Originator Sales during the month ended three (3) months prior to such month.

"Dilution Horizon Ratio" means, as of the last day of any calendar month, a percentage equal to (i) the Originator Sales during such calendar month divided by (ii) the aggregate Outstanding Balance of all Eligible Receivables as of such date.

"Dilution Percentage" means, as of the last day of any calendar month, a percentage equal to the following calculation:

[(2 x ED) + ((DS - ED) x DS / ED)] x DHR

where:

ED = the Expected Dilution Ratio at such time.

DS = the Dilution Spike Ratio at such time.

DHR = the Dilution Horizon Ratio at such time.

"Dilution Ratio" means, as of the last day of any calendar month, a percentage equal to (i) the aggregate amount of Dilutions which accrued during such calendar month, divided by (ii) the Originator Sales during the month ending one (1) calendar month prior to such date.

"Dilution Spike Ratio" means, as of the last day of any calendar month, a percentage equal to the highest Dilution Ratio as of the last day of any of the twelve (12) months then most recently ended.

"Expected Dilution Ratio" means, as of any date, the average of the Dilution Ratios in respect of the twelve (12) immediately preceding months.

1.3 Exhibit I to the RPA is hereby further amended to delete the definitions of "Dilution Reserve", "Loss Ratio" and "Purchase Limit" and replace them with the following:

"Dilution Reserve" means, on any date, an amount equal to the greater of (i) $12,000,000 and (ii) an amount equal to the Dilution Percentage multiplied by the Net Receivables Balance on such date.

"Loss Ratio" means, as of the last day of any calendar month, a percentage equal to the highest three-month rolling average Default Proxy Ratio as of the last day of any of the twelve (12) months then most recently ended.

"Purchase Limit" means $120,000,000.

2


1.4 Schedule A to the RPA is hereby amended to delete the "$102,000,000" Commitment amount of Bank One, NA (Main Office Chicago) and replace it with the amount "$122,400,000."

SECTION 2. Conditions Precedent. This Amendment shall become effective as of the date first above written, upon receipt by the Agent of four
(4) copies of this Amendment duly executed by each of the Seller, the Servicer, the Purchasers and the Agent.

SECTION 3. Covenants, Representations and Warranties of the Seller and the Servicer.

3.1 Upon the effectiveness of this Amendment, each of the Seller and the Servicer hereby reaffirms all covenants, representations and warranties made by it, to the extent the same are not amended hereby, in the RPA, as amended, and agrees that all such covenants, representations and warranties shall be deemed to have been re-made as of the effective date of this Amendment.

3.2 Each of the Seller and the Servicer hereby represents and warrants, (i) that this Amendment constitutes the legal, valid and binding obligation of such Person enforceable against such Person in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and general principles of equity which may limit the availability of equitable remedies and (ii) upon the effectiveness of this Amendment, no Amortization Event or Potential Amortization Event has occurred or is continuing.

SECTION 4. Reference to the Effect on the RPA.

4.1 Upon the effectiveness of this Amendment, each reference in the RPA to "this Agreement," "hereunder," "hereof," "herein," "hereby" or words of like import shall mean and be a reference to the RPA as amended hereby, and each reference to the RPA in any other document, instrument or agreement executed and/or delivered in connection with the RPA shall mean and be a reference to the RPA as amended hereby.

4.2 Except as specifically amended hereby, the RPA and the other documents, instruments and agreements executed and/or delivered in connection therewith shall remain in full force and effect and are hereby ratified and confirmed.

4.3 The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of the Purchasers or the Agent under the RPA or any of the other Transaction Documents, nor constitute a waiver of any provision contained therein, except as specifically set forth herein.

SECTION 5. Headings. Section headings in the Amendment are included herein for convenience of reference only and shall not constitute part of this Amendment for any other purpose.

3

SECTION 6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS.

SECTION 7. Counterparts. This Amendment may be executed by one or more of the parties to this Amendment on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument.

SECTION 8. Fees and Expenses. The Seller hereby confirms its agreement to pay on demand all reasonable costs and expenses in connection with the preparation, execution and delivery of this Amendment and any of the other instruments, documents and agreements to be executed and/or delivered in connection herewith, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel to the Agent.

4

IN WITNESS WHEREOF, this Amendment has been duly executed as of the day and year first above written.

JABIL CIRCUIT FINANCIAL II, INC.


By: /s/  JAMES FALCONER
    -----------------------------------
Name: James Falconer
Title: Vice President


JABIL CIRCUIT, INC., as Servicer


By: /s/  FORBES ALEXANDER
    -----------------------------------
Name: Forbes Alexander
Title: Treasurer


JUPITER SECURITIZATION CORPORATION


By: /s/  MAUREEN MARCON
    -----------------------------------
Name: Maureen Marcon
Title: Authorized Signatory


BANK ONE, NA (Main Office Chicago), as a Financial Institution and as Agent


By: /s/  MAUREEN MARCON
    -----------------------------------
Name: Maureen Marcon
Title: Director, Capital Markets



 
 
EXHIBIT 31.1
CERTIFICATIONS

I, Timothy L. Main, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Jabil Circuit, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a -15 (e) and 15d -15 (e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


Date: July 2, 2004                              /s/  TIMOTHY L. MAIN
                                     -----------------------------------------
                                                   Timothy L. Main
                                       President and Chief Executive Officer



 
 
EXHIBIT 31.2
CERTIFICATIONS

I, Chris A. Lewis, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Jabil Circuit, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a -15(e) and 15d -15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

6. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


Date: July 2, 2004                               /s/  CHRIS A. LEWIS
                                           ------------------------------------
                                                     Chris A. Lewis
                                                Chief Financial Officer



 
 
EXHIBIT 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Jabil Circuit, Inc. (the "Company") on Form 10-Q for the fiscal quarter ended May 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Form 10-Q"), I, Timothy L. Main, President and Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: July 2, 2004


        /s/  TIMOTHY L. MAIN
-----------------------------------------
            Timothy L. Main
  President and Chief Executive Officer



 
 
EXHIBIT 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Jabil Circuit, Inc. (the "Company") on Form 10-Q for the fiscal quarter ended May 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Form 10-Q"), I, Chris A. Lewis, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: July 2, 2004


        /s/  CHRIS A. LEWIS
---------------------------------------
            Chris A. Lewis
       Chief Financial Officer




End of Filing


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