<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 9, 2000
JABIL CIRCUIT, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 001-14063 38-1886260
- ------------------------------- ------------------------ -------------------
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification No.)
10560 Ninth Street North, St. Petersburg, Florida 33716
------------------------------------------------------------
(Address of principal executive offices, including zip code)
Registrant's Telephone No., including area code: (727) 577-9749
<PAGE> 2
ITEM 5. OTHER EVENTS
On September 13, 1999, Jabil Circuit, Inc. (the "Company" or "Jabil") acquired
GET Manufacturing, Inc. ("GET"), a China-based electronics manufacturing
services provider. This merger was accounted for as a pooling of interests. The
audited restated consolidated financial statements and management's discussion
and analysis of financial condition and results of operations ("Supplementary
Financial Information"), which are filed with this Form 8-K as Exhibit 99.1,
reflect the Company's financial position and results of operations as if GET
were a wholly owned subsidiary of the Company since inception of the Company.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
EXHIBIT DESCRIPTION
- ------- -----------
23.1 Consent of KPMG LLP, Independent Auditors
23.2 Consent of Ernst & Young LLP, Independent Auditors
27.1 Financial Data Schedule for the year ended August 31, 1997
27.2 Financial Data Schedule for the year ended August 31, 1998
27.3 Financial Data Schedule for the year ended August 31, 1999
99.1 Supplementary Financial Information of the Company
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: May 9, 2000 By: /s/ Chris A. Lewis
-----------------------
Chris A. Lewis
Chief Financial Officer
2
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Jabil Circuit, Inc:
We consent to the incorporation by reference in the registration statements on
Form S-3 (Nos. 333-71479 and 333-91719) and Form S-8 (No. 333-86217) of Jabil
Circuit, Inc. of our report dated September 15, 1999 except as to Note 9(c),
which is as of September 22, 1999, and Note 1(n), which is as of March 23,
2000, relating to the consolidated balance sheets of Jabil Circuit, Inc. as of
August 31, 1998 and 1999, and the related consolidated statements of earnings,
stockholders' equity, comprehensive income and cash flows and related financial
statement schedule for each of the years in the three-year period ended August
31, 1999, which report appears in this Current Report on Form 8-K of Jabil
Circuit, Inc.
/s/ KPMG LLP
-------------------
St. Petersburg, Florida
May 9, 2000
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Shareholders and Board of Directors
GET Manufacturing, Inc.:
We consent to the incorporation by reference in the registration statements on
Form S-3 (Nos. 333-71479 and 333-91719) and Form S-8 (No. 333-86217) of Jabil
Circuit, Inc. and subsidiaries of our report dated August 6, 1999, with respect
to the consolidated financial statements of GET Manufacturing, Inc. and
subsidiaries for the years ended March 31, 1998 and 1999, and our report dated
November 3, 1999 with respect to the consolidated financial statement of GET
Manufacturing, Inc. and subsidiaries for the twelve months ended August 31,
1999, which reports appear in this Current Report on Form 8-K of Jabil Circuit,
Inc. and subsidiaries.
/s/ Ernst & Young
Hong Kong
May 9,2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FILED AS
PART OF THE CURRENT REPORT ON FORM 8-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1997
<CASH> 53,574
<SECURITIES> 0
<RECEIVABLES> 138,794
<ALLOWANCES> 3,696
<INVENTORY> 112,371
<CURRENT-ASSETS> 310,937
<PP&E> 274,169
<DEPRECIATION> 105,720
<TOTAL-ASSETS> 484,133
<CURRENT-LIABILITIES> 207,684
<BONDS> 0
0
0
<COMMON> 153
<OTHER-SE> 216,760
<TOTAL-LIABILITY-AND-EQUITY> 484,133
<SALES> 1,178,644
<TOTAL-REVENUES> 1,178,644
<CGS> 1,040,214
<TOTAL-COSTS> 1,088,606
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,114
<INCOME-PRETAX> 87,924
<INCOME-TAX> 28,611
<INCOME-CONTINUING> 59,313
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59,313
<EPS-BASIC> 0.38
<EPS-DILUTED> 0.36
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FILED
AS PART OF THE CURRENT REPORT ON FORM 8-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> AUG-31-1998
<CASH> 33,023
<SECURITIES> 0
<RECEIVABLES> 163,638
<ALLOWANCES> 3,948
<INVENTORY> 140,891
<CURRENT-ASSETS> 351,447
<PP&E> 393,572
<DEPRECIATION> 134,553
<TOTAL-ASSETS> 625,173
<CURRENT-LIABILITIES> 249,053
<BONDS> 0
0
0
<COMMON> 159
<OTHER-SE> 284,959
<TOTAL-LIABILITY-AND-EQUITY> 625,173
<SALES> 1,484,245
<TOTAL-REVENUES> 1,484,245
<CGS> 1,307,692
<TOTAL-COSTS> 1,397,566
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,638
<INCOME-PRETAX> 83,041
<INCOME-TAX> 25,572
<INCOME-CONTINUING> 57,469
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 57,469
<EPS-BASIC> 0.36
<EPS-DILUTED> 0.35
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FILED AS
PART OF THE CURRENT REPORT ON FORM 8-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> AUG-31-1999
<CASH> 125,949
<SECURITIES> 27,176
<RECEIVABLES> 265,717
<ALLOWANCES> 4,639
<INVENTORY> 217,840
<CURRENT-ASSETS> 661,113
<PP&E> 533,007
<DEPRECIATION> 179,485
<TOTAL-ASSETS> 1,035,421
<CURRENT-LIABILITIES> 412,280
<BONDS> 0
0
0
<COMMON> 175
<OTHER-SE> 577,636
<TOTAL-LIABILITY-AND-EQUITY> 1,035,421
<SALES> 2,238,391
<TOTAL-REVENUES> 2,238,391
<CGS> 1,992,803
<TOTAL-COSTS> 2,102,514
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,574
<INCOME-PRETAX> 133,303
<INCOME-TAX> 48,484
<INCOME-CONTINUING> 84,819
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 84,819
<EPS-BASIC> 0.51
<EPS-DILUTED> 0.49
</TABLE>
<PAGE> 1
EXHIBIT 99.1
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data for
the five years ended August 31, 1995,1996,1997,1998 and 1999. The selected
consolidated financial data includes for all periods presented the results of
operations and balance sheet data of the Company and GET Manufacturing, Inc.,
which the Company acquired in September 1999 in a transaction accounted for as a
pooling of interests. These historical results are not necessarily indicative of
the results to be expected in the future. The following table is qualified by
reference to and should be read in conjunction with the consolidated financial
statements and notes thereto and other financial data included elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
----------------------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- ----------- ---------- ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF EARNINGS DATA:
Net revenue............................. $ 822,034 $1,050,624 $ 1,178,644 $1,484,245 $2,238,391
Cost of revenue......................... 768,170 959,495 1,040,214 1,307,692 1,992,803
--------- --------- ----------- ---------- ----------
Gross profit............................ 53,864 91,129 138,430 176,553 245,588
Selling, general and administrative... 25,914 34,404 45,086 60,116 92,015
Research and development.............. 3,510 4,205 4,593 5,355 5,863
Amortization of intangibles........... -- -- -- -- 1,225
Acquisition and merger-related charges -- -- -- 20,825 (1) 7,030 (2)
Goodwill write-off.................... -- -- -- 3,578 (1) 3,578 (2)
--------- --------- ---------- ---------- ----------
Operating income........................ 24,440 52,520 88,751 86,679 (1) 135,877 (2)
(Income) Loss from joint ventures..... 134 (316) (1,287) -- --
Interest income....................... (1,504) (1,369) (3,697) (238) (4,536)
Interest expense...................... 10,271 9,510 5,811 3,876 7,110
--------- --------- ---------- ---------- ----------
Income before income taxes.............. 15,539 44,695 87,924 83,041 133,303
Income taxes.......................... 2,986 14,311 28,611 25,572 48,484
Minority interests.................... (252) -- -- -- --
--------- --------- ---------- ---------- ----------
Net income.............................. $ 12,805 $ 30,384 $ 59,313 $ 57,469 (1) $ 84,819 (2)
========= ========= ========== ========== ==========
Earnings per share (3):
Basic................................. $ 0.10 $ 0.21 $ 0.38 $ 0.36 $ 0.51
Diluted............................... $ 0.10 $ 0.20 $ 0.36 $ 0.35 (1) $ 0.49 (2)
Common shares used in the calculations of
earnings per share (3):
Basic................................. 126,695 147,815 155,181 158,589 166,754
Diluted............................... 134,402 155,558 163,890 164,934 174,334
</TABLE>
(1) In connection with the acquisition of certain assets of the LaserJet
Formatter Manufacturing Organization of the Hewlett-Packard Company, (the
"HP Acquisition"), we recorded an acquisition-related charge of $20.8
million ($12.9 million after-tax). During March 1999, we also recorded the
write-off of impaired goodwill of a GET subsidiary of $3.6 million ($3.3
million after-tax). As a result of the overlapping period created when GET
Manufacturing's fiscal year was conformed to an August 31 year end, this
charge is included in the operating results of the year ended August 31,
1998. Operating income excluding these charges was $111.1 million. Net
income excluding this charge was $73.7 million and diluted earnings per
share was $0.45.
(2) During 1999, we recorded a merger-related charge of $7.0 million ($6.5
million after-tax) in connection with the merger with GET Manufacturing
("GET Merger"). During March 1999, we also recorded the write-off of
impaired goodwill of a GET subsidiary of $3.6 million ($3.3 million
after-tax). As a result of the overlapping period created when GET's fiscal
year was conformed to an August 31 year end, the write-off falls into the
results of operations for both years ended August 31, 1999 and 1998.
Stockholders' equity was adjusted so that the duplicate amount is reflected
only once in retained earnings. Operating income excluding these charges was
$146.5 million for the year ended August 31, 1999. Net income excluding
these charges was $94.6 million and diluted earnings per share was $0.54.
(3) Gives effect to a two-for-one stock split in the form of a 100% stock
dividend to stockholders of record on March 23, 2000.
1
<PAGE> 2
<TABLE>
<CAPTION>
AUGUST 31,
----------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital .................................. $ 39,463 $119,321 $103,253 $102,394 $ 248,833
Total assets ..................................... 365,144 370,025 484,133 625,173 1,035,421
Current installments of long-term
obligations and other short-term debt .......... 103,282 9,342 9,173 28,302 32,490
Notes payable and long-term obligations,
excluding current installments ................. 38,188 63,499 53,540 83,582 33,333
Net stockholders' equity ......................... $ 82,374 $152,864 $216,913 $285,118 $ 577,811
</TABLE>
2
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We make "forward-looking statements" within the "safe harbor" provision
of the Private Securities Litigation Reform Act of 1995 throughout this Current
Report on Form 8-K. You can identify these statements by forward-looking words
such as "may," "will," "expect," "anticipate," "believe," "estimate," "plan" and
"continue" or similar words. We have based these statements on our current
expectations about future events. Although we believe that our expectations
reflected in or suggested by our forward-looking statements are reasonable, we
cannot assure you that these expectations will be achieved. Our actual results
may differ materially from what we currently expect. Important factors which
could cause our actual results to differ materially from the forward-looking
statements in this document are set forth in the following "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Factors Affecting Future Results" sections and elsewhere in this document.
You should read this document 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 though our situation
will change in the future. All forward-looking statements attributable to us
are expressly qualified by these cautionary statements.
Jabil is one of the leading worldwide independent providers of turnkey
manufacturing services to electronics Original Equipment Manufacturers ("OEMs")
in the communications, computer peripherals, personal computer, automotive and
consumer products industries. During the past several years, Jabil has
experienced substantial growth in net revenue, operating income and net income.
This growth, as well as the growth of the overall Electronic Manufacturing
Services ("EMS") industry, has been driven by the increasing number of
electronics OEMs who are outsourcing their manufacturing requirements. We
anticipate that this industry trend will continue during the next several years.
We derive most of our net revenue under purchase orders from OEM
customers. We recognize revenue, net of product return and warranty costs,
typically at the time of product shipment. The volume and timing of orders
placed by our customers vary due to several factors, including: variation in
demand for our customers' products; our customers' inventory management; new
product introductions and manufacturing strategy changes; and consolidations
among our customers. Demand for our customers' products depends on, among other
things, product life cycles, competitive conditions and general economic
conditions.
Our cost of revenue includes the cost of electronic components and
other materials that comprise the products we manufacture, the cost of labor and
manufacturing overhead, and provisions for excess and obsolete inventory
adjustments. As a provider of turnkey manufacturing services, we are responsible
for procuring components and other materials. This requires us to commit
significant working capital to our operations and to manage the purchasing,
receiving, inspection and stocking of materials. Although we bear the risk of
fluctuations in the cost of materials, excess scrap and inventory obsolescence,
we periodically negotiate cost of materials adjustments with our customers.
Net revenue from each product that we manufacture consists of a
component based on the costs of materials in that product and a component based
on the labor and manufacturing overhead allocation to that product. We refer to
the portion of the sales price of a product that is based on labor and
manufacturing overhead costs as "manufacturing-based revenue," and to the
portion of the sales price of a product that is based on materials costs as
"material-based revenue." Our gross margin for any product depends on the mix
between the cost of materials in the product and the cost of labor and
manufacturing overhead allocated to the product. We typically realize higher
gross margins on manufacturing-based revenue than we do on materials-based
revenue. As we gain experience in manufacturing a product, we usually achieve
increased efficiencies, which result in lower labor costs and manufacturing
overhead for that product.
Our operating results are impacted by the level of capacity utilization
of manufacturing facilities, indirect labor and selling, general and
administrative expenses. Gross margins and operating income margins have
generally improved during periods of high volume and high capacity utilization.
During periods of low volume production, we generally have idle capacity and
reduced operating margins. As our capacity has grown during recent years, both
through the construction of new "greenfield" facilities and the expansion of
existing facilities, our selling, general and administrative expenses have
increased to support this growth.
We have consistently utilized advanced circuit design, production
design and manufacturing technologies to meet the needs of our customers. To
support this effort, our engineering staff focuses on developing and refining
design and
3
<PAGE> 4
manufacturing technologies to meet specific needs of specific customers. Most of
the expenses associated with these customer-specific efforts are reflected in
our cost of revenue. In addition, our engineers engage in research and
development of new technologies that apply generally to our operations. The
expense of these research and development activities are reflected in the
"Research and Development" line item in our Consolidated Financial Statements.
An important element of our strategy is the expansion of our global
production facilities. Substantially all of our revenue and materials costs
worldwide are denominated in U.S. dollars, while our labor and utility costs in
plants outside the United Sates are denominated in local currencies. We
typically hedge these local currency costs through the purchase of foreign
exchange contracts, the amount and cost of which have not been material.
We continue to depend upon a relatively small number of customers for a
significant percentage of our net revenue. Significant reductions in sales to
any of our large customers 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, and other customers have significantly
reduced or delayed the volume of manufacturing services ordered from us. There
can be no assurance 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. Any such termination of a
manufacturing relationship or change, reduction or delay in orders could have an
adverse effect on our results of operations or financial condition. See Note 7
of Notes to Consolidated Financial Statements.
ACQUISITIONS
On August 3, 1998, we acquired certain assets (primarily raw material
inventory and property, plant and equipment) relating to the LaserJet Formatter
Manufacturing Organization of Hewlett-Packard Company located in Bergamo, Italy
and Boise, Idaho (the "HP Acquisition"). The HP Acquisition price was
approximately $80.0 million and was accounted for under the purchase method of
accounting. The acquisition resulted in goodwill and other intangible assets of
approximately $11.2 million, which are being amortized on a straight-line basis
over ten years. The acquired assets were used by the Hewlett-Packard Company to
manufacture printed circuit-board assemblies for the LaserJet printer division
of Hewlett-Packard Company. Simultaneously with the HP Acquisition, we entered
into a manufacturing agreement to continue to produce the printed circuit board
assemblies being produced by the Hewlett-Packard Company operations in Bergamo
and Boise.
On September 1, 1999 we acquired the net assets of EFTC Services, Inc.,
an electronic product service and repair business. Jabil Global Services, Inc.
will continue to offer repair and warranty services for existing and future
customers from its hub-based operations in Memphis, Tennessee; Louisville,
Kentucky; and Tampa, Florida. The purchase price of approximately $28 million
was paid in cash. The acquisition was accounted for as a purchase.
On September 13, 1999 we issued approximately 10.2 million shares of
our common stock for all the outstanding common stock of GET Manufacturing,
Inc., a China-based electronics manufacturing services provider. The transaction
was accounted for as a pooling of interests and, accordingly, our historical
consolidated financial statements have been restated to include the accounts and
results of operations of GET Manufacturing, Inc.
During the past several years, an increasing number of OEMs have
divested manufacturing operations to EMS providers. Acquisitions of such
manufacturing assets have permitted EMS companies to increase their capacity and
solidify relationships with OEMs. We believe attractive acquisition
opportunities exist that will support the expansion of our global manufacturing
capabilities as well as the establishment and maintenance of long-term customer
relationships. We plan to continue a strategy of selectively acquiring the
assets of OEMs with size and growth characteristics consistent with our customer
profile.
4
<PAGE> 5
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
operating data as a percentage of net revenue:
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
----------------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Net revenue.......................................... 100.0% 100.0% 100.0%
Cost of revenue...................................... 88.3 88.1 89.0
----- ----- -----
Gross margin......................................... 11.7 11.9 11.0
Selling, general and administrative.................. 3.8 4.1 4.1
Research and development............................. 0.4 0.4 0.3
Amortization of intangibles.......................... -- -- --
Acquisition and merger-related charges............... -- 1.4 0.3
Goodwill write-off................................... -- 0.2 0.2
----- ----- -----
Operating income..................................... 7.5 5.8 6.1
Income from joint ventures........................... (0.1) -- --
Interest income...................................... (0.3) -- (0.2)
Interest expense..................................... 0.5 0.2 0.3
----- ----- -----
Income before income taxes........................... 7.4 5.6 6.0
Income taxes......................................... 2.4 1.7 2.2
----- ----- -----
Net income........................................... 5.0% 3.9% 3.8%
===== ===== =====
</TABLE>
FISCAL YEAR ENDED AUGUST 31, 1999 COMPARED TO FISCAL YEAR ENDED AUGUST 31, 1998
NET REVENUE. Our net revenue increased 50.8% to $2.2 billion for fiscal
year 1999, up from $1.5 billion in fiscal year 1998. The increase was primarily
due to incremental revenue due to the HP Acquisition as well as increased
production of communications products. Foreign source revenue represented 41% of
our net revenue for fiscal year 1998 and 40% of net revenue for fiscal year
1999.
GROSS PROFIT. Gross margin decreased to 11.0% in fiscal year 1999 from
11.9% in fiscal year 1998, reflecting a higher content of material-based revenue
from the HP Acquisition and underutilization of assets in certain international
factories.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses increased to $92.0 million (4.1% of net revenue) in
fiscal year 1999 from $60.1 million (4.1% of net revenue) in fiscal year 1998.
This increase was primarily due to continued increases in staffing and related
departmental expenses at all the Jabil locations, including the sites acquired
in the HP Acquisition, along with increases in information systems staff to
support the expansion of our business.
RESEARCH AND DEVELOPMENT. Research and development expenses in fiscal
year 1999 increased to $5.9 million (0.3% of net revenue) from $5.4 million
(0.4% of net revenue) in fiscal year 1998 due to the expansion of electronic
design activities.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles of $1.2
million was recorded in fiscal 1999 as a result of the HP acquisition. See Note
1 to the Consolidated Financial Statements.
ACQUISITION AND MERGER- RELATED CHARGES. During the fourth quarter of
fiscal year 1999, we incurred $7.0 million in merger-related charges consisting
of professional fees and other merger-related charges as part of the GET merger.
See Note 1 to the Consolidated Financial Statements.
GOODWILL WRITE-OFF. During March 1999, we recorded a write-off of
impaired goodwill related to a subsidiary of GET. As a result of the overlapping
period created when GET's fiscal year was conformed to an August 31 year end,
the write-off falls into the results of operations for both years ended August
31, 1999 and 1998. Stockholders' equity was adjusted to eliminate the duplicate
amount from retained earnings. See Note 1(p) to the Consolidated Financial
Statements.
INTEREST INCOME. Interest income increased to $4.5 million in fiscal
year 1999 from $238,000 in fiscal year 1998, as a result of increased income on
cash balances and short-term investments.
5
<PAGE> 6
INTEREST EXPENSE. Interest expense increased to $7.1 million in fiscal
year 1999 from $3.9 million in fiscal year 1998, primarily reflecting increased
borrowings to support the HP Acquisition and working capital needs.
INCOME TAXES. In fiscal year 1999, the effective tax rate increased to
36.4% from 30.8% in fiscal year 1998. The effective tax rate is predominantly a
function of the mix of domestic versus international income from operations. See
Note 5 of Notes to Consolidated Financial Statements.
FISCAL YEAR ENDED AUGUST 31, 1998 COMPARED TO FISCAL YEAR ENDED AUGUST 31, 1997
NET REVENUE. Our net revenue increased 25.9% to $1.5 billion for fiscal
year 1998, up from $1.2 million in fiscal year 1997. The increase was primarily
a result of manufacturing services growth provided to existing and new
customers. Foreign source revenue represented 41.4% of our net revenue for
fiscal year 1998 and 42.1% of net revenue for fiscal year 1997.
GROSS PROFIT. Gross margin increased to 11.9% in fiscal year 1998 from
11.7% in fiscal year 1997, reflecting an increase in manufacturing-based
revenues and overall capacity utilization.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses increased to $60.1 million (4.1% of net revenue) in
fiscal year 1998 from $45.1 million (3.8% of net revenue) in fiscal year 1997.
This increase was primarily due to continued increases in staffing and related
departmental expenses at our existing operations, new operations in Mexico, and
sites acquired in the HP Acquisition, along with increases in information
systems staff to support the expansion of our business in existing and new
locations.
RESEARCH AND DEVELOPMENT. Research and development expenses in fiscal
year 1998 increased to $5.4 million (0.4% of net revenue) from $4.6 million
(0.4% of net revenue) in fiscal year 1997 reflecting an increase in design-based
activity.
ACQUISITION AND MERGER-RELATED CHARGES. During the fourth quarter of
fiscal year 1998, we completed the HP Acquisition and recorded a one-time
acquisition-related charge of $20.8 million ($12.9 million after-tax) consisting
of an in-process technology write-off of $6.5 million, work force related
expenses of $10.0 million, and $4.3 million of other expenses.
GOODWILL WRITE-OFF. During March 1999, we recorded the write-off of
impaired goodwill of $3.6 million ($3.3 million after-tax). This charge is
included in the operating results of the year ended August 31, 1998 as a result
of the overlapping period created when GET Manufacturing's fiscal year was
conformed to an August 31 year end. See Note 1(p) to the Consolidated Financial
Statements.
INCOME FROM JOINT VENTURES. During 1997, the Company held interests in
a joint venture accounted for under the equity method. The Company sold its
interest in the joint venture during the year ended August 31, 1998. As a
result, income from joint ventures decreased from $1.3 million in fiscal year
1997 to $0 in fiscal year 1998.
INTEREST INCOME. Interest income decreased to $238,000 in fiscal year
1998 from $3.7 million in fiscal year 1997, primarily as a result of decreased
cash available for investing.
INTEREST EXPENSE. Interest expense decreased to $3.9 million in fiscal
year 1998 from $5.8 million in fiscal year 1997, primarily reflecting
significantly reduced borrowings to meet short-term cash needs.
INCOME TAXES. In fiscal year 1998, the effective tax rate decreased to
30.8% from 32.5% in fiscal year 1997. The effective tax rate is predominantly a
function of the mix of domestic versus international income from operations. Our
international operations are being taxed at a lower rate than in the United
States, primarily due to the tax holiday granted to our Malaysian subsidiary.
The Malaysian tax holiday is currently scheduled to expire on October 30, 2000.
6
<PAGE> 7
QUARTERLY RESULTS
The following table sets forth certain unaudited quarterly financial
information for the 1998 and 1999 fiscal years. In the opinion of management,
this information has been presented on the same basis as the audited
consolidated financial statements appearing elsewhere, and all necessary
adjustments (consisting only of normal recurring adjustments) have been included
in the amounts stated below to present fairly the unaudited quarterly results
when read in conjunction with the audited consolidated financial statements and
related notes thereto. The operating results for any quarter are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
FISCAL 1998 FISCAL 1999
----------------------------------------- ------------------------------------------
NOV. 30, FEB. 28, MAY 31, AUG. 31, NOV. 30, FEB. 28, MAY 31, AUG. 31,
1997 1998 1998 1998 1998 1999 1999 1999
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue............... $361,114 $376,609 $362,168 $384,354 $495,115 $558,703 $582,238 $602,335
Cost of revenue......... 316,848 329,256 318,083 343,505 440,420 498,601 518,417 535,365
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit.............. 44,266 47,353 44,085 40,849 54,695 60,102 63,821 66,970
Selling, general and
administrative........ 13,112 14,697 15,745 16,562 20,825 22,452 22,902 25,836
Research and development 1,261 1,239 1,498 1,357 1,457 1,432 1,387 1,587
Amortization of
intangibles............. -- -- -- -- 357 294 287 287
Acquisition and
merger-related charges
(1,2)................... -- -- -- 20,825 -- -- -- 7,030
Goodwill write-off (1,2).. -- -- -- 3,578 (1) -- -- 3,578 (2) -- (2)
-------- -------- -------- -------- -------- -------- -------- --------
Operating income (loss)... 29,893 31,417 26,842 (1,473)(1) 32,056 35,924 35,667 (2) 32,230 (2)
Interest income......... (46) (109) (42) (41) (322) (400) (1,507) (2,307)
Interest expense........ 884 1,301 820 871 1,923 2,292 1,482 1,413
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes............ 29,055 30,225 26,064 (2,303) 30,455 34,032 35,692 33,124
Income tax expense
(benefit)............ 9,684 9,169 7,854 (1,135) 10,440 11,778 13,310 12,956
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)......... $ 19,371 $ 21,056 $ 18,210 $ (1,168)(1) $ 20,015 $ 22,254 $ 22,382 (2) $ 20,168 (2)
======== ======== ======== ======== ======== ======== ======== ========
Earnings per share (3):
Basic .................... $ 0.12 $ 0.13 $ 0.12 $ (0.01) $ 0.13 $ 0.14 $ 0.13 $ 0.12
======== ======== ======== ======== ======== ======== ======== ========
Diluted................... $ 0.12 $ 0.13 $ 0.11 $ (0.01)(1) $ 0.12 $ 0.13 $ 0.12 (2) $ 0.11 (2)
======== ======== ======== ======== ======== ======== ======== ========
Common shares used in the
calculations of earnings
per share (3):
Basic .................... 158,167 158,413 158,757 159,023 159,378 159,944 173,130 174,562
======== ======== ======== ======== ======== ======== ======== ========
Diluted................... 165,332 164,888 165,094 164,418 165,986 167,436 181,328 182,586
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
7
<PAGE> 8
The following table sets forth, for the periods indicated, certain financial
information stated as a percentage of net revenue:
<TABLE>
<CAPTION>
FISCAL 1998 FISCAL 1999
----------------------------------------- -----------------------------------------
NOV. 30, FEB.28, MAY 31, AUG. 31, NOV. 30, FEB. 28, MAY 31, AUG. 31,
1997 1998 1998 1998 1998 1999 1999 1999
-------- ------- ------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue......... 87.7 87.4 87.8 89.4 89.0 89.2 89.0 88.9
----- ----- ----- ----- ----- ----- ----- -----
Gross profit.............. 12.3 12.6 12.2 10.6 11.0 10.8 11.0 11.1
Selling, general and
Administrative........ 3.6 3.9 4.4 4.3 4.2 4.0 3.9 4.3
Research and development.. 0.4 0.4 0.4 0.4 0.3 0.3 0.2 0.2
Amortization of
intangibles ............ -- -- -- -- 0.1 0.1 0.1 --
Acquisition and merger
related charges (1,2)... -- -- -- 5.4 -- -- -- 1.2 (2)
Goodwill write-off (1,2).. -- -- -- 0.9 (1) -- -- 0.6 (2) --
----- ----- ----- ----- ----- ----- ----- -----
Operating income (loss) 8.3 8.3 7.4 (0.4) (1) 6.4 6.4 6.2 (2) 5.4 (2)
Interest income........... -- -- -- -- (0.1) (0.1) (0.2) (0.3)
Interest expense.......... 0.2 0.3 0.2 0.2 0.4 0.4 0.3 0.2
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before
income Taxes............ 8.1 8.0 7.2 (0.6) 6.1 6.1 6.1 5.5
Income tax expense
(benefit)............... 2.7 2.4 2.2 (0.3) 2.1 2.1 2.3 2.1
----- ----- ----- ----- ----- ----- ----- -----
Net income ............ 5.4% 5.6% 5.0% (0.3)%(1) 4.0% 4.0% 3.8%(2) 3.4%(2)
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
- --------------------------
(1) In connection with the HP Acquisition in the fourth quarter of fiscal year
1998, we recorded an acquisition-related charge of $20.8 million ($12.9
million after-tax). We also recorded a write-off of impaired goodwill of a
GET subsidiary of $3.6 million ($3.3 million after-tax) during March 1999.
As a result of the overlapping periods created when GET Manufacturing's
fiscal year was conformed to an August 31 year end, the write-off is
included in the results of operations for both of the quarters ended August
31, 1998 and May 31, 1999. Operating income for the quarter ended August 31,
1998 excluding these charges was $22.9 million (6.0% of net revenue). Net
income excluding this charge was $15.0 million (3.9% of net revenue), and
diluted earnings per share was $0.09.
(2) In connection with the GET Merger, we recorded merger-related charges of
$7.0 million ($6.5 million after-tax) in the quarter ended August 31, 1999.
During the quarter ended May 31, 1999, we recorded the write-off of impaired
goodwill of a GET subsidiary of $3.6 million ($3.3 million after-tax). As a
result of the overlapping period created when GET Manufacturing's fiscal
year was conformed to an August 31 year end, this write-off is included in
the operating results of both quarters ended August 31, 1998 (see note 1
above) and May 31, 1999. Stockholders' equity was adjusted so that the
duplicate amount is reflected only once in retained earnings. Operating
income excluding these charges was $39.3 million (6.5% of net revenue) and
$39.2 million (6.7% of net revenue) for the quarters ended August 31, 1999
and May 31, 1999, respectively. Net income excluding this charge was $26.6
million (4.4% of net revenue) and $26.0 million (4.5% of net revenue) and
diluted earnings per share was $0.15 and $0.14 for the quarters ended August
31, 1999 and May 31, 1999, respectively.
(3) Gives effect to a two-for-one stock split in the form of a 100% stock
dividend to stockholders of record on March 23, 2000.
8
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations from the proceeds of public equity
offerings, private placement debt, borrowings on a revolving credit facility and
cash generated from operations. In March 1999, we sold 13.8 million shares of
our common stock which generated net proceeds of approximately $199 million.
At August 31, 1999 our principal source of liquidity consisted of cash
and short-term investments of $153.1 million and available borrowings under our
credit facilities.
Net cash provided by operating activities for the year ended August 31,
1999 was $110.5 million. This consisted primarily of $84.8 million of net
income, $63.4 million of depreciation and amortization, $145.8 million of
increases in accounts payable and accrued expenses, offset by $111.3 million of
increases in accounts receivable and $77.5 million increases in inventories.
Net cash used in investing activities of $192.7 million for the year
ended August 31, 1999 was primarily a result of our capital expenditures of
$168.7 million for equipment and facilities in North America and China to
support increased manufacturing activities and $27.2 million of purchases of
short-term investments.
Net cash provided by financing activities of $175.2 million for the
year ended August 31, 1999 resulted primarily from $199 million in proceeds from
our common stock offering and a $21.5 million increase in short-term borrowings,
offset in part by the repayment of borrowings on our revolving credit facility
and an installment of principal on our private placement debt. See Notes 4 and 6
of Notes to Consolidated Financial Statements.
Over the past several years, we have experienced significant growth. As
a result, we have used cash to finance increases in our inventory and accounts
receivable. In the event that we experience similar growth in the future, we may
need to finance such growth and any corresponding working capital needs with
additional borrowings under our revolving credit facility, as well as additional
public and private offerings of our debt and equity.
We believe that during fiscal year 2000, our capital expenditures will
exceed $200 million, principally for machinery, equipment, facilities and
related expenses. We believe that our level of resources, which include cash on
hand, available borrowings, and funds provided by operations, will be more than
adequate to fund these capital expenditure and working capital requirements for
fiscal year 2000.
FACTORS AFFECTING FUTURE RESULTS
OUR OPERATING RESULTS MAY FLUCTUATE
Our annual and quarterly operating results are affected by a number of
factors, including:
o the level and timing of customer orders
o the composition of the costs of sales between materials and
labor and manufacturing overhead
o price competition
o our level of experience in manufacturing a particular product
o the degree of automation used in our assembly process
o the efficiencies achieved by us in managing inventories and
fixed assets
9
<PAGE> 10
o fluctuations in materials costs and availability of materials
o 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' inventory management, new
product introductions and manufacturing strategy changes, and 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 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--Quarterly Results."
WE DEPEND ON A LIMITED NUMBER OF CUSTOMERS
For the fiscal year ended August 31, 1999, our three largest customers
accounted for approximately 47.8% of our net revenue and fewer than 20 customers
accounted for more than 95% of our net revenue. For the fiscal year ended August
31, 1999, Hewlett-Packard Company and Cisco Systems, Inc. accounted for
approximately 22% and 18% of our net revenue, respectively. We are dependent
upon the continued growth, viability and financial stability of our customers
whose industries have experienced rapid technological change, short product life
cycles, consolidation, and pricing and margin pressures. We expect to continue
to depend upon a relatively small number of customers for a significant
percentage of our net revenue. 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. 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 accounts 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, financial
condition and cash flows would be adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
THE VOLUME AND TIMING OF CUSTOMER SALES MAY VARY
The volume and timing of sales to our customers may vary due to:
o variation in demand for our customers' products
o our customers' attempts to manage their inventory
o electronic design changes
o changes in our customers' manufacturing strategy
o 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.
10
<PAGE> 11
WE ARE IN A HIGHLY COMPETITIVE INDUSTRY
The electronic manufacturing services business is highly competitive.
We compete against numerous domestic and foreign manufacturers, including SCI
Systems, Inc., Solectron Corporation, Celestica, Inc. and Flextronics
International. In addition, we may in the future encounter competition from
other large electronic manufacturers that are selling, or may begin to sell,
electronic manufacturing services. Most of our competitors have international
operations and some have substantially greater manufacturing, financial,
research and development, and marketing resources than us. We also face
potential competition from the manufacturing operations of our current and
potential customers, who are continually evaluating the merits of manufacturing
products internally versus the advantages of outsourcing.
OUR RAPID GROWTH MAY BE DIFFICULT TO MANAGE
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 "Selected Consolidated
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
WE MAY EXPERIENCE RISKS RELATING TO OUR COMPUTER INTEGRATION
We are in the process of installing a new Enterprise Resource Planning
system that will replace the current Manufacturing Resource Planning system and
financial information systems. Any delay in the implementation of these new
information systems could result in material adverse consequences, including
disruption of operations, loss of information and unanticipated increases in
cost.
WE MAY ENCOUNTER DIFFICULTIES WITH 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:
o Financial risks, such as (1) potential liabilities of the
acquired businesses; (2) the dilutive effect of the issuance
of additional equity securities; (3) the incurrence of
additional debt; (4) the financial impact of amortizing
goodwill and other intangible assets involved in any
acquisitions that are accounted for using the purchase method
of accounting; and (5) possible adverse tax and accounting
effects.
0 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; and (5) unforeseen difficulties in the acquired
operations.
THE AVAILABILITY OF THE MANUFACTURING COMPONENTS WE NEED MAY BE LIMITED
Substantially all of our net revenue is derived from turnkey
manufacturing 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 typically bear the risk of component price increases that
occur between any such repricings or, if such repricing 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
11
<PAGE> 12
produced significant levels of short-term interruption of our operations, and
may 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".
OUR INTERNATIONAL OPERATIONS MAY BE SUBJECT TO CERTAIN RISKS
We derived 40% of our revenues from international operations in fiscal
year 1999. We currently operate outside the United States in Contagem, Brazil;
Dan Shui, Panyu, and Shenzhen, China; Bergamo, Italy; Penang, Malaysia;
Guadalajara and Tijuana, Mexico; and Livingston, Scotland. We anticipate
completing construction of a facility in Tiszaujuaros, Hungary in 2000, and
continually consider additional opportunities to make foreign acquisitions and
construct foreign facilities. Our international operations may be subject to a
number of risks, including:
o difficulties in staffing and managing foreign operations
o political and economic instability
o unexpected changes in regulatory requirements and laws
o longer customer payment cycles and difficulty collecting
accounts receivable export duties, import controls and trade
barriers (including quotas)
o governmental restrictions on the transfer of funds to us from
our operations outside the United States
o burdens of complying with a wide variety of foreign laws and
labor practices
o fluctuations in currency exchange rates, which could affect
local payroll, utility and other expenses
o inability to utilize net-operating losses incurred by our
foreign operations to reduce our U.S. income taxes
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 Result of Operations--Liquidity and Capital
Resources."
WE DEPEND ON KEY PERSONNEL
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. We do not have employment agreements
or noncompetition agreements with our key employees.
WE MUST MAINTAIN OUR TECHNOLOGICAL AND MANUFACTURING PROCESS EXPERTISE
The market for our manufacturing services is characterized by rapidly
changing technology and continuing process development. We are continually
evaluating the advantages and feasibility of new manufacturing processes. We
believe that our future success will depend upon our ability to develop and
provide manufacturing services which meet our customers' changing needs,
maintain technological leadership, and successfully anticipate or respond to
technological changes in manufacturing processes on a cost-effective and timely
basis. We cannot assure you that our process development efforts will be
successful.
WE ARE SUBJECT TO A VARIETY OF ENVIRONMENTAL LAW COMPLIANCE RESPONSIBILITIES
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.
12
<PAGE> 13
CERTAIN EXISTING STOCKHOLDERS HAVE SIGNIFICANT CONTROL
Our executive officers, directors and principal stockholders and their
affiliates collectively beneficially own 28.9% of our outstanding common stock,
of which William D. Morean beneficially owns 23.9%. As a result, our executive
officers, directors, principal stockholders and their affiliates 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.
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 contract
manufacturing, communications, computer peripherals, personal computer,
automotive or consumer products 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 which may, in effect,
discourage, delay or prevent a change of control of Jabil or unsolicited
acquisition proposals from taking place.
WE ARE SENSITIVE TO CHANGES IN INTEREST RATES
We pay interest on outstanding borrowings under our $225.0 million
revolving credit facility at interest rates that fluctuate based upon changes in
various base interest rates. As of August 31, 1999, we did not have outstanding
borrowings under our revolving credit facility. An adverse change in the base
rates upon which our interest rate is determined could have a material adverse
effect on our financial position, results of operations and cash flows.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations: Factors Affecting Future Results - The Availability of
the Manufacturing Components We Need May be Limited," "-Our International
Operations May be Subject to Certain Risks", and "-We Are Sensitive to Changes
in Interest Rates."
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Certain information required by this item is included above under the
heading "Quarterly Results" and is incorporated into this item by reference. All
other information required by this item is included in the Consolidated
Financial Statements and the notes thereto and is incorporated into this item by
reference.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable.
13
<PAGE> 14
Independent Auditors' Report
The Board of Directors
Jabil Circuit, Inc.:
We have audited the accompanying consolidated balance sheets of Jabil Circuit,
Inc. and subsidiaries as of August 31, 1999 and 1998, and the related
consolidated statements of earnings, stockholders' equity, comprehensive income
and cash flows for each of the years in the three-year period ended August 31,
1999. In connection with our audits of the consolidated financial statements,
we also have audited the accompanying financial statement schedule. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits. We did not audit the consolidated balance sheets
of GET Manufacturing, Inc. as of March 31, 1999 and August 31, 1999, and the
related consolidated statements of income, shareholders' equity, and cash flows
for the years ended March 31, 1998, March 31, 1999, and August 31, 1999, which
statements reflect total assets constituting 16.3% and 11.1% as of March 31,
1999 and August 31, 1999, and total revenues constituting 17.0%, 13.9% and
10.6%, for the years ended March 31, 1998, March 31, 1999, and August 31, 1999,
respectively, of the related consolidated totals. Those statements were audited
by other auditors whose reports have been furnished to us, and our opinion,
insofar as it relates to the amounts included for GET Manufacturing, Inc., is
based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Jabil Circuit, Inc. and
subsidiaries as of August 31, 1998 and 1999, and the results of their operations
and their cash flows for each of the years in the three-year period ended August
31, 1999, in conformity with generally accepted accounting principles. Also in
our opinion, based on our audits and the reports of other auditors, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
/s/ KPMG LLP
- ------------------------
St. Petersburg, Florida
September 15, 1999, except as to Note 9(c) which is as of September 22, 1999 and
Note 1(n) which is as of March 23, 2000
14
<PAGE> 15
Independent Auditors' Report
To the Shareholders and Board of Directors of GET Manufacturing,Inc.
We have audited the consolidated balance sheet of GET Manufacturing, Inc. and
subsidiaries as of August 31, 1999 (not presented separately herein), and the
related consolidated statements of income, shareholders' equity and cash flows
for the twelve months ended August 31, 1999 (not presented separately herein).
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of GET
Manufacturing, Inc. and subsidiaries at August 31, 1999, and the consolidated
results of their operations and their cash flows for the twelve months ended
August 31, 1999 in conformity with accounting principles generally accepted in
the United States of America.
/s/ Ernst and Young
- -------------------
Hong Kong
November 3, 1999
15
<PAGE> 16
Independent Auditors' Report
To the Shareholders and Board of Directors
of GET Manufacturing, Inc.
We have audited the consolidated balance sheets of GET Manufacturing, Inc. and
subsidiaries as of March 31, 1999 and 1998 (not presented separately herein),
and the related consolidated statements of income, shareholders' equity, and
cash flows for each of the three years in the period ended March 31, 1999 (not
presented separately herein). These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of GET
Manufacturing, Inc. and subsidiaries at March 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended March 31, 1999 in conformity with accounting
principles generally accepted in the United States of America.
/s/ Ernst and Young
- -------------------
Hong Kong
August 6, 1999
16
<PAGE> 17
JABIL CIRCUIT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
AUGUST 31,
-------------------------------
1998 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .............................................. $ 33,023 $ 125,949
Short term investments (note 1) ........................................ -- 27,176
Accounts receivable, less allowance for doubtful accounts of $3,948
in 1998 and $4,639 in 1999 (note 7) ................................ 160,480 261,078
Inventories (note 2 ) .................................................. 140,891 217,840
Prepaid expenses and other current assets .............................. 3,522 15,174
Deferred income taxes (note 5) ......................................... 13,531 13,896
----------- -----------
Total current assets ................................................ 351,447 661,113
Property, plant and equipment, net (note 3) .............................. 259,019 353,522
Other assets ............................................................. 14,707 20,786
----------- -----------
$ 625,173 $ 1,035,421
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (note 4) ........................ $ 9,611 $ 10,989
Short-term debt (note 4) .............................................. 18,691 21,501
Accounts payable ....................................................... 157,509 300,093
Accrued compensation and employee benefits ............................. 24,310 28,866
Other accrued expenses ................................................. 33,082 30,320
Income taxes payable ................................................... 5,850 20,511
----------- -----------
Total current liabilities ........................................... 249,053 412,280
Note payable and long-term debt, less current installments (note 4) ...... 83,582 33,333
Deferred income taxes (note 5) ........................................... 5,193 10,199
Deferred grant revenue ................................................... 2,227 1,798
----------- -----------
Total liabilities ................................................... 340,055 457,610
----------- -----------
Stockholders' equity (notes 1 and 6):
Preferred stock, $.001 par value, authorized 1,000,000 shares; no shares
issued and outstanding .............................................. -- --
Common stock, $.001 par value, authorized 240,000,000 shares;
issued and outstanding, 159,165,140 shares in 1998, and
174,703,179 in 1999 ................................................ 159 175
Additional paid-in capital ............................................. 89,946 296,688
Retained earnings ...................................................... 195,231 281,166
Accumulated other comprehensive income ................................. (218) (218)
----------- -----------
Total stockholders' equity .......................................... 285,118 577,811
----------- -----------
Commitments and contingencies (note 9) ...................................
----------- -----------
$ 625,173 $ 1,035,421
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE> 18
JABIL CIRCUIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
---------------------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Net revenue (note 7) ........................................ $ 1,178,644 $ 1,484,245 $ 2,238,391
Cost of revenue ............................................. 1,040,214 1,307,692 1,992,803
----------- ----------- -----------
Gross profit ................................................ 138,430 176,553 245,588
Operating expenses:
Selling, general and administrative ......................... 45,086 60,116 92,015
Research and development .................................... 4,593 5,355 5,863
Amortization of intangibles ................................. -- -- 1,225
Acquisition and merger-related charge (note 10) ............. -- 20,825 7,030
Goodwill write-off (note 1(p)) .............................. -- 3,578 3,578
----------- ----------- -----------
Operating income ............................................ 88,751 86,679 135,877
Income from joint ventures .................................. (1,287) -- --
Interest income ............................................. (3,697) (238) (4,536)
Interest expense ............................................ 5,811 3,876 7,110
----------- ----------- -----------
Income before income taxes .................................. 87,924 83,041 133,303
Income taxes (note 5) ....................................... 28,611 25,572 48,484
----------- ----------- -----------
Net income .................................................. $ 59,313 $ 57,469 $ 84,819
=========== =========== ===========
Earnings per share:
Basic ..................................................... $ 0.38 $ 0.36 $ 0.51
=========== =========== ===========
Diluted ................................................... $ 0.36 $ 0.35 $ 0.49
=========== =========== ===========
Common shares used in the calculations of earnings per share:
Basic ..................................................... 155,181 158,589 166,754
=========== =========== ===========
Diluted ................................................... 163,890 164,934 174,334
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE> 19
JABIL CIRCUIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK UNEARNED ACCUMULATED
---------------------- ADDITIONAL COMPENSATION OTHER NET
SHARES PAR PAID-IN RETAINED FROM GRANT OF COMPREHENSIVE STOCKHOLDERS'
OUTSTANDING VALUE CAPITAL EARNINGS STOCK OPTION INCOME EQUITY
----------- ----- ---------- -------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at August 31, 1996 .. 152,368,780 $152 $ 74,815 $ 78,449 $(27) $ (521) $ 152,868
Exercise of stock options ... 5,060,040 5 2,382 -- -- -- 2,387
Amortization of unearned
Compensation .............. -- -- -- -- 27 -- 27
Shares issued under Employee
Stock Purchase Plan ....... 554,544 1 1,236 -- -- -- 1,237
Foreign currency translation
adjustments ............... -- -- -- -- -- (18) (18)
Tax benefit of options
exercised ................. -- -- 1,103 -- -- -- 1,103
Net income .................. -- -- -- 59,313 -- -- 59,313
----------- ---- -------- -------- ---- ------------ ------------
Balance at August 31, 1997 .. 157,983,364 $158 $ 79,536 $137,762 $ -- $ (539) $ 216,917
Exercise of stock options ... 878,004 1 976 -- -- -- 977
Shares issued under Employee
Stock Purchase Plan ....... 303,772 -- 2,320 -- -- -- 2,320
Foreign currency translation
adjustments ............... -- -- -- -- -- 321 321
Tax benefit of options
exercised ................. -- -- 7,114 -- -- -- 7,114
Net income .................. -- -- -- 57,469 -- -- 57,469
----------- ---- -------- -------- ---- ------------ ------------
Balance at August 31, 1998 .. 159,165,140 $159 $ 89,946 $195,231 $ -- $ (218) $ 285,118
Exercise of stock options ... 1,263,531 1 2,882 -- -- -- 2,883
Shares issued under Employee
Stock Purchase Plan ....... 474,508 1 4,610 -- -- -- 4,611
Tax benefit of options
exercised ................. -- -- 657 -- -- -- 657
Secondary Public Offering,
net of expenses ........... 13,800,000 14 198,593 -- -- -- 198,607
Elimination of duplicate
equity resulting from
non-conforming fiscal years
(note 1) .................. -- -- -- 1,116 -- -- 1,116
Net income .................. -- -- -- 84,819 -- -- 84,819
----------- ---- -------- -------- ---- ------------ ------------
Balance at August 31, 1999 .. 174,703,179 $175 $296,688 $281,166 $ -- $ (218) $ 577,811
=========== ==== ======== ======== ==== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE> 20
JABIL CIRCUIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
Years Ended August 31,
-------------------------------------
1997 1998 1999
-------- ------- -------
<S> <C> <C> <C>
Net income .............................................. $ 59,313 $57,469 $84,819
Other comprehensive income (loss):
Foreign currency translation adjustments .............. (18) 321 --
-------- ------- -------
Comprehensive income .................................... $ 59,295 $57,790 $84,819
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE> 21
JABIL CIRCUIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
-------------------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ................................................... $ 59,313 $ 57,469 $ 84,819
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ............................. 30,714 42,333 63,417
Profit from joint ventures ................................ (1,287) -- --
Goodwill write-off ........................................ -- 3,578 3,578
Recognition of grant revenue .............................. (1,705) (827) (825)
Deferred income taxes ..................................... (1,884) (5,269) 4,641
Loss (gain) on sale of property ........................... (189) 121 2,749
Acquisition related in-process research and
development charge...................................... -- 6,500 --
Elimination of duplicate equity resulting from nonconforming
fiscal years ........................................... -- -- 1,116
Change in operating assets and liabilities, exclusive of net
assets acquired:
Accounts receivable .................................... (29,886) (24,578) (111,324)
Inventories ............................................ (34,454) 8,956 (77,490)
Prepaid expenses and other current assets .............. 183 2,109 (12,606)
Other assets ........................................... 1,495 (2,676) (8,050)
Accounts payable and accrued expenses .................. 59,053 14,805 145,779
Income taxes payable ................................... 1,589 (1,202) 14,661
--------- --------- ---------
Net cash provided by operating activities ................ 82,942 101,319 110,465
--------- --------- ---------
Cash flows from investing activities:
Net cash paid for net assets acquired ........................ (6,664) (64,990) --
Proceeds from disposal of joint ventures ..................... 2,317 -- --
Purchases of short-term investments .......................... -- -- (27,176)
Acquisition of property, plant and equipment ................. (97,447) (111,269) (168,674)
Proceeds from sale of property and equipment ................. 414 2,767 3,135
Other investing activities ................................... -- (1,706) --
--------- --------- ---------
Net cash used in investing activities ..................... (101,380) (175,198) (192,715)
--------- --------- ---------
Cash flows from financing activities:
Increase in (repayment of) note payable to bank .............. (1,763) 18,691 21,501
Proceeds from (payments of) long-term debt and capital lease
obligations ............................................... (9,249) 30,387 (53,473)
Net proceeds from issuance of common stock ................... 3,624 3,301 206,753
Proceeds from grants ......................................... 938 949 395
--------- --------- ---------
Net cash provided by (used in) financing activities ...... (6,450) 53,328 175,176
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents ........... (24,888) (20,551) 92,926
Cash and cash equivalents at beginning of period ............... 78,462 53,574 33,023
--------- --------- ---------
Cash and cash equivalents at end of period ..................... $ 53,574 $ 33,023 $ 125,949
========= ========= =========
Supplemental disclosure information:
Interest paid ................................................ $ 5,624 $ 5,909 $ 6,572
========= ========= =========
Income taxes paid, net of refunds received ................... $ 29,388 $ 31,422 $ 29,930
========= ========= =========
Tax benefit of options exercised ............................. $ 1,103 $ 7,114 $ 657
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 22
JABIL CIRCUIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Jabil Circuit, Inc. (together with its subsidiaries, herein referred
to as the "Company") is an independent supplier of custom manufacturing
services for circuit board assemblies, subsystems and systems to major original
equipment manufacturers ("OEMs") in the communications, personal computer,
peripherals, consumer and automotive industries. The Company's manufacturing
services combine a high volume, highly automated manufacturing approach with
advanced design and manufacturing technologies. The Company is headquartered in
St. Petersburg, Florida and has manufacturing operations in North America,
Europe and Asia.
On September 13, 1999 the Company issued approximately 10.2 million
shares of its common stock for all the outstanding common stock of GET
Manufacturing, Inc. ("GET"), a China-based electronics manufacturing services
provider to original equipment manufacturers serving the consumer electronics,
telecommunications, medical and computer peripheral industries. The transaction
was accounted for as a pooling of interests and, accordingly, the Company's
historical consolidated financial statements for all periods presented have been
restated to reflect the merger with GET. Because Jabil and GET had differing
fiscal periods prior to the merger, GET's financial statements for the fiscal
year ended March 31, 1999 and March 31, 1998 were combined with Jabil's
financial statements for the years ended August 31, 1998 and August 31, 1997,
respectively. GET's 1999 financial statements were conformed to the twelve
months ending August 31 for purposes of consolidating with Jabil's financial
statements for its year ended August 31, 1999. As a result of the overlapping
period created when GET's fiscal year was conformed to an August 31 fiscal year,
$1,116 of net loss (for the period September 1998 through March 1999) was
included in consolidated net income for both fiscal years ended August 31, 1998
and 1999. Stockholders' equity was adjusted so that the duplicate amount is
eliminated from retained earnings. There were no material transactions between
Jabil and GET prior to the merger. The effects of conforming GET's accounting
policies to those of Jabil were not material.
The results of operations previously reported by the separate enterprises and
the combined amounts presented in the accompanying consolidated financial
statements are summarized below:
Years Ended August 31,
1997 1998 1999
---------- ---------- -----------
Net Sales
Jabil...................... $ 978,102 $1,277,374 $ 2,000,346
GET*....................... 200,542 206,871 238,045
---------- ---------- -----------
1,178,644 1,484,245 2,238,391
========== ========== ===========
Net Income
Jabil...................... 52,497 56,933 91,474
GET*....................... 6,816 536 (6,655)
---------- ---------- -----------
59,313 57,469 84,819
========== ========== ===========
* Results for the year ended August 31, 1998 and 1997 include results for
the years ended March 31, 1999 and 1998, respectively.
During 1999, the Company recorded costs of approximately $7.0 million
related to the merger. These costs consisted of financial advisory fees,
professional and legal fees and other merger related costs and are reflected in
the results of operations of fiscal 1999.
22
<PAGE> 23
Significant accounting policies followed by the Company are as
follows:
a. CONSOLIDATION
The consolidated financial statements include the accounts and
operations of Jabil Circuit, Inc. and its subsidiaries, all of which are
wholly-owned. All significant intercompany balances and transactions have been
eliminated in preparing the consolidated financial statements.
b. REVENUE RECOGNITION
The Company typically recognizes revenue at the time of product
shipment. Such revenue is recorded net of estimated product return and warranty
costs. At August 31, 1998 and 1999, such estimated amounts for returns and
warranties are not considered material.
In connection with the August 3, 1998 acquisition of the net assets of
Hewlett-Packard Company ("HP") laser printer operations, the Company entered
into an agreement with HP to produce laser printer component products. During
the first year of the agreement, the Company received compensation for
committed capacity, as well as compensation for the raw material content of
actual units produced. The committed capacity compensation was recorded on a
units produced basis. The agreement for compensation for committed capacity
expired in August 1999 and has been replaced with a unit pricing agreement
similar to the Company's other contracts.
c. ACCOUNTING ESTIMATES
Management is required to make estimates and assumptions during the
preparation of the consolidated financial statements in conformity with
generally accepted accounting principles. These estimates and assumptions
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the dates of the consolidated financial
statements. They also affect the reported amounts of net income. Actual results
could differ materially from these estimates and assumptions.
d. INVENTORIES
Inventories are stated at the lower of cost (first in, first out
(FIFO) method) or market.
e. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost and depreciated and
amortized on the straight-line method over the estimated useful lives of the
respective assets. Estimated useful lives are stated below. Maintenance and
repairs are charged to expense as incurred.
Buildings and Improvements 20 - 50 years
Machinery and Equipment 3 - 5 years
f. CASH, CASH EQUIVALENTS AND OTHER FINANCIAL INSTRUMENTS
The Company considers all highly liquid instruments with original
maturities of 90 days or less to be cash equivalents for consolidated financial
statement purposes. Cash equivalents consist of investments in money market
funds and commercial paper with original maturities of 90 days or less. At
August 31, 1998 and 1999 cash equivalents totaled approximately $0 and $67.2
million, respectively. Short term investments include corporate and
governmental debt securities which are classified as available-for-sale and are
reported at fair market value in accordance with Statement of Financial
Accounting Standards 115, Accounting for Certain Investments in Debt and Equity
Securities. As of August 31, 1999, the fair value of the Company's investments
in corporate and governmental debt securities approximated amortized cost and
as a result, unrealized holding gains and losses were insignificant. The fair
value of the Company's cash, cash equivalants, accounts recievable and accounts
payable approximates the carrying amount due to the relatively short maturity
of these items.
23
<PAGE> 24
g. GRANT REVENUE
The Company has been awarded grants related to the development of its
Scottish operations. Grant funds are earned as certain milestones are met, and
are being amortized over two to five-year periods.
h. INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in the tax rate is recognized in income in
the period that includes the enactment date of the rate change.
i. PROFIT SHARING AND 401(K) PLAN
The Company contributes to a profit sharing plan for all employees who
have completed a 12-month period of service in which the employee has worked at
least 1,000 hours. In addition, the Company provides retirement benefits to its
domestic employees through a 401(k) plan that provides a Company matching
contribution. The Company also has defined contribution benefit plans for
certain of its international employees primarily dictated by the custom of the
region in which it operates. Company contributions are at the discretion of the
Company's Board of Directors. The Company contributed approximately $4.5
million, $6.3 million, and $11.2 million for the years ended August 31, 1997,
1998, and 1999, respectively.
j. FOREIGN CURRENCY TRANSACTIONS
Gains or losses on foreign currency transactions are included in the
determination of net income as the Company considers the United States dollar to
be the functional currency of its foreign operations with the exception of GET.
The functional currency of the Company's operations located in China is the Hong
Kong dollar. In accordance with SFAS No. 52, "Foreign Currency Translation", the
assets and liabilities for those operations are translated into U.S. dollars at
exchange rates in effect at the balance sheet date, and revenues and expenses
are translated at the weighted average exchange rate for the period. Resulting
translation adjustments are reported as a separate component of Stockholders'
Equity.
The Company enters into foreign currency contracts in order to
mitigate the impact of certain foreign currency fluctuations. Gains and losses
related to the hedges of firm committments are deferred and included in the
basis of the transaction when it occurs.
k. NET INCOME PER SHARE
The Company adopted Statement of Financial Accounting Standards No.
128, Earnings per Share (Statement 128), in the fiscal year ended August 31,
1998. Under Statement 128, the Company presents two earnings per share (EPS)
amounts. Basic EPS is calculated based on net earnings available to common
shareholders and the weighted-average number of shares outstanding during the
reported period. Diluted EPS includes additional dilution from potential common
stock, such as stock issuable pursuant to the exercise of stock options
outstanding. Previously reported earnings per share amounts have been restated
to conform to the Statement 128 requirements.
24
<PAGE> 25
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------
August 31, August 31, August 31,
1997 1998 1999
---------- ---------- ----------
(In thousands except per share data)
<S> <C> <C> <C>
Numerator:
Net income ......................................... $ 59,313 $ 57,469 $ 84,819
======== ======== ========
Denominator:
Weighted average shares outstanding - Basic ........ 155,181 158,589 166,754
Employee stock options and other ................... 8,709 6,345 7,580
-------- -------- --------
Weighted average shares outstanding - Diluted..... 163,890 164,934 174,334
======== ======== ========
Earnings per common share:
Basic .......................................... $ 0.38 $ 0.36 $ 0.51
======== ======== ========
Diluted ........................................ $ 0.36 $ 0.35 $ 0.49
======== ======== ========
</TABLE>
For the years ended August 31, 1997, 1998 and 1999, options to
purchase 424,000, 160,000, and 6,218 shares of common stock were outstanding
during the period but were not included in the computation of diluted earnings
per share because the options' exercise prices were greater than the average
market price of the common shares, and therefore, the effect would be
anti-dilutive.
l. COMPREHENSIVE INCOME
Effective September 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income, which
requires the Company to report and display certain information related to
comprehensive income. Comprehensive income includes net income and other
comprehensive income. The Statement defines comprehensive income as the changes
in equity of an enterprise except those resulting from shareholder
transactions. The Company's comprehensive income includes net income and
foreign currency translation adjustments as shown in the accompanying
Consolidated Statements of Comprehensive Income.
m. STOCK BASED COMPENSATION
Prior to September 1, 1996, the Company accounted for its stock option
plan in accordance with the provisions of Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense would be recorded on the date of
granting of stock options only if the current market price of the underlying
stock exceeded the exercise price. Effective September 1, 1996, the Company
adopted Statement of Financial Accounting Standards No. 123, Accounting for
Stock Based Compensation (Statement 123), which permits entities to recognize
as expense over the vesting period the fair value of all stock based awards on
the date of the grant. Alternatively, Statement 123 allows entities to continue
to apply the provisions of APB Opinion No. 25 and provide pro forma net income
and pro forma net income per share disclosures for employee stock options
granted in fiscal 1996 and subsequent years as if the fair value based method
defined in Statement 123 had been applied. The Company has elected to continue
to apply the provisions of APB Opinion No. 25 and provide the pro forma
disclosure required by Statement 123.
m. STOCK SPLITS
On June 17, 1997, January 29, 1999 and March 23, 2000, the Company's
Board of Directors approved two-for-one stock splits of the Company's common
stock. Share and per share information in the accompanying consolidated
financial statements and notes has been adjusted to reflect the impact of the
common stock splits for all periods presented.
25
<PAGE> 26
o. INTANGIBLE ASSETS
Intangible assets are comprised of goodwill and other intellectual
property. Intangible assets, aggregating approximately $10.0 million, net of
$1.2 million of amortization, as of August 31, 1999, are classified as a
component of other assets in the accompanying consolidated balance sheets. Such
amounts are amortized over a ten-year period.
p. IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews property 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 and equipment is measured by
comparison of its carrying amount, including the unamortized portion of goodwill
allocated to the property and equipment, to future net cash flows the property
and equipment are expected to generate. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the property and equipment, including the allocated goodwill,
if any, exceeds its fair market value. The Company assesses the recoverability
of enterprise level goodwill by determining whether the unamortized goodwill
balance can be recovered through undiscounted future cash flows of the acquired
operation. The amount of enterprise level goodwill impairment, if any, is
measured based on projected discounted future cash flows using a discount rate
reflecting the Company's average cost of funds. During 1999, the Company
determined that the portion of goodwill related to GET's 1997 acquisition of
Able Electronics Corporation ("Able") was impaired. As a result of the
overlapping period created when GET's fiscal year was conformed to an August 31
fiscal year, the write off of the unamortized goodwill of $3,578,000 is included
in the results of operations for both fiscal years ended August 31, 1998 and
1999. Stockholders' equity was adjusted to eliminate the duplicate effect on
retained earnings (see Note 1).
2. INVENTORIES
Inventories consist of the following (in thousands):
AUGUST 31,
1998 1999
-------- --------
Raw materials................................. $112,137 $159,203
Work in process............................... 20,089 29,622
Finished goods................................ 8,665 29,015
-------- --------
$140,891 $217,840
======== ========
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in
thousands):
AUGUST 31,
1998 1999
-------- --------
Land and improvements ........................ $ 13,679 $ 19,459
Buildings .................................... 74,867 91,032
Leasehold improvements ....................... 11,276 11,300
Machinery and equipment ...................... 224,810 311,396
Furniture, fixtures and office equipment ..... 13,620 17,246
Computer equipment ........................... 26,160 58,625
Transportation equipment ..................... 5,328 4,823
Construction in progress ..................... 23,832 19,126
-------- --------
Less accumulated depreciation and amortization 134,553 179,485
-------- --------
$259,019 $353,522
======== ========
26
<PAGE> 27
During the year ended August 31, 1999, the Company completed an
expansion of its manufacturing facility in Guadalajara, Mexico. During the
years ended August 31, 1997, 1998 and 1999, the Company capitalized
approximately $120,000, $83,000 and $0, respectively, in interest related to
the constructed facilities.
Maintenance and repairs expense was approximately $6.2 million, $10.1
million, and $10.6 million for the years ended August 31, 1997, 1998, and 1999,
respectively.
4. DEBT
Short-term and Long-term debt consists of the following (in
thousands):
AUGUST 31,
1998 1999
-------- -------
Short-term debt (a) .......................... $ 18,691 $21,501
Term loans (b) ............................... 50,000 41,666
Borrowings under revolving credit facility (c) 40,000 --
Bank loans (d) ............................... 3,193 2,656
-------- -------
Total notes payable and long-term debt ....... 111,884 65,823
Less current installments of long-term debt .. 9,611 10,989
Less short-term debt ......................... 18,691 21,501
-------- -------
Notes payable and long-term debt, less current
installments and short-term debt ......... $ 83,582 $33,333
======== =======
(a) At August 31, 1998 and August 31, 1999, the Company had banking facilities
of approximately $29 million available for trade finance, letters of
credit, bank overdrafts, trust receipts and short-term bank loans. The
weighted average interest rates on the various short-term debts as of
August 31, 1998 and 1999 were 6.95% and 7.46%, respectively. These debts
are collateralized by corporate guarantees from the Company and certain
subsidiaries of the Company.
(b) In May 1996, the Company completed a private placement of $50,000,000
Senior Notes due 2004. The Notes have a fixed interest rate of 6.89%, with
interest payable on a semi-annual basis. Principal is payable in six equal
annual installments which began May 30, 1999.
(c) In August 1998, the Company renegotiated its unsecured line of credit
facility and established a $225 million unsecured revolving credit
facility with a syndicate of banks ("Revolver"). Under the terms of the
Revolver, borrowings can be made under either floating rate loans or
Eurodollar rate loans. The Company pays interest on outstanding floating
rate loans at the banks' prime rate. The Company pays interest on
outstanding Eurodollar loans at the London Interbank Offered Rate (LIBOR)
in effect at the loan inception plus a factor of .625% to 1.00% depending
on the Company's funded debt to total capitalization ratios. The Company
pays a commitment fee on the unused portion of the Revolver at .20% to
.25% depending on the Company's funded debt to total capitalization
ratios. The renegotiated Revolver expires on August 3, 2001 and
outstanding borrowings are then due and payable. As of August 31, 1999,
there were no borrowings outstanding under the Revolver and $225 million
of the facility was available. As of August 31, 1998, there were $40
million in borrowings outstanding under the Revolver and $185 million of
the facility was available.
(d) As of August 31, 1998 and 1999, a subsidiary of the Company had $3,193,000
and $2,656,000, respectively, outstanding under long-term loan agreements
with a bank, which bear interest at a variable rate from 1 to 3 months at
the Hong Kong Interbank Offering Rate (5.63% and 6.44% at August 31, 1998
and 1999, respectively) plus 1.25% to 1.5%. The weighted average interest
rate on the long-term bank loans as of August 31, 1998 was 6.28% and 7.0%
as of August 31, 1999. The loans are collateralized by the Company's
building in Hong Kong and guarantees from the Company and certain of its
other subsidiaries.
The agreements related to the obligations described above contain a number of
restrictive financial and/or other covenants. In all cases, the Company was in
compliance with the respective covenants as of August 31, 1999.
27
<PAGE> 28
At August 31, 1999, maturities of all notes payable and long-term debt are as
follows (dollars in thousands):
Fiscal Years Ending August 31:
2000............................................................. $ 10,989
2001............................................................. 8,334
2002............................................................. 8,333
2003............................................................. 8,333
2004............................................................. 8,333
--------
$ 44,322
========
The estimated fair value of the Company's notes payable and long-term
debt approximate carrying value due to the nature of variable rate debt and the
current prevailing market rates of interest.
5. INCOME TAXES
Income tax expense amounted to $28.6 million, $25.6 million and $48.5
million for the years ended August 31, 1997, 1998 and 1999, respectively (an
effective rate of 32.5%, 30.8% and 36.4%, respectively). The actual expense
differs from the "expected" tax expense (computed by applying the U.S. federal
corporate tax rate of 35% to earnings before income taxes) as follows (in
thousands):
YEARS ENDED AUGUST 31,
1997 1998 1999
-------- -------- --------
Computed "expected" tax expense ..... $ 30,773 $ 29,064 $ 46,656
State taxes, net of Federal benefit.. 1,352 895 3,512
Income of Malaysian subsidiary ...... (2,706) (5,957) (4,683)
Other, net .......................... (808) 1,570 2,999
-------- -------- --------
$ 28,611 $ 25,572 $ 48,484
======== ======== ========
The Company's Malaysian subsidiary has been granted "pioneer" tax
status for the five-year period commencing November 1, 1995. This status allows
tax-free treatment by the Malaysian government for the subsidiary's income
through October 30, 2000. Malaysia's statutory income tax rate is 30%. The
Malaysian subsidiary generated income during the years ended August 31, 1997,
1998 and 1999, resulting in a tax holiday of approximately $2.7 million ($0.02
per share), $5.9 million ($0.04 per share) and $4.7 million ($0.03 per share),
respectively.
The Company's subsidiary in mainland China is governed by the Income
Tax Law of the PRC concerning foreign investment enterprises and various local
income tax laws (the "Income Tax Laws"). Pursuant to the Income Tax Laws, the
subsidiary is exempted from income taxes for a period of two years commencing
from its first profitable year after recovery of accumulated losses and is
entitled to a 50% tax exemption for the following three years. At August 31,
1999, the subsidiary had not entered into the tax holiday period.
The Company intends to indefinitely re-invest income from all of its
foreign subsidiaries. The aggregate undistributed earnings of the Company's
foreign subsidiaries for which no deferred income taxes have been recorded was
approximately $77.9 million as of August 31, 1999. Determination of the amount
of unrecognized deferred tax liability on these undistributed earnings is not
practicable.
The components of income tax expense (benefit) are (in thousands):
CURRENT DEFERRED TOTAL
-------- -------- -------
1997:
Federal ............................ $ 24,155 $ (1,800) $22,355
State .............................. 2,236 (156) 2,080
Foreign ............................ 4,104 72 4,176
-------- -------- -------
$ 30,495 $ (1,884) $28,611
======== ======== =======
1998:
Federal ............................ $ 26,682 $ (4,001) $22,681
State .............................. 1,770 (449) 1,321
Foreign ............................ 2,389 (819) 1,570
-------- -------- -------
$ 30,841 $ (5,269) $25,572
======== ======== =======
1999:
Federal ............................ $ 30,311 $ 5,705 $36,016
State .............................. 5,397 495 5,892
Foreign ............................ 8,135 (1,559) 6,576
-------- -------- -------
$ 43,843 $ 4,641 $48,484
======== ======== =======
28
<PAGE> 29
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as follows
(in thousands):
<TABLE>
<CAPTION>
AUGUST 31,
1998 1999
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward ................................................... $ 1,077 $ 1,507
Royalty expense ................................................................... 4 4
Accounts receivable, principally due to allowance for doubtful accounts ........... 1,171 1,319
Grant receivable .................................................................. 1,397 146
Inventories, principally due to reserves and additional costs
inventoried for tax purposes pursuant to the Tax Reform Act of 1986 ............. 5,365 4,608
Compensated absences, principally due to accrual for financial reporting purposes... 839 1,672
Accrued expenses, principally due to deferrals for financial reporting purposes .... 3,023 1,071
Other ............................................................................. 1,168 4,082
-------- --------
Total gross deferred tax assets ................................................ 14,044 14,409
Less valuation allowance ....................................................... (513) (513)
-------- --------
Net deferred tax assets ........................................................ $ 13,531 $ 13,896
======== ========
Deferred tax liabilities:
Intangible assets .................................................................. (3,376) 3,534
Property, plant and equipment, principally due to differences in
depreciation and amortization .................................................. 8,569 6,665
-------- --------
Deferred tax liabilities ....................................................... $ 5,193 $ 10,199
======== ========
</TABLE>
The related deferred tax assets have been recognized to the extent of
the anticipated future taxable earnings of these subsidiaries.
6. STOCKHOLDERS' EQUITY
a. PUBLIC OFFERING
On March 10, 1999, the Company completed an equity offering of
24,150,000 shares of its Common Stock (including 3,150,000 shares that were
issued to cover the underwriters' over-allotments). The Company sold 13,800,000
shares and certain Company stockholders sold 10,350,000 shares at $15 per
share. Net proceeds to the Company were approximately $199 million.
b. STOCK OPTION PLANS
As of August 31, 1999, options to purchase a total of 5,461,600 shares
were outstanding under the 1983 and 1989 stock option plans. The Board of
Directors terminated these plans in November 1992, and no additional options
may be issued thereunder. The exercise price of the outstanding options under
these plans is equal to fair market value, as determined by the Company, on the
date of grant.
The Company's 1992 Stock Option Plan (the "1992 Plan") provides for
the granting to employees of incentive stock options within the meaning of
Section 422 of the Internal Revenue Code and for the granting of non-statutory
stock options to employees and consultants of the Company. The 1992 Plan was
adopted by the Board of Directors in November 1992 and approved by the
stockholders in December 1992. A total of 16,440,000 shares of common stock
have been reserved for issuance under the 1992 Plan. As of August 31, 1999,
options to purchase 6,008,180 shares are outstanding under the 1992 Plan.
The exercise price of all incentive stock options granted under the
1992 Plan is to be at least equal to the fair market value of shares of common
stock on the date of grant. With respect to any participant who owns stock
representing more than 10% of the voting power of all classes of stock of the
Company, the exercise price of any stock option granted is to equal at
29
<PAGE> 30
least 110% of the fair market value on the grant date and the maximum term of
the option may not exceed five years. The term of all other options under the
1992 Plan may not exceed ten years.
In connection with the merger with GET, the Company has assumed all
options outstanding under the GET Stock Option Plan (the "GET Plan"). Options
under the GET Plan have been converted into the Company's options and adjusted
to effect the appropriate conversion ratio as specified by the applicable
merger agreement. The options generally vest over three to four years and
expire ten years after the date of grant. Due to the merger between the Company
and GET, the GET Plan was terminated. As a result, no further options may be
granted under the GET Plan.
The following table summarizes option activity from September 1, 1996
through August 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------
SHARES WEIGHTED
AVAILABLE AVERAGE
FOR GRANT SHARES OPTION PRICE
---------- ----------- ------------
<S> <C> <C> <C>
Balance at August 31, 1996 ........... 1,845,644 14,742,715 $ 0.51
Options granted ..... (925,073) 925,073 4.73
Options cancelled ... 18,560 (18,560) 0.65
Options exercised ... -- (5,060,040) 0.47
---------- ----------- --------
Balance at August 31, 1997 ........... 939,131 10,589,188 $ 0.90
Options authorized... 4,967,555 -- --
Options granted ..... (1,912,000) 1,912,000 4.73
Options cancelled ... 661,516 (661,516) 1.63
Options exercised ... -- (878,005) 0.77
---------- ----------- --------
Balance at August 31, 1998 ........... 4,656,202 10,961,667 $ 1.53
Options authorized... 6,000,000 -- --
Options granted ..... (3,389,200) 3,389,200 7.97
Options cancelled ... 394,470 (394,470) 2.18
Options exercised ... -- (1,263,531) 1.83
---------- ----------- --------
Balance at August 31, 1999 ........... 7,661,472 12,692,866 $ 3.20
========== =========== ========
</TABLE>
At August 31, 1999, options for 8,402,072 shares were excercisable.
The range of exercise prices, shares, weighted average contractual
life and exercise price for the options outstanding as of August 31, 1999 are
presented below:
Weighted- Weighted-
Range of Average Average
Exercise Prices Shares Contractual Life Exercise Price
--------------- ---------- ---------------- --------------
$ 0.22 5,461,600 2.00 $ 0.22
0.62 - 2.00 2,920,246 6.81 1.31
5.50 - 15.12 4,069,020 8.85 7.78
15.75 - 24.75 242,000 9.47 16.36
------------- ---------- ---- -----
$ 0.22 - 24.75 12,692,866 5.45 $ 3.20
============== ========== ==== ======
The range of exercise prices, shares and weighted average exercise
price of the options exercisable at August 31, 1999 are presented below:
30
<PAGE> 31
Weighted-
Range of Shares Average
Exercise Prices Exercisable Contractual Life
--------------- ----------- ----------------
$ 0.22 5,461,600 $ 0.22
0.62 - 2.00 1,983,832 1.09
5.50 - 15.12 929,740 7.95
15.75 - 24.75 26,900 15.83
-------------- --------- -------
$ 0.22 - 24.75 8,402,072 $ 1.33
============== ========= =======
The per-share weighted-average fair value of stock options granted
during 1997, 1998 and 1999 was $14.82, $11.23 and $12.57, respectively, on the
dates of the grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions: 1997 - expected dividend yield of 0%,
risk-free interest rate of 6.2%, expected volatility of 76%, and an expected
life of 5 years; 1998 - expected dividend yield of 0%, risk-free interest rate
of 5.6%, expected volatility of 78%, and an expected life of 5 years; 1999
Expected dividend yield of 0%, risk-free interest rate of 6.0%, expected
volatility of 96% and an expected life of 5 years.
c. STOCK PURCHASE PLAN
The Company's 1992 Employee Stock Purchase Plan (the "Purchase Plan")
was adopted by the Board of Directors in November 1992 and approved by the
stockholders in December 1992. A total of 4,820,000 shares of common stock have
been reserved for issuance under the Purchase Plan. The Purchase Plan is
intended to qualify under Section 423 of the Internal Revenue Code.
Employees are eligible to participate after one year of employment
with the Company. The Purchase Plan permits eligible employees to purchase
Common Stock through payroll deductions, which may not exceed 10% of an
employee's compensation, as defined, at a price equal to 85% of the fair market
value of the Common Stock at the beginning or end of the offering period,
whichever is lower. Unless terminated sooner, the Purchase Plan will terminate
ten years from its effective date. As of August 31, 1999, a total of 3,880,640
shares had been issued under the Purchase Plan.
The per-share weighted-average fair value of stock issued to employees
in 1997, 1998 and 1999, respectively, under the Company's 1992 Employee Stock
Purchase Plan was $3.44, $6.88, and $8.16, respectively, using the
Black-Scholes option-pricing model with the identical assumptions as those
listed for stock options granted during those years.
d. PRO FORMA RESULTS
The Company applies APB Opinion No. 25 in accounting for its stock
options and, accordingly, no compensation cost has been recognized for its
stock options in the consolidated financial statements. Additionally, no
compensation costs are reflected for the discount related to shares granted to
employees under the 1992 Employee Stock Purchase Plan. Had the Company
determined compensation cost based on Statement 123, the Company's net income
would have been as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------------------- -------------------- --------------------
Net Diluted Net Diluted Net Diluted
Income EPS Income EPS Income EPS
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
As Reported ............... $ 59,313 $ 0.36 $ 57,469 $ 0.35 $ 84,819 $ 0.49
Statement 123 Compensation
(Net of tax) .............. (816) 0.00 (2,232) (0.01) (5,635) (0.03)
Pro forma disclosure ...... $ 58,497 $ 0.36 $ 55,237 $ 0.34 $ 79,184 $ 0.46
</TABLE>
31
<PAGE> 32
As discussed in Note 1(m) the disclosure presented above represents
only the estimated fair value of stock options granted in fiscal 1996 and
subsequent years. Such disclosure is not necessarily indicative of the fair
value of stock options that could be granted by the Company in future fiscal
years or of all options currently outstanding.
7. CONCENTRATION OF RISK AND SEGMENT DATA
a. CONCENTRATION OF RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of trade receivables. The
Company performs ongoing credit evaluations of its customers and generally does
not require collateral. The Company maintains reserves for potential credit
losses.
Sales of the Company's products are concentrated among specific
customers. Sales to the following customers, expressed as a percentage of
consolidated net revenue, and the percentage of accounts receivable for each
customer, were as follows:
PERCENTAGE OF PERCENTAGE OF
NET REVENUE ACCOUNTS RECEIVABLE
YEAR ENDED AUGUST 31, AUGUST 31, AUGUST 31,
------------------------ ---------- ----------
1997 1998 1999 1998 1999
---- ---- ---- ---- ----
Hewlett-Packard Company.. 11% * 22% 22% 16%
Cisco Systems, Inc. ..... 16% 18% 18% * *
3Com .................... 17% 16% * * *
* Amount was less than 10% of total
b. SEGMENT DATA
The Company adopted Financial Accounting Standards Board Statement No.
131, Disclosures About Segments of an Enterprise and Related Information
(Statement 131), in fiscal year 1999. Statement No. 131 establishes standards
for reporting information about segments in financial statements. Operating
segments are defined as components of an enterprise about which separate
financial information is available and that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance.
The Company derives its revenues from providing manufacturing services
to major electronic OEMs on a contract basis. Operating segments consist of the
Company's manufacturing locations. The Company has aggregated its operating
segments into the Electronic Manufacturing Services (EMS) and GET Operations
segments. The services provided, the manufacturing processes, class of customers
and the order fulfillment process is similar and generally interchangeable
across manufacturing locations in the EMS segment. The GET Operations segment
differs in these respects from the EMS segment and is pending future integration
into the Company's operations. Corporate adjustments and non-recurring charges
include research and development costs, interest income on cash and short-term
investments, interest expense on corporate debt, acquisition and merger-related
costs and other corporate charges.
The following table sets forth segment information (in thousands):
<TABLE>
<CAPTION>
CORPORATE
ADJUSTMENTS
ELECTRONIC AND
MANUFACTURING GET NON-RECURRING CONSOLIDATED
SERVICES OPERATIONS CHARGES COMPANY
----------- --------- -------- -----------
<S> <C> <C> <C> <C>
YEAR ENDED AUGUST 31, 1997:
Net revenue ....................... $ 978,102 $ 200,542 -- $ 1,178,644
Depreciation and amortization ..... 24,233 5,790 691 30,714
Interest income ................... -- -- 3,697 3,697
Interest expense .................. -- -- 5,811 5,811
Income before income tax .......... 90,351 8,373 (10,800) 87,924
Income tax expense ................ (31,485) (921) 3,795 (28,611)
----------- --------- -------- -----------
$ 58,866 $ 7,452 $ (7,005) $ 59,313
=========== ========= ======== ===========
Long-lived assets ................. $ 129,865 $ 33,291 $ 10,040 $ 173,196
=========== ========= ======== ===========
Total assets ...................... $ 364,628 $ 78,230 $ 41,275 $ 484,133
=========== ========= ======== ===========
Capital expenditures .............. $ 88,281 $ 3,642 $ 5,524 $ 97,447
=========== ========= ======== ===========
FOR THE YEAR ENDED AUGUST 31, 1998:
Net revenue ....................... $ 1,277,374 $ 206,871 -- $ 1,484,245
Depreciation and amortization ..... 32,110 6,631 3,592 42,333
Interest income ................... -- -- 238 238
Interest expense .................. -- -- 3,876 3,876
Income before income tax .......... 108,014 6,724 (31,697) 83,041
Income tax expense ................ (34,888) (2,016) 11,332 (25,572)
----------- --------- -------- -----------
$ 73,126 $ 4,708 $(20,365) $ 57,469
=========== ========= ======== ===========
Long-lived assets ................. $ 216,597 $ 37,402 $ 19,727 $ 273,726
=========== ========= ======== ===========
Total assets ...................... $ 470,341 $ 101,846 $ 52,986 $ 625,173
=========== ========= ======== ===========
Capital expenditures .............. $ 96,281 $ 11,487 $ 3,501 $ 111,269
=========== ========= ======== ===========
FOR THE YEAR ENDED AUGUST 31, 1999:
Net revenue ....................... $ 2,000,346 $ 238,045 -- $ 2,238,391
Depreciation and amortization ..... 53,442 7,439 2,536 63,417
Interest income ................... -- -- 4,536 4,536
Interest expense .................. -- -- 7,110 7,110
Income before income tax .......... 151,877 7,005 (25,579) 133,303
Income tax expense ................ (52,629) (2,518) 6,663 (48,484)
----------- --------- -------- -----------
$ 99,248 $ 4,487 $(18,916) $ 84,819
=========== ========= ======== ===========
Long-lived assets ................. $ 297,629 $ 41,557 $ 35,122 $ 374,308
=========== ========= ======== ===========
Total assets ...................... $ 939,311 $ 114,770 $(18,660) $ 1,035,421
=========== ========= ======== ===========
Capital expenditures .............. $ 133,303 $ 18,554 $ 16,817 $ 168,674
=========== ========= ======== ===========
</TABLE>
32
<PAGE> 33
The Company operates in the following geographic areas: the United
States, Mexico, Malaysia, Scotland, China and Other. Sales to unaffiliated
customers are based on the Company's manufacturing location providing services.
The following table sets forth information concerning these geographic areas
(in thousands):
YEAR ENDED
AUGUST 31,
----------
1997 1998 1999
---------- ---------- ----------
Revenue
United States ..... $ 682,333 $ 869,849 $1,341,927
China ............. 200,542 206,871 238,045
Mexico ............ -- 41,570 197,039
Malaysia .......... 87,919 143,431 138,715
Scotland .......... 207,850 211,907 140,452
Other ............. -- 10,617 182,213
---------- ---------- ----------
1,178,644 1,484,245 2,238,391
========== ========== ==========
Long-lived assets:
United States ..... 100,960 136,796 189,172
Mexico ............ -- 30,499 63,344
China ............. 33,291 37,402 41,557
Malaysia .......... 16,749 27,235 27,272
Scotland .......... 22,196 27,821 34,170
Other ............. -- 13,973 18,793
---------- ---------- ----------
173,196 273,726 374,308
========== ========== ==========
8. FOREIGN CURRENCY EXCHANGE CONTRACTS
The purpose of the Company's foreign currency hedging activity is to
protect the Company from the risk that the eventual dollar net cash flows
resulting from the sale and purchase of products in foreign currencies will be
adversely affected by changes in the exchange rates. It is the Company's policy
to utilize derivative financial instruments to reduce foreign exchange risks
where internal netting strategies cannot be effectively employed. The Company
does not hold or issue financial instruments for trading purposes. Fluctuations
in the value of hedging instruments are offset by fluctuations in the
underlying exposures being hedged, and deferred gains and losses on these
contracts are recognized when the future purchases and sales being hedged are
realized.
The Company had no foreign currency exchange contracts outstanding at
August 31, 1999, with $5 million outstanding at August 31, 1998 related to the
United Kingdom. Unrealized gains and losses on these contracts were not
material.
9. COMMITMENTS AND CONTINGENCIES
a. LEASE AGREEMENTS
The Company leases certain facilities and computer services under
non-cancelable operating leases. The future minimum lease payments under
noncancelable operating leases outstanding August 31, 1999 are as follows (in
thousands):
33
<PAGE> 34
FISCAL YEAR ENDING AUGUST 31,
-----------------------------
2000 .................................... $14,626
2001 .................................... 12,777
2002 .................................... 11,640
2003 .................................... 8,971
2004 .................................... 8,364
Thereafter .............................. 32,970
-------
Total minimum lease payments............. $89,348
=======
Total rent expense for operating leases was approximately $5.7
million, $7.7 million, and $14.7 million for the years ended August 31, 1997,
1998, and 1999, respectively.
b. LITIGATION
The Company is party to certain lawsuits in the ordinary course of
business. Management does not believe that these proceedings individually or in
the aggregate, will have a material adverse effect on the Company's financial
position, results of operations or cash flows.
The Company was named as a defendant, along with 87 other companies
engaged in the electronics and other industries, in a patent infringement
lawsuit filed by the Lemelson Medical, Education & Research Foundation Limited
Partnership ("Lemelson") in the U.S. District Court for the District of Arizona
on February 26, 1999. The defendants include suppliers, customers and
competitors of ours. The complaint alleges that Jabil and the other defendants
are each infringing as many as 18 patents held by Lemelson relating to the
defendants' manufacturing processes and products. The complaint seeks to enjoin
the defendants from further alleged acts of infringement, an unspecified amount
of damages to compensate Lemelson for alleged past infringement, together with
interest and costs, such damages to be trebled due to alleged willful
infringement, reasonable attorney's fees, and such other relief that the court
may award. The Company, along with several other defendants, jointly hired legal
counsel to represent them in the litigation and filed an answer to the complaint
denying the substantive allegations in the complaint and raising various
affirmative defenses. Lemelson has offered to license the patents alleged to be
infringed. Based on the Company's understanding of the terms that Lemelson has
made available to certain licensees, management believes that obtaining a
license from Lemelson under the same or similar terms would not have a material
adverse effect on the Company's results of operations or financial condition.
The Company has not yet determined, however, whether to seek such a license, and
cannot assure you that, if sought, it would be offered the same or similar terms
or that the ultimate resolution of this matter will not have a material adverse
effect on the Company.
c. OTHER
Prior to the merger with the Company, GET entered into an agreement
with the minority owner of one of its subsidiaries with respect to the income
distribution of that subsidiary. According to the agreement, the minority
interest is entitled to the income of that subsidiary up to a specified annual
maximum before income may be distributed to the Company. The amount of the
maximum distribution averages $179,000 per year. No distribution was made during
1999 since the subsidiary has accumulated losses carried forward. On September
22, 1999, the Company entered into an agreement with the minority shareholder to
acquire their interest in the subsidiary for $4,500,000. During the year, the
Company paid $175,000 of management fees to the minority owner.
10. ACQUISITIONS
On August 3, 1998 the Company acquired certain assets (primarily raw
material inventory and property, plant and equipment) relating to the LaserJet
Formatter Manufacturing Organization business unit of Hewlett-Packard Company
located in Boise, Idaho, and Bergamo, Italy. The acquisition price was
approximately $80 million and was accounted for under the purchase method of
accounting. The acquisition resulted in goodwill and other intangible assets of
approximately $11.2 million, which is being amortized on a straight-line basis
over ten years.
34
<PAGE> 35
Simultaneously, the Company entered into a manufacturing arrangement
to continue to produce the Laserjet circuit board assemblies being produced by
the Hewlett-Packard operations in Boise and Bergamo.
In conjunction with the HP Acquisition, the Company recorded an
acquisition-related charge of $20.8 million consisting of an in-process
technology write-off of $6.5 million, work force related payments of $10.0
million, and $4.3 million of other expenses.
On September 1, 1999 the Company, through its Jabil Global Services
subsidiary, acquired the net assets of EFTC Services, Inc., an electronic
product service and repair business. Jabil Global Services will continue to
offer repair and warranty services for existing and future customers from its
hub-based operations in Memphis, Tennessee; Louisville, Kentucky; and Tampa,
Florida. The purchase price of approximately $28 million was paid in cash. The
acquisition will be accounted for as a purchase.
On September 13, 1999, the Company issued approximately 10.2 million
shares of its common stock for all of the outstanding common stock of GET
Manufacturing, Inc. ("GET"), a China-based electronics manufacturing services
provider to original equipment manufacturers serving the consumer electronics,
telecommunications, medical and computer peripheral industries. The transaction
was accounted for as a pooling of interests. Accordingly, the Company's
consolidated financial statements for all periods presented have been restated
to reflect the merger with GET (see note 1).
11. NEW ACCOUNTING PRONOUNCEMENTS
During 1997 and 1998, the Financial Accounting Standards Board
("FASB") issued several Statements of Financial Accounting Standards
(Statements) which are pending implementation by the Company. They are as
follows:
Statement 133 - Accounting for Derivative Instruments and Hedging Activities.
Statement 133 establishes methods of accounting for derivative financial
instruments and hedging activities related to those instruments as well as
other hedging activities. The Company is currently evaluating this Statement
and has yet to form an opinion on whether its adoption will have any
significant impact on the Company's consolidated financial statements. The
Company will be required to implement Statement 133 for its fiscal year ending
August 31, 2001.
Statement of Position 98-5 Reporting on the Costs of Start Up Activities. SOP
98-5 establishes standards on the financial reporting of start-up costs and
organization costs. SOP 98-5 requires costs of start-up activities and
organization costs to be expensed as incurred. The SOP is effective for
financial statements for fiscal years beginning after December 15, 1998. As the
Company has historically made a practice of expensing costs related to both the
establishment of greenfield manufacturing facilities and the set-up of
production lines as such costs are incurred, it does not anticipate that the
adoption of SOP 98-5 will have any material impact on its consolidated
financial statements.
35
<PAGE> 36
SCHEDULE II
JABIL CIRCUIT, INC. AND SUBSIDIARIES
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
OF PERIOD EXPENSES WRITE-OFFS PERIOD
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
YEAR ENDED AUGUST 31, 1997:
Allowance for uncollectible accounts receivable ... $ 2,177 $1,520 $ 1 $ 3,696
Reserve for excess and obsolete inventory ......... $ 9,074 $5,346 $2,860 $11,560
======= ====== ====== =======
YEAR ENDED AUGUST 31, 1998:
Allowance for uncollectible accounts receivable ... $ 3,696 $1,677 $1,425 $ 3,948
Reserve for excess and obsolete inventory ......... $11,560 $6,133 $5,500 $12,193
======= ====== ====== =======
YEAR ENDED AUGUST 31, 1999:
Allowance for uncollectible accounts receivable ... $ 3,948 $1,246 $ 555 $ 4,639
Reserve for excess and obsolete inventory ......... $12,193 $6,233 $5,557 $12,869
======= ====== ====== =======
</TABLE>
See accompanying independent auditors' report.
36
