Why was this 10-K filed late and what does the restatement change?

The filing was delayed by the review of historical stock option grant practices, which led to a Special Committee investigation and internal review. The company restated the August 31, 2005 balance sheet and fiscal 2005 and 2004 statements of earnings and cash flows, adding $54.3 million of gross incremental compensation charges for fiscal 1996 through 2005 (net $41.1 million after tax benefit). Prior annual and quarterly reports for 1996 through 2005 are superseded and should not be relied upon, and the company did not amend them.

How much debt does Jabil face and what refinancing risk exists?

As of April 30, 2007, long-term debt included $871.0 million under the Bridge Facility, $372.0 million under the Unsecured Revolver, $300 million of 5.875% Senior Notes, and about $179.0 million in foreign bank loans. The Bridge Facility matures December 20, 2007, and the company states it will likely need to refinance some debt and possibly issue additional equity, which could dilute shareholders.

What are the main legal and regulatory exposures?

The company faces consolidated state and federal shareholder derivative suits, a putative shareholder class action alleging securities fraud, an SEC informal inquiry, and a U.S. Attorney subpoena related to stock option grants. It also faces an SEC review of a revenue recognition matter from fiscal 1999 to 2002 involving a $6.0 million transaction. The company states it cannot predict the outcomes and expects substantial continuing costs.

What drove the revenue growth and margin pressure in fiscal 2006?

Revenue growth was driven by consumer products (up 68%), instrumentation and medical (up 51%), and computing and storage (up 28%), with increased customer demand and new customers. Gross margin declined due to a higher mix of materials-based revenue, delays in ramping electromechanical tooling operations, costs on a new after-market program, and operational issues at a U.S. operation. Customer concentration remains high, with Nokia at 21% and Royal Philips at 12% of fiscal 2006 net revenue.

JBL 10-K FY2006 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed May 15, 2007. Cited figures are marked; the original filing is the authoritative source.

Jabil Circuit, Inc. (now Jabil Inc.) filed this Form 10-K on May 15, 2007 for fiscal year ended August 31, 2006, a delayed filing that includes restated financial statements for fiscal 2005 and 2004 due to stock option grant review.

Net revenue for fiscal 2006 was $10.27 billion^a, up from $7.52 billion in fiscal 2005, while net income was $164.5 million, down from $203.9 million (restated). Gross margin declined to 7.5% from 8.3%, and the company recorded $81.9 million in restructuring and impairment charges under a new program expected to total $200.0 million to $250.0 million, including $37.1 million of deferred tax asset valuation allowances. The restatement reduced retained earnings by approximately $41.1 million as of August 31, 2005 for stock-based compensation errors between 1996 and 2005.

The Special Committee found no intentional backdating by management, but the company faces shareholder derivative suits, a putative securities class action, an SEC informal inquiry, and a U.S. Attorney subpoena. Liquidity is a concern: the company must refinance an $871.0 million^b bridge facility due December 20, 2007, which was drawn to fund the $891.0 million Taiwan Green Point acquisition. Moody's downgraded the 5.875% Senior Notes to Ba2, and the company has obtained covenant waivers and is subject to the risk of noteholder acceleration if financial statements are not delivered.

02—Key points

Key Highlights

Net revenue rose 36.4% to $10.27 billion in fiscal 2006, driven by consumer, instrumentation and medical sector growth and the Celetronix acquisition.
Net income fell to $164.5 million (diluted EPS $0.77) from $203.9 million restated for fiscal 2005, with gross profit margin down to 7.5% from 8.3%.
$81.9 million of restructuring and impairment charges in Q4 2006 under a plan expected to total $200.0 million to $250.0 million through fiscal 2008.
Restatement of fiscal 2004-2005 results for stock option accounting errors, reducing fiscal 2005 net income by $28.0 million and retained earnings by $41.1 million.
Pending $891.0 million acquisition of Taiwan Green Point Enterprises, funded by a $1.0 billion bridge facility that must be refinanced or repaid by December 20, 2007.
Credit rating pressure: Moody's downgraded the 5.875% Senior Notes to Ba2, and the company relies on lender and bank waivers for delayed financial reporting.
Order backlog of $3.1 billion at August 31, 2006, up from $2.3 billion a year earlier.

03—Questions

Frequently Asked Questions

Why was this 10-K filed late and what does the restatement change?
The filing was delayed by the review of historical stock option grant practices, which led to a Special Committee investigation and internal review. The company restated the August 31, 2005 balance sheet and fiscal 2005 and 2004 statements of earnings and cash flows, adding $54.3 million of gross incremental compensation charges for fiscal 1996 through 2005 (net $41.1 million after tax benefit). Prior annual and quarterly reports for 1996 through 2005 are superseded and should not be relied upon, and the company did not amend them.
How much debt does Jabil face and what refinancing risk exists?
As of April 30, 2007, long-term debt included $871.0 million under the Bridge Facility, $372.0 million under the Unsecured Revolver, $300 million of 5.875% Senior Notes, and about $179.0 million in foreign bank loans. The Bridge Facility matures December 20, 2007, and the company states it will likely need to refinance some debt and possibly issue additional equity, which could dilute shareholders.
What are the main legal and regulatory exposures?
The company faces consolidated state and federal shareholder derivative suits, a putative shareholder class action alleging securities fraud, an SEC informal inquiry, and a U.S. Attorney subpoena related to stock option grants. It also faces an SEC review of a revenue recognition matter from fiscal 1999 to 2002 involving a $6.0 million transaction. The company states it cannot predict the outcomes and expects substantial continuing costs.
What drove the revenue growth and margin pressure in fiscal 2006?
Revenue growth was driven by consumer products (up 68%), instrumentation and medical (up 51%), and computing and storage (up 28%), with increased customer demand and new customers. Gross margin declined due to a higher mix of materials-based revenue, delays in ramping electromechanical tooling operations, costs on a new after-market program, and operational issues at a U.S. operation. Customer concentration remains high, with Nokia at 21% and Royal Philips at 12% of fiscal 2006 net revenue.

04—Continue

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