UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

Commission file number: 0-21308

JABIL CIRCUIT, INC.

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

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

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

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

As of March 21, 2005, there were 202,314,860 shares of the Registrant’s Common Stock outstanding.

JABIL CIRCUIT, INC. AND SUBSIDIARIES
INDEX

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PART I. FINANCIAL INFORMATION

Item 1: FINANCIAL STATEMENTS

JABIL CIRCUIT, INC. AND SUBSIDIARIES

See accompanying notes to condensed consolidated financial statements.

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JABIL CIRCUIT, INC. AND SUBSIDIARIES

See accompanying notes to condensed consolidated financial statements.

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JABIL CIRCUIT, INC. AND SUBSIDIARIES

     Accumulated foreign currency translation gains were $138.4 million at February 28, 2005 and $52.8 million at August 31, 2004. Foreign currency translation adjustments primarily consist of adjustments to consolidate subsidiaries that use a local currency as their functional currency.

See accompanying notes to condensed consolidated financial statements.

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JABIL CIRCUIT, INC. AND SUBSIDIARIES

See accompanying notes to condensed consolidated financial statements.

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JABIL CIRCUIT, INC. AND SUBSIDIARIES

Note 1. Basis of Presentation

     The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary to present fairly the information set forth therein have been included. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes included in the Annual Report on Form 10-K of Jabil Circuit, Inc. (the “Company”) for the fiscal year ended August 31, 2004. Operating results for the six-month period ended February 28, 2005 are not necessarily an indication of the results that may be expected for the fiscal year ending August 31, 2005.

Note 2. Inventories

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

Note 3. Earnings Per Share

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

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     For the three months and six months ended February 28, 2005, options to purchase 5,255,320 and 5,274,749 shares of common stock, respectively, 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, their effect would be anti-dilutive. For the three months and six months ended February 29, 2004, options to purchase 617,565 and 619,881 shares of common stock, respectively, were excluded for the same reason.

     The computation of diluted earnings per share for the three months and six months ended February 29, 2004 included 8,406,960 shares of common stock previously issuable upon the conversion of the Company’s then outstanding $345.0 million, 20-year, 1.75% convertible subordinated notes (“Convertible Notes”), as their effect would have been dilutive. The computation of diluted earnings per share for the three months and six months ended February 29, 2004 also included the elimination of $0.9 million and $1.9 million in interest expense, respectively, net of tax, on the Convertible Notes, which would have been extinguished had the conversion of the Convertible Notes occurred, as the effect of the conversion would have been dilutive. The Convertible Notes were extinguished in the third quarter of fiscal year 2004. For further discussion of the Convertible Notes, refer to Note 5 – “Notes Payable, Long-Term Debt and Long-Term Lease Obligations” to the Consolidated Financial Statements in the 2004 Annual Report on Form 10-K for the fiscal year ended August 31, 2004.

Note 4. Stock-Based Compensation

     At February 28, 2005, the Company had four stock-based employee compensation plans that are accounted for under the intrinsic value recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”). These plans provide for the grant of incentive stock options and restricted stock awards to eligible employees; and for employee purchase of common stock pursuant to the stock purchase plan.

  a. Stock Options and Employee Stock Purchase Plan

     Following the guidance of APB 25, no stock-based employee compensation expense is reflected in net income for employee stock options granted under the plans to date, as all options granted had an exercise price at least equal to the fair market value of shares of common stock on the date of the grant.

     The Financial Accounting Standards Board recently published Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based Payment (“SFAS 123R”). SFAS 123R, which is effective from the first interim period that begins after June 15, 2005, will require that compensation cost related to share-based payment transactions, including stock options, be recognized in the financial statements. Accordingly, the Company will implement the revised standard in the first quarter of fiscal year 2006.

     On January 28, 2005, in response to the issuance of SFAS 123R, the Company’s Compensation Committee of the Board of Directors approved accelerating the vesting of most out-of-the-money, unvested stock options held by current employees, including executive officers, and directors. An option was considered out-of-the-money if the stated option exercise price was greater than the closing price, $23.31, of the Company’s common stock on the day before the Compensation Committee approved the acceleration. Unvested options to purchase approximately 7.3 million shares became exercisable as a result of the vesting acceleration. The Compensation Committee did not approve the accelerated vesting of out-of-the-money unvested performance accelerated vesting options held by certain officers of the Company as it believed that, notwithstanding the potential additional compensation expense that could be avoided by accelerating such options, the existing stated financial performance criteria should be met before any of such options are accelerated. The accelerated vesting was effective as of January 28, 2005; however, holders of incentive stock options (within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended) to purchase 186,964 shares of common stock and holders of certain tax-qualified stock options issued to certain foreign employees to purchase 101,440 shares of common stock, have the opportunity to decline the accelerated vesting in order to prevent changing the status of the incentive stock option for federal income tax purposes to a non-qualified stock option or the restriction of the availability of favorable tax treatment under applicable foreign law. The Company’s full Board ratified the acceleration of option vesting to the extent it affected options held by members of the Compensation Committee.

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     On February 2, 2005, the Company filed a Current Report on Form 8-K disclosing the accelerated option vesting. The Form 8-K included a quantitative listing of the number of shares issuable under accelerated options to each individual director and executive officer, and to all non-officer employees in aggregate. Although the underlying financial data in the Form 8-K regarding the total financial impact of the acceleration was accurately stated, the affected number of shares attributable to certain directors and the total percentage attributable to directors and officers was slightly understated. The following table summarizes the options subject to accelerated vesting as revised:

     The decision to accelerate vesting of these options was made primarily to avoid recognizing compensation cost in the statement of earnings in future financial statements upon the effectiveness of SFAS 123R. Assuming that no holders of record of incentive stock options or the referenced foreign tax-favored options elect to decline the accelerated vesting, it is estimated that the maximum future compensation expense that will be avoided, based on Jabil’s implementation date for FAS 123R of September 1, 2005, will be approximately $85.0 million, of which approximately $20.1 million is related to options held by executive officers and directors of the Company. The vesting acceleration did not result in the recognition of compensation expense in net income for the three months and six months ended February 28, 2005. The pro-forma results presented in the table below include approximately $67.4 million of compensation expense for the three months and six months ended February 28, 2005 resulting from the vesting acceleration.

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     The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition and measurement provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation (in thousands, except per share data):

     The Company uses the Black-Scholes option-pricing model to estimate the fair value of each option on the date of grant and to estimate the value of common stock related to the employee stock purchase plan. The following weighted-average assumptions were used in the model for the periods indicated:

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   b. Restricted Stock Awards

     During the first quarter of fiscal year 2005, the Company granted unvested common stock awards (“restricted stock”) to certain key employees pursuant to the Jabil Circuit, Inc. 2002 Stock Incentive Plan. The awards are accounted for using the measurement and recognition principles of APB 25. Accordingly, unearned compensation is measured at the date of grant and recognized as compensation expense over the period in which the awards vest. Shares awarded during the first quarter of fiscal year 2005 will vest after five years, but may vest earlier if specific performance criteria are met. At February 28, 2005, $9.5 million of unearned compensation is recorded as a reduction in stockholders’ equity as a result of the restricted stock awards. For the three months and six months ended February 28, 2005, the Company recorded $0.5 million and $0.8 million of stock-based compensation expense, respectively, in selling, general and administrative expense related to the restricted stock awards.

Note 5. Segment Information

     The Company derives its revenues from providing comprehensive electronics design, manufacturing and product management services to global electronics and technology companies. Management evaluates performance and allocates resources on a geographic basis. Prior to the first quarter of fiscal year 2005, Jabil managed its business based on four geographic regions, the United States, Europe, Asia and Latin America. In the first quarter of fiscal year 2005, the Company realigned its organizational structure to manage the United States and Latin America as one geographic region, the Americas. Accordingly, Jabil’s operating segments now consist of three geographic regions – Americas, Europe and Asia – to reflect how the Company manages its business.

     Revenues are attributed to the region in which the product is manufactured or service is performed. The services provided, manufacturing processes, class of customers and order fulfillment processes are similar and generally interchangeable across operating segments. An operating segment’s performance is evaluated based upon its pre-tax operating contribution. Pre-tax operating contribution is defined as net revenue less cost of revenue and segment selling, general and administrative expenses, and does not include research and development costs, intangible amortization, acquisition-related charges, restructuring and impairment charges, other loss (income), interest income, interest expense or income taxes. Segment pre-tax operating contribution also does not include an allocation of corporate selling, general and administrative expenses, as management does not use this information to measure the performance of the operating segments. Transactions between operating segments are generally recorded at amounts that approximate arm’s length.

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

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     Foreign source revenue represented 85.2% and 85.7% of net revenue for the three months and six months ended February 28, 2005, respectively, compared to 83.8% and 85.7% of net revenue for the three months and six months ended February 29, 2004, respectively.

Note 6. Commitments and Contingencies

Legal Proceedings

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

Warranty Provision

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

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Note 7. Restructuring and Impairment Charges

     During fiscal year 2001, a global economic downturn resulted in excess production capacity and a decline in customer demand for the Company’s services. As a result, during the third quarter of fiscal year 2001, the Company implemented a restructuring program to reduce its cost structure. This restructuring program included reductions in workforce, re-sizing of facilities and the transition of certain facilities from high volume manufacturing facilities into new customer development sites. During fiscal year 2001, the Company charged $27.4 million of restructuring and impairment costs against earnings.

     The macroeconomic conditions facing the Company, and the electronic manufacturing services industry as a whole, continued to deteriorate during fiscal year 2002, resulting in a continued decline in customer demand, additional excess production capacity, and customer requirements for a shift in the Company’s geographic production footprint. As a result, additional restructuring programs were implemented during fiscal year 2002. These restructuring programs included reductions in workforce, re-sizing of facilities and the closure of facilities. During fiscal year 2002, the Company charged $52.1 million of restructuring and impairment costs against earnings.

     During fiscal year 2003, the geographic production demands of the Company’s customers continued to shift. In addition to carrying out a worldwide realignment of capacity and consolidating existing facilities, the Company closed manufacturing operations in Boise, Idaho and Coventry, England. As a result, the Company charged $85.3 million of restructuring and impairment costs against earnings. These restructuring and impairment charges included employee severance and benefit costs, costs related to lease commitments, fixed asset impairments and other restructuring costs, primarily related to professional fees incurred in connection with the restructuring activities. For further discussion of the Company’s historical restructuring activities, refer to Note 13 – “Restructuring and Impairment Charges” to the Consolidated Financial Statements in the 2004 Annual Report on Form 10-K for the fiscal year ended August 31, 2004.

     There were no restructuring charges incurred during the three months and six months ended February 28, 2005 or February 29, 2004. The table below sets forth the significant components and activity in the remaining restructuring liability during the three months ended February 28, 2005 (in thousands):

     The table below sets forth the significant components and activity in the remaining restructuring liability during the six months ended February 28, 2005 (in thousands):

     At February 28, 2005, liabilities of $5.2 million, primarily for severance and benefit costs related to the remaining restructuring activities and lease commitment costs, are expected to be paid within the next twelve months. The remaining balance, consisting of lease commitment costs, is expected to be paid through August 31, 2006.

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Note 8. Goodwill and Other Intangible Assets

     The Company accounts for its intangible assets in accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). Under this standard, the Company is required to perform a goodwill impairment test at least on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable from estimated future cash flows. The Company completed the annual impairment test during the fourth quarter of fiscal 2004 and determined that no impairment existed as of the date of the impairment test. Recoverability of goodwill is measured at the reporting unit level, which the Company has determined to be consistent with its operating segments as defined in Note 5 – “Segment Information,” by comparing the reporting unit’s carrying amount, including goodwill, to the fair market value of the reporting unit, based on projected discounted future results. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and a second test is performed to measure the amount of impairment loss, if any. To date, the Company has not recognized any impairment of its goodwill in connection with its adoption of SFAS 142.

     All of the Company’s intangible assets, other than goodwill, are subject to amortization over their estimated useful lives. Intangible assets are comprised primarily of contractual agreements, which are being amortized on a straight-line basis over periods of up to five years. No significant residual value is estimated for the intangible assets. The value of the Company’s intangible assets purchased through business acquisitions are principally determined based on third-party valuations of the net assets acquired. Currently, the Company is in the process of finalizing the value of its intangible assets acquired from Royal Philips Electronics (“Philips”) in November 2004. See Note 9 – “Business Acquisitions” for further discussion of this acquisition. The following tables present the Company’s total purchased intangible assets at February 28, 2005 and August 31, 2004 (in thousands):

     Intangible asset amortization for the three months and six months ended February 28, 2005 was approximately $10.4 million and $20.9 million, respectively. Intangible asset amortization for the three and six months ended February 29, 2004 was approximately $12.0 million and $22.1 million, respectively.

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

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     The following table presents the changes in goodwill allocated to the reportable segments during the six months ended February 28, 2005 (in thousands):

Note 9. Business Acquisitions

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

     On November 29, 2004, the Company purchased certain television assembly operations of Philips in Kwidzyn, Poland. The Company acquired these operations in an effort to add assembly operations in the consumer industry sector and further strengthen its relationship with Philips. Simultaneous with the purchase, the Company amended its previously existing supply agreement with Philips to include the acquired operations. The acquisition was accounted for under the purchase method of accounting. Total consideration paid was approximately $19.9 million, based on foreign currency rates in effect at the date of the acquisition. Based on a preliminary third-party valuation, which is expected to be completed no later than the first quarter of fiscal year 2006, the purchase price resulted in amortizable intangible assets of approximately $2.5 million.

     Pro-forma results of operations, in respect to the acquisition described above, have not been presented because the effect of this acquisition was not material.

     There were no acquisition-related costs recorded for the six months ended February 28, 2005. In connection with the acquisitions of certain operations of Philips and NEC Corporation (“NEC”), acquisition-related costs of $1.3 million were recorded for the six months ended February 29, 2004. These costs consisted of professional fees and other incremental costs related directly to the integration of the acquired operations.

Note 10. Accounts Receivable Securitization

     In February 2004, the Company entered into an asset backed securitization program with a bank, which originally provided for net cash proceeds at any one time of up to $100.0 million on the sale of eligible accounts receivable of certain domestic operations. As a result of an amendment in April 2004, the program was increased to up to $120.0 million of net cash proceeds at any one time. As a result of a second amendment in February 2005, the program was renewed and increased to up to $145.0 million of net cash proceeds at any one time. The sale of receivables under this securitization program is accounted for in accordance with Statement of Financial Accounting Standards No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (a replacement of FASB Statement No. 125). Under the agreement, the Company continuously sells a designated pool of trade accounts receivable to a wholly-owned subsidiary, which in turn sells an ownership interest in the receivables to a conduit, administered by an unaffiliated financial institution. This wholly-owned subsidiary is a separate bankruptcy-remote entity and its assets would be available first to satisfy the creditor claims of the conduit. As the receivables sold are collected, the Company is able to sell additional receivables up to the maximum permitted amount under the program. The securitization program requires compliance with several financial covenants including a fixed charge coverage ratio, consolidated net worth threshold and indebtedness to EBITDA ratio, as defined in the securitization agreement. The Company was in compliance with the respective covenants at February 28, 2005. The securitization agreement as amended expires in February 2006 and may be extended on an annual basis.

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     For each pool of eligible receivables sold to the conduit, the Company retains a percentage interest in the face value of the receivables, which is calculated based on the terms of the agreement. Net receivables sold under this program are excluded from accounts receivable on the Consolidated Balance Sheet and are reflected as cash provided by operating activities on the Consolidated Statement of Cash Flows. The Company continues to service, administer and collect the receivables sold under this program. The Company pays facility fees of 0.30% per annum of the average purchase limit and program fees of up to 0.125% of outstanding amounts. The investors and the securitization conduit have no recourse to the Company’s assets for failure of debtors to pay when due.

     At February 28, 2005, the Company had sold $173.9 million of eligible accounts receivable, which represents the face amount of total outstanding receivables at that date. In exchange, the Company received cash proceeds of $111.9 million and retained an interest in the receivables of approximately $62.0 million. In connection with the securitization program, the Company recognized pretax losses on the sale of receivables of approximately $0.8 million and $1.4 million during the three and six months ended February 28, 2005, respectively.

Note 11. Pension and Other Postretirement Benefits

     During the first quarter of fiscal year 2002, the Company established a defined benefit pension plan for all permanent employees of Jabil Circuit UK Limited. This plan was established in accordance with the terms of the business sale agreement with Marconi Communications plc (“Marconi”). The benefit obligations and plan assets from the terminated Marconi plan were transferred to the newly established defined benefit plan. The plan provides benefits based on average employee earnings over a three-year service period preceding retirement. The Company’s policy is to contribute amounts sufficient to meet minimum funding requirements as set forth in U.K. employee benefit and tax laws plus such additional amounts as are deemed appropriate by the Company. Plan assets are held in trust and invested in accordance with the plan investment strategy, which requires a benchmarked mix of equity and debt securities.

     During the fourth quarter of fiscal year 2002, the Company purchased operations in Brest and Meung-sur-Loire, France from Alcatel Business Systems and Valeo S.A., respectively. During the first and second quarters of fiscal year 2003, the Company purchased certain operations of Philips in Austria, Belgium, Brazil, Hong Kong/China, Hungary, India, Poland and Singapore. During the fourth quarter of fiscal year 2003, the Company purchased certain operations of NEC in Japan. These acquisitions included the assumption of certain unfunded retirement benefits to be paid based upon years of service and compensation at retirement. All permanent employees meeting the minimum service requirement are eligible to participate in the plans. Through the Philips acquisition, the Company also assumed certain post-retirement medical benefit plans.

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

     For the six months ended February 28, 2005, the Company has made contributions of approximately $0.4 million to its defined benefit pension plans. The Company presently anticipates total fiscal year 2005 contributions to approximate $0.8 million to $1.0 million.

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     The following table provides information about net periodic benefit cost for the Company’s other benefit plans for the periods indicated (in thousands of dollars):

Note 12. New Accounting Pronouncements

     In November 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4 (“SFAS 151”). This statement amends the guidance of ARB. No 43, Chapter 4 “Inventory Pricing” and requires that abnormal amounts of idle facility expense, freight, handling costs, and wasted material be recognized as current period charges. In addition, this statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company does not anticipate that the implementation of this standard will have a material impact on its financial position, results of operations or cash flows.

     In December 2004, the Financial Accounting Standards Board (“FASB”) published SFAS 123R. SFAS 123R requires that compensation cost related to share-based payment transactions be recognized in the financial statements. Share-based payment transactions within the scope of SFAS 123R include stock options, restricted stock plans, performance-based awards, stock appreciation rights, and employee share purchase plans. The provisions of SFAS 123R are effective as of the first interim period that begins after June 15, 2005. Accordingly, the Company will implement the revised standard in the first quarter of fiscal year 2006. Currently, the Company accounts for its share-based payment transactions under the provisions of APB 25, which does not necessarily require the recognition of compensation cost in the financial statements. Management is assessing the implications of this revised standard, which may materially impact the Company’s results of operations in the first quarter of fiscal year 2006 and thereafter.

     In December 2004, FASB issued Statement of Financial Accounting Standards No. 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions (“SFAS 153”). This statement amends APB Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. Under SFAS 153, if a nonmonetary exchange of similar productive assets meets a commercial-substance criterion and the fair value is determinable, the transaction must be accounted for at fair value resulting in recognition of any gain or loss. The provisions of SFAS 153 are effective for nonmonetary transactions in fiscal periods that begin after June 15, 2005. The Company does not anticipate that the implementation of this standard will have a material impact on its financial position, results of operations or cash flows.

Note 13. Subsequent Event

     On March 11, 2005, the Company purchased the operations of Varian Electronics Manufacturing (“VEM”), the electronics manufacturing business segment of Varian, Inc. VEM derives its revenues primarily from customers in the aerospace, communications, and instrumentation and medical industry sectors. The Company acquired the VEM operations in an effort to enhance customer and industry sector diversification by adding additional competencies in targeted industry sectors. Total consideration paid was $195.0 million in cash, subject to adjustment based on the actual amount of certain working capital of VEM at closing.

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JABIL CIRCUIT, INC. AND SUBSIDIARIES

References in this report to “the Company”, “Jabil”, “we”, ”our”, or “us” mean Jabil Circuit, Inc. together with its subsidiaries, except where the context otherwise requires. This Quarterly Report on Form 10-Q contains certain statements that are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and are made in reliance upon the protections provided by such acts for forward-looking statements. These forward-looking statements (such as when we describe what “will,” “may” or “should” occur, what we “plan,” “intend,” “estimate,” “believe,” “expect” or “anticipate” will occur, and other similar statements) include, but are not limited to, statements regarding future sales and operating results, future prospects, anticipated benefits of proposed (or future) acquisitions and new facilities, growth, the capabilities and capacities of business operations, any financial or other guidance and all statements that are not based on historical fact, but rather reflect our current expectations concerning future results and events. We make certain assumptions when making forward-looking statements, any of which could prove inaccurate, including, but not limited to, statements about our future operating results and business plans. The ultimate correctness of these forward-looking statements is dependent upon a number of known and unknown risks and events, and is subject to various uncertainties and other factors that may cause our actual results, performance or achievements to be different from any future results, performance or achievements expressed or implied by these statements. The following important factors, among others, could affect future results and events, causing those results and events to differ materially from those expressed or implied in our forward-looking statements: business conditions and growth in our customers’ industries, the electronic manufacturing services industry and the general economy, variability of operating results, our dependence on a limited number of major customers, the potential consolidation of our customer base, availability of components, dependence on certain industries, seasonality, variability of customer requirements, our ability to successfully negotiate definitive agreements and consummate acquisitions, and to integrate operations following consummation of acquisitions, our ability to take advantage of our restructuring to improve utilization and realize savings, other economic, business and competitive factors affecting our customers, our industry and business generally and other factors that we may not have currently identified or quantified. For a further list and description of various risks, relevant factors and uncertainties that could cause future results or events to differ materially from those expressed or implied in our forward-looking statements, see “Factors Affecting Future Results” below, as well as our Annual Report on Form 10-K for the fiscal year ended August 31, 2004, any subsequent Reports on Form 10-Q and Form 8-K and other filings with the Securities and Exchange Commission.

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

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

Overview

     We are one of the leading worldwide independent providers of electronic manufacturing services and solutions. We provide comprehensive electronics design, manufacturing and product management services to electronics and technology companies in the aerospace, automotive, computing, consumer, defense, instrumentation, medical, networking, peripherals, storage, and telecommunications industries. We offer our customers electronics design, manufacturing and product management solutions that are responsive to their outsourcing needs. We currently depend, and expect to continue to depend, upon a relatively small number of customers for a significant percentage of our net revenue. Currently, our largest customers include Cisco Systems, Inc., Hewlett-Packard Company, International Business Machines Corporation, Marconi Communications plc, Network Appliance, NEC Corporation, Nokia Corporation, Quantum Corporation, Royal Philips Electronics (“Philips”), and Valeo S.A.

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     We serve our customers with dedicated work cell business units that combine design, manufacturing and supply chain management services in a highly automated, continuous flow manufacturing environment. Our work cell business units are capable of providing our customers with varying combinations of the following services:

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

     We currently conduct our operations in facilities that are located in Austria, Belgium, Brazil, China, England, France, Hungary, India, Ireland, Italy, Japan, Malaysia, Mexico, the Netherlands, Poland, Scotland, Singapore, Ukraine and the United States. Our parallel global production strategy provides our customers with the benefits of improved supply-chain management, reduced inventory obsolescence, lowered transportation costs and reduced product fulfillment time. We have identified our global presence as a key to assessing our business performance. While the services provided, the manufacturing process, the class of customers and the order fulfillment process is similar across manufacturing locations, we evaluate our business performance on a geographic basis. Prior to the first quarter of fiscal year 2005, we managed our business based on four geographic regions, the United States, Europe, Asia and Latin America. In the first quarter of fiscal year 2005, we realigned our organizational structure to manage the Unites States and Latin America as one geographic region, the Americas. Accordingly, our operating segments now consist of three geographic regions – Americas, Europe and Asia – to reflect how we manage our business.

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

Summary of Results

     Net revenue for the second quarter of fiscal year 2005 increased 15.0% to $1.7 billion compared to $1.5 billion for the same period of fiscal year 2004. Our sales levels during the second quarter of fiscal year 2005 improved across all industry sectors, demonstrating our continued trend of industry sector and customer diversification. The increase in our revenue base year-over-year represents stronger market share with our existing programs; and organic growth from new and existing customers as vertically integrated electronics and technology companies continue to convert to an outsourcing model. Additionally, we continue to enhance our business model by adding services in the areas of collaborative design, system integration, order fulfillment and repair.

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     The following table sets forth, for the three-month and six-month periods indicated, certain key operating results and other financial information (in thousands, except per share data).

Key Performance Indicators

     Management regularly reviews financial and non-financial performance indicators to assess the Company’s operating results. The following table sets forth, for the quarterly periods indicated, certain of management’s key financial performance indicators.

     The sales cycle is calculated as the sum of days in accounts receivable and days in inventory, less the days in accounts payable; accordingly, the variance in the sales cycle quarter over quarter is a direct result of changes in these indicators. Days in accounts receivable have decreased 10 days during the three months ended February 28, 2005 from the prior sequential quarter. This decrease resulted primarily from the liquidation during such quarter of six days of receivables assumed in connection with our acquisition of certain operations of Philips in Kwidzyn, Poland at the end of the first quarter of fiscal 2005. The remainder of the decrease reflects lower sales levels and timing of sales during the second quarter of fiscal 2005. Days in inventory decreased one day during the three months ended February 28, 2005 from the prior sequential quarter while inventory turns have remained constant at nine during the three months ended February 28, 2005 from the prior sequential quarter. Days in accounts payable have decreased six days to 58 days during the three months ended February 28, 2005 from the prior sequential quarter. This decrease resulted from the liquidation during such quarter of six days of payables assumed in connection with our acquisition of certain operations of Philips in Kwidzyn, Poland at the end of the first quarter of fiscal 2005.

Critical Accounting Policies and Estimates

     The preparation of our financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and judgments that affect our reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and assumptions based upon historical experience and various other factors and circumstances. Management believes that our estimates and assumptions are reasonable under the circumstances; however, actual results may vary from these estimates and assumptions under different future circumstances. We have identified the following critical accounting policies that affect the more significant judgments and estimates used in the preparation of our consolidated financial statements. For further discussion of our significant accounting policies, refer to Note 1 - “Description of Business and Summary of Significant Accounting Policies” to the Consolidated Financial Statements in our 2004 Annual Report on Form 10-K for the fiscal year ended August 31, 2004.

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Revenue Recognition

     We derive revenue principally from the product sales of electronic equipment built to customer specifications. We also derive revenue to a lesser extent from repair services, design services and excess inventory sales. Revenue from product sales and excess inventory sales is recognized, net of estimated product return costs, when goods are shipped; title and risk of ownership have passed; the price to the buyer is fixed or determinable; and recoverability is reasonably assured. Service related revenues are recognized upon completion of the services. We assume no significant obligations after product shipment.

Allowance for Doubtful Accounts

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

Inventory Valuation

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

Long-Lived Assets

     We review property, plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of property, plant and equipment is measured by comparing its carrying value to the projected cash flows the property, plant and equipment are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying value of the property exceeds its fair market value. The impairment analysis is based on significant assumptions of future results made by management, including revenue and cash flow projections. Circumstances that may lead to impairment of property, plant and equipment include unforeseen decreases in future performance or industry demand and the restructuring of our operations resulting from a change in our business strategy.

     We have recorded intangible assets, including goodwill, principally based on third-party valuations, in connection with business acquisitions. Estimated useful lives of amortizable intangible assets are determined by management based on an assessment of the period over which the asset is expected to contribute to future cash flows. The allocation of amortizable intangible assets impacts the amounts allocable to goodwill. In accordance with SFAS 142, we are required to perform a goodwill impairment test at least on an annual basis and whenever events or circumstances indicate that the carrying value may not be recoverable from estimated future cash flows. We completed the annual impairment test during the fourth quarter of fiscal 2004 and determined that no impairment existed as of the date of the impairment test. The impairment test is performed at the reporting unit level, which we have determined to be consistent with our operating segments as defined in Note 5 – “Segment Information” to the Condensed Consolidated Financial Statements. The impairment analysis is based on assumptions of future results made by management, including revenue and cash flow projections at the reporting unit level. Circumstances that may lead to impairment of goodwill or intangible assets include unforeseen decreases in future performance or industry demand, and the restructuring of our operations resulting from a change in our business strategy. For further information on our intangible assets, including goodwill, refer to Note 8 – “Goodwill and Other Intangible Assets” to the Condensed Consolidated Financial Statements.

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Restructuring and Impairment Charges

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

Pension and Postretirement Benefits

     We have pension and postretirement benefit costs and liabilities, which are developed from actuarial valuations. Actuarial valuations require management to make certain judgments and estimates of discount rates and return on plan assets. We evaluate these assumptions on a regular basis taking into consideration current market conditions and historical market data. The discount rate is used to state expected future cash flows at a present value on the measurement date. This rate represents the market rate for high-quality fixed income investments. A lower discount rate increases the present value of benefit obligations and increases pension expense. When considering the expected long-term rate of return on pension plan assets, we take into account current and expected asset allocations, as well as historical and expected returns on plan assets. Other assumptions include demographic factors such as retirement, mortality and turnover. For further discussion of our pension and postretirement benefits, refer to Note 11 – “Pension and Other Postretirement Benefits” to the Condensed Consolidated Financial Statements.

Income Taxes

     We estimate our income tax provision in each of the jurisdictions in which we operate, a process that includes estimating exposures related to examinations by taxing authorities. We must also make judgments regarding the ability to realize the deferred tax assets. The carrying value of our net deferred tax asset is based on our belief that it is more likely than not that we will generate sufficient future taxable income in certain jurisdictions to realize these deferred tax assets. A valuation allowance has been established for deferred tax assets that we do not believe meet the “more likely than not” criteria established by Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (“SFAS 109”). Our judgments regarding future taxable income may change due to changes in market conditions, changes in tax laws or other factors. If our assumptions and consequently our estimates change in the future, the valuation allowances we have established may be increased or decreased, resulting in a respective increase or decrease in income tax expense. For further discussion related to our income taxes, refer to Note 6 – “Income Taxes” to the Consolidated Financial Statements in our 2004 Annual Report on Form 10-K for the fiscal year ended August 31, 2004.

Results of Operations

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

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     Net Revenue. Our net revenue for the three months ended February 28, 2005 increased 15.0% to $1.7 billion, from $1.5 billion for the three months ended February 29, 2004. The increase for the three months ended February 28, 2005 from the same period of the previous fiscal year was due to increased sales levels across most industry sectors. Specific increases include a 35% increase in the sale of consumer products; a 48% increase in the sale of instrumentation and medical products; a 21% increase in the sale of computing and storage products; a 38% increase in the sale of peripherals products; and a 17% increase in the sale of automotive products. The increased sales levels were due to the addition of new customers and organic growth in these industry sectors. The increase in the instrumentation and medical industry sector was primarily attributable to increased sales levels as more vertical companies in this industry sector are electing to outsource their production. The increase in the consumer industry sector was primarily attributable to new and existing program growth resulting from our product diversification efforts within this sector. These increases were partially offset by a 15% decrease in the sale of networking products and a 12% decrease in the sale of telecommunications products.

     Our net revenue for the six months ended February 28, 2005 increased 18.3% to $3.5 billion, from $3.0 billion for the six months ended February 29, 2004. The increase for the six months ended February 28, 2005 from the same period of the previous fiscal year was due to increased sales levels across most industry sectors. Specific increases include a 25% increase in the sale of consumer products; a 56% increase in the sale of instrumentation and medical products; a 44% increase in the sale of peripheral products; an 18% increase in the sale of computing and storage products; and a 13% increase in the sale of automotive products. The increased sales levels were due to the addition of new customers and organic growth in these industry sectors. The increase in the instrumentation and medical industry sector was primarily attributable to increased sales levels as more vertical companies in this industry sector are electing to outsource their production. The increase in the consumer industry sector was primarily attributable to new and existing program growth resulting from our product diversification efforts within this sector. These increases were partially offset by a 4% decrease in the sale of networking products and a 5% decrease in the sale of telecommunications products.

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

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     Foreign source revenue represented 85.2% and 85.7% of net revenue for the three months and six months ended February 28, 2005. This is compared to 83.8% and 85.7% for the three months and six months ended February 29, 2004. We expect our foreign source revenue to increase as a percentage of total net revenue due to expansion in China, Eastern Europe and India, and due to the continued shift of production to lower cost regions.

     Gross Profit. Gross profit decreased to 8.2% of net revenue for the three months ended February 28, 2005, from 8.8% of net revenue for the three months ended February 29, 2005. The percentage decrease for the three months ended February 28, 2005 versus the same period of fiscal year 2004 was primarily due to a higher portion of materials-based revenue (driven in part by growth in the consumer industry sector), combined with the continued shift of production to lower cost regions. In absolute dollars, gross profit for the three months ended February 28, 2005, increased $9.1 million versus the three months ended February 29, 2004 due to the increased revenue base. Gross profit decreased to 8.3% of net revenue for the six months ended February 28, 2005, from 8.8% of net revenue for the six months ended February 29, 2004. In absolute dollars, gross profit for the six months ended February 28, 2005 increased $30.5 million versus the six months ended February 29, 2004 due to the increased revenue base.

     Selling, General and Administrative. Selling, general and administrative expenses for the three months and six months ended February 28, 2005 increased to $66.1 million (3.9% of net revenue) and $134.2 million (3.8% of net revenue), respectively, compared to $66.0 million (4.4% of net revenue) and $132.0 million (4.4% of net revenue) for the three months and six months ended February 29, 2004, respectively. The absolute dollar increase for the six months ended February 28, 2005 was primarily due to a realignment of our organizational structure into three regional operating segments and costs related to compliance with the Sarbanes-Oxley Act of 2002. The decrease as a percentage of net revenue was primarily due to the increased revenue base.

     Research and Development. Research and development expenses for the three months and six months ended February 28, 2005 increased to $6.2 million (0.4% of net revenue) and $12.1 million (0.3% of net revenue), respectively, from $3.2 million (0.2% of net revenue) and $6.1 million (0.2% of net revenue) for the three months and six months ended February 29, 2004, respectively. The increase is attributed to growth in our product development activities related to new reference designs, including networking and server products, cell phone products, wireless and broadband access products, consumer products, and storage products. We also continued efforts in the design of circuit board assembly; mechanical design and the related production design process; and the development of new advanced manufacturing technologies.

     Amortization of Intangibles. We recorded $10.4 million and $20.9 million of amortization of intangible assets for the three months and six months ended February 28, 2005, respectively, as compared to $12.0 million and $22.1 million for the three months and six months ended February 29, 2004, respectively. For additional information regarding purchased intangibles, see Note 8 – “Goodwill and Other Intangible Assets” and Note 9 – “Business Acquisitions” to the Condensed Consolidated Financial Statements.

     Restructuring and Impairment Charges. There were no restructuring charges incurred during the six months ended February 28, 2005 and February 29, 2004. As of February 28, 2005, liabilities related to restructuring activities carried out prior to August 31, 2003 total approximately $7.6 million. Approximately $5.2 million of this total is expected to be paid out within the next twelve months for severance and benefit payments related to the remaining restructuring activities and lease commitment costs. The remaining balance, consisting of lease commitment costs, is expected to be paid out through August 31, 2006.

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     The historical restructuring programs discussed in Note 7 – “Restructuring and Impairment Charges” to the Condensed Consolidated Financial Statements have allowed us to align our production capacity and shift our geographic footprint to meet current customer requirements. We continuously evaluate our operations and cost structure relative to general economic conditions, market demands and cost competitiveness, and our geographic footprint as it relates to our customers’ production requirements. A change in any of these factors could result in additional restructuring and impairment charges in the future.

     Interest Income. Interest income increased to $2.9 million and $4.8 million for the three months and six months ended February 28, 2005, respectively, from $1.8 million and $3.5 million for the three months and six months ended February 29, 2004, respectively. The increase was primarily due to higher interest yields on cash deposits and short-term investments.

     Interest Expense. Interest expense increased to $5.7 million and $11.1 million for the three months and six months ended February 28, 2005, respectively, from $4.8 million and $9.5 million for the three months and six months ended February 29, 2005, respectively. The increase was primarily a result of higher base interest rates related to our $300.0 million 5.875% senior notes issued in July of 2003 (the “Senior Notes”), as we have an interest rate swap in place that effectively converts the fixed interest rate of the Senior Notes to a variable rate. The increase was partially offset by the redemption of our Convertible Notes in May 2004.

     Income Taxes. Income tax expense reflects an effective tax rate of 16.3% for both the three months and six months ended February 28, 2005, respectively, as compared to an effective rate of 15.3% and 15.1% for the three months and six months ended February 29, 2004, respectively. The tax rate is predominantly a function of the mix of tax rates in the various jurisdictions in which we do business. As the proportion of our income derived from foreign sources has increased, our effective tax rate, excluding the impact of restructuring charges, has decreased. Our international operations have historically been taxed at a lower rate than in the United States, primarily due to tax incentives, including tax holidays, granted to our sites in Malaysia, China, Brazil, Poland, Ukraine and Hungary that expire at various dates through 2030. Such tax holidays are subject to conditions with which we expect to continue to comply.

     In October 2004, the President signed into law the “American Jobs Creation Act of 2004” (“the Act”). The Act creates a temporary incentive for U.S. multinational companies to repatriate accumulated foreign earnings by providing an 85% dividends received deduction for certain eligible dividends The deduction is subject to a number of limitations and requirements, including a formal plan for domestic reinvestment of the dividends. In December 2004, the FASB issued FASB Staff Position No. 109-2, Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004 (“FSP 109-2”). FSP 109-2 provides guidance under SFAS 109 with respect to recording the potential impact of the repatriation provisions of the Act on enterprises’ income tax expense and deferred tax liability. FSP 109-2 states that an enterprise is allowed time beyond the financial reporting period of enactment to evaluate the effect of the Act on its plan for reinvestment or repatriation of foreign earnings for purposes of applying SFAS 109. The Company may make this election with respect to repatriation of qualifying earnings in either fiscal year 2005 or 2006. We are currently evaluating the effects of the repatriation provision and expect to complete the evaluation no later than the second quarter of fiscal year 2006. At this time, the range of earnings that may be repatriated and the potential range of income tax effects of such repatriation cannot be reasonably estimated.

Acquisitions and Expansion

     We have made a number of acquisitions that were accounted for under the purchase method of accounting. Our consolidated financial statements include the operating results of each business from the date of acquisition. See “Factors Affecting Future Results – We may not achieve expected profitability from our acquisitions.” For further discussion of our acquisitions, see Note 9 – “Business Acquisitions” and Note 13 – “Subsequent Event” to the Condensed Consolidated Financial Statements and Note 12 – “Business Acquisitions” to the Consolidated Financial Statements in our 2004 Annual Report on Form 10-K for the fiscal year ended August 31, 2004.

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Seasonality

     Production levels for our consumer and automotive industry sectors are subject to seasonal influences. We may realize greater net revenue during our first fiscal quarter, which includes a majority of the holiday selling season. Therefore, quarterly and year-to-date results should not be relied upon as necessarily indicative of results for the entire fiscal year.

Liquidity and Capital Resources

     At February 28, 2005, our principal sources of liquidity consisted of cash, available borrowings under our credit facilities and our accounts receivable securitization program. The following table sets forth, for the periods indicated, selected consolidated cash flow information (in thousands).

     We generated $226.8 million of cash from operating activities for the six months ended February 28, 2005. This consisted primarily of $102.0 million of net income, $109.9 million of non-cash depreciation and amortization charges and $124.5 million of decreases in accounts receivable, offset by $121.3 million of decreases for accounts payable and accrued expenses. The decrease in accounts receivable was due to the timing of sales in fiscal year 2005, and the sale of $32.5 million of receivables to a non-related third party. The decrease in accounts payable and accrued expenses was due primarily to lower purchasing levels at the end of the second quarter of fiscal year 2005 and the timing of purchases in the second quarter of fiscal year 2005.

     Net cash used in investing activities of $93.2 million for the six months ended February 28, 2005 consisted of our capital expenditures of $101.1 million for manufacturing and computer equipment to support our ongoing business and expansion activities in China, Eastern Europe and India; and net cash of $5.2 million paid for the acquisition of certain television assembly operations of Philips in Kwidzyn, Poland. These expenditures were offset by $13.1 million of proceeds from the sale of property and equipment.

     Net cash used in financing activities of $5.0 million for the six months ended February 28, 2005 resulted from payments on notes payable, long-term debt and capital lease obligations, which included approximately $15.4 million, based on currency exchange rates at the payment date, paid to reduce the outstanding balance of our five-year term loan for a Japanese subsidiary with a Japanese bank. These payments were partially offset by $10.7 million net proceeds for the six-month period from the issuance of common stock under option plans and employee stock purchase plans. Additionally, in December 2004 we entered into a $6.4 million short-term borrowing agreement, based on currency exchange rates at the borrowing date, for a Polish subsidiary with a Polish bank. This short-term borrowing was repaid in full prior to February 28, 2005.

     During the fourth quarter of fiscal year 2003, we amended and revised our then existing credit facility and established a three-year, $400.0 million unsecured revolving credit facility with a syndicate of banks (the “Amended Revolver”). Under the terms of the Amended Revolver, borrowings can be made under either floating rate loans or Eurodollar rate loans. We pay interest on outstanding floating rate loans at the greater of the agent’s prime rate or 0.50% plus the federal funds rate. We pay interest on outstanding Eurodollar loans at the London Interbank Offered Rate (“LIBOR”) in effect at the loan inception plus a spread of 0.65% to 1.35%. We pay a facility fee based on the committed amount of the Amended Revolver at a rate equal to 0.225% to 0.40%. We also pay a usage fee if our borrowings on the Amended Revolver exceed 33-1/3% of the aggregate commitment. The usage fee rate ranges from 0.125% to 0.25%. The interest spread, facility fee and usage fee are determined based on our general corporate rating or rating of our senior unsecured long-term indebtedness as determined by Standard and Poor’s Rating Service and Moody’s Investor Service. As of February 28, 2005, the interest spread on the Amended Revolver was 1.325%.

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The Amended Revolver expires on July 14, 2006 and outstanding borrowings are then due and payable. The Amended Revolver requires compliance with several financial covenants including a fixed charge coverage ratio, consolidated net worth threshold and indebtedness to EBITDA ratio, as defined in the Amended Revolver. The Amended Revolver requires compliance with certain operating covenants, which limit, among other things, our incurrence of additional indebtedness. We were in compliance with the respective covenants at February 28, 2005. At February 28, 2005, there were no borrowings outstanding on the Amended Revolver. On March 10, 2005, we borrowed $80.0 million against the Amended Revolver to partially fund the acquisition Varian Electronics Manufacturing, the electronics manufacturing business segment of Varian, Inc., which was consummated on March 11, 2005. Management currently intends to repay this borrowing in full during the third quarter of fiscal year 2005 from cash provided by operations.

     On December 2, 2004, we renewed our existing 0.6 billion Japanese yen (approximately $5.7 million based on currency exchange rates at February 28, 2005) credit facility for a Japanese subsidiary with a Japanese bank. Under the terms of the facility, we pay interest on outstanding borrowings based on the Tokyo Interbank Offered Rate plus a spread of 1.75%. The credit facility expires on December 2, 2005 and any outstanding borrowings are then due and payable. At February 28, 2005 there were no borrowings outstanding under this facility.

     During the second quarter of fiscal year 2004, we entered into an asset backed securitization program with a bank, which originally provided for net cash proceeds at any one time of up to $100.0 million on the sale of eligible accounts receivable of certain domestic operations. As a result of an amendment in April 2004, the program was increased to up to $120.0 million of net cash proceeds at any one time. As a result of a second amendment in February 2005, the program was renewed and increased to up to $145.0 million of net cash proceeds at any one time. Under this agreement, we continuously sell a designated pool of trade accounts receivable to a wholly-owned subsidiary, which in turn sells an ownership interest in the receivables to a conduit, administered by an unaffiliated financial institution. This wholly-owned subsidiary is a separate bankruptcy-remote entity and its assets would be available first to satisfy the claims of the conduit. As the receivables sold are collected, we are able to sell additional receivables up to the maximum permitted amount under the program. The securitization program requires compliance with several financial covenants including a fixed charge coverage ratio, consolidated net worth threshold and indebtedness to EBITDA ratio, as defined in the securitization agreement. We were in compliance with the respective covenants at February 28, 2005. The securitization agreement as amended expires in February 2006 and may be extended on an annual basis. For each pool of eligible receivables sold to the conduit, we retain a percentage interest in the face value of the receivables, which is calculated based on the terms of the agreement. Net receivables sold under this program are excluded from accounts receivable on the Consolidated Balance Sheet and are reflected as cash provided by operating activities on the Consolidated Statement of Cash Flows. We continue to service, administer and collect the receivables sold under this program. We pay facility fees of 0.30% per annum of the average purchase limit and program fees of up to 0.125% of outstanding amounts. The investors and the securitization conduit have no recourse to the Company’s assets for failure of debtors to pay when due. As of February 28, 2005, we had sold $173.9 million of eligible accounts receivable, which represents the face amount of total outstanding receivables at that date. In exchange, we received cash proceeds of $111.9 million and retained an interest in the receivables of approximately $62.0 million. In connection with the securitization program, we recognized pretax losses on the sale of receivables of approximately $0.8 million and $1.4 million during the three and six months ended February 28, 2005

     During the fourth quarter of fiscal year 2004, we negotiated a two-year, $100.0 thousand credit facility for a Ukrainian subsidiary with a Ukrainian bank. Under the terms of the facility, we pay interest on outstanding borrowings based on LIBOR plus a spread of 2.25%. The credit facility expires on June 9, 2006 and any outstanding borrowings are then due and payable. At February 28, 2005, there were no borrowings outstanding under this facility.

     We currently believe that during the next twelve months, our capital expenditures will be in the range of $200.0 million to $250.0 million, principally for machinery and equipment, and expansion in China, Eastern Europe and India. We believe that our level of resources, which include cash on hand, available borrowings under our revolving credit facilities, additional proceeds available under our accounts receivable securitization program and funds provided by operations, will be adequate to fund these capital expenditures and our working capital requirements for the next twelve months. Should we desire to consummate significant additional acquisition opportunities or undertake significant additional expansion activities, our capital needs would increase and could possibly result in our need to increase available borrowings under our revolving credit facilities or access public or private debt and equity markets. There can be no assurance, however, that we would be successful in raising additional debt or equity on terms that we would consider acceptable.

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     Our contractual obligations for future minimum lease payments under non-cancelable lease arrangements and short and long-term debt arrangements at February 28, 2005 are summarized below. We do not participate in, or secure financing for any unconsolidated limited purpose entities. Non-cancelable purchase commitments do not typically extend beyond the normal lead-time of several weeks at most. Purchase orders beyond this time frame are typically cancelable.