FOOL CONFERENCE CALL SYNOPSIS*
By Debora Tidwell (MF Debit)

Jabil Circuit, Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: JBIL)") else Response.Write("(Nasdaq: JBIL)") end if %>
10800 Roosevelt Boulevard
St. Petersburg, FL 33716
(813) 577-9749
http://www.jabil.com (under construction)

UNION CITY, CA (March 20, 1997)/FOOLWIRE/ --- Jabil Circuit reported second quarter 1997 results on March 18th after the market closed. Earnings for the quarter were a record $0.58 per share on revenues of $222.2 million. These results reflect a continuing shift of production mix to higher value-added product and a sequential quarterly revenue improvement near a 40% compound annual growth rate.

Q2 RESULTS. Revenue for the quarter was $222.2 million with cost of revenue of $195.7 million resulting in a gross profit of $26.5 million. SG&A expenses were $7.9 million with R&D expenses of $804,000 resulting in operating income of $17.8 million. Interest expense in the quarter was $389,000 with pre-tax income of $17.4 million. Income taxes were $6.3 million with net income of $11.1 million or $0.58 per share based on 19,163,000 shares.

FIRST SIX MONTHS RESULTS. For the first six months of 1997 their revenues now stand at $425.3 million with operating income of $32.4 million and an after-tax income of $19.9 million or earnings per share of $1.04. That is based on 19,053,000 shares.

BALANCE SHEET. As of the end of February, their cash position was $65.2 million. Accounts receivable were $90.8 million. Inventories were $78.3 million. Property, plant, and equipment was $91.3 million. Depreciation was $6 million. Total assets were $333 million. Current liabilities were $123.7 million. Total liabilities were $186 million. Their total equity position was $147 million.

REVENUES. Revenue in the quarter grew by 9% over the first quarter of the year. Solid production levels during the holiday season and successful new product launches allowed a growth rate that was somewhat higher than anticipated previously for the quarter. The communications segment grew solidly over Q1 production levels as a result of new product and increased production with existing customers. The PC segment was flat compared to the prior quarter. Growth was limited by lower production levels for notebook products during the quarter. The peripherals segment grew modestly as the growth of storage products were offset by declines in production of modem products.

GROSS MARGINS. Gross margins increased sequentially to 11.9% of revenue from 11.4% in the prior quarter, reflecting a continuing shift in product mix to higher value-added products and further improvement of utilization rates in Scotland. Scotland efficiencies improved as new communications products attained mass production levels. An additional factor in improved margins was a continuing shift in production mix to high manufacturing content, lower material content products. The manufacturing value add commands a higher return than the pass-through cost of purchased materials. Products having a relatively high manufacturing content ordinarily have a higher profit as a percentage of revenue. Margins were further improved during the quarter by continuing declines in materials prices. The materials price reduction they saw during the quarter was broad spread, was general as opposed to specific to any particular commodity, and their sense is that materials availability is close to inline supply and demand -- there is pretty good availability. They have seen materials pricing decline in the past three quarters at a more rapid pace than they are accustomed to. It looks like that cycle is something that has stabilized on a continued downward trend and they are not seeing any major change right now.

EXPENSES AND TAXES. SG&A decreased sequentially to 3.6% of increased revenue from 3.8% in the previous quarter. Total expense was slightly higher at $7.9 million. R&D increased slightly to $804,000 or 0.4% of sales. Capital expenditures for Q2 were $19 million and are $32 million year-to-date and includes $9 million for their building so far. Operating income increased sequentially by almost 0.8% to 8.0% on increased revenue. This result exceeds their targeted operating income range of between 6% and 6.5% of revenue. Interest expense declined sequentially to $390,000 or 0.2% of revenue. Tax rates decreased to 36.3% of income compared to 37% in the prior year quarter. This is a reflection of the lower tax rates in Scotland offset somewhat by higher state taxes in the US. This rate is slightly higher than their normalized rate of 35.5%.

NET INCOME. Net income after tax was $11,059,000 or 5% of revenue, exceeding their targeted goal of 3% to 3.5% of revenue. This resulted in an EPS of $0.58 on an average of 19,163,000 shares during the period, fully diluted. Needless to say, they are pleased with these results, reflecting attainment of revenue growth goals, record EPS levels, and performance in excess of the targeted operating goals they have identified over the last several years.

CASH, A/R, DSO, TURNS. As with the previous quarter they have maintained significant cash balances ending at $65 million. This compares with $73 million as of the end of last quarter. This is their fifth consecutive quarter of positive cash flow from operations, even with a 9% increase in revenue for the period. In reviewing major balance sheet accounts, accounts receivable increased by $13 million to $91 million in the second quarter compared to $78 million in the first quarter as a reflection of increased revenue. Calculated days sales outstanding and actual collection experience for the quarter was 37 days, slightly above their first quarter which was 35 days. Inventories increased by $11 million in the first quarter to $78 million as compared to $67 million as of the end of November. Calculated inventory turns were 10, equaling their overall goal of 10 turns as a company. They are pleased with this performance considering they are continuing to add the number of assemblies within their customer base and are preparing for production on several new programs.

DEBT, ROI, ROA, ROE. From a borrowing standpoint, as of last quarter the company is currently not utilizing any of their $60 million credit facility. Their long-term debt remained constant at $60 million in the second quarter. As they have mentioned before, the majority of their long-term debt is represented by the $50 million private placement funded in May of last year. The principle payments on this debt do not begin until mid-1999. Their debt-to-capitalization ratio is now 29% with total liabilities to equity ratio at the end of the quarter of 1.3 to 1. They are very pleased that they were able to maintain similar asset turnover performance from first quarter levels. With this performance and increased profits, their average return on assets improved to 13.9% in the second quarter from 11.7% in the first quarter. In addition, their average return on equity improved to 31.5% compared to 27.4% in the first quarter.

BUSINESS OUTLOOK. Future business levels for existing customers appear well positioned to grow at a moderate rate over the next several quarters, with solidly grounded growth in targeted markets and some multinational production. The mix of business for fiscal 1997 appears similar to that of Q2 1997, the quarter just reported, with continuing strength in the data communications segment. The third quarter revenue appears to grow over Q2 1997, with continuing growth in Q4 and Q1 1998 in line with a 30% compound annual growth rate or 7% growth per sequential quarter. The communications segment is positioned to expand beyond 45% of total revenue for the year with continuing impact to their economic model. Production levels are anticipated to expand in Q3, Q4, and Q1 of next year. In addition to the growth of current products, new product production is being established in the Spring for General Instruments (satellite set-top converter boxes), a new customer relationship established with computer telephony equipment company Dialogic.

SOURCES OF GROWTH. This is pretty subjective but, speaking broadly across the 6 or 7 different communications customers they are supporting, Jabil is seeing growth at the highest growth rate of any of the sectors they are supporting. They are not seeing evidence that the rumors of Internet losing ground have any truth to them. Beyond that, their participation in those industries, they think that growth is coming primarily from existing customers, a few incremental new products, with those products just doing well and growing in the marketplace. Jabil thinks that this growth is a function of their having been very fortunate to be lined up with products that, by and large, are doing very well in the marketplace. They think, with very rare exceptions, they are not taking share from any other contract manufacturer. They have generally commented before that they think communications companies have outgrown the small regional contract manufacturers. Many of them used to produce all this product as recently as two years ago, so there may be some implication on share to some of the small contract manufacturers, but they think the growth in the industry is probably doing very well for the small contract manufacturing players as well. Jabil also thinks it may be true that they may be picking up more of the value added units in the communications sector too. A significant majority of their system assembly is for data communications customers and that industry segment is showing attractive growth rates so system assembly in that area is going to probably drive a growth rate that will be something greater than the growth rate of the underlying communications sector.

COMPUTER SYSTEM ASSEMBLIES. They are starting production of computer system assemblies for a major multinational computer company. System assembly has continued to expand. They are doing a conference where the estimates for the year is going to be something approaching 50% of revenue (versus 29% last year) for this current year is going to leave their factories in the form of completed product inclusive of the value added circuit board assemblies. The new motherboard opportunity for the multinational computer company is with a company that doesn't want Jabil to disclose their name right now, but Jabil indicated that it is significant volume and is going to be at the motherboard level, not a system as of yet. In addition to that, production levels in the peripherals segment is anticipated to grow at targeted levels from Q2 through the Spring, Summer, and Fall. Production levels in the PC segment are anticipated to slow in the Spring and return to sequential growth in the Summer when new products are planned to attain mass production levels.

WHY SYSTEM ASSEMBLY DOESN'T HAVE TRADITIONAL MARGIN IMPACT HERE. The view from Wall Street generally has been that system assembly translates into lower margins. That is not entirely true because that belief is based, in large part, on some of the experience that Silicon Graphics Inc. has demonstrated. They are building very, very high material content systems, mostly PCs. As part of their manufacturing they are including a disproportionately high percentage of pass-through parts like disk drives, memory, processors that drive the material content very high which tends to depress margins. The system assembly work that Jabil is doing has a relatively proportionate mix of purchased materials (pass-through materials) and manufacturing value add. That is what you see in circuit board assembly. So, the result is that they margins they are seeing on the systems they are building is analogous to what you see on circuit board assembly. It is because the system assembly that they are doing doesn't include things like disk drives or processors. It does include some memory, but the weighting of materials to manufacturing content is similar to that in card assembly.

DIRECT ORDER FULFILLMENT SYSTEMS. They are doing some work with a couple of their existing customers on converting what are system-assembly operations into direct order fulfillment. They are initiating a program with some medical products they are doing for Johnson & Johnson, but beyond that they are not in a position to announce anything further. The direct order fulfillment model they are running in some of their factories right now is still fairly characterized as a beta site, they are still shaking out systems. This is a non-trivial administrative task to be able to achieve the integration it takes to directly satisfy customer orders, usually it has to be online. There is a lot of IT integration that needs to go on between themselves, their customers, and the supply lines. So, although they are talking about it and are working on forward looking projects with some of their other customers, they think it might be aggressive to say that they will have another major account up in that model this quarter, although there may be one, but they don't want people to count on it.

MARGIN OUTLOOK. Gross margins are expected to continue into fiscal 1998 in excess of Jabil's long-term goals at similar levels to Q2 based on the unusual mix of high value add/low revenue products. This outlook will be affected by several factors. Margins appear to be positioned for continued strength as high value add products form a larger portion of total revenue. Margin improvements will be largely unaffected by the startup costs related to the new Mexican plant in Q3, although Q4 should see about a 0.2% dilution of gross margin from the Mexico startup as mass production nears and other new buildings for existing locations are not anticipated to erode margins noticeably. Depreciation rates on the long, useful life real estate compares favorably with lease rates on properties being replaced. Increased floor space is generally expected to achieve economic levels of utilization near the time those properties are placed in service. In other words, the shift in business model apparent in Q1 and Q2 results are expected to be representative of the financial results for fiscal 1997 and appear positioned to continue at current levels during the year and into fiscal 1998.

NEW FACTORIES. During the last quarter, new building projects have been announced for Mexico, Scotland, and Florida. The total expansion of these factories will increase worldwide floor space by nearly 100% by the Fall of 1997. Real estate is roughly 15-20% of the total cost of capacity so, really roughly, you can fit maybe $50 million worth of equipment in a $10 million building, just to kind of scale it. What they are doing this year around the world at the same time, is expanding their floor space to be able to have room to sustain a 30% compound annual growth rate. In as much as those real estate assets are very long useful-life assets, the cost of placing these buildings into service is relatively modest, yet it gives them the capability to be able to add equipment directly on kind of a just-in-time basis to be able to match requirements of growth around the world. So, whereas the real estate is coming on in kind of a clump, equipment will be brought on as growth occurs, just in time to be able to meet the requirements of customers and the product lines that they produce in the work cells. They will not be able to get new capacity onstream in a timeframe that will be ideal to customers around the world in every case. They wish Malaysia was coming on a little sooner than it is and wish Mexico was done now, for example. Those locations will be attractive and they will wind up with some pent-up demand there. They are real tight in Scotland right now, but that factory is going to come online in early-to-mid-Summer and they will probably be okay there. In Florida they still have the old leased factory that they are going to have around until December, so that will buy them some comfort on floor space and they will be fine there. Michigan is fine.

MALAYSIA. Today they announced a new factory project in Malaysia. Last week they broke ground on a new 150,000 square foot factory in Penang on an 8.7 acre site recently acquired from Quantum. The site is less than a half mile from their current leased facility in Penang and is expected to be ready for occupancy by the end of the Summer. The significance of Malaysia is that, at the size Jabil is at right now of 60,000 square feet, they are not going to be able to diversify this factory until they can bring additional capacity to the market. Fortunately, current domestic customers are anticipated to take advantage of the additional capacity in Penang as soon as it becomes available.

MEXICO. Plans for this factory are coming together although construction schedules now target production launch for Q1 1998. Mexican employment stands at 8 people now training in US locations with current recruiting efforts for an additional 15 people. That will be getting under way in the next quarter.

SCOTLAND. This factory is well underway and is expected to be in mass production by mid-Summer.

FLORIDA. The Florida buildings that they also announced -- a new 135,000 square foot factory they are calling the Ninth Street Plant -- is being fitted with new lines now. Production is expected to begin in April. The new 91,000 square foot plant they announced two weeks ago is expected to come online during their third fiscal quarter as well. The end game that they are really at right now are two buildings that they own and one that they leased that is on contiguous property. They also have a building they have been leasing for the last two years that is 75,000 square feet that they are going to be vacating by the end of the year. Right now they are treating that property as vacated, but actually they can conduct operations in there throughout the balance. Even excluding the 75,000 square foot leased property, it winds up being a tripling of total floor space on the Florida site this quarter.

OTHER FACTORS. SG&A is anticipated to grow modestly over the year from a $7.9 million run rate per quarter in the second quarter, reflecting a buildup in MIS resources at the plant level and corporate level along with staffing for Mexican operations. These SG&A levels are anticipated to stabilize at around 3.6% of increasing revenues, in line with the financial model they have targeted over the last several years. Interest costs are expected to increase slightly to 0.3% of revenue in the Spring and grow to almost 0.4% by the fourth quarter. These increasing costs will occur as funded capital expansion and working capital requirements begin to have an impact on interest costs. Capital expenditures with the expenditures for their building projects, over the course of the year will probably be along the lines of $40 million. They do plan to finance those buildings with term debt, about 75% of it. A lot of that is replacing leased facilities. Additional capital that they will need to support increased revenue from their beginning-of-the-year revenue rate will probably be another $30 million. The buildings are really out of the ordinary to help them support the growth of the company and then there are normal recurring capital expenditures that will be along the lines of $30 million. Taxes should return to a normalized rate of 35.5% of income. Overall, fiscal 1997 offers solid prospects for surpassing their historical operating goals -- a gross margin of 10%, SG&A near 3.5%, operating margin between 6% and 6.5%, and net income between 3% and 3.5% of revenue.

SUMMARY. The record results for the second quarter were excellent and are on track for a great year. Jabil is pleased with the emerging stability in margins, in revenue growth and believe it is the result of the improved diversity and the shift of business mix to the most attractive industries and products. They are excited at the prospects for their factories worldwide and the potential benefits these resources could bring to their customers and the overall business in fiscal 1998.

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.