1.	Description of Business and Summary of Significant Accounting Policies

Jabil Circuit, Inc. (together with its subsidiaries, herein referred to as the “Company”) is an independent provider of electronic manufacturing services and solutions. The Company provides comprehensive electronics design, production and product management services to companies in the aerospace, automotive, computing, consumer, defense, industrial, instrumentation, medical, networking, peripherals, solar, storage and telecommunications industries. The Company’s services combine a highly automated, continuous flow manufacturing approach with advanced electronic design and design for manufacturability technologies. The Company is headquartered in St. Petersburg, Florida and has manufacturing operations in the Americas, Europe and Asia.

Significant accounting policies followed by the Company are as follows:

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts and operations of the Company, and its wholly-owned and majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in preparing the consolidated financial statements. In the opinion of management, all adjustments (consisting primarily of normal recurring accruals) necessary to present fairly the information have been included. Certain amounts in the prior periods’ Consolidated Financial Statements and Notes to the Consolidated Financial Statements have been reclassified to conform to the current period’s presentation.

In the fiscal year ended August 31, 2010, the Company recorded certain same day debt borrowings and repayments on a net basis within the Consolidated Statement of Cash Flows. Correcting this error such that debt payments and borrowings are recorded on a gross basis within the Consolidated Statement of Cash Flows increased the “payments toward debt agreements” line and the “borrowings under debt agreements” line within the Consolidated Statement of Cash Flows by $1.0 billion for the fiscal year ended August 31, 2010, with no impact on net cash used in financing activities or other components within the Consolidated Statement of Cash Flows. The Company assessed the materiality of this error and concluded that the previously issued Consolidated Statement of Cash Flows for fiscal year ended August 31, 2010 is not materially misstated because, as discussed above, there was no impact on net cash used in financing activities or other components within the Consolidated Statement of Cash Flows. The revision had no impact on the Company’s previously presented Consolidated Statement of Operations, Consolidated Balance Sheet or earnings per share.

Use of Accounting Estimates

Management is required to make estimates and assumptions during the preparation of the consolidated financial statements and accompanying notes in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the consolidated financial statements. They also affect the reported amounts of net income. Actual results could differ materially from these estimates and assumptions.

Cash and Cash Equivalents

The Company considers all highly liquid instruments with original maturities of 90 days or less to be cash equivalents for consolidated financial statement purposes. Cash equivalents consist of investments in money market funds, municipal bonds and commercial paper with original maturities of 90 days or less. At August 31, 2012 and 2011 there were $374.3 million and $117.4 million of cash equivalents outstanding, respectively. Management considers the carrying value of cash and cash equivalents to be a reasonable approximation of fair value given the short-term nature of these financial instruments.

Inventories

Inventories are stated at the lower of cost (the first in, first out (FIFO) method for manufacturing operations and the average method for aftermarket services operations) or market.

Property, Plant and Equipment, net

Property, plant and equipment is capitalized at cost and depreciated using the straight-line depreciation method over the estimated useful lives of the respective assets. Estimated useful lives for major classes of depreciable assets are as follows:


Asset Class		Estimated Useful Life
Buildings		35 years
Leasehold improvements		Shorter of lease term or useful life of the improvement
Machinery and equipment		5 to 10 years
Furniture, fixtures and office equipment		5 years
Computer hardware and software		3 to 7 years
Transportation equipment		3 years

Certain equipment held under capital leases is classified as property, plant and equipment and the related obligation is recorded as long-term lease obligations on the Consolidated Balance Sheets. Amortization of assets held under capital leases is included in depreciation expense in the Consolidated Statements of Operations. Maintenance and repairs are expensed as they are incurred. The cost and related accumulated depreciation of assets sold or retired are removed from the accounts and any resulting gain or loss is reflected in the Consolidated Statements of Operations as a component of operating income.

Goodwill and Other Intangible Assets

The Company accounts for goodwill in a purchase business combination as the excess of the cost over the fair value of net assets acquired. Business combinations can also result in other intangible assets being recognized. Amortization of intangible assets, if applicable, occurs over the estimated useful life of the asset. The Company tests goodwill for impairment at least annually or more frequently under certain circumstances, using a two-step method. The Company conducts this review during the fourth quarter of each fiscal year absent any triggering events. Furthermore, identifiable intangible assets that are determined to have indefinite useful economic lives are not amortized, but are separately tested for impairment at least annually, using a one-step fair value based approach or when certain indicators of impairment are present.

Impairment of Long-lived Assets

Long-lived assets, such as property and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of the asset or asset group is measured by comparison of its carrying amount to undiscounted future net cash flows the asset is expected to generate. If the carrying amount of an asset or asset group is not recoverable, the Company recognizes an impairment loss based on the excess of the carrying amount of the long-lived asset or asset group over its respective fair value which is generally determined as the present value of estimated future cash flows or as the appraised value.

Revenue Recognition

The Company’s net revenue is principally from the manufacturing services of electronic equipment built to customer specifications. The Company also derives revenue to a lesser extent from aftermarket services, design services and excess inventory sales. Revenue from manufacturing services and excess inventory sales is generally 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 collectibility is reasonably assured. Aftermarket service related revenue is recognized upon completion of the services. Design service related revenue is generally recognized upon completion and acceptance by the respective customer. The Company assumes no significant obligations after product shipment. Taxes that are collected from the Company’s customers and remitted to governmental authorities are presented within the Company’s Consolidated Statement of Operations on a net basis.

Accounts Receivable

Accounts receivable consist of trade receivables, note receivables and miscellaneous receivables. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Bad debts are charged to this allowance after all attempts to collect the balance are exhausted. Allowances of $3.2 million and $4.8 million were recorded at August 31, 2012 and 2011, respectively. As the financial condition and circumstances of the Company’s customers change, adjustments to the allowance for doubtful accounts are made as necessary.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax rate is recognized in income in the period that includes the enactment date of the rate change. The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. The Company has considered future taxable income and ongoing feasible tax planning strategies in assessing the need for the valuation allowance.

Earnings Per Share

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


	Fiscal Year Ended August 31,
	2012		2011		2010
Numerator:
Net income attributable to Jabil Circuit, Inc	$	394,687	$	381,063	$	168,840

Denominator for basic and diluted earnings per share:
Weighted-average common shares outstanding		206,160		212,386		209,418
Share-based payment awards classified as participating securities		—		2,116		4,914

Denominator for basic earnings per share		206,160		214,502		214,332

Dilutive common shares issuable under the employee stock purchase plan and upon exercise of stock options and stock appreciation rights		315		872		215
Dilutive unvested restricted stock awards		4,706		5,345		3,050

Denominator for diluted earnings per share		211,181		220,719		217,597

Earnings per share: Income attributable to the stockholders of Jabil Circuit, Inc.:
Basic	$	1.91	$	1.78	$	0.79

Diluted	$	1.87	$	1.73	$	0.78

For fiscal year 2012, options to purchase 3,748,037 shares of common stock and 4,930,935 stock appreciation rights were excluded from the computation of diluted earnings per share as their effect would have been anti-dilutive.

For fiscal year 2011, there were no shares of common stock or stock appreciation rights excluded from the computation of diluted earnings per share because their effect would have been anti-dilutive.

For fiscal year 2010, options to purchase 6,207,985 shares of common stock and 7,997,567 stock appreciation rights were excluded from the computation of diluted earnings per share as their effect would have been anti-dilutive.

Foreign Currency Transactions

For the Company’s foreign subsidiaries that use a currency other than the U.S. dollar as their functional currency, the assets and liabilities are translated at exchange rates in effect at the balance sheet date, and revenues and expenses are translated at the average exchange rate for the period. The effects of these translation adjustments are reported in other comprehensive income. Gains and losses arising from transactions denominated in a currency other than the functional currency of the entity involved and remeasurement adjustments for foreign operations where the U.S. dollar is the functional currency are included in operating income.

Fair Value of Financial Instruments

The three levels of the fair-value hierarchy include: Level 1 — quoted market prices in active markets for identical assets and liabilities; Level 2 – inputs other than quoted market prices included in Level 1 above that are observable for the asset or liability, either directly or indirectly; and Level 3 – unobservable inputs for the asset or liability.

The carrying amounts of cash and cash equivalents, trade accounts receivable, income taxes receivable, accounts payable, accrued expenses and income taxes payable approximate fair value because of the short-term nature of these financial instruments. Refer to Note 2 – “Trade Accounts Receivable Securitization and Sale Programs”, Note 7 – “Notes Payable and Long-Term Debt”, Note 8 – “Postretirement and Other Employee Benefits”, Note 12 – “Derivative Financial Instruments and Hedging Activities” and Note 13 – “Loss on Disposal of Subsidiaries” for disclosure surrounding the fair value of the Company’s deferred purchase price receivables, debt obligations, pension plan assets, derivative financial instruments and notes receivable, respectively.

Stock-Based Compensation

The Company recognizes stock-based compensation expense, reduced for estimated forfeitures, on a straight-line basis over the requisite service period of the award, which is generally the vesting period for outstanding stock awards. The Company recorded $81.4 million, $76.2 million and $104.6 million of stock-based compensation expense gross of tax effects, which is included in selling, general and administrative expenses within the Consolidated Statements of Operations for fiscal years 2012, 2011, and 2010, respectively. The Company recorded tax effects related to the stock-based compensation expense of $1.4 million, $1.2 million and $1.9 million, which is included in income tax expense within the Consolidated Statements of Operations for fiscal years 2012, 2011 and 2010, respectively. Included in the compensation expense recognized by the Company is $4.4 million, $3.8 million and $4.1 million related to the Company’s employee stock purchase plan (“ESPP”) during fiscal years 2012, 2011 and 2010, respectively. The Company capitalizes stock-based compensation costs related to awards granted to employees whose compensation costs are directly attributable to the cost of inventory. At August 31, 2012 and 2011, $0.3 million of stock-based compensation costs were classified as inventories on the Consolidated Balance Sheets.

Cash received from exercises under all share-based payment arrangements, including the Company’s ESPP, for fiscal years 2012, 2011 and 2010 was $26.0 million, $31.6 million and $10.7 million, respectively. The proceeds for fiscal years 2012, 2011 and 2010 were offset by $31.2 million, $9.8 million and $5.5 million, respectively, of restricted shares withheld by the Company to satisfy the minimum amount of its income tax withholding requirements. The fair value of the restricted shares withheld was determined on the date that the restricted shares vested and resulted in the withholding of 1,590,721 shares, 681,446 shares and 351,968 shares of the Company’s common stock during the 12 months ended August 31, 2012, 2011 and 2010, respectively. The shares have been classified as treasury stock on the Consolidated Balance Sheets. The Company currently expects to satisfy share-based awards with registered shares available to be issued.

See Note 10 — “Stockholders’ Equity” for further discussion of stock-based compensation expense.

Comprehensive Income

Comprehensive income is the changes in equity of an enterprise except those resulting from stockholder transactions.

Accumulated other comprehensive income consists of the following (in thousands):


	August 31,
	2012			2011
Foreign currency translation adjustment	$	149,116		$	228,439
Unrecognized gains (losses) on derivative instruments, net of tax		(7,153	)		(11,172	)
Actuarial loss, net of tax		(35,783	)		(22,689	)
Prior service cost, net of tax		95			128

	$	106,275		$	194,706

The actuarial loss and prior service cost recorded to accumulated other comprehensive income at August 31, 2012 are net of a tax benefit (loss) of $6.2 million and ($32.0) thousand, respectively. The actuarial loss and prior service cost recorded to accumulated other comprehensive income at August 31, 2011 are net of a tax benefit (loss) of $2.8 million and ($44.0) thousand, respectively. The unrecognized gains (losses) on derivative instruments recorded to accumulated other comprehensive income during fiscal years 2012 and 2011 are net of tax benefits of $14.8 million and $14.2 million, respectively.

Derivative Instruments

All derivative instruments are recorded gross on the balance sheets at their respective fair values. The Company does not intend to use derivative financial instruments for speculative purposes. Generally, if a derivative instrument is designated as a cash flow hedge, the change in the fair value of the derivative is recorded in other comprehensive income to the extent the derivative is effective, and recognized in the statement of operations when the hedged item affects earnings. If a derivative instrument is designated as a fair value hedge, the change in fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings in the current period. Changes in fair value of derivatives that are not designated as hedges are recorded in operations. Cash receipts and cash payments related to derivative instruments are recorded in the same category as the cash flows from the items being hedged on the Consolidated Statements of Cash Flows. Refer to Note 12 — “Derivative Financial Instruments and Hedging Activities” for further discussion surrounding the Company’s derivative instruments.