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JABIL CIRCUIT INC - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operations(Edgar Glimpses Via Acquire Media NewsEdge) Overview We are one of the leading providers of worldwide electronic manufacturing services and solutions. We provide comprehensive electronics design, production and product management services to companies in the aerospace, automotive, computing, defense, digital home, energy, healthcare, industrial, instrumentation, lifestyles, mobility, mold, networking, packaging, peripherals, storage, telecommunications and wearable technology industries. The industry in which we operate is composed of companies that provide a range of design and manufacturing services to companies that utilize electronics components. The industry experienced rapid change and growth through the 1990s as an increasing number of companies chose to outsource an increasing portion, and, in some cases, all of their manufacturing requirements. In mid-2001, the industry's revenue declined as a result of significant cut-backs in customer production requirements, which was consistent with the overall downturn in the technology sector at the time. In response to this downturn in the technology sector, we implemented restructuring programs to reduce our cost structure and further align our manufacturing capacity with the geographic production demands of our customers. Industry revenues generally began to stabilize in 2003 and companies began to turn more to outsourcing versus internal manufacturing. In addition, the number of industries serviced, as well as the market penetration in certain industries, by electronic manufacturing service providers has increased over the past several years. In mid-2008, the industry's revenue declined when a deteriorating macro-economic environment resulted in illiquidity in global credit markets and a significant economic downturn in the North American, European and Asian markets. In response to this downturn, and the termination of our business relationship with BlackBerry Limited, we implemented additional restructuring programs, including the restructuring plans that were approved by our Board of Directors in the first quarter of fiscal year 2014 (the "2014 Restructuring Plan") and in fiscal year 2013 (the "2013 Restructuring Plan"), to reduce our cost structure and further align our manufacturing capacity with the geographic production demands of our customers. We continue to monitor the current economic environment and its potential impact on both the customers that we serve as well as our end-markets and closely manage our costs and capital resources so that we can respond appropriately as circumstances continue to change. At August 31, 2014, our reportable operating segments consisted of three segments: Diversified Manufacturing Services ("DMS"), Enterprise & Infrastructure ("E&I") and High Velocity Systems ("HVS"). As of September 1, 2014, we will report our business in the following two segments: Electronics Manufacturing Services ("EMS") and DMS. Our EMS segment is focused around leveraging IT, supply chain design and engineering, technologies largely centered on core electronics, sharing of our large scale manufacturing infrastructure and the ability to serve a broad range of end markets. Our EMS segment includes customers primarily in the automotive, computing, digital home, energy, industrial, networking, printing, storage and telecommunications industries. Our DMS segment is focused on providing engineering solutions, heavy participation in consumer markets, access to higher growth markets and a focus on material sciences and technologies. Our DMS segment includes customers primarily in the consumer lifestyles, healthcare, mobility and packaging industries. We derive revenue principally from manufacturing services related to electronic equipment built to customer specifications. We also derive revenue to a lesser extent from 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 collectability is reasonably assured. Design service related revenue is generally recognized upon completion and acceptance by the respective customer. We generally assume no significant obligations after product shipment. 36-------------------------------------------------------------------------------- Table of Contents Our cost of revenue includes the cost of electronic components and other materials that comprise the products we manufacture; the cost of labor and manufacturing overhead; and adjustments for excess and obsolete inventory. As a provider of turnkey manufacturing services, we are responsible for procuring components and other materials. This requires us to commit significant working capital to our operations and to manage the purchasing, receiving, inspecting and stocking of materials. Although we bear the risk of fluctuations in the cost of materials and excess scrap, we periodically negotiate cost of materials adjustments with our customers. Net revenue from each product that we manufacture consists of an element based on the costs of materials in that product and an element based on the labor and manufacturing overhead costs allocated to that product. We refer to the portion of the sales price of a product that is based on materials costs as "material-based revenue," and to the portion of the sales price of a product that is based on labor and manufacturing overhead costs as "manufacturing-based revenue." Our gross margin for any product depends on the mix between the cost of materials in the product and the cost of labor and manufacturing overhead allocated to the product. We typically realize higher gross margins on manufacturing-based revenue than we do on materials-based revenue. As we gain experience in manufacturing a product, we usually achieve increased efficiencies, which may result in lower labor and manufacturing overhead costs for that product. Our operating results are impacted by the level of capacity utilization of manufacturing facilities; indirect labor costs; and selling, general and administrative expenses. Operating income margins have generally improved during periods of high production volume and high capacity utilization. During periods of low production volume, we generally have idle capacity and reduced operating income margins. We have consistently utilized advanced circuit design, production design and manufacturing technologies to meet the needs of our customers. To support this effort, our engineering staff focuses on developing and refining design and manufacturing technologies to meet specific needs of specific customers. Most of the expenses associated with these customer-specific efforts are reflected in our cost of revenue. In addition, our engineers engage in research and development ("R&D") of new technologies that apply generally to our operations. The expenses of these R&D activities are reflected in the research and development line item within our Consolidated Statement of Operations. An important element of our strategy is the expansion of our global production facilities. The majority of our revenue and materials costs worldwide are denominated in U.S. dollars, while our labor and utility costs in operations outside the U.S. are denominated in local currencies. We economically hedge certain of these local currency costs, based on our evaluation of the potential exposure as compared to the cost of the hedge, through the purchase of foreign currency exchange contracts. Changes in the fair market value of such hedging instruments are reflected within the Consolidated Statement of Operations and the Consolidated Statement of Comprehensive Income. See "Risk Factors - We are subject to risks of currency fluctuations and related hedging operations." We currently depend, and expect to continue to depend, upon a relatively small number of customers for a significant percentage of our net revenue and upon their growth, viability and financial stability. A significant reduction in sales to any of our customers, a customer exerting significant pricing and margin pressures on us or the termination or substantial winding down of our business relationship with one of our customers could have a material adverse effect on our results of operations. In the past, some of our customers have terminated their manufacturing arrangements with us or have significantly reduced or delayed the volume of design, production or product management services ordered from us, including moving a portion of their manufacturing from us in order to more fully utilize their excess internal manufacturing capacity. There can be no assurance that present or future customers will not terminate their manufacturing arrangements with us or significantly reduce or delay the volume of design, production or product management services ordered from us, or move a portion of their manufacturing from us in order to more fully utilize their excess internal manufacturing capacity. We could in the future terminate, or substantially wind down, significant customer relationships. Any such termination or substantial winding down of a customer or manufacturing relationship or change, reduction or delay in orders could have a material adverse effect on our results of operations or financial condition. See "Risk Factors - Because we depend on a limited number of customers, a reduction in sales to any one of our customers could cause a significant decline in our revenue," "Risk Factors - Most of our customers do not commit to long-term production schedules, which makes it difficult for us to schedule production and capital expenditures, and to maximize the efficiency of our manufacturing capacity," "Risk Factors - Our customers may cancel their orders, change production quantities, delay production or change their sourcing strategy" and Note 12 - "Concentration of Risk and Segment Data" to the Consolidated Financial Statements. 37 -------------------------------------------------------------------------------- Table of Contents Summary of Results Net revenues for fiscal year 2014 decreased approximately 8.6% to $15.8 billion compared to $17.2 billion for fiscal year 2013 largely due to decreased revenue as a result of our disengagement with BlackBerry Limited and decreased revenue from certain existing customers, partially offset by increased revenue from new customers principally related to the Nypro acquisition. The following table sets forth, for the fiscal year ended August 31, certain key operating results and other financial information (in thousands, except per share data). Fiscal Year Ended August 31, 2014 2013 2012 Net revenue $ 15,762,146 $ 17,249,493 $ 16,140,705 Gross profit $ 1,025,603 $ 1,212,190 $ 1,160,951 Operating income $ 204,074 $ 452,419 $ 549,570 Net income attributable to Jabil Circuit, Inc. $ 241,313 $ 371,482 $ 394,687 Net earnings per share - basic $ 1.19 $ 1.83 $ 1.91 Net earnings per share - diluted $ 1.19 $ 1.79 $ 1.87 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. Three Months Ended August 31, May 31, February 28, November 30, 2014 2014 2014 2013 Sales cycle 2 days 3 days 7 days 3 days Inventory turns (annualized) 8 turns 8 turns 7 turns 8 turns Days in accounts receivable 27 days 24 days 24 days 27 days Days in inventory 48 days 47 days 49 days 45 days Days in accounts payable 73 days 68 days 66 days 69 days Three Months Ended August 31, May 31, February 28, November 30, 2013 2013 2013 2012 Sales cycle 1 day 1 day 6 days 4 days Inventory turns (annualized) 8 turns 7 turns 7 turns 7 turns Days in accounts receivable 23 days 20 days 25 days 27 days Days in inventory 46 days 49 days 52 days 49 days Days in accounts payable 68 days 68 days 71 days 72 days 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. During the three months ended August 31, 2014, May 31, 2014, February 28, 2014 and November 30, 2013, the days in accounts receivable increased three days to 27 days, remained consistent at 24 days, decreased three days to 24 days and increased four days to 27 days, respectively, from the prior sequential quarter primarily due to the timing of sales and collections activity. During the three months ended August 31, 2014, days in inventory increased one day to 48 days as compared to the prior sequential quarter largely to support expected revenue levels in the first quarter of fiscal year 2015. During the three months ended May 31, 2014, days in inventory decreased two days to 47 days as compared to the prior sequential quarter due to continued focus on inventory management. During the three months ended February 28, 2014, days in inventory increased four days to 49 days as compared to the prior sequential quarter due to decreased sales levels. During the three months ended November 30, 2013, days in inventory decreased one day to 45 days as compared to the prior sequential quarter due to a continued focus on inventory management. During the three months ended August 31, 2014, inventory turns, on an annualized basis, remained constant at eight turns as compared to the prior sequential quarter. During the three months ended May 31, 2014, inventory turns, on an annualized basis, increased one turn to eight turns as compared to the prior sequential quarter due to a continued focus on inventory management. During the three months ended February 28, 2014, inventory turns, on an annualized basis, decreased one turn to seven turns as compared to the prior sequential quarter due to decreased sales levels, and during the three months ended November 30, 2013, inventory turns, on an annualized basis, remained constant at eight turns as compared to the prior sequential quarter. 38-------------------------------------------------------------------------------- Table of Contents During the three months ended August 31, 2014, May 31, 2014, February 28, 2014 and November 30, 2013, days in accounts payable increased five days to 73 days, increased two days to 68 days, decreased three days to 66 days and increased one day to 69 days, respectively, from the prior sequential quarter primarily due to the timing of purchases and cash payments for purchases during the respective quarters. The sales cycle was two days during the three months ended August 31, 2014, three days during the three months ended May 31, 2014, seven days during the three months ended February 28, 2014 and three days during the three months ended November 30, 2013. The changes in the sales cycle are due to the changes in accounts receivable, accounts payable and inventory that are discussed above. Critical Accounting Policies and Estimates The preparation of our Consolidated Financial Statements and related disclosures in conformity with U.S. generally accepted accounting principles ("U.S. GAAP") 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. Revenue Recognition We derive revenue principally from manufacturing services related to electronic equipment built to customer specifications. We also derive revenue to a lesser extent from 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 collectability is reasonably assured. Design service related revenue is generally recognized upon completion and acceptance by the respective customer. We generally 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 and circumstances 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, customer inventory-related contractual obligations 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 and amortizable intangible assets 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 undiscounted projected cash flows that the asset(s) or asset group(s) are expected to generate. If the carrying amount of an asset or an asset group is not recoverable, we recognize 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 either the present value of estimated future cash flows or the appraised 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 or adverse economic conditions. For further discussion of our current restructuring program, refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Restructuring and Related Charges." 39-------------------------------------------------------------------------------- Table of Contents We have recorded intangible assets, including goodwill, 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 fair value of acquired amortizable intangible assets impacts the amounts recorded as goodwill. We perform a goodwill impairment analysis using the two-step method on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The recoverability of goodwill is measured at the reporting unit level by comparing the reporting unit's carrying amount, including goodwill, to the fair value of the reporting unit. We determine the fair value of our reporting units based on an average weighting of both projected discounted future results and the use of comparative market multiples. 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 loss, if any. We perform an indefinite-lived intangible asset impairment analysis on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The recoverability of indefinite-lived intangible assets is measured by comparing the carrying amount to the fair value. We determine the fair value of our indefinite-lived intangible assets principally based on a variation of the income approach, known as the relief from royalty method. If the carrying amount of the indefinite-lived intangible asset exceeds its fair value, the indefinite-lived intangible asset is considered impaired. We completed our annual impairment test for goodwill and indefinite-lived intangible assets during the fourth quarter of fiscal year 2014 and determined that the fair values of our reporting units and the indefinite-lived intangible assets are substantially in excess of the carrying values and that no impairment existed as of the date of the impairment test. Retirement Benefits We have pension and postretirement benefit costs and liabilities in certain foreign locations that are developed from actuarial valuations. Actuarial valuations require management to make certain judgments and estimates of discount rates, compensation rate increases 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 9 - "Postretirement and Other Employee Benefits" to the 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 assets 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. We assess whether an uncertain tax position taken or expected to be taken in a tax return meets the threshold for recognition and measurement in the Consolidated Financial Statements. Our judgments regarding future taxable income as well as tax positions taken or expected to be taken in a tax return 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 and/or tax reserves established may be increased or decreased, resulting in a respective increase or decrease in income tax expense. Recent Accounting Pronouncements See Note 17 - "New Accounting Guidance" to the Consolidated Financial Statements for a discussion of recent accounting guidance. 40-------------------------------------------------------------------------------- Table of Contents Results of Operations The following table sets forth, for the periods indicated, certain statements of operations data expressed as a percentage of net revenue: Fiscal Year Ended August 31, 2014 2013 2012 Net revenue 100.0 % 100.0 % 100.0 % Cost of revenue 93.5 93.0 92.8 Gross profit 6.5 7.0 7.2 Operating expenses: Selling, general and administrative 4.3 3.6 3.6 Research and development 0.2 0.2 0.2 Amortization of intangibles 0.2 0.1 0.1 Restructuring and related charges 0.5 0.4 - Loss on disposal of subsidiaries 0.1 - - Impairment of notes receivable and related charges - 0.1 - Operating income 1.2 2.6 3.3 Other expense 0.0 0.1 0.1 Interest income (0.0 ) (0.0 ) (0.0 ) Interest expense 0.8 0.8 0.7 Income from continuing operations before tax 0.4 1.7 2.5 Income tax expense 0.5 0.0 0.6 (Loss) income from continuing operations, net of tax (0.1 ) 1.7 1.9 Discontinued operations: Income from discontinued operations, net of tax 0.1 0.3 0.4 Gain on sale of discontinued operations, net of tax 1.4 - - Discontinued operations, net of tax 1.5 0.3 0.4 Net income 1.4 2.0 2.3 Net income (loss) attributable to noncontrolling interests, net of tax 0.0 (0.0 ) 0.0 Net income attributable to Jabil Circuit, Inc. 1.4 % 2.0 % 2.3 % Fiscal Year Ended August 31, 2014 Compared to Fiscal Year Ended August 31, 2013 Net Revenue. Our net revenue decreased 8.6% to $15.8 billion for fiscal year 2014, compared to $17.2 billion for fiscal year 2013. Specific decreases include a 24% decrease in the sale of HVS products due principally to reductions in the sale of mobility handsets as a result of our disengagement with BlackBerry Limited, a 4% decrease in the sale of E&I products due to the continued decline in enterprise and infrastructure spending, which was partially offset by strength in our telecommunications business, and a 2% decrease in the sale of DMS products as a result of reduced production levels due to weakened end user product demand within specialized services, which was partially offset by both increased revenue from new customers as a result of the Nypro acquisition and increased revenue from our instrumentation business. Generally, we assess revenue on a global customer basis regardless of whether the growth is associated with organic growth or as a result of an acquisition. Accordingly, we do not differentiate or report separately revenue increases generated by acquisitions as opposed to existing business. In addition, the added cost structures associated with our acquisitions have historically been relatively insignificant when compared to our overall cost structure. The distribution of revenue across our sectors has fluctuated, and will continue to fluctuate, as a result of numerous factors, including but not limited to the following: fluctuations in customer demand as a result of recessionary conditions; efforts to de-emphasize the economic performance of certain sectors; seasonality in our business; business growth from new and existing customers; specific product performance; and the termination of our business relationship with BlackBerry Limited and any other potential future termination, or substantial winding down, of other significant customer relationships. On April 1, 2014, we completed the sale of the AMS business (except for the Malaysian operations due to certain regulatory approvals that are still pending in that jurisdiction), which was included in the DMS segment. Accordingly, for all periods presented, the results of operations of this business are classified as discontinued operations. See Note 2 - "Discontinued Operations" to the Consolidated Financial Statements for further details. 41-------------------------------------------------------------------------------- Table of Contents The following table sets forth, for the periods indicated, revenue by segment expressed as a percentage of net revenue: Fiscal Year Ended August 31, 2014 2013 2012 DMS 44 % 41 % 40 % E&I 34 % 32 % 32 % HVS 22 % 27 % 28 % Total 100 % 100 % 100 % Foreign source revenue represented 84.5% of our net revenue for fiscal year 2014 and 86.8% of net revenue for fiscal year 2013. We currently expect our foreign source revenue to increase as compared to current levels over the course of the next 12 months. Gross Profit. Gross profit decreased to $1.0 billion (6.5% of net revenue) for fiscal year 2014 compared to $1.2 billion (7.0% of net revenue) for fiscal year 2013. The decrease in gross profit is due to our revenues from existing customers decreasing at a higher rate than certain of our fixed costs, which is partially offset by increased revenue from new customers. Selling, General and Administrative. Selling, general and administrative expenses increased to $675.7 million (4.3% of net revenue) for fiscal year 2014 compared to $614.3 million (3.6% of net revenue) for fiscal year 2013. Selling, general and administrative expense increased as compared to fiscal year 2013 primarily as a result of an increase to incremental selling, general and administrative expense resulting from the acquisition of Nypro during the fourth quarter of fiscal year 2013, which tends to generate a higher amount of selling, general and administrative expenses on a relative basis than our other operations, and an increase due to the increased investment in our strategic development sector. The increase was partially offset by a decrease to selling, general and administrative expense resulting from a $45.8 million reversal to stock-based compensation expense during fiscal year 2014 due to decreased expectations for the vesting of certain restricted stock awards. Research and Development. R&D expenses remained relatively consistent over the prior period at $28.6 million (0.2% of net revenue) for fiscal year ended 2014 compared to $28.4 million (0.2% of net revenue) for fiscal year 2013. Amortization of Intangibles. We recorded $23.9 million of amortization of intangibles in fiscal year 2014 as compared to $11.0 million in fiscal year 2013. The increase is primarily attributable to amortization expense associated with the finite-lived intangible assets acquired in connection with the acquisition of Nypro, partially offset by a decrease to certain intangible assets that became fully amortized since August 31, 2013. For additional information regarding purchased intangibles, see "Acquisitions and Expansion" below, Note 1(f) - "Description of Business and Summary of Significant Accounting Policies - Goodwill and Other Intangible Assets", Note 7 - "Goodwill and Other Intangible Assets" and Note 16 - "Business Acquisitions" to the Consolidated Financial Statements. Restructuring and Related Charges. a. 2014 Restructuring Plan In conjunction with the 2014 Restructuring Plan, we charged $49.9 million of restructuring and related charges to the Consolidated Statement of Operations during the fiscal year ended August 31, 2014. The 2014 Restructuring Plan is intended to address the termination of our business relationship with BlackBerry Limited. The restructuring and related charges during the fiscal year ended August 31, 2014 include cash costs of $16.2 million related to employee severance and benefit costs, $1.7 million related to lease costs and $1.7 million of other related costs, as well as non-cash costs of $30.3 million related to asset write off costs. We have substantially completed our restructuring activities under this plan and do not expect to incur any additional costs under the 2014 Restructuring Plan. During the fiscal year ended August 31, 2014, $19.1 million was paid relating to the 2014 Restructuring Plan. At August 31, 2014, accrued liabilities of approximately $0.5 million related to the 2014 Restructuring Plan are expected to be paid over the next twelve months. The 2014 Restructuring Plan is expected to yield annualized cost savings of approximately $12.0 million on a net basis after taking into account potential future BlackBerry Limited revenues that will not be earned due to the termination of our business relationship. The majority of these annual cost savings are expected to be reflected as a reduction in cost of revenue. We began to realize a portion of these cost savings in the second quarter of fiscal year 2014. 42 -------------------------------------------------------------------------------- Table of Contents b. 2013 Restructuring Plan In conjunction with the 2013 Restructuring Plan, we charged $35.4 million of restructuring and related charges to the Consolidated Statement of Operations during the fiscal year ended August 31, 2014 compared to $80.5 million during the fiscal year ended August 31, 2013. The 2013 Restructuring Plan is intended to better align our manufacturing capacity in certain geographies and to reduce our worldwide workforce in order to reduce operating expenses. These restructuring activities are intended to address current market conditions and customer requirements. The restructuring and related charges for the fiscal years ended August 31, 2014 and 2013 include cash costs of $25.0 million and $74.3 million related to employee severance and benefit costs, respectively, $0.5 million and $0.2 million related to lease costs, respectively, and $1.3 million and $0.0 million related to other related costs, respectively, as well as non-cash costs of $8.6 million and $6.0 million related to asset write-off costs, respectively. During the fiscal year ended August 31, 2014, $36.9 million was paid related to the 2013 Restructuring Plan. At August 31, 2014, accrued liabilities of approximately $44.1 million related to the 2013 Restructuring Plan are expected to be paid over the next twelve months. We currently expect to recognize approximately $179.0 million, excluding the restructuring and related charges previously incurred for the AMS discontinued operations, in pre-tax restructuring and other related costs over the course of fiscal years 2013, 2014 and 2015 under the 2013 Restructuring Plan. While we expect the total amount of pre-tax restructuring and other related costs will be $179.0 million, we can only provide estimate ranges for certain of the major types of costs associated with the action: $123.0 million to $143.0 million of employee severance and benefit costs; $28.0 million to $48.0 million of asset write-off costs; $3.0 million of contract termination costs and $5.0 million of other related costs. Since the inception of the 2013 Restructuring Plan, a total of $115.9 million of restructuring and related costs have been recognized. A majority of the total restructuring costs are expected to be related to employee severance and benefit arrangements. The charges related to the 2013 Restructuring Plan, excluding asset write off costs, are currently expected to result in cash expenditures in a range of $131.0 million to $151.0 million that will be payable primarily over the course of our fiscal years 2013, 2014 and 2015. The exact amount and timing of these charges and cash outflows, as well as the estimated cost ranges by category type, have not been finalized. Much of the 2013 Restructuring Plan as discussed reflects our intention only and restructuring decisions, and the timing of such decisions, at certain plants are still subject to the finalization of timetables for the transition of functions and consultation with our employees and their representatives. Upon its completion, the 2013 Restructuring Plan is expected to yield annualized cost savings of approximately $65.9 million. The expected avoided annual costs consist of a reduction in employee related expenses of $64.4 million, a reduction in depreciation expense associated with asset disposals of $1.1 million, and a reduction in rent expense associated with leased buildings that have been vacated of approximately $0.4 million. The majority of these annual cost savings are expected to be reflected as a reduction in cost of revenue as well as a reduction of selling, general and administrative expense. These annual costs savings are expected to be partially offset by decreased revenues and incremental costs expected to be incurred by those plants to which certain production will be shifted. After considering these partial cost savings offsets, we expect to realize annual cost savings of approximately $65.0 million. Loss on Disposal of Subsidiaries. During the fiscal year ended August 31, 2014, we recorded a loss of approximately $8.0 million related to the sale of our controlling financial interests in two Nypro subsidiaries. Impairment of Notes Receivable and Related Charges. During the fiscal year ended August 31, 2013, we recorded a loss of approximately $25.6 million related to notes receivable and related charges. Such a charge was recorded following the determination that it was probable that we would be unable to collect the amounts due from a former customer. Other Expense. Other expense did not change significantly for fiscal year 2014 at $7.6 million compared to $6.1 million for fiscal year 2013. Interest Income. We recorded interest income of $3.7 million for fiscal year 2014 compared to $1.8 million for fiscal year 2013. The increase was primarily due to dividends (which are treated as interest income) on the Senior Non-Convertible Cumulative Preferred Stock received in connection with the sale of the AMS business on April 1, 2014. Interest Expense. We recorded $128.1 million of interest expense in fiscal year 2014 as compared to $121.0 million in fiscal year 2013. The increase was primarily due to incremental interest associated with increased borrowings associated with our five year unsecured credit facility amended as of July 25, 2014 (the "Amended and Restated Credit Facility"). Income Tax Expense. Income tax expense reflects an effective tax rate of 102.2% for fiscal year 2014, as compared to an effective tax rate of 2.3% for fiscal year 2013. The effective tax rate for the fiscal year ended August 31, 2014 increased from the effective tax rate for the fiscal year ended August 31, 2013 primarily due to the decrease in income from continuing operations during fiscal year 2014 in low tax-rate jurisdictions that had minimal related tax benefit and the release of existing valuation allowances during fiscal year 2013. This effective tax rate increase was partially offset by a tax benefit from revaluing deferred tax assets related to the enactment of the Mexico 2014 tax reform and the decrease in stock-based compensation expense with minimal related tax benefit. 43-------------------------------------------------------------------------------- Table of Contents For the fiscal year ended August 31, 2014, we recorded out-of-period adjustments that increased net income from continuing operations by approximately $17.1 million, which related to fiscal year 2013 income tax benefit adjustments that were recorded in fiscal year 2014. We assessed and concluded that these adjustments are not material to either the consolidated quarterly or annual financial statements for all impacted periods. Fiscal Year Ended August 31, 2013 Compared to Fiscal Year Ended August 31, 2012 Net Revenue. Our net revenue increased 6.9% to $17.2 billion for fiscal year 2013, up from $16.1 billion in fiscal year 2012. Specific increases included a 10% increase in the sale of DMS products; a 9% increase in the sale of E&I products; and a 1% increase in the sale of HVS products. The increases were primarily due to increased revenue from certain of our existing customers, most notably in DMS and E&I, including new program wins with these customers. Foreign source revenue represented 86.8% of our net revenue for fiscal year 2013 and 86.1% of net revenue for fiscal year 2012. For further discussion of our net revenues, refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Fiscal Year Ended August 31, 2014 Compared to Fiscal Year Ended August 31, 2013 - Net Revenue." Gross Profit. Gross profit for fiscal year 2013 ($1.2 billion or 7.0% of net revenue) remained relatively consistent as compared to fiscal year 2012 ($1.2 billion or 7.2% of net revenue). Selling, General and Administrative. Selling, general and administrative expenses increased to $614.3 million (3.6% of net revenue) for fiscal year 2013 compared to $572.6 million (3.6% of net revenue) for fiscal year 2012. The increase in selling, general and administrative expenses on a gross basis was due to additional salary and salary related expenses associated with increased headcount to support the continued growth of our business; additional selling, general and administrative expenses associated with acquisitions, including Nypro during the fourth quarter of fiscal year 2013; and $13.5 million in professional fees in fiscal year 2013 associated with the due diligence and other acquisition related activities associated with the Nypro acquisition. Research and Development. R&D expenses for fiscal year 2013 increased to $28.4 million (0.2% of net revenue) from $25.8 million (0.2% of net revenue) for fiscal year 2012. The increase was primarily due to new projects in targeted growth sectors, such as the emerging growth sector within DMS. Amortization of Intangibles. We recorded $11.0 million of amortization of intangibles in fiscal year 2013 as compared to $12.9 million in fiscal year 2012. The decrease was primarily attributable to certain intangible assets that became fully amortized since August 31, 2012, partially offset by an increase to amortization expense associated with the finite-lived intangible assets acquired in connection with the acquisition of Nypro. For additional information regarding purchased intangibles, see "Acquisitions and Expansion" below, Note 1(f) - "Description of Business and Summary of Significant Accounting Policies - Goodwill and Other Intangible Assets", Note 7 - "Goodwill and Other Intangible Assets" and Note 16 - "Business Acquisitions" to the Consolidated Financial Statements. Restructuring and Related Charges. During fiscal year 2013, we recorded $80.5 million of restructuring and related charges related to the 2013 Restructuring Plan. For further discussion of restructuring and related charges, refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Fiscal Year Ended August 31, 2014 Compared to Fiscal Year Ended August 31, 2013 - Restructuring and Related Charges." Other Expense. Other expense decreased to $6.1 million for fiscal year 2013 compared to $8.9 million for fiscal year 2012. The decrease was primarily due to $3.4 million of expense recognized during fiscal year 2012 related to fair value adjustments associated with customer warrants. Interest Income. Interest income remained relatively constant at $1.8 million for fiscal year 2013 compared to $2.0 million for fiscal year 2012. Interest Expense. We recorded $121.0 million of interest expense in fiscal year 2013 as compared to $106.1 million in fiscal year 2012. The increase was primarily due to incremental interest associated with the issuance of the 4.700% Senior Notes during the fourth quarter of fiscal year 2012 and increased borrowings associated with the Amended and Restated Credit Facility. Income Tax Expense. Income tax expense reflects an effective tax rate of 2.3% for fiscal year 2013, as compared to an effective tax rate of 23.6% for fiscal year 2012. The effective tax rate decreased from the previous period primarily due to a $104.0 million partial release of the U.S. valuation allowance related to the U.S. deferred tax liabilities from the Nypro acquisition, which represent future sources of taxable income to support the realization of the deferred tax assets. The U.S. deferred tax liabilities from 44-------------------------------------------------------------------------------- Table of Contents the Nypro acquisition primarily relate to undistributed earnings of foreign subsidiaries and non-deductible intangible assets. The effective tax rate also decreased due to the release of a non-U.S. valuation allowance. The fiscal year 2013 effective tax rate decreases were partially offset by restructuring costs with minimal related tax benefit in fiscal year 2013, a release of tax reserves related to a non-U.S. governmental tax audit in fiscal year 2012, and the mix of income or losses within the tax jurisdictions in which we operate. The effective tax rate differed from the U.S. federal statutory rate of 35.0% during these periods primarily due to: (a) a partial release of the U.S. valuation allowance related to the U.S. deferred tax liabilities from the Nypro acquisition; (b) the release of a non-U.S. valuation allowance; (c) income in tax jurisdictions with lower statutory tax rates than the U.S.; (d) tax incentives granted to sites in Brazil, Malaysia, Poland, Singapore, and Vietnam and (e) income and losses in tax jurisdictions with existing valuation allowances. The majority of the tax incentive benefits expire at various dates through 2020. Such tax incentives are subject to conditions with which we expect to continue to comply. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates - Income Taxes", "Risk Factors - We are subject to the risk of increased taxes" and Note 5 - "Income Taxes" to the Consolidated Financial Statements for further discussion. Non-U.S. GAAP Core Financial Measures The following discussion and analysis of our financial condition and results of operations include certain non-U.S. GAAP financial measures as identified in the reconciliation below. The non-U.S. GAAP financial measures disclosed herein do not have standard meaning and may vary from the non-U.S. GAAP financial measures used by other companies or how we may calculate those measures in other instances from time to time. Non-U.S. GAAP financial measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with U.S. GAAP. Also, our "core" financial measures should not be construed as an inference by us that our future results will be unaffected by those items which are excluded from our "core" financial measures. Management believes that the non-U.S. GAAP "core" financial measures set forth below are useful to facilitate evaluating the past and future performance of our ongoing manufacturing operations over multiple periods on a comparable basis by excluding the effects of the amortization of intangibles, stock-based compensation expense and related charges, restructuring and related charges, distressed customer charges, acquisition costs and certain purchase accounting adjustments, loss on disposal of subsidiaries, settlement of receivables and related charges, impairment of notes receivable and related charges, goodwill impairment charges, income (loss) from discontinued operations, gain on sale of discontinued operations and certain other expenses, net of tax and certain deferred tax valuation allowance charges. Among other uses, management uses non-U.S. GAAP "core" financial measures as a factor in determining certain employee performance when determining incentive compensation. We are reporting "core" operating income and "core" earnings to provide investors with an additional method for assessing operating income and earnings, by presenting what we believe are our "core" manufacturing operations. A significant portion (based on the respective values) of the items that are excluded for purposes of calculating "core" operating income and "core" earnings also impacted certain balance sheet assets, resulting in a portion of an asset being written off without a corresponding recovery of cash we may have previously spent with respect to the asset. In the case of restructuring and related charges, we may be making associated cash payments in the future. In addition, although, for purposes of calculating "core" operating income and "core" earnings, we exclude stock-based compensation expense (which we anticipate continuing to incur in the future) because it is a non-cash expense, the associated stock issued may result in an increase in our outstanding shares of stock, which may result in the dilution of our stockholders' ownership interest. We encourage you to evaluate these items and the limitations for purposes of analysis in excluding them. 45-------------------------------------------------------------------------------- Table of Contents Included in the table below is a reconciliation of the non-U.S. GAAP financial measures to the most directly comparable U.S. GAAP financial measures as provided in our Consolidated Financial Statements (in thousands): Fiscal Year Ended August 31, 2014 2013 2012 Operating income (U.S. GAAP) $ 204,074 $ 452,419 $ 549,570 Amortization of intangibles 23,857 10,954 12,899 Stock-based compensation expense and related charges 8,994 62,574 74,944 Restructuring and related charges 85,369 80,513 - Distressed customer charges 15,113 - 16,014 Acquisition costs and certain purchase accounting adjustments - 10,037 - Loss on disposal of subsidiaries 7,962 - - Impairment of notes receivable and related charges - 25,597 - Core operating income (Non-U.S. GAAP) $ 345,369 $ 642,094 $ 653,427 Net income attributable to Jabil Circuit, Inc. (U.S. GAAP) $ 241,313 $ 371,482 $ 394,687 Amortization of intangibles, net of tax 20,728 (13,286 ) 12,899 Stock-based compensation expense and related charges, net of tax 7,903 62,737 73,633 Restructuring and related charges, net of tax 72,892 78,138 - Distressed customer charges, net of tax 10,243 - 16,014 Acquisition costs and certain purchase accounting adjustments, net of tax (a) (9,064 ) (70,358 ) - Loss on disposal of subsidiaries, net of tax 7,962 - - Impairment of notes receivable and related charges, net of tax - 19,742 - Income from discontinued operations, net of tax (20,554 ) (50,608 ) (62,406 ) Gain on sale of discontinued operations, net of tax (223,299 ) - - Core earnings (Non-U.S. GAAP) $ 108,124 $ 397,847 434,827 Earnings per share: (U.S. GAAP) Basic $ 1.19 $ 1.83 $ 1.91 Diluted $ 1.19 $ 1.79 $ 1.87 Core earnings per share: (Non-U.S. GAAP) Basic $ 0.53 $ 1.96 $ 2.11 Diluted $ 0.53 $ 1.91 $ 2.06 Weighted average shares outstanding used in the calculations of earnings per share (U.S. GAAP): Basic 202,497 203,096 206,160 Diluted 202,497 207,815 211,181 Weighted average shares outstanding used in the calculations of earnings per share (Non-U.S. GAAP): Basic 202,497 203,096 206,160 Diluted 204,269 207,815 211,181 (a) The tax benefits primarily relate to the partial release of the U.S. valuation allowance due to the U.S. deferred tax liabilities from the Nypro acquisition, which represent future sources of taxable income to support the realization of the deferred tax assets. Core operating income in fiscal year 2014 decreased 46.2% to $345.4 million compared to $642.1 million in fiscal year 2013. Core earnings in fiscal year 2014 decreased 72.8% to $108.1 million compared to $397.8 million in fiscal year 2013. These variances were the result of the same factors described above in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Fiscal Year Ended August 31, 2014 Compared to Fiscal Year Ended August 31, 2013. 46 -------------------------------------------------------------------------------- Table of Contents Quarterly Results (Unaudited) The following table sets forth certain unaudited quarterly financial information for the 2014 and 2013 fiscal years. In the opinion of management, this information has been presented on the same basis as the audited consolidated financial statements appearing elsewhere, and all necessary adjustments (consisting primarily of normal recurring accruals and adjustments related to discontinued operations) have been included in the amounts stated below to present fairly the unaudited quarterly results when read in conjunction with the audited consolidated financial statements and related notes thereto. The operating results for any quarter are not necessarily indicative of results for any future period. Fiscal Year 2014 Fiscal Year 2013 Aug. 31, May 31, Feb. 28, Nov. 30, Aug. 31, May 31, Feb. 28, Nov. 30, 2014 2014 2014 2013 2013 2013 2013 2012 (in thousands, except per share data)Net revenue $ 4,056,245 $ 3,785,875 $ 3,577,315 $ 4,342,711 $ 4,513,694 $ 4,196,224 $ 4,168,001 $ 4,371,574 Cost of revenue 3,793,993 3,569,925 3,364,165 4,008,460 4,199,852 3,898,652 3,878,815 4,059,984 Gross profit 262,252 215,950 213,150 334,251 313,842 297,572 289,186 311,590 Operating expenses: Selling, general and administrative 177,934 190,804 164,522 142,470 172,513 146,969 145,918 148,895 Research and development 7,224 5,729 6,604 9,054 7,075 6,475 7,655 7,207 Amortization of intangibles 5,677 5,679 6,180 6,321 4,363 2,221 2,204 2,166 Restructuring and related charges 19,717 12,446 32,203 21,003 57,331 23,182 - - Loss on disposal of subsidiaries 5,057 2,905 - - - - - - Impairment of notes receivable and related charges - - - - - 25,597 - - Operating income (loss) 46,643 (1,613 ) 3,641 155,403 72,560 93,128 133,409 153,322 Other expense 3,090 1,520 1,850 1,177 1,550 1,422 1,554 1,569 Interest income (1,632 ) (1,060 ) (341 ) (708 ) (550 ) (381 ) (393 ) (489 ) Interest expense 30,785 32,107 31,858 33,305 31,558 30,709 29,168 29,588 Income (loss) from continuing operations before tax 14,400 (34,180 ) (29,726 ) 121,629 40,002 61,378 103,080 122,654 Income tax expense (benefit) 32,788 18,708 2,539 19,676 (73,685 ) 22,129 27,506 31,681 (Loss) income from continuing operations, net of tax (18,388 ) (52,888 ) (32,265 ) 101,953 113,687 39,249 75,574 90,973 Discontinued operations: (Loss) income from discontinued operations, net of tax (961 ) 2,699 2,704 (1) 16,112 13,103 10,379 12,515 14,611 (Loss) gain on sale of discontinued operations, net of tax (6,243 ) 238,497 (8,955 )(1) - - - - - Discontinued operations, net of tax (7,204 ) 241,196 (6,251 ) 16,112 13,103 10,379 12,515 14,611 Net (loss) income (25,592 ) 188,308 (38,516 ) 118,065 126,790 49,628 88,089 105,584 Net income (loss) attributable to noncontrolling interests, net of tax 605 53 151 143 (229 ) (455 ) (444 ) (263 ) Net (loss) income attributable to Jabil Circuit, Inc. $ (26,197 ) $ 188,255 $ (38,667 ) $ 117,922 $ 127,019 $ 50,083 $ 88,533 $ 105,847 (Loss) earnings per share attributable to the stockholders of Jabil Circuit, Inc.: Basic: (Loss) income from continuing operations, net of tax $ (0.10 ) $ (0.26 ) $ (0.16 ) $ 0.50 $ 0.56 $ 0.20 $ 0.38 $ 0.45 Discontinued operations, net of tax $ (0.04 ) $ 1.19 $ (0.03 ) $ 0.08 $ 0.06 $ 0.05 $ 0.06 $ 0.07 Net (loss) income $ (0.13 ) $ 0.93 $ (0.19 ) $ 0.58 $ 0.63 $ 0.25 $ 0.44 $ 0.52 47 -------------------------------------------------------------------------------- Table of Contents Fiscal Year 2014 Fiscal Year 2013 Aug. 31, May 31, Feb. 28, Nov. 30, Aug. 31, May 31, Feb. 28, Nov. 30, 2014 2014 2014 2013 2013 2013 2013 2012 (in thousands, except per share data) Diluted: (Loss) income from continuing operations, net of tax $ (0.10 ) $ (0.26 ) $ (0.16 ) $ 0.49 $ 0.55 $ 0.19 $ 0.37 $ 0.44 Discontinued operations, net of tax $ (0.04 ) $ 1.19 $ (0.03 ) $ 0.08 $ 0.06 $ 0.05 $ 0.06 $ 0.07 Net (loss) income $ (0.13 ) $ 0.93 $ (0.19 ) $ 0.57 $ 0.61 $ 0.24 $ 0.43 $ 0.51 Weighted average shares outstanding: Basic 198,053 202,008 205,251 204,762 202,959 202,648 202,458 204,318 Diluted 198,053 202,008 205,251 206,813 208,502 207,569 206,804 207,816 (1) Reflects the reclassification of direct transaction costs from income (loss) from discontinued operations, net of tax, to gain on sale of discontinued operations, net of tax, during the third quarter of fiscal year 2014. 48 -------------------------------------------------------------------------------- Table of Contents The following table sets forth, for the periods indicated, certain financial information stated as a percentage of net revenue: Fiscal Year 2014 Fiscal Year 2013 Aug. 31, May 31, Feb. 28, Nov. 30, Aug. 31, May 31, Feb. 28, Nov. 30, 2014 2014 2014 2013 2013 2013 2013 2012 Net revenue 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Cost of revenue 93.5 94.3 94.0 92.3 93.0 92.9 93.0 92.9 Gross profit 6.5 5.7 6.0 7.7 7.0 7.1 7.0 7.1 Operating expenses: Selling, general and administrative 4.4 5.0 4.6 3.3 3.9 3.5 3.5 3.4 Research and development 0.2 0.2 0.2 0.2 0.1 0.2 0.2 0.2 Amortization of intangibles 0.1 0.2 0.2 0.1 0.1 0.1 0.1 0.1 Restructuring and related charges 0.5 0.3 0.9 0.5 1.3 0.6 - - Loss on disposal of subsidiaries 0.1 0.1 - - - - - - Impairment of notes receivable and related charges - - - - - 0.6 - - Operating income (loss) 1.2 (0.1 ) 0.1 3.6 1.6 2.1 3.2 3.4 Other expense 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Interest income (0.0 ) (0.0 ) (0.0 ) (0.0 ) (0.0 ) (0.0 ) (0.0 ) (0.0 ) Interest expense 0.8 0.8 0.9 0.8 0.7 0.7 0.7 0.7 Income (loss) from continuing operations before tax 0.4 (0.9 ) (0.8 ) 2.8 0.9 1.4 2.5 2.7 Income tax expense (benefit) 0.8 0.5 0.1 0.5 (1.5 ) 0.5 0.7 0.7 (Loss) income from continuing operations, net of tax (0.4 ) (1.4 ) (0.9 ) 2.3 2.4 0.9 1.8 2.0 Discontinued operations: (Loss) income from discontinued operations, net of tax (0.0 ) 0.1 0.1 0.4 0.2 0.2 0.3 0.3 (Loss) gain on sale of discontinued operations, net of tax (0.2 ) 6.3 (0.3 ) - - - - - Discontinued operations, net of tax (0.2 ) 6.4 (0.2 ) 0.4 0.2 0.2 0.3 0.3 Net (loss) income (0.6 ) 5.0 (1.1 ) 2.7 2.6 1.1 2.1 2.3 Net income (loss) attributable to noncontrolling interests, net of tax 0.0 0.0 0.0 0.0 (0.0 ) (0.0 ) (0.0 ) (0.0 ) Net (loss) income attributable to Jabil Circuit, Inc. (0.6 )% 5.0 % (1.1 )% 2.7 % 2.6 % 1.1 % 2.1 % 2.3 % Acquisitions and Expansion As discussed in Note 16 - "Business Acquisitions" to the Consolidated Financial Statements, we completed our acquisition of Nypro during the fourth quarter of fiscal year 2013. Acquisitions are accounted for using the acquisition method of accounting. Our Consolidated Financial Statements include the operating results of each business from the date of acquisition. See "Risk Factors - We have on occasion not achieved, and may not in the future achieve, expected profitability from our acquisitions; and some divestitures may adversely affect our financial condition, results of operations or cash flows." Liquidity and Capital Resources At August 31, 2014, we had cash and cash equivalent balances totaling $1.0 billion, total notes payable, long-term debt and capital lease obligations of $1.7 billion, $1.8 billion in available liquidity under our revolving credit facilities and up to $275.1 million in available liquidity under our trade accounts receivable securitization and uncommitted sale programs. We can offer no assurance under the uncommitted sales programs that if we attempt to draw on such programs in the future that we will receive funding from the associated banks which would require us to utilize other available sources of liquidity, including our revolving credit facilities. Cash Flows The following table sets forth, for the fiscal years ended August 31 selected consolidated cash flow information (in thousands): Fiscal Year Ended August 31, 2014 2013 2012 Net cash provided by operating activities $ 498,857 $ 1,213,889 $ 634,226 Net cash provided by (used in) investing activities 60,667 (1,374,462 ) (605,870 ) Net cash (used in) provided by financing activities (576,819 ) (22,993 ) 317,358 Effect of exchange rate changes on cash 6,171 (22,317 ) (17,069 ) Net (decrease) increase in cash and cash equivalents $ (11,124 ) $ (205,883 ) $ 328,645 49 -------------------------------------------------------------------------------- Table of Contents Net cash provided by operating activities for fiscal year 2014 was approximately $498.9 million. This resulted primarily from net income of $242.3 million, $487.3 million in non-cash depreciation and amortization expense, a $160.8 million decrease in inventories, a $83.1 million decrease in prepaid expenses and other current assets and $42.5 million in non-cash restructuring and related charges; which were partially offset by $230.9 million in non-cash gain on sale of discontinued operations, a $177.6 million decrease in accounts payable and accrued expenses and a $116.5 million increase in accounts receivable. The decrease in inventories was primarily a result of a continued focus on inventory management coupled with lower sales levels. The decrease in prepaid expenses and other current assets was primarily due to decreases in the deferred purchase price receivable under our asset-backed securitization programs due to lower levels of sales and the timing of cash funding provided by the unaffiliated conduits and financial institutions as well as decreases in advance deposits. The decrease in accounts payable and accrued expenses was primarily driven by the timing of purchases and cash payments as well as decreased salary and salary related expenses associated with headcount reductions. The increase in accounts receivable was primarily driven by the timing of sales and collections activity. Net cash provided by investing activities for fiscal year 2014 was $60.7 million. This consisted primarily of $531.2 million in proceeds from the sale of AMS and the sale of our controlling financial interests in two Nypro subsidiaries and $161.1 million in proceeds from the sale of property, plant and equipment, which included a one-time sale of approximately $121.9 million of equipment to a customer who allowed the equipment to remain on our premises on consignment; which were partially offset by capital expenditures of $624.1 million principally for machinery and equipment for new business within our DMS segment, maintenance levels of machinery and equipment and information technology infrastructure upgrades. Net cash used in financing activities for fiscal year 2014 was $576.8 million. This resulted from our receipt of approximately $6.2 billion of proceeds from borrowings under existing debt agreements, which primarily included $6.1 billion of borrowings under the Amended and Restated Credit Facility and $100.8 million of borrowings under various credit facilities with foreign subsidiaries. This was offset by repayments in an aggregate amount of approximately $6.4 billion during fiscal year 2014, which primarily included an aggregate of $6.3 billion of repayments under the Amended and Restated Credit Facility and approximately $99.9 million of repayments under various credit facilities with foreign subsidiaries. In addition, we paid $260.3 million, including commissions, to repurchase 13,680,382 of our common shares, $68.2 million in dividends to stockholders and $34.3 million (or 1,569,059 of our common shares) to the IRS on behalf of certain employees to satisfy minimum tax obligations related to the vesting of certain restricted stock awards (as consideration for these payments to the IRS, we withheld $34.3 million of employee-owned common stock related to this vesting) during the fiscal year ended August 31, 2014. Sources We may need to finance day-to-day working capital needs, as well as future growth and any corresponding working capital needs, with additional borrowings under our Amended and Restated Credit Facility (which is further discussed in the following paragraphs) and our other revolving credit facilities described below, as well as additional public and private offerings of our debt and equity. Currently, we have a shelf registration statement with the SEC registering the potential sale of an indeterminate amount of debt and equity securities in the future, from time-to-time over the three years following the registration, to augment our liquidity and capital resources. The current shelf registration statement will expire in the first quarter of fiscal year 2015 at which time we currently anticipate filing a new shelf registration statement. Any future sale or issuance of equity or convertible debt securities could result in dilution to current or future shareholders. Further, we may issue debt securities that have rights and privileges senior to those of holders of ordinary shares, and the terms of this debt could impose restrictions on operations, increase debt service obligations, limit our flexibility as a result of debt service requirements and restrictive covenants, potentially negatively affect our credit ratings, and limit our ability to access additional capital or execute our business strategy. We continue to assess our capital structure and evaluate the merits of redeploying available cash to reduce existing debt or repurchase common shares. We regularly sell designated pools of trade accounts receivable under two asset-backed securitization programs, a factoring agreement and three uncommitted trade accounts receivable sale programs (collectively referred to herein as the "programs"). Transfers of the receivables under the programs are accounted for as sales and, accordingly, net receivables sold under the programs are excluded from accounts receivable on the Consolidated Balance Sheets and are reflected as cash provided by operating activities on the Consolidated Statements of Cash Flows. Discussion of each of the programs is included in the following paragraphs. In addition, refer to Note 3 - "Trade Accounts Receivable Securitization and Sale Programs" to the Consolidated Financial Statements for further details on the programs. Also, as described in Note 2 - "Discontinued Operations" to the Consolidated Financial Statements, on April 1, 2014, we completed the sale of our AMS business (except for the Malaysian operations due to certain regulatory approvals that are still pending in that jurisdiction) for consideration of $725.0 million, which consisted of $675.0 million in cash and an aggregate liquidation preference value of $50.0 million in Senior Non-Convertible Cumulative Preferred Stock of iQor that accretes dividends at an annual rate of 8 percent and is redeemable in nine years or upon a change in control. As a result of the sale, we have additional funds to finance certain of our needs. 50 -------------------------------------------------------------------------------- Table of Contents a. Asset-Backed Securitization Programs We continuously sell designated pools of trade accounts receivable under our asset-backed securitization programs to special purpose entities, which in turn sell 100% of the receivables to conduits administered by unaffiliated financial institutions (for the North American asset-backed securitization program) and an unaffiliated financial institution (for the foreign asset-backed securitization program). Any portion of the purchase price for the receivables which is not paid in cash upon the sale taking place is recorded as a deferred purchase price receivable, which is paid from available cash as payments on the receivables are collected. Net cash proceeds up to a maximum of $200.0 million for the North American asset-backed securitization program are available at any one time. We decreased our North American asset-backed securitization program's facility limit from $300.0 million to $200.0 million during the first quarter of fiscal year 2014. The North American asset-backed securitization program was renewed on October 21, 2014 and is scheduled to expire on October 20, 2017. Net cash proceeds up to a maximum of $75.0 million for the foreign asset-backed securitization program, currently scheduled to expire on May 15, 2015, are available at any one time. We decreased our foreign asset-backed securitization program's facility limit from $200.0 million to $75.0 million during the fourth quarter of fiscal year 2014. In connection with our asset-backed securitization programs, at August 31, 2014, we had sold $715.1 million of eligible trade accounts receivable, which represents the face amount of total sold outstanding receivables at that date. In exchange, we received cash proceeds of $202.1 million, and a deferred purchase price receivable. At August 31, 2014, the deferred purchase price receivable in connection with the asset-backed securitization programs totaled $513.0 million. The deferred purchase price receivable was recorded initially at fair value as prepaid expenses and other current assets on the Consolidated Balance Sheets. b. Trade Accounts Receivable Factoring Agreement In connection with a factoring agreement, we transfer ownership of eligible trade accounts receivable of a foreign subsidiary without recourse to a third party purchaser in exchange for cash. Proceeds from the transfer reflect the face value of the account less a discount. In April 2014, the factoring agreement was extended through September 30, 2014, at which time it was automatically renewed for an additional six-month period. During the fiscal year ended August 31, 2014, we sold $1.1 million of trade accounts receivable and received cash proceeds of $1.1 million. c. Trade Accounts Receivable Sale Programs In connection with three separate trade accounts receivable sale agreements with unaffiliated financial institutions, we may elect to sell, at a discount, on an ongoing basis, up to a maximum of $350.0 million, $150.0 million and $100.0 million, respectively, of specific trade accounts receivable at any one time. The $350.0 million trade accounts receivable sale agreement is an uncommitted facility that was renewed during the first quarter of fiscal year 2014 and is scheduled to expire on November 28, 2014 (during the fourth quarter of fiscal year 2014, we increased our uncommitted capacity from $150.0 million to $350.0 million). The $150.0 million trade accounts receivable sale agreement is an uncommitted facility that was entered into during the second quarter of fiscal year 2014 and is subject to expiration on August 31, 2015 as it was extended during the fourth quarter. The $100.0 million trade accounts receivable sale agreement is an uncommitted facility that was entered into during the first quarter of fiscal year 2014 and is scheduled to expire on November 1, 2014, although any party may elect to terminate the agreement upon 15 days prior notice. The agreement will be automatically extended each year for additional 365 day periods until November 1, 2018, unless any party gives no less than 30 days prior notice that the agreement should not be extended. A $200.0 million committed trade accounts receivable sale agreement was amended during the fourth quarter of fiscal year 2014 to decrease the committed capacity from $200.0 million to $0.0 million. A $40.0 million uncommitted trade accounts receivable sale agreement, which we were previously party to, was terminated effective March 19, 2014. During the fiscal year ended August 31, 2014, we sold $1.9 billion of trade accounts receivable under these programs and we received cash proceeds of $1.9 billion. 51 -------------------------------------------------------------------------------- Table of Contents Notes payable, long-term debt and capital lease obligations outstanding at August 31, 2014 and 2013 are summarized below (in thousands): August 31, August 31, 2014 2013 7.750% Senior Notes due 2016 (a) $ 308,659 $ 306,940 8.250% Senior Notes due 2018 (b) 398,665 398,284 5.625% Senior Notes due 2020 (c) 400,000 400,000 4.700% Senior Notes due 2022 (d) 500,000 500,000 Borrowings under credit facilities (e) 1,685 200,000 Borrowings under loans (f) 38,207 58,447 Capital lease obligations (g) 30,879 35,372 Fair value adjustment related to terminated interest rate swaps on the 7.750% Senior Notes (h) 4,450 6,823 Total notes payable, long-term debt and capital lease obligations 1,682,545 1,905,866 Less current installments of notes payable, long-term debt and capital lease obligations 12,960 215,448 Notes payable, long-term debt and capital lease obligations, less current installments $ 1,669,585 $ 1,690,418 (a) During the fourth quarter of fiscal year 2009, we issued $312.0 million of seven-year, publicly-registered 7.750% notes (the "7.750% Senior Notes") at 96.1% of par, resulting in net proceeds of approximately $300.0 million. The 7.750% Senior Notes mature on July 15, 2016 and pay interest semiannually on January 15 and July 15. Also, the 7.750% Senior Notes are our senior unsecured obligations and rank equally with all other existing and future senior unsecured debt obligations. (b) During the second and third quarters of fiscal year 2008, we issued $250.0 million and $150.0 million, respectively, of ten-year, unregistered 8.250% notes at 99.965% of par and 97.5% of par, respectively, resulting in net proceeds of approximately $245.7 million and $148.5 million, respectively. On July 18, 2008, we completed an exchange whereby all of the outstanding unregistered 8.250% notes were exchanged for registered 8.250% notes (collectively the "8.250% Senior Notes") that are substantially identical to the unregistered notes except that the 8.250% Senior Notes are registered under the Securities Act and do not have any transfer restrictions, registration rights or rights to additional special interest. The 8.250% Senior Notes mature on March 15, 2018 and pay interest semiannually on March 15 and September 15. The interest rate payable on the 8.250% Senior Notes is subject to adjustment from time to time if the credit ratings assigned to the 8.250% Senior Notes increase or decrease, as provided in the 8.250% Senior Notes. The 8.250% Senior Notes are our senior unsecured obligations and rank equally with all other existing and future senior unsecured debt obligations. (c) During the first quarter of fiscal year 2011, we issued $400.0 million of ten-year publicly registered 5.625% notes (the "5.625% Senior Notes") at par. The net proceeds from the offering of $400.0 million were used to fully repay the term portion of the credit facility dated as of July 19, 2007 (the "Old Credit Facility") and partially repay amounts outstanding under our foreign asset-backed securitization program. The 5.625% Senior Notes mature on December 15, 2020. Interest on the 5.625% Senior Notes is payable semiannually on June 15 and December 15 of each year, beginning on June 15, 2011. The 5.625% Senior Notes are our senior unsecured obligations and rank equally with all other existing and future senior unsecured debt obligations. (d) During the fourth quarter of fiscal year 2012, we issued $500.0 million of ten-year publicly registered 4.700% notes (the "4.700% Senior Notes") at 99.992% of par. The net proceeds from the offering of $500.0 million were used to repay outstanding borrowings under our revolving Amended and Restated Credit Facility and for general corporate purposes. The 4.700% Senior Notes mature on September 15, 2022 and pay interest semiannually on March 15 and September 15 of each year, beginning on March 15, 2013. The 4.700% Senior Notes are our senior unsecured obligations and rank equally with all other existing and future senior unsecured debt obligations. (e) As of August 31, 2014, eight of our foreign subsidiaries have credit facilities that finance their future growth and any corresponding working capital needs. Five of the credit facilities are denominated in U.S. dollars, one is denominated in Brazilian reais, one is denominated in Russian rubles and one is denominated in Taiwan new dollar. The credit facilities incur interest at fixed and variable rates ranging from 0.8% to 19.0%. On July 25, 2014, we entered into the Amended and Restated Credit Facility which provides for a revolving credit facility in the initial amount of $1.5 billion. The Amended and Restated Credit Facility may, subject to lenders' discretion, potentially be increased up to $2.0 billion and terminates on July 25, 2019. Interest and fees on the Amended and Restated Credit Facility advances are based on our non-credit enhanced long-term senior unsecured debt rating as determined by Standard & Poor's Ratings Service and Moody's Investors Service, and interest at our current rating level is subject to a permanent reduction if we meet a certain total debt to EBITDA ratio, all as more fully described in the Amended and Restated Credit Facility agreement. Interest is charged at a rate equal to either 0.000% to 0.650% above the base rate or 1.000% to 1.650% above the Eurocurrency rate, where the base rate represents the greatest of Citibank, N.A.'s base rate, 0.50% above the federal funds rate, and 1.0% above one-month LIBOR, but not less than zero, and the Eurocurrency rate represents adjusted LIBOR or adjusted CDOR, as applicable, for the applicable interest period, but not less than zero, each as more fully described in the Amended and Restated Credit Facility agreement. Fees include a facility fee based on the revolving credit commitments of the lenders and a letter of 52-------------------------------------------------------------------------------- Table of Contents credit fee based on the amount of outstanding letters of credit. We, along with our subsidiaries, are subject to the following financial covenants: (1) a maximum Debt to EBITDA Ratio (as defined in the Amended and Restated Credit Facility agreement) and (2) a minimum ratio of (a) Consolidated EBITDA to (b) interest payable on, and amortization of debt discount in respect of, all Debt (as defined in the Amended and Restated Credit Facility agreement) and loss on sale of accounts receivable. In addition, we are subject to other covenants, such as: limitation upon liens; limitation upon mergers, etc.; limitation upon accounting changes; limitation upon subsidiary debt; limitation upon sales, etc. of assets; limitation upon changes in nature of business; payment restrictions affecting subsidiaries; limitation upon use of proceeds; compliance with laws, etc.; payment of taxes, etc.; maintenance of insurance; preservation of corporate existence, etc.; visitation rights; keeping of books; maintenance of properties, etc.; transactions with affiliates; and reporting requirements. During fiscal year 2014, we borrowed $6.1 billion against the Amended and Restated Credit Facility under multiple draws and repaid $6.3 billion under multiple payments. In addition, during the fourth quarter of fiscal year 2014, we borrowed $1.0 billion against the Amended and Restated Credit Facility under multiple draws and repaid $1.0 billion under multiple payments. During the second quarter of fiscal year 2014, a foreign subsidiary of the Company entered into an uncommitted credit facility to finance its growth and any corresponding working capital needs. The credit facility provides for a revolving credit facility in the amount of up to $100.0 million with interest charged at a rate of LIBOR plus 1.7%. (f) During the third quarter of fiscal year 2012, we entered into a master lease agreement with a variable interest entity (the "VIE") whereby we sell to and subsequently lease back from the VIE up to $60.0 million in certain machinery and equipment for a period of up to five years. In connection with this transaction, we hold a variable interest in the VIE, which was designed to hold debt obligations payable to third-party creditors. The proceeds from such debt obligations are utilized to finance the purchase of the machinery and equipment that is then leased by us. We are the primary beneficiary of the VIE as we have both the power to direct the activities of the VIE that most significantly impact the VIE's economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. Therefore, we consolidate the financial statements of the VIE and eliminate all intercompany transactions. At August 31, 2014, the VIE had approximately $37.7 million of total assets, of which approximately $36.9 million was comprised of a note receivable due from us, and approximately $37.0 million of total liabilities, of which approximately $36.9 million were debt obligations to the third-party creditors (as the VIE has utilized approximately $36.9 million of the $60.0 million debt obligation capacity). The third-party creditors have recourse to our general credit only in the event that we default on our obligations under the terms of the master lease agreement. In addition, the assets held by the VIE can be used only to settle the obligations of the VIE. In addition to the loans described above, at August 31, 2014, we have borrowings outstanding to fund working capital needs. These additional loans total approximately $1.3 million, of which $0.9 million are denominated in Russian rubles and $0.4 million are denominated in U.S. dollars. (g) During the fourth quarter of fiscal year 2013, we acquired various capital lease obligations in connection with the acquisition of Nypro. (h) This amount represents the fair value hedge accounting adjustment related to the 7.750% Senior Notes. For further discussion of our fair value hedges, see Note 13 - "Derivative Financial Instruments and Hedging Activities" to the Consolidated Financial Statements Under our 7.750%, 8.250%, 5.625% and 4.700% Senior Notes, we are subject to covenants such as limitations on our and/or our subsidiaries' ability to: consolidate or merge with, or convey, transfer or lease all or substantially all of our assets to, another person; create certain liens; enter into sale and leaseback transactions; create, incur, issue, assume or guarantee funded debt (which only applies to our "restricted subsidiaries"); and guarantee any of our indebtedness (which only applies to our subsidiaries). We are also subject to a covenant requiring our repurchase of our 7.750%, 8.250%, 5.625% or 4.700% Senior Notes upon a "change of control repurchase event." The asset-backed securitization programs require compliance with several covenants. The North American asset-backed securitization program covenants include compliance with the interest coverage ratio and debt to EBITDA ratio of the Amended and Restated Credit Facility. The foreign asset-backed securitization program covenants include limitations on certain corporate actions such as mergers and consolidations. At August 31, 2014 and 2013, we were in compliance with all covenants under the Amended and Restated Credit Facility, respectively and our securitization programs. Uses On October 17, 2013, January 22, 2014, April 17, 2014, and July 23, 2014, our Board of Directors approved payment of a quarterly dividend of $0.08 per share to shareholders of record as of November 15, 2013, February 14, 2014, May 15, 2014, and August 15, 2014, respectively. Of the total cash dividend declared on October 17, 2013 of $17.2 million, $16.5 million was paid on December 2, 2013. Of the total cash dividend declared on January 22, 2014 of $17.0 million, $16.3 million was paid on March 3, 2014. Of the total cash dividend declared on April 17, 2014 of $16.7 million, $16.0 million was paid on June 2, 2014. Of the total cash 53 -------------------------------------------------------------------------------- Table of Contents dividend declared on July 23, 2014 of $16.3 million, $15.6 million was paid on September 2, 2014. The remaining $0.7 million that was not paid during each quarter is related to dividend equivalents on unvested restricted stock units that will be payable at the time the awards vest. We currently expect to continue to declare and pay regular quarterly dividends of an amount similar to our past declarations. However, the declaration and payment of future dividends are discretionary and will be subject to determination by our Board of Directors each quarter following its review of our financial performance. In December 2013, our Board of Directors authorized the repurchase of up to $200.0 million of our common shares during the twelve month period following their authorization. We repurchased 10.7 million shares during the fiscal year ended August 31, 2014, which utilized the entire $200.0 million authorized by the Board of Directors. In July 2014, our Board of Directors authorized the repurchase of up to an additional $100.0 million of our common shares during the twelve month period following their authorization. We repurchased 3.0 million shares during the fourth quarter of fiscal year 2014, which utilized approximately $60.0 million of the $100.0 million authorized by our Board of Directors. In addition, following the end of fiscal year 2014, we repurchased 2.0 million shares for approximately $40.0 million, which utilized the remaining amount outstanding of the $100.0 million authorized by our Board of Directors. Our working capital requirements and capital expenditures could continue to increase in order to support future expansions of our operations through construction of greenfield operations or acquisitions. It is possible that future expansions may be significant and may require the payment of cash. Future liquidity needs will also depend on fluctuations in levels of inventory and shipments, changes in customer order volumes and timing of expenditures for new equipment. At August 31, 2014, we had approximately $1.0 billion in cash and cash equivalents. As our growth remains predominantly outside of the United States, a significant portion of such cash and cash equivalents are held by our foreign subsidiaries. We estimate that approximately $808.8 million of the cash and cash equivalents held by our foreign subsidiaries could not be repatriated to the United States without potential income tax consequences. We intend to repatriate the Nypro pre-acquisition undistributed foreign earnings of approximately $221.2 million to our U.S. operations. Therefore, we recorded a deferred tax liability of approximately $77.8 million based on the anticipated U.S. income taxes of the repatriation. We intend to indefinitely reinvest the remaining earnings from our foreign subsidiaries. For discussion of our cash management and risk management policies see "Quantitative and Qualitative Disclosures About Market Risk." We currently anticipate that during the next 12 months, our capital expenditures will be in the range of $350.0 million to $450.0 million, principally for maintenance levels of machinery and equipment, information technology infrastructure upgrades and investments to support ongoing growth in our DMS operations. We believe that our level of resources, which include cash on hand, (recently increased due to our receipt of proceeds from the sale of our AMS business on April 1, 2014), available borrowings under our revolving credit facilities, additional proceeds available under our trade accounts receivable securitization programs and potentially available under our uncommitted trade accounts receivable sale programs and funds provided by operations, will be adequate to fund these capital expenditures, the payment of any declared quarterly dividends, any potential acquisitions and our working capital requirements for the next 12 months. Our $200.0 million North American asset-backed securitization program was renewed on October 21, 2014 and is scheduled to expire on October 20, 2017 and our $75.0 million foreign asset-backed securitization program is scheduled to expire on May 15, 2015. We may be unable to renew either of these programs. The $350.0 million trade accounts receivable sale agreement is an uncommitted facility that was renewed during the first quarter of fiscal year 2014 and is scheduled to expire on November 28, 2014. The $150.0 million trade accounts receivable sale agreement is an uncommitted facility that was entered into during the second quarter of fiscal year 2014 and is subject to expiration on August 31, 2015 as it was extended during the fourth quarter. The $100.0 million trade accounts receivable sale agreement is an uncommitted facility that was entered into during the first quarter of fiscal year 2014 and is scheduled to expire on November 1, 2014, although any party may elect to terminate the agreement upon 15 days prior notice. The agreement will be automatically extended each year for additional 365 day periods until November 1, 2018, unless any party gives no less than 30 days prior notice that the agreement should not be extended. A $40.0 million uncommitted trade accounts receivable sale agreement, which we were previously party to, was terminated effective March 19, 2014. We can offer no assurance under the uncommitted sales programs that if we attempt to sell receivables under such programs in the future that we will receive funding from the associated banks which would require us to utilize other available sources of liquidity, including our revolving credit facilities. 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. See "Risk Factors - Our amount of debt could significantly increase in the future." 54 -------------------------------------------------------------------------------- Table of Contents Contractual Obligations Our contractual obligations for short and long-term debt arrangements and capital lease obligations; future interest on notes payable, long-term debt and capital lease obligations; future minimum lease payments under non-cancelable operating lease arrangements; non-cancelable purchase order obligations for property, plant and equipment; pension and postretirement contributions and payments and capital commitments as of August 31, 2014 are summarized below. While, as disclosed below, we have certain non-cancelable purchase order obligations for property, plant and equipment, we generally do not enter into non-cancelable purchase orders for materials until we receive a corresponding purchase commitment from our customer. Non-cancelable purchase orders do not typically extend beyond the normal lead time of several weeks at most. Purchase orders beyond this time frame are typically cancelable. Payments due by period (in thousands) Less than 1 Total year 1-3 years 4-5 years After 5 years Notes payable, long-term debt and capital lease obligations (a) $ 1,678,095 $ 12,960 $ 339,013 $ 401,077 $ 925,045 Future interest on notes payable, long-term debt and capital lease obligations (b) 520,221 106,534 184,798 113,585 115,304 Operating lease obligations 394,582 83,108 125,645 72,541 113,288 Non-cancelable purchase order obligations (c) 126,888 111,398 15,490 - - Pension and postretirement contributions and payments (d) 13,217 4,509 1,332 1,963 5,413 Capital commitments (e) 900 900 - - - Total contractual cash obligations (f) $ 2,733,903 $ 319,409 $ 666,278 $ 589,166 $ 1,159,050 (a) The above table excludes a $4.5 million fair value adjustment related to the former interest rate swap on the 7.750% Senior Notes. (b) Certain of our notes payable, long-term debt and capital lease obligations pay interest at variable rates. In the contractual obligations table above, we have elected to apply estimated interest rates to determine the value of these future interest payments. (c) Consists of purchase commitments entered into as of August 31, 2014 for property, plant and equipment pursuant to legally enforceable and binding agreements. (d) Includes the estimated company contributions to funded pension plans during fiscal year 2015 and the expected benefit payments for unfunded pension and postretirement plans from fiscal years 2015 through 2024. These future payments are not recorded on the Consolidated Balance Sheets but will be recorded as incurred. (e) During the first quarter of fiscal year 2009, we committed $10.0 million to an independent private equity limited partnership which invests in companies that address resource limits in energy, water and materials (commonly referred to as the "CleanTech" sector). Of that amount, we have invested $9.1 million as of August 31, 2014. (f) At August 31, 2014, we have $1.3 million and $87.6 million recorded as a current and a long-term liability, respectively, for uncertain tax positions. We are not able to reasonably estimate the timing of payments, or the amount by which our liability for these uncertain tax positions will increase or decrease over time, and accordingly, this liability has been excluded from the above table. |