Beth Walters - VP IR and Corporate Communications Forbes Alexander - CFO Tim Main - President, CEO

Steven Fox - Merrill Lynch Lou Miscioscia - SG Cowen Matt Sheerin - Thomas Weisel Partners Jim Suva - Citigroup Bernie Mahon - Morgan Stanley Michael Walker - Credit Suisse Kevin Kessel - Bear Stearns Carter Shoop - Deutsche Bank Thomas Dinges - JP Morgan Amit Daryanani - RBC Capital Markets

At this time I would like to welcome everyone to the Jabil Circuit earnings release conference call. (Operator Instructions) I would now like to introduce Ms. Beth Walters, Vice President of Investor Relations and Corporate Communications of Jabil Circuit. Ms. Walters, you may begin your conference.

Thank you. Welcome to Jabil's second quarter fiscal 2006 conference call. With me today are Tim Main, our President and Chief Executive Officer and Forbes Alexander, our Chief Financial Officer. Turning to our slide show which is posted on Jabil.com in the Investor Relations section, on side 1 our forward-looking statements. During the course of this conference call we will be making projections and other forward-looking statements regarding future events and the future financial performance of the Company. We do caution you that these statements are just predictions, and that actual events or results may differ materially. We refer you to the documents that we file from time to time with the SEC, including our most recent 10-K which was filed October 28, 2005. These documents contain and identify important factors that could cause the actual results to differ materially from those contained in our projections or other forward-looking statements. This call is being recorded and will be posted for audio playback on the Jabil website in the Investor Relations section, along with the press release and the slide show presentations on the second quarter and fiscal year results. Please turn to slides 2 and 3. Results for the quarter on revenues of $2.3 billion, GAAP operating income increased 44% to $83.3 million. This compares to $57.8 million in GAAP operating income for the same period in the prior year. Core operating income, excluding amortization of intangibles and stock-based compensation for the quarter was $96.2 million, or 4.2% of revenue, as compared to $68.1 million or 4% for the same period in the prior year. Core earnings per share were $0.37. On a year-over-year basis, this quarter represents a 35% growth in revenue and a 41% growth in core operating income. On a sequential basis, revenues and core operating income declined 4% and 14% respectively, reflecting a seasonal decline in our (inaudible)-related business, although noting that we were at the higher end of our prior guidance for the quarter. Please turn to side 4. Looking at revenue by sector. As I mentioned, second quarter revenues did decrease 4% from the first quarter, reflecting that seasonal decline in the consumer sector. Production levels in the automotive sector decreased 15% from the prior quarter, reflecting seasonal weakness in demand. Our computing and storage sector increased 18% from the first fiscal quarter of 2006 as a result of higher production levels than we had originally forecast. The consumer products sector decreased by 14% in the quarter, reflecting seasonal lower levels of production and the ongoing ramp of existing and new products with our two largest customers in this sector. Instrumentation and medical sector increased 4% from the first quarter, reflecting the ongoing growth of assemblies across multiple customers in this sector. The networking sector levels of production decreased by 6% from the previous quarter. The peripheral sector increased by 16% over the prior quarter. The telecommunications sector increased 4% sequentially. Turning to slide 5, our sector information for the quarter in percentage terms was as follows: for our second quarter automotive comprised 6% of revenues; computing and storage comprised 12% of overall revenues; the consumer sector accounted for 34%, instrumentation and medical, 17%; networking accounted for 12% of overall revenues; the peripheral sector accounted for 8% of revenues; the telecom sector was 7% of overall revenues; and other 4%. Turning now to side 6, I will let Forbes take you through our balance sheet.

Thanks, Beth. Good afternoon. The Company's sales cycle increased by four days as compared to the first fiscal quarter to 19 days. Inventory turns were consistent at nine. Days in inventory increased by four days in the quarter to 41 days. In absolute dollar terms inventory increased by $50 million, reflecting a pre-positioning of inventory for continuing strength in demand in the upcoming third fiscal quarter. On a forward-looking basis, inventory days are 38 days. Days sales outstanding and accounts payable days were 42 days, 65 days respectively versus 41 days and 64 days in the first fiscal quarter. Our return on invested capital was, as anticipated, 19% at the end of the quarter. This compares to 15% for the same period in fiscal 2005. Turning to slides 7 and 8. Cash and cash equivalents were $919 million as compared to $876 million at the end of the last quarter. Cash flow from operations was approximately $6 million in the second quarter, our 21st consecutive quarter of positive cash flow. On a year-over-year basis we continue to maintain efficient control on capital deployed, while increasing revenues and core operating earnings. On a year-over-year basis, revenues increased by 35%, while core operating income increasing by 43%, producing returns on invested capital of 4 percentage points in excess of our weighted average cost of capital. Our capital expenditures during the quarter were approximately $53 million. Depreciation for the quarter was approximately $44 million. Amortization was approximately $6 million. EBITDA in the quarter was approximately $140 million. We're very pleased with these results, and we're extremely well-positioned to produce operating cash flows in excess of our investment activities in fiscal 2006. Turning now to a review of our acquisition capacity and operations. We are pleased with the operational execution of our business units and plants in the challenging quarter. In particular, those executing to the seasonal decline in consumer electronics, and those ramping additional volumes and new programs. As we continue into the second half of fiscal '06, we shall be challenged in numerous plants with such ramps. We shall remain in a position to have adequate floor space capacity. Last quarter we announced our intent to acquire Celetronix, an Indian-based electronic manufacturing services provider. We are pleased to advise that this acquisition shall be completed over the course of the coming weeks, as regulatory approvals are received. We shall add additional capabilities in Chennai and Mumbai, India, making Jabil the largest EMS provider in India, and positioning us for continued growth in that region. Last quarter we updated you on the progress of our new facilities in Wuxi, China and Ranjangaon, India. We continue to invest in these sites and see production levels continuing to ramp in both facilities throughout the remainder of fiscal '06 and into fiscal '07, supporting customer demands across multiple sectors, such as peripherals, consumer, telecom and instrumentation and medical. Our investments in fiscal 2006 are expected to be related to the above locations and existing plants, as we continue to see increasing levels of productions across these multiple sites and geographies. We are tightening our range of estimated capital expenditures to be about $275 million to $325 million for the full fiscal year. Depreciation is estimated to be in the range of $180 million to $200 million. Please turn to slide 9, the third quarter fiscal '06 update. We estimate our third fiscal quarter of 2006, our May quarter, to be in a revenue range of $2.5 billion to $2.6 billion, for an increase of 7% to 13% from our second quarter. Core earnings per share for the May quarter are expected to be $0.43. Research and development costs are expected to be consistent with those of the second fiscal quarter at approximately $8.5 million, reflecting our continued successes in design-related programs with existing and new customers. As a percentage of revenue, we estimate operating margins to be approximately 4.4% of revenue. Intangibles amortization and stock-based compensation are estimated to be $5.3 million, and $7 million respectively. Capital expenditures in the quarter are estimated to be $60 million to $90 million. The tax rate on core earnings is expected to be consistent with that of the second quarter at 16%. Please turn to slide 10. I would like to address revenues by sector for our upcoming quarter. The automotive sector is estimated to increase by 7%. Computing and storage is estimated to have consistent levels of production for the second fiscal quarter. The consumer sector is expected to increase by approximately 30% in the third quarter, reflecting a continued expansion of existing customer relationships and the addition of new customers and products. The instrumentation and medical sector is anticipated to increase by 10% in the third quarter, reflecting the ongoing growth of assemblies within this sector across multiple customers. The networking sector levels of production are expected to decrease by approximately 25% from the second fiscal quarter. This is as the result of our partnering with one of our communications customers in new lean manufacturing initiatives. Revenues in this sector for our fourth fiscal quarter are expected to be 100% as this initiative is fully implemented. We expect a neutral impact in total working capital levels as a result of our partnering with our customer's lean initiative. Inventory levels are estimated to increase by approximately two to three days at the end of the third fiscal quarter, offset by a two to three day expansion in accounts payable. We expect such inventory levels to normalize as we move through the fourth fiscal quarter and beyond. The peripheral sector is estimated to increase by a third of a percent in the third quarter. And finally the telecom sector is estimated to decline by 12% in the third quarter. Now please turn to slide 11. I would like to update you on our full fiscal year guidance. As you are aware, our strategy has been and continues to be to position the Company to capitalize on the trend to outsourcing. The first half of our fiscal '06 has demonstrated this to be the case. As we move into the second half of the fiscal year, the level of product ramp activity remains high across numerous factories as we continue to expand existing and add new customer relationships. We now estimate our revenue to be split as follows across the industry sectors we serve for the full fiscal year: automotive 5% of revenues; computing and storage, 11%; consumer, 36%; instrumentation and medical, 17%; networking sector, 13%; peripherals, 7%; telcom 6%, and finally other, 5%. As a result, we are revising our estimates up for fiscal '06 from a revenue level of $9.3 billion and core earnings per diluted share of $1.65. Revised estimates for fiscal '06 are for revenues of $9.9 billion and core earnings per diluted share of $1.70. This revised guidance represents a 32% growth in revenues and a 34% growth in core earnings over fiscal 2005. Such estimates reflect investments we are continuing to make in people, systems, infrastructure, and research and development to support our growth rate in excess of 30% in the fiscal year, and ensure appropriate skills, systems and operational and product development capabilities are in place to support our continued growth into fiscal '07 and beyond. Revenue guidance includes approximately $80 million to $120 million of revenues associated with the acquisition of Celetronix, due to be completed in the coming weeks. This acquisition is expected to be slightly dilutive to earnings for the balance of the fiscal year, as we estimate to incur costs of approximately $3 million to $5 million associated with the integration of these sites into Jabil. We expect contribution to earnings as we move into the first half of fiscal '07. This updated guidance represents the addition of approximately $2.4 billion of revenue in the fiscal year, and an additional $130 million of core operating income. Our returns on invested capital are on track to increase to 20% for the full fiscal year, up from 17% in fiscal '05. Returns on invested capital of 20% are achievable as we move through the back half of the fiscal calendar year and beyond. Now I would like to hand the call over to Tim Main.

Thanks. Let me start by thanking our customers and the people of Jabil for helping us to post another outstanding quarter. It is a team effort and I know everyone is working diligently through quality and made deliveries in a very demanding high-growth environment. Thank you for your tireless effort. It is your commitment to performance and execution that makes the biggest difference in our business. It is now clear that fiscal 2006 will be an extraordinary year. We started the year with an expectation for about $9 billion in revenue, and $1.55 to $1.65 in EPS, a respectable 20% to 25% growth rate over fiscal 2005. We now expect growth for fiscal 2006 to eclipse 30% for the year. In the second half of fiscal 2006 we should book over $5 billion in revenue, and earn over $230 million in core operating income, about 30% more than in the second half of fiscal 2005. We are on a nice trajectory, and we see sufficient opportunities for growth to remain on this path. Many of you will note that our consumer segment has been pacing growth this year and that is true. About 56% of this year's revenue growth will come from that segment. We have 16 customers in the segment, 15 of which will enjoy year-over-year growth. Let's not forget about the $1 billion in growth we are enjoying in other segments, notably the instrumentation and medical and the computing and storage segments. Most of the growth is coming from OEMs converting all or a part of their internal electronic design and manufacturing to an outsourced model. We will continue to emphasize diversified expansion of our customer base and global resources in order to more fully exploit this trend to outsourcing. We now have about 150 customers, and enjoy broad exposure to most major end markets. We are aggressively ramping new customers and programs around the world. For example, about 16 customers, representing approximately $4.2 billion in revenue, are presently in a state of rapidly ramping new business or programs with Jabil. Of the 16 customers, five are in computing and storage, five are in instrumentation and medical, and four are in the consumer segment. Telecom and services make up the balance. We're making significant investments in order to sustain our growth to continue to service our customers well. Our IT systems are being deployed in increasingly sophisticated ways, as we absorb more functions of the product supply chain. Our internal development of people and investment in their knowledge growth is increasing. We are actively recruiting the best people to help us execute and perform around the world. Investment in product development resources is increasing as demand is blossoming with our advancing know-how and capabilities. We are electing to make these investments at the expense of even more robust margin expansion in the short term to ensure the long-term sustainability of our business model. We expect to close the Celetronix acquisition very soon. In the next quarter or two we will be busy with the work of integrating this strategically important acquisition. We're gaining a critical injection of talent and know-how in a market with dynamic growth prospects. Presently, most of Celetronix output is for export, not domestic consumption, consistent with our view of India's evolving role in global electronics. India has a dual advantage of a rapidly growing domestic market, along with a rapidly improving platform for product development and manufacturing for export. We welcome the Celetronix people to Jabil's team, and look forward to their contribution to Jabil's success in the years ahead. All in all, a good quarter. Accelerating growth in the second half and a business model that is performing quite well. I think we're on solid ground for continued success in a growing industry.

Operator, we're now ready for the question and answer period.

(Operator instructions) Your first question comes from the line of Steven Fox with Merrill Lynch. Steven Fox - Merrill Lynch: Good afternoon. A couple of questions. First of all, Tim, can you just go into a little more detail on Celetronix? What drew you to the acquisition as opposed to just doing more greenfield in India, and some of the specific capabilities or customers that they have?

I will start with the basics. We think that India will be a really hot growth market in the next few years. Frankly, our Asia personnel, they're pretty busy. We're growing the Asian region faster then the corporation is overall. So to ask them to fully exploit the India opportunity while they're concurrently continuing to do $1 billion in Malaysia and multiple billions of dollars and opening new factories in China, is a lot to ask of them. It is a different marketplace then where we operate today. It has its own challenges. Celetronix brings with it great expertise, great know-how in operating in the country. It is been owned and operated by the Tandon family, which if you go back in the annals of electronics history should be well-known to most folks. And they got a great power supply design capability. They do a lot of set-top boxes for export. They have been operating in India for about 25 years. So a great injection of know-how and capability in a high-growth market, and it takes some of the pressure off some of the rest of our Asian management team. Steven Fox - Merrill Lynch: And then just secondly on inventories, Forbes, you cut out a little bit when you were talking about the networking customer. Can you just go over how the inventories are going to work? Within that, given the growth rates at the Company, you called out the three days of extra inventories in the quarter. Is that going to be an ongoing thing if you are continuing to ramp for customers as opposed to saying it is a one-off?

With regards to the networking customer, I indicated about two to three days of additional inventory at the end of our May quarter. That would be offset by a similar level, two to three days of accounts payable associated with that inventory. And that would be worked down through fiscal Q4 and beyond. That is a one-time event. In terms of the overall inventory position, we continue to ramp. I think there is absolutely opportunity here to continue to keep days at 37, 38 days and improve upon that, even while we're ramping. Our fiscal Q2 was an interesting quarter in terms of the shape of that quarter, in that we came off a seasonal high in consumer in November. The consumer demand continued through December. Then if you will, our quarter was more of a U-shape. As we lean into our fiscal Q3 we've got revenue growth month over month, February into March, somewhere in the region of 15 to 17% month over month. As we continue to move, move forward, I think inventory levels approaching 10 are very achievable. Steven Fox - Merrill Lynch: Great. That is very helpful. Thank you.

Our next question comes from Lou Miscioscia with Cowen and Company. Lou Miscioscia - SG Cowen: Nice numbers here. My first question, Tim, is if you're looking out, I know that by now you've got some business planned already for '07. Going back to the May analyst meeting, would you say that at minimum you're still going to fall within the prior guidance you gave of revenue growth to continue in the 20% to 25% range and operating margins to increase in the 30% range?

I'm not sure about the operating margin line, but I think the indications that we gave in terms of long-term growth expectations are still intact. Lou Miscioscia - SG Cowen: So '07 is continuing to shape up, or looking as good as obviously you're here now in fiscal '06?

I don't want people to get out ahead for '07 guidance. Lou again, I think the indications we gave in the May analyst meeting are still appropriate, but we certainly see no indication of the demand for outsourcing slowing down. If this year is any indication, it is really an extraordinary market. Our principal challenge in this market is to manage our growth, because the bigger we get, the more capable we become, the more opportunity we seem to beget. There are more and more big companies that would like to get out of electronics design and manufacturing. There is plenty of opportunity out there. I think the principal challenge for the team is not food supply, it is going to be execution. We will continue to focus on that, Lou. Lou Miscioscia - SG Cowen: One quick follow-up. Also at the May analyst meeting you had talked about growing your smaller customers, a lot of the ones that would be more regional in the U.S. that are doing high mix, low volume. Maybe just an update as to how that is going, and maybe if you've got that same strategy going in Europe? Thanks.

I will answer that in reverse. Europe is going a little bit slower then it is in the U.S., although we have a similar focus in Europe to develop the middle market and provide a compelling business model for customers that have requirements in that $5 million to $25 million range. In the U.S. it is going very well. The Varian acquisition has turned out to be a superb injection of know-how and people for us. Our U.S. plants have converted to that basic business model of flexible manufacturing and non-dedicated work cells, principally. It has been covered up a little bit just by the fact the consumer segment is growing so fast there's not as much focus on the great growth we have had there. The instrumentation and medical segment this year will be $1.7 billion or so in terms of revenue. And that is going to be $600 million, roughly, over the previous year. A lot of that is high mix manufacturing being done in all parts of the world. We're really pleased with how that is going. Lou Miscioscia - SG Cowen: Thanks, Tim.

You bet.

Our next question comes from Matt Sheerin with Thomas Weisel Partners. Matt Sheerin - Thomas Weisel Partners: Thanks. Tim, if I could just expand on the earlier comment and questions around inventory, there seemed to be concerns across the supply chain about some inventory building ahead of shortages, or price hikes for semis and other components. Could you tell us what Jabil's take is on the component supply situation right now? Have you had customers express concern or ask you to begin looking at that or building inventory?

Not that I am aware of. I'm not aware of everything we do anymore, in every pocket. Generally the commodity supply chain people that we have on the corporate staff, their dashboard is green with a few yellows here and there. Pretty good supply out there. Not seeing rapid price hikes, not seeing price erosion as rapidly as we saw in 2002, 2003, but it still feels like a very manageable market. Our inventory levels have a lot more to do with the shape of our Q2, which had a very soft middle and very strong beginning and end. We're positioning inventory for a stronger than expected Q3, to be frank. I wish our inventory execution were better. I wish we could turn inventory faster, and we will continue to focus on that. It certainly shouldn't be any indication to the investment community that there is a slowdown or shortages or aberrational behavior in the commodity marketplace, because we don't see that. Matt Sheerin - Thomas Weisel Partners: Great. Just a second question, a different question, Tim. Your growth seems to be coming from both small and large customers. Could you talk about your philosophy about working with small and mid-sized OEMs and the opportunities there? Is there a difference in the profitability profile of those customers versus the large ones?

Again, there are margin differences, but the great leveler across all of them is returned on invested capital. It takes more resource, more inventory, more people, more factory space to run these high-mix accounts, and so we will make a little bit better margin, but return on invested capital is very similar to what you might see in our lower margin consumer electronic space. That is really the most important metric that we look at. A little teaser for our analyst meeting in May, I think we will go into some more detail around these different industry segments, how we pursue them, how different they are from each other, and what our business model is to fully exploit the opportunity in these very, very dissimilar segments. I think you're right, the instrumentation, medical, defense and aerospace market is entirely different than what we are seeing in the consumer area. So it is important for us to have capabilities that fully satisfy customers across that broad range. Matt Sheerin - Thomas Weisel Partners: Great, thank you.

Our next question comes from Jim Suva with Citigroup. Jim Suva - Citigroup: Thank you very much. Congratulations. Can you give us a little bit more color on the milestones for the India acquisition? You had mentioned, I believe, a quarter or two of dilution followed by accretion. Any more color as far as the dilution, accretion as well as the revenues? Is there any seasonality associated with this acquisition?

There's a heavy set-top box component to the business, so there will be some seasonality. By definition, it must be very strategic since it is dilutive for the first couple of quarters. But there really, truthfully is a lot of work that has to go into transition of IT systems and establishing Jabil process controls and Jabil inventory controls and investment in management, that type of thing. We're keeping our expectations for profitability fairly low in the beginning. We think in '07 they should contribute to corporate averages or even better. We think we will see significant growth in India and have a lot of tail wind. We will have a lot of wind at our back as we grow that business. It should be good in '07. That is really what we're looking at, '07 and '08. Jim Suva - Citigroup: Thank you.

Our next question comes from Bernie Mahon with Morgan Stanley. Bernie Mahon - Morgan Stanley: Good evening. Just a clarification question on the guidance for networking being down 25% sequentially. You attributed it to some lean manufacturing. Could you just walk through that? I didn't quite understand that.

Bernie, it is Forbes here. Revenue levels down 25%, and what that is, is currently it is a two-stage manufacturing process, if you will, a process relationship that has been collapsed into one, which ultimately will bring benefits to both ourselves, the customer and the overall supply chain. Ultimately we will take inventory out of supply chain, and that will occur certainly over the next quarter or two. Bernie Mahon - Morgan Stanley: A question on the consumer segment. You guys had better than expectations there in the February, and the guidance is also pretty strong. But it seems like a lot of that strength is coming from some of your bigger customers in that end market. Could you just talk about the customer concentration risks maybe for your top two customers? Are we talking about 30%, 35% of revenue now is tied to them? Does that concern you at all, and do you want to try to diversify your revenue a little bit more?

We are interested in diversification. We will continue to work on diversification. The customer concentration levels we discuss, I think on an annual basis. All I can say about the consumer segment it worked out terrific for us. There are 17, 18 customers in this segment. I think I said in my prepared remarks that were 16 customers, and 15 of them will enjoy a year-over-year revenue growth. It might be a little more broader-based then you have given us credit for there. Bernie Mahon - Morgan Stanley: But is the majority of the upside that we saw in February and the stronger outlook for May, is it with two of your larger customers?

We're not providing customer-specific guidance. But if you look back at the 10-K, Phillips and Nokia were the two biggest customers, they were in the low teens. It would be tough to move the needle a lot if we weren't doing well with the bigger customers.

There is also some contribution from Celetronix customers here in the back half of the year. As Tim just mentioned, the dominance is for that set-top box assembly there. That is contributing somewhere in the region -- I think the guidance I gave was $80 million to $120 million overall for Celetronix. Again, that is contributing in the back half of the year. Bernie Mahon - Morgan Stanley: That is helpful. Thanks.

Our next question comes from Michael Walker with Credit Suisse. Michael Walker - Credit Suisse: Thanks a lot. Forbes, your voice faded out when your talking about what would happen with the networking business in the fourth quarter. I heard the word 100%, but I don't know the context that you said it in.

Okay. Let me repeat what I said. Bear with me one second. With regards to the networking sector, revenues in that sector for the fourth fiscal quarter are expected to grow by approximately 100% as our lean initiative is fully implemented. A third quarter event. Michael Walker - Credit Suisse: The networking business is going to be down 25% sequentially in May, and then up 100% sequentially in August?

That is correct. The lean initiative, though it kicks in fully as part of this process we take full ownership for inventory processes. Ultimately inventory will come out of the supply chain. Michael Walker - Credit Suisse: Is that purely a function of the dynamics around lean, or is there some additional physical business coming in the model there in August, because that is big move obviously?

Yes, that is purely a function of the lean initiative, Mike. Michael Walker - Credit Suisse: My second area of question is just on the margin guidance. You're guiding the margins up 20 basis points sequentially it looks like for May at the mid-point. Just wondering, is Celetronix big enough to be part of that or is that all just the core business ex-Celetronix?

We are planning to close this deal in the next couple of weeks. $3 million to $5 million worth of dilution in the back half of the year. You could account for -- there's probably $2 million to $3 million of that in this fiscal quarter as we deploy our IT teams and material controls and such like. Michael Walker - Credit Suisse: My final question is just around the consumer business. I think you guided that down about 30% sequentially. You talked about how it being down past that was a function in part of new business at your new customers. If you back out the new business, the organic demand, was that a little bit better in consumer than you expected?

Yes, it was. Michael Walker - Credit Suisse: Thank you very much.

Our next question comes from Kevin Kessel with Bear Stearns. Kevin Kessel - Bear Stearns: In terms of Celetronix, Tim, what is the expectation built into guidance for this quarter? It sounds like it is going to close here in the next few weeks.

I'm not sure what it will be for this quarter. We said $80 million to $120 million for the balance of the year. Kevin Kessel - Bear Stearns: That is the back half of the year, okay.

Yes. Kevin Kessel - Bear Stearns: There will be some impact that might happen this quarter, but it is not factored in at this point or --?

Yes. I would model slightly less than two-fifths. Kevin Kessel - Bear Stearns: Two-fifths of the quarter?

Two-fifths of that $80 million to $120 million. Kevin Kessel - Bear Stearns: Okay, in the quarter. Then should we assume because, as you stated, it is going to be diluted initially here, does that mean it is running currently below Jabil corporate average operating margin?

Yes. Kevin Kessel - Bear Stearns: In terms of the cash flow, I guess the first question is, Forbes, on the securitization, was there a change in that quarter to quarter?

There was (inaudible). Kevin Kessel - Bear Stearns: So it was $250 million again?

It was $250 million at the end of the quarter. That is correct. Kevin Kessel - Bear Stearns: Then the cash flow, I think it was $6 million, so again a positive cash flow quarter. But this what I think the lowest cash flow quarter that you guys have had since 2000. What is the expectation going forward in terms of cash flow, especially with this inventory the way it is now, building up next quarter in preposition for demand?

Now remember that inventory at the end of May as far as that is growing, there is a corresponding table that goes there. That has no impact on cash whatsoever of that event. Make sure everyone understands that. No impact on cash. As we're moving through the back half of the year, I feel very confident that cash flow from operations, and our continued discipline around working capital will certainly be in excess of those investing activities we have, including the Celetronix acquisition, some of the smaller acquisitions we have announced earlier in the year, and our CapEx levels of $275 million to $325 million. So I still expect to see positive free cash flows in the fiscal year. Kevin Kessel - Bear Stearns: For the whole year. What is the sensitivity around that CapEx? What puts you at the high end versus the low end of that range? Is it dependent on a certain project that might or might not happen, or what do you think it is?

Some of it is related to mix. As Tim you talked about some of these more middle market customers, when we look at capabilities of gear sets, if you will, in producing that revenue stream. So on the consumer side, for example, our material based margin, there is a higher revenue output from a manufacturing line than there would be from say a medical customer, where there is a lot of changeover. There's a lot of downtime in equipment. So it very much depends upon the mix of our business coming through in the back half of the year. Kevin Kessel - Bear Stearns: Then just getting real quick to your end markets, the one market that struck me -- two actually stuck me. Networking being down 6, I think you guys had expected it up 2. Did you start implementing your lean initiative this quarter towards the trail end of the month of February?

No, we did not. No. Kevin Kessel - Bear Stearns: Okay. So it just performed a little bit lower than expectation?

A bit lower, yes. Kevin Kessel - Bear Stearns: You guys said I believe that consumer and storage, that was up almost double what you expected. You said higher production levels, is that just essentially your gaining share there, or you are adding new customers, or is it just a stronger market?

That number is a stronger market both in computing and storage, actually, across two or three customers in that space. Kevin Kessel - Bear Stearns: My very final question here is, you said month-to-month, Forbes, that you're looking at revenue from February to March, up 17%. But if I look at your guidance at the midpoint I believe it is up 10%. So that is implying somewhat of a decline in month-to-month growth rates in the back half of the quarter. Is there any particular reason for that?

None that I'm aware of. No, none whatsoever. Kevin Kessel - Bear Stearns: Okay, just the way the quarter is shaking out. It is more front loaded?

It is way the quarter is shaking out for us, yes. Kevin Kessel - Bear Stearns: Even though Celetronix might be adding to the back half of the quarter as opposed to the front end?

Celetronix is really not material to the events in the quarter whatsoever. Kevin Kessel - Bear Stearns: Okay, thank you very much.

Our next question comes from Carter Shoop of Deutsche Bank. Carter Shoop - Deutsche Bank: I wanted to talk about inventory again, and clarify the guidance for the next quarter. Is the increase from the lean initiative, is that guidance for next quarter's inventory being up three days or is that independent of what happens in the rest of the Company?

That is purely for the lean initiative. Carter Shoop - Deutsche Bank: Would you expect that inventory velocity would then most likely be pretty flattish on a quarter-over-quarter basis and --?

I would expect inventory velocity to improve upon the end of the February quarter. I would expect improvement of potentially two to three days -- add back two to three days for the lean initiative, get to roughly to where we are at the end of February. Carter Shoop - Deutsche Bank: That's helpful. Then on the networking customer with the 4Q ramp, does that have anything to do with inventory being on consignment now versus coming off of consignment?

That is part of the lean initiative, yes. Carter Shoop - Deutsche Bank: What would the implications be to margins then on that piece of business? How big of a hit would we see there?

We wouldn't talk about margins on a particular business or business relationship. Carter Shoop - Deutsche Bank: Then last question for you. Can you remind us what your viewpoint is on vertical integration? How do you see that changing, if at all, here in the next one to two years?

I think our business model is in great shape. I don't think we need to own or invest investors' money in components that are supplied adequately from a very large supply base. I think we have competed directly head-to-head against vertically integrated competitors, and we continue to win an appropriate level of business against them. Not to say that the vertical model doesn't work for some guys, but it should be apparent that it isn't the killer application that people advertised it to be four or five years ago. If it were, we would be dead, and we are not. I really think people should move their focus from that being the great enabler or contributor to a business and fundamentally just start analyzing the numbers. There is not a key there that gives anybody a proprietary advantage over somebody else. Carter Shoop - Deutsche Bank: Thank you.

Our next question comes from Thomas Dinges with JP Morgan. Thomas Dinges - JP Morgan: Tim, a quick one for you along the lines of your comment about one of the issues for you guys is just trying to manage the growth. You talked about adding some head count here and there. Qualitatively can you walk through where you're positioning people, where you are seeing the strongest growth? Are you seeing the strongest growth on the design and engineering side? Is it a matter of, as you alluded to, finding every opportunity in the U.S., which would imply you're hiring more customer facing people? Just a little bit of color there would be helpful. Then I have a quick follow-up for Forbes.

There's certainly some expense that shows on the SG&A line. I think we will probably spend $6 million, $7 million a quarter more in the back half of the year than we did in the first half of the year in SG&A. That gets directed at IT resources. You can imagine with the 150 roughly customers, some of which aren't dedicated business unit model type of customers -- but many are -- our business unit management staff needs to increase. There's a lot of training and personnel development that is going on inside the corporation. You mentioned development resources. We're ramping that as fast as we can right now. Even though most of the headcount is really in places like China and India, we also have people that are called system architects that need to interface with the product development community, our customers. They tend to be pretty high-level people with very unique and rare skill sets. So going out and finding those people is a task for us. That is an investment that you have to make before the revenue shows up. Those are qualitatively the types of things that we're talking about in managing the growth. I think one of the nice benefits of our business model that I think allows us to scale our business the way we have is the business unit model itself. We grow the business in a modular fashion. We put a group of highly motivated, empowered, accountable people in charge of these customer relationships. We provide them capital and ask them to go conquer the world with it. That allows a small group of people to focus on a narrow set of requirements for the individual customer. As long as we can continue to replicate that, and we can replicate that infinitely, provided that we find the people and train the people in the right timeframes. That is really what we are focused on, but I think the business model itself is very scalable. Thomas Dinges - JP Morgan: Then, Forbes, just a real quick one for you. Kind of a different angle on the cash flow commentary here. You guys had talked a while back about trying to, on a sustainable basis, push the payables a little bit, simply because you always felt you had pretty good credit. Is some of the move there with both the lean initiative going to stay on a permanent basis -- so let's say if you're at around 60 days on average for the last two quarters here, by my count may, be pushing a little bit more towards 65 as both a sustainable number to think about? Does that help a little bit in the confidence that you've got around the free cash flow numbers that you have thrown out for the full year?

Yes. By your amounts there I think you talked five days. I think five days is aggressive. I think there's opportunity for a day or two here in payables. But our teams have, in partnering with our vendor base, done a particularly good job over the last two or three years in getting those payables days there. I think there is a strong opportunity of maybe a day or two, but I certainly don't believe it is five days. Thomas Dinges - JP Morgan: Thank you.

Operator, we have time for one more question.

Our next question comes from Amit Daryanani with RBC Capital Markets. Amit Daryanani - RBC Capital Markets: Just looking at the revenue guidance for fiscal '06, you're raising it about $600 million, $100 million is from Celetronix. If I look at the remaining $500 million, is that really just coming from ramps happening stronger and faster than you thought? Or is there some uptick in end market growth?

The answer could be no or all the above. Amit Daryanani - RBC Capital Markets: In the past you have said your expectation was for end market to grow at about 3% to 5%.

Right. Amit Daryanani - RBC Capital Markets: Is there a change in that that is helping the $500 million of incremental revenues or --?

I see. No, not really. Consumer demand did pretty darn well all year and demand feels pretty stable. For end market contribution overall, again looking at the full portfolio of businesses that we're in, I think that a 3% to 5% end market growth rate is appropriate. Again, it is this burning, on fire, demand for outsourcing services that is driving the growth. It is just extraordinary right now.

If you look at the instrumentation and medical year-over-year with the guidance we have given, it is $600 million of additional revenue there. The majority or half of it is probably coming from companies that have not outsourced before. We just continue to penetrate additional assemblies coming up.

The top 25 providers of outsourcing services around the world are going to grow revenue $20 billion this year. That is a lot of demand. Amit Daryanani - RBC Capital Markets: Looking at the EPS guidance then, you're raising that about $0.05. It looks like the incremental margins are around 2% for the $600 million piece of business you're getting. Is that just a reflection of the ramp cost? Are you factoring in the $3 million to $5 million of integration of Celetronix into that $0.05 number?

We have to say everything is baked in. It is in the number. The way I would look at it is, we started the year at $9 billion. We're roughly at $9.9 billion. That is $900 million in incremental revenue, and we're going to earn about a 3%, 3.5% operating income on that business. That reflects investments that we're making in infrastructure and capabilities. It reflects the increased composition of consumer electronics in our business. We're really not that worried about it because it is all good stuff. We're growing 30% a year. This quarter we made $27 million more in operating income than we did last year. I would get worried if return on invested capital were going the wrong way, but return on invested capital being in the 20% range, feels pretty good. We would like to grow margins. Our long-term margin goals are still intact. But right now we're just busy growing the Company at 30% a year. As long as we can keep return on invested capital in the 20% range, that 10, 20 basis point swing around in operating margins isn't going to be cause for alarm on our side. Amit Daryanani - RBC Capital Markets: Just finally on Celetronix, they do quite a few pieces of business. My understanding is you are buying the power supply and the EMS business, not really the RFID and the memory business they have. Is that accurate?

I'm not sure how much of that we have actually talked about. I can tell you that we will not be in the memory business. Amit Daryanani - RBC Capital Markets: Thanks a lot.

[Inaudible] what the RFID business is about to be honest with you. But we won't be in the memory business. Amit Daryanani - RBC Capital Markets: Thanks a lot.

Thank you all for joining us today. I would like to let you know that we will be appearing on Squawk Box tomorrow morning at 6:40, and Bloomberg at 7:10. Thank you again for joining us for the call.

Ladies and gentlemen, this concludes today's Jabil Circuit conference call. Thank you for participating. You may now disconnect.