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Jabil admits options error

The stock options admission will force Jabil to revise financial statements.

By HELEN HUNTLEY
Published November 15, 2006

Jabil Circuit Inc. late Tuesday acknowledged for the first time there are mistakes in the way it accounted for controversial stock options granted chief executive Tim Main and other senior employees.

As a result, the St. Petersburg-based electronics manufacturer said it will have to revise financial statements for its 2005 fiscal year and possibly other periods.

Jabil, the Tampa Bay area's largest public company by market value, has maintained its innocence as reports of the backdating of stock options have turned into a national corporate scandal. The U.S. Securities and Exchange Commission, the U.S. Justice Department and the FBI are investigating options-granting practices at more than 100 companies, including Jabil.

Stock options set a price at which employees can buy stock in the future, benefiting from any gain in the stock's price. The issue is whether options were backdated so it appeared that they were issued on dates when stock prices were lower, a practice that would increase the executives' eventual profit. Falsifying the options documents is illegal and affects the way options are accounted for in a company's financial statements.

Jabil filed a statement with the SEC late Tuesday saying its internal review of options-granting practices is still under way. The review covers "administrative and logistical errors" made in carrying out the options program as well as either errors or changes in the company's understanding of accounting guidance related to the dating of option grants, the filing says.

"The company's review of these matters is ongoing and not complete," the filing said.

The Wall Street Journal examined six grants of options to CEO Main between 1995 and 2002 and said the odds were about 1 in 1-million that his good timing could have been completely by chance. Main responded that the company was a victim of a "witch hunt" by the newspaper.

Jabil has been hit with several shareholder lawsuits over the issue, as have other companies that are under investigation.

The options controversy has led to resignations at some companies, including KB Home, which said Monday that chief executive Bruce Karatz would step down and repay the company $13-million for incorrect options dating.

Criminal charges related to options dating were filed against former officials at Brocade Communications System and Comverse Technology.

From humble beginnings as a circuit board maker, Jabil has swelled into a global powerhouse making everything from consumer electronics to medical and automotive equipment. Today, the $6.4-billion company boasts more than 50,000 employees in 20 countries.

But Jabil has taken its lumps this year, in addition to the stock options investigation. In June, after warning that third-quarter earnings would fall short of estimates, Jabil's stock plummeted 22 percent in a single day, wiping out $1.5-billion in market value. The stock has only partially recovered.

Jabil has yet to report full results for the 2006 fiscal year, which ended Aug. 31, but said net revenue rose 36 percent to $10.3-billion. The disclosure about Jabil's findings came after the close of market. Shares in the company closed Tuesday at $30.38 apiece, up 38 cents.

Helen Huntley can be reached at hhuntley@sptimes.com or 727 893-8230.

[Last modified November 15, 2006, 02:01:08]