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                       SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, D.C.
                             ----------------------

                                    FORM 10-K
                 ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                 ----------------------------------------------

Mark One

[x]     Annual report pursuant to section 13 or 15(d) of the Securities Exchange
        Act of 1934
        FOR THE FISCAL YEAR ENDED AUGUST 25, 2000,

or

[ ]     Transition report pursuant to section 13 or 15(d) of the Securities
        Exchange Act of 1934 For the Transition Period From ____________ to
        ____________

Commission File Number 1-11098

                              SOLECTRON CORPORATION
             (Exact name of registrant as specified in its charter)

              Delaware                             94-2447045
   (State or other jurisdiction of              (I.R.S. Employer
    incorporation or organization)           Identification Number)

                 777 Gibraltar Drive, Milpitas, California 95035
              (Address of principal executive offices and Zip Code)
       Registrant's telephone number, including area code: (408) 957-8500

Securities registered pursuant to Section 12(b) of the Act:
Common Stock traded on New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days.
  YES  [X]                    NO [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of the Registrant's Common Stock held by
non-affiliates on November 1, 2000 was approximately $21,913 million (based upon
the last reported price of the Common Stock on the New York Stock Exchange on
such date). Shares of Common Stock held by each officer, director, and holder of
5% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.

As of November 1, 2000, 607,091,522 shares of the Registrant's common stock
outstanding.


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                       DOCUMENTS INCORPORATED BY REFERENCE

The Registrant's definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on January 18, 2001, which Solectron will file with the
Securities and Exchange Commission within 120 days after the end of the fiscal
year covered by this report, is incorporated by reference in Part III of this
Form 10-K to the extent stated herein.


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                              SOLECTRON CORPORATION
                          2000 FORM 10-K ANNUAL REPORT
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                 Page
                                                                 ----

                                     Part I

<S>                                                              <C>
Item 1.   Business                                                  4

Item 2.   Properties                                               13

Item 3.   Legal Proceedings                                        14

Item 4.   Submission of Matters to a Vote of
          Security Holders                                         15

                                    Part II

Item 5.   Market for the Registrant's Common Equity
          and Related Stockholder Matters                          17

Item 6.   Selected Financial Data                                  18

Item 7.   Management's Discussion and Analysis of
          Financial Condition and Results of Operations            19

Item 7A.  Quantitative and Qualitative Disclosures
          About Market Risk                                        35

Item 8.   Financial Statements and Supplementary Data              37

Item 9.   Changes in and disagreements with accountants
          On accounting and financial disclosure                   66

                                    Part III

Item 10.  Directors and Executive Officers of the
          Registrant                                               66

Item 11.  Executive Compensation                                   66

Item 12.  Security Ownership of Certain Beneficial
          Owners and Management                                    66

Item 13.  Certain Relationships and Related Transactions           66

                                    Part IV

Item 14.  Exhibits, Financial Statement Schedule and
          Reports on Form 8-K                                      67

          Signatures                                               69
</TABLE>

Solectron and the Solectron logo are registered trademarks of Solectron
Corporation. All other names are trademarks and/or registered trademarks of
their respective owners.


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                                     PART I

ITEM 1: BUSINESS

OVERVIEW

We provide electronics manufacturing services to original equipment
manufacturers (OEMs) who design and sell networking equipment, mobile and land
based telecommunications equipment, computing equipment, including workstations,
notebooks, desktops and peripherals, and other electronic equipment. These OEMs
include Cisco Systems, Inc. (Cisco), Compaq Computer Corporation (Compaq),
Ericsson Telecom AB (Ericsson), Hewlett-Packard Company (HP), International
Business Machines Corporation (IBM), and Nortel Networks Limited (Nortel). These
companies contract with us to build their products for them or to obtain other
related services from us.

We furnish integrated supply-chain solutions that span the entire product
life-cycle from technology solutions, to manufacturing and operations, to global
services. Our range of services includes:

-       Advanced building block design solutions;

-       Product design and manufacturing;

-       New product introduction management;

-       Materials purchasing and management;

-       Prototyping;

-       Printed circuit board assembly (the process of placing components on an
        electrical printed circuit board that controls the processing functions
        of a personal computer or other electronic equipment);

-       System assembly (for example, building complete systems such as mobile
        telephones and testing them to ensure functionality);

-       Distribution;

-       Product repair; and

-       Warranty services.

Providing these services to our customers allows them to remain competitive by
focusing on their core competencies of sales, marketing, and research and
development. We have manufacturing facilities in the Americas, Europe and
Asia/Pacific. This geographic presence gives our customers access to
manufacturing services in the locations close to their expanding markets for
faster product delivery.

We were originally incorporated in California in August 1977. In February 1997,
we were reincorporated in Delaware. Our principal executive offices are located
at 777 Gibraltar Drive, Milpitas, California 95035. Our telephone number is
(408) 957-8500 and Internet address is www.solectron.com.

The information contained within this overview of the business is qualified in
its entirety by, and is subject to, the detailed information, consolidated
financial statements and notes thereto contained elsewhere within this document
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "Financial Statements and Supplementary Data."

INDUSTRY OVERVIEW

We are well recognized for our printed circuit board (PCB) assembly business. We
continue to lead in this industry and have grown into a global supply-chain
facilitator, expanding our capabilities across the entire product cycle to
include: product design, pre-production planning, New Product Introduction (NPI)
management, manufacturing, distribution, and end-of-life product service and
support. We are benefiting from increased worldwide market acceptance of, and
reliance upon, the use of outsourcing manufacturing services by many electronics
OEMs. We expect the trend toward outsourcing manufacturing to continue for many
reasons including the following:


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Faster Time to Market: Due to intense competitive pressures in the electronics
industry, OEMs are facing increasingly shorter product life-cycles and therefore
have a growing need to reduce the time required to bring a product to market.
OEMs can reduce the time to market by using our manufacturing expertise and
infrastructure. OEMs can further reduce the time to market by partnering with us
at the stages of product design and product improvement to expedite the
transition into large volume production in our manufacturing centers.

Reduce Investment: As electronic products have become more technologically
advanced and are shipped in greater unit volumes, the necessary investment
required for internal product design, manufacturing, and end-of-line support
services by OEMs has increased significantly for working capital, capital
equipment, labor, systems and infrastructure. Solectron, a global supply-chain
facilitator, enables OEMs to gain access to our worldwide advanced technology
facilities including NPI centers, manufacturing and depot repair facilities. As
a result, OEMs can substantially reduce their overall resource requirements.

Focus Resources: The electronics industry is experiencing greater levels of
competition and more rapid technological change. Many OEMs increasingly are
seeking to focus their resources on activities and technologies that add the
greatest value. By offering comprehensive electronics assembly and related
manufacturing services, we allow OEMs to focus on their own core competencies
such as next-generation product development, sales and marketing.

Access to Leading Manufacturing Technology: Electronic products and electronics
manufacturing technology have become increasingly sophisticated and complex,
making it difficult for OEMs to maintain the necessary technological expertise
to manufacture products internally. OEMs are motivated to work with us to gain
access to our expertise in interconnect, test and process technologies.

Improved Inventory Management and Purchasing Power: Electronics industry OEMs
are faced with increasing difficulties in planning, procuring and managing their
inventories efficiently due to frequent design changes, short product
life-cycles, large investments in electronic components, component price
fluctuations and the need to achieve economies of scale in materials
procurement. OEMs can reduce production costs by using our volume procurement
capabilities. In addition, our expertise in inventory management can provide
better control over inventory levels and increase the OEMs' return on assets.

Access to Worldwide Manufacturing Capabilities: OEMs are increasing their
international activities in an effort to lower costs and access foreign markets.
With our worldwide capabilities, we offer OEMs a variety of manufacturing
location options to better address their objectives, including cost containment,
compliance with local content regulations, and the elimination of expensive
freight costs, tariffs and time-consuming customs clearances.

STRATEGY

Our goal is to offer our customers significant competitive advantages of
electronics outsourcing, such as access to design and product improvement,
advanced manufacturing technologies, reduced overall cost, faster product
time-to-market, effective asset utilization, and refined end-of-life product
support services. To achieve this goal, we emphasize the following key elements:

Quality: We believe product quality is a critical success factor in the
electronics manufacturing market. We strive to continuously improve our
processes and have adopted a number of quality improvement and measurement
techniques to monitor our performance. We have received numerous superior
service and quality awards, including:

-       Malcolm Baldrige National Quality Award in 1991 and again in 1997;

-       Ranked No. 3 World's Best Performing Information Technology 100 Listing
        by Business Week in 1999;



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-       One of the World's 100 Best Managed Companies named by Industry Week in
        1999;

-       Massachusetts Quality Award in 1999;

-       North Carolina National Team Excellence Award in 1999;

-       North Carolina Charlotte-Mecklenburg Quality Award in 1999;

-       Arc of Washington State's Employer of the Year Award in 1999;

-       Mexico Jalisco State Quality Award in 1999;

-       Best Manufacturing Plant in North America Award from Industry Week in
        1998 and 1999;

-       Washington State Quality Award of Merit in 1998; and

-       Other numerous awards from our customers.

All of our manufacturing facilities are certified under ISO-9000 standards,
which are international quality standards for design, manufacturing and
distribution management systems.

Partnerships: An important element of our strategy is to establish partnerships
with major and emerging OEM leaders in diverse segments across the electronics
industry. Our customer base consists of leaders in industry segments such as
networking, telecommunications, workstations, personal computers, computer
peripherals, instrumentation, semiconductor equipment and avionics. Due to the
costs inherent in supporting customer relationships, we focus our efforts on
customers with high potential for long-term business partnerships. Our goal is
to deliver a total product life cycle solution to our customers. We offer OEMs
NPI management, which includes design and layout, concurrent engineering, test
development and prototype engineering. We continue the cycle to provide
solutions in manufacturing and distribution, including just-in-time delivery on
low- to medium-volume turn-key, price-sensitive and high-volume production, and
projects that require more value-added services. Additionally, we serve OEMs
that need end-of-life services such as product repair and warranty services.

Turn-key Capabilities: Another element of our strategy is to provide a complete
range of manufacturing management and value-added services, including materials
management, board design, concurrent engineering, assembly of complex printed
circuit boards and other electronic assemblies, test engineering, software
manufacturing, accessory packaging and post-manufacturing services. We believe
that as manufacturing technologies become more complex and as product
life-cycles shorten, OEMs will increasingly contract for manufacturing on a
turn-key basis as they seek to reduce their products' time-to-market, capital
asset and inventory costs. A substantial portion of our revenue is from our
turn-key business. We believe that our ability to manage and support large
turn-key projects is a critical success factor. In addition, we believe that due
to the difficulty and long lead-time required to change manufacturers, turn-key
projects generally increase an OEMs dependence, resulting in greater stability
of our customer base and in closer working relationships. We also have been
successful in establishing sole-source positions for certain products with many
of our customers.

Advanced Manufacturing Process Technology: We intend to continue to offer our
customers the most advanced manufacturing process technologies, including
surface mount technology (SMT) and ball-grid array (BGA) assembly as well as
testing and emerging interconnect technologies. We have developed substantial
SMT expertise including advanced, vision-based component placement equipment. We
believe that the cost of SMT assembly facilities and the required technical
capability to operate a high-yield SMT operation are significant competitive
factors in the market for electronic assembly. We also have the capability to
manufacture using tape-automated-bonding, chip-on-substrate and other more
advanced manufacturing processes.

Diverse Geographic Operations: An additional element of our strategy is to
establish production facilities in areas of high customer density or where
manufacturing efficiencies can be achieved. We currently have operations
throughout the Americas, Europe and Asia/Pacific. We believe that our facilities
in these diverse geographic locations enable us to better address our customers'
requirements such as cost containment, compliance with local content
regulations, and the elimination of expensive freight costs, tariffs and
time-consuming customs clearances. We intend to expand our



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operations continually as necessary to serve our existing customers and to
develop new business.

INTERNATIONAL MANUFACTURING CAPABILITY

To achieve excellence in manufacturing, we combine advanced manufacturing
technology, such as computer-aided manufacturing and testing, with manufacturing
techniques including just-in-time manufacturing, total quality management,
statistical process control and continuous flow manufacturing. Just-in-time
manufacturing is a production technique to minimize work-in-process inventory
and manufacturing cycle time while enabling Solectron to deliver products to
customers in the quantities and time frame required. Total quality management is
a management philosophy that seeks to impart high levels of quality in every
operation of Solectron and is accomplished by setting quality objectives for
every operation, tracking performance against those objectives, identifying work
flow and policy changes required to achieve higher quality levels and a
commitment by executive management to support changes required to deliver higher
quality. Statistical process control is a set of analytical and problem-solving
techniques based on statistics and process capability measurements through which
we track process inputs and resulting quality and determine whether a process is
operating within specified limits. The goal is to reduce variability in the
process, as well as to eliminate deviations that contribute to quality below the
acceptable range of each process performance standard.

In order to successfully implement these management techniques, we have
developed the ability to collect and utilize large amounts of data in a timely
manner. We believe this ability is critical to a successful assembly operation
and represents a significant competitive factor, especially in large turn-key
projects. To manage this data, we use sophisticated computer systems for
material resource planning, shop floor control, work-in-process tracking and
statistical process control.

To offer our customers the significant competitive advantage of electronics
outsourcing, we have production facilities in areas of high customer density or
where manufacturing efficiencies can be achieved. In fiscal 2000, approximately
41% of our sales were from operations outside of the United States. As a result
of continuous customer demand overseas, we expect foreign sales to increase.
During fiscal 2000, we have further expanded our global presence through
acquisitions. Our foreign sales and operations are subject to risks of doing
business abroad, including fluctuations in the value of currency, export duties,
import controls and trade barriers (including quotas), restrictions on the
transfer of funds, associate turnover, work stoppages, longer payment cycles,
greater difficulty in accounts receivable collection, burdens of complying with
a wide variety of foreign laws and, in certain parts of the world, political
instability. While, to date, these factors have not materially affected our
results of operations, we cannot assure that there will not be such an impact in
the future.

Americas

Western United States. Our headquarters and one of our largest manufacturing
operations are located in Silicon Valley, principally in Milpitas, California,
in the midst of one of the largest concentrations of OEM electronics
manufacturers. With our recent acquisition of SMART Modular Technologies, Inc.
(SMART) in Fremont, California, we extended our manufacturing capacity. SMART
designs and manufactures memory modules and memory cards, embedded computers and
I/O products. Our manufacturing facility in Everett, Washington helps to serve
our customers in the Pacific Northwest.

Southwestern United States. We believe our facility in Austin, Texas, is
situated in a geographic region with strong growth of electronics OEMs that will
allow us to better service our existing customers and to attract new ones.

Eastern United States. Our manufacturing facility in Westborough, Massachusetts,
near Boston, in the center of a geographic region with a large concentration of
electronics OEMs, provides a full range of integrated solutions across the
entire product life cycle from pre-production planning to manufacturing.


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Southeastern United States. We also have operations in Charlotte, North
Carolina; Columbia, South Carolina; and Suwanee, Georgia. We believe these
facilities allow us to better pursue new business opportunities with new and
existing customers, in particular, because of Charlotte's status as a
transportation hub and its relative proximity to major Southeastern United
States electronics markets. Our facility in Suwanee, Georgia, serves as our East
Coast center for medium- to low-complexity, medium to high-volume systems
assembly for PC, server, workstation, telecommunication and networking equipment
customers. This facility is part of our build-to-order systems division. We
further expanded our manufacturing facilities by the acquisition of
manufacturing assets of Nortel in North Carolina.

Mexico. Our site in Guadalajara, Mexico, began providing a full range of PCB
assembly and systems-build manufacturing services in the first quarter of
fiscal 1998. This site offers our customers a low-cost, high-volume
manufacturing center for PCB assembly, build-to-order and configure-to-order
systems assembly for the Americas. Our manufacturing capacity in Mexico was
expanded by the acquisition of manufacturing assets of Nortel in Monterrey,
Mexico, in fiscal 2000.

Brazil. Our site in Sao Paulo, Brazil, provides a full range of capabilities
across the product life cycle, including systems-build capabilities, PCB and
flex assembly, custom packaging and distribution services, primarily to
multinational customers seeking access to the Latin American market. This
manufacturing facility in Brazil was recently expanded as a result of the
acquisition of IBM Corporation's manufacturing operations in Sao Paulo, Brazil.

Puerto Rico. We recently established a manufacturing facility in Aguadilla,
Puerto Rico, through the acquisition of Alcatel's manufacturing business. This
site will provide our customers with a full range of manufacturing services and
high-volume PCB assembly.

Europe

We have manufacturing operations in Bordeaux, France; Herrenberg, Germany;
Dublin, Ireland; Timisoara, Romania; and Dunfermline, Scotland. Each of these
sites provides a full range of manufacturing capabilities to a multinational
customer base. In addition, each site is developing an area of specific
expertise to offer to all customers. The France and German sites offer
low-volume, high-mix manufacturing services. The Romania site serves as our
full-service, high-volume, low-cost manufacturing hub for our rapidly growing
European customer base. The Scotland site specializes in building PCB
assemblies, subassemblies and systems for multinational customers in the
European market.

During fiscal 2000, our manufacturing capacity in Europe was expanded to
Cwmcarn, Wales; Pont de Buis and Douarnenez, France; Longuenesse, France;
Ostersund, Sweden; and Monkstown, Northern Ireland, through the acquisition of
Nortel's manufacturing assets and of Ericsson's manufacturing assets of
telecommunications infrastructure equipment operations. We expanded our presence
in Scotland through an asset acquisition of IBM's Netfinity server operations in
Greenock, Scotland.

Asia/Pacific and other

Our Southeast Asia manufacturing operations are located in Penang and Johor,
Malaysia. The operations in Southeast Asia were established to better serve the
needs of OEMs requiring price-sensitive, high-volume production capabilities and
to provide more efficient manufacturing services to customers in Southeast Asia.
These facilities currently provide electronics assembly, materials management
and other services to customers in Malaysia, Singapore, Japan, the United States
and other locations. Our facility in Suzhou, China, opened in fiscal 1997. This
facility currently provides a full range of low-cost high volume manufacturing
services.

During fiscal 2000, we expanded our manufacturing presence in Penang, Malaysia,
and established a site in Bangalore, India through the acquisition of SMART. Our
Australian site was established through the acquisition of the Bluegum Group
(Bluegum). We will offer



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our customers manufacturing and systems assembly capabilities in Liverpool, New
South Wales; Wangaratta and Melbourne, Victoria; and program offices in Sydney
and North Melbourne, Australia.

NEW PRODUCT INTRODUCTION CENTERS

We have NPI centers in the United States, Brazil, Puerto Rico, France, Sweden,
Germany, Northern Ireland, Scotland, Malaysia, Japan, Singapore and Australia.
These NPI centers offer a full range of electronics product development
services, including design and layout, concurrent engineering, test development
and prototype engineering. We believe our NPI services will shorten our
customers' product development cycles by offering full design and development
services to complement our customers' in-house capabilities. We partner with our
customers as early as possible in the new product development process to
optimize their products' design for volume manufacturing.

Our NPI centers in Milpitas, California; Westborough, Massachusetts; and
Suwanee, Georgia specialize in design consultation, prototyping, and NPI
management services. Our subsidiary, Fine Pitch in San Jose, California provides
extensive prototype services for electronics OEMs, further enhancing our ability
to address the needs of design teams who require almost immediate availability
of highly complex prototype assemblies. Another subsidiary, Force Computers,
Inc.(Force) in San Jose, California specializes in system design, board design
and system integration for open, scalable system and board-level embedded
computer platforms for the communications, industrial and command and control
markets. Through the acquisition of SMART, we gained design centers and
infrastructure by integrating SMART along with Force into the technology
solutions business unit in Fremont, California.

Our site in Sao Paulo, Brazil and our newly established site in Aguadilla,
Puerto Rico through the acquisition of Alcatel's manufacturing business, also
offer NPI management and engineering services.

As part of the Nortel and Ericsson manufacturing asset acquisitions, NPI centers
were established in Cwmcarn, Wales; Pont de Buis and Douarnenez, France;
Longuenesse, France; Ostersund, Sweden and Monkstown, Northern Ireland. We
provide prototyping and NPI management services in these locations. To support
the IBM design team as part of the acquisition of manufacturing assets of IBM's
Netfinity server operations, we established a new full-service NPI center in
Port Glasgow, Scotland.

Our Product Introduction center just outside of Tokyo, Japan, provides a
complete range of electronics pre-manufacturing services, including design and
layout, testing capabilities, prototype development, and concurrent and
component engineering.

We will establish new NPI centers in Singapore and in Liverpool, Wangaratta and
Melbourne, Australia, through our recent acquisition of Bluegum.

GLOBAL SERVICES

We offer a full range of integrated solutions from the time the product is
designed until it is removed from the market. These services include product
repair, upgrades, remanufacturing and maintenance through factory and fast-hub
service centers located around the world; help-desk support through customer
call centers for end-users; logistics and parts management; returns processing;
warehousing; engineering change management; and end-of-life manufacturing. These
services give our customers improved speed from the service pipeline by us
taking direct receipt responsibility for returns from the end user and making
sure that various buffer stock and inventory mechanisms are established. These
services also minimize shipping costs and time by handling repairs at our
various international locations. In addition, our data collection system can
provide invaluable information to analyze product design reliability. As a
result, the OEMs can focus their efforts on developing next-generation products.



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We have global service sites in the United States, Canada, Mexico, France,
Northern Ireland, Brazil, Sweden, United Kingdom and Japan. Our service capacity
was strengthened through the acquisition of Sequel, in San Jose, California; and
Memphis, Tennessee. The Memphis hub offers integrated call management, remote
failure diagnostics, air express dispatch, systems repair, component level
repair, configuration and upgrades, returns processing and administration,
refurbishment and redistribution services. We further expanded our service
capacity in wireless handset repair and refurbishment and outsourcing technical
customer support services in Los Angeles, California; Louisville, Kentucky;
Baltimore, Maryland; and Dallas, Texas, through the acquisition of AMERICOM
Wireless Services, Inc. (AMERICOM) in fiscal 2000.

We recently established a repair service site in Vaughan, Canada, by acquiring
repair operations of IBM's NULOGIX Technical Services. NULOGIX provides a
complete range of technology repair, remanufacturing and refurbishment services
for a large variety of electronics products. As a result of this transaction, we
are now able to provide the Canadian market a full range of value-added support
service solutions. These services include: product repair, upgrades,
remanufacturing and maintenance through factory and fast-hub service centers
located around the world; help-desk support through customer call-in centers for
end-users; logistics and parts management; returns processing; warehousing;
engineering change management and end-of-life manufacturing.

As part of our acquisition of Nortel and Ericsson manufacturing assets, global
service sites were established in Calgary, Canada; Research Triangle Park, North
Carolina; Monterrey, Mexico; Cwmcarn, Wales; Pont de Buis and Douarnenez,
France; Longuenesse, France; Ostersund, Sweden; and Monkstown, Northern Ireland.

ELECTRONICS ASSEMBLY AND OTHER SERVICES

Our electronics assembly activities consist primarily of the placement and
attachment of electronic and mechanical components on printed circuit boards and
flexible cables. We also assemble higher-level sub-systems and systems
incorporating printed circuit boards and complex electromechanical components,
in some cases manufacturing and packaging products for shipment directly to our
customers' distributors. In addition, we provide other manufacturing services,
including refurbishment and remanufacturing. We manufacture on a turn-key basis,
directly procuring some or all of the components necessary for production and on
a consignment basis, where the OEM customer supplies all or some components for
assembly.

In conjunction with our assembly activities, we also provide computer-aided
testing of printed circuit boards, sub-systems and systems, which contributes
significantly to our ability to consistently deliver high-quality products. We
have developed specific strategies and routines to test board and system-level
assemblies. In-circuit tests verify that all components have been properly
inserted and that the electrical circuits are complete. Functional tests
determine if the board or system assembly is performing to customer
specifications. We either design and procure test fixtures and develop our own
test software, or we utilize our customers' test fixtures and test software. In
addition, we provide environmental stress tests of the board or system assembly.

We provide turn-key manufacturing management to meet our customers'
requirements, including procurement and materials management and consultation on
board design and manufacturability. Individual customers may select various
services from among our full range of turn-key capabilities.

Procurement and materials management consists of the planning, purchasing,
expediting, warehousing, preparing and financing of the components and materials
required to assemble a printed circuit board or electronic system. OEMs have
increasingly used electronic manufacturing specialists like Solectron to
purchase all or some components directly from component manufacturers or
distributors and to finance and warehouse the components. Another service we
provide to our customers is assisting in evaluating board designs for
manufacturability. We evaluate the board design for ease and quality of
manufacture and, when appropriate, recommend design changes to reduce
manufacturing costs or lead times or



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to increase the quality of finished assemblies. Board design services consist of
the engineering and design associated with the arrangement and interconnection
of specified components on printed circuit boards to achieve an OEM's desired
level of functionality.

We also offer Application Specific Integrated Circuit (ASIC) design services.
Our ASIC product design services include the embedded computer, memory modules
and memory cards, and I/O products.

SALES AND MARKETING

Our sales and marketing are integrated processes involving direct salespersons
and project managers, as well as our senior executives. Our sales resources are
directed at multiple management and staff levels within targeted accounts. We
also use independent sales representatives in certain geographic areas. We
receive unsolicited inquiries resulting from advertising and public relations
activities, as well as referrals from current customers. These opportunities are
evaluated against our customer selection criteria and are assigned to direct
salespersons or independent sales representatives, as appropriate. Historically,
we have had substantial recurring sales from existing customers.

Approximately 95% of our net sales during fiscal 2000 were derived from
customers that were also customers during fiscal 1999. Although we seek to
diversify our customer base, a small number of customers currently are
responsible for a significant portion of our net sales.

Our top ten customers accounted for 72% of net sales in fiscal 2000, 74% of net
sales in fiscal 1999, and 68% of net sales in fiscal 1998. Several customers
each accounted for more than 10% of net sales during these years. Ericsson and
Cisco accounted for 13% and 12% of net sales, respectively, in fiscal 2000.
Compaq and Cisco represented 12% and 11% of net sales, respectively, in fiscal
1999. HP and Cisco, represented 11% and 10% of net sales, respectively, in
fiscal 1998. No other individual customer accounted for more than 10% of our net
sales in any of these years.

BACKLOG

Backlog consists of contracts or purchase orders with delivery dates scheduled
within the next twelve months. At August 31, 2000, our backlog was approximately
$4.9 billion. The backlog was approximately $1.7 billion at August 31, 1999.
Because customers may cancel or reschedule deliveries, backlog is not a
meaningful indicator of future financial results.

COMPETITION

The electronic manufacturing services industry comprises a large number of
companies, several of which have achieved substantial market share. We also face
competition from current and prospective customers that evaluate our
capabilities against the merits of manufacturing products internally. We compete
with different companies depending on the type of service or geographic area.
Certain competitors may have greater manufacturing, financial, research and
development and marketing resources than Solectron. We believe that the primary
basis of competition in our targeted markets is manufacturing technology,
quality, responsiveness, the provision of value-added services and price. To
remain competitive, we must continue to provide technologically advanced
manufacturing services, maintain quality levels, offer flexible delivery
schedules, deliver finished products on a reliable basis and compete favorably
on the basis of price. We may be at a competitive disadvantage as to price,
compared with manufacturers with lower cost structures, particularly
manufacturers with facilities where labor costs are lower.


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ASSOCIATES

As of August 31, 2000, we employed 65,273 associates worldwide, including 17,067
temporary associates. Our international operations employed 34,915 associates.

PATENTS AND TRADEMARKS

We have a number of United States patents related to the process and equipment
used in our surface mount technology. Our subsidiary SMART Modular Technologies
Inc. holds one patent related to memory module technology. Another subsidiary,
Force, holds a number of patents related to Versa Module Eurocard (VME)
technology. In addition, as part of our recent acquisition of IBM-ECAT's
manufacturing assets, we have access to a number of IBM patents and license
rights. We also have registered trademarks in the United States and many
countries throughout the world. These patents and trademarks are considered
valuable to us.

Although we do not believe that our trademarks, manufacturing process, SMART's
and Force's technology or the IBM patents and license rights to which we have
access infringe on the intellectual property rights of third parties, we cannot
assure that third parties will not assert infringement claims against us in the
future. If such an assertion were to be made, it may become necessary or useful
for us to enter into licensing arrangements or to resolve such an issue through
litigation. However, we cannot assure that such license rights would be
available to us on commercially acceptable terms or that any such litigation
would be resolved favorably. Additionally, such litigation could be lengthy and
costly and could materially harm our financial condition regardless of the
outcome of such litigation.

On June 23, 1999, Solectron was served, along with 87 other companies including
SMART, as a defendant in a lawsuit brought by the Lemelson Medical, Education &
Research Foundation. The lawsuit alleges that Solectron infringed certain of the
plaintiff's patents relating to machine vision and barcode technology. Solectron
believes it has meritorious defenses to these allegations and does not expect
that this litigation will result in a material impact on its financial position
or results of operations.


                                       12
<PAGE>   13

ITEM 2: PROPERTIES

Our manufacturing facilities are located throughout the Americas, Europe and
Asia/Pacific. The table below lists the locations and square feet for our major
operations as of August 31, 2000.

<TABLE>
<CAPTION>
Location                             Square Feet
---------                            -----------
<S>                                  <C>
Americas:
  Milpitas, California (1)           1,832,000
  San Jose, California                 130,000
  Suwanee, Georgia                     496,000
  Westborough, Massachusetts           401,000
  Charlotte, North Carolina          1,106,000
  Raleigh, North Carolina              275,000
  Columbia, South Carolina             357,000
  Louisville, Kentucky                  47,000
  Lutherville, Maryland                 53,000
  Austin, Texas                      1,179,000
  Everett, Washington                  179,000
  Memphis, Tennessee                   100,000
  Calgary, Canada                      326,000
  Ontario, Canada                      127,000
  Guadalajara, Mexico                  761,000
  Monterrey, Mexico                    315,000
  Aguada, Puerto Rico                   83,000
  Aguadilla, Puerto Rico               164,000
  Hortolandia, Brazil                  142,000
  Sao Jose dos Campos                  327,000

Europe:
  Bordeaux, France                     327,000
  Douarnenez, France                    40,000
  Pont de Buis, France                 110,000
  Longuenesse, France                  180,000
  Herrenberg, Germany                  114,000
  Munich, Germany                      168,000
  Dublin, Ireland                      111,000
  Monkstown, Northern Ireland           25,000
  Timisoara, Romania                   256,000
  Dunfermline, Scotland                229,000
  East Kilbride, Scotland               60,000
  Irvine, Scotland                      11,000
  Port Glasgow, Scotland                38,000
  Norrkoping, Sweden                    52,000
  Ostersund, Sweden                    250,000
  Cwmcarn, United Kingdom              245,000

Asia/Pacific:
  Liverpool, Australia                 132,000
  Wangaratta, Australia                175,000
  Suzhou, China                        333,000
  Bangalore, India                      18,000
  Kanagawa, Japan                       19,000
  Tokyo, Japan                          13,000
  Johor, Malaysia                      200,000
  Penang, Malaysia                     772,000
</TABLE>



(1)     Includes facilities located nearby in Fremont and Newark, California.


                                       13
<PAGE>   14

Around the world, we are subject to a variety of environmental regulations
relating to the use, storage, discharge and disposal of hazardous chemicals used
during our manufacturing process. Any failure by us to comply with present and
future regulations could subject us to future liabilities or the suspension of
production. In addition, such regulations could restrict our ability to expand
our facilities or could require us to acquire costly equipment or to incur other
significant expenses to comply with environmental regulations.

ITEM 3: LEGAL PROCEEDINGS

On June 23, 1999, Solectron was served, along with 87 other companies including
SMART, as a defendant in a lawsuit brought by the Lemelson Medical, Education &
Research Foundation. The lawsuit alleges that Solectron infringed certain of the
plaintiff's patents relating to machine vision and bar code technology.
Solectron believes it has meritorious defenses to these allegations and does not
expect that this litigation will result in a material impact on its financial
condition or results of operations. In the semiconductor, computer,
telecommunications and networking industries, companies receive notices from
time to time alleging infringement of patents, copyrights, or other intellectual
property rights. Solectron is currently being sued by a party who alleges that
some of its technology solutions business' communications card products have
infringed and continue to infringe upon the party's intellectual property
rights, and litigation sometimes arises out of such notices. For example, in
January of this year, SMART filed a lawsuit seeking to have declared invalid,
and/or not infringed, three patents purportedly applicable to industry standard
memory products, including those manufactured by SMART and the other
manufacturers of these industry standard memory products. The owner of these
patents brought a cross-complaint alleging patent infringement against SMART,
and has also brought suit against several other memory product manufacturers
alleging infringement of the three patents. Solectron believes that SMART's
memory products do not infringe any valid claims of any of the three patents at
issue. Moreover, Solectron has been and may from time to time continue to be
notified of claims that it may be infringing patents, copyrights or other
intellectual property rights owned by other third parties. The current
litigation or any other litigation could result in substantial costs and
diversion of resources and could have a material adverse effect on Solectron's
business, financial condition and results of operations. In the future, third
parties may assert infringement claims against Solectron or its customers. In
the event of an infringement claim, Solectron may be required to spend a
significant amount of money to develop a non-infringing alternative or to obtain
licenses. Solectron may not be successful in developing such an alternative or
obtaining a license on reasonable terms, if at all. In addition, any such
litigation could be lengthy and costly and could harm Solectron's financial
condition.


                                       14
<PAGE>   15

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.


                         EXECUTIVE OFFICERS OF SOLECTRON

Solectron's executive officers and their ages as of August 31, 2000 are as
follows:

<TABLE>
<CAPTION>
          Name               Age            Position
-----------------------     ------   -------------------------------
<S>                         <C>      <C>
Koichi Nishimura, Ph.D.       62     President, Chief Executive
                                     Officer and Chairman of the Board

Kevin Burns                   36     Senior Vice President and
                                     Chief Materials Officer

David Kynaston                59     Senior Vice President and
                                     President of Solectron Europe

Daniel Perez                  49     Senior Vice President of Worldwide
                                     Account Management and Marketing

Ajay Shah                     40     President, Chief Executive
                                     Officer of Solectron Technology
                                     Solutions

Ken K. N. Tsai                58     Senior Vice President and
                                     President of Solectron Asia

Susan S. Wang                 49     Senior Vice President, Chief
                                     Financial Officer and Corporate
Secretary

Walter W. Wilson              56     Senior Vice President, Business
                                     Integration and Information Technology

Saeed Zohouri, Ph.D.          49     Senior Vice President and
                                     Chief Operating Officer
</TABLE>


Dr. Koichi Nishimura has served as Chairman of the Board since 1996, Chief
Executive Officer since 1992 and President since 1990. He was Co-Chief Executive
Officer from 1991 to 1992 and Chief Operating Officer from 1988 to 1991. He was
elected a director of the Board in 1991. From 1964 to 1988, Dr. Nishimura was
with International Business Machines Corporation in various technology and
management positions. Dr. Nishimura serves as a director on the boards of Merix
Corporation, the Center for Quality Management and the Santa Fe Institute. He
also serves on the advisory board of Santa Clara University's Leavey School of
Business and the board of the Silicon Valley Manufacturing Group. Dr. Nishimura
serves as a member of the Board of Directors in the capacity of Vice President
for the Foundation for the Malcolm Baldrige National Quality Award, Inc.

Mr. Kevin Burns was recently appointed to senior vice president and chief
materials officer. He joined Solectron in 1998 as corporate vice president of
global materials services. Prior to joining Solectron, Mr. Burns worked for
Westinghouse Electric Corporation, where he was the vice president and general
manager of operations for the Power Generation division. In a prior role at
Westinghouse, Mr. Burns was president of Westinghouse Security Systems. Prior to
Westinghouse, he was with McKinsey & Company Inc. and General Electric
Corporation.

Mr. David Kynaston has served as Corporate Vice President and President of
Solectron Europe since he joined Solectron in 1996. Mr. Kynaston worked for
Philips Electronics for


                                       15
<PAGE>   16

the previous 15 years in various capacities, including Managing Director of
Philips Mullard Ltd. subsidiary, Managing Director of the Business
Communications Systems Division and most recently, Managing Director of the
Private Mobile Radio Division. Prior to joining Philips Electronics, Mr.
Kynaston held senior technical management positions at EMI Medical Ltd. and
Cambridge Scientific Instruments Ltd.

Mr. Daniel Perez has served as Senior Vice President of Worldwide Account
Management and Marketing since 1999. Mr. Perez was Corporate Vice President and
Chief Administrative Officer from 1996 to 1999. Mr. Perez joined Solectron in
1991 as Director of Materials, and was soon named Vice President of Materials
for Solectron's California facility. He became the General Manager of
Solectron's Fremont, California, printed circuit board assembly operation in
1995 and assumed his current role in 1996. Prior to joining Solectron, Mr. Perez
spent 14 years with IBM Corporation in various management positions in corporate
administration, manufacturing, materials planning, and acquisition and control.
Most recently, he was Senior Manager for Supply and Demand at IBM's disk storage
business. Mr. Perez also serves as a director of the Tech Museum of Innovation,
the California State Center for Quality Education and Development, the Mexican
Heritage Corporation, the Center for Training and Careers in San Jose,
California, and El Teatro Campesino.

Mr. Ajay Shah has served as President and Chief Executive Officer of Solectron
Technology Solutions since 1999. Prior to Solectron, Mr. Shah served as the
President and Chief Executive Officer at SMART Modular Technologies, Inc. since
1988. Mr. Shah co-founded SMART Modular Technologies, Inc. Prior to launching
SMART, Mr. Shah held strategic marketing management and product line management
positions at Samsung Semiconductor, Inc., and at Advanced Micro Devices.

Mr. Ken K. N. Tsai has served as Senior Vice President and President of
Solectron Asia since May 1995. Mr. Tsai was Vice President of Solectron from
1990 to 1995. He served as Director of Manufacturing for Solectron from 1989 to
1990 and was in various manufacturing and other positions from 1984 to 1989.
Prior to joining Solectron, Mr. Tsai served in various management and business
planning positions at American Cyanamid Company from 1968 to 1984.

Ms. Susan S. Wang has served as Senior Vice President and Chief Financial
Officer of Solectron since 1990 and as Secretary since 1992. She was Vice
President, Finance and Chief Financial Officer of Solectron from 1986 to 1990
and Director of Finance of Solectron from 1984 to 1986. Prior to joining
Solectron, Ms. Wang held various accounting and finance positions with Xerox
Corporation. Ms. Wang also held accounting and auditing positions with Westvaco
Corp. and Price Waterhouse & Co. She is a Certified Public Accountant.

Mr. Walter W. Wilson has served as Senior Vice President, Business Integration
and Information Technology since June 1999. He was President, Solectron Americas
from April 1997 to May 1999; President, Solectron North America from September
1995 to March 1997; President Solectron California Corporation from March 1992
to February 1996; and Senior Vice President of Solectron since 1990. From 1989
to 1990, he served as an operational Vice President of Solectron. Prior to
joining Solectron, Mr. Wilson held various management positions with IBM in
manufacturing and product development from 1965 to 1989. Mr. Wilson also serves
as a director on the board of Asyst Technologies and Mylex Corporation.

Dr. Saeed Zohouri has served as Senior Vice President and Chief Operating
Officer of Solectron since June 1999. He was Chief Technology Officer from 1994
to May 1999; President of Solectron California Corporation from March 1996 to
August 1998; and President, Solectron North America since August 1998. Dr.
Zohouri joined Solectron in 1980 and held various management positions including
Director of Technology. His prior experience includes teaching chemistry at a
major international university.

There is no family relationship among any of the executive officers.


                                       16
<PAGE>   17

                                     PART II

ITEM 5:   MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
          STOCKHOLDER MATTERS

Common Stock Information

The following table sets forth the quarterly high and low per share sales prices
of Solectron's common stock for the two-year period ended August 31, 2000, as
quoted on the New York Stock Exchange under the symbol SLR.

<TABLE>
<CAPTION>
                                                 High       Low
                                               --------   --------
<S>                                            <C>        <C>
Fiscal 2000
      First Quarter                            45         33 1/16
      Second Quarter                           49         30 9/32
      Third Quarter                            49 1/2     28 1/4
      Fourth Quarter                           48 3/8     30 15/16

Fiscal 1999
      First Quarter                            17 11/32    9 45/64
      Second Quarter                           23 9/16    16 1/4
      Third Quarter                            28 15/16   20 1/4
      Fourth Quarter                           39 15/32   26 1/8
</TABLE>


Solectron has not paid any cash dividends since its inception and does not
intend to pay any cash dividends in the foreseeable future. Additionally, the
covenants to its financing agreements prohibit the payment of cash dividends. As
of August 31, 2000, there were approximately 1,726 stockholders of record based
on data obtained from our transfer agent.


                                       17
<PAGE>   18

ITEM 6: SELECTED FINANCIAL DATA

The following selected historical financial information of Solectron has been
derived from the historical consolidated financial statements and should be read
in conjunction with the consolidated financial statements and the notes included
therein.

                     Five-Year Selected Financial Highlights
                      (In millions, except per share data)

Consolidated Statements of Income Data:

<TABLE>
<CAPTION>
                                                                       YEARS ENDED AUGUST 31,
                                        ----------------------------------------------------------------------------------
                                           2000              1999              1998              1997              1996
                                        ----------        ----------        ----------        ----------        ----------
<S>                                     <C>               <C>               <C>               <C>               <C>
Net sales                               $ 14,137.5        $  9,669.2        $  6,102.2        $  4,408.5        $  3,231.8
Operating income                             704.2             516.1             368.6             303.2             213.6
Income before income taxes
  and cumulative effect
  of change in accounting
  principle                                  739.5             514.5             375.5             307.5             213.2
Net income                                   497.2             350.3             251.3             203.7             139.6
Basic net income
 per share(1)                                 0.83              0.65              0.49              0.42              0.31
Diluted net income
 per share(1)                                 0.80              0.61              0.47              0.40              0.30

Consolidated Balance Sheet Data:

                                                         YEARS ENDED AUGUST 31,
                            -----------------------------------------------------------------------------
                              2000             1999             1998             1997             1996
                            ---------        ---------        ---------        ---------        ---------
Working capital             $ 5,411.4        $ 3,162.7        $ 1,278.1        $ 1,137.5        $   860.9
Total assets                 10,375.6          5,420.5          2,843.7          2,209.9          1,627.9
Long-term debt                3,319.5            922.7            386.8            386.2            388.3
Stockholders' equity          3,802.1          3,166.9          1,475.4          1,150.2            787.8
</TABLE>

(1)     All net income per share amounts have been adjusted to reflect the
        two-for-one stock splits through March 8, 2000.



                                       18
<PAGE>   19

ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

WITH THE EXCEPTION OF HISTORICAL FACTS, THE STATEMENTS CONTAINED IN THIS
DISCUSSION ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF
THE SECURITY ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED (THE "EXCHANGE ACT"), AND ARE SUBJECT TO THE SAFE HARBOR PROVISIONS
CREATED BY THAT STATUTE. CERTAIN STATEMENTS CONTAINED IN THE FOLLOWING
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, INCLUDING, WITHOUT LIMITATION, STATEMENTS CONTAINING THE WORDS
"BELIEVES," "ANTICIPATES," "ESTIMATES," "EXPECTS," AND WORDS OF SIMILAR IMPORT,
CONSTITUTE FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. SUCH
STATEMENTS ARE BASED ON CURRENT EXPECTATIONS AND ARE SUBJECT TO RISK,
UNCERTAINTIES AND CHANGES IN CONDITION, SIGNIFICANCE, VALUE AND EFFECT,
INCLUDING THOSE DISCUSSED UNDER THE HEADING RISK FACTORS WITHIN THE SECTION OF
THIS REPORT ENTITLED "ITEM 7", "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND REPORTS FILED BY SOLECTRON
WITH THE SECURITIES AND EXCHANGE COMMISSION, SPECIFICALLY FORMS 8-K, 10-Q, S-3
AND S-8. SUCH RISKS, UNCERTAINTIES AND CHANGES IN CONDITION, SIGNIFICANCE, VALUE
AND EFFECT COULD CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
ANTICIPATED EVENTS. ALTHOUGH WE BELIEVE THAT THE ASSUMPTIONS UNDERLYING THE
FORWARD-LOOKING STATEMENTS ARE REASONABLE, ANY OF THE ASSUMPTIONS COULD PROVE
INACCURATE, INCLUDING, BUT NOT LIMITED TO, STATEMENTS AS TO OUR FUTURE OPERATING
RESULTS AND BUSINESS PLANS AS WELL AS THE ACQUISITION OF NATSTEEL ELECTRONICS
LTD. (NEL) AND OUR PROPOSED OFFERINGS DESCRIBED BELOW. WE DISCLAIM ANY INTENTION
OR OBLIGATION TO UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A
RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.

RESULTS OF OPERATIONS

The electronics industry is subject to rapid technological change, product
obsolescence and price competition. These and other factors affecting the
electronics industry, or any of our major customers in particular, could
materially harm our results of operations.

RESULTS OF OPERATIONS FOR YEARS ENDED AUGUST 31, 2000, 1999 AND 1998

The following table summarizes certain items in the Consolidated Statements of
Income as a percentage of net sales. The financial information and the
discussion below should be read in conjunction with the consolidated financial
statements and notes thereto.

<TABLE>
<CAPTION>
                                                      YEARS ENDED AUGUST 31,
                                             ------------------------------------
                                              2000           1999           1998
                                             ------         ------         ------
<S>                                          <C>            <C>            <C>
Net sales                                     100.0%         100.0%         100.0%
Cost of sales                                  91.0           90.3           89.1
                                             ------         ------         ------
Gross profit                                    9.0            9.7           10.9
Operating expenses:
  Selling, general and administrative           3.3            3.9            4.4
  Research and development                      0.4            0.4            0.5
  Acquisition costs                             0.3             --             --
                                             ------         ------         ------
    Operating income                            5.0            5.4            6.0
Net interest income                             0.2             --            0.1
                                             ------         ------         ------
Income before income taxes                      5.2            5.4            6.1
Income taxes                                    1.7            1.7            2.0
                                             ------         ------         ------
Net income                                      3.5%           3.7%           4.1%
                                             ======         ======         ======
</TABLE>


                                       19
<PAGE>   20

NET SALES

Our net sales have increased significantly in each of the past several years,
reflecting the growing trend toward outsourcing within the electronics industry.
For the year ended August 31, 2000, net sales grew to $14.1 billion, an increase
of 46.2% over fiscal 1999. Net sales of $9.7 billion in fiscal 1999 were 58.5%
greater than fiscal 1998. The sales growth in fiscal 2000 compared with fiscal
1999 was attributable to new program ramp-ups, strong demand from our customers
worldwide and acquisitions made during fiscal 2000. The sales growth in fiscal
1999 over fiscal 1998 was primarily due to the significant increase in sales
volume from both existing and new customers worldwide, and the transfer of
production from certain customer plants to various Solectron locations around
the world. We do not currently anticipate any future decline in sales, but
continue to seek to diversify our customer base among many countries, market
segments and product lines within market segments.

We are organized in three business units: manufacturing and operations,
technology solutions, and global services. Our core business group,
manufacturing and operations, provided 87.8%, 87.5% and 85.4% of net sales,
respectively, for fiscal 2000, 1999 and 1998. Our technology solutions group,
consisting of SMART and Force, contributed 10.5%, 11.7% and 13.5% of net sales,
respectively, for fiscal 2000, 1999 and 1998. Our global services unit, which
was formed in fiscal 2000 and pooled with AMERICOM and the services unit of
Bluegum, contributed 1.7%, 0.8% and 1.1% of net sales, respectively, in fiscal
2000, 1999 and 1998.

Manufacturing and Operations

Net sales from the worldwide manufacturing and operations group have contributed
a significant share of total sales for the past three fiscal years. Fiscal year
2000 net sales grew to $12.4 billion, an increase of 46.8% over fiscal year
1999. The increase was principally due to strong demand growth from our
customers and to acquisitions, including Alcatel's telecommunications
manufacturing business in Liverpool, Australia, by our subsidiary Bluegum; IBM
ECAT in Austin, Texas; Trimble of California; IBM's Netfinity server operations
in Greenock, Scotland; Ericsson's telecommunications infrastructure equipment
operations in Longuenesse, France, and Ostersund, Sweden; and Zhone Technologies
of California; as well as our acquisition of Alcatel's manufacturing business in
Aguadilla, Puerto Rico. In fiscal year 1999, net sales from manufacturing and
operations was $8.5 billion, which was 62.3% greater than fiscal 1998. The
increase in manufacturing and operations sales in fiscal 1999 from 1998 was
primarily due to demand increases and to acquisitions of assets from Ericsson,
NCR and Mitsubishi during fiscal 1999 and 1998.

Within the Americas, the Milpitas site in California, Guadalajara site in Mexico
and Austin site in Texas were the largest contributors to the sales increase.
The increase in fiscal 2000 versus 1999 was primarily due to new programs from
our customers, partially offset by limited sales growth in the Americas caused
by the shortage of components. Sales continued to grow in the Milpitas site
despite our strategic transfer of personal computer PCB programs and computer
peripherals systems assembly programs to Mexico and networking business to
Penang, Malaysia. The increase in net sales in fiscal 1999 compared with fiscal
1998 resulted from strong demand growth and acquisitions.

In Europe, net sales stayed relatively flat in fiscal 2000 versus fiscal 1999.
The increase in fiscal 1999 over fiscal 1998 was principally due to overall
business growth and increased demand from our telecommunications customers.

In Asia/Pacific, net sales growth in fiscal 2000 was primarily due to demand
growth in mobile phone, networking and personal computer projects. In
particular, sales growth in the Penang site was attributable to the growth of
networking business. In addition, our subsidiary Bluegum's acquisition of
Alcatel's telecommunications manufacturing operations in Liverpool, Australia,
also contributed to our sales increase in the region. The increase in fiscal
1999 over fiscal 1998 resulted primarily from increased demand from personal
computer customers and from networking business transferred from Milpitas,
California.


                                       20
<PAGE>   21

Technology Solutions

Our technology solutions group consists of SMART and Force, subsidiaries of
Solectron. This business unit was formed on November 30, 1999 coinciding with
the merger of SMART. Our main products in technology solutions group are
specialty and standard memory products, PC cards, embedded computer modules and
communications card products. Net sales for fiscal years 2000, 1999 and 1998
were $1.5 billion, $1.1 billion and $825.9 million, respectively. The increase
in fiscal 2000 of 31.5% over fiscal 1999 resulted from an overall increase in
standard memory products incorporated with average memory densities, as well as
an increase in embedded computer modules and communications card products. The
increase of 36.9% in fiscal 1999 over fiscal 1998 was primarily due to an
increase in sales of standard memory products, communications card products and
embedded computer modules.

Global Services

Our global services group was established in June 1999. It was formed through
three business acquisitions, Sequel in July 1999, NULOGIX in November 1999 and
AMERICOM in April 2000, as well as a small division of Solectron in Milpitas.
Net sales were $232.5 million, $78.5 million and $65.0 million in fiscal years
2000, 1999 and 1998, respectively.

International Sites

Net sales from our international sites, as a percentage of consolidated net
sales, have grown over the last three fiscal years. International locations
contributed 41% of consolidated net sales in fiscal 2000, compared with 33% in
fiscal 1999 and 28% in fiscal 1998. As a result of our international sales and
facilities, our operations are subject to the risks of doing business abroad.
While these dynamics have not materially harmed our results of operations, we
cannot assure that there will not be such an impact in the future.

Major Customers

Only four major customers accounted for more than 10% of our net sales in fiscal
2000, 1999 and 1998, as summarized in the following table.

<TABLE>
<CAPTION>
                YEARS ENDED AUGUST 31,
              --------------------------
              2000       1999       1998
              ----       ----       ----
<S>           <C>        <C>        <C>
Ericsson       13%         *          *
Compaq          *         12%         *
Cisco          12%        11%        10%
HP              *          *         11%
</TABLE>

*       net sales less than 10%

Our top ten customers accounted for 72% of net sales in fiscal 2000, 74% of net
sales in fiscal 1999 and 68% of net sales in fiscal 1998. We depend on continued
revenues from Ericsson, Compaq, Cisco, HP, IBM and our other top ten customers.
We cannot guarantee that these or any other customers will not increase or
decrease as a percentage of consolidated net sales either individually or as a
group. Consequently, any material decrease in sales to these or other customers
could materially harm Solectron's results of operations.

We believe that our ability to continue growing depends on increasing sales to
existing customers for their current and future product generations,
successfully marketing to new customers and expanding geographically. Customer
contracts can be canceled and volume levels can be changed or delayed. The
timely replacement of delayed, canceled or reduced orders with new business
cannot be assured. In addition, we cannot assure that our current customers will
continue to utilize our services. Because of these factors, we cannot assure
that Solectron's historical revenue growth rate will continue.


                                       21
<PAGE>   22

GROSS PROFIT

Our gross margin percentages were 9.0%, 9.7% and 10.9% respectively, for fiscal
2000, 1999 and 1998. The decrease in fiscal 2000 over fiscal 1999 was attributed
primarily to sales derived from lower margin mobile telecommunication equipment,
manufacturing inefficiencies due to non-linearity of material receipts, a high
level of business development activities and new site integration support
expenditures, as well as capacity ramp-up for future demand growth. The decrease
in fiscal 1999 over 1998 was due to lower margins from sales derived from
systems build projects and lower margin standard memory products. Our start-up
operations also contributed to the decrease. In addition, the amortization of
intellectual property resulting from certain acquisitions reduced gross margins.

For our worldwide manufacturing operations, we anticipate a larger percentage of
our sales may be derived from systems-build projects that generally yield lower
profit margins than PCB assembly.

We expect most of our technology solutions sales may continue to be derived from
turn-key projects, which typically yield lower profit margins than consignment
projects. In addition, factors affecting technology solutions profit margins
include the sales mix of specialty memory modules, standard memory modules,
communication card products and embedded computer modules, as well as changes in
average memory densities used in memory products. Currently, a significant
amount of net sales is derived from the sales of standard memory modules, which
typically have lower profit margins than specialty memory modules.

In the foreseeable future, our overall gross margin will depend primarily on
product mix, production efficiencies, utilization of manufacturing capacity,
start-up and integration costs of new and acquired businesses, percentage of
sales derived from systems-build and turn-key projects, pricing within the
electronics industry, component costs and delivery linearity, and the cost
structure at individual sites. Over time, gross margins at the individual sites
and for Solectron as a whole may continue to fluctuate. Increases in the
systems-build business or turn-key projects, additional costs associated with
new projects, and price erosion within the electronics industry could harm our
gross margin.

In addition, we have experienced component shortages. While the component
availability fluctuates from time to time and is still subject to lead time and
other constraints, this could possibly have a negative impact on our sales and
gross margins for the foreseeable future. Therefore, we cannot assure that our
gross margin will not fluctuate or decrease in future periods.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

In absolute dollars, our selling, general and administrative (SG&A) expenses
increased 24.4% in fiscal 2000 over fiscal 1999, and 41.6% in fiscal 1999 over
fiscal 1998. The increase in absolute dollars in fiscal 2000 compared to 1999
was contributed by an increase in head count and information systems costs to
support our sales growth and increased costs of acquisition related activities.
The absolute dollar increase in fiscal 1999 over fiscal 1998 primarily reflected
expenses associated with increased head count necessary to support sales growth
and business infrastructure and further development costs of information
systems, as well as expenses related to business and asset acquisitions.

As a percentage of net sales, SG&A expenses were 3.3% in fiscal 2000, 3.9% in
fiscal 1999 and 4.4% in fiscal 1998. The primary reasons for the fiscal 2000 and
1999 decrease in SG&A expenses as a percentage of net sales were the significant
increase in sales volume and our continued effort to manage operating expenses,
partially offset by the costs associated with investments in our business
infrastructure, information systems and start-up costs for new sites. We
anticipate SG&A expenses will continue to increase in terms of absolute dollars
in the future and may possibly increase as a percentage of net sales as we
continue to develop the infrastructure necessary to support our current and
prospective business.


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<PAGE>   23

RESEARCH AND DEVELOPMENT EXPENSES

With the exception of our technology solutions business unit, our research and
development (R&D) activities have primarily supported the development of
prototype and engineering design capabilities, fine pitch interconnecting
technologies (which include ball grid array, tape automated bonding, multichip
modules, chip-on-flex, chip-on-board and flip chip), high reliability
environmental stress test technology and the implementation of environmentally
friendly assembly processes such as VOC-free and no-clean. Technology solutions'
R&D efforts are concentrated on new product development and improvement of
product designs through improvements in functionality and the use of
microprocessors in embedded applications.

In absolute dollars, R&D expenses increased 50.1% in fiscal 2000 over fiscal
1999 and 35.5% in fiscal 1999 over fiscal 1998. The increases in absolute
dollars in R&D expenses were primarily due to our increased R&D effort in
technology solutions and new R&D projects initiated at our various sites. We
expect that R&D expenses will increase in absolute dollars in the future and may
increase as a percentage of net sales as SMART and Force continue to invest in
their R&D efforts and additional R&D projects are undertaken at certain sites.
As a percentage of net sales, R&D expenses were 0.4% for both fiscal 2000 and
1999, 0.5% in fiscal 1998.

ACQUISITION AND RESTRUCTURING COSTS

A one-time charge for acquisition costs of approximately $26.8 million was
incurred in fiscal 2000 as a result of the acquisitions of SMART, AMERICOM and
Bluegum during fiscal 2000. Our acquisition costs consist of investment banker
fees, legal fees, accounting fees, registration fees and other incidentals.

We recorded restructuring costs of approximately $11.1 million in fiscal 2000
primarily related to the consolidations of certain facilities acquired in the
SMART and Sequel mergers. Approximately $4.4 million related to lease exit
costs, $3.4 million related to asset write-offs and other incidental costs, $1.2
million related to severance costs and $2.1 million related to other related
costs. Approximately $2.8 million remains in accrued expenses as of August 31,
2000 and we expect to utilize these reserves by the end of fiscal 2001.

NET INTEREST INCOME (EXPENSE)

Net interest income was $35.3 million in fiscal 2000 compared to $6.9 in fiscal
1998, and net interest expense of $1.6 million in fiscal 1999. The net interest
income in fiscal 2000 was attributed primarily to interest income earned on cash
and investments from the proceeds of the 2.75% zero-coupon convertible senior
notes which were issued in May 2000, offset partially with interest expense on
the 4% and 2.75% yield zero-coupon convertible senior notes as well as on the
7-3/8% senior notes. The net interest expense in fiscal 1999 was related to
interest expenses from the 4% yield zero coupon convertible senior notes and the
6% convertible subordinated notes. The net interest income in fiscal 1998 was
primarily due to the proceeds from SMART's secondary public offering of common
stock completed during September 1997.

INCOME TAXES

Income taxes increased to $238.8 million in fiscal 2000 from $164.2 million in
fiscal 1999 and $124.2 million in fiscal 1998, primarily due to increased income
before income taxes. Our effective income tax rate was 32.3% in fiscal 2000
compared to 31.9% in fiscal 1999 and 33.1% in fiscal 1998.

In general, the effective income tax rate is largely a function of the balance
between income from domestic and international operations. Solectron's
international operations, taken as a whole, have been taxed at a lower rate than
those in the United States, primarily due to the tax holiday granted to
Solectron's sites in Malaysia. The Malaysian tax holiday is effective through
January 31, 2002, subject to some conditions, including


                                       23
<PAGE>   24

certain levels of research and development expenditures. Solectron has also been
granted various tax holidays in China, which are effective for various terms and
are subject to some conditions.

LIQUIDITY AND CAPITAL RESOURCES

Our net working capital was $5.4 billion at August 31, 2000, compared to $3.2
billion at August 31, 1999. Cash and cash equivalents and short-term investments
were $2.4 billion at August 31, 2000, an increase of $0.5 billion from August
31, 1999. The increase was primarily due to proceeds of $2.3 billion from the
zero coupon convertible senior debt issued in May 2000 partially offset by
investing activities, including purchases of manufacturing assets of $1.1
billion and capital expenditures of $0.5 billion.

Accounts receivable increased $863.8 million during fiscal 2000. The increase
was due to growth in total sales. Inventories increased $2.6 billion during
fiscal 2000. The increase in inventory levels resulted from our sales growth,
inventory from incomplete kits on hand caused by shortages of certain
components, and purchased inventory through asset acquisitions. We continuously
manage our inventory levels striving to maintain competitive lead times while
balancing the risk of inventory obsolescence due to rapidly changing technology
and customer requirements.

As of August 31, 2000, we had available a $100 million unsecured multicurrency
revolving line of credit that expires on April 30, 2002. Borrowings under the
credit facility bear interest, at our option, at either the bank's prime rate,
the London interbank offering rate (LIBOR) plus a margin, or the bank's
certificate of deposit (CD) rate plus a margin. The margin under the LIBOR or CD
rate options will vary depending on Solectron's Standard & Poor's Corporation
and/or Moody's Investor Services, Inc. rating for its long-term senior unsecured
debt. This margin was 0.4% at August 31, 2000. Under the credit agreement, we
must meet certain financial covenants. There were no borrowings outstanding
under this line of credit as of August 31, 2000. In addition, we had
approximately $91 million and $174 million, respectively, in committed and
uncommitted foreign lines of credit and other bank facilities as of August 31,
2000. Borrowings were payable on demand. The interest rates ranged from the
bank's prime lending rate to the bank's prime rate plus 2.0%. As of August 31,
2000, borrowings and guaranteed amounts under committed and uncommitted foreign
lines of credit were $38 million and $58 million, respectively. The
weighted-average interest rate was 5.4% for committed and 5.9% for uncommitted
foreign lines of credit. Under these lines of credit agreements, we must meet
certain financial covenants. We were in compliance with all of its line of
credit financial covenants as of August 31, 2000.

We believe that our current cash and cash equivalents, short-term investments,
line of credit, and cash generated from operations coupled with the anticipated
proceeds from our proposed common stock and LYONs offerings, will satisfy our
expected working capital, capital expenditure, and investment requirements
through at least the next 12 months.

"YEAR 2000" ISSUES

To date, we have not experienced any material Year 2000 related issues, and we
expect minimal future Year 2000 issues based on the performance to date of our
internal systems and external systems (including, without limitation, vendor,
customer and banking systems) upon which we are dependent, along with the
products we sell.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." As amended by SFAS No. 137 and 138, SFAS
No. 133 establishes methods of accounting for derivative financial instruments
and hedging activities related to those instruments as well as other hedging
activities. We anticipate that the adoption of SFAS No. 133 will not have a
material impact on our financial position, results of operations or cash flows.
We will adopt SFAS No. 133 in the first fiscal quarter of fiscal 2001.


                                       24
<PAGE>   25

In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," which provides guidance related to revenue recognition based on
interpretations and practices followed by the SEC and was effective the first
fiscal quarter of fiscal years beginning after December 15, 1999 and requires
companies to report any changes in revenue recognition as a cumulative change in
accounting principle at the time of implementation in accordance with Accounting
Principles Board Opinion 20, "Accounting Changes." Subsequently, SAB No.101A and
101B were issued to delay the implementation of SAB No. 101. It will be
effective for Solectron in our fourth quarter of fiscal 2001. We are currently
evaluating the impact, if any, SAB No. 101 will have on our financial position
or results and operations.

In March 2000, the Financial Accounting Standards Board issued Interpretation
No. 44, Accounting for Certain Transactions involving Stock Compensation, an
interpretation of Accounting Principles Board (APB) Opinion No. 25, Stock Issued
to Employees. Interpretation No. 44 clarifies the application of APB No. 25 for
the definition of an employee for purposes of applying APB No. 25, the criteria
for determining whether a plan qualifies as a noncompensatory plan, the
accounting consequence of various modifications to the terms of a previously
fixed stock option or award and the accounting for an exchange of stock
compensation awards in a business combination. The interpretation was adopted by
Solectron effective July 1, 2000, but certain conclusions cover specific events
that occur after either December 15, 1998 or January 12, 2000. This
interpretation did not have a material impact on our consolidated financial
statements.

We adopted the American Institute of Certified Public Accountants' Statement of
Position No. 98-5, Reporting on the Costs of Start-up Activities, on September
1, 1999. This statement required that costs of start-up activities and
organizational costs be expensed as incurred. The cumulative effect of this
accounting change on years prior to fiscal 2000 was a charge of $3.5 million
(net of $1.6 million income tax effect), or $.01 per common share, that was
reflected in the first quarter of fiscal 2000. Pro forma information is not
presented as the change did not have a material impact on any individual year
prior to fiscal 2000.

RECENT DEVELOPMENTS

In October 2000, we entered into an agreement with Sony Corporation ("Sony") to
acquire certain assets associated with two Sony manufacturing facilities: Sony
Nakaniida Corporation in Miyagi, Japan, and Sony Industry Taiwan in Kaohsiung,
Taiwan. These facilities currently produce high-end consumer products such as
automobile satellite navigation systems, car audio systems and lithium-ion
battery packs. The agreement will result in Sony outsourcing its electronic
manufacturing services to us from these two facilities.

On October 31, 2000, we signed a definitive agreement to commence an offer to
purchase all outstanding shares of NEL for $4.53 per share in cash, representing
a total transaction value, including debt of NEL, of approximately $2.4 billion.
NEL provides global contract manufacturing services for OEMs in the electronics
industry. NEL manufactures PCB assemblies, and provides box-building
capabilities and pre- and post-manufacturing services such as design,
prototyping, testing and logistics. We have received irrevocable undertakings,
representing approximately 43 percent of NEL's outstanding common shares, from
major shareholders to tender their shares under the offer. Those shares are held
by the largest shareholder of NEL, separately traded NatSteel Ltd. (NSL); key
members of NEL's management team; and Temasek Capital. Temasek Holdings and
other key shareholders of NSL, who collectively hold approximately 23 percent of
NSL's outstanding shares, have irrevocably undertaken to vote their shares in
favor of NSL tendering its NEL shares in the offer. Notwithstanding the fact
that we have signed a definitive agreement and have received undertakings from
NEL's major shareholders, the offer is subject to several conditions, including:
the tender of more than 50 percent of NEL's shares (on a fully diluted basis) to
Solectron pursuant to the offer; the approval of NEL's shareholders to sell its
shares in NEL to Solectron pursuant to the offer as well as the satisfactory
completion of all relevant regulatory reviews and approvals and all other
customary conditions. Thus, there can be no assurance that the acquisition will
close as


                                       25
<PAGE>   26

contemplated, if at all. In addition, we may not receive the tender of at least
90 percent of the shares of NEL. If we are unable to purchase at least 90
percent of the shares of NEL in the tender offer, we may find it more difficult
to fully integrate and operate the NEL business.

We currently estimate that the acquisition of NEL will reduce our diluted
earnings per share for fiscal 2001 but will increase our diluted earnings per
share on a cash basis for fiscal 2001. Our earnings per share on a cash basis
are expected to be between $1.22 and $1.25 for fiscal 2001 compared to $0.89 for
fiscal 2000. Cash basis earnings per share represents net income per share
adjusted for amortization of goodwill, intellectual property costs and other
intangible costs, and one time charges. The actual impact of the acquisition on
our earnings will depend on a number of factors, including the terms of the
financing of the acquisition, the timing of the acquisition and our actual
results and the actual results of the NEL operations during the period following
the acquisition. These forward-looking statements involve risk and uncertainties
and our actual results may differ materially from these statements.

On November 1, 2000, we filed prospectus supplements to raise approximately $3.0
billion through concurrent offerings of primary shares of our common stock and
20-year Liquid Yield Option Notes (LYONs). The LYONs would be zero coupon senior
notes convertible into our common stock. The common stock and LYONs would be
offered under our shelf registration that was declared effective April 14, 2000.
We intend to use the net proceeds from these offerings for funding the further
expansion of our business and strategic acquisitions, including approximately
$2.4 billion to fund the pending acquisition of NEL. In the event the
acquisition of NEL is not consummated or to the extent we are unable to purchase
at least 90 percent of the shares of NEL, the anticipated proceeds from our
proposed offering will be used, in whole or in part, as the case may be, for
other strategic opportunities and other corporate purposes. There can be no
assurance that such alternative uses of capital will result in returns to
Solectron equal to those anticipated to result from the NEL transaction.


                                       26
<PAGE>   27

                                  RISK FACTORS


A MAJORITY OF OUR NET SALES COMES FROM A SMALL NUMBER OF CUSTOMERS; IF WE LOSE
ANY OF THESE CUSTOMERS, OUR NET SALES COULD DECLINE SIGNIFICANTLY.

A majority of our annual net sales comes from a small number of our customers.
Our ten largest customers accounted for approximately 72% of net sales in fiscal
2000 and approximately 74% and 68%, of net sales in fiscal 1999 and 1998,
respectively. Since we are dependent upon continued net sales from our ten
largest customers, any material delay, cancellation or reduction of orders from
these or other major customers could cause our net sales to decline
significantly. Some of these customers individually account for more than ten
percent of our annual net sales. We cannot guarantee that we will be able to
retain any of our ten largest customers or any other accounts. In addition, our
customers may materially reduce the level of services ordered from us at any
time. This could cause a significant decline in our net sales and we may not be
able to reduce the accompanying expenses at the same time. Moreover, our
business, financial condition and results of operations will continue to depend
in significant part on our ability to obtain orders from new customers, as well
as on the financial condition and success of our customers. Therefore, any
adverse factors affecting any of our customers or their customers could have a
material adverse effect on our business, financial condition and results of
operations.

OUR LONG-TERM CONTRACTS DO NOT INCLUDE MINIMUM PURCHASE REQUIREMENTS.

Although we have long-term contracts with a few of our top ten customers,
including Ericsson, IBM and Nortel under which these customers are obligated to
obtain services from us, they are not obligated to purchase any minimum amount
of services. As a result, we cannot guarantee that we will receive any net sales
from these contracts. In addition, these customers with whom we have long-term
contracts may materially reduce the level of services ordered at any time. This
could cause a significant decline in our net sales, and we may not be able to
reduce our accompanying expenses at the same time.

POSSIBLE FLUCTUATION OF OPERATING RESULTS FROM QUARTER TO QUARTER COULD AFFECT
THE MARKET PRICE OF OUR COMMON STOCK.

Our quarterly earnings may fluctuate in the future due to a number of factors
including the following:

-       Differences in the profitability of the types of manufacturing services
        we provide. For example, high velocity and low complexity PCB and
        systems assembly services have lower gross margins than low
        volume/complex PCB and systems assembly services;

-       Our ability to maximize the hours of use of our equipment and facilities
        is dependent on the duration of the production run time for each job and
        customer;

-       The amount of automation that we can use in the manufacturing process
        for cost reduction varies, depending upon the complexity of the product
        being made;

-       Our ability to optimize the ordering of inventory as to timing and
        amount to avoid holding inventory in excess of immediate production
        needs;

-       Fluctuations in demand for our services or the products being
        manufactured;

-       Fluctuations in the availability and pricing of components;

-       Timing of expenditures in anticipation of increased sales;

-       Cyclicality in our target markets; and


                                       27
<PAGE>   28

-       Expenses associated with acquisitions.

Therefore, our operating results in the future could be below the expectations
of securities analysts and investors. If this occurs, the market price of our
common stock could be harmed.

WE DEPEND UPON THE ELECTRONICS INDUSTRY, WHICH CONTINUALLY PRODUCES
TECHNOLOGICALLY ADVANCED PRODUCTS WITH SHORT LIFE CYCLES; OUR INABILITY TO
CONTINUALLY MANUFACTURE SUCH PRODUCTS ON A COST EFFECTIVE BASIS WOULD HARM OUR
BUSINESS.

A majority of our net sales is to companies in the electronics industry, which
is subject to rapid technological change and product obsolescence. If our
customers are unable to create products that keep pace with the changing
technological environment, our customers' products could become obsolete and the
demand for our services could decline significantly. If we are unable to offer
technologically advanced, cost effective, quick response manufacturing services
to customers, demand for our services will also decline. In addition, a
substantial portion of our net sales is derived from our ability to offer
complete service solutions for our customers. For example, if we fail to
maintain high-quality design and engineering services, our net sales would
significantly decline.

For our technology solutions business, we have experienced, and may in the
future experience, delays from time to time in the development and introduction
of new products. Moreover, we cannot assure that we will be successful in
selecting, developing, manufacturing and marketing new products or enhancements.
We cannot assure that defects or errors will not be found in our products after
commencement of commercial shipments, which could result in the delay in market
acceptance of such products. The inability to introduce new products or
enhancements could harm our business, financial condition and results of
operations.

WE DEPEND ON LIMITED OR SOLE SOURCE OF SUPPLIERS FOR CRITICAL COMPONENTS. THE
INABILITY TO OBTAIN SUFFICIENT COMPONENTS AS REQUIRED WOULD CAUSE SALES
REDUCTIONS.

We are dependent on certain suppliers, including limited and sole source
suppliers, to provide key components used in our products. We have experienced
and may continue to experience delays in component deliveries, which could cause
delays in product shipments and require the redesign of certain products. Also
for our technology solutions business, we are dependent upon certain limited or
sole source suppliers for critical components used for our memory module,
communications card and embedded computer products. The electronics industry has
experienced in the past, and may experience in the future, shortages in
semiconductor devices, including DRAM, SRAM, Flash memory, tantalum capacitors
and other commodities that may be caused by such conditions as overall market
demand surges or supplier production capacity constraints. Except for certain
commodity parts, we generally have no written agreements with our suppliers. We
cannot assure that we will receive adequate component supplies on a timely basis
in the future. The inability to continue to obtain sufficient components as
required, or to develop alternative sources if required, could cause delays,
disruptions or reductions in product shipments or require product redesigns
which could damage relationships with current or prospective customers, thereby
causing sales reductions.

WE POTENTIALLY BEAR THE RISK OF PRICE INCREASES ASSOCIATED WITH POTENTIAL
SHORTAGES IN THE AVAILABILITY OF ELECTRONICS COMPONENTS.

At various times, there have been shortages of components in the electronics
industry. One of the services that we perform for many customers is purchasing
electronics components used in the manufacturing of the customers' products. As
a result of this service, we potentially bear the risk of price increases for
these components because we are unable to purchase components at the pricing
level anticipated to support the margins assumed in our agreements with our
customers.


                                       28
<PAGE>   29

OUR NET SALES COULD DECLINE IF OUR COMPETITORS PROVIDE COMPARABLE MANUFACTURING
SERVICES AND IMPROVED PRODUCTS AT A LOWER COST.

We compete with different contract manufacturers, depending on the type of
service we provide or the geographic locale of our operations. The memory
module, communications card and embedded computer subsystem industries are also
intensely competitive. These competitors may have greater manufacturing,
financial, R&D and/or marketing resources than we have. In addition, we may not
be able to offer prices as low as some of our competitors because those
competitors may have lower cost structures as a result of their geographic
location or the services they provide. Our inability to provide comparable or
better manufacturing services at a lower cost than our competitors could cause
our net sales to decline. We also expect our competitors to continue to improve
the performance of their current products or services, to reduce their current
products or service sales prices and to introduce new products or services that
may offer greater performance and improved pricing. Any of these could cause a
decline in sales, loss of market acceptance of our products or services, or
profit margin compression.

WE DEPEND ON THE MEMORY MODULE PRODUCT MARKET.

Most of our technology solutions net sales is derived from memory modular
products. The market for these products is characterized by frequent transitions
in which products rapidly incorporate new features and performance standards. A
failure to develop products with required feature sets or performance standards
or a delay as short as a few months in bringing a new product to market could
reduce our net sales which may have a material adverse effect on our business,
financial condition and results of operations. In addition, the market for
semiconductor memory devices has been cyclical. The industry has experienced
significant economic downturns at various times, characterized by diminished
product demand, accelerated erosion of average selling prices and excess
production. In the past, there have been significant declines in the prices for
DRAM, SRAM and Flash. Such occurrences will reduce our profit.

WE DEPEND ON THE CONTINUING TREND OF OUTSOURCING BY OEMS.

A substantial factor in our revenue growth is attributable to the transfer of
manufacturing and supply base management activities from our OEM customers.
Future growth is partially dependent on new outsourcing opportunities. To the
extent that these opportunities are not available, our future growth would be
unfavorably impacted. These outsourcing opportunities may include the transfer
of assets such as facilities, equipment and inventory.

IF WE ARE UNABLE TO MANAGE OUR RAPID GROWTH AND ASSIMILATE NEW OPERATIONS IN A
COST EFFECTIVE MANNER, OUR PROFITABILITY COULD DECLINE.

We have experienced rapid growth over many years. Our historical growth may not
continue. In recent years we have established operations in different locations
throughout the world. For example, in fiscal 1998, we opened offices in Taipei,
Taiwan; Tel Aviv, Israel; Norrkoping and Stockholm, Sweden; and commenced
manufacturing operations in Guadalajara, Mexico; Suzhou, China; and Timisoara,
Romania. Also in fiscal 1998, we acquired foreign facilities in Sao Paulo,
Brazil and Dublin, Ireland. Furthermore, through acquisitions in fiscal 1998 and
1999, we acquired facilities in Duluth, Georgia; Columbia, South Carolina;
Memphis, Tennessee; and enhanced our capabilities in Charlotte, North Carolina;
Austin, Texas; and Milpitas, California.

In fiscal 2000, we completed acquisitions of AMERICOM, SMART, and Bluegum that
were each accounted for as a pooling of interests. Through additional
acquisitions, we also acquired foreign facilities in Aguadilla, Puerto Rico;
Monterrey, Mexico; Calgary, Canada; Longuenesse, France; Ostersund, Sweden;
Cwmcarn, Wales; Pont de Buis and Douarnenez, France; Monkstown, Northern
Ireland; Liverpool, New South Wales; Wangaratta and Melbourne, Victoria; and
Sydney and North Melbourne, Australia.


                                       29
<PAGE>   30

On October 18, 2000 we signed a definitive agreement to acquire certain assets
associated with two Sony Corporation manufacturing facilities, Sony Nakaniida
Corporation in Miyagi, Japan and Sony Industries Taiwan in Kaohsiung, Taiwan. On
October 31, 2000 we signed a definitive agreement to commence an offer to
purchase all outstanding shares of NEL.

Since we have been significantly expanding our operations, the growth has
resulted in a significant increase in responsibility for existing management
which has placed, and may continue to place, a heavy strain on our personnel and
management, manufacturing and other resources. Our ability to manage the
expansion to date, as well as any future expansion, will require progressive
increases in manufacturing capacity, as well as enhancements or upgrades of
accounting and other internal management systems and the implementation of a
variety of procedures and controls. We cannot assure that significant problems
in these areas will not occur. Any failure to enhance or expand these systems
and implement such procedures and controls in an efficient manner and at a pace
consistent with our business activities could harm our financial condition and
results of operations. Also, in order to achieve anticipated revenue and other
financial performance targets, we will continue to be required to manage our
assets and operations efficiently. In addition, should we continue to expand
geographically, we may experience certain inefficiencies from the management of
geographically dispersed facilities.

As we manage and continue to expand new operations, we may incur substantial
infrastructure and working capital costs. If we do not achieve sufficient growth
to offset increased expenses associated with rapid expansion, our profitability
will decline.

WE NEED TO SUCCESSFULLY INTEGRATE OUR ACQUISITIONS TO MAINTAIN PROFITABILITY.

As we expand our operations through acquisitions and continue to evaluate
acquisition opportunities and may pursue additional acquisitions over time.
These acquisitions involve risks, including:

-       Integration and management of the operations;

-       Retention of key personnel;

-       Integration of purchasing operations and information systems;

-       Retention of the customer base of acquired businesses;

-       Management of an increasingly larger and more geographically disparate
        business; and

-       Diversion of management's attention from other ongoing business
        concerns.

Our profitability will suffer if we are unable to successfully integrate and
manage recent acquisitions and pending acquisitions including, in particular,
the NEL transaction, as well as any future acquisitions that we might pursue, or
if we do not achieve sufficient revenue to offset the increased expenses
associated with these acquisitions. In the event we are unable to acquire at
least 90 percent of NEL in the tender offer, we may find it more difficult to
integrate and operate the NEL business.

THE ACQUISITION OF NEL MAY NOT OCCUR AND WE MAY NOT BE ABLE TO PURCHASE AT LEAST
90 PERCENT OF THE SHARES OF NEL IN THE TENDER OFFER.

On October 31, 2000, we signed a definitive agreement to commence an offer to
purchase all outstanding shares of NEL. NEL provides global contract
manufacturing services for original equipment manufacturers (OEMs) in the
electronics industry. The company manufactures printed circuit board (PCB)
assemblies, and provides box-building capabilities and pre- and
post-manufacturing services such as design, prototyping, testing and logistics.
Solectron has received irrevocable undertakings, representing approximately 43
percent of NEL's outstanding common shares, from major shareholders to tender
their shares under the offer. Those shares are held by the largest shareholder
of NEL,



                                       30
<PAGE>   31

separately traded NSL; key members of NEL's management team; and Temasek
Capital. Temasek Holdings and other key shareholders of NSL, who collectively
hold approximately 23 percent of NSL's outstanding shares, have irrevocably
undertaken to vote their shares in favor of NSL tendering its NEL shares in the
tender offer. Notwithstanding the fact that we have signed a definitive
agreement and have received undertakings from NEL's major shareholders, the
offer is subject to several conditions, including: the tender of more than 50
percent of NEL's shares (on a fully diluted basis) to Solectron pursuant to the
offer; the approval of NSL shareholders to sell its shares in NEL to Solectron
pursuant to the offer as well as the satisfactory completion of all relevant
regulatory reviews and approvals and all other customary conditions. Thus, there
can be no assurance that the acquisition will close as contemplated, if at all.
In addition, we may not receive the tender of at least 90 percent of the shares
of NEL. If we are unable to purchase at least 90 percent of the shares of NEL in
the tender offer, we may find it more difficult to fully integrate and operate
the NEL business. In the event the acquisition of NEL is not consummated or to
the extent we are unable to purchase at least 90 percent of the shares of NEL,
the anticipated proceeds from our proposed offering will be used, in whole or
in part, as the case may be, for other strategic opportunities and other
corporate purposes. There can be no assurance that such alternative uses of
capital will result in returns to Solectron equal to those anticipated to
result from the NEL transaction.

OUR NON-U.S. LOCATIONS ARE A SIGNIFICANT AND GROWING PORTION OF OUR NET SALES;
WE ARE INCREASINGLY EXPOSED TO RISKS ASSOCIATED WITH OPERATING INTERNATIONALLY.

In fiscal 2000, approximately 41% of net sales came from sites outside the
United States, while approximately 33% of net sales came from sites outside the
United States in fiscal 1999. As a result of our foreign sales and facilities,
our operations are subject to a variety of risks that are unique to
international operations, including the following:

-       Adverse movement of foreign currencies against the U.S. dollar in which
        our results are reported;

-       Import and export duties, and value added taxes;

-       Import and export regulation changes that could erode our profit margins
        or restrict exports;

-       Potential restrictions on the transfer of funds;

-       Inflexible employee contracts in the event of business downturns; and

-       The burden and cost of compliance with foreign laws.

In addition, we have operations in several locations in emerging or developing
economies that have a potential for higher risk. The risks associated with these
economies include but are not limited to currency volatility, and other economic
or political risks. In the future, these factors may harm our results of
operations. Solectron locations in emerging or developing economies include
Mexico, Brazil, China, Malaysia and Romania. As of August 31, 2000, we recorded
$119.6 million in cumulative foreign exchange translation losses on our balance
sheet which was primarily due to the devaluation of the Brazilian real. While,
to date, these factors have not had a significant adverse impact on our results
of operations, we cannot assure that there will not be such an impact.
Furthermore, while we may adopt measures to reduce the impact of losses
resulting from volatile currencies and other risks of doing business abroad, we
cannot assure that such measures will be adequate.

The Malaysian government adopted currency exchange controls, including controls
on its currency, the ringgit, held outside Malaysia, and established a fixed
exchange rate for the ringgit against the U.S. dollar. The fixed exchange rate
provides a stable rate environment when applied to local expenses denominated in
ringgit. The long-term impact of such controls is not predictable due to dynamic
economic conditions that also affect or are affected by other regional or global
economies.

NEL currently benefits from tax holidays in Singapore and Indonesia. In the
event the acquisition of NEL is completed, it is possible that the tax holidays
will be terminated or modified or that future tax holidays will not be granted,
in each case as a result of



                                       31
<PAGE>   32

the acquisition transaction or otherwise, and that the effective income tax rate
for NEL's business would likely increase as a result thereof.

We have been granted a tax holiday which is effective through January 31, 2002,
subject to some conditions, for our Malaysian sites. We have also been granted
various tax holidays in China. These tax holidays are effective for various
terms and are subject to some conditions. It is possible that the current tax
holidays will be terminated or modified or that future tax holidays that we may
seek will not be granted. If the current tax holidays are terminated or
modified, or if additional tax holidays are not granted in the future, our
effective income tax rate would likely increase.

WE ARE EXPOSED TO FLUCTUATIONS IN THE EXCHANGE RATES OF FOREIGN CURRENCY.

We do not use derivative financial instruments for speculative purposes. Our
policy is to hedge our foreign currency denominated transactions in a manner
that substantially offsets the effects of changes in foreign currency exchange
rates. Presently, we use foreign currency borrowings and foreign currency
forward contracts to hedge only those currency exposures associated with certain
assets and liabilities denominated in non-functional currencies. Corresponding
gains and losses on the underlying transaction generally offset the gains and
losses on these foreign currency hedges.

As of August 31, 2000, the majority of the foreign currency hedging contracts
were scheduled to mature in less than three months and there were no material
deferred gains or losses. In addition, our international operations in some
instances act as a natural hedge because both operating expenses and a portion
of sales are denominated in local currency. In these instances, including our
current experience involving the devaluation of the Brazilian real, although an
unfavorable change in the exchange rate of a foreign currency against the U.S.
dollar will result in lower sales when translated to U.S. dollars, operating
expenses will also be lower in these circumstances. Also, since less than 12% of
our net sales are denominated in currencies other than U.S. dollar, we do not
believe out total exposure to be significant.

We have currency exposures arising from both sales and purchases denominated in
currencies other than the functional currency of our sites. Fluctuations in the
rate of exchange between the currency of the exposure and the functional
currency of our site could seriously harm our business, operating results and
financial condition. For example, if there is an increase in the rate at which a
foreign currency is exchanged for U.S. dollars, it will require more of the
foreign currency to equal a specified amount of U.S. dollars than before the
rate increase. In such cases, and if we price our products and services in the
foreign currency, we will receive less in U.S. dollars than we did before the
rate increase went into effect. If we price our products and services in U.S.
dollars and competitors price their products in local currency, an increase in
the relative strength of the U.S. dollar could result in our prices being
uncompetitive in markets where business is transacted in the local currency.

WE ARE EXPOSED TO INTEREST RATE FLUCTUATIONS.

The primary objective of our investment activities is to preserve principal,
while at the same time, maximize yields without significantly increasing risk.
To achieve this objective, we maintain our portfolio of cash equivalents and
short-term investments in a variety of securities, including both government and
corporate obligations, certificates of deposit and money market funds. As of
August 31, 2000, approximately 78% of our total portfolio was scheduled to
mature in less than six months. In addition, our investments are diversified and
of relatively short maturity. A hypothetical 10% increase in interest rates
would not have a material effect on our investment portfolios.
The following table presents the amounts of our cash equivalents and short-term
investments that are subject to interest rate risk by calendar year of expected
maturity and weighted average interest rates as of August 31, 2000:


                                       32
<PAGE>   33

<TABLE>
<CAPTION>
                                      2001             2002              2003              TOTAL          FAIR VALUE
                                   ---------         ---------         ---------         ---------        ----------
                                                               (amounts in millions)
<S>                                <C>               <C>               <C>               <C>              <C>
Cash equivalents and short-
  term investments                 $ 1,365.5         $   107.0         $    13.9         $ 1,486.4        $ 1,486.4
Average interest rate                   6.59%             6.13%             6.26%
</TABLE>

We have entered into an interest rate swap transaction under which we pay a
fixed rate of interest hedging against the variable interest rates implicit in
the rent charged by the lessor for the facility lease at Milpitas, California.
The interest rate swap expires in the year 2002, which coincides with the
maturity date of the lease term. As we intend to hold the interest rate swap
until the maturity date, we are not subject to market risk. In fact, such
interest rate swap has fixed the interest rate for the facility lease, thus
reducing interest rate risk.

Our long-term debt instruments are subject to fixed interest rates. In addition,
the amount of principal to be repaid at maturity is also fixed. In the case of
the convertible notes, such notes are based on fixed conversion ratios into
common stock. Therefore, we are not exposed to variable interest rates related
to our long-term debt instruments.

WE MAY NOT BE ABLE TO ADEQUATELY PROTECT OR ENFORCE OUR INTELLECTUAL PROPERTY
RIGHTS; AND WE COULD BECOME INVOLVED IN INTELLECTUAL PROPERTY DISPUTES.

Our ability to effectively compete may be affected by our ability to protect our
proprietary information. We hold a number of patents and other license rights.
These patent and license rights may not provide meaningful protection for our
manufacturing processes and equipment innovations. On June 23, 1999, we were
served, along with 87 other companies including SMART, as a defendant in a
lawsuit brought by the Lemelson Medical, Education & Research Foundation. The
lawsuit alleges that we have infringed certain of the plaintiff's patents
relating to machine vision and bar code technology. We believe we have
meritorious defenses to these allegations and do not expect that this litigation
will result in a material impact on our financial condition or results of
operations. In the semiconductor, computer, telecommunications and networking
industries, companies receive notices from time to time alleging infringement of
patents, copyrights, or other intellectual property rights, and litigation
sometimes arises out of such notices. For example, in January of this year,
SMART filed a lawsuit seeking to have declared invalid, and/or not infringed,
three patents purportedly applicable to industry standard memory products,
including those manufactured by SMART and the other manufacturers of these
industry standard memory products. The owner of these patents brought a
cross-complaint alleging patent infringement against SMART, and has also brought
suit against several other memory product manufacturers alleging infringement of
the three patents. We believe that SMART's memory products do not infringe any
valid claims of any of the three patents at issue. Moreover, we have been and
may from time to time continue to be notified of claims that we may be
infringing patents, copyrights or other intellectual property rights owned by
other third parties. The current litigation or any other litigation could result
in substantial costs and diversion of resources and could have a material
adverse effect on our business, financial condition and results of operations.
In the future, third parties may assert infringement claims against us or our
customers. In the event of an infringement claim, we may be required to spend a
significant amount of money to develop a non-infringing alternative or to obtain
licenses. We may not be successful in developing such an alternative or
obtaining a license on reasonable terms, if at all. In addition, any such
litigation could be lengthy and costly and could harm our financial condition.


                                       33
<PAGE>   34

FAILURE TO COMPLY WITH ENVIRONMENTAL REGULATIONS COULD HARM OUR BUSINESS.

As a company in the electronics manufacturing services industry, we are subject
to a variety of environmental regulations relating to the use, storage,
discharge and disposal of hazardous chemicals used during our manufacturing
process. Although we have never sustained any significant loss as a result of
non-compliance with such regulations, any failure by us to comply with
environmental laws and regulations could result in liabilities or the suspension
of production. In addition, these laws and regulations could restrict our
ability to expand our facilities or require us to acquire costly equipment or
incur other significant costs to comply with regulations.

OUR STOCK PRICE MAY BE VOLATILE DUE TO FACTORS OUTSIDE OF OUR CONTROL.

Our stock price could fluctuate due to the following factors, among others:

-       Announcements of operating results and business conditions by our
        customers;

-       Announcements by our competitors relating to new customers or
        technological innovation or new services;

-       Economic developments in the electronics industry as a whole;

-       Political and economic developments in countries in which we have
        operations; and

-       General market conditions.

FAILURE TO RETAIN KEY PERSONNEL AND SKILLED ASSOCIATES COULD HURT OUR
OPERATIONS.

Our continued success depends to a large extent upon the efforts and abilities
of key managerial and technical associates. Losing the services of key personnel
could harm us. Our business also depends upon our ability to continue to attract
and retain senior managers and skilled associates. Failure to do so could harm
our operations.

OUR ANTI-TAKEOVER DEFENSE PROVISIONS MAY DETER POTENTIAL ACQUIRORS AND MAY
DEPRESS OUR STOCK PRICE.

Our certificate of incorporation and bylaws contain provisions that could have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, control of Solectron.
These provisions allow us to issue preferred stock with rights senior to those
of our common stock and impose various procedural and other requirements that
could make it more difficult for our stockholders to effect certain corporate
actions.


                                       34
<PAGE>   35

ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

FOREIGN CURRENCY EXCHANGE RATES RISK

We do not use derivative financial instruments for speculative purposes. Our
policy is to hedge our foreign currency denominated transactions in a manner
that substantially offsets the effects of changes in foreign currency exchange
rates. Presently, we use foreign currency borrowings and foreign currency
forward contracts to hedge only those currency exposures associated with certain
assets and liabilities denominated in non-functional currencies. Corresponding
gains and losses on the underlying transaction generally offset the gains and
losses on these foreign currency hedges.

As of August 31, 2000, the majority of the foreign currency hedging contracts
were scheduled to mature in less than three months and there were no material
deferred gains or losses. In addition, our international operations in some
instances act as a natural hedge because both operating expenses and a portion
of sales are denominated in local currency. In these instances, including our
current experience involving the devaluation of the Brazilian real, although an
unfavorable change in the exchange rate of a foreign currency against the U.S.
dollar will result in lower sales when translated to U.S. dollars, operating
expenses will also be lower in these circumstances. Also, since less than 12% of
Solectron's net sales are denominated in currencies other than the U.S. dollar,
we do not believe our total exposure to be significant.

We have currency exposures arising from both sales and purchases denominated in
currencies other than the functional currency of Solectron sites. Fluctuations
in the rate of exchange between the currency of the exposure and the functional
currency of the Solectron site could seriously harm our business, operating
results and financial condition. For example, if there is an increase in the
rate at which a foreign currency is exchanged for U.S. dollars, it will require
more of the foreign currency to equal a specified amount of U.S. dollars than
before the rate increase. In such cases, and if we price our products and
services in the foreign currency, we will receive less in U.S. dollars than we
did before the rate increase went into effect. If we price our products and
services in U.S. dollars and competitors price their products in local currency,
an increase in the relative strength of the U.S. dollar could result in our
prices being not competitive in markets where business is transacted in the
local currency.

INTEREST RATE RISK

The primary objective of our investment activities is to preserve principal,
while at the same time, maximize yields without significantly increasing risk.
To achieve this objective, we maintain our portfolio of cash equivalents and
short-term investments in a variety of securities, including both government and
corporate obligations, certificates of deposit and money market funds. As of
August 31, 2000, approximately 78% of our total portfolio was scheduled to
mature in less than six months. See Note 2 of Notes to Consolidated Financial
Statements.

The following table presents the amounts of our cash equivalents and short-term
investments that are subject to interest rate risk by year of expected maturity
and weighted average interest rates as of August 31, 2000:

<TABLE>
<CAPTION>
                                         2001              2002              2003             TOTAL          FAIR VALUE
                                       --------         ---------         ----------        ---------        ----------
                                                                     (amounts in millions)
<S>                                   <C>               <C>               <C>               <C>              <C>
Cash equivalents and short-
  term investments                    $ 1,365.5         $   107.0         $    13.9         $ 1,486.4        $ 1,486.4
Average interest rate                      6.59%             6.13%             6.26%
</TABLE>

We have entered into an interest rate swap transaction under which we pay a
fixed rate of interest hedging against the variable interest rates implicit in
the rent charged by the lessor for the facility lease at Milpitas, California.
The interest rate swap expires in the year 2002, which coincides with the
maturity date of the lease term. As we intend to hold the interest rate swap
until the maturity date, we are not subject to market risk. In


                                       35
<PAGE>   36

fact, such interest rate swap has fixed the interest rate for the facility
lease, thus reducing interest rate risk.

Our long-term debt instruments are subject to fixed interest rates. In addition,
the amount of principal to be repaid at maturity is also fixed. In the case of
the convertible notes, such notes are based on fixed conversion ratios into
common stock. Therefore, we are not exposed to variable interest rates related
to our long-term debt instruments.


                                       36
<PAGE>   37

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by item 8 of Form 10-K is presented here in the
following order:

<TABLE>
<CAPTION>
                                                                            Page
                                                                            -----
<S>                                                                         <C>
Unaudited Quarterly Financial Information                                    37

Consolidated Balance Sheets                                                  38
Consolidated Statements of Income                                            39
Consolidated Statements of Stockholders' Equity                              40
Consolidated Statements of Comprehensive Income                              41
Consolidated Statements of Cash Flows                                        42
Notes to Consolidated Financial Statements                                   44

Independent Auditors' Report                                                 65

Unaudited Quarterly Financial Information
</TABLE>

For each fiscal quarter during the two fiscal years ended August 31, 2000 and
August 31, 1999 (in millions, except percentages and per share data):

<TABLE>
<CAPTION>
                                                   FIRST             SECOND             THIRD            FOURTH
                    2000                          QUARTER            QUARTER           QUARTER           QUARTER
                    ----                         ---------          ---------         ---------         ---------
<S>                                              <C>                <C>               <C>               <C>
Net sales                                        $ 2,834.6          $ 2,921.7         $ 3,645.0         $ 4,736.2
Gross profit                                     $   277.0          $   279.9         $   305.5         $   412.9
Gross margin                                           9.8%               9.6%              8.4%              8.7%
Operating income                                 $   155.3          $   135.7         $   170.2         $   243.0
Operating margin                                       5.5%               4.6%              4.7%              5.1%
Income before cumulative effect of
  change in accounting principle                 $   113.3          $    96.7         $   119.7         $   171.0
Cumulative effect of change in accounting
  principle, net of income tax benefit           $    (3.5)         $      --         $      --         $      --
                                                 ---------          ---------         ---------         ---------
Net income                                       $   109.8          $    96.7         $   119.7         $   171.0
                                                 =========          =========         =========         =========
Basic net income per share: (1)
  Income before cumulative effect of
    change in accounting principle               $    0.19          $    0.16         $    0.20         $    0.28
  Cumulative effect of change in
    accounting principle                         $   (0.01)         $      --         $      --         $      --
                                                 ---------          ---------         ---------         ---------
  Net income                                     $    0.18          $    0.16         $    0.20         $    0.28
                                                 =========          =========         =========         =========
Diluted net income per share: (1)
  Income before cumulative effect of
    change in accounting principle               $    0.18          $    0.16         $    0.19         $    0.27
  Cumulative effect of change in
    accounting principle                         $   (0.01)         $      --         $      --         $      --
                                                 ---------          ---------         ---------         ---------
  Net income                                     $    0.17          $    0.16         $    0.19         $    0.27
                                                 =========          =========         =========         =========

                   1999
                   ----
Net sales                                        $ 2,272.0          $ 2,249.3         $ 2,440.4         $ 2,707.5
Gross profit                                     $   211.7          $   216.9         $   240.8         $   266.9
Gross margin                                           9.3%               9.6%              9.9%              9.9%
Operating income                                 $   115.1          $   117.0         $   134.0         $   150.0
Operating margin                                       5.1%               5.2%              5.5%              5.5%
Net income                                       $    77.5          $    78.4         $    90.9         $   103.5
Basic net income
  per share(1)                                   $    0.15          $    0.15         $    0.16         $    0.18
Diluted net income
  per share(1)                                   $    0.14          $    0.14         $    0.16         $    0.17
</TABLE>

(1)     Adjusted to reflect two-for-one stock splits through March 8, 2000.


                                       37
<PAGE>   38

                     SOLECTRON CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                      (In millions, except per share data)

<TABLE>
<CAPTION>
                                                            AS OF AUGUST 31,
                                                      ---------------------------
                                                        2000              1999
                                                      ---------         ---------
<S>                                                   <C>               <C>
ASSETS
Current assets:
    Cash and cash equivalents                         $ 1,475.5         $ 1,428.1
    Short-term investments                                958.6             453.6
    Accounts receivable, less allowances of
      $8.6 and $6.4, respectively                       2,146.3           1,282.5
    Inventories                                         3,787.3           1,197.0
    Prepaid expenses and other current assets             260.5             121.2
                                                      ---------         ---------
         Total current assets                           8,628.2           4,482.4
Net property and equipment                              1,080.4             723.8
Other assets                                              667.0             214.3
                                                      ---------         ---------
         Total assets                                 $10,375.6         $ 5,420.5
                                                      =========         =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Short-term debt                                   $    69.2         $    46.9
    Accounts payable                                    2,694.1           1,050.4
    Accrued employee compensation                         179.8             103.7
    Accrued expenses                                      262.5              46.6
    Other current liabilities                              11.2              72.1
                                                      ---------         ---------
          Total current liabilities                     3,216.8           1,319.7
Long-term debt                                          3,319.5             922.7
Other long-term liabilities                                37.2              11.2
                                                      ---------         ---------
    Total liabilities                                   6,573.5           2,253.6
                                                      ---------         ---------

Stockholders' equity:
    Preferred stock, $.001 par value; 1.2
      shares authorized; no shares issued                    --                --
    Common stock, $.001 par value; 800.0
      shares authorized; 605.0 and 594.1
      shares issued and outstanding,
      respectively, adjusted for stock split                0.6               0.6
    Additional paid-in capital                          2,259.1           2,081.4
    Retained earnings                                   1,656.8           1,172.8
    Accumulated other comprehensive losses               (114.4)            (87.9)
                                                      ---------         ---------
         Total stockholders' equity                     3,802.1           3,166.9
                                                      ---------         ---------
    Total liabilities and stockholders' equity        $10,375.6         $ 5,420.5
                                                      =========         =========
</TABLE>

See accompanying notes to consolidated financial statements.


                                       38
<PAGE>   39

                     SOLECTRON CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                      (In millions, except per share data)

<TABLE>
<CAPTION>
                                                      YEARS ENDED AUGUST 31,
                                           --------------------------------------------
                                              2000             1999             1998
                                           ----------       ----------       ----------
<S>                                        <C>              <C>              <C>
Net sales                                  $ 14,137.5       $  9,669.2       $  6,102.2
Cost of sales                                12,862.2          8,732.9          5,435.6
                                           ----------       ----------       ----------
Gross profit                                  1,275.3            936.3            666.6
Operating expenses:
  Selling, general and administrative           472.4            379.7            268.1
  Research and development                       60.8             40.5             29.9
  Acquisition and restructuring costs            37.9               --               --
                                           ----------       ----------       ----------
Operating income                                704.2            516.1            368.6
Interest income                                 106.9             36.7             32.3
Interest expense                                (71.6)           (38.3)           (25.4)
                                           ----------       ----------       ----------
Income before income taxes and                  739.5            514.5            375.5
cumulative effect of change in
accounting principle
Income taxes                                    238.8            164.2            124.2
                                           ----------       ----------       ----------
Income before cumulative effect of              500.7            350.3            251.3
change in accounting principle
Cumulative effect of change in                   (3.5)              --               --
 accounting principle
                                           ----------       ----------       ----------
Net income                                 $    497.2       $    350.3       $    251.3
                                           ==========       ==========       ==========
Basic net income per share:
  Income before cumulative effect of
    change in accounting principle         $     0.84       $     0.65       $     0.49
  Cumulative effect of change in
    accounting principle                        (0.01)              --               --
                                           ----------       ----------       ----------
      Net income per share                 $     0.83       $     0.65       $     0.49
                                           ==========       ==========       ==========
Diluted net income per share:
  Income before cumulative effect of
    change in accounting principle         $     0.80       $     0.61       $     0.47
  Cumulative effect of change in
    accounting principle                           --               --               --
                                           ----------       ----------       ----------
      Net income per share                 $     0.80       $     0.61       $     0.47
                                           ==========       ==========       ==========
Weighted average number of shares:
  Basic                                         599.4            542.6            510.1
  Diluted                                       623.5            579.0            556.6
</TABLE>


See accompanying notes to consolidated financial statements.


                                       39
<PAGE>   40


                     SOLECTRON CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                  (In millions)

<TABLE>
<CAPTION>
                                                                                                       ACCUMULATED
                                                     COMMON STOCK          ADDITIONAL                     OTHER            TOTAL
                                                ----------------------      PAID-IN       RETAINED    COMPREHENSIVE    STOCKHOLDERS'
                                                 SHARES        AMOUNT       CAPITAL       EARNINGS    INCOME (LOSSES)     EQUITY
                                                --------      --------     ----------     --------    ---------------  -------------
<S>                                             <C>           <C>          <C>            <C>         <C>              <C>
Balances as of August 31, 1997                     503.1      $    0.5      $  586.3      $  574.0       $  (10.6)       $1,150.2
Net income                                                                                   251.3                          251.3
Foreign currency translation                                                                                  2.4             2.4
Stock issued under stock option and
   employee purchase plans                          15.4           0.1          54.2                                         54.3
Issuance of common stock, net                        1.9                        15.7                                         15.7
Repayment of shareholder note receivable             0.1                         0.1                                          0.1
Cash dividends                                                                                (0.9)                          (0.9)
Repurchase of common stock                          (0.6)                       (9.2)                                        (9.2)
Tax benefit associated with exercise of
   stock options                                                                11.5                                         11.5
                                                --------      --------      --------      --------       --------        --------
Balances as of August 31, 1998                     519.9           0.6         658.6         824.4           (8.2)        1,475.4
Net income                                                                                   350.3                          350.3
Foreign currency translation                                                                                (78.6)          (78.6)
Unrealized loss on investments                                                                               (1.1)           (1.1)
Stock issued under stock option and
   employee purchase plans                          12.7                        81.5                                         81.5
Conversion of long-term debt, net                   27.2                       225.3                                        225.3
Issuance of common stock, net of
   issuance costs of $32.5                          34.2                     1,069.9                                      1,069.9
Stock issued in business combinations                0.5                        17.8                                         17.8
Cash dividends                                                                                (1.9)                          (1.9)
Repurchase of common stock                          (0.4)                       (7.1)                                        (7.1)
Tax benefit associated with exercise of
   stock options                                                                35.4                                         35.4
                                                --------      --------      --------      --------       --------        --------
Balances as of August 31, 1999                     594.1           0.6       2,081.4       1,172.8          (87.9)        3,166.9
Net income                                                                                   497.2                          497.2
Adjustment to conform fiscal year ends of
   pooled acquisitions                                                                       (11.8)                         (11.8)
Foreign currency translation                                                                                (32.8)          (32.8)
Unrealized gain on investments                                                                                6.3             6.3
Stock issued under stock option and
   employee purchase plans                          10.3                       109.0                                        109.0
Stock issued in business combinations                0.2                         6.4                                          6.4
Cancellation of shares                                                          (9.0)                                        (9.0)
Issuance of common stock                              .4                        11.2                                         11.2
Cash dividends                                                                                (1.4)                          (1.4)
Tax benefit associated with exercise of
   stock options                                                                60.1                                         60.1
                                                --------      --------      --------      --------       --------        --------
Balances as of August 31, 2000                     605.0      $    0.6      $2,259.1      $1,656.8       $ (114.4)       $3,802.1
                                                ========      ========      ========      ========       ========        ========
</TABLE>

See accompanying notes to consolidated financial statements.



                                       40
<PAGE>   41

                     SOLECTRON CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                  (In millions)

<TABLE>
<CAPTION>
                                                              YEARS ENDED AUGUST 31,
                                                     ---------------------------------------
                                                      2000            1999            1998
                                                     -------         -------         -------
<S>                                                  <C>             <C>             <C>
Net income                                           $ 497.2         $ 350.3         $ 251.3
Other comprehensive income (loss):
Foreign currency translation adjustments,
  net of income tax benefit of $15.9 in
  2000 and $0.4 in 1999                                (32.8)          (78.6)            2.4
Unrealized gain (loss) on investments, net of
  income tax expense of $3.8 in 2000 and
  income tax benefit of $0.6 in 1999                     6.3            (1.1)             --
                                                     -------         -------         -------

Comprehensive income                                 $ 470.7         $ 270.6         $ 253.7
                                                     =======         =======         =======
</TABLE>

-----------

Accumulated foreign currency translation losses were $119.6 million at August
31, 2000, $86.8 million at August 31, 1999, and $8.2 million at August 31, 1998.
For fiscal year 2000, the foreign currency translation loss primarily resulted
from unrealized losses on dollar-denominated debt held by the Company's
Brazilian subsidiary. Most of Solectron's remaining foreign currency translation
adjustment amounts relate to investments which are permanent in nature. To the
extent that such amounts relate to investments which are permanent in nature, no
adjustment for income taxes is made. Accumulated unrealized gain (loss) on
investments was $5.2 million at August 31, 2000 and ($1.1) million at August 31,
1999.



See accompanying notes to consolidated financial statements.


                                       41
<PAGE>   42


                     SOLECTRON CORPORATION AND SUBSIDIARIES
               SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (In millions)

<TABLE>
<CAPTION>
                                                                 YEARS ENDED AUGUST 31,
                                                       ------------------------------------------
                                                         2000             1999             1998
                                                       --------         --------         --------
<S>                                                    <C>              <C>              <C>
Cash flows from operating Activities:
  Net income                                           $  497.2         $  350.3         $  251.3
  Adjustments to reconcile net
   income to net cash provided by
   (used in) operating activities:
    Depreciation and amortization                         251.4            200.4            134.6
    Non-cash interest expense                              52.5             18.5               --
    Tax benefit associated with the
       exercise of stock options                           60.1             35.4             11.5
    Adjustment to conform fiscal year ends
       of pooled acquisitions                             (11.8)              --               --
    Cumulative effect of change in accounting
       principle for start-up costs                         3.5               --               --
    Gain on disposal of fixed assets                       (8.7)            (4.6)            (2.3)
    Other                                                  20.9              5.5             (0.6)
    Changes in operating assets
     and liabilities:
      Accounts receivable                                (934.1)          (505.2)          (271.2)
      Inventories                                      (2,096.0)          (329.7)          (165.2)
      Prepaid expenses and other
         current assets                                  (102.9)            16.2            (38.7)
      Accounts payable                                  1,710.7            294.8            248.8
      Accrued expenses and other
        current liabilities                               214.5             15.0             44.1
                                                       --------         --------         --------
Net cash (used in) provided by
  Operating activities                                   (342.7)            96.6            212.3
                                                       --------         --------         --------
Cash flows from investing activities:
  Purchases and sales of short-term investments           982.0           (598.0)          (244.9)
  Purchases and sales and maturities of
     short-term investments                            (1,498.6)           327.8            358.1
  Acquisition of manufacturing
     locations and assets                              (1,097.9)          (164.2)          (204.0)
  Capital expenditures                                   (506.0)          (449.4)          (279.1)
  Proceeds from sales of fixed
    assets                                                 88.9             41.7             60.4
  Other                                                   (35.1)           (32.0)           (15.6)
                                                       --------         --------         --------
Net cash used in investing activities                  (2,066.7)          (874.1)          (325.1)
                                                       --------         --------         --------
</TABLE>


(continued)



                                       42
<PAGE>   43

                     SOLECTRON CORPORATION AND SUBSIDIARIES
         SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
                                  (In millions)

<TABLE>
<CAPTION>
                                                               YEARS ENDED AUGUST 31,
                                                    ------------------------------------------
                                                      2000             1999             1998
                                                    --------         --------         --------
<S>                                                 <C>              <C>              <C>
Cash flows from financing activities:
  Net proceeds from bank lines of credit                16.9             22.1             22.8
  Proceeds from issuance of
   long-term debt                                    2,296.3            729.4             (0.9)
  Repayment of long-term debt                           (0.8)              --               --
  Repurchase of common stock                              --             (7.1)            (9.2)
  Proceeds from exercise of stock
   options                                             121.9             81.5             54.3
  Net proceeds from issuance of
   common stock                                         11.2          1,069.9             15.7
  Dividends paid                                        (1.4)            (1.4)            (0.4)
  Other                                                 29.9             (0.4)            (2.2)
Net cash provided by financing
                                                    --------         --------         --------
  activities                                         2,474.0          1,894.0             80.1
                                                    --------         --------         --------
Effect of exchange rate changes on
  cash and cash equivalents                             (6.5)             5.2              1.7
                                                    --------         --------         --------
Net increase (decrease) in cash
  and cash equivalents                                  58.1          1,121.7            (31.0)
Cash and cash equivalents at
  beginning of year (1)                              1,417.4            306.4            337.4
                                                    --------         --------         --------
Cash and cash equivalents at
  end of year                                       $1,475.5         $1,428.1         $  306.4
                                                    ========         ========         ========
Cash paid:
  Interest                                          $   17.6         $   27.7         $   25.7
  Income taxes                                      $  135.7         $  114.5         $   93.7
Non cash investing and financing activities:
  Issuance of common stock upon
   conversion of long-term debt, net                $     --         $  225.4         $     --
  Issuance of common stock for
   business combination, net
   of cash acquired                                 $    6.4         $   14.7         $     --

</TABLE>


(1)     Adjusted fiscal 2000 beginning cash and cash equivalent balance to
        conform fiscal year ends of pooled acquisitions.


                                       43
<PAGE>   44

                     SOLECTRON CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation: The accompanying consolidated financial statements
include the accounts of Solectron and its subsidiaries after elimination of
intercompany accounts and transactions.

On November 30, 1999, Solectron completed its acquisition of SMART. Under the
terms of the agreement, each share of SMART common stock was exchanged for 0.51
of a share of Solectron common stock. Solectron issued approximately 47.6
million shares of Solectron common stock for the outstanding common stock of
SMART and assumed all stock options held by SMART employees. The acquisition was
accounted for as a pooling of interests. Accordingly, the Company's historical
financial statements have been restated retroactively to include the financial
results of SMART. SMART's fiscal years ended October 31, 1999 and 1998 have been
combined with Solectron's results of operations for the years ended August 31,
1999 and 1998, respectively. In addition, SMART's balance sheet as of October
31, 1999 has been combined with Solectron's balance sheet as of August 31, 1999.
Since the results of operations for the two month period ended October 31, 1999
for SMART have been included in fiscal 1999 and fiscal 2000 consolidated
statements of income, such results have been adjusted for in retained earnings.
SMART changed its fiscal year end to coincide with Solectron's beginning in
fiscal 2000.

On April 28, 2000, Solectron completed its acquisition of AMERICOM, a privately
held corporation. Solectron issued approximately 1.8 million shares of its
common stock in exchange for all outstanding common stock of AMERICOM and to
extinguish obligations under the stock appreciation rights plan of AMERICOM. On
July 14, 2000, Solectron completed the acquisition of Bluegum, an electronics
contract manufacturer in Australia. Solectron issued approximately 2.3 million
shares of its common stock in exchange for all outstanding common shares and
stock options of Bluegum. Both transactions were accounted for as a pooling of
interests. Accordingly, Solectron's historical financial statements have been
restated retroactively to include the financial results of AMERICOM and Bluegum.
Both AMERICOM and Bluegum had fiscal years different than Solectron's.
AMERICOM's fiscal year was from January 1 to December 31 and Bluegum's was from
July 1 to June 30. AMERICOM's results of operations for the years ended December
31, 1999, and 1998 together with Bluegum's results of operations for the years
ended June 30, 1999 and 1998 have been combined with Solectron's results of
operations for the years ended August 31, 1999, and 1998, respectively.
AMERICOM's balance sheets as of December 31, 1999 together with Bluegum's
balance sheets as of June 30, 1999 have been combined with Solectron's balance
sheets as of August 31, 1999, respectively. Both AMERICOM and Bluegum changed
their fiscal year ends to coincide with Solectron's beginning in fiscal 2000.
Retained earnings and additional paid-in capital have been adjusted to conform
their year ends with Solectron's.

Restated financial information includes certain adjustments for the elimination
of net sales and cost of sales related to shipments by Solectron to Bluegum,
shipments by SMART to Solectron, as well as for certain reclassifications made
to SMART's, AMERICOM's and Bluegum's financial statements to conform with
Solectron's financial statement presentation. There were no adjustments
necessary to conform the accounting policies of the combining companies.


                                       44
<PAGE>   45

The results of operations previously reported by the separate enterprises and
the combined amounts presented in the accompanying consolidated financial
statements are summarized below:

<TABLE>
<CAPTION>
                                        YEARS ENDED AUGUST 31,
                           ---------------------------------------------
                              2000              1999              1998
                           ---------         ---------         ---------
                                           (IN MILLIONS)
<S>                        <C>               <C>               <C>
Net sales
  Solectron                $13,786.5         $ 8,391.4         $ 5,288.3
  SMART *                      280.4             995.9             714.6
  AMERICOM *                    53.5              63.7              36.7
  Bluegum *                    156.1             247.2              87.2
  Eliminations                (139.0)            (29.0)            (24.6)
                           ---------         ---------         ---------
                           $14,137.5         $ 9,669.2         $ 6,102.2
                           =========         =========         =========

Net income
  Solectron                $   497.0         $   294.0         $   198.8
  SMART *                       12.2              53.5              51.5
  AMERICOM *                    (2.8)              2.8               1.8
  Bluegum *                     (8.4)               --              (0.5)
  Eliminations                  (0.8)               --              (0.3)
                           ---------         ---------         ---------
                           $   497.2         $   350.3         $   251.3
                           =========         =========         =========
</TABLE>


*   Represents the net sales and net income for each of the separate companies
    prior to the consummation of the acquisitions. The acquisitions were
    consummated as follows: SMART on November 30, 1999, AMERICOM on April 28,
    2000 and Bluegum on July 14, 2000. Results subsequent to the acquisition
    were included with Solectron.

No adjustments were necessary to conform accounting policies of the combined
entities.

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

Cash Equivalents and Short-Term Investments: Cash equivalents are highly liquid
investments purchased with an original maturity of less than three months.
Short-term investments are investment grade short-term debt instruments with
original maturities greater than three months.

Investments in debt securities are classified as available-for-sale securities.
Such investments are recorded at fair value as determined from quoted market
prices, and the cost of securities sold is determined based on the specific
identification method. If material, unrealized gains or losses are reported as a
component of comprehensive income or loss, net of related tax effect.

Inventories: Inventories are stated at the lower of weighted average cost or
market.

Property and Equipment: Property and equipment are recorded at cost.
Depreciation and amortization are computed based on the shorter of the estimated
useful lives or the related lease terms, using the straight-line method.
Estimated useful lives are presented below.


                                       45
<PAGE>   46


<TABLE>
<CAPTION>
<S>                                      <C>
Machinery and equipment                  2 - 5 years
Furniture and fixtures                   3 - 5 years
Leasehold improvements                   Lease term
Buildings*                               15-20 years
</TABLE>

*   Useful lives for buildings in China, Australia, and both Scotland and Mexico
    are 30 years, 40 years and 50 years, respectively.

Other Assets: Other assets consist of intangible assets, including intellectual
property rights, goodwill and debt issuance costs. Intangible assets are
amortized using the straight-line method, over the expected life of the asset -
ten years for intellectual property rights and goodwill. Debt issuance costs
related to the zero-coupon convertible senior notes which are amortized using
the effective interest method over seven years. Debt issuance costs related to
the 7 3/8% senior notes are amortized using the straight-line method, which does
not differ materially from the effective interest method, over the debt term of
ten years.

Impairment of Long-Lived Assets: Solectron reviews property and equipment for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. An asset is considered
impaired if its carrying amount (including the unamortized portion of goodwill
allocated to the asset) exceeds the future net cash flow the asset is expected
to generate. If such asset is considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the asset,
including the allocated goodwill, if any, exceeds its fair market value.
Solectron assesses the recoverability of enterprise-level goodwill by
determining whether the unamortized goodwill balance can be recovered through
undiscounted future net cash flows of the acquired operation. The amount of
enterprise-level goodwill impairment, if any, is measured based on projected
discounted future net cash flows using a discount rate reflecting the Company's
average cost of funds.

Income Taxes: Solectron uses the asset and liability method of accounting for
income taxes. Deferred tax assets and liabilities are recognized for the future
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. When necessary, a valuation allowance is recorded to reduce tax assets to
an amount for which realization is more likely than not. The effect of changes
in tax rates is recognized in the period in which the rate change occurs.

Net Income Per Share: Basic net income per share is calculated using the
weighted-average number of common shares outstanding during the period. Diluted
net income per share is calculated using the weighted-average number of common
shares plus dilutive potential common shares outstanding during the period.
Potential common shares consist of stock options that are computed using the
treasury stock method and shares issuable upon conversion of Solectron's
outstanding convertible notes computed using the as-if-converted method. Share
and per-share data presented reflect the two-for-one stock splits effective
through March 8, 2000.

Revenue Recognition: Solectron recognizes revenue upon shipment of product to
its customers.

Employee Stock Plans: Solectron accounts for its stock option plans and its
Employee Stock Purchase Plan using the intrinsic value method.

Foreign Currency: For foreign subsidiaries using the local currency as their
functional currency, assets and liabilities are translated at exchange rates in
effect at the balance sheet date and income and expenses are translated at
average exchange rates. The effects of these translation adjustments are
reported in other comprehensive income. Exchange gains and losses arising from
transactions denominated in a currency other than the functional currency of the
entity involved and remeasurement adjustments for foreign operations where the
U.S. dollar is the functional currency are included in income. To date, the
effect of such amounts on net income has not been material.


                                       46
<PAGE>   47

Derivatives: Gains and losses on foreign currency forward exchange contracts
designated as hedges of assets and liabilities are included in income
concurrently with the offsetting losses and gains on the related balance sheet
items. Gains and losses on hedges of firm commitments are deferred and included
in the basis of the transaction when it occurs.

Year End: Solectron's financial reporting year ends on the last Friday in
August. Fiscal years 2000, 1999 and 1998 each contained 52 weeks. For purposes
of presentation in the accompanying financial statements and notes, Solectron
has indicated its accounting years as ending on August 31.

Solectron's subsidiaries, Solectron Texas, Inc. (Texas) and Solectron Brasil,
Ltda. (Brazil), report their results one month in arrears. Solectron's
consolidated financial position as of August 31, 2000, 1999 and 1998, include
the financial position of the Texas and Brazil operations as of July 31, 2000,
1999 and 1998. Similarly, Solectron's consolidated results of operations and
cash flows for the years ended August 31, 2000, 1999 and 1998, include the
results of operations and cash flows of the Texas and Brazil operations for the
twelve-month periods ended July 31, 2000, 1999 and 1998.

In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." As amended
by SFAS No. 137 and 138, SFAS No. 133 establishes methods of accounting for
derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities. Solectron anticipates that the
adoption of SFAS No. 133 will not have a material impact on its financial
position, results of operations or cash flows. Solectron will adopt SFAS No. 133
in its first fiscal quarter of 2001.

In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," which provides guidance related to revenue recognition based on
interpretations and practices followed by the SEC and was effective the first
fiscal quarter of fiscal years beginning after December 15, 1999 and requires
companies to report any changes in revenue recognition as a cumulative change in
accounting principle at the time of implementation in accordance with Accounting
Principles Board opinion 20, "Accounting Changes." Subsequently, SAB No.101A and
101B were issued to delay the implementation of SAB No. 101. It will be
effective for Solectron in the Company's fourth quarter of fiscal 2001.
Solectron is currently evaluating the impact, if any, SAB No. 101 will have on
its financial position or results of operations.

In March 2000, the Financial Accounting Standards Board issued Interpretation
No. 44, Accounting for Certain Transactions involving Stock Compensation, an
interpretation of Accounting Principles Board (APB) Opinion No. 25, Stock Issued
to Employees. Interpretation No. 44 clarifies the application of APB No. 25 for
the definition of an employee for purposes of applying APB No. 25, the criteria
for determining whether a plan qualifies as a noncompensatory plan, the
accounting consequence of various modifications to the terms of a previously
fixed stock option or award and the accounting for an exchange of stock
compensation awards in a business combination. The interpretation was adopted by
Solectron effective July 1, 2000, but certain conclusions cover specific events
that occur after either December 15, 1998 or January 12, 2000. This
interpretation did not have a material impact on the Company's consolidated
financial statements.

Solectron adopted the American Institute of Certified Public Accountants'
Statement of Position No. 98-5, Reporting on the Costs of Start-up Activities,
on September 1, 1999. This statement required that costs of start-up activities
and organizational costs be expensed as incurred. The cumulative effect of this
accounting change on years prior to fiscal 2000 was a charge of $3.5 million
(net of $1.6 million income tax effect), or $.01 per common share, that was
reflected in the first quarter of fiscal 2000. Pro forma information is not
presented as the change did not have a material impact on any individual year
prior to fiscal 2000.


                                       47
<PAGE>   48

NOTE 2. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

Cash, cash equivalents and short-term investments as of August 31, 2000, and
1999, consisted of the following:

<TABLE>
<CAPTION>
                                   CASH AND
                                     CASH       SHORT-TERM
                                  EQUIVALENTS   INVESTMENTS
                                  -----------   -----------
                                        (IN MILLIONS)
<S>                               <C>           <C>
2000
--------
Cash                              $  439.6        $     --
Money market funds                   428.0              --
Certificates of deposit               19.7            60.4
Market auction securities               --            15.5
U.S. government securities            26.3           158.7
Corporate obligations                485.0           697.9
Other                                 76.9            26.1
                                  --------        --------
   Total                          $1,475.5        $  958.6
                                  ========        ========


1999
--------
Cash                              $  229.6        $     --
Money market funds                   119.7             0.7
Certificates of deposit               55.1            38.8
Market auction securities             33.5            39.1
U.S. government securities           603.9           274.4
Corporate obligations                313.9           100.6
Other                                 72.4              --
                                  --------        --------
   Total                          $1,428.1        $  453.6
                                  ========        ========
</TABLE>



Short-term investments are carried at fair market value, which approximates
cost. Realized and unrealized gains and losses for the fiscal years ended August
31, 2000 and 1999 were not material. As of August 31, 2000, approximately 92% of
Solectron's cash and cash equivalents and short-term investments mature in one
year or less, with the remainder maturing in less than two years.

NOTE 3. INVENTORIES

Inventories as of August 31, 2000 and 1999, consisted of:

<TABLE>
<CAPTION>
                         2000            1999
                       --------        --------
                             (IN MILLIONS)
<S>                    <C>             <C>
Raw materials          $3,043.0        $  862.9
Work-in-process           558.9           237.6
Finished goods            185.4            96.5
                       --------        --------
   Total               $3,787.3        $1,197.0
                       ========        ========
</TABLE>



NOTE 4. PROPERTY AND EQUIPMENT

Property and equipment as of August 31, 2000 and 1999, consisted of:


                                       48
<PAGE>   49

<TABLE>
<CAPTION>
                                         2000            1999
                                       --------        --------
                                             (IN MILLIONS)
<S>                                    <C>             <C>
Land                                   $   40.3        $   24.8
Buildings and improvements                243.0           142.8
Leasehold improvements                    102.2            61.8
Factory equipment                       1,033.4           749.9
Computer equipment and software           195.5           168.9
Furniture, fixtures and other             109.6            48.9
Construction-in-process                   125.8            94.0
                                       --------        --------
                                        1,849.8         1,291.1
Less accumulated depreciation
  and amortization                        769.4           567.3
                                       --------        --------
Net property and equipment             $1,080.4        $  723.8
                                       ========        ========
</TABLE>



NOTE 5. LINES OF CREDIT

Solectron has available a $100 million unsecured multicurrency revolving line of
credit that expires April 30, 2002. Borrowings under the credit facility bear
interest, at Solectron's option, at either the bank's prime rate, the London
interbank offering rate (LIBOR) plus a margin, or the bank's certificate of
deposit (CD) rate plus a margin. The margin under the LIBOR or CD rate options
will vary depending on Solectron's Standard & Poor's Corporation and/or Moody's
Investor Services, Inc. rating for its long-term senior unsecured debt. This
margin was 0.4% at August 31, 2000. Under the credit agreement, the Company must
meet certain financial covenants. As of August 31, 2000 and 1999, there were no
borrowings outstanding under this line of credit.

As of August 31, 2000 Solectron also had approximately $91 million and $174
million, respectively, in committed and uncommitted foreign lines of credit and
other bank facilities. Borrowings were payable on demand. The interest rates
ranged from the bank's prime lending rate to the bank's prime rate plus 2.0%. As
of August 31, 2000, borrowings and guaranteed amounts under committed and
uncommitted foreign lines of credit were $38 million and $58 million,
respectively. The weighted-average interest rate was 5.4% for committed and 5.9%
for uncommitted foreign lines of credit. Under these lines of credit agreements,
the Company must meet certain financial covenants. As of August 31, 2000,
Solectron was in compliance with all of its line of credit financial covenants.


                                       49
<PAGE>   50

NOTE 6. LONG-TERM DEBT

Long-term debt at August 31, 2000 and 1999, consisted of (in millions):

<TABLE>
<CAPTION>
                                                  2000            1999
                                                --------        --------
                                                     (IN MILLIONS)
<S>                                             <C>             <C>
Zero coupon convertible senior notes
  Due 2020, face value $4,025.0,
  Fair value of $2,648.9 in 2000                $2,350.5        $     --
Zero coupon convertible senior notes
  Due 2019, face value $1,656.0,
  Fair value of $1,195.8 in 2000
  and $1,029.9 in 1999                             798.5           767.6
7 3/8% senior notes due 2006, face value
  $150.0, fair value of $146.9 in 2000
  and $143.8 in 1999                               149.8           149.8
Other, fair value of $20.7 in 2000 and
  $5.3 in 1999                                      20.7             5.3

                                                --------        --------
 Total long-term debt                           $3,319.5        $  922.7
                                                ========        ========
</TABLE>



In May 2000, Solectron issued 4,025,000 zero-coupon convertible senior notes at
an issue price of $579.12 per note, which resulted in gross proceeds to
Solectron of approximately $2.3 billion under an effective registration
statement filed with the Securities and Exchange Commission. These notes are
unsecured and unsubordinated indebtedness of Solectron with a maturity value
aggregating $4.025 billion. There will be no interest payment by Solectron prior
to maturity. Each note has a yield of 2.75% with a maturity value of $1,000 on
May 8, 2020. Solectron is amortizing the issue discount using the effective
interest method over the term of the notes. Each note is convertible at any time
by the holder at a conversion rate of 12.3309 shares per note. Holders may
require Solectron to purchase all or a portion of their notes on May 8, 2003 and
May 8, 2010, at a price of $628.57 and $761.00 per note, respectively. Also,
each holder may require Solectron to repurchase all or a portion of such
holder's notes upon a change in control of the Company occurring on or before
May 8, 2003. Solectron, at its option, may redeem all or a portion of the notes
at any time on or after May 8, 2003.

In January 1999, Solectron issued 1,656,000 zero coupon convertible senior notes
to qualified institutional investors in a private placement at an issue price of
$452.89 per note which resulted in gross proceeds of approximately $750 million.
These notes are unsecured and unsubordinated indebtedness with a maturity value
aggregating $1.656 billion. There will be no interest payment prior to maturity.
Each note has a yield of 4% with a maturity value of $1,000 on January 27, 2019.
Solectron is amortizing the issue discount using the effective interest method
over the term of the notes. Each note is convertible at any time by the holder
at a conversion rate of 14.944 shares per note, adjusted for the two-for-one
stock splits effective through March 8, 2000. Holders may require Solectron to
purchase all or a portion of their notes on January 27, 2002, and January 27,
2009, at a price of $510.03 and $672.97 per note, respectively. Also, each
holder may require Solectron to repurchase all or a portion of such holder's
notes upon a change in control of Solectron occurring on or before January 27,
2002. Solectron, at its option, may redeem all or a portion of the notes at any
time on or after January 27, 2003. In addition, Solectron filed with the
Securities Exchange Commission a registration statement for resales of the notes
and the common stock issuable upon conversion. Such registration statement was
declared effective in June 1999.


                                       50
<PAGE>   51

In March 1996, Solectron issued $150 million aggregate principal amount of
senior notes. These notes are in denominations of and have a maturity value of
$1,000 each and are due on March 1, 2006. Interest is payable semiannually at a
rate of 7-3/8% per annum. The notes may not be redeemed prior to maturity.

NOTE 7. FINANCIAL INSTRUMENTS

Fair Value of Financial Instruments

The fair value of Solectron's cash, cash equivalents, accounts receivable and
accounts payable approximates the carrying amount due to the relatively short
maturity of these items. The fair value of Solectron's short-term investments
(see Note 2) is determined based on quoted market prices. The fair value of
Solectron's long-term debt (see Note 6) is determined based on broker trading
prices.

Derivatives

Solectron enters into forward exchange contracts to hedge foreign currency
exposures on a continuing basis for periods consistent with its committed
exposures. These transactions generally do not expose Solectron to risk of
accounting loss because gains and losses on these contracts offset losses and
gains on the assets, liabilities and transactions being hedged. The
counterparties to these contracts expose Solectron to credit related losses in
the event of nonperformance. However, the counterparties to these contracts are
substantial and creditworthy multinational commercial banks. The risk of
counterparty nonperformance associated with these contracts is remote. Since
these contracts generally have maturities of less than three months, the amounts
of unrealized gains and losses are immaterial. Foreign currency forward exchange
contracts outstanding totaled $187.3 million at the end of fiscal year 2000 and
$66.0 million at the end of fiscal year 1999. These contracts were originated by
Solectron's international subsidiaries primarily for the purchase and sale of
European currencies, U.S. dollar, Malaysian ringgit and Japanese yen to mitigate
foreign currency exposures.

Business and Credit Concentrations

Financial instruments that potentially subject Solectron to concentrations of
credit risk consist of cash, cash equivalents, short-term investments and trade
accounts receivable. Solectron's cash, cash equivalents and short-term
investments are managed by recognized financial institutions which follow the
Company's investment policy. Such investment policy limits the amount of credit
exposure in any one issue and the maturity date of the investment securities
that typically comprise investment grade short-term debt instruments.
Concentrations of credit risk in accounts receivable resulting from sales to
major customers are discussed in Note 13. Solectron generally does not require
collateral for sales on credit. The Company also closely monitors extensions of
credit and has not experienced significant credit losses in the past.

NOTE 8. COMMITMENTS AND CONTINGENCIES

Solectron leases various facilities under operating lease agreements. The
facility leases outstanding as of August 31, 2000 expire at various dates
through 2004. All such leases require Solectron to pay property taxes, insurance
and normal maintenance costs. Payments of some leases are periodically adjusted
based on LIBOR rates. Certain leases for Solectron's facilities, including
Fremont, Milpitas and San Jose, California; Everett, Washington; Suwanee,
Georgia; and Columbia, South Carolina, provide Solectron with an option at the
end of the lease term of either acquiring the property at its original cost or
arranging for the property to be acquired. For these leases, Solectron is
contingently liable under a first loss clause for a decline in market value of
such leased facilities up to 85% of the original costs, or approximately $178.5
million in total as of August 31, 2000, in the event Solectron does not purchase
the properties or reach an agreement with the lessor to extend the lease at the
end of the respective lease terms. Under such agreements, the Company must also
maintain compliance with financial covenants similar to


                                       51
<PAGE>   52

its credit facilities. As of August 31, 2000, Solectron was in compliance with
all of its lease facility financial covenants.

In addition, Solectron periodically enters into lease arrangements with
third-party leasing companies under which it sells fixed assets and leases them
back from the leasing companies. Solectron is accounting for these leases as
operating leases.

Future minimum payments related to lease obligations, including the $178.5
million contingent liability discussed above, are $126.7 million, $209.7
million, $213.7 million $133.1 million and $19.5 million in each of the years in
the five-year period ending August 31, 2005, and $1.9 million for periods after
that date. Rent expense was $98.9 million, $89.3 million and $35.9 million for
the years ended August 31, 2000, 1999 and 1998, respectively.

SMART, a wholly owned subsidiary of Solectron Corporation, and certain of
SMART's ex-officers and ex-directors have been named as defendants in six
securities class action lawsuits filed in the United States District Court for
the Northern District of California. The plaintiffs in the Federal Actions
allege that defendants made material misrepresentations and omissions during the
period from July 1, 1997 through May 21, 1998 in violation of Section 10(b) of
the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The
Federal Actions were consolidated on October 9, 1998, and a consolidated
complaint was filed on November 30, 1998 (the "Federal Complaint"). On November
2, 1999, defendants filed a motion to dismiss the Federal Complaint, and on
September 13, 2000 the U.S. District Court entered an Order granting defendants'
motion to dismiss the Federal Complaint and directing the plaintiffs to show
cause, if any, why they should be permitted another opportunity to amend the
Federal Complaint to try to cure its deficiencies. Rather than respond to the
order to show cause, the plaintiffs have requested that the District Court
dismiss the Federal Complaint "without prejudice". Defendants have requested
that the Federal Complaint be dismissed "with prejudice" and will contend that
such a dismissal is also dispositive of the State Complaint discussed below.

On October 22, 1998, a putative securities class action lawsuit, captioned
Reagan v. SMART Modular Technologies, Inc., et al., Case No. H204162-5 (the
"State Complaint") was filed against SMART and certain of ex-officers and
ex-directors in the Superior Court of the State of California, County of
Alameda. The State Complaint alleges violations of Sections 25400 and 25500 of
the California Corporations Code and seeks unspecified damages on behalf of a
purported class of purchasers of SMART common stock during the period from July
1, 1997 through May 21, 1998. The factual allegations of the State Complaint are
nearly identical to the factual allegations contained within the Federal
Complaint. On February 22, 1999, the Superior Court granted SMART's motion to
stay the state action pending resolution of the federal action. In light of the
anticipated final dismissal of the Federal Complaint, as discussed above,
defendants anticipate that the plaintiffs will seek to have the stay of the
state action lifted and to litigate their claims in State court. As noted above,
defendants expect to request dismissal of the State Complaint on the basis of
the dismissal of the nearly identical allegations of the Federal Complaint.

While the Company believes that all claims related to the state and federal
securities actions are without merit and intends to continue to defend itself
vigorously against these actions, it is still possible that an unfavorable
outcome may result. The Company is unable to estimate the financial impact, if
any, of these cases. Accordingly, no amounts have been accrued in the
accompanying consolidated financial statements.

NOTE 9. RETIREMENT PLANS

Solectron has various retirement plans that cover a significant number of its
eligible worldwide employees. The Company sponsors a 401(k) Plan to provide
retirement benefits for its United States employees. This Plan provides for
tax-deferred salary deductions for eligible employees. Employees may contribute
between 1% to 15% of their annual compensation to this Plan, limited by an
annual maximum amount as determined by the Internal Revenue Service. The Company
also makes discretionary matching contributions,


                                       52
<PAGE>   53

which vest immediately, as periodically determined by its Board of Directors.
The Company's matching contributions to this Plan totaled $10.7 million, $8.3
million and $4.5 million in fiscal 2000, 1999 and 1998, respectively. In
addition, certain of the Company's non-United States employees are covered by
various defined benefit and defined contribution plans. Solectron's expense for
these plans totaled $9.6 million, $3.0 million and $.5 million in 2000, 1999 and
1998, respectively.

NOTE 10. INCOME TAXES

The components of income taxes for the fiscal years ended August 31, 2000, 1999
and 1998, were as follows (in millions):

<TABLE>
<CAPTION>
                                   2000            1999            1998
                                 -------         -------         -------
                                              (IN MILLIONS)
<S>                              <C>             <C>             <C>
Current:
     Federal                     $  96.0         $  81.6         $  90.1
     State                          23.4            15.2            16.4
     Foreign                        48.6            29.7            19.9
                                 -------         -------         -------
                                   168.0           126.5           126.4
                                 -------         -------         -------
Deferred:
     Federal                       (10.6)           (3.1)           (7.9)
     State                          (0.7)            1.4            (1.8)
     Foreign                        22.0             4.0            (4.0)
                                 -------         -------         -------
                                    10.7             2.3           (13.7)
                                 -------         -------         -------
Charge in lieu of taxes
     attributable to
     employee stock plans           60.1            35.4            11.5
                                 -------         -------         -------
             Total               $ 238.8         $ 164.2         $ 124.2
                                 =======         =======         =======
</TABLE>



The overall effective income tax rate (expressed as a percentage of financial
statement income before income taxes) varied from the United States statutory
income tax rate for the fiscal years ended August 31, 2000, 1999 and 1998, as
follows:

<TABLE>
<CAPTION>
                                   2000           1999           1998
                                  ------         ------         ------
<S>                               <C>            <C>            <C>
Federal tax rate                   35.0%          35.0%          35.0%
State income tax, net of
  federal tax benefit               2.7            2.9            3.2
Income of international
  subsidiaries taxed at
  different rates                   0.1            0.1           (1.0)
Tax holiday                        (7.4)          (5.9)          (5.6)
Tax credits                        (0.5)          (0.1)          (0.1)
Tax exempt interest income         (0.1)          (0.3)          (0.4)
FSC benefit                        (0.1)          (0.1)          (0.1)
Other                               2.6            0.3            2.1
                                   ----           ----           ----
Effective income tax rate          32.3%          31.9%          33.1%
                                   ====           ====           ====
</TABLE>



The tax effects of temporary differences that gave rise to significant portions
of deferred tax assets and liabilities as of August 31, 2000 and 1999, were as
follows (in millions):


                                       53
<PAGE>   54

<TABLE>
<CAPTION>
                                                2000            1999
                                              -------         -------
                                                    (IN MILLIONS)
<S>                                           <C>             <C>
Deferred tax assets:
  Accruals, allowances and reserves           $  19.3         $  19.3
  State income tax                                9.2             5.4
  Acquired intangible assets                      5.9             3.3
  Net undistributed profits of
    subsidiaries                                  3.8             2.8
  Plant and equipment                              --             4.0
  Net operating loss carryover                   83.6             8.0
  Other                                            --             5.2
                                              -------         -------
Total deferred tax assets                       121.8            48.0
                                              -------         -------
Deferred tax liabilities:
  Foreign inventories expensed for tax          (55.6)             --
  Depreciation                                   (4.0)           (3.3)
  Other                                         (21.8)           (2.7)
                                              -------         -------
Total deferred tax liabilities                  (81.4)           (6.0)
                                              -------         -------
Net deferred tax assets                       $  40.4         $  42.0
                                              =======         =======
</TABLE>



Solectron has net operating losses in Mexico of approximately $142.9 million,
which if not utilized, will expire beginning in 2007 through 2010. The Mexican
net operating losses arise principally from the deduction of Mexican inventory
costs for Mexican income tax purposes. Solectron also has net operating losses
in Brazil of approximately $50.0 million, which will carry forward indefinitely
until utilized. The Brazilian net operating losses arise principally from losses
on nonfunctional currency debt. The tax benefit of these losses has been
credited to the accumulated foreign currency translation account.

Based on Solectron's historical operating income, management believes it is more
likely than not that the Company will realize the benefit of the deferred tax
assets recorded. Accordingly, Solectron has not established any valuation
allowance.

Worldwide income before income taxes for the fiscal years ended August 31, 2000,
1999 and 1998, consisted of the following (in millions):

<TABLE>
<CAPTION>
                        2000           1999           1998
                      -------        -------        -------
                                  (IN MILLIONS)
<S>                   <C>            <C>            <C>
U.S.                  $ 392.1        $ 349.7        $ 279.2
Non-U.S                 347.4          164.8           96.3
                      -------        -------        -------
         Total        $ 739.5        $ 514.5        $ 375.5
                      =======        =======        =======
</TABLE>



Cumulative undistributed earnings of the international subsidiaries amounted to
$672.8 million as of August 31, 2000, of which approximately $642.1 million is
intended to be permanently reinvested. The amount of income tax liability that
would result had such earnings been repatriated is estimated to be approximately
$148.7 million.

Solectron has been granted a tax holiday for its Malaysian sites which is
effective through January 31, 2002, subject to certain conditions. Solectron has
also been granted various tax holidays in China, which are effective for various
terms and are subject to certain conditions.


                                       54
<PAGE>   55
NOTE 11. STOCKHOLDERS' EQUITY

Issuance of Common Stock

In August 1999, Solectron sold, through an underwritten public offering, 34.1
million shares of common stock which generated net proceeds of approximately
$1.1 billion.

Stock Repurchase

During fiscal 1999, SMART repurchased approximately 454,000 shares of its common
stock in the open market at an average purchase price of $15.75 per share and a
total cost of approximately $7.1 million. During fiscal 1998, SMART repurchased
approximately 632,000 shares of its common stock in the open market at an
average purchase price of $14.50 per share and a total cost of approximately
$9.2 million. As of August 31, 1999, all shares repurchased by SMART had been
reissued pursuant to the exercise of stock options previously granted to
employees from its various stock plans.

Stock Split

Effective February 24, 1999 and March 8, 2000, Solectron completed two-for-one
stock splits effected as stock dividends. All references to share and per share
data have been retroactively adjusted to reflect the stock splits.

Pro Forma Fair Value Disclosures

Solectron accounts for its employee stock plans, which consist of fixed stock
option plans and an Employee Stock Purchase Plan, using the intrinsic value
method under APB Opinion No. 25. No compensation expense related to these plans
has been recognized in the Company's financial statements. The table below sets
out the pro forma amounts of net income and net income per share that would have
resulted for the fiscal years ended August 31, 2000, 1999 and 1998, if Solectron
accounted for its employee stock plans under the fair value recognition
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation."

<TABLE>
<CAPTION>
                                        2000           1999           1998
                                      ---------      ---------      -------
                                      (IN MILLIONS, EXCEPT PER SHARE DATA)
<S>                                   <C>            <C>            <C>
Net income:
                     As reported        $497.2         $350.3         $251.3
                     Pro forma          $444.0         $314.3         $222.0

Net income per share:
Basic                As reported        $ 0.83         $ 0.65         $ 0.49
                     Pro forma          $ 0.74         $ 0.58         $ 0.43
Diluted              As reported        $ 0.80         $ 0.61         $ 0.47
                     Pro forma          $ 0.71         $ 0.55         $ 0.42
</TABLE>

For purposes of computing pro forma net income, the fair value of each option
grant and Employee Stock Purchase Plan purchase right is estimated on the date
of grant using the Black-Scholes option pricing model. The assumptions used to
value the option grants and purchase rights are stated below.

<TABLE>
<CAPTION>
                              2000                1999                1998
                          ------------        ------------        ------------
<S>                       <C>                 <C>                   <C>
Expected life of
 Options                     3.5 years           3.5 years             4 years
Expected life of
 purchase rights              3 months            3 months            3 months
Volatility                          52%                 44%                 40%
Risk-free interest
 Rate                      4.8% to 6.8%        4.5% to 5.8%        5.1% to 5.9%
Dividend yield                    zero                zero                zero
</TABLE>


                                       55
<PAGE>   56

Stock Option Plans

Solectron's stock option plans provide for grants of options to associates to
purchase common stock at the fair market value of such shares on the grant date.
The options vest over a four-year period beginning generally on the grant date.
The term of the options is five years for options granted prior to November 17,
1993, and seven years for options granted thereafter. In connection with the
acquisition of Force in November 1996, Solectron assumed all options outstanding
under the Force option plan. Options under the Force plan generally vest over a
four-year period beginning on the grant date and have a term of ten years. No
further options may be granted under the Force plan.

In connection with the merger with SMART in November 1999, Solectron assumed all
options outstanding under the SMART plans. The options vest over a three to five
year period beginning generally on the grant date. The term of the options is
five years for 10% shareholders (participants who own stock possessing more than
10% of the voting power of all classes of SMART's outstanding capital stock) and
ten years for all other options. In October 1995, the Board of Directors
suspended the issuance of further grants under the 1989 Stock Plan. No further
options may be granted under the SMART plans.

In connection with the merger with Bluegum in July 2000, Solectron assumed all
options outstanding under the Bluegum plan. The options vested immediately on
the date of grant and the term of the options is five years. No further options
may be granted under the Bluegum plan.

A summary of stock option activity under the plans for the fiscal years ended
August 31, 2000, 1999 and 1998, follows (in millions, except per share data):

<TABLE>
<CAPTION>
                                  2000                          1999                         1998
                          ----------------------       ---------------------        ----------------------
                                        WEIGHTED                    WEIGHTED                      WEIGHTED
                          NUMBER         AVERAGE       NUMBER        AVERAGE        NUMBER        AVERAGE
                            OF          EXERCISE         OF         EXERCISE          OF          EXERCISE
                          SHARES         PRICE         SHARES         PRICE         SHARES         PRICE
                          ------        --------       ------       --------        ------        --------
<S>                       <C>           <C>            <C>          <C>             <C>           <C>
Outstanding,
 beginning of year          45.9         $11.29          45.5         $ 7.37          47.1         $ 4.71
Granted                     13.4         $34.21          15.6         $18.04          15.5         $11.82
Exercised                  (10.8)        $ 8.18         (11.5)        $ 5.69         (14.2)        $ 3.19
Canceled                    (4.4)        $21.94          (3.7)        $ 8.39          (2.9)        $ 8.50
                          ------                       ------                       ------
Outstanding,
 end of year                44.1         $17.72          45.9         $11.29          45.5         $ 7.37
                          ======                       ======                       ======
Exercisable
 at year-end                23.6         $11.23          22.0         $ 7.61          12.3         $ 9.62
                          ======                       ======                       ======
Weighted-average
 fair value of
 options granted
 during the year                         $15.92                       $ 7.07                       $ 4.40
</TABLE>

Information regarding the stock options outstanding at August 31, 2000, is
summarized in the table below (in millions, except number of years and per share
data).


                                       56
<PAGE>   57

<TABLE>
<CAPTION>
                                              OUTSTANDING                      EXERCISABLE
                                  -----------------------------------     ---------------------
                                               WEIGHTED
                                                AVERAGE      WEIGHTED                  WEIGHTED
  RANGE OF                                     REMAINING      AVERAGE                   AVERAGE
  EXERCISE                        NUMBER OF   CONTRACTUAL    EXERCISE     NUMBER OF    EXERCISE
   PRICES                          SHARES        LIFE          PRICE       SHARES       PRICE
-------------                     ---------   -----------    --------     ---------    --------
<S>                               <C>         <C>            <C>          <C>          <C>
$ 0.33-$ 4.75                        4.7      1.85 years     $   4.20        5.0       $  3.95
$ 5.09-$ 5.98                        4.8      2.64 years     $   5.84        4.6       $  5.84
$ 6.13-$10.34                        4.3      3.75 years     $   8.01        3.4       $  7.86
$10.95-$11.69                        4.9      4.25 years     $  11.15        3.2       $ 11.10
$12.26-$16.06                        2.3      6.69 years     $  12.94        0.9       $ 12.94
$13.30-$16.43                        5.7      5.39 years     $  13.61        2.4       $ 13.57
$16.56-$31.00                        8.9      6.71 years     $  23.72        2.6       $ 21.54
$35.03-$41.55                        4.9      6.21 years     $  34.98        0.9       $ 34.91
$36.09-$43.88                        3.1      6.45 years     $  42.16        0.5       $ 40.70
$46.00-$46.00                        0.5      6.38 years     $  46.00        0.1       $ 46.00
                                   -----                                    ----
$ 0.33-$46.00                       44.1      4.94 years     $  17.72       23.6       $ 11.23
                                   =====                                    ====
</TABLE>

Options in this table include the options assumed in connection with the
acquisition of Force, Smart and Bluegum.

A total of 51.0 million shares of common stock remain reserved for issuance
under the plans as of August 31, 2000.

On December 1, of each year, each independent member of Solectron's Board of
Directors is granted an option to purchase 6,000 shares of common stock at the
fair market value on such date. These options vest over one year and have a term
of five years.

Employee Stock Purchase Plan

Under Solectron's Employee Stock Purchase Plans (the Purchase Plans), associates
meeting specific employment qualifications are eligible to participate and can
purchase shares quarterly through payroll deductions at the lower of 85% of the
fair market value of the stock at the commencement or end of the offering
period. The Purchase Plans permit eligible associates to purchase common stock
through payroll deductions for up to 15% of qualified compensation. As of August
31, 2000, 6.4 million shares remain available for issuance under the Purchase
Plans.

The weighted average fair value of the purchase rights granted by Solectron in
fiscal 2000, 1999 and 1998 was $16.11, $9.67 and $4.99, respectively. The
weighted-average fair value of the purchase rights granted by SMART in fiscal
1999 and 1998 was $5.69 and $5.86, respectively.

NOTE 12. SEGMENT AND GEOGRAPHIC INFORMATION

Solectron provides integrated supply chain solutions that span the entire
product life cycle, including technology, manufacturing and services. The
Company has 45 manufacturing facilities in the Americas, Europe and Asia/Pacific
to serve these similar customers. Solectron is operated and managed by industry
segment, as well as geographically. Each industry segment has its own president
and support staff. Solectron's management uses an internal management reporting
system, which provides important financial data to evaluate performance and
allocate Solectron's resources on an industry segment and geographic basis.
Intersegment adjustments are related primarily to intersegment sales that are
generally recorded at prices that approximate arm's length transactions. Certain
corporate expenses are allocated to these operating segments and are included
for performance evaluation. Some amortization expenses are also allocated to
these operating segments, but the related intangible assets are not allocated.
The accounting policies for the segments are the same as for Solectron taken as
a whole. Solectron has three reportable operating segments: manufacturing and
operations, global services and technology solutions. Information about the
operating segments for the fiscal years ended August 31, 2000, 1999 and 1998,
was as follows:


                                       57
<PAGE>   58

<TABLE>
<CAPTION>
                                        2000              1999              1998
                                      ---------         ---------         ---------
                                                      (IN MILLIONS)
<S>                                   <C>               <C>               <C>
Net sales:
Manufacturing and operations          $12,418.5         $ 8,460.3         $ 5,211.3
Technology solutions                    1,486.5           1,130.4             825.9
Global services                           232.5              78.5              65.0
                                      ---------         ---------         ---------
                                      $14,137.5         $ 9,669.2         $ 6,102.2
                                      =========         =========         =========

Depreciation and amortization:
Manufacturing and operations          $   194.1         $   167.8         $   110.2
Technology solutions                       26.1              21.5              16.7
Global services                            12.8               2.2               1.5
Corporate                                  18.4               8.9               6.2
                                      ---------         ---------         ---------
                                      $   251.4         $   200.4         $   134.6
                                      =========         =========         =========

Interest income:
Manufacturing and operations          $     8.6         $     8.0         $     6.9
Technology solutions                        5.7               7.2               8.1
Global services                             0.2                --                --
Corporate                                  92.4              21.5              17.3
                                      ---------         ---------         ---------
                                      $   106.9         $    36.7         $    32.3
                                      =========         =========         =========

Interest expense:
Manufacturing and operations          $     6.9         $     3.4         $     1.8
Technology solutions                        1.1               0.7               0.5
Global services                             0.9                --                --
Corporate                                  62.7              34.2              23.1
                                      ---------         ---------         ---------
                                      $    71.6         $    38.3         $    25.4
                                      =========         =========         =========

Income before income taxes and
cumulative effect of change in
accounting principle:
Manufacturing and operations          $   668.7         $   484.0         $   302.8
Technology solutions                       78.4              82.6              81.4
Global services                             2.6               9.6               5.5
Corporate                                 (10.2)            (61.7)            (14.2)
                                      ---------         ---------         ---------
                                      $   739.5         $   514.5         $   375.5
                                      =========         =========         =========

Capital expenditures:
Manufacturing and operations          $   432.3         $   392.0         $   225.7
Technology solutions                       29.0              24.1              40.1
Global services                            15.7               3.8               2.7
Corporate                                  29.0              29.5              10.6
                                      ---------         ---------         ---------
                                      $   506.0         $   449.4         $   279.1
                                      =========         =========         =========

Total Assets:
Manufacturing and operations          $ 5,303.4         $ 2,712.7         $ 1,771.1
Technology solutions                      500.2             451.5             331.4
Global services                           222.2              52.6              14.9
Corporate                               4,349.8           2,203.7             726.3
                                      ---------         ---------         ---------
                                      $10,375.6         $ 5,420.5         $ 2,843.7
                                      =========         =========         =========
</TABLE>


                                       58
<PAGE>   59

The following enterprise wide information is provided in accordance with SFAS
No. 131. Geographic net sales information reflects the destination of the
product shipped. Long-lived assets information is based on the physical location
of the asset. No country, other than the United States, accounted for more than
10% of total sales or total assets in the periods presented. For major customer
information, the Company's operating segments contributed various percentages
aggregating up to 10% or more of consolidated net sales for such customers
identified in Note 13.

<TABLE>
<CAPTION>
                                                 2000             1999             1998
                                              ---------        ---------        ---------
                                                             (IN MILLIONS)
<S>                                           <C>              <C>              <C>
Net sales derived from:
PCB assembly                                  $ 9,940.5        $ 6,502.0        $ 4,167.9
Systems build                                   2,516.1          2,058.6          1,128.6
Technology solutions products                   1,501.1          1,108.6            805.7
Global services                                   179.8               --               --
                                              ---------        ---------        ---------
                                              $14,137.5        $ 9,669.2        $ 6,102.2
                                              =========        =========        =========
Geographic net sales:
United States                                 $ 8,328.9        $ 6,491.2        $ 4,366.1
Europe                                          3,440.9          1,952.4          1,267.8
Asia/Pacific and other                          2,367.7          1,225.6            468.3
                                              ---------        ---------        ---------
                                              $14,137.5        $ 9,669.2        $ 6,102.2
                                              =========        =========        =========
Long-lived assets (physical location):
United States                                 $   837.8        $   523.2        $   304.0
Europe                                            607.2            100.1             95.7
Asia/Pacific and other                            302.4            314.8            188.5
                                              ---------        ---------        ---------
                                              $ 1,747.4        $   938.1        $   588.2
                                              =========        =========        =========
</TABLE>



NOTE 13. MAJOR CUSTOMERS

Net sales to major customers as a percentage of consolidated net sales were as
follows:

<TABLE>
<CAPTION>
                YEARS ENDED AUGUST 31,
              --------------------------
              2000       1999       1998
              ----       ----       ----
<S>           <C>        <C>        <C>
Ericsson      13%         *          *
Compaq         *         12%         *
Cisco         12%        11%        10%
HP             *          *         11%
</TABLE>

-----------

*   net sales less than 10%

Solectron has concentrations of credit risk due to sales to these and other
Solectron's significant customers. In particular, Nortel, IBM and Ericsson
account for approximately 12%, 12% and 10%, respectively, of total accounts
receivable at August 31, 2000. The concentration of credit risk is intensified
because the majority of Solectron's customers are in the same industry. The
Company considers its concentrations of credit risk in establishing the reserves
for bad debt and believes that such reserves are adequate.


                                       59
<PAGE>   60

NOTE 14. PURCHASE OF ASSETS

In October 1998, Solectron acquired the wireless telephone manufacturing assets,
primarily inventory and fixed assets, of Mitsubishi Consumer Electronics
America, Inc.'s (MCEA) Cellular Mobile Telephone (CMT) division in Braselton,
Georgia. MCEA was a subsidiary of Mitsubishi Electric Corporation (Mitsubishi).
The purchase price of approximately $25 million was allocated to the assets
acquired based on their relative fair values at the date of acquisition. Under
the terms of the agreement, the Company will provide MCEA-CMT with a full range
of manufacturing services for five years, including NPI management, PCB assembly
and full systems assembly for MCEA's branded and private-label cellular products
sold in North America.

In February 1999, Solectron acquired IBM's Electronic Card Assembly and Test
(ECAT) manufacturing assets, primarily inventory, in Austin, Texas.
Additionally, Solectron acquired the non-exclusive rights to use certain IBM
intellectual property for approximately $53 million. The total purchase price
for the manufacturing assets and intellectual property rights was approximately
$83 million. The purchase price was allocated to the assets acquired based on
the relative fair values of the assets at the date of acquisition. Under the
terms of the agreements, Solectron provides assembly for motherboards used in
IBM's mobile computer products manufactured worldwide for the next three years.
Solectron also provides IBM's worldwide design teams a full range of integrated
NPI services.

In August 1999, Solectron acquired the manufacturing assets, primarily
inventory, of Trimble Navigation Limited (Trimble) in Sunnyvale, California, and
assumed full manufacturing responsibility of Trimble's Global Positioning System
(GPS) and related radio frequency (RF) technology products for the next three
years. Additionally, Solectron acquired certain intellectual property rights
related to RF technology for approximately $11 million. The total purchase price
for the transaction was approximately $27 million. The purchase price was
allocated to the acquired assets based on the relative fair values of the assets
at the date of acquisition.

In September 1999, Solectron acquired the manufacturing assets, primarily
inventory and equipment, of IBM's Netfinity server operations in Greenock,
Scotland in several phases for approximately $19.2 million. In addition,
Solectron acquired certain IBM intellectual property rights included in the
design and manufacture of PC server motherboards for $19.6 million. Under the
terms of the agreement, the Company assumed NPI and manufacturing responsibility
for the PCB assemblies used in IBM's Netfinity server lines which were formerly
manufactured at IBM's Greenock operations. The Company provides IBM full-service
NPI management which includes a full range of premanufacturing services,
specifically component and concurrent engineering, test development, prototype,
procurement and assembly. Solectron also provides to IBM for the next three
years fully integrated PCB assembly services including early prototyping, new
product launch, assembly and test, volume production, end-of-life support and
life cycle management.

In March 2000, Solectron completed the acquisition of the complex systems
manufacturing assets of Ericsson Telecom AB's telecommunications infrastructure
equipment operations in Longuenesse, France, and Ostersund, Sweden. The total
purchase price for the manufacturing assets and intangible assets was
approximately $162.2 million, subject to adjustment. The purchase price was
allocated to the assets acquired based on the relative fair values of the assets
at the date of acquisition. As part of the agreement, Solectron provides a
complete range of integrated supply-chain solutions to Ericsson Telecom AB. This
includes supply-base management, early prototyping, NPI management, complex
printed circuit board (PCB) assembly, configure-to-order and build-to-order
complex systems assembly, and global services.

In April 2000, Solectron announced the completion of acquisition of the
manufacturing assets of Premisys Communications, Inc., a wholly owned subsidiary
of Zhone Technologies, Inc. (Zhone). The total purchase price for the
manufacturing assets and intangible assets was approximately $15.5 million,
subject to adjustment. The transaction was accounted for as a purchase of
assets, and the purchase price was allocated to the assets acquired based


                                       60
<PAGE>   61

on the relative fair values of the assets at the date of acquisition. Zhone is a
communications equipment provider integrating expertise in voice, video and data
communications. Under the agreement, Solectron becomes Zhone's virtual
supply-chain partner and signed a five-year commitment with Zhone to provide
product life cycle management services, including NPI through repair and
end-of-life services.

In June 2000, Solectron acquired the manufacturing assets of several Nortel
manufacturing facilities including Calgary, Canada; Research Triangle Park,
North Carolina; Monterrey, Mexico; and Cwmcarn, Wales. Solectron provides
prototyping, PCB assembly, small sub-assembly and repair services to Nortel in
these locations. Also in June 2000, Solectron completed the purchase of
manufacturing assets at two Nortel Networks manufacturing and repair facilities
located in Pont de Buis and Douarnenez, France, and Monkstown, Northern Ireland
for which Solectron will offer prototyping, PCB assembly, small sub-assembly and
repair services to Nortel Networks. The aggregate purchase price of the Nortel
assets was approximately $900 million, subject to certain conditions. The
Company is currently in the process of obtaining an appraisal of the assets
acquired. Solectron also entered into a multi-year supply agreement with Nortel
with revenues in excess of $10 billion, with the option to renew.

NOTE 15. BUSINESS COMBINATIONS

In September 1998, Bluegum acquired Alcatel's telecommunications manufacturing
operations in New South Wales, Australia. This transaction was accounted for
under the purchase method of accounting, and the purchase price of approximately
$23.3 million was allocated to the assets acquired based on the relative fair
values of the assets at the date of acquisition. Pro forma results of operations
are not presented because the effect of this acquisition is not significant.

In July 1999, Solectron issued approximately 520,000 shares of common stock to
acquire all of the outstanding capital stock of Sequel. It was a privately held
corporation specializing in notebook computer and liquid crystal display repair
service and support. This transaction was accounted for under the purchase
method of accounting. The consolidated financial statements include the
operating results of Sequel from the date of acquisition. The total purchase
price was approximately $17.8 million, subject to adjustments. The acquisition
was accounted for as a purchase of a business resulting in goodwill of
approximately $4 million. Pro forma results of operations are not presented
because the effect of this acquisition is not significant.

In August 1999, SMART acquired Compaq's embedded and real time product line and
business in Fremont, California and Scotland. Pursuant to the agreement, SMART
acquired certain assets with a fair value totaling $1.2 million. The acquisition
was accounted for under the purchase method of accounting, and the purchase
price of approximately $16.2 million was allocated to the assets acquired based
on the relative fair values of the assets at the date of acquisition. Pro forma
results of operations are not presented because the effect of this acquisition
is not significant.

In November 1999, Solectron acquired NULOGIX Technical Services, Inc. (NULOGIX),
a wholly owned subsidiary of IBM Canada, in its entirety. NULOGIX is located in
Vaughn, Canada, and specializes in repair, manufacturing and refurbishment. The
purchase price was approximately $4.0 million, subject to adjustments. The
acquisition was accounted for as a purchase of a business resulting in goodwill
of approximately $1.4 million. Pro forma results of operations are not presented
because the effect of this acquisition is not significant.

In March 2000, Solectron completed the acquisition of Alcatel's manufacturing
business in Aguadilla, Puerto Rico. The purchase price was approximately $47.2
million, subject to adjustments. The acquisition was accounted for as a purchase
of a business resulting in goodwill of approximately $13.3 million. Alcatel is a
world leader in building next-generation networks and end-to-end data voice
solutions. As part of the acquisition of Alcatel's manufacturing business in
Aguadilla, Solectron will assume full manufacturing responsibility for Alcatel's
PCB products focused on the networking and telecommunication


                                       61
<PAGE>   62

industries. Additionally, Solectron will provide a full range of manufacturing
services to Alcatel for the next three years including prototyping and
high-volume PCB assembly.

In June 2000, Solectron completed the acquisition of IBM's manufacturing
operations in Hortolandia, Sao Paulo state, Brazil. Solectron will assume
responsibility for the systems configuration and assembly of IBM's Personal
Systems Group, Retail Systems Solutions Group, and Enterprise Systems Group
products sold into the Brazilian, Murcosul and Andean markets. As part of the
multi-year agreement, Solectron will provide IBM with an extensive range of
integrated services including NPI support, PCB and systems assembly, product
configuration services, repair and end-of-life product support.

NOTE 16. ACQUISITION AND RESTRUCTURING COSTS

Solectron incurred one-time charges for acquisition costs of approximately $26.8
million in fiscal 2000 relating to the acquisitions of SMART, AMERICOM and
Bluegum. These costs consist of investment banker fees, legal fees, accounting
fees, registration fees and other incidentals.

Solectron also recorded restructuring costs of approximately $11.1 million in
fiscal 2000 primarily related to the consolidation of certain facilities
acquired in the SMART and Sequel mergers. Approximately $4.4 million related to
lease exit costs, $3.4 million related to asset write-offs and other incidental
costs, $1.2 million related to severance costs and $2.1 million related to other
related costs. Approximately $2.8 remains in accrued expenses as of August 31,
2000 and Solectron expects to utilize these reserves by the end of fiscal 2001.

NOTE 17. NET INCOME PER SHARE

The following table sets forth the computation of basic and diluted net income
per share.


                                       62
<PAGE>   63

<TABLE>
<CAPTION>
                                                         YEARS ENDED AUGUST 31,
                                              -----------------------------------------
                                                2000             1999            1998
                                              --------         --------        --------
                                                (IN MILLIONS, EXCEPT PER SHARE DATA)
<S>                                           <C>              <C>             <C>
Net income before cumulative effect of
  change in accounting principle              $  500.7         $  350.3        $  251.3
Cumulative effect of change in
  accounting principle, net of taxes              (3.5)              --              --
                                              --------         --------        --------
Net income - basic                            $  497.2         $  350.3        $  251.3

Interest expense from convertible
  subordinated notes, net of taxes                  --              5.0             9.6
                                              --------         --------        --------
Net income - diluted                          $  497.2         $  355.3        $  260.9
                                              ========         ========        ========
Weighted average shares - basic                  599.4            542.6           510.1
Common shares issuable upon exercise
  of stock options                                24.1             22.6            19.3
Common shares issuable upon
  conversion of convertible
  subordinated notes                                --             13.8            27.2
                                              --------         --------        --------
Weighted average shares - diluted                623.5            579.0           556.6
                                              ========         ========        ========
Basic net income per share:
  Income before cumulative effect of
    change in accounting principle            $   0.84         $   0.65        $   0.49
  Cumulative effect of change in
    accounting principle                         (0.01)              --              --
                                              --------         --------        --------
      Net income per share                    $   0.83         $   0.65        $   0.49
                                              ========         ========        ========
Diluted net income per share:
  Income before cumulative effect of
    change in accounting principle            $   0.80         $   0.61        $   0.47
  Cumulative effect of change in
    accounting principle                            --               --              --
                                              --------         --------        --------
      Net income per share                    $   0.80         $   0.61        $   0.47
                                              ========         ========        ========
</TABLE>


Stock options with exercise prices greater than the average fair market price
for a period, which are defined as antidilutive, are not included in the diluted
earnings per share calculations because of their antidilutive effect.

During fiscal 2000, 1999 and 1998, the exercise price for 3.1 million, 3.9
million and 9.9 million options, respectively, were greater than the average
fair market value of the Company's common stock and consequently were excluded
from the diluted calculation.


                                       63
<PAGE>   64

In addition, the calculations for the years ended August 31, 2000 and 1999 did
not include 39.7 and 24.7 million common shares, respectively, issuable upon
conversion of the zero coupon senior notes as they would have been antidilutive.

NOTE 18. SUBSEQUENT EVENTS (UNAUDITED)

In October 2000, Solectron entered into an agreement with Sony Corporation
("Sony") to acquire certain assets associated with two Sony manufacturing
facilities: Sony Nakaniida Corporation in Miyagi, Japan, and Sony Industry
Taiwan in Kaohsiung, Taiwan. These facilities currently produce high-end
consumer products such as automobile satellite navigation systems, car audio
systems and lithium-ion battery packs. The agreement will result in Sony
outsourcing its electronic manufacturing services to Solectron from these two
facilities.

On October 31, 2000, Solectron signed a definitive agreement to commence an
offer to purchase all outstanding shares of NatSteel Electronics Ltd. (NEL). NEL
provides global contract manufacturing services for original equipment
manufacturers (OEMs) in the electronics industry. The company manufactures PCB
assemblies, and provides box-building capabilities and pre- and
post-manufacturing services such as design, prototyping, testing and logistics.
Solectron has received irrevocable undertakings, representing approximately 43
percent of NEL's outstanding common shares, from major shareholders to tender
their shares under the offer. Those shares are held by the largest shareholder
of NEL, separately traded NSL; key members of NEL's management team; and Temasek
Capital. Temasek Holdings and other key shareholders of NSL, who collectively
hold approximately 23 percent of NSL's outstanding shares, have irrevocably
undertaken to vote their shares in favor of NSL tendering its NEL shares in the
offer. Notwithstanding the fact that we have signed a definitive agreement and
have received undertakings from NEL's major shareholders, the offer is subject
to several conditions, including: the tender of more than 50 percent of NEL's
shares (on a fully diluted basis) to Solectron pursuant to the offer; the
approval of NatSteel Ltd. shareholders to sell its shares in NEL to Solectron
pursuant to the offer as well as the satisfactory completion of all relevant
regulatory reviews and approvals and all other customary conditions.

On November 1, 2000, Solectron filed prospectus supplements to raise
approximately $3.0 billion through concurrent offerings of primary shares of
their common stock and 20-year Liquid Yield Option Notes (LYONs). The LYONs
would be zero coupon senior notes convertible into common stock. The common
stock and LYONs would be offered under the Company's shelf registration that was
declared effective April 14, 2000. Solectron intends to use the net proceeds
from these offerings for funding the further expansion of its business and
strategic acquisitions, including approximately $2.4 billion to fund the pending
acquisition of NEL.


                                       64
<PAGE>   65

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Solectron Corporation:

We have audited the accompanying consolidated balance sheets of Solectron
Corporation and subsidiaries as of August 31, 2000 and 1999, and the related
consolidated statements of income, stockholders' equity, comprehensive income,
and cash flows for each of the years in the three-year period ended August 31,
2000. In connection with our audits of the consolidated financial statements, we
also have audited the financial statement schedule. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly in all material respects, the financial position of Solectron Corporation
and subsidiaries as of August 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended August 31, 2000, in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for start-up costs.


                                         KPMG LLP

Mountain View, California
September 15, 2000


                                       65
<PAGE>   66

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
           AND FINANCIAL DISCLOSURE

             Not applicable.

                                    PART III


ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

The information required by Item 10 regarding our directors is incorporated by
reference from the information under the caption "Election of Directors" in
Solectron's definitive Proxy Statement. The information required by Item 10
regarding our executive officers appears immediately following Item 4 under Part
I of this Report.

ITEM 11:   EXECUTIVE COMPENSATION

The information required by item 11 of Form 10-K is incorporated by reference to
the information contained in the section captioned "Executive Officer
Compensation" of Solectron's definitive Proxy Statement (Notice of Annual
Meeting of Stockholders) for the fiscal year ended August 31, 2000 to be held on
January 18, 2001 which we will file with the Securities and Exchange Commission
within 120 days after the end of the fiscal year covered by this report.

ITEM 12:   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
           AND MANAGEMENT

Information regarding this item is incorporated herein by reference from the
section entitled "Security Ownership of Certain Beneficial Owners and
Management" in Solectron's definitive Proxy Statement (Notice of Annual Meeting
of Stockholders) for the fiscal year ended August 31, 2000.

ITEM 13:   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information with respect to this item is incorporated herein by reference from
the section entitled "Certain Relationships and Related Transactions" in
Solectron's definitive Proxy Statement (Notice of Annual Meeting of
Stockholders) for the fiscal year ended August 31, 2000.


                                       66
<PAGE>   67

PART IV

ITEM 14:   EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON
           FORM 8-K

(a)     1.  Financial Statements. The financial statements listed in
            Item 8:  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA, above are
            filed as part of this Annual Report on Form 10-K, beginning on
            page 35.

        2.  Financial Statement Schedule. The financial statement Schedule II -
            VALUATION AND QUALIFYING ACCOUNTS is filed as part of this annual
            report on Form 10-K, at page 67.

        3.  Exhibits. The exhibits listed in the accompanying Index to Exhibits
            are filed as part of this Annual Report on Form 10-K.

(b)     Reports on Form 8-K.

        1.  On September 17, 1999, Solectron filed a Current Report on Form 8-K
            regarding the completion of a definitive merger agreement with
            SMART. Solectron will issue approximately 46.2 million shares of
            Solectron common stock and assume all stock options held by SMART
            employees. The transaction will be accounted for under the pooling
            of interests method and is structured as a tax-free reorganization.
            Under the terms of the agreement, SMART will operate as part of
            Solectron's newly formed technology solutions business unit. The
            agreement is subject to customary closing conditions, including
            shareholder approval. Ajay Shah, Lata Krishnan and Mukesh Patel who
            collectively own approximately 35 percent of SMART's outstanding
            shares have agreed to vote their shares in favor of the merger. The
            transaction is expected to be accretive by approximately US $0.09 in
            fiscal 2000 to Solectron before the transaction charges.

        2.  On December 9, 1999, Solectron filed a Current Report on Form 8-K
            regarding the completion of its acquisition of SMART. Under the
            terms of the agreement, each share of SMART common stock was
            exchanged for 0.51 of a share of Solectron common stock. Solectron
            issued approximately 46.2 million shares of Solectron common stock
            and assumed all stock options held by SMART employees. The
            acquisition was structured as a tax-free reorganization and is being
            accounted as a pooling of interests.

        3.  On April 4, 2000, Solectron filed a Current Report on Form 8-K
            regarding a definitive agreement for Solectron to acquire Nortel
            Networks' New Product Introduction (NPI), printed circuit board
            (PCB) and telephone set ("telset") assembly assets in North America
            and Asia (the "Assets"). The companies are also discussing the
            divestiture or outsourcing of some manufacturing and repair
            operations in Europe. Under the terms of the agreement, and the
            proposed agreements, Solectron will pay $900 million to assume the
            operations contemplated in these agreements. The companies also
            agreed to enter into a four-year supply agreement valued in excess
            of US $10 billion, with the option to renew. Solectron will provide
            NPI prototyping, manufacturing and repair services for Nortel
            Networks' optical, carrier, enterprise and wireless products.

        4.  On April 11, 2000, Solectron filed a Current Report on Form 8-K
            regarding the completion of the acquisition of SMART. Solectron
            issued approximately 47.6 million shares of Solectron common stock
            and assume all stock options held by SMART employees. The
            acquisition was accounted for as a pooling of interests.


        5.  On May 16, 2000, Solectron filed a Current Report on Form 8-K
            regarding the completion of its sale of $3,500,000,000 aggregate
            principal amount at maturity of Liquid Yield Option (TM) Notes (Zero
            Coupon-Senior) due 2020 under an effective


                                       67
<PAGE>   68

            registration statement filed with the Securities and exchange
            Commission. This current report on Form 8-K is being filed for
            the purpose of filing as exhibits certain documents relating to
            such sale.

        6.  On September 6, 2000, Solectron filed a Current Report on Form 8-K
            regarding the completion of its acquisition of AMERICOM Wireless
            services, Inc. (AMERICOM) and the Bluegum Group (Bluegum). Solectron
            issued approximately 1.8 million shares of its common stock in
            exchange for all outstanding common stock and to extinguish
            obligations under the stock appreciation rights plan of AMERICOM.
            Solectorn also issued approximately 2.3 million shares of its common
            stock in exchange for all outstanding common shares and stock
            options of Bluegum. Both acquisitions were accounted for as a
            pooling of interests.

        7.  On November 7, 2000, Solectron filed a current report on Form 8-K
            regarding updated guidance on sales and earnings per share for
            fiscal year 2001.


                                       68
<PAGE>   69

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                           SOLECTRON CORPORATION
                                           (Registrant)

Date: November 7, 2000                      By  /s/  Koichi Nishimura
                                               ---------------------------------
                                           (Koichi Nishimura, President,
                                           Chief Executive Officer and
                                           Chairman of the Board)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Name                         Title                        Date
----                         -----                        ----
<S>                          <C>                          <C>
 /s/ Koichi Nishimura        President, Chief
 -----------------------     Executive Officer,
 Koichi Nishimura, Ph.D.     and Chairman of the
                             Board                        November 7, 2000

 /s/ Susan Wang              Chief Financial
 -----------------------     Officer (Principal
 Susan S. Wang               Financial and
                             Accounting Officer),
                             Senior Vice President
                             and Corporate Secretary      November 7, 2000

/s/ Winston H. Chen          Director                     November 7, 2000
------------------------
Winston H. Chen, Ph.D.

/s/ Richard A. D'Amore       Director                     November 7, 2000
------------------------
Richard A. D'Amore

/s/ Charles A. Dickinson     Director                     November 7, 2000
------------------------
Charles A. Dickinson

/s/ Heinz Fridrich           Director                     November 7, 2000
------------------------
Heinz Fridrich

/s/ Philip V. Gerdine        Director                     November 7, 2000
------------------------
Philip V. Gerdine, Ph.D.

/s/ William A. Hasler        Director                     November 7, 2000
------------------------
William A. Hasler

/s/ Kenneth E. Haughton      Director                     November 7, 2000
------------------------
Kenneth E. Haughton, Ph.D.

/s/ Paul R. Low              Director                     November 7, 2000
------------------------
Paul R. Low, Ph.D.

/s/ Osamu Yamada             Director                     November 7, 2000
------------------------
Osamu Yamada
</TABLE>


                                       69
<PAGE>   70

FINANCIAL STATEMENT SCHEDULE

The financial statement Schedule II - VALUATION AND QUALIFYING ACCOUNTS is filed
as part of this Form 10-K.

                     SOLECTRON CORPORATION AND SUBSIDIARIES
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                                  (in millions)

<TABLE>
<CAPTION>
                                                                  AMOUNTS
                                                   BALANCE AT     CHARGED                       BALANCE AT
                                                    BEGINNING        TO                            END
DESCRIPTION                                         OF PERIOD    OPERATIONS     (DEDUCTIONS)    OF PERIOD
-----------                                        ----------    ----------     ------------   ------------
<S>                                                <C>           <C>            <C>            <C>
Year ended August 31, 2000:
Allowance for doubtful
  accounts receivable                                $  6.4         $  5.1         $ (2.9)        $  8.6
Year ended August 31, 1999:
Allowance for doubtful
  accounts receivable                                $  4.7         $  2.5         $ (0.8)        $  6.4
Year ended August 31, 1998:
Allowance for doubtful
  accounts receivable                                $  4.7         $  3.0         $ (3.0)        $  4.7
</TABLE>


                                       70
<PAGE>   71

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit
Number          Description
----------      -----------------------------------------------------------
<S>             <C>
 2.1   [B]      Agreement and Plan of Reorganization, by and among the
                Company, Force Acq. Corp. and Force Computers, Inc. as
                amended.

 3.1   [I]      Certificate of Incorporation of the Company.

 3.2   [I]      Bylaws of the Company.

10.1   [A]      Preferred Stock Purchase Agreement dated September 29,
                1983, together with amendments thereto dated February 28, 1984
                and June 23, 1988.

10.2   [H]      Form of Indemnification Agreement between the Company and
                its officers, directors and certain other key employees.

10.3   [D]      1983 Incentive Stock Option Plan, as amended August 13,
                1991.

10.4   [E]      1988 Employee Stock Purchase Plan, as amended October 1992.

10.5   [C]      Amended and Restated 1992 Stock Option Plan.

10.6   [F]      Stock Acquisition Agreement dated August 28, 1993, between
                the Company and Solectron California Corporation.

10.7   [G]      Lease Agreement between BNP Leasing Corporation, as
                Landlord, and the Company, as Tenant, Effective September 6,
                1994.

10.8   [G]      Purchase Agreement, by and between the Company and BNP
                Leasing Corporation, dated September 6, 1994.

10.9   [G]      Pledge and Security Agreement, by and between the Company,
                as Debtor, and BNP Leasing Corporation, as Secured Party, dated
                September 6, 1994.

10.10  [G]      Assignment and Assumption Agreement between the Company and
                Solectron California Corporation, dated November 9, 1994.

10.11  [G]      Custodial Agreement by and between the Company, Banque
                Nationale De Paris and BNP Leasing Corporation, dated September
                6, 1994.

10.12  [H]      Modification Agreement (First Amendment to Purchase
                Agreement and Second Amendment to Lease Agreement) by and
                between the Company and BNP Leasing Corporation, dated May 1,
                1997.

10.13  [H]      Credit Agreement between the Company and Bank of America
                National Trust and Savings Association, as Agent and Issuing
                Bank, dated April 30, 1997.

10.14a [I]      Amended and Restated Lease Agreement between BNP Leasing
                Corporation and Solectron Washington, Inc., dated July 1, 1998.

10.14b [I]      Amended and Restated Purchase Agreement between BNP Leasing
                Corporation and Solectron Washington, Inc., dated July 1, 1998.

10.14c [I]      Amended and Restated Guaranty from Solectron Corporation in
                favor of BNP Leasing Corporation, effective as of July 1, 1998.

10.15a [I]      Amended and Restated Lease Agreement between BNP Leasing
                Corporation and Force Computers, Inc., dated July 16, 1998.

10.15b [I]      Amended and Restated Purchase Agreement between BNP Leasing
                Corporation and Force Computers, Inc., dated July 16, 1998.

10.15c [I]      Amended and Restated Guaranty from Solectron Corporation in
                favor of BNP Leasing Corporation, effective as of July 16, 1998.

10.16a [I]      Lease Agreement between BNP Leasing Corporation and
                Solectron Georgia Corporation, dated October 20, 1998.

10.16b [I]      Purchase Agreement between BNP Leasing Corporation and
                Solectron Georgia Corporation, dated October 20, 1998.

10.16c [I]      Guaranty from Solectron Corporation in favor of BNP Leasing
                Corporation, effective as of October 20, 1998.
</TABLE>


                                       71
<PAGE>   72

EXHIBITS (Continued)

<TABLE>
<CAPTION>
Exhibit
Number          Description
----------      -----------------------------------------------------------
<S>             <C>
10.17  [J]      Agreement and Plan of Reorganization, dated as of September
                13, 1999, by and among Solectron Corporation, SM Acquisition
                Corporation and SMART Modular Technologies, Inc.

10.18  [J]      Stock Option Agreement, dated as of September 13, 1999, by
                and between Solectron Corporation and SMART Modular
                Technologies.

21.1            Subsidiaries of the Registrant.

23.1            Consent of Independent Auditors.

27.1            Financial Data Schedule
</TABLE>


Footnotes:

[A]     Incorporated by reference to the Exhibits to the Company's Registration
        Statement on Form S-1 (File No. 33-22840).

[B]     Incorporated by reference to the Exhibits to the Company's Registration
        Statement on Form S-4 as amended, filed November 20, 1996. (File No.
        333-15983).

[C]     Incorporated by reference to the Exhibits to Company's Registration
        Statement on Form S-8 filed April 7, 1999 (File No. 333-75813).

[D]     Incorporated by reference to the Exhibits to Company's Registration
        Statement on Form S-8 (File No. 33-46686).

[E]     Incorporated by reference to the Exhibits to Company's Form 10-K for the
        year ended August 31, 1992.

[F]     Incorporated by reference to the Exhibits to Company's Form 10-K for the
        year ended August 31, 1993.

[G]     Incorporated by reference to the Exhibits to Company's Form 10-K for the
        year ended August 31, 1994.

[H]     Incorporated by reference to the Exhibits to Company's Form 10-K for the
        year ended August 31, 1997.

[I]     Incorporated by reference to the Exhibits to the Company's Form 10-Q for
        the quarter ended February 26, 1999.

[J]     Incorporated by reference to the Exhibits to the Company's Registration
        Statement on Form S-4 filed October 14, 1999.



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