##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
  Form 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    August 25, 2006oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          
    to   Commission file number
    001-11098
  SOLECTRON CORPORATION
 (Exact name of Registrant as
    Specified in its Charter)
  Delaware

94-2447045(State or Other Jurisdiction
    of
    Incorporation or Organization)

(I.R.S. Employer
    Identification Number)847 Gibraltar Drive
    Milpitas, California 95035(Address of Principal
    Executive
    Offices including Zip Code)

(408) 957-8500(Registrants
    Telephone Number,
    Including Area Code)   Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Each Exchange on Which Registered3.25% Liquid Yield Option Notes
    due 2020

New York Stock Exchange, Inc.2.75% Liquid Yield Option Notes
    due 2020

New York Stock Exchange, Inc.Series A Participating Preferred
    Stock Purchase Rights

New York Stock Exchange, Inc.Common Stock

New York Stock Exchange, Inc.   Securities registered pursuant to Section 12(g) of the
    Act:
    None
  þ o
  o þ
  þ o
  Regulation S-K Form 10-K, Form 10-K. þ
  Rule 12b-2
 þ o o
  Rule 12b-2 o þ
    one-to-one
  DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-K




---



##### 



SOLECTRON
    CORPORATION
    2006
    FORM 10-K
    ANNUAL REPORT
    TABLE OF CONTENTS
  PagePART IItem 1.

Business


3Item 1a.

Risk
    Factors


8Item 1b.

Unresolved Staff
    Comments


17Item 2.

Properties


18Item 3.

Legal
    Proceedings


19Item 4.

Submission of
    Matters to a Vote of Security Holders


19PART IIItem 5.

Market for the
    Registrants Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities


22Item 6.

Selected Financial
    Data


24Item 7.

Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


25Item 7a.

Quantitative and
    Qualitative Disclosures About Market Risk


44Item 8.

Consolidated
    Financial Statements and Supplementary Data


45Item 9.

Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


90Item 9a.

Controls and
    Procedures


90Item 9b.

Other
    Information


90PART IIIItem 10.

Directors and
    Executive Officers of the Registrant


90Item 11.

Executive
    Compensation


90Item 12.

Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters


90Item 13.

Certain
    Relationships and Related Transactions


90Item 14.

Principal
    Accountant Fees and Services


91PART IVItem 15.

Exhibits and
    Consolidated Financial Statement Schedules


91Signatures


92EXHIBIT 10.9EXHIBIT 10.10EXHIBIT 12.1EXHIBIT 21.1EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2    and/or
 1




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##### Table of Contents



Cautionary
    Statement Regarding Forward-Looking Statements
  With the exception of historical facts, the statements
    contained in this annual report are forward-looking statements
    within the meaning of Section 27A of the Securities Act of
    1933, as amended (the Securities Act), and
    Section 21E of the Securities Exchange Act of 1934, as
    amended (the Exchange Act), and are subject to the
    safe harbor provisions set forth in the Exchange Act. These
    forward-looking statements relate to matters including, but not
    limited to:
  
    anticipated sales and future operating results, including future
    earnings, growth, rates and trends;
    efficiencies, competitive advantages and other benefits
    resulting from our Lean manufacturing and Six Sigma quality
    initiatives;
    our anticipation of the timing and amounts of our future
    obligations and commitments and our ability to meet those
    commitments;
    the calculations of taxes due and the adequacy of our reserves
    for potential tax liabilities and credits for open periods;
    our ability to successfully defend against proposed IRS
    adjustments to prior year income tax returns;
    the amount of available future cash and our belief that our cash
    and cash equivalents, short-term investments, lines of credit
    and cash to be generated from continuing operations will be
    sufficient for us to meet our obligations for the next twelve
    months;
    the performance, success, capabilities and capacities of our
    business operations;
    the adequacy of our restructuring provisions and adequacy and
    timing of our restructuring activities and their impact on our
    business or results of operations;
    the anticipated financial impact of recent and future
    acquisitions and divestitures and the adequacy of our provisions
    for indemnification obligations pursuant to such transactions;
    our ability to comply with the requirements of Section 404
    of the Sarbanes-Oxley Act of 2002;
    our exposure to foreign currency exchange rate fluctuations;
    our belief that our current or future environmental liability
    exposure related to our facilities will not be material to our
    business, financial condition or results of operations;
    the impact of any litigation;
    the impact of customer defaults or bankruptcies;
    our ability to implement our enterprise resource planning system
    and the impact of deficiencies in our IT systems;
    our characterization of the markets in which we do business,
    including our ability to earn increased margins in certain
    growth markets; and
    various other forward-looking statements contained in
    Managements Discussion and Analysis of Financial
    Condition and Results of Operations.  We intend that our forward-looking statements be subject to
    the safe harbors created by the Exchange Act. The
    forward-looking statements are generally accompanied by words
    such as may, will, could,
    should, intend, anticipate,
    believe, estimate, expect,
    continue and other similar words and statements. Our
    forward-looking statements are based on current expectations,
    forecasts and assumptions and are subject to risks,
    uncertainties and changes in condition, significance, value and
    effect, including those discussed under the heading Risk
    Factors in this report and in our other reports filed with
    the Securities and Exchange Commission. Such risks,
    uncertainties and changes in condition, significance, value and
    effect could cause our actual results to differ materially from
    our anticipated outcomes. Although we believe that the
    assumptions underlying the forward-looking statements are
    reasonable, any of the assumptions could prove inaccurate.
    Therefore, we can give no assurance that the results implied by
    these forward-looking statements will be realized. The inclusion
    of forward-looking information should not be regarded as a
    representation by our company or any other person that the
    future events, plans or expectations contemplated by Solectron
    will be achieved. Furthermore, past performance in operations
    and share price is not necessarily indicative of future
    performance. We disclaim any intention or obligation to update
    or revise any forward-looking statements contained herein,
    whether as a result of new information, future events or
    otherwise.
 2




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##### Table of Contents



PART I  Item 1.
    Business  Form 10-K,
  Overview
      
    Computing and storage equipment, including servers, storage
    systems, workstations, notebooks, and peripherals;
    Networking equipment such as routers and switches that move
    traffic across the Internet;
    Communications equipment, including wireless and wireline
    infrastructure products;
    Consumer products such as cellular telephones, set-top boxes and
    personal/handheld communications devices;
    Automotive electronics systems, for example, audio and
    navigation systems, system control modules and body electronics;
    Industrial products, including semiconductor manufacturing and
    test equipment, wafer fabrication equipment controls, process
    automation equipment, interactive and self-service kiosks,
    appliance electronics controls, instrumentation and industrial
    controls;
    Medical products such as X-ray equipment, ultrasound fetal
    monitors, MRI scanners, blood analyzers, insulin delivery
    devices, ECG patient monitors, surgical robotic systems, HPLCs,
    spectrometers and laser surgery equipment; and
    Other electronics equipment and products.      
    Product design;
    Collaborative design;
    Product launch/NPI (New Product Introduction);
    DFX (Design for manufacturability) services;
    PCBA (Printed Circuit Board Assembly) and subsystem
    manufacturing;
    Systems integration and test; 3




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##### Table of Contents




    Parts management;
    Inventory management;
    Forward/Reverse logistics;
    Repair;
    Recovery/Remarketing; and
    Feedback to design and manufacturing for quality/serviceability.    Leading Manufacturing and Service
    Technologies:
  Faster
    Time-to-Market: time-to-market
  Lower Costs: just-in-time
  Consistent Quality: tm
  Better Asset Utilization:
  Focused Resource Allocation:
  Cost-Effective Global Capabilities:
  Environmental Compliance:
 4




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Strategy
    Concentration
    on Core and Emerging Markets
    Uncompromising
    Quality
  tm time-to-market
  Efficiency
    and Cost Competitiveness
    Align
    Services to Improve Customer Supply Chains
  time-to-market.
  Advanced
    Technology Processes
  time-to-market,
 5




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##### Table of Contents



Global
    Footprint
          just-in-time
  Americas
    Region
  time-to-market,
  Asia
    Region
    Europe
    Region
    Sales and
    Marketing
   6




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Backlog
    Competition
    Associates
    Patents
    and Trademarks
      Environmental
    Matters
   7




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##### Table of Contents



clean-up
  Additional
    Information and NYSE Certification
  Form 10-K, Form 10-Q, Form 8-K Form 10-K
     (408) 957-8500
  (408) 957-8500.
   Item 1a.  Risk
    Factors   8




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Most
    of our sales come from a small number of customers; if we lose
    any of these customers, our net sales could decline
    significantly.
    Our
    customers may cancel their orders, change production quantities
    or locations, or delay production.
    Our
    business has low operating margins and any increase in cost of
    sales or operating expenses could have a material adverse effect
    on our profitability.
    We may
    not be able to sell excess or obsolete inventory to customers or
    third parties, which could have a material adverse impact on our
    consolidated financial condition.
   9




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##### Table of Contents



We are
    exposed to risks associated with operating
    internationally.
    
    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 or imports;
    potential restrictions on the transfer of funds;
    government and license requirements governing the transfer of
    technology and products abroad;
    disruption of local labor supply or transportation services;
    inflexible employee contracts in the event of business downturns;
    the burden and cost of compliance with import and export
    regulations and foreign laws;
    economic and political risks in emerging or developing economies;
    risks of conflict and terrorism that could disrupt our or our
    customers and suppliers businesses; and
    increased risk of improper payments or inappropriate business
    activities.   10




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##### Table of Contents



Possible
    fluctuation of operating results from quarter to quarter and
    factors out of our control could affect the market price of our
    securities.
    
    differences in the profitability of the types of manufacturing
    services we provide. For example, high velocity and low
    complexity printed circuit boards and systems assembly services
    have lower gross profit than low volume/complex printed circuit
    boards 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 customers demand for our products and their ability to
    take delivery of our products and to make timely payments for
    delivered products;
    our ability to optimize the ordering of inventory as to timing
    and amount to avoid holding inventory in excess of immediate
    production needs;
    our ability to offer technologically advanced, cost-effective,
    quick response manufacturing services;
    our ability to drive down manufacturing costs in accordance with
    customer and market requirements, which is dependent upon our
    ability to apply Lean Six Sigma operating principles;
    fluctuations in the availability and pricing of components;
    timing of expenditures in anticipation of increased sales;
    cyclicality in our target markets;
    fluctuations in our market share;
    fluctuations in currency exchange rates;
    expenses and disruptions associated with acquisitions and
    divestitures;
    announcements of operating results and business conditions by
    our customers;
    announcements by our competitors relating to new customers,
    technological innovation or new services;
    economic developments in the electronics industry as a whole;
    credit rating and stock analyst downgrades;
    our ability to successfully implement changes to our enterprise
    resource planning systems;
    political and economic developments in countries in which we
    have operations; and
    general market conditions.    If we
    incur more restructuring-related charges than currently
    anticipated, our consolidated financial condition and results of
    operations may suffer.
   11




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Failure
    to attract and retain key personnel and skilled associates could
    hurt our operations.
    We
    depend on limited or sole source suppliers for critical
    components. The inability to obtain sufficient components as
    required, and under favorable purchase terms, would harm our
    business.
    We
    potentially bear the risk of price increases associated with
    shortages in electronics components.
    Our
    net sales could decline if our competitors provide comparable
    manufacturing services and improved products at a lower
    cost.
   12




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We
    depend on the continuing trend of OEMs to
    outsource.
    Our
    strategic relationships with major customers create
    risks.
    
    we may pay a purchase price to the divesting OEMs that exceeds
    the value we are ultimately able to realize from the future
    business of the OEM;
    the integration into our business of the acquired assets and
    facilities may be time-consuming and costly;
    we, rather than the divesting OEM, would bear the risk of excess
    capacity;
    we may not achieve anticipated cost reductions and efficiencies;
    we may be unable to meet the expectations of the OEM as to
    volume, product quality, timeliness and cost reductions; and
    if demand for the OEMs products declines, the OEM may
    reduce its volume of purchases, and we may not be able to
    sufficiently reduce the expenses of operating the facility or
    use the facility to provide services to other OEMs, and we might
    find it appropriate to close, rather than continue to operate,
    the facility, and any such actions would require us to incur
    significant restructuring
    and/or
    impairment charges.    Business
    disruptions could seriously harm our future revenue and
    financial condition and increase our costs and
    expenses.
    If we
    are unable to manage future acquisitions, and cost-effectively
    run our operations, our profitability could be adversely
    affected.
   13




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##### Table of Contents



If we
    have a material weakness in our internal controls over financial
    reporting, investors could lose confidence in the reliability of
    our financial statements, which could result in a decrease in
    the value of our securities.
    If our
    products are subject to warranty or liability claims, we may
    incur significant costs.
      We may
    not have sufficient insurance coverage for certain of the risks
    and liabilities we assume in connection with the products and
    services we provide to our customers.
    Our
    design and engineering services may result in additional
    exposure to product liability, intellectual property
    infringement and other claims.
   14




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Notwithstanding
    our divestiture of certain businesses in recent years, we remain
    subject to certain indemnification obligations for a period of
    time after completion of the divestitures.
    We are
    exposed to fluctuations in foreign currency exchange rates and
    interest rate fluctuations.
        Failure
    to comply with environmental regulations could harm our
    business.
     15




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Our
    ongoing implementation of new enterprise resource planning (ERP)
    software and systems may cause disruptions in our business
    operations.
    We may
    not be able to adequately protect or enforce our intellectual
    property rights and could become involved in intellectual
    property disputes.
      Rating
    downgrades may make it more expensive for us to borrow
    money.
    Unanticipated
    changes in our tax rates or in our exposure to additional tax
    liabilities could affect our operating results and financial
    condition.
   16




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We
    have received an examination report from the Internal Revenue
    Service proposing a tax deficiency in certain of our tax
    returns, and the outcome may have a material adverse effect on
    our results of operations and cash flows.
      Item 1b.
    Unresolved
    Staff Comments   17




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##### Table of Contents



Item 2.
    Properties    SquareLocation

Footage


Primary UseContinuing OperationsAmericas RegionLatin AmericaBrazil


233,000


PCBA, Systems Integration,
    Repair & Refurbish, Design & EngineeringMexico


865,000


PCBA, Systems Integration,
    Repair & Refurbish, Design & EngineeringPuerto Rico


164,000


PCBA & Systems IntegrationTotal Latin America


1,262,000United States and CanadaCanada


768,000


PCBA, Systems Integration,
    Repair & Refurbish, Design & EngineeringCalifornia


888,000


NPI, PCBA, Systems Integration,
    Repair & Refurbish, Design & EngineeringGeorgia


8,000


OfficeKentucky


310,000


Repair & RefurbishMaryland


6,000


OfficeMassachusetts


75,000


PCBAMichigan


14,000


OfficeNew Jersey


164,000


Systems IntegrationNorth Carolina


1,252,000


PCBA, Systems Integration,
    Repair & Refurbish, Design & EngineeringSouth Carolina


313,000


Systems Integration,
    Design & EngineeringTennessee


275,000


Repair & RefurbishTexas


864,000


PCBA, Systems Integration,
    Repair & Refurbish, Design & EngineeringTotal United States and Canada


4,937,000Americas Region Total


6,199,000European RegionFrance


334,000


PCBA, Systems Integration,
    Repair & Refurbish, Design & EngineeringGermany


90,000


PCBA & Systems
    Integration, Design and EngineeringHungary


301,000


PCBA & Systems
    Integration, Repair & RefurbishNetherlands


202,000


Repair & Refurbish, OfficeRomania


460,000


PCBA & Systems
    Integration, Design and EngineeringScotland


168,000


PCBA & Systems
    Integration, Design and EngineeringSweden


280,000


PCBA & Systems
    Integration, Design and EngineeringTurkey


75,000


PCBA & Systems IntegrationUnited Kingdom


195,000


Repair & Refurbish,
    Enclosures, Parts Management, Design & Engineering 18




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##### Table of Contents



SquareLocation

Footage


Primary UseEuropean Region Total


2,105,000Asia RegionAustralia


133,000


Repair & RefurbishChina


1,253,000


PCBA, Systems Integration,
    Repair & Refurbish, Design & EngineeringIndia


51,000


PCBA, Repair & RefurbishIndonesia


165,000


PCBA & Systems IntegrationJapan


260,000


NPI, PCBA, Systems Integration,
    Repair & Refurbish, Design & EngineeringMalaysia


1,032,000


PCBA & Systems
    Integration, Design & EngineeringSingapore


423,000


PCBA, Systems Integration,
    Repair & Refurbish, Design & EngineeringTaiwan


3,000


OfficeAsia Region Total


3,320,000Total Facilities in
    Use


11,624,000Total Restructured
    Facilities*


1,633,000     *
    
    These facilities are excluded from the list above as they are
    closed or are in the process of closing as of August 31,
    2006.  Item 3.
    Legal
    Proceedings    Abrams v. Solectron Corporation
    et al. No. C-03-0986
  Item 4.
    Submission
    of Matters to a Vote of Security Holders   19




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##### Table of Contents



Executive
    Officers of Solectron
    Name

Age

PositionMichael R. Cannon


53


President and Chief Executive
    OfficerDouglas Britt


41


Executive Vice President, Sales
    and Account ManagementTodd DuChene


43


Executive Vice President, General
    Counsel and SecretaryCraig London


60


Executive Vice President, Global
    ServicesMarty Neese


44


Executive Vice President,
    OperationsKevin OConnor


47


Executive Vice President and Chief
    Administrative OfficerDavid Purvis


54


Executive Vice President and Chief
    Technical OfficerPaul Tufano


53


Executive Vice President and Chief
    Financial OfficerPerry G. Hayes


53


Senior Vice President, Treasurer
    and Investor RelationsWarren J. Ligan


53


Senior Vice President and Chief
    Accounting Officer          20




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##### Table of Contents



21




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##### Table of Contents



PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities  Common
    Stock Information
    Year Ended August 312006


2005High


Low


High


LowFourth quarter

$
3.70


$
2.81


$
4.40


$
3.50Third quarter

$
4.13


$
3.51


$
5.10


$
3.08Second quarter

$
3.93


$
3.50


$
6.69


$
4.62First quarter

$
4.16


$
3.40


$
6.20


$
4.78    22




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##### Table of Contents



Issuer
    Purchases of Equity Securities
      Total Number of Shares


Approximate Dollar Value ofTotal Number





Purchased as Part of


Shares that May Yet beof Shares


Average Price


Publicly Announced


Purchased Under thePeriod

Purchased


Paid per Share


Plans or Programs


Plans or ProgramsJune 2006


2.2


$
3.45



9.1


$
216.0July 2006


2.4


$
3.19



11.5


$
208.4August 2006


3.3


$
3.04



14.8


$
198.4    23




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##### Table of Contents



Item 6.
    Selected
    Financial Data    Consolidated
    Statement of Operations Data (in millions, except per share
    data)
  Twelve Months Ended August 312006


2005


2004


2003


2002Net sales

$
10,560.7


$
10,441.1


$
11,638.3


$
9,828.3


$
10,738.7Cost of sales


10,013.1



9,868.8



11,068.6



9,388.4



10,234.8Gross profit


547.6



572.3



569.7



439.9



503.9Operating expenses:Selling, general and administrative


433.3



412.8



446.7



566.9



661.4Restructuring and impairment
    costs(1)


14.0



91.1



177.9



604.8



787.7Goodwill impairment costs(2)














1,620.1



2,500.0Operating income (loss)


100.3



68.4



(54.9
)


(2,351.9
)


(3,445.2
)Interest and other income (expense)


16.8



(63.2
)


(210.8
)


(131.5
)


(74.1
)Income (loss) from continuing
    operations before income taxes


117.1



5.2



(265.7
)


(2,483.4
)


(3,519.3
)Income tax (benefit) expense


(1.3
)


15.7



(3.3
)


525.5



(450.0
)Income (loss) from continuing
    operations

$
118.4


$
(10.5
)

$
(262.4
)

$
(3,008.9
)

$
(3,069.3
)Discontinued operations:Income (loss) from discontinued
    operations

$
15.6


$
16.8


$
93.7


$
(331.7
)

$
(59.1
)Income tax expense (benefit)






2.9



8.7



112.0



(18.7
)Income (loss) on discontinued
    operations


15.6



13.9



85.0



(443.7
)


(40.4
)Income (loss) before cumulative
    effect of change in accounting principle


134.0



3.4



(177.4
)


(3,452.6
)


(3,109.7
)Cumulative effect of change in
    accounting principle, net


(0.8
)














Net income (loss)

$
133.2


$
3.4


$
(177.4
)

$
(3,452.6
)

$
(3,109.7
)Basic net income (loss) per share:Continuing operations

$
0.13


$
(0.01
)

$
(0.30
)

$
(3.63
)

$
(3.93
)Discontinued operations


0.02



0.01



0.10



(0.54
)


(0.05
)Basic net income (loss) per share

$
0.15


$



$
(0.20
)

$
(4.17
)

$
(3.98
)Diluted net income (loss) per
    share:Continuing operations

$
0.13


$
(0.01
)

$
(0.30
)

$
(3.63
)

$
(3.93
)Discontinued operations


0.02



0.01



0.10



(0.54
)


(0.05
)Diluted net income (loss) per share

$
0.15


$



$
(0.20
)

$
(4.17
)

$
(3.98
)  24




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##### Table of Contents



Consolidated
    Balance Sheet Data (in millions)*:
 August 312006


2005


2004


2003


2002Working capital

$
2,047.5


$
2,009.4


$
2,476.8


$
1,696.6


$
3,652.8Total assets


5,373.6



5,257.8



5,864.0



6,570.3



10,990.0Long-term debt


619.4



540.9



1,221.4



1,816.9



3,180.2Stockholders equity

$
2,413.7


$
2,444.2


$
2,418.9


$
1,471.7


$
4,771.4     *
    
    Continuing and discontinued operations(1)
    
    Restructuring and impairment costs consist of the following:  
    2006  (a) $12.9 million of impairment
    charges resulting from the impairment of certain long-lived
    assets, (b) $1.9 million of charges related to
    intangible assets, (c) $10.8 million reversal of
    restructuring charges resulting from a reduction in severance
    provision, and (d) a $10.0 million restructuring
    charge for facilities and other exit costs.
    2005  (a) $55.2 million of restructuring
    charges, principally arising from the Fiscal Year 2005
    Restructuring Plan to consolidate facilities, reduce the
    workforce in Europe and North America, and impair certain
    long-lived assets, and (b) a $35.9 million impairment
    due to non-cash charges in connection with the sale of a
    facility in Japan.
    2004  (a) $130.4 million of restructuring
    charges and (b) a $47.5 million impairment of an
    intangible asset arising from our disengagement from certain
    product lines.
    2003  (a) $433.1 million of restructuring
    charges and (b) $171.7 million of impairment charges
    as the result of reduced expectations of sales to be realized
    under certain supply agreements.
    2002  (a) $596.5 million of restructuring
    charges and (b) $191.2 million of impairment charges
    as the result of reduced expectations of sales to be realized
    under certain supply agreements.  (2)
    
    Goodwill impairments of approximately $1.6 billion and
    $2.5 billion were recorded in FY 2003 and FY 2002,
    respectively, as a result of significant negative industry and
    economic trends impacting Solectrons operations and stock
    price.  Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Form 10-K.
  Overview
     25




---



##### Table of Contents



Summary
    of Results
    Years Ended August 312006


2005


2004Net sales

$
10,560.7


$
10,441.1


$
11,638.3Gross profit


547.6



572.3



569.7Selling, general and
    administrative expense


433.3



412.8



446.7Interest income


47.0



38.8



15.1Interest expense


(28.5
)


(56.5
)


(145.3
)Income (loss) from continuing
    operations

$
118.4


$
(10.5
)

$
(262.4
)     end-of-life
         26




---



##### Table of Contents



tm debt-to-capital
  Key
    Performance Indicators
    Three Months EndedAugust 31,


May 31,


February 28,


November 30,2006


2006


2006


2005Inventory turns


7.3 turns



7.2 turns



7.4 turns



8.0 turnsDays sales outstanding (DSO)


43 days



42 days



44 days



45 daysDays payable outstanding (DPO)


53 days



54 days



54 days



53 daysCash-to-cash
    cycle (C2C)


39 days



38 days



40 days



37 daysCapital expenditures (in millions)

$
40.9


$
46.0


$
50.7


$
58.9   Three Months EndedAugust 31,


May 31,


February 28,


November 30,2005


2005


2005


2004Inventory turns


7.9 turns



8.1 turns



7.9 turns



7.1 turnsDays sales outstanding (DSO)


46 days



46 days



46 days



50 daysDays payable outstanding (DPO)


54 days



50 days



48 days



50 daysCash-to-cash
    cycle (C2C)


38 days



41 days



44 days



51 daysCapital expenditures (in millions)

$
48.4


$
35.9


$
34.1


$
32.0   make-up
  Critical
    Accounting Policies and Estimates
  Form 10-K
    (tm)
 27




---



##### Table of Contents



Revenue
    Recognition
  out-of-warranty
  No. 01-09,
  time-to-time,
  No. 99-19,
  Inventory
    Valuation
   28




---



##### Table of Contents



Allowance
    for Doubtful Accounts
    Goodwill
    Impairment
    of Long-Lived Assets
   29




---



##### Table of Contents



Restructuring
    and Related Impairment Costs
      No. 94-3,
      Income
    Taxes
   30




---



##### Table of Contents



Loss
    Contingencies
    Stock-Based
    Compensation
   31




---



##### Table of Contents



Recent
    Accounting Pronouncements
       32




---



##### Table of Contents



Results
    of Operations for Fiscal Years 2006, 2005 and 2004
    Years Ended August 312006


2005


2004Net sales


100.0
%


100.0
%


100.0
%Cost of sales


94.8



94.5



95.1Gross profit


5.2



5.5



4.9Operating expenses:Selling, general and administrative


4.1



4.0



3.8Restructuring and impairment costs


0.1



0.9



1.5Goodwill impairment










Operating income (loss)


1.0



0.6



(0.5
)Interest income


0.5



0.4



0.1Interest expense


(0.3
)


(0.6
)


(1.2
)Other (expense) income-net






(0.4
)


(0.7
)Operating income (loss) from
    continuing operations before income taxes


1.2







(2.3
)Income tax expense






0.1



Income (loss) from continuing
    operations


1.2



(0.1
)


(2.3
)Discontinued operations:Income from discontinued operations


0.1



0.1



0.7Income tax expense










Income on discontinued operations


0.1



0.1



0.7Net income (loss)


1.3
%



%


(1.6
)%   Net
    Sales  Continuing Operations
    end-of-life
 33




---



##### Table of Contents



Years Ended August 312006


2005


2004Computing & Storage


32.2
%


30.6
%


30.5
%Networking


26.1
%


25.0
%


21.6
%Communications


19.1
%


19.8
%


18.8
%Consumer


9.8
%


13.7
%


19.3
%Industrial


8.7
%


5.9
%


5.4
%Automotive


2.5
%


3.2
%


2.6
%Other


1.6
%


1.8
%


1.8
%Total


100.0
%


100.0
%


100.0
%   International
    Sales
      Years Ended August 312006


2005


2004Geographic net sales:United States

$
3,272.1


$
3,127.1


$
3,219.4Other North and Latin America


1,568.2



1,633.6



1,836.2Europe


1,247.9



1,497.3



1,667.4Malaysia


2,211.8



2,013.2



1,853.4China


1,320.3



1,268.2



1,914.6Other Asia Pacific


940.4



901.7



1,147.3$
10,560.7


$
10,441.1


$
11,638.3   Major
    Customers
    Years Ended August 312006


2005


2004Cisco Systems


17.9
%


15.7
%


13.2
%Nortel Networks


*



10.8
%


*     *
    
    less than 10%   34




---



##### Table of Contents



Gross
    Profit  Continuing Operations
        Selling,
    General and Administrative (SG&A) Expenses 
    Continuing Operations
     35




---



##### Table of Contents



Restructuring
    and Impairment Costs  Continuing Operations
            Fiscal
    Year 2007 Restructuring Plan
    
    Close or consolidate approximately 700,000 square feet of
    facilities in Western Europe and North America.
    Reduce approximately 1,400 employees at the facilities being
    closed or consolidated, which includes approximately 100
    temporary employees.
    Impair certain long-lived assets (primarily buildings and
    leasehold improvements) in connection with the facilities being
    vacated and equipment made obsolete to the extent that we would
    be unable to recover their carrying value upon sales to third
    parties.      Fiscal
    Year 2005 Restructuring Plan
   36




---



##### Table of Contents




    Close our facilities in Hillsboro, Oregon; Winnipeg, Canada;
    Lincoln, California; Turnhout, Belgium; and Munich, Germany.
    Eliminate approximately 2,500 positions (1) at the
    facilities being closed; (2) at our facilities in Bordeaux,
    France; Dunfermline, Scotland; Mexico; Brazil; and other
    facilities; and (3) within our material procurement and
    sales organizations in Europe and North America. These actions
    included the elimination of certain positions, the migration of
    certain functional activities to facilities in low cost
    geographies, and the outsourcing of certain activities.
    Impair certain long-lived assets (primarily buildings and
    leasehold improvements) in connection with the facilities being
    vacated and equipment made obsolete to the extent that we would
    be unable to recover their carrying value upon sales to third
    parties.      Fiscal
    Year 2004 Restructuring Plan and Legacy Restructuring
    Plans
           37




---



##### Table of Contents



Interest
    Income  Continuing Operations
    Interest
    Expense  Continuing Operations
  tm
  Other
    Expense  Net  Continuing
    Operations
    tm tm
  Years Ended August 319.625% Senior Notes Redemption

2006


2005


2004Principal amount at maturity

$



$
500.0


$
Carrying value

$



$
500.0


$
Cash paid






544.7



Debt issuance cost write-off






7.6



Loss included in other
    expense  net

$



$
(52.3
)

$
   Years Ended August 317.25% ACES Early Settlement

2006


2005


2004Principal amount at maturity

$



$



$
1,012.5Carrying value

$



$



$
1,007.5Common stock issued










1,006.6Cash paid










63.3Write off of debt issuance costs










15.3Loss included in other (expense)
    income  net

$



$



$
(77.7
)   Years Ended August 31LYONstm
    Retirement

2006


2005


2004Principal amount at maturity

$



$



$
1,617.5Carrying value









$
950.2Cash paid and payable










950.2Gain included in other (expense)
    income-net

$



$



$
  38




---



##### Table of Contents



Income
    Taxes  Continuing Operations
              Quarterly
    Results (Unaudited)
   39




---



##### Table of Contents



Liquidity
    and Capital Resources
    Years Ended August 312006


2005


2004(Revised)


(Revised)Net cash (used in) provided by
    operating activities of continuing operations

$
(151.1
)

$
947.3


$
(8.6
)Net cash (used in) provided by
    operating activities of discontinued operations


(8.2
)


22.4



2.9Net cash (used in) provided by
    operating activities

$
(159.3
)

$
969.7


$
(5.7
)Net cash (used in) provided by
    investing activities of continuing operations

$
(186.8
)

$
(112.2
)

$
497.1Net cash provided by investing
    activities of discontinued operations


17.1



16.5



466.3Net cash (used in) provided by
    investing activities

$
(169.7
)

$
(95.7
)

$
963.4Net cash (used in) provided by
    financing activities of continuing operations

$
(222.8
)

$
(570.0
)

$
(510.4
)Net cash (used in) provided by
    financing activities of discontinued operations


(8.9
)


(38.9
)


(507.4
)Net cash (used in) provided by
    financing activities

$
(231.7
)

$
(608.9
)

$
(1,017.8
)          40




---



##### Table of Contents



tm tm
  tm tm
   41




---



##### Table of Contents



30-day
        Debt,
    Other Contractual Obligations, and Off Balance Sheet
    Arrangements
    Payments Due by PeriodTotal


FY07


FY08


FY09


FY10


FY11


FY12


Thereafter(In millions)Debt

$
708.9


$
89.5


$
1.1


$
0.6


$
9.1


$
451.2


$



$
157.4Interest Expense on
    Long-Term
    Debt


97.9



16.2



14.7



14.5



14.5



13.4



12.3



12.3Capital Lease


3.4



1.2



1.2



1.0















Operating lease


172.9



40.0



34.0



27.2



20.7



15.4



14.4



21.2Operating leases for restructured
    facilities and equipment


29.4



15.6



6.5



2.7



2.2



1.4



0.6



0.4Purchase obligations(1)


106.8



106.5







0.3















$
1,119.3


$
269.0


$
57.5


$
46.3


$
46.5


$
481.4


$
27.3


$
191.3     (1)
    
    We have various purchase commitments for materials, supplies and
    services incurred during the normal course of business.  non-U.S. pension
   42




---



##### Table of Contents



Stock
    Repurchase Program
  10b5-1 trading
    Discontinued
    Operations
      Years Ended August 312006


2005


2004Net sales

$



$
15.2


$
1,264.9Cost of sales






14.1



1,061.8Gross profit






1.1



203.1Operating (income)
    expenses  net


(6.7
)


(14.8
)


109.4Operating income


6.7



15.9



93.7Interest income-net










1.4Other income (expense) 
    net


8.9



0.9



(1.4
)Income before income taxes


15.6



16.8



93.7Income tax expense






2.9



8.7Income on discontinued operations,
    net of tax

$
15.6


$
13.9


$
85.0   Fiscal
    2006
    Fiscal
    2005
   43




---



##### Table of Contents



Fiscal
    2004
      Item 7a.
    Quantitative
    and Qualitative Disclosures About Market Risk   44




---



##### Table of Contents



Item 8.
    Consolidated
    Financial Statements and Supplementary Data  Form 10-K
  PageConsolidated
    Balance Sheets


46Consolidated
    Statements of Operations


47Consolidated
    Statements of Stockholders Equity


48Consolidated
    Statements of Comprehensive Income (Loss)


49Consolidated
    Statements of Cash Flows


50Notes to the
    Consolidated Financial Statements


52Reports of
    Independent Registered Public Accounting Firm


87Managements
    Report on Internal Control Over Financial Reporting


88Consolidated
    Financial Statement Schedule II  Valuation and
    Qualifying Accounts


93  45




---



##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  CONSOLIDATED
    BALANCE SHEETS
  August 312006


2005(In millions, exceptper share data)ASSETSCurrent assets:Cash and cash equivalents

$
1,126.0


$
1,682.8Restricted cash and cash
    equivalents


31.6



13.2Short-term investments


22.9



26.3Accounts receivable, less
    allowance for doubtful accounts of $14.5 and $22.3, respectively


1,429.3



1,180.7Inventories


1,516.1



1,108.5Prepaid expenses and other current
    assets


225.8



211.4Total current assets


4,351.7



4,222.9Property and equipment, net


673.4



666.3Goodwill


155.2



148.8Other assets


193.3



219.8Total assets

$
5,373.6


$
5,257.8LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent liabilities:Short-term debt

$
89.5


$
165.7Accounts payable


1,616.7



1,371.2Accrued employee compensation


170.4



167.0Accrued expenses and other current
    liabilities


427.6



509.6Total current liabilities


2,304.2



2,213.5Long-term debt


619.4



540.9Other long-term liabilities


36.3



59.2Total liabilities


2,959.9



2,813.6Commitments and contingenciesStockholders equity:Preferred stock, $0.001 par
    value; 1.2 shares authorized; one share issued






Common stock. $0.001 par
    value; 1,600.0 shares authorized: 905.8 and
    957.9 shares issued and outstanding, respectively


1.0



1.0Additional paid-in capital


7,585.2



7,774.1Accumulated deficit


(5,073.3
)


(5,206.5
)Accumulated other comprehensive
    losses


(99.2
)


(124.4
)Total stockholders equity


2,413.7



2,444.2Total liabilities and
    stockholders equity

$
5,373.6


$
5,257.8    46




---



##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Years Ended August 312006


2005


2004(In millions, except per share data)Net sales

$
10,560.7


$
10,441.1


$
11,638.3Cost of sales


10,013.1



9,868.8



11,068.6Gross profit


547.6



572.3



569.7Operating expenses:Selling, general and administrative


433.3



412.8



446.7Restructuring and impairment costs


14.0



91.1



177.9Operating income (loss)


100.3



68.4



(54.9
)Interest income


47.0



38.8



15.1Interest expense


(28.5
)


(56.5
)


(145.3
)Other expense, net


(1.7
)


(45.5
)


(80.6
)Income (loss) from continuing
    operations before income tax expense (benefit)


117.1



5.2



(265.7
)Income tax expense (benefit)


(1.3
)


15.7



(3.3
)Income (loss) from continuing
    operations

$
118.4


$
(10.5
)

$
(262.4
)Discontinued operations:Income from discontinued
    operations before income tax expense


15.6



16.8



93.7Income tax expense






2.9



8.7Income from discontinued operations


15.6



13.9



85.0Income (loss) before cumulative
    effect of change in accounting principle


134.0



3.4



(177.4
)Cumulative effect of change in
    accounting principle, net


(0.8
)






Net income (loss)

$
133.2


$
3.4


$
(177.4
)Basic net income (loss) per share:Continuing operations

$
0.13


$
(0.01
)

$
(0.30
)Discontinued operations


0.02



0.01



0.10Cumulative effect of change in
    accounting principle, net










Basic net income (loss) per share

$
0.15


$



$
(0.20
)Diluted net income (loss) per
    share:Continuing operations

$
0.13


$
(0.01
)

$
(0.30
)Discontinued operations


0.02



0.01



0.10Cumulative effect of change in
    accounting principle, net










Diluted net income (loss) per share

$
0.15


$



$
(0.20
)Shares used to compute basic net
    (loss) income per share


915.9



967.4



873.9Shares used to compute diluted net
    (loss) income per share


916.9



967.4



873.9    47




---



##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY
  AccumulatedAdditional





Other


TotalCommon Stock


Paid-In


Accumulated


Comprehensive


StockholdersShares


Amount


Capital


Deficit


Losses


Equity(In millions)Balances as of August 31, 2003


832.6


$
0.8


$
6,658.2


$
(5,032.5
)

$
(154.8
)

$
1,471.7Net loss





$



$



$
(177.4
)

$



$
(177.4
)Foreign currency translation


















(3.0
)


(3.0
)Unrealized gain on investments


















9.7



9.7Stock issued under stock option
    and employee purchase plans


8.3







29.6











29.6Stock issued


17.1







81.7











81.7Settlement of equity security units


105.6



0.2



1,006.4











1,006.6Balances as of August 31, 2004


963.6


$
1.0


$
7,775.9


$
(5,209.9
)

$
(148.1
)

$
2,418.9Net income





$



$



$
3.4


$



$
3.4Foreign currency translation


















33.9



33.9Change in minimum pension
    obligation


















(10.2
)


(10.2
)Stock issued under stock option
    and employee purchase plans


5.0







16.1











16.1Stock issued


6.6







64.3











64.3Stock repurchased


(17.3
)






(82.2
)










(82.2
)Balances as of August 31, 2005


957.9


$
1.0


$
7,774.1


$
(5,206.5
)

$
(124.4
)

$
2,444.2Net income





$



$



$
133.2


$



$
133.2Foreign currency translation


















25.1



25.1Unrealized gain on investments


















0.1



0.1Impact of adoption of FAS 123R










22.2











22.2Stock issued under stock
    option & employee purchase plans


8.9







9.5











9.5Stock repurchase


(61.0
)






(220.6
)










(220.6
)Balances as of August 31, 2006


905.8


$
1.0


$
7,585.2


$
(5,073.3
)

$
(99.2
)

$
2,413.7    48




---



##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
  Years Ended August 312006


2005


2004(In millions)Net income (loss)

$
133.2


$
3.4


$
(177.4
)Other comprehensive income (loss):


Change in minimum pension liability






(10.2
)


Foreign currency translation
    adjustments, net


25.1



33.9



(3.0
)Unrealized gain on investments, net


0.1







9.7Comprehensive income (loss)

$
158.4


$
27.1


$
(170.7
)      49




---



##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Years Ended August 312006


2005


2004(Revised)


(Revised)(In millions)Cash flows from operating
    activities:Net income (loss)

$
133.2


$
3.4


$
(177.4
)Adjustments to reconcile net income
    (loss) to net cash (used in) provided by operating activities:Income from discontinued operations


(15.6
)


(13.9
)


(85.0
)Depreciation and amortization


173.5



193.3



276.3Gain on disposal of property and
    equipment


(0.8
)






Loss on retirement of debt and
    interest rate swaps






45.6



72.1Deferred tax charge (benefit)


(3.9
)


11.9



(12.0
)Impairment of goodwill and
    intangible assets










47.5Impairment of property and
    equipment and other long-term assets, net


14.5



46.6



60.2Stock-based compensation


22.2







Changes in operating assets and
    liabilities:Accounts receivable, net of
    allowance


(246.3
)


362.9



(144.3
)Inventories


(407.4
)


348.5



(134.1
)Prepaid expenses and other assets


3.5



11.0



6.8Accounts payable


244.2



(53.6
)


150.3Accrued expenses and other current
    liabilities


(68.2
)


(8.4
)


(69.0
)Net cash (used in) provided by
    operating activities of continuing operations


(151.1
)


947.3



(8.6
)Net cash (used in) provided by
    operating activities of discontinued operations


(8.2
)


22.4



2.9Net cash (used in) provided by
    operating activities


(159.3
)


969.7



(5.7
)Cash flows from investing
    activities:Change in restricted cash and cash
    equivalents


(18.4
)


4.3



44.5Sale (purchase) of available
    for sale securities


3.4



(26.3
)


27.5Settlement of receivable related to
    synthetic lease






31.4



Acquisitions, net of cash acquired


(5.7
)


(42.2
)


Capital expenditures


(196.5
)


(150.4
)


(149.6
)Proceeds from sale of property and
    equipment


21.5



32.1



68.9Receipts from discontinued
    operations


8.9



38.9



505.6Supply agreement and other










0.2Net cash (used in) provided by
    investing activities of continuing operations


(186.8
)


(112.2
)


497.1Net cash provided by investing
    activities of discontinued operations


17.1



16.5



466.3Net cash (used in) provided by
    investing activities


(169.7
)


(95.7
)


963.4Cash flows from financing
    activities of continuing operations:Proceeds used for ACES early
    settlement










(63.3
)Net proceeds (repayment) on bank
    lines of credit and other debt arrangements


1.2



(23.8
)


(50.5
)Proceeds from issuance of debt, net


147.4







436.5Payments made to redeem ACES and
    Senior Notes


(150.0
)


(544.7
)


Net (costs) proceeds to settle
    interest rate swap






(8.2
)


6.0Repurchase of LYONS










(950.2
)Common stock repurchase


(230.9
)


(71.0
)


Net proceeds from issuance of
    common stock






77.7



111.1Net proceeds from stock issued
    under option and employee purchase plans


9.5







Net cash used in financing
    activities of continuing operations


(222.8
)


(570.0
)


(510.4
)Net cash used in financing
    activities of discontinued operations


(8.9
)


(38.9
)


(507.4
)Net cash used in financing
    activities


(231.7
)


(608.9
)


(1,017.8
)Effect of exchange rate changes on
    cash and cash equivalents


3.9



5.0



14.7Net (decrease) increase in cash and
    cash equivalents


(556.8
)


270.1



(45.4
)Cash and cash equivalents of
    continuing operations at beginning of year


1,682.8



1,412.7



1,425.3Cash and cash equivalents of
    discontinued operations at beginning of year










32.8Total cash and cash equivalents at
    beginning of year


1,682.8



1,412.7



1,458.1Cash and cash equivalents of
    continuing operations at end of year


1,126.0



1,682.8



1,412.7Cash and cash equivalents of
    discontinued operations at end of year










Total cash and cash equivalents at
    end of year

$
1,126.0


$
1,682.8


$
1,412.7    50




---



##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Years Ended August 312006


2005


2004(Revised)


(Revised)(In millions)SUPPLEMENTAL
    DISCLOSURESCash paid during the period:Income taxes

$
23.1


$
14.7


$
6.6Interest

$
23.0


$
59.0


$
100.8Non-cash investing and financing
    activities:Early settlement of ACES for stock

$



$



$
1,006.6Accrued stock repurchase

$
1.2


$
11.2


$
    51




---



##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  Notes
    to Consolidated Financial Statements
  NOTE 1.
    Summary
    of Significant Accounting Policies  Basis of Presentation:
  Year End:
  Use of Estimates:
  Cash Equivalents and Short-Term
    Investments: available-for-sale
  Restricted Cash and Cash Equivalents:
  Allowance for Doubtful Accounts:
  Inventory Valuation:
 52




---



##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Property and Equipment:
  Machinery, equipment, and computer
    software

2-7 yearsFurniture and fixtures

3-5 yearsLeasehold improvements

shorter of estimated life or lease
    termBuildings

15-50 years     Goodwill and Intangible Assets:
      Restructuring and Related Impairment
    Costs:
 53




---



##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
      No. 94-3,
      Income Taxes:
 54




---



##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Net Income (Loss) Per Share:
  Loss Contingencies:
  Revenue Recognition: out-of-warranty
  No. 01-09,
  time-to-time,
  No. 99-19,
 55




---



##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Stock-Based Compensation:
            Accounting for Stock Issued to Employees
  Foreign Currency:
  Derivative Instruments:
  Research and Development Costs:
  Asset Retirement Obligations: Accounting for Contingent
    Asset Retirement Obligations
 56




---



##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
    New
    Accounting Principles:
        Reclassifications:
   57




---



##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
  NOTE 2.
    Cash,
    Cash Equivalents and Short-term Investments    Cash, CashEquivalents and Short-Term InvestmentsAugust 31, 2006Cash and restricted cash

$
456.4Money market funds


401.0Term deposits


231.1Commercial paper


15.4US government and agency securities


13.2Overnight deposits and other cash
    equivalents


40.5Short-term investments


22.9Total

$
1,180.5August 31, 2005Cash and restricted cash

$
826.1Money market funds


747.1Term deposits


89.0Commercial paper


12.0US government and agency securities


11.7Overnight deposits and other cash
    equivalents


10.1Short-term investments


26.3Total

$
1,722.3     NOTE 3.
    Revision
    of Statements of Cash Flows    NOTE 4.
    Stock-Based
    Compensation   58




---



##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Share-Based Payment, Accounting for Stock
    Issued to Employees No. FAS 123R-3
      2005


2004(In millions, except per-share data)Net income (loss) as reported

$
3.4


$
(177.4
)Stock-based employee compensation
    expense determined under fair value method, net of related tax
    effects


(58.7
)


(60.5
)Pro forma net loss

$
(55.3
)

$
(237.9
)Net loss per shareBasic and diluted  as
    reported

$



$
(0.20
)Basic and diluted  pro
    forma

$
(0.06
)

$
(0.27
)    59




---



##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Stock
    Options
      Stock Option Plans

2006

2005

2004Expected volatility

52% to 59%

57%

75%Dividend yield

zero

zero

zeroExpected life of options

4.3 years to 4.9 years

4.5 years

3.9 yearsRisk-free interest rate

4.26% to 5.1%

3.79%

2.30% to 3.06%   Employee Stock Purchase Plan

2006

2005

2004Weight-average volatility

30% to 44%

37%

77%Dividend yield

zero

zero

zeroExpected life of purchase right

6 to 12 months

6 to 12 months

6 monthsRisk-free interest rate

3.94% to 5.1%

2.90%

1.00% to 1.70%     WeightedStock Option


AverageAwards


ExerciseOutstanding


PriceBalance at August 31, 2005


50,851,092


$
9.75Granted


3,500,700


$
3.68Exercised


198,899


$
3.28Forfeited


9,140,530


$
10.82Balance at August 31, 2006


45,012,363


$
9.09Exercisable at August 31, 2006


35,818,238


$
10.44  60




---



##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Options Outstanding


Options ExercisableWeightedAverage


Weighted





WeightedRemaining


Average





AverageNumber


Contractual


Exercise


Number


ExerciseRange of Exercise Prices

Outstanding


Term


Price


Exercisable


Price$ 1.88 - $ 3.76


5,043,194



8.37


$
3.515



1,998,643


$
3.405$ 3.77 - $ 3.77


3,820,351



6.89


$
3.770



2,947,627


$
3.770$ 3.79 - $ 3.79


4,922,171



8.89


$
3.790



1,179,910


$
3.790$ 3.99 - $ 3.99


4,500,000



6.37


$
3.990



4,031,250


$
3.990$ 4.01 - $ 5.07


4,024,742



7.42


$
4.525



3,250,979


$
4.613$ 5.09 - $ 5.09


5,265,532



7.81


$
5.090



5,108,499


$
5.090$ 5.13 - $ 6.46


4,667,839



7.15


$
5.698



4,551,124


$
5.693$ 6.54 - $10.29


5,188,305



5.07


$
9.646



5,169,944


$
9.657$10.78 - $35.03


5,270,673



1.64


$
22.632



5,270,673


$
22.632$35.31 - $51.67


2,309,589



1.50


$
43.036



2,309,589


$
43.036$ 1.88 - $51.67


45,012,396



6.30


$
9.088



35,818,238


$
10.441           Employee
    Stock Purchase Plan
   61




---



##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Restricted
    Stock Awards and Discounted Stock Options
      NOTE 5.
    Inventories    2006


2005Raw materials

$
1,127.0


$
771.0Work-in-process


202.2



152.8Finished goods


186.9



184.7Total

$
1,516.1


$
1,108.5   NOTE 6.
    Property
    and Equipment    2006


2005Land

$
43.5


$
46.4Building and improvements


367.1



384.3Leasehold improvements


100.8



82.5Furniture, fixtures, equipment and
    other


1,040.0



987.5Computer equipment and software


338.3



317.61,889.7



1,818.3Less: accumulated depreciation and
    amortization


1,216.3



1,152.0Property and equipment, net

$
673.4


$
666.3   NOTE 7.
    Lines of
    Credit   62




---



##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
  1/2
     63




---



##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
  NOTE 8.
    Debt    2006


2005(In millions)8.00% senior subordinated
    notes, face value of $150.0, fair value of $145.1 in 2006, due
    2016

$
150.0


$
0.5% convertible senior
    notes, face value of $2.7, fair value of $2.0 in 2006 and $2.1
    in 2005, due 2034


2.7



2.70.5% convertible senior
    notes, series B, face value of $447.3, fair values of
    $338.8 in 2006 and $341.0 in 2005, due 2034


447.3



447.37.375% senior notes, face
    value of $150.0, fair value of $151.3 in 2005, due 2006






150.07.97% adjustable conversion-rate
    equity securities (ACES), face value of $64.3, fair values of
    $64.5 in 2006 and $65.8 in 2005, due 2006


64.3



63.62.75% zero-coupon convertible
    senior notes, face values of $12.0 in 2006 and $13.0 in 2005,
    fair values of $8.2 in 2006 and $8.7 in 2005, due 2020


8.2



8.73.25% zero-coupon convertible
    senior notes, face values of $1.7 in 2006 and $5.0 in 2005, fair
    values of $1.1 in 2006 and $3.1 in 2005, due 2020


1.1



3.1Other, fair values approximate
    carrying value


35.3



31.2Total debt

$
708.9


$
706.6Less: current portion


89.5



165.7Total long-term debt

$
619.4


$
540.9   8.00% Senior
    Subordinated Notes due 2016
   64




---



##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
  0.5% Convertible
    Senior Notes due 2034
          7.375% Senior
    Notes
    Adjustable
    Conversion-Rate Equity Securities (ACES)
     65




---



##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Liquid
    Yield Option Notes
    (LYONstm)
  tm tm
  tm tm
    Years Ending
    August 31:2007

$
89.52008


1.12009


0.62010


9.12011


451.22012


Thereafter


157.4Total

$
708.9   NOTE 9.
    Financial
    Instruments  Fair
    Value of Financial Instruments
    Derivatives
   66




---



##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
              NOTE 10.
    Commitments
    and Contingencies  Synthetic
    Leases
    30-day
   67




---



##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
      Future
    Minimum Lease Obligations
      Payments Due by PeriodTotal


FY07


FY08


FY09


FY10


FY11


FY12


Thereafter(In millions)Operating lease

$
172.9


$
40.0


$
34.0


$
27.2


$
20.7


$
15.4


$
14.4


$
21.2     Related
    Party Guarantees
    Legal
    Proceedings
    Abrams v. Solectron Corporation
    et al. No. C-03-0986
  Conditional
    Asset Retirement Obligations
  Accounting for Conditional Asset Retirement
    Obligations Accounting for Asset
    Retirement Obligations
 68




---



##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
      NOTE 11.
    Retirement
    Plans    non-U.S. employees
  NOTE 12.
    Taxes    2006


2005


2004Current:Federal

$
11.0


$
(3.8
)

$
2.8State


0.1



0.8



2.7Foreign


(8.5
)


6.8



3.22.6



3.8



8.7Deferred:Federal










State










Foreign


(3.9
)


11.9



(12.0
)(3.9
)


11.9



(12.0
)Total

$
(1.3
)

$
15.7


$
(3.3
)  69




---



##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
    2006


2005


2004Federal tax rate


35.0
%


35.0
%


35.0
%State income tax, net of federal
    tax benefit


0.1



15.4



(1.1
)Income of international
    subsidiaries taxed at different rates


(33.2
)


(739.8
)


16.9Tax holidays


(45.9
)


(432.7
)


28.6Nondeductible goodwill and other
    permanent items


19.8



1,419.5



(6.6
)Loss for which no benefit is
    currently realized










(77.4
)Change in valuation allowance


34.0



232.3



7.0Change in estimate of contingency
    reserves


8.7



(183.8
)


Refunds on reinvested earnings


(18.3
)






Other


(1.3
)


(44.0
)


(1.2
)Effective income tax rate


(1.1
)%


301.9
%


1.2
%     2006


2005Deferred tax assets:Accruals, allowances and reserves

$
77.9


$
84.6State income tax


70.2



50.8Acquired intangible assets


342.2



410.4Depreciation


19.0



Net operating loss carryover and
    credits


835.3



924.8Restructuring accruals


9.5



21.8Capital loss carryover


270.5



234.8Other


39.2



48.2Deferred tax assets


1,663.8



1,775.4Valuation allowance


(1,627.3
)


(1,686.8
)Total deferred tax assets

$
36.5


$
88.6Deferred tax liabilities:Depreciation






(28.3
)Other


(7.0
)


(0.7
)Total deferred tax liabilities


(7.0
)


(29.0
)Net deferred tax assets

$
29.5


$
59.6    70




---



##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
            Jurisdiction

Amount


ExpirationAustralia

$
50.4


IndefiniteBrazil


205.7


IndefiniteCanada


32.9


2008-2026France


197.7


2007-IndefiniteGermany


99.4


IndefiniteHungary


134.3


IndefiniteJapan


87.4


2009-2012Netherlands


79.6


IndefiniteSweden


47.6


IndefiniteUnited Kingdom


85.2


IndefiniteOther


63.3


Various       2006


2005


2004U.S.

$
(56.6
)

$
44.9


$
(373.9
)Non-U.S.


173.7



(39.7
)


108.2Total

$
117.1


$
5.2


$
(265.7
)   non-U.S. subsidiaries
 71




---



##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
            NOTE 13.
    Stockholders
    Equity  Common
    Stock Issuance
   72




---



##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Board
    of Directors Stock in Lieu of Retainer
    Stock
    Repurchase
      NOTE 14.
    Segment
    and Geographic Information        Years Ended August 312006


2005


2004Geographic net sales:United States

$
3,272.1


$
3,127.1


$
3,219.4Other North and Latin America


1,568.2



1,633.6



1,836.2Europe


1,247.9



1,497.3



1,667.4Malaysia


2,211.8



2,013.2



1,853.4China


1,320.3



1,268.2



1,914.6Other Asia Pacific


940.4



901.7



1,147.3$
10,560.7


$
10,441.1


$
11,638.3  73




---



##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
    August 31


August 312006


2005Long-lived assets:United States

$
292.0


$
314.3Other North and Latin America


167.7



165.7Europe


142.6



138.0Asia Pacific


287.5



275.8$
889.8


$
893.8     Years Ended August 312006


2005


2004Computing & Storage


32.2
%


30.6
%


30.5
%Networking


26.1
%


25.0
%


21.6
%Communications


19.1
%


19.8
%


18.8
%Consumer


9.8
%


13.7
%


19.3
%Industrial


8.7
%


5.9
%


5.4
%Automotive


2.5
%


3.2
%


2.6
%Other


1.6
%


1.8
%


1.8
%Total


100.0
%


100.0
%


100.0
%   NOTE 15.
    Major
    Customers    Years Ended August 312006


2005


2004Cisco Systems


17.9
%


15.7
%


13.2
%Nortel Networks


*



10.8
%


*     *
    
    less than 10%    NOTE 16.
    Restructuring   74




---



##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
  No. 94-3,
    Overview
    of Restructuring Plans
  Fiscal
    Year 2005 Restructuring Plan
  $80-$95 million
  
    Closing the Companys facilities in Hillsboro, Oregon;
    Winnipeg, Canada; Lincoln, California; Turnhout, Belgium; and
    Munich, Germany.
    Eliminating approximately 2,500 positions (1) at the
    facilities being closed; (2) at the Companys
    facilities in Bordeaux, France; Dunfermline, Scotland;
    Guadalajara, Mexico; Jaguariuna, Brazil; and other facilities;
    and (3) within the Companys material procurement and
    sales organizations in Europe and North America. These actions
    included the elimination of certain positions, the migration of
    certain functional activities to facilities in lower cost
    geographies and the outsourcing of certain activities.
    Impairing certain long-lived assets (primarily building and
    leasehold improvement) in connection with the facilities being
    vacated and equipment made obsolete to the extent that Solectron
    would be unable to recover their carrying value upon sales to
    third parties. 75




---



##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
     Fiscal
    Year 2004 Restructuring Plan
      Legacy
    Restructuring Plans
    Summary
    of Restructuring Plans
   76




---



##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
            2006


2005


2004


NatureLoss on disposal of and impairment
    of equipment and facilities, net of loss (gain) on disposal

$
12.9


$
45.2


$
38.5


non-cashIntangible asset impairment
    charge, net


1.9







47.5


non-cashSeverance and benefit costs


(10.8
)


46.3



25.9


cashNet adjustment to equipment lease
    loss accrual


0.1



(0.2
)


(2.2
)

cashNet adjustment to facility lease
    loss accrual


7.5



(1.4
)


42.5


cashOther exit costs


2.4



1.2



25.7


cashTotal

$
14.0


$
91.1


$
177.9  77




---



##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Restructuring
    Accrual
    Severance


Lease Facilitiesand Benefits


& Equipment


Other


TotalBalance of accrual at
    August 31, 2003

$
74.2


$
61.0


$
10.5


$
145.7FY2004 Provision


25.9



56.0



25.7



107.6FY2004 Provision adjustments






(15.7
)






(15.7
)FY2004 Cash payments


(71.2
)


(38.9
)


(34.9
)


(145.0
)Balance of accrual at
    August 31, 2004

$
28.9


$
62.4


$
1.3


$
92.6FY2005 Provision


54.2



2.8



1.2



58.2FY2005 Provision adjustments


(7.9
)


(4.4
)






(12.3
)FY2005 Cash payments


(30.3
)


(28.1
)


(2.4
)


(60.8
)Balance of accrual at
    August 31, 2005

$
44.9


$
32.7


$
0.1


$
77.7FY2006 Provision


6.0



8.6



2.6



17.2FY2006 Provision adjustments


(16.6
)


(0.6
)


(0.1
)


(17.3
)FY2006 Cash payments


(27.0
)


(17.7
)


(2.5
)


(47.2
)FY2006 Foreign Exchange Adjustment


(0.2
)


0.1







(0.1
)Balance of accrual at
    August 31, 2006

$
7.1


$
23.1


$
0.1


$
30.3    78




---



##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Restructuring
    Activity by Plan
    Fiscal


Fiscal


Legacy2005 Plan


2004 Plan


Plans


TotalBalance of accrual at
    August 31, 2003

$



$



$
145.7


$
145.7FY2004 Provision






13.4



94.2



107.6FY2004 Provision adjustments










(15.7
)


(15.7
)FY2004 Cash payments






(0.8
)


(144.2
)


(145.0
)Balance of accrual at
    August 31, 2004

$



$
12.6


$
80.0


$
92.6FY2004 non-cash items

$



$
5.6


$
32.9


$
38.5FY2005 Provision


50.2



7.4



0.6



58.2FY2005 Provision adjustments






(4.9
)


(7.4
)


(12.3
)FY2005 Cash payments


(10.0
)


(9.9
)


(40.9
)


(60.8
)Balance of accrual at
    August 31, 2005

$
40.2


$
5.2


$
32.3


$
77.7FY2005 non-cash items

$
6.7


$
2.6


$



$
9.3FY2006 Provision


10.1



1.4



5.7



17.2FY2006 Provision adjustments


(13.8
)


(2.6
)


(0.9
)


(17.3
)FY2006 Cash payments


(29.4
)


(1.8
)


(16.0
)


(47.2
)FY2006 Foreign Exchange Adjustment






(0.1
)






(0.1
)Balance of accrual at
    August 31, 2006

$
7.1


$
2.1


$
21.1


$
30.3FY2006 non-cash items

$
4.6


$
2.0


$
1.6


$
8.2   NOTE 17.
    Goodwill
    and Intangible Assets    GoodwillBalance at August 31, 2004

$
137.7Goodwill acquired


11.1Balance at August 31, 2005

$
148.8Goodwill acquired


6.4Balance at August 31, 2006

$
155.2   Fiscal
    2006
   79




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##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
      Fiscal
    2005
      Intangible
    Assets
   80




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##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Supply


Intellectual PropertyAgreements


Agreements


Other


TotalFiscal 2006Gross amount

$
89.2


$
56.2


$
94.7


$
240.1Intangibles acquired










0.8



0.8Accumulated amortization


(86.3
)


(53.0
)


(82.8
)


(222.1
)Impairment










(2.5
)


(2.5
)Carrying value

$
2.9


$
3.2


$
10.2


$
16.3Fiscal 2005Gross amount

$
87.7


$
61.0


$
92.3


$
241.0Intangibles acquired


4.2







6.6



10.8Accumulated amortization


(86.7
)


(56.2
)


(84.1
)


(227.0
)Impairment














Carrying value

$
5.2


$
4.8


$
14.8


$
24.8Fiscal 2004Gross amount

$
87.7


$
108.5


$
92.3


$
288.5Accumulated amortization


(86.1
)


(54.5
)


(77.5
)


(218.1
)Impairment






(47.5
)






(47.5
)Carrying value

$
1.6


$
6.5


$
14.8


$
22.9          81




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##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
    NOTE 18.
    Discontinued
    Operations        Years Ended August 312006


2005


2004Net sales

$



$
15.2


$
1,264.9Cost of sales






14.1



1,061.8Gross profit






1.1



203.1Operating (income)
    expenses  net


(6.7
)


(14.8
)


109.4Operating income


6.7



15.9



93.7Interest income-net










1.4Other income (expense) 
    net


8.9



0.9



(1.4
)Income before income taxes


15.6



16.8



93.7Income tax expense






2.9



8.7Income on discontinued operations,
    net of tax

$
15.6


$
13.9


$
85.0      82




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##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
          NOTE 19.
    Net
    Income (Loss) Per Share        2006


2005


2004Basic earnings per share:Net income (loss)

$
118.4


$
(10.5
)

$
(262.4
)Shares used in computation:Weighted average ordinary shares
    outstanding


915.9



967.4



873.9Basic earnings (loss) per share

$
0.13


$
(0.01
)

$
(0.30
)Diluted earnings per share:Net income (loss)

$
118.4


$
(10.5
)

$
(262.4
)Shares used in computation:Weighted average ordinary shares
    outstanding


915.9



967.4



873.9Employee stock options


0.2







Restricted stock


0.7







Shares issuable upon conversion of
    convertible securities


0.1







Weighted average number of shares


916.9



967.4



873.9Diluted earnings (loss) per share

$
0.13


$
(0.01
)

$
(0.30
)  83




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##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
    2006


2005


2004Anti-dilutive securities:Employee stock options


38.8



36.7



40.6Shares issuable upon conversion of
    convertible securities


0.3



1.9



118.0Total anti-dilutive shares


39.1



38.6



158.6   NOTE 20.
    Related
    Party Transactions    NOTE 21.
    Guarantee
    of Subsidiary Notes    NOTE 22.
    Subsequent
    Events         84




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##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
  NOTE 23.
    Quarterly
    Consolidated Financial Data (Unaudited)    Year Ended August 31, 2006First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter(In millions, except per share amounts)Net sales

$
2,456.4


$
2,499.6


$
2,702.6


$
2,902.1Cost of sales


2,330.8



2,370.6



2,560.4



2,751.3Gross profit


125.6



129.0



142.2



150.8Operating expenses:Selling, general and administrative


107.4



104.3



112.2



109.4Restructuring and impairment costs


0.9



5.6



2.6



4.9Operating income (loss)


17.3



19.1



27.4



36.5Interest income


12.1



12.3



12.3



10.3Interest expense


(6.7
)


(6.9
)


(7.2
)


(7.7
)Other income (expense) 
    net


1.9



(1.9
)


(0.8
)


(0.8
)Income (loss) from continuing
    operations before income tax expense


24.6



22.6



31.7



38.3Income tax expense (benefit)


4.4



5.5



(10.7
)


(0.5
)Income (loss) from continuing
    operations

$
20.2


$
17.1


$
42.4


$
38.8Discontinued operations:Income from discontinued
    operations before income tax expense


3.8



13.3



(0.4
)


(1.2
)Income tax expense














Income (loss) from discontinued
    operations

$
3.8


$
13.3


$
(0.4
)

$
(1.2
)Income (loss) before cumulative
    effect of change in accounting principle


24.0



30.4



42.0



37.6Cumulative effect of change in
    accounting principle, net














(0.8
)Net income (loss)

$
24.0


$
30.4


$
42.0


$
36.8Basic net income (loss) per share:Continuing operations

$
0.02


$
0.02


$
0.05


$
0.04Discontinued operations


0.01



0.01







Cumulative effect of change in
    accounting principle, net














Basic net income (loss) per share

$
0.03


$
0.03


$
0.05


$
0.04Diluted net income (loss) per
    share:Continuing operations

$
0.02


$
0.02


$
0.05


$
0.04Discontinued operations


0.01



0.01







Cumulative effect of change in
    accounting principle, net














Diluted net income (loss) per share

$
0.03


$
0.03


$
0.05


$
0.04Shares used to compute basic net
    income (loss) per share


925.2



908.8



908.1



902.1Shares used to compute diluted net
    income (loss) per share


925.9



909.7



909.6



903.0  85




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##### Table of Contents



SOLECTRON
    CORPORATION AND SUBSIDIARIES
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Year Ended August 31, 2005First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter(In millions, except per share amounts)Net sales

$
2,690.6


$
2,756.0


$
2,596.0


$
2,398.5Cost of sales


2,535.1



2,598.1



2,461.4



2,274.2Gross profit


155.5



157.9



134.6



124.3Operating expenses:Selling, general and administrative


95.6



104.7



109.7



102.8Restructuring and impairment costs


0.7



43.2



40.5



6.7Operating income (loss)


59.2



10.0



(15.6
)


14.8Interest income


5.8



9.1



12.6



11.3Interest expense


(16.3
)


(16.7
)


(17.3
)


(6.2
)Other income (expense) 
    net


4.7



1.1



(47.8
)


(3.5
)Income (loss) from continuing
    operations before income taxes


53.4



3.5



(68.1
)


16.4Income tax expense (benefit)


5.9



6.6



(1.4
)


4.6Income (loss) from continuing
    operations

$
47.5


$
(3.1
)

$
(66.7
)

$
11.8Discontinued operations:Income from discontinued operations


12.4



0.9



2.6



0.9Income tax expense


1.7











1.2Income (loss) from discontinued
    operations

$
10.7


$
0.9


$
2.6


$
(0.3
)Net income (loss)

$
58.2


$
(2.2
)

$
(64.1
)

$
11.5Basic net income (loss) per share:Continuing operations

$
0.05


$



$
(0.07
)

$
0.01Discontinued operations:


0.01











Basic net income (loss) per share:

$
0.06


$



$
(0.07
)

$
0.01Diluted net income (loss) per
    share:Continuing operations

$
0.05


$



$
(0.07
)

$
0.01Discontinued operations:


0.01











Diluted net income (loss) per share

$
0.06


$



$
(0.07
)

$
0.01Shares used to compute basic net
    income (loss) per share


963.2



977.1



978.4



967.9Shares used to compute diluted net
    income (loss) per share


967.4



977.1



978.4



969.2    86




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM           Share-Based Payment Accounting for Conditional Asset Retirement Obligations.
  Internal Control-Integrated Framework
  
    87




---



##### Table of Contents



MANAGEMENTS
    REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING         88




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
     Internal Control  Integrated Framework
        Internal
    Control  Integrated Framework Internal Control 
    Integrated Framework
      89




---



##### Table of Contents



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9a.
    Controls
    and Procedures  Evaluation of Disclosure Controls and
    Procedures. Rules 13a-15(e) 15d-15(e)
  Managements Report on Internal Control over Financial
    Reporting.
    Changes in internal control over financial
    reporting.
  Item 9b.
    Other
    Information  .
 PART III  Item 10.
    Directors
    and Executive Officers of the Registrant    Item 11:
    Executive
    Compensation  Form 10-K
  Item 12:
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    Item 13:
    Certain
    Relationships and Related Transactions   90




---



##### Table of Contents



Item 14:
    Principal
    Accountant Fees and Services   PART IV  Item 15.
    Exhibits
    and Consolidated Financial Statement Schedules  (a)(1)


Consolidated Financial Statements.
    The financial statements listed in Item 8:
    Consolidated Financial Statements and Supplementary
    Data, above are filed as part of this Annual Report on
    Form 10-K,
    beginning on page 45.(a)(2)


Consolidated Financial Statement
    Schedule. See Schedule II on page 93.(a)(3)


Exhibits. The exhibits listed in
    the accompanying Index to Exhibits are filed as part
    of this Annual Report on
    Form 10-K.  91




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##### Table of Contents



SIGNATURES      By:
    /s/  Michael
    Cannon    President and Chief Executive Officer
    Signature

Title

Date/s/  Michael
    CannonMichael
    Cannon

President and Chief Executive
    Officer (Principal Executive Officer)

November 7, 2006/s/  Paul
    TufanoPaul
    Tufano

Executive Vice President and Chief
    Financial Officer (Principal Financial Officer)

November 7, 2006/s/  Warren
    J. LiganWarren
    J. Ligan

Senior Vice President and Chief
    Accounting Officer (Principal Accounting Officer)

November 7, 2006/s/  Richard
    A. DAmoreRichard
    A. DAmore

Director

November 7, 2006/s/  William
    R. GraberWilliam
    R. Graber

Director

November 7, 2006/s/  Heinz
    FridrichHeinz
    Fridrich

Director

November 7, 2006/s/  William
    A. HaslerWilliam
    A. Hasler

Director

November 7, 2006/s/  Paul
    R. LowPaul
    R. Low

Director

November 7, 2006/s/  C.
    Wesley M. ScottC.
    Wesley M. Scott

Director

November 7, 2006/s/  Paulett
    EberhartPaulett
    Eberhart

Director

November 7, 2006/s/  Cyril
    YansouniCyril
    Yansouni

Director

November 7, 2006  92




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##### Table of Contents



CONSOLIDATED
    FINANCIAL STATEMENT SCHEDULE  Form 10-K.
  SOLECTRON
    CORPORATION AND SUBSIDIARIES
 SCHEDULE II 
    VALUATION AND QUALIFYING ACCOUNTS  Balance at


Additions





Balance atBeginning


Charged to








Endof Period


Operations


Acquisitions


(Deductions)


of Period(In millions)DescriptionYear ended August 31, 2006:Allowance for doubtful accounts
    receivable

$
22.3


$
15.1


$



$
(22.9
)

$
14.5Year ended August 31, 2005:Allowance for doubtful accounts
    receivable

$
35.7


$
6.6


$
0.8


$
(20.8
)

$
22.3Year ended August 31, 2004:Allowance for doubtful accounts
    receivable

$
39.1


$
25.7


$



$
(29.1
)

$
35.7  93




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##### Table of Contents



INDEX TO
    EXHIBITS
  3
.1[A]

Certificate of Incorporation of
    the Registrant, as amended.3
.2[B]

Bylaws of the Registrant, as
    amended.3
.3[C]

Certificate of Designation Rights,
    Preferences and Privileges of Series A Participating
    Preferred Stock of the Registrant.4
.1[D]

Supplemental Indenture, dated as
    of May 8, 2000, by and between the Registrant and State
    Street Bank and Trust Company of California N.A., as Trustee.4
.2[E]

Supplemental Indenture, dated as
    of November 20, 2000, by and between the Registrant and
    State Street Bank and Trust Company of California N.A., as
    Trustee.4
.3[F]

Preferred Stock Rights Agreement,
    dated as of June 29, 2001, as amended December 3,
    2001, by and between the Registrant and EquiServe Trust Company,
    N.A., as Rights Agent.4
.5[G]

Subordinated Debt Securities
    Indenture, dated as of December 27, 2001, by and between
    the Registrant and State Street Bank and Trust Company of
    California, N.A., as Trustee.4
.7[G]

First Supplemental Indenture,
    dated as of December 27, 2001, by and between the
    Registrant and State Street Bank and Trust Company of
    California, N.A., as Trustee.4
.14[K]

Indenture dated February 21,
    2006, among Solectron Global Finance LTD, as Issuer, the
    Registrant, as Guarantor and U.S. Bank National
    Association, as Trustee.4
.14[K]

Form of 8.00% Senior
    Subordinated Note due 2016 (included in Exhibit 4.14).4
.15[K]

Registration Rights Agreement
    dated February 21, 2006, among Solectron Global Finance
    LTD, the Registrant and the Initial Purchasers named therein.10
.4[I]

2002 Stock Plan, as amended.10
.5[I]

Form of Indemnification Agreement
    for independent, non-employee directors.10
.6[I][L]

Form of Employment Agreement for
    executive officers Douglas Britt, Todd DuChene, Perry Hayes,
    Warren Ligan, Craig London, Marty Neese, Kevin OConnor,
    Dave Purvis and Paul Tufano.10
.7 [H]

Employment Agreement dated as of
    January 6, 2003 by and between the Registrant and Michael
    Cannon.10
.8[J]

Amendment to Employment Agreement
    dated as of April 6, 2005 by and between the Registrant and
    Michael Cannon.10
.9

Consulting Agreement and General
    Release dated June 7, 2006 between the Registrant and Marc
    Onetto.10
.10

Credit Agreement dated
    August 28, 2006 among the Registrant, Bank of America,
    N.A., as administrative agent and collateral agent, JPMorgan
    Chase Bank, N.A., Citicorp USA, Inc., and The Bank of Nova
    Scotia, as co-syndication agents, ABN Amro Bank N.V., as
    document agent, and Banc of America Securities LLC and
    J.P. Morgan Securities Inc., as joint lead arrangers and
    joint book managers, and the lending institutions party thereto.10
.11[M]

Indirect Sourcing Services
    Agreement dated as of March 16, 2006, by and between
    Solectron USA, Inc. and International Business Machines
    Corporation.12
.1

Computation of ratios of earnings
    to fixed charges.21
.1

Subsidiaries of the Registrant.23
.1

Consent of KPMG LLP, Independent
    Registered Public Accounting Firm.31
.1

Certification of Chief Executive
    Officer pursuant to Section 302(a) of the Sarbanes-Oxley
    Act of 2002.31
.2

Certification of Chief Financial
    Officer pursuant to Section 302(a) of the Sarbanes-Oxley
    Act of 2002.32
.1

Certification of Chief Executive
    Officer pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32
.2

Certification of Chief Financial
    Officer pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.  94




---



##### Table of Contents



[A]
    
    Incorporated by reference from Exhibit 3.1 filed with the
    Registrants
    Form 10-Q
    for the quarter ended February 28, 2001, Exhibit 3.1
    filed with the Registrants
    Form 10-Q
    for the quarter ended February 25, 2000, and
    Exhibit 3.1 filed with the Registrants
    Form 10-Q
    for the quarter ended February 26, 1999.[B]
    
    Incorporated by reference from Exhibit 3.2 filed with the
    Registrants
    Form 10-Q
    for the quarter ended November 28, 2003.[C]
    
    Incorporated by reference from Exhibit 3.3 filed with the
    Registrants Annual Report on
    Form 10-K
    for the fiscal year ended August 31, 2001.[D]
    
    Incorporated by reference from Exhibit 1.1 of
    Registrants
    Form 8-K,
    filed with the Commission on May 16, 2000 (File
    No. 001-11098).[E]
    
    Incorporated by reference from Exhibits of Registrants
    Form 8-K,
    filed with the Commission on November 21, 2000 (File
    No. 001-11098).[F]
    
    Incorporated by reference from Exhibit 4.1 of
    Registrants Registration Statement on
    Form 8-A
    filed with the Commission on July 13, 2001 (File
    No. 001-11098),
    and Exhibit 4.2 to Amendment No. 1 of
    Form 8-A
    filed with the Commission on December 4, 2001 (File
    No. 001-11098).[G]
    
    Incorporated by reference from Exhibits of Registrants
    Form 8-K,
    filed with the Commission on January 7, 2002 (File
    No. 001-11098).[H]
    
    Incorporated by reference from Exhibit 10.5 filed with the
    Registrants
    Form 10-Q
    for the quarter ended February 28, 2003.[I]
    
    Incorporated by reference from Exhibits of Registrants
    Form 10-Q
    for the quarter ended February 25, 2005.[J]
    
    Incorporated by reference from Exhibits of Registrants
    Form 10-Q
    for the quarter ended May 27, 2005.[K]
    
    Incorporated by reference from Exhibits 4.1, 4.2 and 4.3 to
    Registrants
    Form 8-K,
    filed with the Commission on February 21, 2006.[L]
    
    Incorporated by reference from Exhibits of Registrants
    Form 8-K
    filed with the Commission on July 15, 2005 (File
    No. 001-11098).[M]
    
    Incorporated by reference from Exhibits of Registrants
    Form 10-Q
    for the quarter ended February 24, 2006. 95