##### 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 1934    
|           |  | For the fiscal year ended August 26, 2005                                                   
|or        
|o          |  | 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 001-11098


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)                                                
|                                                                                                                 
|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:


7.375% Senior Notes due 2006


7.97% Adjustable Conversion Notes


3.25% Liquid Yield Option Notes due 2020


2.75% Liquid Yield Option Notes due 2020


4.0% Liquid Yield Option Notes due 2019


Common Stock


Securities registered pursuant to Section 12(g) of the
Act:


None


þ o


þ


þ o


o þ






DOCUMENTS INCORPORATED BY REFERENCE












---










SOLECTRON CORPORATION


2005 FORM 10-K


ANNUAL REPORT


TABLE OF CONTENTS


|             |  |                                                                                                                      |    |      |    |  |  | 
|------------ |  | -------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- |  |  | 
|             |  |                                                                                                                      |    | Page |   
|             |  |                                                                                                                      |    |      |   
|PART I      
|Item 1.      |  | Business                                                                                                             |    |      | 3  | 
|Item 2.      |  | Properties                                                                                                           |    |      | 8  | 
|Item 3.      |  | Legal Proceedings                                                                                                    |    |      | 9  | 
|Item 4.      |  | Submission of Matters to a Vote of Security
    Holders                                                              |    |      | 10 | 
|            
|PART II     
|Item 5.      |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |    |      | 12 | 
|Item 6.      |  | Selected Financial Data                                                                                              |    |      | 13 | 
|Item 7.      |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |    |      | 14 | 
|Item 7a.     |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                       |    |      | 35 | 
|Item 8.      |  | Consolidated Financial Statements and
    Supplementary Data                                                         |    |      | 36 | 
|Item 9.      |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                             |    |      | 72 | 
|Item 9a.     |  | Controls and Procedures                                                                                              |    |      | 72 | 
|            
|PART III    
|Item 10.     |  | Directors and Executive Officers of the
    Registrant                                                               |    |      | 72 | 
|Item 11.     |  | Executive Compensation                                                                                               |    |      | 72 | 
|Item 12.     |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                   |    |      | 72 | 
|Item 13.     |  | Certain Relationships and Related
    Transactions                                                                   |    |      | 72 | 
|Item 14.     |  | Principal Accountant Fees and Services                                                                               |    |      | 73 | 
|            
|PART IV     
|Item 15.     |  | Exhibits and Consolidated Financial
    Statement Schedules                                                          |    |      | 73 | 
|Signatures   |  |                                                                                                                      | 74 |     
|EXHIBIT 12.1
|EXHIBIT 21.1
|EXHIBIT 23.1
|EXHIBIT 31.1
|EXHIBIT 31.2
|EXHIBIT 32.1
|EXHIBIT 32.2





2



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##### Table of Contents






PART I







|        |         
|------- | --------
|Item 1. | Business



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 and home appliance electronics 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/ New Product Introduction (NPI)                   
|
| |  | DFX (Design for manufacturability) services                      
|
| |  | Printed Circuit Board Assembly (PCBA) and subsystem manufacturing
|
| |  | Systems integration and test                                     
|
| |  | Parts management                                                 
|
| |  | Inventory management                                             
|
| |  | Forward/ Reverse logistics                                       

3



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| |   |                                                                
| | - | ---------------------------------------------------------------
| |  | Repair                                                         
|
| |  | Recovery/ Remarketing                                          
|
| |  | Feedback to design and manufacturing for quality/serviceability





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Leading Manufacturing and Service Technologies:
    Electronic products, electronics manufacturing and service
    technologies have become increasingly sophisticated and complex.
    This makes it difficult for OEMs to maintain the necessary
    expertise to manufacture and repair products internally. OEMs
    are motivated to work with us to gain access to our expertise in
    interconnect, test, process, repair and other technologies, such
    as lead-free manufacturing processes.                                                                                                                                                                                   
|
| | Faster Time-to-Market: Due to intense competitive
    pressures in the electronics industry, shorter product life
    cycles require OEMs to reduce the time needed to bring a product
    to market. OEMs often reduce time-to-market by using our
    services, expertise and infrastructure. For example, OEMs
    partner with us during the early stages of product design to
    expedite the transition into high volume production in our
    manufacturing centers.                                                                                                                                                                                                               
|
| | Lower Costs: Our OEM customers realize lower costs as a
    result of several factors: our ability to perform services in
    the most cost-effective locations around the world; our ability
    to combine purchasing across our customer base; our ability to
    produce multiple products within a given facility; and our
    flexibility to adapt our operations to changing customer demand.                                                                                                                                                                                                                                                                                       
|
| | Flexibility and Responsiveness: Our flexibility and
    responsiveness enable us to support rapidly changing customer
    needs on a just-in-time value-added basis, adapting to the
    customers schedule and redirecting resources to allow for
    more seamless production transfers.                                                                                                                                                                                                                                                                                                                                                                                                
|
| | Consistent Quality: Our customers rely on us to
    consistently provide complex products that meet exacting
    performance criteria. Leveraging the benefits of the Solectron
    Production
    Systemtm,
    which combines the global capabilities of our Lean manufacturing
    advances with the continuous improvements derived from Six Sigma
    quality analysis, we reduce waste and variability throughout the
    supply chain, creating alignment between people, strategy,
    customers and processes.                                                                                                                                                                    
|
| | Better Asset Utilization: OEM supply chains, managed by
    Solectron, enable OEMs to lower their investment in property,
    plant and equipment, as well as systems and infrastructure. This
    lower investment can lead to better asset utilization and higher
    return on assets for our OEM customers.                                                                                                                                                                                                                                                                                                                                                                            
|
| | Focused Resource Allocation: As a result of market
    demands, many OEMs focus their resources on activities where
    they add the greatest value. By offering comprehensive
    electronics supply chain services, we allow OEMs to focus on
    their own core competencies, such as next-generation product
    development, marketing and sales.                                                                                                                                                                                                                                                                                                                                     
|
| | Cost-Effective Global Capabilities: We have facilities in
    Asia, the Americas and Europe. Through our global presence, we
    perform electronics supply chain services in locations to best
    address our customers objectives, including cost
    containment; compliance with local content regulations;
    proximity to end-markets and end-consumers; and the elimination
    or reduction of expensive freight costs, tariffs and
    time-consuming customs clearances.                                                                                                                                                                                                      
|
| | Environmental compliance: We created a market-ready
    offering which is designed to help OEM customers meet
    Restriction of Hazardous Substances (RoHS), Waste Electrical and
    Electronic Equipment (WEEE) and other regulatory requirements.
    Current legislation and compliance requirements impact the
    entire supply chain, causing operational, business and
    product-reliability challenges. We partner with our OEM
    customers to ensure the conversion plan and transition approach
    we developed helps customers address compliance issues
    efficiently and effectively so their products meet regulatory
    requirements within appropriate deadlines.

Strategy




4



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| |                                           
| | ------------------------------------------
| | Concentration on Core and Emerging Markets





| |                       
| | ----------------------
| | Uncompromising Quality

tm




| |                                    
| | -----------------------------------
| | Efficiency and Cost Competitiveness





| |                                                 
| | ------------------------------------------------
| | Align Services to Improve Customer Supply Chains





| |                              
| | -----------------------------
| | Advanced Technology Processes



Global Footprint




5



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| |                
| | ---------------
| | Americas Region





| |            
| | -----------
| | Asia Region





| |              
| | -------------
| | Europe Region



Sales and Marketing






Backlog




6



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Competition




Associates




Patents and Trademarks






Environmental Matters








7



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Additional Information











|        |           
|------- | ----------
|Item 2. | Properties



|                          |                                |                |           |           |                |                                                                              | 
|------------------------- | ------------------------------ | -------------- | --------- | --------- | -------------- | ---------------------------------------------------------------------------- | 
|Location                  |                                | Square Footage |           |           | Primarily Used
|                          |                                |                |           |           |               
|Continuing Operations     |                                |                |           |           |                |                                                                             
|Americas Region           |                                |                |           |           |                |                                                                             
|Latin America:            |                                |                |           |           |                |                                                                             
|Brazil                    |                                |                | 282,000   |           |                | PCBA & Systems Integration, Repair & Refurbish                              
|Mexico                    |                                |                | 814,000   |           |                | PCBA, Systems Integration, Repair & Refurbish                               
|Puerto Rico               |                                |                | 164,000   |           |                | PCBA & Systems Integration                                                  
|                          |                                |                |           |           |               
|                          | Total Latin America            |                |           | 1,260,000 |                |                                                                              | 
|                          |                                |                |           |           |               
|United States and Canada: |                                |                |           |           |                |                                                                             
|Canada                    |                                |                | 773,000   |           |                | PCBA, Systems Integration, Repair & Refurbish,
    Design & Engineering     
|California                |                                |                | 868,000   |           |                | NPI, PCBA, Systems Integration, Repair & Refurbish,
    Design & Engineering
|Georgia                   |                                |                | 2,000     |           |                | Office                                                                      
|Kentucky                  |                                |                | 310,000   |           |                | Repair & Refurbish                                                          
|Maryland                  |                                |                | 6,000     |           |                | Office                                                                      
|Massachusetts             |                                |                | 132,000   |           |                | NPI, PCBA & Systems Integration                                             
|Michigan                  |                                |                | 14,000    |           |                | Design & Engineering                                                        
|New Jersey                |                                |                | 2,000     |           |                | Office                                                                      
|North Carolina            |                                |                | 1,069,000 |           |                | PCBA, Systems Integration, Repair & Refurbish,
    Design & Engineering     
|South Carolina            |                                |                | 313,000   |           |                | PCBA & Systems Integration                                                  
|Tennessee                 |                                |                | 275,000   |           |                | Repair & Refurbish                                                          
|Texas                     |                                |                | 864,000   |           |                | PCBA, Systems Integration, Repair & Refurbish                               
|                          |                                |                |           |           |               
|                          | Total United States and Canada |                |           | 4,628,000 |                |                                                                              | 
|                          |                                |                |           |           |               
|                          | Americas Region Total          |                |           | 5,888,000 |                |                                                                              | 
|                          |                                |                |           |           |               

8



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|                |                                |                |           |            |                |                                                                           | 
|--------------- | ------------------------------ | -------------- | --------- | ---------- | -------------- | ------------------------------------------------------------------------- | 
|Location        |                                | Square Footage |           |            | Primarily Used
|                |                                |                |           |            |               
|European Region |                                |                |           |            |                |                                                                          
|United Kingdom  |                                |                | 195,000   |            |                | Repair & Refurbish, Enclosures, Parts Management                         
|France          |                                |                | 332,000   |            |                | PCBA, Systems Integration, Repair & Refurbish                            
|Germany         |                                |                | 90,000    |            |                | PCBA & Systems Integration                                               
|Hungary         |                                |                | 301,000   |            |                | PCBA & Systems Integration, Repair & Refurbish                           
|Netherlands     |                                |                | 202,000   |            |                | Repair & Refurbish, Office                                               
|Romania         |                                |                | 460,000   |            |                | PCBA & Systems Integration                                               
|Scotland        |                                |                | 144,000   |            |                | PCBA & Systems Integration, Design and Engineering                       
|Sweden          |                                |                | 280,000   |            |                | PCBA & Systems Integration                                               
|Turkey          |                                |                | 47,000    |            |                | PCBA & Systems Integration                                               
|                |                                |                |           |            |               
|                | European Region Total          |                |           | 2,051,000  |                |                                                                           | 
|                |                                |                |           |            |               
|Asia Region     |                                |                |           |            |                |                                                                          
|Australia       |                                |                | 133,000   |            |                | Repair & Refurbish                                                       
|China           |                                |                | 1,271,000 |            |                | Design and Engineering, PCBA, Systems Integration,
    Repair & Refurbish
|India           |                                |                | 52,000    |            |                | PCBA & Systems Integration, Repair & Refurbish                           
|Indonesia       |                                |                | 137,000   |            |                | PCBA & Systems Integration                                               
|Japan           |                                |                | 221,000   |            |                | NPI, PCBA, Systems Integration, Repair & Refurbish                       
|Malaysia        |                                |                | 1,062,000 |            |                | PCBA & Systems Integration                                               
|Singapore       |                                |                | 398,000   |            |                | PCBA, Systems Integration, Repair & Refurbish                            
|Taiwan          |                                |                | 3,000     |            |                | Office                                                                   
|                |                                |                |           |            |               
|                | Asia Region Total              |                |           | 3,277,000  |                |                                                                           | 
|                |                                |                |           |            |               
|                | Total Facilities in Use        |                |           | 11,216,000 |                |                                                                           | 
|                |                                |                |           |            |               
|                | Total Restructured Facilities* |                |           | 3,211,147  |                |                                                                           | 






|  |                                                                                                                                     
|- | ------------------------------------------------------------------------------------------------------------------------------------
|* | These facilities are excluded from the list above as they are
    closed or are in the process of closing as of August 31,
    2005.






|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings



Abrams v. Solectron
Corporation et al.


9



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|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security Holders



Executive Officers of Solectron




|                  |  |     |    |  |          |                                                                                        
|----------------- |  | --- | -- |  | -------- | ---------------------------------------------------------------------------------------
|Name              |  | Age |    |  | Position
|                  |  |     |    |  |         
|Michael R. Cannon |  |     | 52 |  |          | President and Chief Executive Officer                                                  
|Douglas Britt     |  |     | 40 |  |          | Executive Vice President, Sales and Account Management                                 
|Todd DuChene      |  |     | 42 |  |          | Senior Vice President, General Counsel and Corporate Secretary                         
|Perry G. Hayes    |  |     | 52 |  |          | Senior Vice President, Treasurer and Investor Relations                                
|Warren J. Ligan   |  |     | 52 |  |          | Senior Vice President, Chief Accounting Officer and Interim
    Chief Financial Officer
|Craig London      |  |     | 59 |  |          | Executive Vice President, Marketing, Strategy, Services and
    Corporate Development  
|Marty Neese       |  |     | 43 |  |          | Executive Vice President, Program Management and Supply Chain
    Solutions            
|Kevin OConnor    |  |     | 47 |  |          | Executive Vice President, Human Resources                                              
|Marc Onetto       |  |     | 55 |  |          | Executive Vice President, Operations                                                   
|David Purvis      |  |     | 53 |  |          | Executive Vice President and Chief Technical Officer                                   





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11



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PART II







|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities

Common Stock Information




|               |  |      |      |  |     |   |      | 
|-------------- |  | ---- | ---- |  | --- | - | ---- | 
|               |  | High |      |  | Low |  
|               |  |      |      |  |     |  
|Fiscal 2005    |  |      |      |  |     |   |      | 
|Fourth quarter |  | $    | 4.40 |  |     | $ | 3.50 | 
|Third quarter  |  |      | 5.10 |  |     |   | 3.08 | 
|Second quarter |  |      | 6.69 |  |     |   | 4.62 | 
|First quarter  |  |      | 6.20 |  |     |   | 4.78 | 
|Fiscal 2004    |  |      |      |  |     |   |      | 
|Fourth quarter |  | $    | 6.49 |  |     | $ | 4.59 | 
|Third quarter  |  |      | 6.55 |  |     |   | 4.39 | 
|Second quarter |  |      | 8.20 |  |     |   | 5.40 | 
|First quarter  |  |      | 6.89 |  |     |   | 5.11 | 



12



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Issuer Purchases of Equity Securities






|                              |  |                  |      |  |                    |                     |      |                    |                      |  |                     |  |  |   |       | 
|----------------------------- |  | ---------------- | ---- |  | ------------------ | ------------------- | ---- | ------------------ | -------------------- |  | ------------------- |  |  | - | ----- | 
|                              |  |                  |      |  |                    | Total Number of     |      |                    | Approximate Dollar   | 
|                              |  |                  |      |  |                    | Shares Purchased as |      |                    | Value of Shares That | 
|                              |  |                  |      |  |                    | Part of Publicly    |      |                    | May yet be           | 
|                              |  | Total Number of  |      |  | Average Price Paid |                     |      | Announced Plans or |                      |  | Purchased Under the | 
|                              |  | Shares Purchased |      |  | per Share          |                     |      | Programs           |                      |  | Plans or Programs   | 
|                              |  |                  |      |  |                    |                     |      |                    |                      |  |                     | 
|July 28, 2005-August 26, 2005 |  |                  | 17.0 |  |                    | $                   | 4.09 |                    |                      |  | 17.0                |  |  | $ | 180.4 | 








|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data



Five-Year Selected Financial Highlights




| |                                                                                     
| | ------------------------------------------------------------------------------------
| | Consolidated Statements of Operations Data (in millions,
    except per share data):

|                                                       |                         |                       |          |       |      |   |          |       |   |             |          |       |   |      |          |       |   |   |          |       |  
|------------------------------------------------------ | ----------------------- | --------------------- | -------- | ----- | ---- | - | -------- | ----- | - | ----------- | -------- | ----- | - | ---- | -------- | ----- | - | - | -------- | ----- | -
|                                                       |                         | Years Ended August 31 |         
|                                                       |                         |                       |         
|                                                       |                         | 2005                  |          |       | 2004 |   |          | 2003  |   |             | 2002     |       |   | 2001 |         
|                                                       |                         |                       |          |       |      |   |          |       |   |             |          |       |   |      |         
|                                                       |                         |                       |          |       |      |   |          |       |   | (Unaudited) |         
|Net Sales                                              |                         | $                     | 10,441.1 |       |      | $ | 11,638.3 |       |   | $           | 9,828.3  |       |   | $    | 10,738.7 |       |   | $ | 17,436.9 |      
|Operating income (loss)                                |                         |                       | 68.4     |       |      |   | (54.9    | )     |   |             | (2,351.9 | )     |   |      | (3,445.2 | )     |   |   | (126.6   | )    
|(Loss) from continuing operations                      |                         |                       | (10.5    | )     |      |   | (262.4   | )     |   |             | (3,008.9 | )     |   |      | (3,069.3 | )     |   |   | (90.5    | )    
|Income (loss) from discontinued operations, net of tax |                         |                       | 13.9     |       |      |   | 85.0     |       |   |             | (443.7   | )     |   |      | (40.4    | )     |   |   | (33.4    | )    
|                                                       |                         |                       |          |       |      |   |          |       |   |             |          |       |   |      |         
|Net income (loss)                                      |                         | $                     | 3.4      |       |      | $ | (177.4   | )     |   | $           | (3,452.6 | )     |   | $    | (3,109.7 | )     |   | $ | (123.9   | )    
|Basic and diluted net income (loss) per share:         |                         |                       |          |       |      |   |          |       |   |             |          |       |   |      |          |       |   |   |          |      
|                                                       | Continuing operations   |                       | $        | (0.01 | )    |   | $        | (0.30 | ) |             | $        | (3.63 | ) |      | $        | (3.93 | ) |   | $        | (0.14 | )
|                                                       | Discontinued operations |                       |          | 0.01  |      |   |          | 0.10  |   |             |          | (0.54 | ) |      |          | (0.05 | ) |   |          | (0.05 | )
|                                                       |                         |                       |          |       |      |   |          |       |   |             |          |       |   |      |         
|                                                       |                         | $                     |         |       |      | $ | (0.20    | )     |   | $           | (4.17    | )     |   | $    | (3.98    | )     |   | $ | (0.19    | )    
|                                                       |                         |                       |          |       |      |   |          |       |   |             |          |       |   |      |         



| |                                                
| | -----------------------------------------------
| | Consolidated Balance Sheet Data (in millions)*:

|                     |  |           |         |  |      |   |         |      |  |             |         |  |  |      |          |  |  |   |          | 
|-------------------- |  | --------- | ------- |  | ---- | - | ------- | ---- |  | ----------- | ------- |  |  | ---- | -------- |  |  | - | -------- | 
|                     |  | August 31 |        
|                     |  |           |        
|                     |  | 2005      |         |  | 2004 |   |         | 2003 |  |             | 2002    |  |  | 2001 |         
|                     |  |           |         |  |      |   |         |      |  |             |         |  |  |      |         
|                     |  |           |         |  |      |   |         |      |  | (Unaudited) |        
|Working capital      |  | $         | 2,009.4 |  |      | $ | 2,476.8 |      |  | $           | 1,696.6 |  |  | $    | 3,652.8  |  |  | $ | 6,013.0  | 
|Total assets         |  |           | 5,257.8 |  |      |   | 5,864.0 |      |  |             | 6,570.3 |  |  |      | 10,990.0 |  |  |   | 13,078.4 | 
|Long-term debt       |  |           | 540.9   |  |      |   | 1,221.4 |      |  |             | 1,816.9 |  |  |      | 3,180.2  |  |  |   | 5,027.5  | 
|Stockholders equity |  |           | 2,444.2 |  |      |   | 2,418.9 |      |  |             | 1,471.7 |  |  |      | 4,771.4  |  |  |   | 5,148.9  | 






|  |                                       
|- | --------------------------------------
|* | Continuing and discontinued operations

13



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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|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 annual report are forward-looking statements
within the meaning of Section 27A of the Securities Act of
1933, as amended, 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:




| |   |                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | future sales and operating results, including future
    earnings, growth, rates and trends;                                                                                                                                                                                    
|
| |  | our anticipation of the timing and amounts of our future
    obligations and commitments and our ability to meet those
    commitments;                                                                                                                                         
|
| |  | the impact of our Lean Initiative and expected future
    benefit;                                                                                                                                                                                                              
|
| |  | our expectations regarding valuation allowances on future tax
    benefits in various countries;                                                                                                                                                                                
|
| |  | our expectations regarding charges relating to future tax
    audits and the availability of any reserves;                                                                                                                                                                      
|
| |  | 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 success, capabilities and capacities of our business
    operations;                                                                                                                                                                                                        
|
| |  | the adequacy of our restructuring provisions and timing of
    our restructuring actions 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; 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 intend, anticipate,
believe, estimate, expect
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 reports filed with the Securities and Exchange
Commission on Forms 10-K, 10-Q, 8-K and S-3.
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 in the
documents incorporated by reference herein, whether as a result
of new information, future events or otherwise.


Overview




14



---



##### Table of Contents





Adjustments










| |                   
| | ------------------
| | Summary of Results



|                                            |  |                       |          |   |      |   |          |      |  |   |          |  
|------------------------------------------- |  | --------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                            |  | Years Ended August 31 |         
|                                            |  |                       |         
|                                            |  | 2005                  |          |   | 2004 |   |          | 2003 | 
|                                            |  |                       |          |   |      |   |          |      | 
|Net sales                                   |  | $                     | 10,441.1 |   |      | $ | 11,638.3 |      |  | $ | 9,828.3  |  
|Gross profit                                |  |                       | 572.3    |   |      |   | 569.7    |      |  |   | 439.9    |  
|Selling, general and administrative expense |  |                       | 412.8    |   |      |   | 446.7    |      |  |   | 566.9    |  
|Interest income                             |  |                       | 38.8     |   |      |   | 15.1     |      |  |   | 27.2     |  
|Interest expense                            |  |                       | (56.5    | ) |      |   | (145.3   | )    |  |   | (207.1   | )
|Loss from continuing operations             |  |                       | (10.5    | ) |      |   | (262.4   | )    |  |   | (3,008.9 | )







15



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##### Table of Contents





tm




| |                           
| | --------------------------
| | Key Performance Indicators



|                                   |  |                    |           |  |         |  |           |              |  |  |              |  |  |  |           | 
|---------------------------------- |  | ------------------ | --------- |  | ------- |  | --------- | ------------ |  |  | ------------ |  |  |  | --------- | 
|                                   |  | Three Months Ended |          
|                                   |  |                    |          
|                                   |  | August 31,         |           |  | May 31, |  |           | February 28, |  |  | November 30, | 
|                                   |  | 2005               |           |  | 2005    |  |           | 2005         |  |  | 2004         | 
|                                   |  |                    |           |  |         |  |           |              |  |  |              | 
|Inventory turns                    |  |                    | 7.9 turns |  |         |  | 8.1 turns |              |  |  | 7.9 turns    |  |  |  | 7.1 turns | 
|Days sales outstanding (DSO)       |  |                    | 46 days   |  |         |  | 46 days   |              |  |  | 46 days      |  |  |  | 50 days   | 
|Days payable outstanding (DPO)     |  |                    | 54 days   |  |         |  | 50 days   |              |  |  | 48 days      |  |  |  | 50 days   | 
|Cash-to-cash cycle (C2C)           |  |                    | 38 days   |  |         |  | 41 days   |              |  |  | 44 days      |  |  |  | 51 days   | 
|Capital expenditures (in millions) |  |                    | $48.4     |  |         |  | $35.9     |              |  |  | $34.1        |  |  |  | $32.0     | 

|                                   |  |                    |           |  |         |  |           |              |  |  |              |  |  |  |           | 
|---------------------------------- |  | ------------------ | --------- |  | ------- |  | --------- | ------------ |  |  | ------------ |  |  |  | --------- | 
|                                   |  | Three Months Ended |          
|                                   |  |                    |          
|                                   |  | August 31,         |           |  | May 31, |  |           | February 28, |  |  | November 30, | 
|                                   |  | 2004               |           |  | 2004    |  |           | 2004         |  |  | 2003         | 
|                                   |  |                    |           |  |         |  |           |              |  |  |              | 
|Inventory turns                    |  |                    | 7.6 turns |  |         |  | 7.5 turns |              |  |  | 7.4 turns    |  |  |  | 7.3 turns | 
|Days sales outstanding (DSO)       |  |                    | 47 days   |  |         |  | 47 days   |              |  |  | 49 days      |  |  |  | 50 days   | 
|Days payable outstanding (DPO)     |  |                    | 47 days   |  |         |  | 47 days   |              |  |  | 48 days      |  |  |  | 49 days   | 
|Cash-to-cash cycle (C2C)           |  |                    | 48 days   |  |         |  | 48 days   |              |  |  | 49 days      |  |  |  | 50 days   | 
|Capital expenditures (in millions) |  |                    | $48.3     |  |         |  | $32.8     |              |  |  | $31.5        |  |  |  | $37.0     | 



Critical Accounting Policies and Estimates







tm


16



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##### Table of Contents







| |                    
| | -------------------
| | Revenue Recognition





.






| |                    
| | -------------------
| | Inventory Valuation





| |                                
| | -------------------------------
| | Allowance for Doubtful Accounts





| |         
| | --------
| | Goodwill



17



---



##### Table of Contents







| |                  
| | -----------------
| | Intangible Assets





| |                                           
| | ------------------------------------------
| | Restructuring and Related Impairment Costs





| |             
| | ------------
| | Income Taxes



18



---



##### Table of Contents









| |                   
| | ------------------
| | Loss Contingencies





| |                                 
| | --------------------------------
| | Recent Accounting Pronouncements





19



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##### Table of Contents



Results of Operations for Fiscal Years 2005, 2004 and 2003




|                                                                           |                                     |                                          |       |     |      |    |       |      |      |    |       |      |       |   
|-------------------------------------------------------------------------- | ----------------------------------- | ---------------------------------------- | ----- | --- | ---- | -- | ----- | ---- | ---- | -- | ----- | ---- | ----- | --
|                                                                           |                                     | Years Ended August 31                    |      
|                                                                           |                                     |                                          |      
|                                                                           |                                     | 2005                                     |       |     | 2004 |    |       | 2003 |     
|                                                                           |                                     |                                          |       |     |      |    |       |      |     
|Net sales                                                                  |                                     |                                          | 100.0 | %   |      |    | 100.0 | %    |      |    | 100.0 | %   
|Cost of sales                                                              |                                     |                                          | 94.5  |     |      |    | 95.1  |      |      |    | 95.5  |     
|                                                                           |                                     |                                          |       |     |      |    |       |      |     
|Gross profit                                                               |                                     |                                          | 5.5   |     |      |    | 4.9   |      |      |    | 4.5   |     
|Operating expenses:                                                        |                                     |                                          |       |     |      |    |       |      |      |    |       |     
|                                                                           | Selling, general and administrative |                                          |       | 4.0 |      |    |       | 3.8  |      |    |       | 5.8  |      
|                                                                           | Restructuring and impairment costs  |                                          |       | 0.9 |      |    |       | 1.5  |      |    |       | 6.2  |      
|                                                                           | Goodwill impairment                 |                                          |       |    |      |    |       |     |      |    |       | 16.5 |      
|                                                                           |                                     |                                          |       |     |      |    |       |      |     
|                                                                           |                                     | Operating income (loss)                  |       |     | 0.6  |    |       |      | (0.5 | )  |       |      | (23.9 | ) 
|Interest income                                                            |                                     |                                          | 0.4   |     |      |    | 0.1   |      |      |    | 0.3   |     
|Interest expense                                                           |                                     |                                          | (0.6  | )   |      |    | (1.2  | )    |      |    | (2.1  | )   
|Other (expense) income-net                                                 |                                     |                                          | (0.4  | )   |      |    | (0.7  | )    |      |    | 0.5   |     
|                                                                           |                                     |                                          |       |     |      |    |       |      |     
|Operating income (loss) from continuing operations before income
    taxes |                                     |                                          |      |     |      |    | (2.3  | )    |      |    | (25.3 | )   
|Income tax (benefit) expense                                               |                                     |                                          | 0.1   |     |      |    |      |      |      |    | 5.4   |     
|                                                                           |                                     |                                          |       |     |      |    |       |      |     
|                                                                           |                                     | Loss from continuing operations          |       |     | (0.1 | )% |       |      | (2.3 | )% |       |      | (30.6 | )%
|Discontinued operations:                                                   |                                     |                                          |       |     |      |    |       |      |      |    |       |     
|Income (loss) from discontinued operations                                 |                                     |                                          | 0.1   |     |      |    | 0.7   |      |      |    | (3.4  | )   
|Income tax expense                                                         |                                     |                                          |      |     |      |    |      |      |      |    | 1.1   |     
|                                                                           |                                     |                                          |       |     |      |    |       |      |     
|                                                                           |                                     | Income (loss) on discontinued operations |       |     | 0.1  |    |       |      | 0.7  |    |       |      | (4.5  | ) 
|                                                                           |                                     | Net income (loss)                        |       |     |     | %  |       |      | (1.6 | )% |       |      | (35.1 | )%
|                                                                           |                                     |                                          |       |     |      |    |       |      |     

Net Sales  Continuing Operations






20



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##### Table of Contents





|                    |  |                       |       |   |      |  |       |      |  |  |       |  
|------------------- |  | --------------------- | ----- | - | ---- |  | ----- | ---- |  |  | ----- | -
|                    |  | Years Ended August 31 |      
|                    |  |                       |      
|                    |  | 2005                  |       |   | 2004 |  |       | 2003 | 
|                    |  |                       |       |   |      |  |       |      | 
|Computing & Storage |  |                       | 30.6  | % |      |  | 30.5  | %    |  |  | 32.7  | %
|Networking          |  |                       | 25.0  | % |      |  | 21.6  | %    |  |  | 22.8  | %
|Communications      |  |                       | 19.8  | % |      |  | 18.8  | %    |  |  | 21.7  | %
|Consumer            |  |                       | 13.7  | % |      |  | 19.3  | %    |  |  | 13.2  | %
|Industrial          |  |                       | 5.9   | % |      |  | 5.4   | %    |  |  | 3.8   | %
|Automotive          |  |                       | 3.2   | % |      |  | 2.6   | %    |  |  | 2.6   | %
|Other               |  |                       | 1.8   | % |      |  | 1.8   | %    |  |  | 3.2   | %
|                    |  |                       |       |   |      |  |       |      | 
|Total               |  |                       | 100.0 | % |      |  | 100.0 | %    |  |  | 100.0 | %
|                    |  |                       |       |   |      |  |       |      | 

International Sales




|                      |                               |                       |          |         |      |   |          |         |  |   |         |         | 
|--------------------- | ----------------------------- | --------------------- | -------- | ------- | ---- | - | -------- | ------- |  | - | ------- | ------- | 
|                      |                               | Years Ended August 31 |         
|                      |                               |                       |         
|                      |                               | 2005                  |          |         | 2004 |   |          | 2003    | 
|                      |                               |                       |          |         |      |   |          |         | 
|Geographic net sales: |                               |                       |          |         |      |   |          |         |  |   |         |        
|                      | United States                 |                       | $        | 3,127.1 |      |   | $        | 3,219.4 |  |   | $       | 3,217.7 | 
|                      | Other North and Latin America |                       |          | 1,633.6 |      |   |          | 1,836.2 |  |   |         | 1,358.7 | 
|                      | Europe                        |                       |          | 1,497.3 |      |   |          | 1,667.4 |  |   |         | 1,590.4 | 
|                      | Malaysia                      |                       |          | 2,013.2 |      |   |          | 1,853.4 |  |   |         | 1,455.0 | 
|                      | China                         |                       |          | 1,268.2 |      |   |          | 1,914.6 |  |   |         | 1,091.3 | 
|                      | Other Asia Pacific            |                       |          | 901.7   |      |   |          | 1,147.3 |  |   |         | 1,115.2 | 
|                      |                               |                       |          |         |      |   |          |         | 
|                      |                               | $                     | 10,441.1 |         |      | $ | 11,638.3 |         |  | $ | 9,828.3 |        
|                      |                               |                       |          |         |      |   |          |         | 

Major Customers




|                |  |                       |       |  |      |  |       |      |  |  |       | 
|--------------- |  | --------------------- | ----- |  | ---- |  | ----- | ---- |  |  | ----- | 
|                |  | Years Ended August 31 |      
|                |  |                       |      
|                |  | 2005                  |       |  | 2004 |  |       | 2003 | 
|                |  |                       |       |  |      |  |       |      | 
|Cisco Systems   |  |                       | 15.7% |  |      |  | 13.2% |      |  |  | 11.9% | 
|Nortel Networks |  |                       | 10.8% |  |      |  | *     |      |  |  | 12.9% | 






|  |              
|- | -------------
|* | less than 10%





21



---



##### Table of Contents



Gross Profit  Continuing Operations










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




Restructuring and Impairment Costs  Continuing
Operations










22



---



##### Table of Contents











Goodwill Impairment  Continuing Operations




Interest Income  Continuing Operations




Interest Expense  Continuing Operations


tm


Other (Expense) Income  Net  Continuing
Operations


tm




23



---



##### Table of Contents



tm tm


9.625% Senior Notes Redemption


|                                     |  |                       |       |   |      |   |      |  |  |   |   | 
|------------------------------------ |  | --------------------- | ----- | - | ---- | - | ---- |  |  | - | - | 
|                                     |  | Years Ended August 31
|                                     |  |                      
|                                     |  | 2005                  |       |   | 2004 |   | 2003
|                                     |  |                       |       |   |      |   |     
|Principal 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 | ) |      | $ |     |  |  | $ |  | 
|                                     |  |                       |       |   |      |   |      |  | 



| |                            
| | ---------------------------
| | 7.25% ACES Early Settlement

|                                              |  |                       |   |      |  |   |         |   |  |   |   | 
|--------------------------------------------- |  | --------------------- | - | ---- |  | - | ------- | - |  | - | - | 
|                                              |  | Years Ended August 31
|                                              |  |                      
|                                              |  | 2005                  |   | 2004 |  |   | 2003   
|                                              |  |                       |   |      |  |   |        
|Principal amount at maturity                  |  | $                     |  |      |  | $ | 1,012.5 |   |  | $ |  | 
|                                              |  |                       |   |      |  |   |         |   | 
|Carrying value                                |  | $                     |  |      |  | $ | 1,007.5 |   |  | $ |  | 
|Common stock issued                           |  |                       |  |      |  |   | 1,006.6 |   |  |   |  | 
|Cash paid                                     |  |                       |  |      |  |   | 63.3    |   |  |   |  | 
|Write off of debt issuance costs              |  |                       |  |      |  |   | 15.3    |   |  |   |  | 
|                                              |  |                       |   |      |  |   |         |   | 
|Loss included in other (expense) income  net |  | $                     |  |      |  | $ | (77.7   | ) |  | $ |  | 
|                                              |  |                       |   |      |  |   |         |   | 



| |                       
| | ----------------------
| | LYONstm
    Retirement

|                                              |  |                       |   |      |  |   |         |  |  |   |         | 
|--------------------------------------------- |  | --------------------- | - | ---- |  | - | ------- |  |  | - | ------- | 
|                                              |  | Years Ended August 31 |  
|                                              |  |                       |  
|                                              |  | 2005                  |   | 2004 |  |   | 2003    | 
|                                              |  |                       |   |      |  |   |         | 
|Principal amount at maturity                  |  | $                     |  |      |  | $ | 1,617.5 |  |  | $ | 1,771.1 | 
|                                              |  |                       |   |      |  |   |         |  | 
|Carrying value                                |  |                       |  |      |  | $ | 950.2   |  |  | $ | 1,047.8 | 
|Cash paid and payable                         |  |                       |  |      |  |   | 950.2   |  |  |   | 1,008.4 | 
|                                              |  |                       |   |      |  |   |         |  | 
|Gain included in other (expense) income  net |  | $                     |  |      |  | $ |        |  |  | $ | 39.4    | 
|                                              |  |                       |   |      |  |   |         |  | 



Income Taxes  Continuing Operations








24



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##### Table of Contents







Liquidity and Capital Resources  Continuing
Operations




|                                                                                 |  |                       |        |   |      |   |        |      |  |   |          |  
|-------------------------------------------------------------------------------- |  | --------------------- | ------ | - | ---- | - | ------ | ---- |  | - | -------- | -
|                                                                                 |  | Years Ended August 31 |       
|                                                                                 |  |                       |       
|                                                                                 |  | 2005                  |        |   | 2004 |   |        | 2003 | 
|                                                                                 |  |                       |        |   |      |   |        |      | 
|Net cash provided by (used in) operating activities of
    continuing operations |  | $                     | 947.3  |   |      | $ | (8.6   | )    |  | $ | 281.0    |  
|Net cash (used in) provided by investing activities of
    continuing operations |  | $                     | (112.2 | ) |      | $ | 497.1  |      |  | $ | 384.8    |  
|Net cash used in financing activities of continuing operations                   |  | $                     | (570.0 | ) |      | $ | (510.4 | )    |  | $ | (1,016.3 | )







1 2








25



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tm tm












Debt, Other Contractual Obligations, and Off-Balance Sheet
Arrangements




Payments Due by Period


|                                                           |  |               |         |  |      |   |       |      |  |   |       |  |  |      |      |  |      |   |      |            |  |   |      |  |  |   |       | 
|---------------------------------------------------------- |  | ------------- | ------- |  | ---- | - | ----- | ---- |  | - | ----- |  |  | ---- | ---- |  | ---- | - | ---- | ---------- |  | - | ---- |  |  | - | ----- | 
|                                                           |  | Total         |         |  | FY06 |   |       | FY07 |  |   | FY08  |  |  | FY09 |      |  | FY10 |   |      | Thereafter | 
|                                                           |  |               |         |  |      |   |       |      |  |   |       |  |  |      |      |  |      |   |      |            | 
|                                                           |  | (In millions) |        
|Debt                                                       |  | $             | 711.3   |  |      | $ | 167.8 |      |  | $ | 81.7  |  |  | $    | 0.7  |  |      | $ | 1.2  |            |  | $ | 9.9  |  |  | $ | 450.0 | 
|Operating lease                                            |  |               | 148.5   |  |      |   | 40.0  |      |  |   | 28.3  |  |  |      | 20.8 |  |      |   | 17.3 |            |  |   | 15.9 |  |  |   | 26.2  | 
|Operating leases for restructured facilities and equipment |  |               | 37.0    |  |      |   | 11.4  |      |  |   | 11.0  |  |  |      | 6.3  |  |      |   | 3.4  |            |  |   | 2.8  |  |  |   | 2.1   | 
|Purchase obligations(1)                                    |  |               | 147.8   |  |      |   | 147.2 |      |  |   |      |  |  |      | 0.2  |  |      |   | 0.2  |            |  |   | 0.2  |  |  |   |      | 
|                                                           |  |               |         |  |      |   |       |      |  |   |       |  |  |      |      |  |      |   |      |            | 
|                                                           |  | $             | 1,044.6 |  |      | $ | 366.4 |      |  | $ | 121.0 |  |  | $    | 28.0 |  |      | $ | 22.1 |            |  | $ | 28.8 |  |  | $ | 478.3 | 
|                                                           |  |               |         |  |      |   |       |      |  |   |       |  |  |      |      |  |      |   |      |            | 

26



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|    |                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------
|(1) | We have various purchase commitments for materials, supplies and
    services incurred during the normal course of business.





Stock Repurchase Program






Discontinued Operations






|                                  |                                   |                                                      |      |       |      |   |         |       |      |   |         |       |        |  
|--------------------------------- | --------------------------------- | ---------------------------------------------------- | ---- | ----- | ---- | - | ------- | ----- | ---- | - | ------- | ----- | ------ | -
|                                  |                                   | Years Ended August 31                                |     
|                                  |                                   |                                                      |     
|                                  |                                   | 2005                                                 |      |       | 2004 |   |         | 2003  |     
|                                  |                                   |                                                      |      |       |      |   |         |       |     
|Net sales                         |                                   | $                                                    | 15.2 |       |      | $ | 1,264.9 |       |      | $ | 1,872.1 |      
|Cost of sales                     |                                   |                                                      | 14.1 |       |      |   | 1,061.8 |       |      |   | 1,598.1 |      
|                                  |                                   |                                                      |      |       |      |   |         |       |     
|Gross profit                      |                                   |                                                      | 1.1  |       |      |   | 203.1   |       |      |   | 274.0   |      
|                                  | Operating (income) expenses  net |                                                      |      | (14.8 | )    |   |         | 109.4 |      |   |         | 606.5 |       
|                                  |                                   |                                                      |      |       |      |   |         |       |     
|                                  |                                   | Operating income (loss)                              |      |       | 15.9 |   |         |       | 93.7 |   |         |       | (332.5 | )
|Interest income  net             |                                   |                                                      |     |       |      |   | 1.4     |       |      |   | 1.5     |      
|Other income (expense)  net      |                                   |                                                      | 0.9  |       |      |   | (1.4    | )     |      |   | (0.7    | )    
|                                  |                                   |                                                      |      |       |      |   |         |       |     
|Income (loss) before income taxes |                                   |                                                      | 16.8 |       |      |   | 93.7    |       |      |   | (331.7  | )    
|Income tax expense                |                                   |                                                      | 2.9  |       |      |   | 8.7     |       |      |   | 112.0   |      
|                                  |                                   |                                                      |      |       |      |   |         |       |     
|                                  |                                   | Income (loss) on discontinued operations, net of tax |      | $     | 13.9 |   |         | $     | 85.0 |   |         | $     | (443.7 | )
|                                  |                                   |                                                      |      |       |      |   |         |       |     

27



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| |            
| | -----------
| | Fiscal 2005





| |            
| | -----------
| | Fiscal 2004





28



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##### Table of Contents



RISK FACTORS




| |                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





| |                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





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| |                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------
| | Our non-U.S. locations represent a significant
    portion of our sales; 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 and/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 and/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; and                                       
|
| |  | risks of conflict and terrorism that could disrupt our or our
    customers and suppliers businesses.         





| |                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are exposed to general economic conditions, which could
    have a material adverse impact on our business, operating
    results and consolidated financial condition.



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| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 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 or
    technological innovation or new services;                                                                                                                                                                                                 
|
| |  | economic developments in the electronics industry as a whole;                                                                                                                                                                                                                                               
|
| |  | credit rating and stock analyst downgrades;                                                                                                                                                                                                                                                                 
|
| |  | our ability to successfully integrate changes to our ERP system;                                                                                                                                                                                                                                            
|
| |  | 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.



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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 cause harm
    to 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.





| |                                                            
| | -----------------------------------------------------------
| | We depend on the continuing trend of OEMs to
    outsource.





| |                                                                   
| | ------------------------------------------------------------------
| | Our strategic relationships with major customers create
    risks.



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.





| |                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Notwithstanding our recent divestiture of certain
    businesses, we will remain subject to certain indemnification
    obligations for a period of time after completion of the
    divestitures.



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| |                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





| |                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our design and engineering services may result in
    additional exposure to product liability, intellectual property
    infringement and other claims.





| |                                                                                                      
| | -----------------------------------------------------------------------------------------------------
| | We are exposed to fluctuations in foreign currency
    exchange rates and interest rate fluctuations.









| |                                                                              
| | -----------------------------------------------------------------------------
| | Failure to comply with environmental regulations could
    harm our business.



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| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.








|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7a. | Quantitative and Qualitative Disclosures About Market
    Risk



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|        |                                                             
|------- | ------------------------------------------------------------
|Item 8. | Consolidated Financial Statements and Supplementary
    Data



|                                                                                         |  |      |           | 
|---------------------------------------------------------------------------------------- |  | ---- | --------- | 
|                                                                                         |  | Page |          
|                                                                                         |  |      |          
|Consolidated Balance Sheets                                                              |  |      | 37        | 
|Consolidated Statements of Operations                                                    |  |      | 38        | 
|Consolidated Statements of
    Stockholders Equity                                      |  |      | 39        | 
|Consolidated Statements of Comprehensive
    Income (Loss)                               |  |      | 40        | 
|Consolidated Statements of Cash Flows                                                    |  |      | 41        | 
|Notes to the Consolidated Financial
    Statements                                       |  |      | 42        | 
|Reports of Independent Registered Public
    Accounting Firm                             |  |      | 69 and 71 | 
|Managements Report on Internal
    Control Over Financial Reporting                     |  |      | 70        | 
|Consolidated Financial Statement
    Schedule II  Valuation and Qualifying
    Accounts |  |      | 75        | 

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SOLECTRON CORPORATION AND SUBSIDIARIES





CONSOLIDATED BALANCE SHEETS


|                                                 |                                                                                                                                |                            |         |          |         |   |         |          |         | 
|------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------ | -------------------------- | ------- | -------- | ------- | - | ------- | -------- | ------- | 
|                                                 |                                                                                                                                | August 31                  |        
|                                                 |                                                                                                                                |                            |        
|                                                 |                                                                                                                                | 2005                       |         |          | 2004    |  
|                                                 |                                                                                                                                |                            |         |          |         |  
|                                                 |                                                                                                                                | (In millions, except per   |        
|                                                 |                                                                                                                                | share data)                |        
|ASSETS                                          
|Current assets:                                  |                                                                                                                                |                            |         |          |         |   |         |         
|                                                 | Cash and cash equivalents                                                                                                      |                            | $       | 1,682.8  |         |   | $       | 1,412.7  |        
|                                                 | Restricted cash and cash equivalents                                                                                           |                            |         | 13.2     |         |   |         | 17.5     |        
|                                                 | Short-term investments                                                                                                         |                            |         | 26.3     |         |   |         |         |        
|                                                 | Accounts receivable, less allowance for doubtful accounts of
    $22.3 and $35.7, respectively                                 |                            |         | 1,180.7  |         |   |         | 1,550.2  |        
|                                                 | Inventories                                                                                                                    |                            |         | 1,108.5  |         |   |         | 1,461.3  |        
|                                                 | Prepaid expenses and other current assets                                                                                      |                            |         | 211.4    |         |   |         | 189.5    |        
|                                                 | Current assets of discontinued operations                                                                                      |                            |         |         |         |   |         | 36.4     |        
|                                                 |                                                                                                                                |                            |         |          |         |  
|                                                 |                                                                                                                                | Total current assets       |         |          | 4,222.9 |   |         |          | 4,667.6 | 
|Property and equipment, net                      |                                                                                                                                |                            | 666.3   |          |         |   | 754.4   |         
|Goodwill                                         |                                                                                                                                |                            | 148.8   |          |         |   | 137.7   |         
|Other assets                                     |                                                                                                                                |                            | 219.8   |          |         |   | 292.4   |         
|Long-term assets of discontinued operations      |                                                                                                                                |                            |        |          |         |   | 11.9    |         
|                                                 |                                                                                                                                |                            |         |          |         |  
|Total assets                                     |                                                                                                                                | $                          | 5,257.8 |          |         | $ | 5,864.0 |         
|                                                 |                                                                                                                                |                            |         |          |         |  
|                                                
|LIABILITIES AND STOCKHOLDERS EQUITY            
|Current liabilities:                             |                                                                                                                                |                            |         |          |         |   |         |         
|                                                 | Short-term debt                                                                                                                |                            | $       | 165.7    |         |   | $       | 25.1     |        
|                                                 | Accounts payable                                                                                                               |                            |         | 1,371.2  |         |   |         | 1,439.0  |        
|                                                 | Accrued employee compensation                                                                                                  |                            |         | 167.0    |         |   |         | 173.7    |        
|                                                 | Accrued expenses and other current liabilities                                                                                 |                            |         | 509.6    |         |   |         | 506.6    |        
|                                                 | Current liabilities of discontinued operations                                                                                 |                            |         |         |         |   |         | 46.4     |        
|                                                 |                                                                                                                                |                            |         |          |         |  
|                                                 |                                                                                                                                | Total current liabilities  |         |          | 2,213.5 |   |         |          | 2,190.8 | 
|Long-term debt                                   |                                                                                                                                |                            | 540.9   |          |         |   | 1,221.4 |         
|Other long-term liabilities                      |                                                                                                                                |                            | 59.2    |          |         |   | 31.1    |         
|Long-term liabilities of discontinued operations |                                                                                                                                |                            |        |          |         |   | 1.8     |         
|                                                 |                                                                                                                                |                            |         |          |         |  
|                                                 |                                                                                                                                | Total liabilities          |         | $        | 2,813.6 |   |         | $        | 3,445.1 | 
|                                                 |                                                                                                                                |                            |         |          |         |  
|Commitments and contingencies                    |                                                                                                                                |                            |         |          |         |   |         |         
|Stockholders 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: 957.9 and 963.6 shares issued and outstanding,
    respectively |                            |         | 1.0      |         |   |         | 1.0      |        
|                                                 | Additional paid-in capital                                                                                                     |                            |         | 7,774.1  |         |   |         | 7,775.9  |        
|                                                 | Accumulated deficit                                                                                                            |                            |         | (5,206.5 | )       |   |         | (5,209.9 | )      
|                                                 | Accumulated other comprehensive losses                                                                                         |                            |         | (124.4   | )       |   |         | (148.1   | )      
|                                                 |                                                                                                                                |                            |         |          |         |  
|                                                 |                                                                                                                                | Total stockholders equity |         |          | 2,444.2 |   |         |          | 2,418.9 | 
|                                                 |                                                                                                                                |                            |         |          |         |  
|Total liabilities and stockholders equity       |                                                                                                                                | $                          | 5,257.8 |          |         | $ | 5,864.0 |         
|                                                 |                                                                                                                                |                            |         |          |         |  



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CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                                           |                                               |                                      |          |       |       |   |          |        |        |   |          |          |          |  
|-------------------------------------------------------------------------- | --------------------------------------------- | ------------------------------------ | -------- | ----- | ----- | - | -------- | ------ | ------ | - | -------- | -------- | -------- | -
|                                                                           |                                               | Years Ended August 31                |         
|                                                                           |                                               |                                      |         
|                                                                           |                                               | 2005                                 |          |       | 2004  |   |          | 2003   |       
|                                                                           |                                               |                                      |          |       |       |   |          |        |       
|                                                                           |                                               | (In millions, except per share data) |         
|Net sales                                                                  |                                               | $                                    | 10,441.1 |       |       | $ | 11,638.3 |        |        | $ | 9,828.3  |         
|Cost of sales                                                              |                                               |                                      | 9,868.8  |       |       |   | 11,068.6 |        |        |   | 9,388.4  |         
|                                                                           |                                               |                                      |          |       |       |   |          |        |       
|Gross profit                                                               |                                               |                                      | 572.3    |       |       |   | 569.7    |        |        |   | 439.9    |         
|Operating expenses:                                                        |                                               |                                      |          |       |       |   |          |        |        |   |          |         
|                                                                           | Selling, general and administrative           |                                      |          | 412.8 |       |   |          | 446.7  |        |   |          | 566.9    |         
|                                                                           | Restructuring and impairment costs            |                                      |          | 91.1  |       |   |          | 177.9  |        |   |          | 604.8    |         
|                                                                           | Goodwill impairment                           |                                      |          |      |       |   |          |       |        |   |          | 1,620.1  |         
|                                                                           |                                               |                                      |          |       |       |   |          |        |       
|                                                                           |                                               | Operating income (loss)              |          |       | 68.4  |   |          |        | (54.9  | ) |          |          | (2,351.9 | )
|Interest income                                                            |                                               |                                      | 38.8     |       |       |   | 15.1     |        |        |   | 27.2     |         
|Interest expense                                                           |                                               |                                      | (56.5    | )     |       |   | (145.3   | )      |        |   | (207.1   | )       
|Other (expense) income  net                                               |                                               |                                      | (45.5    | )     |       |   | (80.6    | )      |        |   | 48.4     |         
|                                                                           |                                               |                                      |          |       |       |   |          |        |       
|Operating income (loss) from continuing operations before income
    taxes |                                               |                                      | 5.2      |       |       |   | (265.7   | )      |        |   | (2,483.4 | )       
|Income tax expense (benefit)                                               |                                               |                                      | 15.7     |       |       |   | (3.3     | )      |        |   | 525.5    |         
|                                                                           |                                               |                                      |          |       |       |   |          |        |       
|                                                                           |                                               | Loss from continuing operations      |          | $     | (10.5 | ) |          | $      | (262.4 | ) |          | $        | (3,008.9 | )
|Discontinued operations:                                                   |                                               |                                      |          |       |       |   |          |        |        |   |          |         
|Income (loss) from discontinued operations                                 |                                               |                                      | 16.8     |       |       |   | 93.7     |        |        |   | (331.7   | )       
|Income tax expense                                                         |                                               |                                      | 2.9      |       |       |   | 8.7      |        |        |   | 112.0    |         
|                                                                           |                                               |                                      |          |       |       |   |          |        |       
|                                                                           | Income (loss) on discontinued operations      |                                      |          | 13.9  |       |   |          | 85.0   |        |   |          | (443.7   | )       
|                                                                           |                                               |                                      |          |       |       |   |          |        |       
|                                                                           | Net income (loss)                             |                                      | $        | 3.4   |       |   | $        | (177.4 | )      |   | $        | (3,452.6 | )       
|                                                                           |                                               |                                      |          |       |       |   |          |        |       
|Basic and diluted net income (loss) per share                              |                                               |                                      |          |       |       |   |          |        |        |   |          |         
|                                                                           | Continuing operations                         |                                      | $        | (0.01 | )     |   | $        | (0.30  | )      |   | $        | (3.63    | )       
|                                                                           | Discontinued operations                       |                                      |          | 0.01  |       |   |          | 0.10   |        |   |          | (0.54    | )       
|                                                                           |                                               |                                      |          |       |       |   |          |        |       
|                                                                           | Basic and diluted net income (loss) per share |                                      | $        |      |       |   | $        | (0.20  | )      |   | $        | (4.17    | )       
|                                                                           |                                               |                                      |          |       |       |   |          |        |       
|Shares used to compute basic and diluted net income (loss) per
    share   |                                               |                                      | 967.4    |       |       |   | 873.9    |        |        |   | 827.7    |         



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CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


|                                                            |  |               |       |   |            |   |     |             |  |       |               |   |       |               |          |   |        |   |        |   |  |   |          |  
|----------------------------------------------------------- |  | ------------- | ----- | - | ---------- | - | --- | ----------- |  | ----- | ------------- | - | ----- | ------------- | -------- | - | ------ | - | ------ | - |  | - | -------- | -
|                                                            |  |               |       |   |            |   |     | Accumulated |  |       |              
|                                                            |  | Common Stock  |       |   | Additional |   |     |             |  | Other |               |   | Total |              
|                                                            |  |               |       |   | Paid-In    |   |     | Accumulated |  |       | Comprehensive |   |       | Stockholders |         
|                                                            |  | Shares        |       |   | Amount     |   |     | Capital     |  |       | Deficit       |   |       | Losses        |          |   | Equity |  
|                                                            |  |               |       |   |            |   |     |             |  |       |               |   |       |               |          |   |        |  
|                                                            |  | (In millions) |      
|Balances as of August 31, 2002                              |  |               | 824.8 |   |            | $ | 0.8 |             |  | $     | 6,635.9       |   |       | $             | (1,579.9 | ) |        | $ | (285.4 | ) |  | $ | 4,771.4  |  
|                                                            |  |               |       |   |            |   |     |             |  |       |               |   |       |               |          |   |        |  
|Net loss                                                    |  |               |      |   |            | $ |    |             |  | $     |              |   |       | $             | (3,452.6 | ) |        | $ |       |   |  | $ | (3,452.6 | )
|Foreign currency translation                                |  |               |      |   |            |   |    |             |  |       |              |   |       |               |         |   |        |   | 150.6  |   |  |   | 150.6    |  
|Unrealized loss on investments                              |  |               |      |   |            |   |    |             |  |       |              |   |       |               |         |   |        |   | (20.0  | ) |  |   | (20.0    | )
|Stock issued under stock option and employee purchase plans |  |               | 5.1   |   |            |   |    |             |  |       | 15.5          |   |       |               |         |   |        |   |       |   |  |   | 15.5     |  
|Other                                                       |  |               | 2.7   |   |            |   |    |             |  |       | 6.8           |   |       |               |         |   |        |   |       |   |  |   | 6.8      |  
|                                                            |  |               |       |   |            |   |     |             |  |       |               |   |       |               |          |   |        |  
|Balances as of August 31, 2003                              |  |               | 832.6 |   |            | $ | 0.8 |             |  | $     | 6,658.2       |   |       | $             | (5,032.5 | ) |        | $ | (154.8 | ) |  | $ | 1,471.7  |  
|                                                            |  |               |       |   |            |   |     |             |  |       |               |   |       |               |          |   |        |  
|Net loss                                                    |  |               |      |   |            | $ |    |             |  | $     |              |   |       | $             | (177.4   | ) |        | $ |       |   |  | $ | (177.4   | )
|Foreign currency translation                                |  |               |      |   |            |   |    |             |  |       |              |   |       |               |         |   |        |   | (3.0   | ) |  |   | (3.0     | )
|Unrealized gain on investments                              |  |               |      |   |            |   |    |             |  |       |              |   |       |               |         |   |        |   | 9.7    |   |  |   | 9.7      |  
|Stock issued under stock option and employee purchase plans |  |               | 8.3   |   |            |   |    |             |  |       | 29.6          |   |       |               |         |   |        |   |       |   |  |   | 29.6     |  
|Stock issued                                                |  |               | 17.1  |   |            |   |    |             |  |       | 81.7          |   |       |               |         |   |        |   |       |   |  |   | 81.7     |  
|Settlement of equity security units                         |  |               | 105.6 |   |            |   | 0.2 |             |  |       | 1,006.4       |   |       |               |         |   |        |   |       |   |  |   | 1,006.6  |  
|                                                            |  |               |       |   |            |   |     |             |  |       |               |   |       |               |          |   |        |  
|Balances as of August 31, 2004                              |  |               | 963.6 |   |            | $ | 1.0 |             |  | $     | 7,775.9       |   |       | $             | (5,209.9 | ) |        | $ | (148.1 | ) |  | $ | 2,418.9  |  
|                                                            |  |               |       |   |            |   |     |             |  |       |               |   |       |               |          |   |        |  
|Net income                                                  |  |               |      |   |            |   |    |             |  |       |              |   |       |               | 3.4      |   |        |   |       |   |  |   | 3.4      |  
|Foreign currency translation                                |  |               |      |   |            |   |    |             |  |       |              |   |       |               |         |   |        |   | 33.9   |   |  |   | 33.9     |  
|Change in minimum pension liability                         |  |               |      |   |            |   |    |             |  |       |              |   |       |               |         |   |        |   | (10.2  | ) |  |   | (10.2    | )
|Stock issued under stock option and employee purchase plans |  |               | 5.0   |   |            |   |    |             |  |       | 16.1          |   |       |               |         |   |        |   |       |   |  |   | 16.1     |  
|Stock issued                                                |  |               | 6.6   |   |            |   |    |             |  |       | 64.3          |   |       |               |         |   |        |   |       |   |  |   | 64.3     |  
|Stock 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 | ) |  | $ | 2,444.2  |  
|                                                            |  |               |       |   |            |   |     |             |  |       |               |   |       |               |          |   |        |  



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SOLECTRON CORPORATION AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)


|                                              |  |                       |       |   |      |   |        |      |  |   |          |  
|--------------------------------------------- |  | --------------------- | ----- | - | ---- | - | ------ | ---- |  | - | -------- | -
|                                              |  | Years Ended August 31 |      
|                                              |  |                       |      
|                                              |  | 2005                  |       |   | 2004 |   |        | 2003 | 
|                                              |  |                       |       |   |      |   |        |      | 
|                                              |  | (In millions)         |      
|Net income (loss)                             |  | $                     | 3.4   |   |      | $ | (177.4 | )    |  | $ | (3,452.6 | )
|Other comprehensive income (loss):            |  |                       |       |   |      |   |        |      |  |   |          |  
|Change in minimum pension liability           |  |                       | (10.2 | ) |      |   |       |      |  |   |         |  
|Foreign currency translation adjustments, net |  |                       | 33.9  |   |      |   | (3.0   | )    |  |   | 150.6    |  
|Unrealized gain (loss) on investments, net    |  |                       |      |   |      |   | 9.7    |      |  |   | (20.0    | )
|                                              |  |                       |       |   |      |   |        |      | 
|Comprehensive income (loss)                   |  | $                     | 27.1  |   |      | $ | (170.7 | )    |  | $ | (3,322.0 | )
|                                              |  |                       |       |   |      |   |        |      | 





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SOLECTRON CORPORATION AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                               |                                                                                               |                                                                                  |                                                |        |        |       |         |         |        |        |         |          |          |        |  
|------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | ---------------------------------------------- | ------ | ------ | ----- | ------- | ------- | ------ | ------ | ------- | -------- | -------- | ------ | -
|                                                                               |                                                                                               | Years Ended August 31                                                            |                                               
|                                                                               |                                                                                               |                                                                                  |                                               
|                                                                               |                                                                                               | 2005                                                                             |                                                |        | 2004   |       |         | 2003    |       
|                                                                               |                                                                                               |                                                                                  |                                                |        |        |       |         |         |       
|                                                                               |                                                                                               | (In millions)                                                                    |                                               
|Cash flows from operating activities of continuing operations:                 |                                                                                               |                                                                                  |                                                |        |        |       |         |         |        |        |         |         
|                                                                               | Net loss from continuing operations                                                           |                                                                                  | $                                              | (10.5  | )      |       | $       | (262.4  | )      |        | $       | (3,008.9 | )       
|                                                                               | Adjustments to reconcile net loss to net cash (used in) provided
    by operating activities: |                                                                                  |                                                |        |        |       |         |         |        |        |         |          |         
|                                                                               |                                                                                               | Depreciation and amortization                                                    |                                                |        | 193.3  |       |         |         | 276.3  |        |         |          | 330.3    |       
|                                                                               |                                                                                               | Loss (gain) on retirement of debt and interest rate swaps                        |                                                |        | 45.6   |       |         |         | 72.1   |        |         |          | (39.4    | )     
|                                                                               |                                                                                               | Deferred tax charge                                                              |                                                |        | 11.9   |       |         |         | (12.0  | )      |         |          | 528.9    |       
|                                                                               |                                                                                               | Impairment of goodwill and intangible assets                                     |                                                |        |       |       |         |         | 47.5   |        |         |          | 1,792.0  |       
|                                                                               |                                                                                               | Loss on disposal and impairment of property and equipment, net                   |                                                |        | 46.6   |       |         |         | 60.2   |        |         |          | 157.5    |       
|                                                                               |                                                                                               | Other                                                                            |                                                |        |       |       |         |         |       |        |         |          | (5.2     | )     
|                                                                               |                                                                                               | Changes in operating assets and liabilities:                                     |                                                |        |        |       |         |         |        |        |         |          |          |       
|                                                                               |                                                                                               |                                                                                  | Accounts receivable, net of allowance          |        |        | 362.9 |         |         |        | (144.3 | )       |          |          | 123.4  |  
|                                                                               |                                                                                               |                                                                                  | Inventories                                    |        |        | 348.5 |         |         |        | (134.1 | )       |          |          | 420.4  |  
|                                                                               |                                                                                               |                                                                                  | Prepaid expenses and other assets              |        |        | 11.0  |         |         |        | 6.8    |         |          |          | 106.9  |  
|                                                                               |                                                                                               |                                                                                  | Accounts payable                               |        |        | (53.6 | )       |         |        | 150.3  |         |          |          | (132.0 | )
|                                                                               |                                                                                               |                                                                                  | Accrued expenses and other current liabilities |        |        | (8.4  | )       |         |        | (69.0  | )       |          |          | 7.1    |  
|                                                                               |                                                                                               |                                                                                  |                                                |        |        |       |         |         |       
|                                                                               |                                                                                               | Net cash provided by (used in) operating activities of
    continuing operations |                                                |        | 947.3  |       |         |         | (8.6   | )      |         |          | 281.0    |       
|                                                                               |                                                                                               |                                                                                  |                                                |        |        |       |         |         |       
|Cash flows from investing activities of continuing operations:                 |                                                                                               |                                                                                  |                                                |        |        |       |         |         |        |        |         |         
|                                                                               | Change in restricted cash and cash equivalents                                                |                                                                                  |                                                | 4.3    |        |       |         | 44.5    |        |        |         | 169.8    |         
|                                                                               | Sales and maturities of short-term investments                                                |                                                                                  |                                                | 2.5    |        |       |         | 27.5    |        |        |         | 252.5    |         
|                                                                               | Purchases of short-term investments                                                           |                                                                                  |                                                | (28.8  | )      |       |         |        |        |        |         | (56.1    | )       
|                                                                               | Collection of loan receivable related to synthetic lease                                      |                                                                                  |                                                | 31.4   |        |       |         |        |        |        |         |         |         
|                                                                               | Acquisitions, net of cash acquired                                                            |                                                                                  |                                                | (42.2  | )      |       |         |        |        |        |         | (49.3    | )       
|                                                                               | Divestitures                                                                                  |                                                                                  |                                                | 61.8   |        |       |         | 508.0   |        |        |         |         |         
|                                                                               | Capital expenditures                                                                          |                                                                                  |                                                | (150.4 | )      |       |         | (149.6  | )      |        |         | (124.6   | )       
|                                                                               | Proceeds from sale of property and equipment                                                  |                                                                                  |                                                | 32.1   |        |       |         | 68.9    |        |        |         | 60.1     |         
|                                                                               | Advances from (to) discontinued operations                                                    |                                                                                  |                                                | (22.9  | )      |       |         | (2.4    | )      |        |         | 84.1     |         
|                                                                               | Supply agreement and other                                                                    |                                                                                  |                                                |       |        |       |         | 0.2     |        |        |         | 48.3     |         
|                                                                               |                                                                                               |                                                                                  |                                                |        |        |       |         |         |       
|                                                                               |                                                                                               | Net cash (used in) provided by investing activities of
    continuing operations |                                                |        | (112.2 | )     |         |         | 497.1  |        |         |          | 384.8    |       
|                                                                               |                                                                                               |                                                                                  |                                                |        |        |       |         |         |       
|Cash flows from financing activities of continuing operations:                 |                                                                                               |                                                                                  |                                                |        |        |       |         |         |        |        |         |         
|                                                                               | Proceeds used for ACES early settlement                                                       |                                                                                  |                                                |       |        |       |         | (63.3   | )      |        |         |         |         
|                                                                               | Net repayment of bank lines of credit and other debt arrangements                             |                                                                                  |                                                | (23.8  | )      |       |         | (50.5   | )      |        |         | (85.0    | )       
|                                                                               | Proceeds from issuance of ACES and Senior Notes                                               |                                                                                  |                                                |       |        |       |         | 436.5   |        |        |         |         |         
|                                                                               | Payments made to redeem ACES and Senior Notes                                                 |                                                                                  |                                                | (544.7 | )      |       |         |        |        |        |         |         |         
|                                                                               | Proceeds (costs) to settle interest rate swap, net                                            |                                                                                  |                                                | (8.2   | )      |       |         | 6.0     |        |        |         |         |         
|                                                                               | Repurchase of LYONS                                                                           |                                                                                  |                                                |       |        |       |         | (950.2  | )      |        |         | (967.5   | )       
|                                                                               | Common stock repurchase                                                                       |                                                                                  |                                                | (71.0  | )      |       |         |        |        |        |         |         |         
|                                                                               | Net proceeds from issuance of common stock                                                    |                                                                                  |                                                | 77.7   |        |       |         | 111.1   |        |        |         | 7.8      |         
|                                                                               | Other                                                                                         |                                                                                  |                                                |       |        |       |         |        |        |        |         | 28.4     |         
|                                                                               |                                                                                               |                                                                                  |                                                |        |        |       |         |         |       
|                                                                               |                                                                                               | Net cash used in financing activities of continuing operations                   |                                                |        | (570.0 | )     |         |         | (510.4 | )      |         |          | (1,016.3 | )     
|                                                                               |                                                                                               |                                                                                  |                                                |        |        |       |         |         |       
|Effect of exchange rate changes on cash and cash equivalents                   |                                                                                               |                                                                                  | 5.0                                            |        |        |       | 9.3     |         |        |        | 32.9    |         
|                                                                               |                                                                                               |                                                                                  |                                                |        |        |       |         |         |       
|Net increase (decrease) in cash and cash equivalents                           |                                                                                               |                                                                                  | 270.1                                          |        |        |       | (12.6   | )       |        |        | (317.6  | )       
|Cash and cash equivalents at beginning of period 
    continuing operations   |                                                                                               |                                                                                  | 1,412.7                                        |        |        |       | 1,425.3 |         |        |        | 1,742.9 |         
|                                                                               |                                                                                               |                                                                                  |                                                |        |        |       |         |         |       
|Cash and cash equivalents at end of period 
    continuing operations         |                                                                                               | $                                                                                | 1,682.8                                        |        |        | $     | 1,412.7 |         |        | $      | 1,425.3 |         
|                                                                               |                                                                                               |                                                                                  |                                                |        |        |       |         |         |       
|SUPPLEMENTAL DISCLOSURES                                                       |                                                                                               |                                                                                  |                                                |        |        |       |         |         |        |        |         |         
|Cash paid (received) during the period:                                        |                                                                                               |                                                                                  |                                                |        |        |       |         |         |        |        |         |         
|                                                                               | Income taxes                                                                                  |                                                                                  | $                                              | 14.7   |        |       | $       | 6.6     |        |        | $       | (199.6   | )       
|                                                                               | Interest                                                                                      |                                                                                  | $                                              | 59.0   |        |       | $       | 100.8   |        |        | $       | 133.4    |         
|Non-cash investing and financing activities:                                   |                                                                                               |                                                                                  |                                                |        |        |       |         |         |        |        |         |         
|                                                                               | Early settlement of ACES for stock                                                            |                                                                                  | $                                              |       |        |       | $       | 1,006.6 |        |        | $       |         |         
|                                                                               | Accrued stock repurchase                                                                      |                                                                                  | $                                              | 11.2   |        |       | $       |        |        |        | $       |         |         
|Cash and cash equivalents at beginning of period 
    discontinued operations |                                                                                               | $                                                                                |                                               |        |        | $     | 32.8    |         |        | $      | 39.0    |         
|Cash (used in) provided by discontinued operations                             |                                                                                               |                                                                                  |                                               |        |        |       | (32.8   | )       |        |        | (6.2    | )       
|                                                                               |                                                                                               |                                                                                  |                                                |        |        |       |         |         |       
|Cash and cash equivalents at end of periods 
    discontinued operations      |                                                                                               | $                                                                                |                                               |        |        | $     |        |         |        | $      | 32.8    |         
|                                                                               |                                                                                               |                                                                                  |                                                |        |        |       |         |         |       



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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:


Restricted Cash and Cash Equivalents:


Allowance for Doubtful Accounts:


Inventories:




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SOLECTRON CORPORATION AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)


Property and Equipment:


|                                            |  |  |                                         | 
|------------------------------------------- |  |  | --------------------------------------- | 
|Machinery, equipment, and computer software |  |  | 2-7 years                               | 
|Furniture and fixtures                      |  |  | 3-5 years                               | 
|Leasehold improvements                      |  |  | shorter of estimated life or lease term | 
|Buildings                                   |  |  | 15-50 years                             | 



Goodwill and Intangible Assets:






Income Taxes:


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SOLECTRON CORPORATION AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)


Net Income (Loss) Per Share:


Revenue Recognition:








Employee Stock Plans:


|                                                                                                             |                                 |                                      |       |       |      |   |        |       |   |   |          |       |  
|------------------------------------------------------------------------------------------------------------ | ------------------------------- | ------------------------------------ | ----- | ----- | ---- | - | ------ | ----- | - | - | -------- | ----- | -
|                                                                                                             |                                 | 2005                                 |       |       | 2004 |   |        | 2003  |  
|                                                                                                             |                                 |                                      |       |       |      |   |        |       |  
|                                                                                                             |                                 | (In millions, except per-share data) |      
|Net income (loss) as reported                                                                                |                                 | $                                    | 3.4   |       |      | $ | (177.4 | )     |   | $ | (3,452.6 | )    
|Stock-based employee compensation expense determined under fair
    value method, net of related tax effects |                                 |                                      | (58.7 | )     |      |   | (60.5  | )     |   |   | (107.0   | )    
|                                                                                                             |                                 |                                      |       |       |      |   |        |       |  
|Pro forma net loss                                                                                           |                                 | $                                    | (55.3 | )     |      | $ | (237.9 | )     |   | $ | (3,559.6 | )    
|                                                                                                             |                                 |                                      |       |       |      |   |        |       |  
|Net loss per share                                                                                           |                                 |                                      |       |       |      |   |        |       |   |   |          |      
|                                                                                                             | Basic and diluted  as reported |                                      | $     |      |      |   | $      | (0.20 | ) |   | $        | (4.17 | )
|                                                                                                             | Basic and diluted  pro forma   |                                      | $     | (0.06 | )    |   | $      | (0.27 | ) |   | $        | (4.30 | )

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SOLECTRON CORPORATION AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)






|                         |  |      |           |  |      |                |      |               
|------------------------ |  | ---- | --------- |  | ---- | -------------- | ---- | --------------
|Stock Options            |  | 2005 |           |  | 2004 |                | 2003
|                         |  |      |           |  |      |                |     
|Expected life of options |  |      | 4.5 years |  |      | 3.9 years      |      | 3.9 years     
|Volatility               |  |      | 57%       |  |      | 75%            |      | 79%           
|Risk-free interest rate  |  |      | 3.79%     |  |      | 2.30% to 3.06% |      | 1.93% to 2.30%
|Dividend yield           |  |      | zero      |  |      | zero           |      | zero          

|                                |  |      |          |  |      |                |      |               
|------------------------------- |  | ---- | -------- |  | ---- | -------------- | ---- | --------------
|Employee Stock Purchase Plan    |  | 2005 |          |  | 2004 |                | 2003
|                                |  |      |          |  |      |                |     
|Expected life of purchase right |  |      | 6 months |  |      | 6 months       |      | 6 months      
|Volatility                      |  |      | 37%      |  |      | 77%            |      | 79%           
|Risk-free interest rate         |  |      | 2.90%    |  |      | 1.00% to 1.70% |      | 0.99% to 1.51%
|Dividend yield                  |  |      | zero     |  |      | zero           |      | zero          







Foreign Currency:


Derivative Instruments:


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SOLECTRON CORPORATION AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)




Research and Development Costs:




| |                                  
| | ---------------------------------
| | Recent Accounting Pronouncements:











| |                   
| | ------------------
| | Reclassifications:



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SOLECTRON CORPORATION AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)




|        |                                                  
|------- | -------------------------------------------------
|NOTE 2. | Cash, Cash Equivalents and Short-term Investments



|                                              |       |                            |       |         | 
|--------------------------------------------- | ----- | -------------------------- | ----- | ------- | 
|                                              |       | Cash, Cash Equivalents and |      
|                                              |       | Short-Term Investments     |      
|                                              |       |                            |      
|August 31, 2005:                              |       |                            |       |        
|Cash and restricted cash                      |       | $                          | 826.1 |        
|Money market funds                            |       |                            | 747.1 |        
|Term deposits                                 |       |                            | 89.0  |        
|Commercial papers                             |       |                            | 12.0  |        
|US government and agency securities           |       |                            | 11.7  |        
|Overnight deposits and other cash equivalents |       |                            | 10.1  |        
|Short-term investments                        |       |                            | 26.3  |        
|                                              |       |                            |      
|                                              | Total |                            | $     | 1,722.3 | 
|                                              |       |                            |      
|August 31, 2004:                              |       |                            |       |        
|Cash and restricted cash                      |       | $                          | 521.7 |        
|Money market funds                            |       |                            | 908.5 |        
|                                              |       |                            |      
|                                              | Total |                            | $     | 1,430.2 | 
|                                              |       |                            |      





|        |            
|------- | -----------
|NOTE 3. | Inventories



|                |  |           |         |  |           |   |         | 
|--------------- |  | --------- | ------- |  | --------- | - | ------- | 
|                |  | August 31 |         |  | August 31 |  
|                |  | 2005      |         |  | 2004      |  
|                |  |           |         |  |           |  
|Raw materials   |  | $         | 771.0   |  |           | $ | 992.6   | 
|Work-in-process |  |           | 152.8   |  |           |   | 224.0   | 
|Finished goods  |  |           | 184.7   |  |           |   | 244.7   | 
|                |  |           |         |  |           |  
|Total           |  | $         | 1,108.5 |  |           | $ | 1,461.3 | 
|                |  |           |         |  |           |  

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SOLECTRON CORPORATION AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)




|        |                       
|------- | ----------------------
|NOTE 4. | Property and Equipment



|                                               |  |           |         |  |           |   |         | 
|---------------------------------------------- |  | --------- | ------- |  | --------- | - | ------- | 
|                                               |  | August 31 |         |  | August 31 |  
|                                               |  | 2005      |         |  | 2004      |  
|                                               |  |           |         |  |           |  
|Land                                           |  | $         | 46.4    |  |           | $ | 85.2    | 
|Building and improvements                      |  |           | 384.3   |  |           |   | 410.5   | 
|Leasehold improvements                         |  |           | 82.5    |  |           |   | 97.8    | 
|Furniture, fixtures, equipment and other       |  |           | 987.5   |  |           |   | 957.7   | 
|Computer equipment and software                |  |           | 317.6   |  |           |   | 326.3   | 
|                                               |  |           |         |  |           |  
|                                               |  |           | 1,818.3 |  |           |   | 1,877.5 | 
|Less accumulated depreciation and amortization |  |           | 1,152.0 |  |           |   | 1,123.1 | 
|                                               |  |           |         |  |           |  
|Property and equipment, net                    |  | $         | 666.3   |  |           | $ | 754.4   | 
|                                               |  |           |         |  |           |  



|        |                
|------- | ---------------
|NOTE 5. | Lines of Credit

1 2




|        |     
|------- | ----
|NOTE 6. | Debt



|                                                                                                                                                           |  |      |       |  |      |   |         | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----- |  | ---- | - | ------- | 
|                                                                                                                                                           |  | 2005 |       |  | 2004 |  
|                                                                                                                                                           |  |      |       |  |      |  
|9.625% senior notes, face value of $0 in 2005 and $500.0 in
    2004, fair values of $0 in 2005 and $551.3 in 2004, due 2009                               |  | $    |      |  |      | $ | 519.4   | 
|0.5% convertible senior notes, face value of $450.0, fair
    value of $343.1 in 2005 and $389.8 in 2004, due 2034                                         |  |      | 450.0 |  |      |   | 450.0   | 
|7.375% senior notes, face value of $150.0, fair values of
    $151.3 in 2005 and $156.4 in 2004, due 2006                                                  |  |      | 150.0 |  |      |   | 150.0   | 
|7.97% adjustable conversion-rate equity securities (ACES), face
    value of $64.3, fair values of $65.8 in 2005 and $65.0 in 2004,
    due 2006           |  |      | 63.6  |  |      |   | 63.0    | 
|2.75% zero-coupon convertible senior notes, face values of $13.0
    in 2005 and $15.2 in 2004, fair values of $8.7 in 2005 and $9.9
    in 2004, due 2020 |  |      | 8.7   |  |      |   | 9.9     | 
|3.25% zero-coupon convertible senior notes, face value of $5.0,
    fair values of $3.1 in 2005 and $3.0 in 2004, due 2020                                 |  |      | 3.1   |  |      |   | 3.0     | 
|Other, fair values approximate carrying value                                                                                                              |  |      | 31.2  |  |      |   | 51.2    | 
|                                                                                                                                                           |  |      |       |  |      |  
|Total debt                                                                                                                                                 |  | $    | 706.6 |  |      | $ | 1,246.5 | 
|Less: current portion                                                                                                                                      |  |      | 165.7 |  |      |   | 25.1    | 
|                                                                                                                                                           |  |      |       |  |      |  
|Total long-term debt                                                                                                                                       |  | $    | 540.9 |  |      | $ | 1,221.4 | 
|                                                                                                                                                           |  |      |       |  |      |  

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SOLECTRON CORPORATION AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)




| |                    
| | -------------------
| | 9.625% Senior Notes







| |                                       
| | --------------------------------------
| | 0.5% Convertible Senior Notes due 2034











| |                    
| | -------------------
| | 7.375% Senior Notes





| |                                                    
| | ---------------------------------------------------
| | Adjustable Conversion-Rate Equity Securities (ACES)



49



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SOLECTRON CORPORATION AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)










| |                                        
| | ---------------------------------------
| | Liquid Yield Option Notes
    (LYONstm)

tm tm




|                        |  |   |       | 
|----------------------- |  | - | ----- | 
|Years Ending August 31: |  |   |       | 
|2006                    |  | $ | 167.8 | 
|2007                    |  |   | 81.7  | 
|2008                    |  |   | 0.7   | 
|2009                    |  |   | 1.2   | 
|2010                    |  |   | 9.9   | 
|2011                    |  |   | 450.0 | 
|                        |  |   |      
|Total                   |  | $ | 711.3 | 
|                        |  |   |      



|        |                      
|------- | ---------------------
|NOTE 7. | Financial Instruments



| |                                    
| | -----------------------------------
| | Fair Value of Financial Instruments





| |            
| | -----------
| | Derivatives







50



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SOLECTRON CORPORATION AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)












|        |                              
|------- | -----------------------------
|NOTE 8. | Commitments and Contingencies



| |                 
| | ----------------
| | Synthetic Leases









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SOLECTRON CORPORATION AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)




| |                                 
| | --------------------------------
| | Future Minimum Lease Obligations



|                |  |                        |       |  |      |   |      |      |  |   |      |  |  |      |      |  |      |   |      |            |  |   |      |  |  |   |      | 
|--------------- |  | ---------------------- | ----- |  | ---- | - | ---- | ---- |  | - | ---- |  |  | ---- | ---- |  | ---- | - | ---- | ---------- |  | - | ---- |  |  | - | ---- | 
|                |  | Payments Due by Period |      
|                |  |                        |      
|                |  | Total                  |       |  | FY06 |   |      | FY07 |  |   | FY08 |  |  | FY09 |      |  | FY10 |   |      | Thereafter | 
|                |  |                        |       |  |      |   |      |      |  |   |      |  |  |      |      |  |      |   |      |            | 
|                |  | (In millions)          |      
|Operating lease |  | $                      | 148.5 |  |      | $ | 40.0 |      |  | $ | 28.3 |  |  | $    | 20.8 |  |      | $ | 17.3 |            |  | $ | 15.9 |  |  | $ | 26.2 | 





| |                         
| | ------------------------
| | Related Party Guarantees





| |                  
| | -----------------
| | Legal Proceedings



Abrams v. Solectron
Corporation et al.


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SOLECTRON CORPORATION AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)




|        |                 
|------- | ----------------
|NOTE 9. | Retirement Plans







|         |             
|-------- | ------------
|NOTE 10. | Income Taxes



|          |       |      |      |      |      |   |       |      |   |   |       |       | 
|--------- | ----- | ---- | ---- | ---- | ---- | - | ----- | ---- | - | - | ----- | ----- | 
|          |       | 2005 |      |      | 2004 |   |       | 2003 |  
|          |       |      |      |      |      |   |       |      |  
|Current:  |       |      |      |      |      |   |       |      |   |   |       |      
|Federal   |       | $    | (3.8 | )    |      | $ | 2.8   |      |   | $ | 26.8  |      
|State     |       |      | 0.8  |      |      |   | 2.7   |      |   |   | 3.2   |      
|Foreign   |       |      | 6.8  |      |      |   | 3.2   |      |   |   | 14.2  |      
|          |       |      |      |      |      |   |       |      |  
|          |       |      | 3.8  |      |      |   | 8.7   |      |   |   | 44.2  |      
|          |       |      |      |      |      |   |       |      |  
|Deferred: |       |      |      |      |      |   |       |      |   |   |       |      
|Federal   |       |      |     |      |      |   |      |      |   |   | 426.0 |      
|State     |       |      |     |      |      |   |      |      |   |   | 63.5  |      
|Foreign   |       |      | 11.9 |      |      |   | (12.0 | )    |   |   | (8.2  | )    
|          |       |      |      |      |      |   |       |      |  
|          |       |      | 11.9 |      |      |   | (12.0 | )    |   |   | 481.3 |      
|          |       |      |      |      |      |   |       |      |  
|          | Total |      | $    | 15.7 |      |   | $     | (3.3 | ) |   | $     | 525.5 | 
|          |       |      |      |      |      |   |       |      |  



|                                                              |  |      |         |   |      |  |       |      |  |  |       |   
|------------------------------------------------------------- |  | ---- | ------- | - | ---- |  | ----- | ---- |  |  | ----- | --
|                                                              |  | 2005 |         |   | 2004 |  |       | 2003 | 
|                                                              |  |      |         |   |      |  |       |      | 
|Federal tax rate                                              |  |      | 35.0    | % |      |  | 35.0  | %    |  |  | 35.0  | % 
|State income tax, net of federal tax benefit                  |  |      | 15.4    |   |      |  | (1.1  | )    |  |  | (1.7  | ) 
|Income of international subsidiaries taxed at different rates |  |      | (739.8  | ) |      |  | 16.9  |      |  |  | (11.6 | ) 
|Tax holiday                                                   |  |      | (432.7  | ) |      |  | 28.6  |      |  |  | 0.4   |   
|Nondeductible goodwill and other permanent items              |  |      | 1,419.5 |   |      |  | (6.6  | )    |  |  | (3.5  | ) 
|Loss for which no benefit is currently realized               |  |      |        |   |      |  | (77.4 | )    |  |  | (20.8 | ) 
|Change in beginning valuation allowance                       |  |      | 232.3   |   |      |  | 7.0   |      |  |  | (19.0 | ) 
|Change in estimate of contingency reserves                    |  |      | (183.8  | ) |      |  |      |      |  |  |      |   
|Other                                                         |  |      | (44.0   | ) |      |  | (1.2  | )    |  |  |      |   
|                                                              |  |      |         |   |      |  |       |      | 
|Effective income tax rate                                     |  |      | 301.9   | % |      |  | 1.2   | %    |  |  | (21.2 | )%
|                                                              |  |      |         |   |      |  |       |      | 

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SOLECTRON CORPORATION AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)




|                               |                                          |      |          |       |      |   |          |       |  
|------------------------------ | ---------------------------------------- | ---- | -------- | ----- | ---- | - | -------- | ----- | -
|                               |                                          | 2005 |          |       | 2004 |  
|                               |                                          |      |          |       |      |  
|Deferred tax assets:           |                                          |      |          |       |      |   |          |      
|                               | Accruals, allowances and reserves        |      | $        | 84.6  |      |   | $        | 66.6  |  
|                               | State income tax                         |      |          | 50.8  |      |   |          | 62.2  |  
|                               | Acquired intangible assets               |      |          | 410.4 |      |   |          | 455.8 |  
|                               | Depreciation                             |      |          |      |      |   |          | 2.3   |  
|                               | Net operating loss carryover and credits |      |          | 924.8 |      |   |          | 918.1 |  
|                               | Restructuring accruals                   |      |          | 21.8  |      |   |          | 28.3  |  
|Capital loss carryover         |                                          |      | 234.8    |       |      |   | 180.5    |      
|                               | Other                                    |      |          | 48.2  |      |   |          | 16.7  |  
|                               |                                          |      |          |       |      |  
|Deferred tax assets            |                                          |      | 1,775.4  |       |      |   | 1,730.5  |      
|Valuation allowance            |                                          |      | (1,686.8 | )     |      |   | (1,629.6 | )    
|                               |                                          |      |          |       |      |  
|Total deferred tax assets      |                                          | $    | 88.6     |       |      | $ | 100.9    |      
|                               |                                          |      |          |       |      |  
|Deferred tax liabilities:      |                                          |      |          |       |      |   |          |      
|                               | Depreciation                             |      |          | (28.3 | )    |   |          | (26.4 | )
|                               | Other                                    |      |          | (0.7  | )    |   |          | (3.8  | )
|                               |                                          |      |          |       |      |  
|Total deferred tax liabilities |                                          |      | (29.0    | )     |      |   | (30.2    | )    
|                               |                                          |      |          |       |      |  
|Net deferred tax assets        |                                          | $    | 59.6     |       |      | $ | 70.7     |      
|                               |                                          |      |          |       |      |  











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SOLECTRON CORPORATION AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)




|               |  |        |       |  |            |  |             | 
|-------------- |  | ------ | ----- |  | ---------- |  | ----------- | 
|Jurisdiction   |  | Amount |       |  | Expiration | 
|               |  |        |       |  |            | 
|Australia      |  | $      | 53.9  |  |            |  | Indefinite  | 
|Brazil         |  |        | 132.5 |  |            |  | Indefinite  | 
|Canada         |  |        | 37.9  |  |            |  | 2008 - 2012 | 
|France         |  |        | 328.8 |  |            |  | 2006 - 2010 | 
|Germany        |  |        | 51.1  |  |            |  | Indefinite  | 
|Hungary        |  |        | 138.2 |  |            |  | Indefinite  | 
|Japan          |  |        | 137.6 |  |            |  | 2006 - 2010 | 
|Netherlands    |  |        | 237.8 |  |            |  | Indefinite  | 
|United Kingdom |  |        | 156.3 |  |            |  | Indefinite  | 
|Other          |  |        | 99.5  |  |            |  | Various     | 





|         |       |      |       |     |      |   |        |        |   |   |          |          |  
|-------- | ----- | ---- | ----- | --- | ---- | - | ------ | ------ | - | - | -------- | -------- | -
|         |       | 2005 |       |     | 2004 |   |        | 2003   |  
|         |       |      |       |     |      |   |        |        |  
|U.S.     |       | $    | 44.9  |     |      | $ | (373.9 | )      |   | $ | (289.4   | )       
|Non-U.S. |       |      | (39.7 | )   |      |   | 108.2  |        |   |   | (2,194.0 | )       
|         |       |      |       |     |      |   |        |        |  
|         | Total |      | $     | 5.2 |      |   | $      | (265.7 | ) |   | $        | (2,483.4 | )
|         |       |      |       |     |      |   |        |        |  











|         |                     
|-------- | --------------------
|NOTE 11. | Stockholders Equity



| |                   
| | ------------------
| | Stock Option Plans



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SOLECTRON CORPORATION AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)






|                                                                                   |  |           |       |          |          |   |       |           |          |  |          |   |  |           |       |  |          |  |       |   |  |   |       | 
|---------------------------------------------------------------------------------- |  | --------- | ----- | -------- | -------- | - | ----- | --------- | -------- |  | -------- | - |  | --------- | ----- |  | -------- |  | ----- | - |  | - | ----- | 
|                                                                                   |  | 2005      |       |          | 2004     |   |       | 2003      |         
|                                                                                   |  |           |       |          |          |   |       |           |         
|                                                                                   |  |           |       | Weighted |          |   |       |           | Weighted |  |          |   |  | Weighted  |      
|                                                                                   |  |           |       | Average  |          |   |       |           | Average  |  |          |   |  | Average   |      
|                                                                                   |  | Number of |       |          | Exercise |   |       | Number of |          |  | Exercise |   |  | Number of |       |  | Exercise | 
|                                                                                   |  | Shares    |       |          | Price    |   |       | Shares    |          |  | Price    |   |  | Shares    |       |  | Price    | 
|                                                                                   |  |           |       |          |          |   |       |           |          |  |          |   |  |           |       |  |          | 
|Outstanding, beginning of year                                                     |  |           | 53.8  |          |          | $ | 12.03 |           |          |  | 64.0     |   |  | $         | 14.30 |  |          |  | 63.2  |   |  | $ | 18.50 | 
|Granted                                                                            |  |           | 10.1  |          |          | $ | 4.04  |           |          |  | 18.0     |   |  | $         | 5.06  |  |          |  | 21.3  |   |  | $ | 3.73  | 
|Exercised                                                                          |  |           | (0.8  | )        |          | $ | 3.70  |           |          |  | (5.7     | ) |  | $         | 3.11  |  |          |  | (0.3  | ) |  | $ | 3.54  | 
|Cancelled                                                                          |  |           | (12.2 | )        |          | $ | 15.48 |           |          |  | (22.5    | ) |  | $         | 15.52 |  |          |  | (20.2 | ) |  | $ | 16.43 | 
|                                                                                   |  |           |       |          |          |   |       |           |          |  |          |   |  |           |       |  |          | 
|Outstanding, end of year                                                           |  |           | 50.9  |          |          | $ | 9.75  |           |          |  | 53.8     |   |  | $         | 12.05 |  |          |  | 64.0  |   |  | $ | 14.30 | 
|                                                                                   |  |           |       |          |          |   |       |           |          |  |          |   |  |           |       |  |          | 
|Exercisable, end of year                                                           |  |           | 38.4  |          |          | $ | 11.76 |           |          |  | 29.7     |   |  | $         | 17.88 |  |          |  | 37.5  |   |  | $ | 18.20 | 
|                                                                                   |  |           |       |          |          |   |       |           |          |  |          |   |  |           |       |  |          | 
|Weighted-average fair value of options granted at market value
    during the year |  |           |       |          |          | $ | 2.02  |           |          |  |          |   |  | $         | 3.04  |  |          |  |       |   |  | $ | 2.25  | 



|                        |  |             |      |           |             |  |            |          |  |   |           |          |  |          |      |  |  |   |       | 
|----------------------- |  | ----------- | ---- | --------- | ----------- |  | ---------- | -------- |  | - | --------- | -------- |  | -------- | ---- |  |  | - | ----- | 
|                        |  | Outstanding |      |           | Exercisable | 
|                        |  |             |      |           |             | 
|                        |  |             |      | Weighted  |             |  |            |          | 
|                        |  |             |      | Average   |             |  | Weighted   |          |  |   |           | Weighted | 
|                        |  |             |      | Remaining |             |  | Average    |          |  |   |           | Average  | 
|                        |  | Number of   |      |           | Contractual |  |            | Exercise |  |   | Number of |          |  | Exercise |     
|Range of Exercise Price |  | Shares      |      |           | Life        |  |            | Price    |  |   | Shares    |          |  | Price    |     
|                        |  |             |      |           |             |  |            |          |  |   |           |          |  |          |     
|$ 1.09 - $ 3.77         |  |             | 8.1  |           |             |  | 8.05 years |          |  | $ | 3.64      |          |  |          | 3.9  |  |  | $ | 3.59  | 
|$ 3.79 - $ 3.79         |  |             | 5.3  |           |             |  | 9.84 years |          |  | $ | 3.79      |          |  |          | 0.1  |  |  | $ | 3.79  | 
|$ 3.99 - $ 4.24         |  |             | 6.2  |           |             |  | 7.44 years |          |  | $ | 4.06      |          |  |          | 3.8  |  |  | $ | 4.05  | 
|$ 4.30 - $ 5.07         |  |             | 2.4  |           |             |  | 8.77 years |          |  | $ | 4.93      |          |  |          | 2.3  |  |  | $ | 4.95  | 
|$ 5.09 - $ 5.09         |  |             | 6.6  |           |             |  | 8.81 years |          |  | $ | 5.09      |          |  |          | 6.4  |  |  | $ | 5.09  | 
|$ 5.13 - $ 5.96         |  |             | 5.4  |           |             |  | 8.39 years |          |  | $ | 5.65      |          |  |          | 5.2  |  |  | $ | 5.64  | 
|$ 6.05 - $ 9.98         |  |             | 1.6  |           |             |  | 6.02 years |          |  | $ | 6.90      |          |  |          | 1.5  |  |  | $ | 6.97  | 
|$10.29 - $10.29         |  |             | 5.2  |           |             |  | 6.07 years |          |  | $ | 10.29     |          |  |          | 5.2  |  |  | $ | 10.29 | 
|$10.34 - $31.00         |  |             | 5.6  |           |             |  | 2.69 years |          |  | $ | 18.29     |          |  |          | 5.6  |  |  | $ | 18.29 | 
|$31.08 - $51.67         |  |             | 4.5  |           |             |  | 2.06 years |          |  | $ | 39.93     |          |  |          | 4.4  |  |  | $ | 39.93 | 
|                        |  |             |      |           |             |  |            |          |  |   |           |          |  |          |     
|$ 1.09 - $51.67         |  |             | 50.9 |           |             |  | 6.95 years |          |  | $ | 9.75      |          |  |          | 38.4 |  |  | $ | 11.76 | 
|                        |  |             |      |           |             |  |            |          |  |   |           |          |  |          |     





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SOLECTRON CORPORATION AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)




| |                             
| | ----------------------------
| | Employee Stock Purchase Plan







| |                      
| | ---------------------
| | Common Stock Issuance







| |                                                         
| | --------------------------------------------------------
| | Restricted Stock Awards and Discounted Stock
    Options









| |                                             
| | --------------------------------------------
| | Board of Directors Stock in Lieu of Retainer





| |                 
| | ----------------
| | Stock Repurchase



57



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SOLECTRON CORPORATION AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)




|         |                                   
|-------- | ----------------------------------
|NOTE 12. | Segment and Geographic Information







|                      |                               |                       |          |         |      |   |          |         |  |   |         |         | 
|--------------------- | ----------------------------- | --------------------- | -------- | ------- | ---- | - | -------- | ------- |  | - | ------- | ------- | 
|                      |                               | Years Ended August 31 |         
|                      |                               |                       |         
|                      |                               | 2005                  |          |         | 2004 |   |          | 2003    | 
|                      |                               |                       |          |         |      |   |          |         | 
|Geographic net sales: |                               |                       |          |         |      |   |          |         |  |   |         |        
|                      | United States                 |                       | $        | 3,127.1 |      |   | $        | 3,219.4 |  |   | $       | 3,217.7 | 
|                      | Other North and Latin America |                       |          | 1,633.6 |      |   |          | 1,836.2 |  |   |         | 1,358.7 | 
|                      | Europe                        |                       |          | 1,497.3 |      |   |          | 1,667.4 |  |   |         | 1,590.4 | 
|                      | Malaysia                      |                       |          | 2,013.2 |      |   |          | 1,853.4 |  |   |         | 1,455.0 | 
|                      | China                         |                       |          | 1,268.2 |      |   |          | 1,914.6 |  |   |         | 1,091.3 | 
|                      | Other Asia Pacific            |                       |          | 901.7   |      |   |          | 1,147.3 |  |   |         | 1,115.2 | 
|                      |                               |                       |          |         |      |   |          |         | 
|                      |                               | $                     | 10,441.1 |         |      | $ | 11,638.3 |         |  | $ | 9,828.3 |        
|                      |                               |                       |          |         |      |   |          |         | 



|                   |                               |           |       |       |           |   |       |       | 
|------------------ | ----------------------------- | --------- | ----- | ----- | --------- | - | ----- | ----- | 
|                   |                               | August 31 |       |       | August 31 |  
|                   |                               | 2005      |       |       | 2004      |  
|                   |                               |           |       |       |           |  
|Long-lived assets: |                               |           |       |       |           |   |       |      
|                   | United States                 |           | $     | 314.3 |           |   | $     | 332.4 | 
|                   | Other North and Latin America |           |       | 165.7 |           |   |       | 182.6 | 
|                   | Europe                        |           |       | 138.0 |           |   |       | 144.7 | 
|                   | Asia Pacific                  |           |       | 275.8 |           |   |       | 330.1 | 
|                   |                               |           |       |       |           |  
|                   |                               | $         | 893.8 |       |           | $ | 989.8 |      
|                   |                               |           |       |       |           |  



|         |                
|-------- | ---------------
|NOTE 13. | Major Customers



|                |  |                       |       |  |      |  |       |      |  |  |       | 
|--------------- |  | --------------------- | ----- |  | ---- |  | ----- | ---- |  |  | ----- | 
|                |  | Years Ended August 31 |      
|                |  |                       |      
|                |  | 2005                  |       |  | 2004 |  |       | 2003 | 
|                |  |                       |       |  |      |  |       |      | 
|Cisco Systems   |  |                       | 15.7% |  |      |  | 13.2% |      |  |  | 11.9% | 
|Nortel Networks |  |                       | 10.8% |  |      |  | *     |      |  |  | 12.9% | 






|  |              
|- | -------------
|* | less than 10%



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SOLECTRON CORPORATION AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)






|         |              
|-------- | -------------
|NOTE 14. | Restructuring







| |            
| | -----------
| | Fiscal 2005





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SOLECTRON CORPORATION AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)








|                                                                                                   |  |      |      |   |        |  |          | 
|-------------------------------------------------------------------------------------------------- |  | ---- | ---- | - | ------ |  | -------- | 
|                                                                                                   |  | 2005 |      |   | Nature | 
|                                                                                                   |  |      |      |   |        | 
|Loss on disposal of and impairment of equipment and facilities,
    net of loss (gain) on disposal |  | $    | 45.2 |   |        |  | non-cash | 
|Severance and benefit costs                                                                        |  |      | 46.3 |   |        |  | cash     | 
|Net adjustment to equipment lease loss accrual                                                     |  |      | (0.2 | ) |        |  | cash     | 
|Net adjustment to facility lease loss accrual                                                      |  |      | (1.4 | ) |        |  | cash     | 
|Other exit costs                                                                                   |  |      | 1.2  |   |        |  | cash     | 
|                                                                                                   |  |      |      |   |        | 
|Total                                                                                              |  | $    | 91.1 |   |        |  |          | 
|                                                                                                   |  |      |      |   |        | 



| |            
| | -----------
| | Fiscal 2004











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SOLECTRON CORPORATION AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)




|                                                               |  |      |       |   |        |  |          | 
|-------------------------------------------------------------- |  | ---- | ----- | - | ------ |  | -------- | 
|                                                               |  | 2004 |       |   | Nature | 
|                                                               |  |      |       |   |        | 
|Loss on disposal of and impairment of equipment and facilities |  | $    | 38.5  |   |        |  | non-cash | 
|Severance and benefit costs                                    |  |      | 25.9  |   |        |  | cash     | 
|Net adjustment to equipment lease loss accrual                 |  |      | (2.2  | ) |        |  | cash     | 
|Net adjustment to facility lease loss accrual                  |  |      | 42.5  |   |        |  | cash     | 
|Other exit costs                                               |  |      | 25.7  |   |        |  | cash     | 
|                                                               |  |      |       |   |        | 
|Total                                                          |  | $    | 130.4 |   |        |  |          | 
|                                                               |  |      |       |   |        | 



| |            
| | -----------
| | Fiscal 2003





|                                                     |  |      |       |  |        |  |          | 
|---------------------------------------------------- |  | ---- | ----- |  | ------ |  | -------- | 
|                                                     |  | 2003 |       |  | Nature | 
|                                                     |  |      |       |  |        | 
|Impairment of equipment                              |  | $    | 48.9  |  |        |  | non-cash | 
|Impairment of facilities                             |  |      | 77.8  |  |        |  | non-cash | 
|Impairment of other assets                           |  |      | 26.9  |  |        |  | non-cash | 
|                                                     |  |      |       |  |        | 
|Impairment of equipment, facilities and other assets |  | $    | 153.6 |  |        |  |          | 
|Severance and benefit costs                          |  |      | 221.8 |  |        |  | cash     | 
|Loss on leased equipment                             |  |      | 2.2   |  |        |  | cash     | 
|Loss on leased facilities                            |  |      | 22.9  |  |        |  | cash     | 
|Other exit costs                                     |  |      | 32.6  |  |        |  | cash     | 
|                                                     |  |      |       |  |        | 
|Total                                                |  | $    | 433.1 |  |        |  |          | 
|                                                     |  |      |       |  |        | 

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Notes to Consolidated Financial
Statements  (Continued)




|                                      |  |              |        |   |                |   |       |                |  |   |       |   |  |       |       |   |  |   |        |  
|------------------------------------- |  | ------------ | ------ | - | -------------- | - | ----- | -------------- |  | - | ----- | - |  | ----- | ----- | - |  | - | ------ | -
|                                      |  | Severance    |        |   | Lease Payments |   |       | Lease Payments |  |   |       |   | 
|                                      |  | and Benefits |        |   | on Facilities  |   |       | on Equipment   |  |   | Other |   |  | Total |      
|                                      |  |              |        |   |                |   |       |                |  |   |       |   |  |       |      
|Balance of accrual at August 31, 2002 |  | $            | 5.6    |   |                | $ | 59.7  |                |  | $ | 83.4  |   |  | $     | 0.3   |   |  | $ | 149.0  |  
|                                      |  |              |        |   |                |   |       |                |  |   |       |   |  |       |      
|FY2003 Provision                      |  |              | 221.8  |   |                |   | 22.6  |                |  |   | 2.2   |   |  |       | 32.6  |   |  |   | 279.2  |  
|FY2003 Provision adjustments          |  |              |       |   |                |   | 0.3   |                |  |   |      |   |  |       |      |   |  |   | 0.3    |  
|FY2003 Cash payments                  |  |              | (153.2 | ) |                |   | (50.1 | )              |  |   | (57.1 | ) |  |       | (22.4 | ) |  |   | (282.8 | )
|                                      |  |              |        |   |                |   |       |                |  |   |       |   |  |       |      
|Balance of accrual at August 31, 2003 |  | $            | 74.2   |   |                | $ | 32.5  |                |  | $ | 28.5  |   |  | $     | 10.5  |   |  | $ | 145.7  |  
|                                      |  |              |        |   |                |   |       |                |  |   |       |   |  |       |      
|FY2004 Provision                      |  |              | 25.9   |   |                |   | 53.7  |                |  |   | 2.3   |   |  |       | 25.7  |   |  |   | 107.6  |  
|FY2004 Provision adjustments          |  |              |       |   |                |   | (11.2 | )              |  |   | (4.5  | ) |  |       |      |   |  |   | (15.7  | )
|FY2004 Cash payments                  |  |              | (71.2  | ) |                |   | (17.5 | )              |  |   | (21.4 | ) |  |       | (34.9 | ) |  |   | (145.0 | )
|                                      |  |              |        |   |                |   |       |                |  |   |       |   |  |       |      
|Balance of accrual at August 31, 2004 |  | $            | 28.9   |   |                | $ | 57.5  |                |  | $ | 4.9   |   |  | $     | 1.3   |   |  | $ | 92.6   |  
|                                      |  |              |        |   |                |   |       |                |  |   |       |   |  |       |      
|FY2005 Provision                      |  |              | 54.2   |   |                |   | 2.6   |                |  |   | 0.2   |   |  |       | 1.2   |   |  |   | 58.2   |  
|FY2005 Provision adjustments          |  |              | (7.9   | ) |                |   | (4.0  | )              |  |   | (0.4  | ) |  |       |      |   |  |   | (12.3  | )
|FY2005 Cash payments                  |  |              | (30.3  | ) |                |   | (25.1 | )              |  |   | (3.0  | ) |  |       | (2.4  | ) |  |   | (60.8  | )
|                                      |  |              |        |   |                |   |       |                |  |   |       |   |  |       |      
|Balance of accrual at August 31, 2005 |  | $            | 44.9   |   |                | $ | 31.0  |                |  | $ | 1.7   |   |  | $     | 0.1   |   |  | $ | 77.7   |  
|                                      |  |              |        |   |                |   |       |                |  |   |       |   |  |       |      





|         |                               
|-------- | ------------------------------
|NOTE 15. | Goodwill and Intangible Assets



|                           |  |          |       | 
|-------------------------- |  | -------- | ----- | 
|                           |  | Goodwill |      
|                           |  |          |      
|Balance at August 31, 2003 |  | $        | 137.1 | 
|                           |  |          |      
|Goodwill adjustments       |  |          | 0.6   | 
|                           |  |          |      
|Balance at August 31, 2004 |  | $        | 137.7 | 
|                           |  |          |      
|Goodwill acquired          |  |          | 11.1  | 
|                           |  |          |      
|Balance at August 31, 2005 |  | $        | 148.8 | 
|                           |  |          |      



| |            
| | -----------
| | Fiscal 2005





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Notes to Consolidated Financial
Statements  (Continued)




| |            
| | -----------
| | Fiscal 2004





| |            
| | -----------
| | Fiscal 2003







| |                  
| | -----------------
| | Intangible Assets



|                         |  |            |       |   |                       |          |       |               |  |   |       |   |  |   |        |  
|------------------------ |  | ---------- | ----- | - | --------------------- | -------- | ----- | ------------- |  | - | ----- | - |  | - | ------ | -
|                         |  |            |       |   |                       | Customer |       |               | 
|                         |  | Supply     |       |   | Intellectual Property |          |       | Relationships |  |   |      
|Fiscal 2005              |  | Agreements |       |   | Agreements            |          |       | and Other     |  |   | Total |  
|                         |  |            |       |   |                       |          |       |               |  |   |       |  
|Gross amount             |  | $          | 87.7  |   |                       | $        | 61.0  |               |  | $ | 92.3  |   |  | $ | 241.0  |  
|Intangibles acquired     |  |            | 4.2   |   |                       |          |      |               |  |   | 6.6   |   |  |   | 10.8   |  
|Accumulated amortization |  |            | (86.7 | ) |                       |          | (56.2 | )             |  |   | (84.1 | ) |  |   | (227.0 | )
|                         |  |            |       |   |                       |          |       |               |  |   |       |  
|Carrying value           |  | $          | 5.2   |   |                       | $        | 4.8   |               |  | $ | 14.8  |   |  | $ | 24.8   |  
|                         |  |            |       |   |                       |          |       |               |  |   |       |  

|                         |  |            |       |   |                       |          |       |               |  |   |       |   |  |   |        |  
|------------------------ |  | ---------- | ----- | - | --------------------- | -------- | ----- | ------------- |  | - | ----- | - |  | - | ------ | -
|                         |  |            |       |   |                       | Customer |       |               | 
|                         |  | Supply     |       |   | Intellectual Property |          |       | Relationships |  |   |      
|Fiscal 2004              |  | Agreements |       |   | Agreements            |          |       | and Other     |  |   | Total |  
|                         |  |            |       |   |                       |          |       |               |  |   |       |  
|Gross amount             |  | $          | 87.7  |   |                       | $        | 108.5 |               |  | $ | 92.3  |   |  | $ | 288.5  |  
|Accumulated amortization |  |            | (86.1 | ) |                       |          | (54.5 | )             |  |   | (77.5 | ) |  |   | (218.1 | )
|Impairment               |  |            |      |   |                       |          | (47.5 | )             |  |   |      |   |  |   | (47.5  | )
|                         |  |            |       |   |                       |          |       |               |  |   |       |  
|Carrying value           |  | $          | 1.6   |   |                       | $        | 6.5   |               |  | $ | 14.8  |   |  | $ | 22.9   |  
|                         |  |            |       |   |                       |          |       |               |  |   |       |  



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Notes to Consolidated Financial
Statements  (Continued)












|         |                        
|-------- | -----------------------
|NOTE 16. | Discontinued Operations







|                                  |                                   |                                                      |      |       |      |   |         |       |      |   |         |       |        |  
|--------------------------------- | --------------------------------- | ---------------------------------------------------- | ---- | ----- | ---- | - | ------- | ----- | ---- | - | ------- | ----- | ------ | -
|                                  |                                   | Years Ended August 31                                |     
|                                  |                                   |                                                      |     
|                                  |                                   | 2005                                                 |      |       | 2004 |   |         | 2003  |     
|                                  |                                   |                                                      |      |       |      |   |         |       |     
|Net sales                         |                                   | $                                                    | 15.2 |       |      | $ | 1,264.9 |       |      | $ | 1,872.1 |      
|Cost of sales                     |                                   |                                                      | 14.1 |       |      |   | 1,061.8 |       |      |   | 1,598.1 |      
|                                  |                                   |                                                      |      |       |      |   |         |       |     
|Gross profit                      |                                   |                                                      | 1.1  |       |      |   | 203.1   |       |      |   | 274.0   |      
|                                  | Operating (income) expenses  net |                                                      |      | (14.8 | )    |   |         | 109.4 |      |   |         | 606.5 |       
|                                  |                                   |                                                      |      |       |      |   |         |       |     
|                                  |                                   | Operating income (loss)                              |      |       | 15.9 |   |         |       | 93.7 |   |         |       | (332.5 | )
|Interest income-net               |                                   |                                                      |     |       |      |   | 1.4     |       |      |   | 1.5     |      
|Other income (expense)  net      |                                   |                                                      | 0.9  |       |      |   | (1.4    | )     |      |   | (0.7    | )    
|                                  |                                   |                                                      |      |       |      |   |         |       |     
|Income (loss) before income taxes |                                   |                                                      | 16.8 |       |      |   | 93.7    |       |      |   | (331.7  | )    
|Income tax expense                |                                   |                                                      | 2.9  |       |      |   | 8.7     |       |      |   | 112.0   |      
|                                  |                                   |                                                      |      |       |      |   |         |       |     
|                                  |                                   | Income (loss) on discontinued operations, net of tax |      | $     | 13.9 |   |         | $     | 85.0 |   |         | $     | (443.7 | )
|                                  |                                   |                                                      |      |       |      |   |         |       |     

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Notes to Consolidated Financial
Statements  (Continued)




|                              |                                                          |           |   |           |  |   |      |      | 
|----------------------------- | -------------------------------------------------------- | --------- | - | --------- |  | - | ---- | ---- | 
|                              |                                                          | August 31 |   | August 31 | 
|                              |                                                          | 2005      |   | 2004      | 
|                              |                                                          |           |   |           | 
|Accounts receivable, net      |                                                          | $         |  |           |  | $ | 18.3 |     
|Inventories                   |                                                          |           |  |           |  |   | 18.1 |     
|                              |                                                          |           |   |           |  |  
|                              | Total current assets of discontinued operations          |           | $ |          |  |   | $    | 36.4 | 
|                              |                                                          |           |   |           |  |  
|Net property and equipment    |                                                          | $         |  |           |  | $ | 10.1 |     
|Other assets                  |                                                          |           |  |           |  |   | 1.8  |     
|                              |                                                          |           |   |           |  |  
|                              | Total non-current assets of discontinued operations      |           | $ |          |  |   | $    | 11.9 | 
|                              |                                                          |           |   |           |  |  
|Short-term debt               |                                                          | $         |  |           |  | $ | 8.9  |     
|Accounts payable              |                                                          |           |  |           |  |   | 26.0 |     
|Accrued employee compensation |                                                          |           |  |           |  |   | 7.2  |     
|Accrued expenses              |                                                          |           |  |           |  |   | 4.3  |     
|                              |                                                          |           |   |           |  |  
|                              | Total current liabilities of discontinued operations     |           | $ |          |  |   | $    | 46.4 | 
|                              |                                                          |           |   |           |  |  
|                              | Total non-current liabilities of discontinued operations |           | $ |          |  |   | $    | 1.8  | 
|                              |                                                          |           |   |           |  |  



|         |                   
|-------- | ------------------
|NOTE 17. | Net Loss Per Share





|                                      |                                      |                                     |   |       |       |  |   |        |       |  |   |          |       | 
|------------------------------------- | ------------------------------------ | ----------------------------------- | - | ----- | ----- |  | - | ------ | ----- |  | - | -------- | ----- | 
|                                      |                                      | 2005                                |   |       | 2004  |  |   | 2003   |      
|                                      |                                      |                                     |   |       |       |  |   |        |      
|Basic and diluted net loss per share: |                                      |                                     |   |       |       |  |   |        |       |  |   |         
|                                      | Net loss                             |                                     | $ | (10.5 | )     |  | $ | (262.4 | )     |  | $ | (3,008.9 | )    
|                                      | Shares used in computation:          |                                     |   |       |       |  |   |        |       |  |   |          |      
|                                      |                                      | Weighted average shares outstanding |   |       | 967.4 |  |   |        | 873.9 |  |   |          | 827.7 | 
|                                      |                                      |                                     |   |       |       |  |   |        |      
|                                      | Basic and diluted net loss per share |                                     | $ | (0.01 | )     |  | $ | (0.30  | )     |  | $ | (3.63    | )    
|                                      |                                      |                                     |   |       |       |  |   |        |      



|                     |                                               |                            |  |      |      |  |  |      |       |  |  |       |       | 
|-------------------- | --------------------------------------------- | -------------------------- |  | ---- | ---- |  |  | ---- | ----- |  |  | ----- | ----- | 
|                     |                                               | 2005                       |  |      | 2004 |  |  | 2003 |      
|                     |                                               |                            |  |      |      |  |  |      |      
|Dilutive securities: |                                               |                            |  |      |      |  |  |      |       |  |  |      
|                     | Employee stock options                        |                            |  | 36.7 |      |  |  | 40.6 |       |  |  | 66.4  |      
|                     | Shares issuable upon conversion of LYONs      |                            |  | 0.2  |      |  |  | 14.5 |       |  |  | 31.7  |      
|                     | Shares issuable upon conversion of ACES       |                            |  | 1.4  |      |  |  | 78.9 |       |  |  | 112.1 |      
|                     | Shares issuable upon conversion of 0.5% notes |                            |  | 0.3  |      |  |  | 24.6 | *     |  |  |      |      
|                     |                                               |                            |  |      |      |  |  |      |      
|                     |                                               | Total anti-dilutive shares |  |      | 38.6 |  |  |      | 158.6 |  |  |       | 210.2 | 
|                     |                                               |                            |  |      |      |  |  |      |      






|  |                                                                                                                                                                                                                                     
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | This represents the weighted average number of shares
    outstanding based on the issuance date of February 17,
    2004. The total number of contingent common shares related to
    the 0.5% senior notes is 46.6 million shares.

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Notes to Consolidated Financial
Statements  (Continued)




|         |                  
|-------- | -----------------
|NOTE 18. | Subsequent Events







|         |                                                  
|-------- | -------------------------------------------------
|NOTE 19. | Quarterly Consolidated Financial Data (Unaudited)



|                                                             |                                            |                            |         |      |         |   |         |         |   |   |         |       |   |   |         |      |  
|------------------------------------------------------------ | ------------------------------------------ | -------------------------- | ------- | ---- | ------- | - | ------- | ------- | - | - | ------- | ----- | - | - | ------- | ---- | -
|                                                             |                                            | Year Ended August 31, 2005 |        
|                                                             |                                            |                            |        
|                                                             |                                            | First                      |         |      | Second  |   |         | Third   |   |   | Fourth  |      
|Fiscal 2005                                                  |                                            | Quarter                    |         |      | Quarter |   |         | Quarter |   |   | Quarter |      
|                                                             |                                            |                            |         |      |         |   |         |         |   |   |         |      
|Net sales                                                    |                                            | $                          | 2,690.6 |      |         | $ | 2,756.0 |         |   | $ | 2,596.0 |       |   | $ | 2,398.5 |     
|Cost of Sales                                                |                                            |                            | 2,535.1 |      |         |   | 2,598.1 |         |   |   | 2,461.4 |       |   |   | 2,274.2 |     
|                                                             |                                            |                            |         |      |         |   |         |         |   |   |         |      
|Gross profit                                                 |                                            |                            | 155.5   |      |         |   | 157.9   |         |   |   | 134.6   |       |   |   | 124.3   |     
|Operating Expenses:                                          |                                            |                            |         |      |         |   |         |         |   |   |         |       |   |   |         |     
|Selling, general and administrative                          |                                            |                            | 95.6    |      |         |   | 104.7   |         |   |   | 109.7   |       |   |   | 102.8   |     
|Restructuring and impairment costs                           |                                            |                            | 0.7     |      |         |   | 43.2    |         |   |   | 40.5    |       |   |   | 6.7     |     
|                                                             |                                            |                            |         |      |         |   |         |         |   |   |         |      
|                                                             | Operating income (loss)                    |                            |         | 59.2 |         |   |         | 10.0    |   |   |         | (15.6 | ) |   |         | 14.8 |  
|Interest Income                                              |                                            |                            | 5.8     |      |         |   | 9.1     |         |   |   | 12.6    |       |   |   | 11.3    |     
|Interest 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   | )     |   |   | 16.4    |     
|Income tax expense (benefit)                                 |                                            |                            | 5.9     |      |         |   | 6.6     |         |   |   | (1.4    | )     |   |   | 4.6     |     
|                                                             |                                            |                            |         |      |         |   |         |         |   |   |         |      
|                                                             | Income (loss) from continuing operations   |                            | $       | 47.5 |         |   | $       | (3.1    | ) |   | $       | (66.7 | ) |   | $       | 11.8 |  
|Discontinued operations:                                     |                                            |                            |         |      |         |   |         |         |   |   |         |       |   |   |         |     
|Income from discontinued operations                          |                                            |                            | 12.4    |      |         |   | 0.9     |         |   |   | 2.6     |       |   |   | 0.9     |     
|Income tax expense                                           |                                            |                            | 1.7     |      |         |   |        |         |   |   |        |       |   |   | 1.2     |     
|                                                             |                                            |                            |         |      |         |   |         |         |   |   |         |      
|                                                             | Income (loss) from discontinued operations |                            | $       | 10.7 |         |   | $       | 0.9     |   |   | $       | 2.6   |   |   | $       | (0.3 | )
|                                                             |                                            |                            |         |      |         |   |         |         |   |   |         |      
|                                                             | Net income (loss)                          |                            | $       | 58.2 |         |   | $       | (2.2    | ) |   | $       | (64.1 | ) |   | $       | 11.5 |  
|Basic net income (loss) per share:                           |                                            |                            |         |      |         |   |         |         |   |   |         |       |   |   |         |     
|Continuing operations                                        |                                            | $                          | 0.05    |      |         | $ |        |         |   | $ | (0.07   | )     |   | $ | 0.01    |     
|Discontinued operations:                                     |                                            |                            | 0.01    |      |         |   |        |         |   |   |        |       |   |   |        |     
|                                                             |                                            |                            |         |      |         |   |         |         |   |   |         |      
|Basic net income (loss) per share:                           |                                            | $                          | 0.06    |      |         | $ |        |         |   | $ | (0.07   | )     |   | $ | 0.01    |     
|Diluted net income (loss) per share:                         |                                            |                            |         |      |         |   |         |         |   |   |         |       |   |   |         |     
|Continuing operations                                        |                                            | $                          | 0.05    |      |         | $ |        |         |   | $ | (0.07   | )     |   | $ | 0.01    |     
|Discontinued operations:                                     |                                            |                            | 0.01    |      |         |   |        |         |   |   |        |       |   |   |        |     
|                                                             |                                            |                            |         |      |         |   |         |         |   |   |         |      
|Diluted net income (loss) per share                          |                                            | $                          | 0.06    |      |         | $ |        |         |   | $ | (0.07   | )     |   | $ | 0.01    |     
|Shares used to compute basic net income (loss) per share     |                                            |                            | 963.2   |      |         |   | 977.1   |         |   |   | 978.4   |       |   |   | 967.9   |     
|Shares used to compute diluted net income (loss) per share   |                                            |                            | 967.4   |      |         |   | 977.1   |         |   |   | 978.4   |       |   |   | 969.2   |     



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Notes to Consolidated Financial
Statements  (Continued)


|                                                             |                                            |                            |         |        |         |   |         |         |   |   |         |       |   |   |         |       |  
|------------------------------------------------------------ | ------------------------------------------ | -------------------------- | ------- | ------ | ------- | - | ------- | ------- | - | - | ------- | ----- | - | - | ------- | ----- | -
|                                                             |                                            | Year Ended August 31, 2004 |        
|                                                             |                                            |                            |        
|                                                             |                                            | First                      |         |        | Second  |   |         | Third   |   |   | Fourth  |      
|Fiscal 2004                                                  |                                            | Quarter                    |         |        | Quarter |   |         | Quarter |   |   | Quarter |      
|                                                             |                                            |                            |         |        |         |   |         |         |   |   |         |      
|Net sales                                                    |                                            | $                          | 2,685.7 |        |         | $ | 2,877.8 |         |   | $ | 3,034.2 |       |   | $ | 3,040.6 |      
|Cost of Sales                                                |                                            |                            | 2,559.0 |        |         |   | 2,749.8 |         |   |   | 2,879.0 |       |   |   | 2,880.8 |      
|                                                             |                                            |                            |         |        |         |   |         |         |   |   |         |      
|Gross profit                                                 |                                            |                            | 126.7   |        |         |   | 128.0   |         |   |   | 155.2   |       |   |   | 159.8   |      
|Operating Expenses:                                          |                                            |                            |         |        |         |   |         |         |   |   |         |       |   |   |         |      
|Selling, general and administrative                          |                                            |                            | 114.4   |        |         |   | 113.8   |         |   |   | 103.7   |       |   |   | 114.8   |      
|Restructuring and impairment costs                           |                                            |                            | 31.4    |        |         |   | 74.0    |         |   |   | 4.4     |       |   |   | 68.1    |      
|                                                             |                                            |                            |         |        |         |   |         |         |   |   |         |      
|                                                             | Operating income (loss)                    |                            |         | (19.1  | )       |   |         | (59.8   | ) |   |         | 47.1  |   |   |         | (23.1 | )
|Interest Income                                              |                                            |                            | 2.5     |        |         |   | 3.7     |         |   |   | 4.9     |       |   |   | 4.0     |      
|Interest expense                                             |                                            |                            | (43.9   | )      |         |   | (44.4   | )       |   |   | (42.9   | )     |   |   | (14.1   | )    
|Other income (expense)  net                                 |                                            |                            | 4.2     |        |         |   | 2.0     |         |   |   | (74.2   | )     |   |   | (12.6   | )    
|                                                             |                                            |                            |         |        |         |   |         |         |   |   |         |      
|Income (loss) from continuing operations before income taxes |                                            |                            | (56.3   | )      |         |   | (98.5   | )       |   |   | (65.1   | )     |   |   | (45.8   | )    
|Income tax expense (benefit)                                 |                                            |                            | 1.6     |        |         |   | 0.5     |         |   |   | 0.3     |       |   |   | (5.7    | )    
|                                                             |                                            |                            |         |        |         |   |         |         |   |   |         |      
|                                                             | Income (loss) from continuing operations   |                            | $       | (57.9  | )       |   | $       | (99.0   | ) |   | $       | (65.4 | ) |   | $       | (40.1 | )
|Discontinued operations:                                     |                                            |                            |         |        |         |   |         |         |   |   |         |       |   |   |         |      
|Income (loss) from discontinued operations                   |                                            |                            | (67.3   | )      |         |   | 27.4    |         |   |   | 92.9    |       |   |   | 40.7    |      
|Income tax expense (benefit)                                 |                                            |                            | 0.3     |        |         |   | 4.4     |         |   |   | 6.1     |       |   |   | (2.1    | )    
|                                                             |                                            |                            |         |        |         |   |         |         |   |   |         |      
|                                                             | Income (loss) from discontinued operations |                            | $       | (67.6  | )       |   | $       | 23.0    |   |   | $       | 86.8  |   |   | $       | 42.8  |  
|                                                             |                                            |                            |         |        |         |   |         |         |   |   |         |      
|                                                             | Net income (loss)                          |                            | $       | (125.5 | )       |   | $       | (76.0   | ) |   | $       | 21.4  |   |   | $       | 2.7   |  
|Basic net income (loss) per share:                           |                                            |                            |         |        |         |   |         |         |   |   |         |       |   |   |         |      
|Continuing operations                                        |                                            | $                          | (0.07   | )      |         | $ | (0.12   | )       |   | $ | (0.08   | )     |   | $ | (0.04   | )    
|Discontinued operations:                                     |                                            |                            | (0.08   | )      |         |   | 0.03    |         |   |   | 0.10    |       |   |   | 0.04    |      
|                                                             |                                            |                            |         |        |         |   |         |         |   |   |         |      
|Basic net income (loss) per share:                           |                                            | $                          | (0.15   | )      |         | $ | (0.09   | )       |   | $ | 0.02    |       |   | $ |        |      
|Diluted net income (loss) per share:                         |                                            |                            |         |        |         |   |         |         |   |   |         |       |   |   |         |      
|Continuing operations                                        |                                            | $                          | (0.07   | )      |         | $ | (0.12   | )       |   | $ | (0.08   | )     |   | $ | (0.04   | )    
|Discontinued operations:                                     |                                            |                            | (0.08   | )      |         |   | 0.03    |         |   |   | 0.10    |       |   |   | 0.04    |      
|                                                             |                                            |                            |         |        |         |   |         |         |   |   |         |      
|Diluted net income (loss) per share                          |                                            | $                          | (0.15   | )      |         | $ | (0.09   | )       |   | $ | 0.02    |       |   | $ |        |      
|Shares used to compute basic net income (loss) per share     |                                            |                            | 833.6   |        |         |   | 835.6   |         |   |   | 868.3   |       |   |   | 960.7   |      
|Shares used to compute diluted net income (loss) per share   |                                            |                            | 833.6   |        |         |   | 835.6   |         |   |   | 868.3   |       |   |   | 960.7   |      

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM












Internal Control-Integrated Framework




| |             
| | ------------
| | /s/ KPMG LLP







69



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MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING










70



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM






Internal Control  Integrated Framework








Internal
Control  Integrated Framework Internal Control 
Integrated Framework






| |             
| | ------------
| | /s/ KPMG LLP







71



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|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure








|         |                        
|-------- | -----------------------
|Item 9a. | Controls and Procedures

Evaluation of Disclosure Controls and Procedures.


Managements Report on Internal Control over Financial
Reporting.




Changes in Internal Controls.





PART III







|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant



NYSE CEO Certification









|         |                       
|-------- | ----------------------
|Item 11: | Executive Compensation








|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12: | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters








|         |                                               
|-------- | ----------------------------------------------
|Item 13: | Certain Relationships and Related Transactions



72



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|         |                                       
|-------- | --------------------------------------
|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: Financial Statements and
    Supplementary Data, above are filed as part of this Annual
    Report on Form 10-K, beginning on page 35.
|
| | (a)(2) |  |  | Consolidated Financial Statement Schedule.See
    Schedule II on page 74.                                                                                                                                                
|
| | (a)(3) |  |  | Exhibits.The exhibits listed in the accompanying
    Index to Exhibits are filed as part of this Annual
    Report on Form 10-K.                                                                                       

73



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SIGNATURES






| |                      
| | ---------------------
| | SOLECTRON CORPORATION



| |     |                   
| | --- | ------------------
| | By: | /s/ Michael Cannon

| |                                      
| | -------------------------------------
| |                                      
| | Michael Cannon                       
| | President and Chief Executive Officer



|                                             |  |                                                                                                                                                            |  |                  |  | 
|-------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- |  | 
|Signature                                    |  | Title                                                                                                                                                      |  | Date            
|                                             |  |                                                                                                                                                            |  |                 
|                                            
|/s/ Michael CannonMichael
    Cannon         |  | President and Chief Executive Officer (Principal Executive
    Officer)                                                                                    |  | November 9, 2005
|                                            
|/s/ Warren J. LiganWarren
    J. Ligan       |  | Senior Vice President, Chief Accounting Officer and Interim
    Chief Financial Officer (Principal Financial Officer and
    Principal Accounting Officer) |  | November 9, 2005
|                                            
|/s/ Richard A. DAmoreRichard
    A. DAmore |  | Director                                                                                                                                                   |  | November 9, 2005
|                                            
|/s/ William R. GraberWilliam
    R. Graber   |  | Director                                                                                                                                                   |  | November 9, 2005
|                                            
|/s/ Heinz FridrichHeinz
    Fridrich         |  | Director                                                                                                                                                   |  | November 9, 2005
|                                            
|/s/ William A. HaslerWilliam
    A. Hasler   |  | Director                                                                                                                                                   |  | November 9, 2005
|                                            
|/s/ Paul R. LowPaul
    R. Low               |  | Director                                                                                                                                                   |  | November 9, 2005
|                                            
|/s/ C. Wesley M. ScottC.
    Wesley M. Scott |  | Director                                                                                                                                                   |  | November 9, 2005
|                                            
|/s/ Paulett EberhartPaulett
    Eberhart     |  | Director                                                                                                                                                   |  | November 9, 2005
|                                            
|/s/ Cyril YansouniCyril
    Yansouni         |  | Director                                                                                                                                                   |  | November 9, 2005

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CONSOLIDATED FINANCIAL STATEMENT SCHEDULE




SOLECTRON CORPORATION AND SUBSIDIARIES


SCHEDULE II  VALUATION AND QUALIFYING
ACCOUNTS


|                                           |  |            |      |           |            |   |      |              |  |            |              |        |  |        |       |   |  |   |      | 
|------------------------------------------ |  | ---------- | ---- | --------- | ---------- | - | ---- | ------------ |  | ---------- | ------------ | ------ |  | ------ | ----- | - |  | - | ---- | 
|                                           |  |            |      | Additions |            |   |      |              | 
|                                           |  | Balance at |      |           |            |   |      |              |  | Balance at |             
|                                           |  | Beginning  |      |           | Charged to |   |      |              |  |            |              | End of | 
|                                           |  | of Period  |      |           | Operations |   |      | Acquisitions |  |            | (Deductions) |        |  | Period |      
|                                           |  |            |      |           |            |   |      |              |  |            |              |        |  |        |      
|Description                                |  |            |      |           |            |   |      |              |  |            |              |        |  |        |       |   |  |   |      | 
|Year ended August 31, 2005:                |  |            |      |           |            |   |      |              |  |            |              |        |  |        |       |   |  |   |      | 
|Allowance for doubtful accounts receivable |  | $          | 35.7 |           |            | $ | 6.6  |              |  | $          | 0.8          |        |  | $      | (20.8 | ) |  | $ | 22.3 | 
|Year ended August 31, 2004:                |  |            |      |           |            |   |      |              |  |            |              |        |  |        |       |   |  |   |      | 
|Allowance for doubtful accounts receivable |  | $          | 39.1 |           |            | $ | 25.7 |              |  | $          |             |        |  | $      | (29.1 | ) |  | $ | 35.7 | 
|Year ended August 31, 2003:                |  |            |      |           |            |   |      |              |  |            |              |        |  |        |       |   |  |   |      | 
|Allowance for doubtful accounts receivable |  | $          | 71.2 |           |            | $ | 14.3 |              |  | $          |             |        |  | $      | (46.4 | ) |  | $ | 39.1 | 

75



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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  | .8[G]    |  | Purchase Contract Agreement, dated as of December 27, 2001,
    by and between the Registrant and State Street Bank and Trust
    Company of California, N.A., as purchase contract agent.                                                                                       
|
| | 4  | .9[G]    |  | Pledge Agreement, dated as of December 27, 2001, among the
    Registrant, U.S. Bank Trust, N.A., as collateral agent,
    custodial agent, and securities intermediary, and State Street
    Bank and Trust Company of California, N.A., as purchase contract
    agent.        
|
| | 4  | .10[G]   |  | Pledge Agreement, dated as of December 27, 2001, between
    the Registrant and State Street Bank and Trust Company of
    California, N.A., as the Trustee for the holders of the
    Debentures.                                                                               
|
| | 4  | .12[G]   |  | Control Agreement, dated as of December 27, 2001, by and
    between the Registrant and State Street Bank and Trust Company
    of California, N.A., as Trustee and as securities intermediary
    and depository bank.                                                          
|
| | 4  | .11[H]   |  | Amendment No. 1 made and entered into as of January 8,
    2002 to Pledge Agreement dated as of December 27, 2001
    between the Registrant and State Street Bank and Trust Company
    of California, N.A., as the Trustee for the holders of the
    Debentures.              
|
| | 4  | .13[H]   |  | Amendment No. 1 made and entered into as of January 8,
    2002 to Control Agreement dated as of December 27, 2001
    between the Registrant and State Street Bank and Trust Company
    of California, N.A., as Trustee and as securities intermediary
    and depository bank.
|
| | 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.                                                                                                      
|
| | 10 | .7[I]    |  | Amendment Agreement entered into as of January 13, 2005,
    among the Company, the lending institutions party thereto, and
    Bank of America, N.A., as Administrative Agent.                                                                                                  
|
| | 10 | .8[J]    |  | Amendment to Employment Agreement dated as of April 6, 2005
    by and between the Company and Michael Cannon.                                                                                                                                                                   
|
| | 10 | .9[J]    |  | Amendment to Employment Agreement dated as of April 6, 2005
    by and between the Company and Marc Onetto.                                                                                                                                                                      
|
| | 10 | .10[K]   |  | Second Amendment to Credit Agreement dated June 15, 2005
    among Solectron Corporation, the lending institutions party
    thereto, and Bank of America, N.A., as Administrative Agent.                                                                                        
|
| | 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.                                                                                                                       



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|           |  | 
|---------- |  | 
|Footnotes: |  | 



|    |  |                                                                                                                                                                                                                                                                                                                                            
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|[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 Exhibits of Registrants
    Amendment No. 1 to Form 8-K, filed with the Commission
    on January 10, 2002 (File No. 001-11098).                                                                                                                                                                           
|   
|[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 Exhibit 10.1 of
    Registrants Form 8-K, filed with the Commission on
    June 17, 2005 (File No. 001-11098).                                                                                                                                                                                             
|   
|[L] |  | Incorporated by reference from Exhibits of Registrants
    Form 8-K filed with the Commission on July 15, 2005
    (File No. 001-11098).