##### 









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 27,
    2004                                               
|          
|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
    Incorporation or Organization) |  | (I.R.S. Employer
    Identification Number)

847 Gibraltar Drive

Milpitas, California 95035


(Address of Principal Executive Offices
including Zip Code)


(408) 957-8500

(Registrants Telephone Number, Including
Area Code)


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

0.5% Convertible Senior Notes due
2034

7.25% Adjustable Conversion  Rate
Equity Security Units


3.25% Liquid Yield Option Notes due
2020


2.75% Liquid Yield Option Notes due
2020


Common Stock


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

None


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

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

Indicate
by checkmark whether the registrant is an accelerated filer (as
defined in Exchange Act
Rule 12b-2).    Yes þ         No o

The
aggregate market value of the Registrants Common Stock
held by non-affiliates on October 31, 2004 was
approximately $2,957.3 million (based upon the last
reported price of the Common Stock on the New York Stock
Exchange on such date). Shares of Common Stock held by each
officer, director, and holder of 5% or more of the outstanding
Common Stock have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.

As
of October 31, 2004, there were approximately
963.9 million shares of the Registrants common stock
outstanding including approximately 25.7 million shares of
Solectron Global Services Canada, Inc., which are exchangeable
on a one-to-one basis for the Registrants common stock.

DOCUMENTS INCORPORATED BY REFERENCE

The
Registrants definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on January 13, 2005,
which Solectron will file with the Securities and Exchange
Commission within 120 days after the end of the fiscal year
covered by this report, is incorporated by reference in
Part III of this Form 10-K to the extent stated herein.



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SOLECTRON CORPORATION

2004 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

|           |  |                                                                                           |    |      |    | 
|---------- |  | ----------------------------------------------------------------------------------------- | -- | ---- | -- | 
|           |  |                                                                                           |    | Page
|           |  |                                                                                           |    |     
|Part I     |  |                                                                                           | 2  |     
|Item 1.    |  | Business                                                                                  |    |      | 2  | 
|Item 2.    |  | Properties                                                                                |    |      | 7  | 
|Item 3.    |  | Legal Proceedings                                                                         |    |      | 9  | 
|Item 4.    |  | Submission of Matters to a
    Vote of Security Holders                                   |    |      | 9  | 
|Part II    |  |                                                                                           | 11 |     
|Item 5.    |  | Market for the
    Registrants Common Equity and Related Stockholder Matters             |    |      | 11 | 
|Item 6.    |  | Selected Financial Data                                                                   |    |      | 12 | 
|Item 7.    |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations |    |      | 13 | 
|Item 7a    |  | Quantitative and Qualitative
    Disclosures About Market Risk                            |    |      | 34 | 
|Item 8.    |  | Consolidated Financial
    Statements and Supplementary Data                              |    |      | 34 | 
|Item 9.    |  | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosure  |    |      | 69 | 
|Item 9a    |  | Controls and Procedures                                                                   |    |      | 69 | 
|Part III   |  |                                                                                           | 69 |     
|Item 10.   |  | Directors and Executive
    Officers of the Registrant                                    |    |      | 69 | 
|Item 11.   |  | Executive Compensation                                                                    |    |      | 70 | 
|Item 12.   |  | Security Ownership of
    Certain Beneficial Owners and Management                        |    |      | 70 | 
|Item 13.   |  | Certain Relationships and
    Related Transactions                                        |    |      | 70 | 
|Item 14.   |  | Principal Accountant Fees
    and Services                                                |    |      | 70 | 
|Part IV    |  |                                                                                           | 70 |     
|Item 15.   |  | Exhibits, Consolidated
    Financial Statement Schedules and Reports on Form 8-K          |    |      | 70 | 
|Signatures |  |                                                                                           | 71 |     

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

1



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##### 






PART I






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

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

Overview

We provide electronics supply chain services to
original equipment manufacturers (OEMs) around the world. These
companies contract with us to build their products or to obtain
services related to product design, manufacturing and
post-manufacturing requirements. We primarily design, build and
service products that carry the brand names of our customers.

We serve several electronics products and
technology markets. Much of our business is related to the
following products:



| |   |                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 phones,
    set-top boxes and personal/handheld communications devices;                                                                                                           
|
| |  | Automotive electronics systems, including 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, ECG
    patient monitors, surgical robotic systems, HPLCs, spectrometers
    and laser surgery equipment; and
|
| |  | Other electronics equipment and products.                                                                                                                                                                            

Our customers include many of the worlds
leading technology companies, such as Cisco Systems, Ericsson,
Hewlett-Packard, IBM, Lucent Technologies, Motorola, NEC, Nortel
Networks and Sun Microsystems.

We have a comprehensive range of services
designed to meet customer supply chain needs throughout the
product life cycle. Our services include:



| |   |                                                                      
| | - | ---------------------------------------------------------------------
| |  | Collaborative design                                                 
|
| |  | Design for Six Sigma and manufacturability                           
|
| |  | Design for cost-reduction                                            
|
| |  | Product launch                                                       
|
| |  | Product life extension                                               
|
| |  | Sustaining engineering                                               
|
| |  | Printed circuit board assembly (PCBA) and
    subsystem manufacturing
|
| |  | Systems assembly and test                                            
|
| |  | Product fulfillment                                                  
|
| |  | Repair                                                               

2



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| |   |                            
| | - | ---------------------------
| |  | Product logistics          
|
| |  | End-of-life product support

We bring these services together to provide
integrated supply chain solutions for our customers. By
utilizing our services, customers gain cost, time and quality
advantages that help improve their competitiveness and enable
them to focus on their core competencies of sales, marketing,
and research and development. More specifically, we provide the
following benefits to OEMs:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 can reduce time-to-market by
    using our services, expertise and infrastructure. For example,
    OEMs can 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 value-adding,
    cost-effective locations around the world; our ability to pool
    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.                                                                                                       
|
| | 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.                                                                                                                                                                
|
| | 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 technological 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.
|
| | 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.                                 

We have benefited from increased worldwide market
acceptance of, and reliance upon, the outsourcing of electronics
manufacturing and supply chain services by electronics OEMs.
Many OEMs in the electronics and other industries outsource
electronics manufacturing and related supply chain services as
part of their business strategies.

Strategy

Our strategy is to unlock value and competitive
advantage for customers by providing integrated supply chain
solutions that leverage Solectrons differentiated
capabilities in collaborative design, lean manufacturing, and
post-manufacturing services. To support this strategy we adhere
to five major themes:



| |                                             
| | --------------------------------------------
| | Concentrate on Core and Emerging
    Markets

We are focused on extending our leadership and
capabilities in our core markets, which include the
communications, networking, and computing and storage
industries. The products we manufacture  and the
customers we serve  in these markets represent a
substantial portion of our revenues and reflect our strong
expertise in these areas. In addition, we participate in several
growth markets including the consumer, industrial, automotive,
and medical industries  where we can leverage our
core strengths and believe we can earn attractive returns.

3



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

Quality is central to our culture. We strive to
use and continuously improve consistent processes, and we use
several quality improvement and measurement techniques to
monitor our performance. We have received many service and
quality awards from internationally recognized quality
organizations and customers. We have received several awards
recently, including recognition from Cisco Systems, Sun
Microsystems and Delphi. In addition, substantially all of our
manufacturing facilities are certified under ISO international
quality standards for design, manufacturing and distribution
management systems.



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

We believe that a fundamental requirement for
sustained growth and profitability in the Electronics
Manufacturing Services (EMS) industry is to be an efficient
and cost-competitive manufacturer. To this end, we are focused
on driving efficiency throughout our organization, and have
undertaken several initiatives to reduce costs and increase our
competitiveness. This includes an initiative to implement Lean
manufacturing and Six Sigma quality methods in our operations
and throughout the company. We believe implementing these
methods will drive increased efficiencies and eliminate
activities that do not add value, resulting in a significant
competitive advantage.



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

We believe that, as technologies become more
complex and as product life cycles continue to shorten, OEMs
will outsource more of their electronics supply chain needs. As
they do this, they will look to a partner that can provide these
services on a seamless basis. As a result, we are aligning our
services to improve OEM supply chains and deliver lower costs,
higher quality, improved flexibility and faster time-to-market.
We believe this will position us to be a primary provider to
OEMs by delivering integrated supply chains that add value to
their businesses.



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

We offer customers access to advanced technology
processes, including design, New Product Introduction
(NPI) and repair expertise. Our involvement with
customers products during the early design stages can help
reduce cost and product time-to-market, improve
manufacturability and quality, and enable a fast ramp to volume
manufacturing. We use our design capabilities to partner with
our customers, not compete with them. We have developed common
tools for industrial, electrical, mechanical and manufacturing
applications designed to shorten the design cycle and maintain
cost effectiveness. Our repair expertise also spans a wide range
of products and advanced technologies, from the system to the
component level.

Global Footprint

Our footprint  or facilities
location  strategy is to locate specific services and
capabilities where we believe they can generate the greatest
value at the lowest total cost. These decisions are made based
on low-cost manufacturing options, proximity to our customers
and prospective customers, proximity to end markets and end
users, and the location of specific resources needed to deliver
value.

The majority of our manufacturing capabilities
are located in low-cost locations, such as Mexico, Hungary,
Romania, China, Malaysia, and other parts of Asia. This reflects
our belief that OEM customers will be driven by the cost
advantages associated with these locations.

We locate our other services based on how best to
add value and to gain access to pools of people with the skills
and experience we need to create solutions and deliver
world-class services. For example, we have regional design
centers in the Americas, Europe and Asia. This enables us to
draw from a highly skilled labor pool, and it gives us close
proximity and immediate access to interact with customers
at critical phases of the new product life cycle.

For our post-manufacturing services, we operate
repair and warranty centers based on proximity to transportation
infrastructure and proximity to end users.

Our ability to serve our customers effectively
also depends upon our materials management and logistic
capabilities. Our locations are served by a materials
organization consisting of multiple groups across multiple
locations, and backed by information technology. The materials
group is responsible for ordering, tracking and

4



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ensuring that the correct parts are delivered to
the correct locations on a just-in-time basis to meet our
customers needs.




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

Our U.S. facilities are increasingly focused
on higher value activities, such as a variety of design
services; NPI; system integration and test; product fulfillment;
repair and logistics; as well as the manufacturing of primarily
lower-volume, highly complex products. Our facilities in Latin
America support the North and Latin American markets,
particularly for higher volume products. Mexicos proximity
to North America is useful for production where low-cost and
time-to-market, and/or geographical diversity are particular
concerns for OEMs. We operate facilities that provide design,
manufacturing, and post-manufacturing services in the U.S.,
Canada, Mexico, Puerto Rico and Brazil.

We have reduced our overall manufacturing
presence in North America as a result of our restructuring
activities and our strategic shift of manufacturing capacity
toward lower-cost regions.



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

The Asia region is focused on providing both
higher-volume, lower complexity as well as lower-volume, higher
complexity manufacturing to many geographic markets around the
world. In addition to manufacturing, our facilities in Asia
provide design services; NPI; system integration and test;
product fulfillment; repair and logistics.

As a result of our restructuring, Asia has
increased as a percentage of our global capacity.



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

Our locations in western Europe are focused on
providing higher-value services, such as design; NPI;
high-complexity, low-volume manufacturing, system integration
and test; product fulfillment; logistics and repair. Our eastern
European locations provide lower-cost, higher-volume electronics
manufacturing services for the western European markets. Driven
by our strategy, we have repositioned our manufacturing
capabilities within Europe.

Sales and Marketing

Sales and marketing are integrated processes
involving direct salespersons, project managers and senior
executives. We direct our sales resources and activities at
several management and staff levels within customer and
prospective customer companies. We also use independent sales
representatives in certain geographic areas. We receive
unsolicited inquiries resulting from word of mouth, from
advertising and public relations activities, and through
referrals from current customers. We evaluate these
opportunities against our customer selection criteria and assign
direct salespersons or independent sales representatives, as
appropriate.

See Item 7, Managements
Discussion and Analysis of Financial Condition and Results of
Operations, for customer sales information.

Backlog

Backlog consists of contracts or purchase orders
with delivery dates scheduled within the next 12 months. At
August 31, 2004, our backlog was approximately
$2.8 billion, compared with backlog of approximately
$1.7 billion at August 31, 2003. Because customers may
cancel or reschedule deliveries, often with little or no
financial penalty, backlog is not a meaningful indicator of
future consolidated financial results.

Competition

The EMS industry comprises many companies,
several of which have substantial market share. We also face
competition from current and prospective customers that evaluate
our capabilities against the merits of manufacturing products
internally. We compete with different companies depending on the
type of service or geographic area. We believe the primary basis
of competition in our targeted markets is proven execution,
reliability, superior manufacturing technology, price,
flexibility, continuity of supply, quality, responsiveness,
innovative and value-adding services and ability to serve global
customers.

5



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Associates

As of August 31, 2004, we employed
approximately 57,000 associates worldwide, which includes
approximately 15,000 temporary associates.

Patents and Trademarks

We hold certain United States and foreign patents
and patent licenses relating to certain of the processes and
equipment used in our manufacturing technology, as well as
certain of the products which we have designed and manufactured.
In addition, we have registered trademarks (service marks) in
the United States and various other countries throughout the
world.

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

Environmental Matters

We are required to comply with local, state,
federal and international environmental laws and regulations
relating to the treatment, storage, use, discharge, emission and
disposal of hazardous materials used in our manufacturing and
service processes. We are also required to comply with laws and
regulations relating to occupational safety and health, product
disposal and product content and labeling. In general, we are
not directly responsible for compliance with laws like Waste
Electrical and Electronic Equipment (WEEE) and Restriction of
Hazardous Substances (RoHS). These WEEE and RoHS laws generally
apply to our OEM customers; Solectron may, however, provide
compliance-related services to our customers upon request.
Failing to have the capability of delivering products which
comply with these present and future environmental laws and
regulations could restrict our ability to expand facilities, or
could require us to acquire costly equipment or to incur other
significant expenses to comply with environmental regulations,
and could impair our relations with customers. Moreover, to the
extent we are found non-compliant with any environmental laws
and regulations applicable to our activities, we may incur
substantial fines and penalties. We are committed to maintaining
compliance in all of our facilities and to continuously
improving our environmental practices.

We are also required to obtain and maintain
environmental permits for many of our facilities. These permits,
which must be renewed periodically, are subject to revocation if
we violate environmental laws. There can be no assurance that
violations will not occur as a result of equipment failure,
human error or other causes. If a violation of environmental
laws occurs, we could be held liable for damages, fines and
costs of remedial actions, and our permits could be revoked. Any
such revocation could require us to cease or limit production at
one or more of our facilities, and may adversely impact our
results of operations.

We have been, and in the future may be, held
liable for remediation of sites where our hazardous materials
(or those of companies we have acquired) have been disposed of.
To date, these liabilities have not been substantial or material
to our business, consolidated financial condition and results of
operations. We believe, based on our current knowledge, that the
cost of any groundwater or soil clean-up that may be required at
any of our facilities would not materially harm our business,
consolidated financial condition and results of operations.
However, it is costly to remediate contamination, and there can
be no assurance that any future remediation costs would not harm
our business, consolidated financial condition and results of
operations.

Additional Information

Our Internet address is http://www.solectron.com.
We make available on our Internet website, free of charge, our
annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K and amendments
to those reports filed or furnished pursuant to
Section 13(a) of the Securities Exchange Act of 1934 as
soon as reasonably practicable after we electronically file such
material with, or furnish it to, the Securities and Exchange

6



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Commission. Information accessible through our
website does not constitute a part of, and is not incorporated
into, this annual report on Form 10-K or into any of our
other filings with the Securities and Exchange Commission.


Solectron was first incorporated in California in
August 1977 and was reincorporated in Delaware in February 1997.
Our principal executive offices are at 847 Gibraltar Drive,
Milpitas, California, 95035. Our telephone number is
(408) 957-8500.



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

The table below lists our major facilities leased
or owned as of August 31, 2004:

|                                |  |                |           |              |  |                |        |  |  |                           
|------------------------------- |  | -------------- | --------- | ------------ |  | -------------- | ------ |  |  | --------------------------
|Location                        |  | Square Footage |           | Leased/Owned |  | Primarily Used
|                                |  |                |           |              |  |               
|Continuing Operations           |  |                |           |              |  |                |        |  |  |                           
|Americas Region                 |  |                |           |              |  |                |        |  |  |                           
|Jaguariuna, Brazil              |  |                | 233,000   |              |  |                | Owned  |  |  | PCBA & Systems Integration
|Hortolandia, Brazil             |  |                | 49,000    |              |  |                | Leased |  |  | PCBA & Systems Integration
|Guadalajara, Mexico             |  |                | 689,000   |              |  |                | Owned  |  |  | PCBA & Systems Integration
|Chihuahua, Mexico               |  |                | 107,000   |              |  |                | Leased |  |  | Systems Repair & Refurbish
|Aguadilla, Puerto Rico          |  |                | 164,000   |              |  |                | Leased |  |  | PCBA & Systems Integration
|Dollard des Ormeaux, Quebec     |  |                | 165,000   |              |  |                | Leased |  |  | PCBA & Systems Integration
|Sherbrooke, Quebec              |  |                | 36,000    |              |  |                | Leased |  |  | PCBA & Systems Integration
|Sherbrooke, Quebec              |  |                | 125,000   |              |  |                | Owned  |  |  | PCBA & Systems Integration
|St. Laurent, Quebec             |  |                | 112,000   |              |  |                | Leased |  |  | Warehouse                 
|Kanata, Ontario                 |  |                | 114,000   |              |  |                | Owned  |  |  | Systems Integration       
|Newmarket, Ontario              |  |                | 185,000   |              |  |                | Leased |  |  | Repair & Refurbish        
|Ottawa, Ontario                 |  |                | 48,000    |              |  |                | Leased |  |  | Systems Engineering       
|Scarborough, Ontario            |  |                | 69,000    |              |  |                | Leased |  |  | Systems Integration       
|Winnipeg, Manitoba              |  |                | 94,000    |              |  |                | Owned  |  |  | Metal Fab                 
|Lincoln, California             |  |                | 356,000   |              |  |                | Leased |  |  | Repair & Refurbish        
|Milpitas, California            |  |                | 253,000   |              |  |                | Leased |  |  | Repair & Refurbish        
|Milpitas & Fremont, California  |  |                | 445,000   |              |  |                | Leased |  |  | PCBA & Systems Integration
|Milpitas & San Jose, California |  |                | 262,000   |              |  |                | Leased |  |  | HQ Office                 
|Milpitas, California            |  |                | 108,000   |              |  |                | Leased |  |  | Warehouse for PCBA & SI   
|West Palm Beach, Florida        |  |                | 100,000   |              |  |                | Leased |  |  | PCBA & Systems Integration
|Louisville, Kentucky            |  |                | 240,000   |              |  |                | Leased |  |  | Repair & Refurbish        
|Baltimore, Maryland             |  |                | 6,000     |              |  |                | Leased |  |  | Wireless Office           
|Friberg, Massachusetts          |  |                | 5,000     |              |  |                | Leased |  |  | Corp. Office              
|Southfield, Michigan            |  |                | 15,000    |              |  |                | Leased |  |  | Systems Integration       
|Somerset, New Jersey            |  |                | 2,000     |              |  |                | Leased |  |  | Wireless Office           
|Charlotte, North Carolina       |  |                | 456,000   |              |  |                | Owned  |  |  | PCBA & Systems Integration
|Creedmoor, North Carolina       |  |                | 290,000   |              |  |                | Owned  |  |  | Systems Integration       
|Durham, North Carolina          |  |                | 183,000   |              |  |                | Leased |  |  | Warehouse for PCBA & SI   
|Morrisville, North Carolina     |  |                | 323,000   |              |  |                | Leased |  |  | Repair & Refurbish        
|Hillsboro, Oregon               |  |                | 70,000    |              |  |                | Owned  |  |  | Metal Fab                 
|West Columbia, South Carolina   |  |                | 313,000   |              |  |                | Owned  |  |  | PCBA & Systems Integration
|Memphis, Tennessee              |  |                | 275,000   |              |  |                | Leased |  |  | Repair & Refurbish        
|Austin, Texas                   |  |                | 279,000   |              |  |                | Leased |  |  | Repair & Refurbish        
|Austin, Texas                   |  |                | 468,000   |              |  |                | Leased |  |  | PCBA & Systems Integration
|                                |  |                |           |              |  |                |        |  |  |                           
|Americas Region Total           |  |                | 6,639,000 |              |  |                |        |  |  |                           
|European Region                 |  |                |           |              |  |                |        |  |  |                           
|Turnhout, Belgium               |  |                | 103,000   |              |  |                | Leased |  |  | Repair & Refurbish        
|Cwmcarn, Wales                  |  |                | 100,000   |              |  |                | Owned  |  |  | Repair & Refurbish        

7



---



##### 



|                                                                |                   |                |            |              |  |                |        |  |  |                                       | 
|--------------------------------------------------------------- | ----------------- | -------------- | ---------- | ------------ |  | -------------- | ------ |  |  | ------------------------------------- | 
|Location                                                        |                   | Square Footage |            | Leased/Owned |  | Primarily Used
|                                                                |                   |                |            |              |  |               
|South Ockendon, UK                                              |                   |                | 27,000     |              |  |                | Owned  |  |  | Microcircuits                        
|South Ockendon, UK                                              |                   |                | 38,000     |              |  |                | Leased |  |  | Microcircuits                        
|Bordeaux, France                                                |                   |                | 191,000    |              |  |                | Leased |  |  | PCBA & Systems Integration           
|Bordeaux, France                                                |                   |                | 141,000    |              |  |                | Leased |  |  | Repair & Refurbish                   
|Herrenberg, Germany                                             |                   |                | 110,000    |              |  |                | Owned  |  |  | PCBA & Systems Integration           
|Budapest, Hungary                                               |                   |                | 300,000    |              |  |                | Owned  |  |  | PCBA & Systems Integration           
|Dieman, Amsterdam                                               |                   |                | 16,000     |              |  |                | Leased |  |  | Finance Office                       
|Rosmalen, Netherlands                                           |                   |                | 164,000    |              |  |                | Leased |  |  | Repair & Refurbish                   
|Rosmalen, Netherlands                                           |                   |                | 31,000     |              |  |                | Leased |  |  | Warehouse for R&R                    
|Rotterdam, Netherlands                                          |                   |                | 1,000      |              |  |                | Leased |  |  | Office                               
|Timisoara, Romania                                              |                   |                | 460,000    |              |  |                | Owned  |  |  | PCBA & Systems Integration           
|Dunfermline, Scotland                                           |                   |                | 144,000    |              |  |                | Owned  |  |  | PCBA & Systems Integration           
|Ostersund, Sweden                                               |                   |                | 280,000    |              |  |                | Owned  |  |  | PCBA & Systems Integration           
|Istanbul, Turkey                                                |                   |                | 47,000     |              |  |                | Leased |  |  | PCBA & Systems Integration           
|                                                                |                   |                |            |              |  |                |        |  |  |                                      
|European Region Total                                           |                   |                | 2,153,000  |              |  |                |        |  |  |                                      
|Asia Region                                                     |                   |                |            |              |  |                |        |  |  |                                      
|Sydney, Australia                                               |                   |                | 133,000    |              |  |                | Leased |  |  | Repair & Refurbish                   
|Beijing, China                                                  |                   |                | 14,000     |              |  |                | Leased |  |  | Repair & Refurbish                   
|Hong Kong, China                                                |                   |                | 5,000      |              |  |                | Leased |  |  | Repair & Refurbish                   
|Huizhou City, China                                             |                   |                | 62,000     |              |  |                | Leased |  |  | PCBA & Systems Integration           
|Shanghai, China                                                 |                   |                | 33,000     |              |  |                | Leased |  |  | Repair & Refurbish                   
|Shanghai, China                                                 |                   |                | 105,000    |              |  |                | Leased |  |  | PCBA & Systems Integration           
|Shanghai, China                                                 |                   |                | 171,000    |              |  |                | Leased |  |  | Metal Fab                            
|Shenzhen, China                                                 |                   |                | 230,000    |              |  |                | Owned  |  |  | PCBA & Systems Integration           
|Suzhou, China                                                   |                   |                | 619,000    |              |  |                | Owned  |  |  | PCBA & Systems Integration           
|Suzhou, China                                                   |                   |                | 17,000     |              |  |                | Leased |  |  | Repair & Refurbish                   
|Bangalore, India                                                |                   |                | 32,000     |              |  |                | Leased |  |  | Memory Manufacturing & Engineering   
|Batam, Indonesia                                                |                   |                | 137,000    |              |  |                | Leased |  |  | PCBA & Systems Integration           
|Ibaraki-Ken, Japan                                              |                   |                | 137,000    |              |  |                | Leased |  |  | PCBA & Systems Integration           
|Koriyama, Japan                                                 |                   |                | 67,000     |              |  |                | Owned  |  |  | Repair & Refurbish                   
|Miyagi-Ken, Japan                                               |                   |                | 379,000    |              |  |                | Leased |  |  | Repair & Refurbish                   
|Johor, Malaysia                                                 |                   |                | 125,000    |              |  |                | Owned  |  |  | PCBA & Systems Integration           
|Penang, Malaysia                                                |                   |                | 1,032,000  |              |  |                | Owned  |  |  | PCBA & Systems Integration           
|Penang, Malaysia                                                |                   |                | 30,000     |              |  |                | Leased |  |  | PCBA & Systems Integration           
|Singapore                                                       |                   |                | 130,000    |              |  |                | Leased |  |  | PCBA & Systems Integration           
|Singapore                                                       |                   |                | 48,000     |              |  |                | Leased |  |  | Repair & Refurbish                   
|Singapore                                                       |                   |                | 239,000    |              |  |                | Owned  |  |  | Metal Fab, PCBA & Systems Integration
|Taipei, Taiwan                                                  |                   |                | 3,000      |              |  |                | Leased |  |  | Office                               
|                                                                |                   |                |            |              |  |                |        |  |  |                                      
|                                                                | Asia Region Total |                |            | 3,748,000    |  |                |        |  |  |                                       | 
|Total Continuing Operations Facilities in
    Use               |                   |                | 12,540,000 |              |  |                |        |  |  |                                      
|                                                                |                   |                |            |              |  |                |        |  |  |                                      
|Total Restructured and Discontinued Operations
    Facilities * |                   |                | 3,474,000  |              |  |                |        |  |  |                                      
|                                                                |                   |                |            |              |  |                |        |  |  |                                      



---



|  |                                                   
|- | --------------------------------------------------
|* | These facilities are excluded from the list above.

8



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##### 








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

Solectron is from time to time involved in
various litigation and legal matters, including those described
below. By describing the particular matters set forth below,
Solectron does not intend to imply that it or its legal advisors
have concluded or believe that the outcome of any of those
particular matters is or is not likely to have a material
adverse impact upon Solectrons business or consolidated
financial condition and results of operations.

The case entitled Ronald Sorisho v. Solectron
Corporation et al., Case No. CV811243, which has
been previously reported, was resolved on terms not material to
Solectron and the case has been dismissed.

On March 6, 2003, a putative shareholder
class action lawsuit was filed against Solectron and certain of
its officers in the United States District Court for the
Northern District of California alleging claims under
Section 10(b) and 20(a) of the Securities Exchange Act of
1934, as amended (the Exchange Act), and
Rule 10b-5 promulgated thereunder. The case is entitled
Abrams v. Solectron Corporation et al., Case
No. C-03-0986 CRB. The complaint alleged that the
defendants issued false and misleading statements in certain
press releases and SEC filings issued between September 17,
2001 and September 26, 2002. In particular, plaintiff
alleged that the defendants failed to disclose and to properly
account for excess and obsolete inventory in the former
Technology Solutions business unit during the relevant time
period. Additional complaints making similar allegations were
subsequently filed in the same court, and pursuant to an order
entered June 2, 2003, the Court appointed lead counsel and
plaintiffs to represent the putative class in a single
consolidated action. The Consolidated Amended Complaint, filed
September 8, 2003, alleges an expanded class period of
June 18, 2001 through September 26, 2002, and purports
to add a claim for violation of Section 11 of the
Securities Act of 1933, as amended (the Securities
Act), on behalf of a putative class of former shareholders
of C-MAC Industries, Inc., who acquired Solectron stock pursuant
to the October 19, 2001 Registration Statement filed in
connection with Solectrons acquisition of C-MAC
Industries, Inc. In addition, while the initial complaints
focused on alleged inventory issues at the former Technology
Solutions business unit, the Consolidated Amended Complaint adds
allegations of inadequate disclosure and failure to properly
account for excess and obsolete inventory at Solectrons
other business units. The complaint seeks an unspecified amount
of damages on behalf of the putative class. Solectron believes
the complaint to be without merit, and that it has valid
defenses to the plaintiffs claims. There can be no
assurance, however, that the outcome of the lawsuit will be
favorable to Solectron or will not have a material adverse
effect on Solectrons business, consolidated financial
condition and results of operations. In addition, Solectron may
be forced to incur substantial litigation expenses in defending
this litigation.

On November 2, 2004, Solectron reached an
agreement in principle with the plaintiffs in the previously
reported shareholder derivative lawsuit entitled
Lifshitz v. Cannon et al.,Case
No. CV815693, filed in the Santa Clara County,
California Superior Court, to settle that litigation on terms
not considered to be material to Solectron. The settlement terms
are subject to court approval, and the parties anticipate filing
a joint request for court approval of the settlement terms
within the next 30 days.






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

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

Executive Officers of Solectron

Our executive officers and their ages as of
August 31, 2004 are as follows:

|                  |  |     |    |          |  |                                                               
|----------------- |  | --- | -- | -------- |  | --------------------------------------------------------------
|Name              |  | Age |    | Position
|                  |  |     |    |         
|Michael R. Cannon |  |     | 51 |          |  | President and Chief Executive Officer                         
|Perry Hayes       |  |     | 51 |          |  | Treasurer and Vice President of Investor Relations            
|Warren J. Ligan   |  |     | 51 |          |  | Senior Vice President and Chief Accounting Officer            
|Craig London      |  |     | 58 |          |  | Executive Vice President, Strategy, Marketing and
    Services
|Kevin OConnor    |  |     | 46 |          |  | Executive Vice President, Human Resources                     
|Marc Onetto       |  |     | 54 |          |  | Executive Vice President, Operations                          
|Kiran Patel       |  |     | 56 |          |  | Executive Vice President and Chief Financial
    Officer      
|David Purvis      |  |     | 52 |          |  | Executive Vice President, Design and Engineering              

9



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##### 



Mr. Cannon joined Solectron in January 2003
as president and CEO and as a director on the companys
board of directors and has more than 25 years of
manufacturing and technology experience. Prior to joining
Solectron, Mr. Cannon was president, CEO and a director of
Maxtor Corporation, a leading global provider of hard-disk
drives and storage systems. Previously, Mr. Cannon was with
IBMs Storage Systems Division, where he held several
senior leadership positions, including vice president of the
Personal Storage Systems Division, vice president of product
design and vice president of worldwide manufacturing. Prior to
IBM, Mr. Cannon worked at several companies in the
disk-drive industry, including Control Data Corporations
Imprimis Technology spin-off. Mr. Cannon began his career
at The Boeing Company, where he held engineering and management
positions in the Manufacturing Research and Development Group.
Mr. Cannon studied mechanical engineering at Michigan State
University and completed the Advanced Management Program at
Harvard Business School.

Mr. Hayes joined Solectron in 1999 with
extensive financial and management experience in the technology
and banking industries. As treasurer and vice president of
investor relations, Mr. Hayes is responsible for financing
and capital market activities, as well as corporate liquidity
and risk management. He also manages Solectrons
interaction with investors, institutional shareholders,
financial analysts and credit rating agencies. Prior to
Solectron, Mr. Hayes held senior treasury positions with
Dell Computer and AirTouch Communications, Inc. He also has more
than 10 years of international finance and banking
experience as a vice president with Bank of America, working out
of the companys San Francisco, London and New York
locations. Mr. Hayes holds a masters degree in
international business from the University of South Carolina.

Mr. Ligan joined Solectron in 2000 with more
than 20 years of extensive financial and management
experience. As senior vice president and chief accounting
officer, Mr. Ligan is responsible for corporate accounting;
tax; external reporting; financial planning and analysis; and
the companys financial shared services. Prior to this
role, Mr. Ligan served as vice president, global taxation,
managing Solectrons global tax position. Mr. Ligan
came to Solectron from Chiquita Brands International, where as
senior vice president and chief financial officer he oversaw all
corporate financial functions, as well as purchasing and IT.
Prior to becoming the companys chief financial officer,
Mr. Ligan served as vice president of taxation. Before
Chiquita, Mr. Ligan has held a variety of financial and tax
management positions with the Monsanto Company and its
subsidiary G. D. Searle & Co., The Upjohn Company,
Coopers & Lybrand, and Football News Co. He began his
career in the corporate accounting department of Chrysler
Corporation. Mr. Ligan holds a bachelors degree in
business administration from the Walsh College of
Accountancy & Business Administration, and a law degree
from the Detroit College of Law. He also holds a master of law
degree in taxation from DePaul University.

Mr. London joined Solectron in 2002 with
nearly 30 years of sales, marketing and engineering
management experience in the electronics industry. As executive
vice president, strategy, marketing and services,
Mr. London is responsible for strategic planning and market
development, as well as integrating and building the
companys design capabilities worldwide. Previously,
Mr. London was executive vice president and president of
Solectrons Technology Solutions business unit.
Mr. London came to Solectron from Safeguard Scientifics,
Inc., a diversified information technology company that
identifies, develops and operates emerging technologies, where
he served as an executive officer and managing director,
technology products. Previously, he was president and chief
executive officer of Diva Communications, Inc., a wireless
communications equipment manufacturer. Mr. London also held
various executive management positions including sales, service
and operations in the United States and Asia during eight years
with Nortel Networks. His experience also includes various
management positions at Rockwell International
Telecommunications, Electronic Systems Associates, Pacific
Telephone and AT&T. Mr. London holds a masters
degree in business administration from Pepperdine University and
a bachelors degree in physics from the University of
California, Berkeley.

Mr. OConnor has more than
20 years of experience in human resources. As executive
vice president, human resources, he is responsible for
Solectrons corporate human resources program and
infrastructure to support the needs of the corporation. Before
joining Solectron in October 2002, Mr. OConnor served
as senior vice president, global human resources for Axcelis
Technologies. Prior to Axcelis, Mr. OConnor served as
vice president, global human resources for Iomega Corporation.
Before Iomega, he held a variety of senior human resources roles
for Dell Computer, Frito-Lay (a division of PepsiCo) and Sperry
Flight Systems. Mr. OConnor holds a degree in
management with an emphasis in industrial relations from Arizona
State University.

Mr. Onetto has nearly 30 years of
experience in supply-chain and operational management, as well
as finance and information systems. As executive vice president,
operations, Mr. Onetto is responsible for manufacturing,

10



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##### 



materials management, quality, new product
introduction, information technology, logistics and repair
operations. Mr. Onetto joined Solectron after a 15-year
career with GE. Most recently, he was vice president of
GEs European operations. From 1992 through 2002, he held
several senior leadership positions involving global supply
chain, global quality/six sigma, global process reengineering
and chief information officer in GEs Medical Systems
business. Prior to GE, Mr. Onetto spent 12 years with
Exxon Corporation, serving in supply-operations, information
systems and finance. Mr. Onetto holds a B.A. in economics
from the University of Lyon, France, an M.S. in engineering from
Ecole Centrale de Lyon and a masters degree in industrial
administration from Carnegie Mellon University, Pittsburgh.


Mr. Patel joined Solectron in 2001, and has
extensive financial and senior management experience. As
executive vice president and chief financial officer,
Mr. Patel leads Solectrons finance, legal, investor
relations and business development activities. Mr. Patel
came to Solectron after an extensive career with Cummins Inc. In
his 27 years at Cummins, he served in a broad range of
finance positions at the operating unit and corporate level. In
1996, he became vice president and chief financial officer of
the company and was promoted to executive vice president in
1999. In 2000, Mr. Patel was the chief financial officer of
iMotors, an Internet-based value-added retailer of used cars.
Mr. Patel holds a masters degree in business
administration from the University of Tennessee, a
bachelors degree in electrical engineering, and is a
certified public accountant.

Mr. Purvis joined Solectron in 2003 and has
more than 30 years of experience in engineering and
technology management. As executive vice president, design and
engineering, Mr. Purvis is responsible for Solectrons
product design, engineering and product launch support
capabilities. Prior to Solectron, Mr. Purvis served as
chief technology officer with John Deere, where he led the
engineering, information technology and corporate quality
functions for the $15 billion agricultural and forestry
equipment manufacturer. Previously, Mr. Purvis spent more
than 16 years with Allied Signal/ Honeywell in a variety of
senior design and engineering roles in the aerospace and
automotive industries, including vice president of engineering
for Honeywells aerospace electronics systems business.
Mr. Purvis also has experience with electronics in the
industrial, medical and analytical industries through several
management and technology related positions with Monsanto, Fermi
National Accelerator Laboratory, Packard Instruments and
Allstate Insurance Company. Mr. Purvis holds a bachelor of
science degree in applied mathematics from the University of
Illinois.

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




PART II






|        |                                                                              
|------- | -----------------------------------------------------------------------------
|Item 5. | Market for the Registrants Common
    Equity and Related Stockholder Matters

Common Stock Information

The following table sets forth the quarterly high
and low per share sales prices of our common stock for the
fiscal periods, as quoted on the New York Stock Exchange under
the symbol SLR.

|               |  |      |      |     |  |   |      | 
|-------------- |  | ---- | ---- | --- |  | - | ---- | 
|               |  | High |      | Low
|               |  |      |      |    
|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 | 
|Fiscal 2003    |  |      |      |     |  |   |      | 
|Fourth quarter |  | $    | 6.05 |     |  | $ | 3.20 | 
|Third quarter  |  |      | 4.10 |     |  |   | 2.84 | 
|Second quarter |  |      | 5.14 |     |  |   | 2.80 | 
|First quarter  |  |      | 4.86 |     |  |   | 1.39 | 

We have not paid any cash dividends since
inception and do not intend to pay any cash dividends in the
foreseeable future. Additionally, the covenants to our financing
agreements prohibit the payment of cash dividends. As of
October 31, 2004, there were 8,130 stockholders of record
based on data obtained from our transfer agent.

11



---



##### 








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

The following selected historical financial
information of Solectron has been derived from the historical
consolidated financial statements and should be read in
conjunction with the consolidated financial statements and the
notes included therein. For further discussion of factors that
could affect comparability of these consolidated financial
statements, see the notes following the information.

Five-Year Selected Financial
Highlights

|                                                           |  |                                      |          |      |  |      |          |      |  |      |          |   |  |   |          |   |  |   |          |  
|---------------------------------------------------------- |  | ------------------------------------ | -------- | ---- |  | ---- | -------- | ---- |  | ---- | -------- | - |  | - | -------- | - |  | - | -------- | -
|                                                           |  |                                     
|                                                           |  | Years Ended August 31               
|                                                           |  |                                     
|                                                           |  | 2004                                 |          | 2003 |  | 2002 |          | 2001 |  | 2000
|                                                           |  |                                      |          |      |  |      |          |      |  |     
|                                                           |  |                                     
|                                                           |  | (In millions, except per-share data)
|Consolidated Statements of Operations Data:                |  |                                      |          |      |  |      |          |      |  |      |          |   |  |   |          |   |  |   |          |  
|Net Sales                                                  |  | $                                    | 11,638.3 |      |  | $    | 9,828.3  |      |  | $    | 10,738.7 |   |  | $ | 17,436.9 |   |  | $ | 13,007.5 |  
|Operating (loss) income                                    |  |                                      | (37.4    | )    |  |      | (2,359.8 | )    |  |      | (3,446.9 | ) |  |   | (126.2   | ) |  |   | 655.1    |  
|(Loss) income from continuing operations                   |  |                                      | (251.8   | )    |  |      | (3,019.8 | )    |  |      | (3,070.8 | ) |  |   | (90.1    | ) |  |   | 456.7    |  
|Cumulative effect of change in accounting
    principle    |  |                                      |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   | (3.5     | )
|Income (loss) from discontinued operations, net
    of tax |  |                                      | 82.9     |      |  |      | (442.2   | )    |  |      | (39.4    | ) |  |   | (33.4    | ) |  |   | 44.0     |  
|                                                           |  |                                      |          |      |  |      |          |      |  |      |          |   |  |   |          |   |  |   |          |  
|Net (loss) income                                          |  | $                                    | (168.9   | )    |  | $    | (3,462.0 | )    |  | $    | (3,110.2 | ) |  | $ | (123.5   | ) |  | $ | 497.2    |  
|Basic net income (loss) per share:                         |  |                                      |          |      |  |      |          |      |  |      |          |   |  |   |          |   |  |   |          |  
|Continuing operations                                      |  | $                                    | (0.29    | )    |  | $    | (3.65    | )    |  | $    | (3.93    | ) |  | $ | (0.14    | ) |  | $ | 0.76     |  
|Cumulative effect of change in accounting
    principle    |  |                                      |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Discontinued operations                                    |  |                                      | 0.10     |      |  |      | (0.53    | )    |  |      | (0.05    | ) |  |   | (0.05    | ) |  |   | 0.07     |  
|                                                           |  |                                      |          |      |  |      |          |      |  |      |          |   |  |   |          |   |  |   |          |  
|                                                           |  | $                                    | (0.19    | )    |  | $    | (4.18    | )    |  | $    | (3.98    | ) |  | $ | (0.19    | ) |  | $ | 0.83     |  
|                                                           |  |                                      |          |      |  |      |          |      |  |      |          |   |  |   |          |   |  |   |          |  
|Diluted net income (loss) per share:                       |  |                                      |          |      |  |      |          |      |  |      |          |   |  |   |          |   |  |   |          |  
|Continuing operations                                      |  | $                                    | (0.29    | )    |  | $    | (3.65    | )    |  | $    | (3.93    | ) |  | $ | (0.14    | ) |  | $ | 0.73     |  
|Cumulative effect of change in accounting
    principle    |  |                                      |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Discontinued operations                                    |  |                                      | 0.10     |      |  |      | (0.53    | )    |  |      | (0.05    | ) |  |   | (0.05    | ) |  |   | 0.07     |  
|                                                           |  |                                      |          |      |  |      |          |      |  |      |          |   |  |   |          |   |  |   |          |  
|                                                           |  | $                                    | (0.19    | )    |  | $    | (4.18    | )    |  | $    | (3.98    | ) |  | $ | (0.19    | ) |  | $ | 0.80     |  
|                                                           |  |                                      |          |      |  |      |          |      |  |      |          |   |  |   |          |   |  |   |          |  

|                                 |  |           |         |      |  |      |         |      |  |      |          |  |  |   |          |  |  |   |          | 
|-------------------------------- |  | --------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | -------- |  |  | - | -------- |  |  | - | -------- | 
|                                 |  |          
|                                 |  | August 31
|                                 |  |          
|                                 |  | 2004      |         | 2003 |  | 2002 |         | 2001 |  | 2000
|                                 |  |           |         |      |  |      |         |      |  |     
|Consolidated Balance Sheet Data* |  |           |         |      |  |      |         |      |  |      |          |  |  |   |          |  |  |   |          | 
|Working capital                  |  | $         | 2,507.3 |      |  | $    | 1,718.9 |      |  | $    | 3,654.8  |  |  | $ | 6,014.8  |  |  | $ | 5,411.4  | 
|Total assets                     |  |           | 5,817.0 |      |  |      | 6,529.5 |      |  |      | 11,014.0 |  |  |   | 13,079.9 |  |  |   | 10,375.6 | 
|Long-term debt                   |  |           | 1,221.4 |      |  |      | 1,824.4 |      |  |      | 3,183.9  |  |  |   | 5,027.5  |  |  |   | 3,319.5  | 
|Stockholders equity             |  |           | 2,378.8 |      |  |      | 1,422.0 |      |  |      | 4,772.7  |  |  |   | 5,150.7  |  |  |   | 3,802.1  | 



---



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

Beginning in fiscal 2003, Solectron classified
certain expense items differently than in prior periods.
Solectron has revised previously reported consolidated financial
information to conform the expense classifications to the
current presentation. None of these reclassifications had any
impact on net loss or net loss per share for the periods
presented. These reclassifications were:



| |                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. In fiscal 2003, Solectron began reporting
    other income and expense items as a separate line item rather
    than including such items in selling, general and administrative
    expenses. Accordingly, Solectron reclassified other income of
    $29.1 million from selling, general and administrative
    expenses to other income  net and

12



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##### 



| |                                                                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | $75.7 million of gains on retirement of debt
    from a separate non-operating line item to other
    income  net in fiscal 2002. In fiscal 2001, Solectron
    also reclassified other income of $60.0 million from
    selling, general and administrative expenses to other
    (expense) income  net.                                                     
|
| | 2. In fiscal 2003, Solectron classified
    certain items in cost of sales that in previous periods were
    included in selling, general and administrative expenses.
    Accordingly, Solectron reclassified $23.2 million and
    $52.1 million from selling, general and administrative
    expenses to cost of sales in fiscal 2002 and 2001, respectively.






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|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;                                                                                                                   
|
| |  | future prospects and growth;                                                                                                                          
|
| |  | our ability to improve our gross profit
    margins;                                                                                                  
|
| |  | the capabilities and capacities of our
    business operations;                                                                                       
|
| |  | any financial or other guidance, including
    interest expense savings;                                                                              
|
| |  | our business strategy and our ability to
    execute on such strategy;                                                                                
|
| |  | the anticipated financial impact of recent and
    future acquisitions and divestitures;                                                              
|
| |  | the timing and amount of our planned
    restructuring activities and related estimated cost
    savings;                                             
|
| |  | the expansion of our low-cost manufacturing
    capacity and redirection of our manufacturing operations to
    lower-cost facilities;                
|
| |  | our ability to maintain a long-term cost
    structure to support improved operating efficiency and
    margins;                                      
|
| |  | the anticipated production levels and revenues
    of manufacturing and supply agreements with customers;                                             
|
| |  | the potential impact of, and our strategies
    for addressing, our current litigation and environmental
    liability exposure; 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.

13



---



##### 



Overview

We provide a range of worldwide manufacturing and
integrated supply chain services to electronics companies. Our
revenue is generated from sales of our services primarily to
customers in the Computing & Storage, Networking,
Communications, Consumer, Industrial, and Automotive markets.

Sales to a relatively small number of customers
historically have made up a significant portion of our net sales
and we expect that trend to continue in the future. Sales to our
ten largest customers accounted for 59.8%, 60.6%, and 68.1% for
fiscal 2004, 2003, and 2002, respectively. Currently, our
largest customer, Cisco Systems, accounted for 10% or more of
our net sales for fiscal 2004, 2003 and 2002.

The EMS industry experienced rapid change and
growth over the past decade as an increasing number of OEMs
outsourced an increasing portion of their manufacturing
requirements. In 2001, the industrys revenue declined as a
result of significant reduction in end-market demand, which was
consistent with the overall global economic downturn. Beginning
in the second quarter of fiscal 2001, we initiated the
restructuring of our operations in light of the global economic
downturn. The measures, which included reducing the workforce,
consolidating facilities and changing the strategic focus of a
number of sites, were intended to align our capacity and
infrastructure to anticipated customer demand, transition our
operations to lower cost regions and rationalize our footprint
worldwide. Additionally, we decided to divest selected business
operations that are not central to our strategy. These business
operations have been accounted for as discontinued operations.
Our revenues from continuing operations have increased over the
last year as customer production requirements have risen during
the economic recovery, and we are winning business with new and
existing customers.



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

The following table sets forth, for the three
year periods indicated, certain key operating results and other
financial information (in millions):

|                                            |  |                       |          |      |  |      |         |   |  |   |          |  
|------------------------------------------- |  | --------------------- | -------- | ---- |  | ---- | ------- | - |  | - | -------- | -
|                                            |  |                      
|                                            |  | Years Ended August 31
|                                            |  |                      
|                                            |  | 2004                  |          | 2003 |  | 2002
|                                            |  |                       |          |      |  |     
|Net sales                                   |  | $                     | 11,638.3 |      |  | $    | 9,828.3 |   |  | $ | 10,738.7 |  
|Gross profit                                |  |                       | 580.3    |      |  |      | 442.0   |   |  |   | 504.9    |  
|Selling, general and administrative expense |  |                       | 440.9    |      |  |      | 566.1   |   |  |   | 658.2    |  
|Income (loss) on discontinued operations    |  |                       | 82.9     |      |  |      | (442.2  | ) |  |   | (39.4    | )

Net sales for fiscal 2004 increased 18.4% to
$11.6 billion compared to $9.8 billion for the fiscal
2003. Our sales levels during fiscal year 2004 were stronger
across all our primary markets. The increase in net sales
represents stronger demand from existing programs, as well as
growth from new and existing customers. Net sales for fiscal
2003 decreased 8.5% to $9.8 billion compared to
$10.7 billion for fiscal 2002. The decrease in net sales
was primarily the result of weakness in end markets for
networking, communications and computing and storage
(particularly PC/notebooks). The weaknesses in these areas were
partially offset by strength in our high-end computing and
storage, consumer, industrial and automotive markets.

Gross profit improved to 5.0% for fiscal 2004
compared to 4.5% and 4.7% for fiscal 2003 and 2002,
respectively. The improvement in gross profit is primarily the
result of the execution of our Lean Six Sigma manufacturing
initiative (Lean Initiative), increased discipline
in the implementation of our quote process, and improved
capacity utilization. The Lean Initiative has begun to give us
improved flexibility, quality, and operational effectiveness and
efficiency. The Lean Initiative encompasses identifying value
added activities, conducting these activities without
interruption whenever a customer requests them, and performing
them more effectively. In general, the Lean Initiative in our
manufacturing environment attempts to provide customers with
what they require using more efficient human effort, equipment,
time and space. The increased discipline in the implementation
of our quote process has involved centralizing the process,
standardizing the cost models used to evaluate programs, raising
decision making authority to more senior levels within the
company, emphasizing the expected returns to Solectron in
deciding what pricing to offer and accept, and implementing
profitability-based sales force compensation.

Selling, general and administrative (SG&A)
expense (including research and development costs) continued to
decline in fiscal 2004. SG&A expense was 3.8%, 5.8% and 6.1%
as a percentage of net sales for fiscal 2004, 2003, and

14



---



##### 



2002, respectively. The reduction in SG&A
expense as a percentage of net sales, is a result of our
restructuring activities, divestures and other cost reduction
initiatives.


During fiscal 2004, we completed the sale of six
of our seven discontinued operations: Dy 4 Systems, Inc.,
Kavlico Corporation, SMART Modular Technologies, Inc., Stream
International Inc., our 63% interest in US Robotics Corporation,
and Force Computers, Inc. In addition, we entered into an
agreement to sell the last discontinued operation, our
MicroTechnology business, in the fourth quarter of fiscal 2004.
On October 18, 2004 we completed the divesture of our
MicroTechnology business operations. Total gross proceeds from
the sale of all discontinued operations were approximately
$550 million.

We have made significant progress in reducing our
outstanding debt during the year ended August 31, 2004. In
fiscal 2004, we completed the early settlement of approximately
94% of our outstanding 7.25% ACES debentures and the cash
settlement of $950.0 million of our outstanding LYONs.
These two actions decreased our outstanding debt by
approximately $2.0 billion and increased equity by
approximately $1.0 billion. The net effect of reducing debt
and increasing equity improved our debt-to-capital ratio from
66% at the end of fiscal 2003 to 34% at the end of fiscal 2004.
Our short-term debt is now $25.1 million and our remaining
long-term debt of $1.2 billion has an average maturity of
5 years.



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

Management regularly reviews the following
financial performance indicators to assess the Companys
operating results. The following table sets forth, for the
quarterly periods indicated, certain of managements key
financial performance indicators.

|                                   |  |                    |           |              |  |                   |           |                   |  |                 |           |  |  |  |           |  |  |  |           | 
|---------------------------------- |  | ------------------ | --------- | ------------ |  | ----------------- | --------- | ----------------- |  | --------------- | --------- |  |  |  | --------- |  |  |  | --------- | 
|                                   |  |                   
|                                   |  | Three Months Ended
|                                   |  |                   
|                                   |  | August 31, 2004    |           | May 31, 2004 |  | February 28, 2004 |           | November 30, 2003 |  | August 31, 2003
|                                   |  |                    |           |              |  |                   |           |                   |  |                
|Inventory turns                    |  |                    | 7.5 turns |              |  |                   | 7.5 turns |                   |  |                 | 7.4 turns |  |  |  | 7.4 turns |  |  |  | 6.6 turns | 
|Days sales outstanding (DSO)       |  |                    | 47 days   |              |  |                   | 47 days   |                   |  |                 | 49 days   |  |  |  | 50 days   |  |  |  | 53 days   | 
|Days payable outstanding (DPO)     |  |                    | 47 days   |              |  |                   | 46 days   |                   |  |                 | 48 days   |  |  |  | 48 days   |  |  |  | 46 days   | 
|Cash-to-cash cycle (C2C)           |  |                    | 49 days   |              |  |                   | 49 days   |                   |  |                 | 50 days   |  |  |  | 50 days   |  |  |  | 59 days   | 
|Capital expenditures (in millions) |  |                    | $48.3     |              |  |                   | $32.8     |                   |  |                 | $31.5     |  |  |  | $37.0     |  |  |  | $40.7     | 

Inventory turns is calculated as the ratio of
cost of sales compared to the average inventory for the quarter.
The improvement in inventory turns during fiscal 2004 was
primarily the result of: (1) our disciplined and focused
effort on material and production planning and,
(2) continued implementation of the Lean Initiative in our
manufacturing sites around the world. DSO is calculated as the
ratio of average accounts receivable, net, for the quarter
compared to daily net sales for the quarter. DSO has declined
due to an increased focus on collection activity and ensuring
compliance with the terms and conditions of our contracts. DPO
is calculated as the ratio of average accounts payable during
the quarter compared to daily cost of sales for the quarter. The
C2C cycle is determined by taking the ratio of 360 days
compared to inventory turns plus DSO minus DPO. The C2C cycle
has declined primarily as a result of improvements in both
inventory turns and DSO, partially offset by lower DPO. Capital
expenditures are primarily related to equipment purchases
supporting increased demand, new programs, and information
technology projects.

Critical Accounting Policies

Management is required to make judgments,
assumptions and estimates that affect the amounts reported when
we prepare consolidated financial statements and related
disclosures in conformity with generally accepted accounting
principles in the United States. Note 1, Summary of
Significant Accounting Policies, to the consolidated
financial statements describes the significant accounting
policies and methods used in the preparation of our consolidated
financial statements. Estimates are used for, but not limited
to, our accounting for contingencies, allowance for doubtful
accounts, inventory valuation, goodwill and intangible asset
impairments, restructuring costs, and income taxes. Actual
results could differ from these estimates. The following
critical accounting policies are impacted significantly by
judgments, assumptions and estimates used in the preparation of
our consolidated financial statements.

15



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##### 





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

Our inventories are stated at the lower of
weighted average cost or market. Our industry is characterized
by rapid technological change, short-term customer commitments
and rapid changes in demand, as well as any other lower of cost
or market considerations. We make provisions for estimated
excess and obsolete inventory based on our regular reviews of
inventory quantities on hand and the latest forecasts of product
demand and production requirements from our customers. Our
provisions for excess and obsolete inventory are also impacted
by our contractual arrangements with our customers including our
ability or inability to re-sell such inventory to them. If
actual market conditions or our customers product demands
are less favorable than those projected or if our customers are
unwilling or unable to comply with any contractual arrangements
related to excess and obsolete inventory, additional provisions
may be required.



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

We evaluate the collectability of our accounts
receivable based on a combination of factors. Where we are aware
of circumstances that may impair a specific customers
ability to meet its financial obligations to us, we record a
specific allowance against amounts due to us and thereby reduce
the net receivable to the amount we reasonably believe is likely
to be collected. For all other customers, we recognize
allowances for doubtful accounts based on the length of time the
receivables are outstanding, industry and geographic
concentrations, the current business environment and our
historical experience. If the financial condition of our
customers deteriorates or if economic conditions worsen,
additional allowances may be required.



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

In accordance with Statement of Financial
Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets, we review the
carrying amount of goodwill for impairment on an annual basis
during the fourth quarter (as of June 1). Additionally, we
perform an impairment assessment of goodwill whenever events or
changes in circumstances indicate that the carrying value of
goodwill may not be recoverable. Significant changes in
circumstances can be both internal to our strategic and
financial direction, as well as changes to the competitive and
economic landscape. With the change in operating segments as of
Sept 1, 2003, we determined that there was a single
reporting unit for the purpose of goodwill impairment tests
under SFAS No. 142. For purposes of assessing the
impairment of our goodwill, we estimate the value of the
reporting unit using our market capitalization as the best
evidence of fair value. This fair value is then compared to the
carrying value of the reporting unit. If the fair value of the
reporting unit is less than its carrying value, we then allocate
the fair value of the unit to all the assets and liabilities of
that unit (including any unrecognized intangible assets) as if
the reporting units fair value was the purchase price to
acquire the reporting unit. The excess of the fair value of the
reporting unit over the amounts assigned to its assets and
liabilities is the implied fair value of the goodwill. If the
carrying amount of the reporting units goodwill exceeds
the implied fair value of that goodwill, an impairment loss is
recognized in an amount equal to that excess. The process of
evaluating the potential impairment of goodwill is subjective
and requires judgment at many points during the test including
future revenue forecasts, discount rates and various reporting
unit allocations.



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

Our intangible assets consist primarily of
intellectual property agreements and other intangible assets
obtained from asset acquisitions. Intangible assets are
evaluated for impairment whenever events or changes in
circumstances indicate the carrying value of an asset may not be
recoverable. Impairment is measured by comparing the intangible
assets carrying amounts to the fair values as determined using
discounted cash flow models. There is significant judgment
involved in determining these cash flows.



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

Over the past few years, we have recorded
restructuring and impairment costs as we rationalized our
operations in light of customer demand declines and the economic
downturn. These restructuring and impairment charges include
employee severance and benefit costs, costs related to leased
facilities that have been abandoned and subleased, owned
facilities no longer used by us which will be disposed of, costs
related to leased equipment that has been abandoned or returned
to the lessor, and impairment of owned equipment that will be
disposed of. For owned facilities and equipment, the impairment
loss recognized was based on the fair value less costs to sell,
with fair value

16



---



##### 



estimated based on existing market prices for
similar assets. Severance and benefit costs and other costs
associated with restructuring activities initiated prior to
January 1, 2003 were recorded in compliance with EITF Issue
No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity.
Severance and benefit costs associated with restructuring
activities initiated on or after January 1, 2003 are
recorded in accordance with SFAS No. 112,
Employers Accounting for Postemployment
Benefits, as we concluded that we had a substantive
severance plan. In accordance with SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities, the estimated lease loss accrued for leased
facilities that have been abandoned and subleased after
January 1, 2003 represents the fair value of the lease
liability as measured by the present value of future lease
payments subsequent to abandonment less the present value of any
estimated sublease income. For those facilities abandoned and
subleased as part of restructuring activities under EITF Issue
No. 94-3, the estimated lease loss represents payments
subsequent to abandonment less any estimated sublease income. In
order to estimate future sublease income, we work with a real
estate broker to estimate the length of time until we can
sublease a facility and the amount of rent we can expect to
receive. Our estimates of expected sublease income could change
based on factors that affect our ability to sublease those
facilities such as general economic conditions and the real
estate market, among others.




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

We currently have significant deferred tax assets
in certain jurisdictions resulting from tax credit
carry-forwards, net operating losses and other deductible
temporary differences, which will reduce taxable income in such
jurisdictions in future periods. We have provided valuation
allowances for future tax benefits resulting from foreign net
operating loss carry-forwards and for certain other U.S. and
foreign deductible temporary differences where we believe future
realizability is in doubt. SFAS No. 109 requires a
valuation allowance be established when it is more likely
than not that all or a portion of deferred tax assets will
not be realized, and further provides that it is difficult to
conclude that a valuation allowance is not needed when there is
negative evidence in the form of cumulative losses in recent
years. Therefore, cumulative losses weigh heavily in the overall
assessment. We established a valuation allowance in the third
quarter of fiscal 2003 for most of our deferred tax assets
because prior losses and an uncertain future outlook did not
support projections of profitability sufficient to establish our
ability to use those deferred tax assets in future periods. We
have not yet established sustained profitability since that time
which would support recognition of deferred tax assets generated
in prior and current periods. As a result of our assessment, we
increased our total valuation allowance on deferred tax assets
arising from continuing operations to approximately
$1.6 billion at August 31, 2004. We expect to record a
full valuation allowance on future tax benefits until we reach a
sustained level of profitability in the countries in which
deferred tax assets arise.

We have established contingency reserves for
income taxes in various jurisdictions in accordance with
SFAS No. 5 Accounting for Contingencies.
The estimate of appropriate tax reserves is based upon the
amount of prior tax benefit which might be at risk upon audit
and upon the reasonable estimate of the amount at risk. We
periodically reassesses the amount of such reserves and adjusts
reserve balances as necessary.



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

We are subject to the possibility of various loss
contingencies arising in the ordinary course of business (for
example, environmental and legal matters). We consider the
likelihood and our ability to reasonably estimate the amount of
loss in determining the necessity for, and amount of, any loss
contingencies. Estimated loss contingencies are accrued when it
is probable that a liability has been incurred and the amount of
loss can be reasonably estimated. We regularly evaluate
information available to us to determine whether any such
accruals should be adjusted. Such revisions in the estimates of
the potential loss contingencies could have a material impact in
our consolidated results of operations and financial position.

17



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##### 



Results of Operations for Fiscal Years 2004,
2003 and 2002

The following table summarizes certain items in
the consolidated statements of operations as a percentage of net
sales. The financial information and the discussion below should
be read in conjunction with the accompanying consolidated
financial statements and notes thereto. The discussion following
the table is provided separately for continuing and discontinued
operations. In fiscal 2004 and 2003, certain operations we
planned to divest qualified for discontinued operations
classification. Accordingly, our consolidated statements of
operations include these results in discontinued operations for
all periods presented. Information related to the discontinued
operations results is provided separately following the
continuing operations discussion.

|                                                                  |                                     |                                          |       |      |      |      |       |      |       |    |       |      |       |   
|----------------------------------------------------------------- | ----------------------------------- | ---------------------------------------- | ----- | ---- | ---- | ---- | ----- | ---- | ----- | -- | ----- | ---- | ----- | --
|                                                                  |                                     |                                         
|                                                                  |                                     | Years Ended August 31                   
|                                                                  |                                     |                                         
|                                                                  |                                     | 2004                                     |       | 2003 |      | 2002
|                                                                  |                                     |                                          |       |      |      |     
|Net sales                                                         |                                     |                                          | 100.0 | %    |      |      | 100.0 | %    |       |    | 100.0 | %   
|Cost of sales                                                     |                                     |                                          | 95.0  |      |      |      | 95.5  |      |       |    | 95.3  |     
|                                                                  |                                     |                                          |       |      |      |      |       |      |       |    |       |     
|Gross profit                                                      |                                     |                                          | 5.0   |      |      |      | 4.5   |      |       |    | 4.7   |     
|Operating expenses:                                               |                                     |                                          |       |      |      |      |       |      |       |    |       |     
|                                                                  | Selling, general and administrative |                                          |       | 3.8  |      |      |       | 5.8  |       |    |       | 6.1  |      
|                                                                  | Restructuring and impairment costs  |                                          |       | 1.5  |      |      |       | 6.1  |       |    |       | 7.4  |      
|                                                                  | Goodwill impairment                 |                                          |       |     |      |      |       | 16.6 |       |    |       | 23.3 |      
|                                                                  |                                     |                                          |       |      |      |      |       |      |       |    |       |     
|                                                                  |                                     | Operating loss                           |       |      | (0.3 | )    |       |      | (24.0 | )  |       |      | (32.1 | ) 
|Interest income                                                   |                                     |                                          | 0.1   |      |      |      | 0.3   |      |       |    | 0.5   |     
|Interest expense                                                  |                                     |                                          | (1.3  | )    |      |      | (2.1  | )    |       |    | (2.2  | )   
|Other (expense) income  net                                      |                                     |                                          | (0.7  | )    |      |      | 0.5   |      |       |    | 1.0   |     
|                                                                  |                                     |                                          |       |      |      |      |       |      |       |    |       |     
|Operating loss from continuing operations before
    income taxes |                                     |                                          | (2.2  | )    |      |      | (25.3 | )    |       |    | (32.8 | )   
|Income tax expense (benefit)                                      |                                     |                                          | 0.0   |      |      |      | 5.4   |      |       |    | (4.2  | )   
|                                                                  |                                     |                                          |       |      |      |      |       |      |       |    |       |     
|                                                                  |                                     | Loss from continuing operations          |       |      | (2.2 | )%   |       |      | (30.7 | )% |       |      | (28.6 | )%
|Discontinued operations:                                          |                                     |                                          |       |      |      |      |       |      |       |    |       |     
|Income (loss) from discontinued operations                        |                                     |                                          | 0.8   |      |      |      | (3.4  | )    |       |    | (0.5  | )   
|Income tax expense (benefit)                                      |                                     |                                          | 0.1   |      |      |      | 1.1   |      |       |    | (0.1  | )   
|                                                                  |                                     |                                          |       |      |      |      |       |      |       |    |       |     
|                                                                  |                                     | Income (loss) on discontinued operations |       |      | 0.7  |      |       |      | (4.5  | )  |       |      | (0.4  | ) 
|                                                                  |                                     | Net loss                                 |       |      | (1.5 | )%   |       |      | (35.2 | )% |       |      | (29.0 | )%
|                                                                  |                                     |                                          |       |      |      |      |       |      |       |    |       |     

Net Sales  Continuing
Operations

For the year ended August 31, 2004, net
sales increased 18.4% to $11.6 billion from
$9.8 billion in fiscal 2003. The increase was due to
increased sales levels across all primary markets. Specific
increases include a 10.1% increase in the sale of computing and
storage products; a 12.4% increase in the sale of networking
products; a 2.7% increase in the sale of communication products;
a 72.8% increase in sales of consumer products; a 69.1% increase
in the sale of industrial products; and a 21.3% increase in the
sale of automotive products. The increased sales levels were due
to stronger demand from existing programs, as well as growth
from our new and existing customers. The consumer product market
represented our largest dollar increase in revenue
year-over-year at approximately $950 million. This increase
in the consumer market was driven by demand for handheld
devices, cellular handsets and set-top boxes in fiscal 2004.

The decrease in fiscal 2003 from fiscal 2002
primarily resulted from weakness in end markets for networking,
communications and computing and storage (particularly
PC/notebooks). The weaknesses in these areas were partially
offset by strength in our high-end computing and storage,
consumer, industrial and automotive markets.

18



---



##### 



The following table depicts, for the periods
indicated, revenue by market expressed as a percentage of net
sales. The distribution of revenue across our markets has
fluctuated, and will continue to fluctuate, as a result of
numerous factors, including but not limited to: increased
business from new and existing customers; fluctuations in
customer demand; seasonality; and growth in market outsourcing.

|                    |  |                       |        |      |  |      |        |  |  |  |        | 
|------------------- |  | --------------------- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                    |  |                      
|                    |  | Years Ended August 31
|                    |  |                      
|                    |  | 2004                  |        | 2003 |  | 2002
|                    |  |                       |        |      |  |     
|Computing & Storage |  |                       | 30.5%  |      |  |      | 32.7%  |  |  |  | 27.8%  | 
|Networking          |  |                       | 21.6%  |      |  |      | 22.8%  |  |  |  | 26.4%  | 
|Consumer            |  |                       | 19.3%  |      |  |      | 13.2%  |  |  |  | 9.5%   | 
|Communications      |  |                       | 18.8%  |      |  |      | 21.7%  |  |  |  | 23.7%  | 
|Industrial          |  |                       | 5.4%   |      |  |      | 3.8%   |  |  |  | 2.8%   | 
|Automotive          |  |                       | 2.6%   |      |  |      | 2.6%   |  |  |  | 1.9%   | 
|Other               |  |                       | 1.8%   |      |  |      | 3.2%   |  |  |  | 7.9%   | 
|                    |  |                       |        |      |  |      |        |  |  |  |        | 
|Total               |  |                       | 100.0% |      |  |      | 100.0% |  |  |  | 100.0% | 
|                    |  |                       |        |      |  |      |        |  |  |  |        | 

International Sales

International locations contributed 72.3% of
consolidated net sales in fiscal 2004, compared with 67.3% in
fiscal 2003 and 68.2% in fiscal 2002. Net sales from our
international sites have grown primarily in the Asia region
where we have invested to take advantage of the lower cost of
operations. Net sales are attributable to the country in which
the product is manufactured.

Major Customers

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

|                |  |                       |  |      |       |      |  |  |       | 
|--------------- |  | --------------------- |  | ---- | ----- | ---- |  |  | ----- | 
|                |  |                      
|                |  | Years Ended August 31
|                |  |                      
|                |  | 2004                  |  | 2003 |       | 2002
|                |  |                       |  |      |       |     
|Cisco Systems   |  | 13.2%                 |  |      | 11.9% |      |  |  | 11.6% | 
|Nortel Networks |  | *                     |  |      | 12.9% |      |  |  | 15.6% | 



---



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

Our top ten customers accounted for 59.8% of net
sales in fiscal 2004, 60.6% of net sales in fiscal 2003 and
68.1% of net sales in fiscal 2002. We cannot guarantee that
these or any other customers will not increase or decrease as a
percentage of consolidated net sales either individually or as a
group. Consequently, any material decrease in sales to these or
other customers could materially harm our consolidated results
of operations.

We believe that our ability to grow depends on
increasing sales to existing customers and on successfully
attracting new customers. Customer contracts can be canceled and
volume levels can be changed or delayed. The timely replacement
of delayed, canceled or reduced orders with new business cannot
be ensured. In addition, we cannot assume that any of our
current customers will continue to utilize our services.
Consequently, our consolidated results of operations may be
materially adversely affected.

Gross Profit  Continuing
Operations

Gross profit varies from period to period and is
affected by a number of factors, including product mix,
production efficiencies, component costs and delivery linearity,
product life cycles, unit volumes, expansion and consolidation
of manufacturing facilities, utilization of manufacturing
capacity, pricing, competition, and unanticipated inventory
charges.

Our gross profit percentages were 5.0%, 4.5% and
4.7% for fiscal 2004, 2003 and 2002, respectively. The increase
in gross profit percentage from 4.5% in fiscal 2003 to 5.0% in
fiscal 2004 was primarily due to effectively implementing the
Lean Initiative in our manufacturing sites around the world,
increasing discipline in the implementation of our quote process
and improving capacity utilization. The decrease in gross profit
percentage from 4.7% in fiscal 2002 to

19



---



##### 



4.5% in fiscal 2003 was primarily due to
continued inefficiencies associated with reduced demand, pricing
pressure within our industry, and the transition of production
capacity from higher cost to lower cost regions.


We continue to implement a number of initiatives
to improve our gross profit: (1) Lean Initiative to improve
flexibility, quality, and operational effectiveness and
efficiency; (2) further improving capacity utilization;
(3) ensuring contractual relationships reflect value added
by our operations; (4) a disciplined pricing model;
(5) engaging with our customers in collaborative design;
and (6) profitability-based sales force compensation.

During the second quarter of fiscal 2003, we
recorded a charge of approximately $76.3 million related to
excess and obsolete inventory. During the fourth quarter of
fiscal 2002, we recorded a charge of approximately
$97.0 million to reduce the carrying value of excess and
obsolete inventory. Both charges were the result of the
depressed condition in the telecommunications market.

In the foreseeable future, our overall gross
profit will depend primarily on several factors, including but
not limited to, product mix, production efficiencies,
utilization of manufacturing capacity, pricing within the
electronics industry, and component costs. Over time, gross
profit may continue to fluctuate.

Sales of inventory previously written down or
written off have not been significant and have not had any
material impact on our gross profit to date.

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

SG&A expenses decreased $125.2 million,
or 22.1%, for fiscal 2004 compared to fiscal 2003. SG&A
expenses decreased $92.1 million, or 14.0%, for fiscal 2003
compared to fiscal 2002. As a percentage of net sales, SG&A
expenses decreased to 3.8% in fiscal 2004, 5.8% in fiscal 2003,
and 6.1% in fiscal 2002. In fiscal 2004, the functional
alignment of the organization and resulting SG&A cost
reduction initiatives drove the improvement. Furthermore,
headcount reductions and other SG&A expense reductions
(including depreciation expense) resulting from our
restructuring initiatives and divestures also contributed to the
decrease over the past three fiscal years.

Restructuring and Impairment Costs 
Continuing Operations

In recent years, we have initiated a series of
restructuring measures in light of the economic downturn. The
measures, which included reducing the workforce, and
consolidating facilities, have been intended to align our
capacity and infrastructure to anticipated customer demand and
transition our operations to lower cost regions. This has
enhanced our ability to provide cost-effective manufacturing
service offerings, which enables us to retain and expand our
existing relationships with customers and attract new business.

We have recognized restructuring costs of
$129.3 million, $431.5 million and $561.9 million
(excluding goodwill and intangible asset impairments) during
fiscal 2004, 2003 and 2002, respectively.

In the fourth quarter of fiscal 2004, we
committed to a plan to incur approximately $20.0 million in
new restructuring charges. These restructuring actions are to
further consolidate facilities, reduce the workforce in Europe
and North America and impair certain long-lived assets. These
restructuring actions will result in future savings in salaries
and benefits and depreciation expense that would impact cost of
goods sold and SG&A expenses in the consolidated statements
of operations. Of the $20.0 million in planned
restructuring charges, approximately $14.0 million relates
to severance charges, $5.6 million relates to the
impairment of certain long-lived assets and the remaining amount
relates to program transfer costs. We expect to complete these
new restructuring actions by the end of fiscal 2005.

Excluding the new activity noted above,
restructuring costs over the past three fiscal years includes
the elimination of approximately 26,600 full time positions
primarily in the Americas and Europe regions. In addition, these
charges relate to the closure and consolidation of facilities
and impairment of certain long-lived assets. These restructuring
activities are substantially complete as of August 31,
2004. However, we expect to incur nominal restructuring charges
which will consist of both cash and non-cash charges during the
next fiscal year as we continue to sell the restructured
long-lived assets and revise previous estimates. Revisions to
estimates will primarily be due to changes in assumptions used
for the facility lease loss accrual.

While we believe our capacity is appropriate for
current revenue levels, we continue to evaluate our cost
structure relative to future financial results and customer
demand. If our estimates about future financial results and

20



---



##### 



customer demand prove to be inadequate, our
consolidated financial condition and consolidated results of
operations may suffer.


See Note 14, Restructuring, to
the consolidated financial statements for further discussion of
our restructuring activities.

In addition to restructuring charges incurred, we
have also impaired certain intangible assets over the past three
fiscal years. As a result of impairment tests performed during
fiscal years 2004, 2003, and 2002, we recorded approximately
$47.5 million, $171.7 million, and
$191.2 million, respectively, in non-cash impairment
charges. For fiscal 2004, the intangible impairment charges were
the result of our disengagement from certain product lines. For
fiscal 2002 and 2003, the intangible impairment charges were the
result of reduced expectations of sales to be realized under
certain supply agreements.

Goodwill Impairment  Continuing
Operations

There was no goodwill impairment in fiscal 2004.
Goodwill impairment was approximately $1.6 billion and
$2.5 billion for fiscal 2003 and 2002, respectively,
primarily as a result of significant negative industry and
economic trends that affected our operations as well as a
significant decline in our stock price. See Note 15,
Goodwill and Intangible Assets, to the consolidated
financial statements for further discussion.

Interest Income  Continuing
Operations

Interest income decreased $12.0 million to
$14.8 million for fiscal 2004 from $26.8 million in
fiscal 2003 and $61.1 million in fiscal 2002. The decreases
were due to reduced average cash, cash equivalent and short-term
investment balances and lower average interest rates.

Interest Expense  Continuing
Operations

Interest expense decreased $62.9 million to
$144.2 million for fiscal 2004 from $207.1 million in
fiscal 2003 and $238.8 million in fiscal 2002. The decrease
in interest expense during fiscal 2004 was primarily due to the
retirement of approximately $1.6 billion aggregate
principal amount at maturity of our Liquid Yield
OptionTM Notes (LYONs) and the early settlement
of approximately 94% of our outstanding 7.25% Adjustable
Conversion-Rate Equity Security units (ACES) debentures
during the third quarter of fiscal 2004. The decrease in
interest expense during fiscal 2003 was primarily due to the
retirement of approximately $7.0 billion aggregate
principal amount at maturity of our LYONs during the past two
fiscal years. This decrease was partially offset by the issuance
in fiscal 2002 of our 7.25% and 9.625% Senior Notes due
2009 in the second quarter of fiscal 2002 for gross proceeds of
approximately $1.6 billion that bear interest at higher
rates than the LYONs.





---

TM Trademark
of Merrill Lynch & Co., Inc.


21



---



##### 



Other (Expense) Income 
Net  Continuing Operations

Other (expense) income  net for fiscal
2004 was ($85.3) million, compared to $52.4 million in
fiscal 2003 and $104.8 million in fiscal 2002. In fiscal
2004, other (expense) income  net primarily consisted
of a loss resulting from the early settlement of approximately
94% of our 7.25% ACES debentures of $77.7 million and a
$15.2 million loss resulting from the sale of our minority
interest in ECS Holdings Limited. Other (expense)
income  net primarily consists of gains on retirement
of our LYONs in fiscal 2003 and fiscal 2002. The remaining
components of other (expense) income  net fluctuate
primarily due to foreign currency gains and losses and other
miscellaneous income and expense items. The following tables
provide the details of the early settlement of our 7.25% ACES
debentures, the retirement of our 4.0% LYONs due 2019, the
retirement of our 2.75% LYONs due 2020 and the retirement of our
3.25% LYONs due 2020 in each period presented recorded in the
accompanying consolidated financial statements (in millions):

|                                                  |  |                       |         |      |  |      |   |  |  |   |   | 
|------------------------------------------------- |  | --------------------- | ------- | ---- |  | ---- | - |  |  | - | - | 
|                                                  |  |                      
|                                                  |  | Years Ended August 31
|                                                  |  |                      
|7.25% ACES Early Settlement                       |  | 2004                  |         | 2003 |  | 2002
|                                                  |  |                       |         |      |  |     
|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   | )    |  | $    |  |  |  | $ |  | 
|                                                  |  |                       |         |      |  |      |   |  |  |   |   | 

|                                                  |  |                       |         |      |  |      |         |  |  |   |         | 
|------------------------------------------------- |  | --------------------- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                                                  |  |                      
|                                                  |  | Years Ended August 31
|                                                  |  |                      
|LYONs Retirement                                  |  | 2004                  |         | 2003 |  | 2002
|                                                  |  |                       |         |      |  |     
|Principal amount at maturity                      |  | $                     | 1,617.5 |      |  | $    | 1,771.1 |  |  | $ | 5,170.2 | 
|                                                  |  |                       |         |      |  |      |         |  |  |   |         | 
|Carrying value                                    |  | $                     | 950.2   |      |  | $    | 1,047.8 |  |  | $ | 2,911.0 | 
|Cash paid and payable                             |  |                       | 950.2   |      |  |      | 1,008.4 |  |  |   | 2,835.3 | 
|                                                  |  |                       |         |      |  |      |         |  |  |   |         | 
|Gain included in other (expense)
    income  net |  | $                     |        |      |  | $    | 39.4    |  |  | $ | 75.7    | 
|                                                  |  |                       |         |      |  |      |         |  |  |   |         | 

See Basis of Presentation and
Recent Accounting Pronouncements, of Note 1,
Summary of Significant Accounting Policies, to the
consolidated financial statements, for further discussion of
other (expense) income  net.

Income Taxes  Continuing
Operations

Our income tax benefit was $0.3 million in
fiscal 2004. We recorded income tax expense of
$532.1 million in fiscal 2003 and a benefit of
$449.0 million in fiscal 2002. During fiscal 2003,
management determined that a valuation allowance was required
with respect to deferred tax assets, which resulted in the tax
expense incurred during the period. The $449.0 benefit in
fiscal 2002 was primarily the result of losses incurred in those
periods. Our effective income tax benefit rate for continuing
operations was approximately 12.8% in fiscal 2002.

In prior years, the effective income tax rate had
been largely a function of the balance between income and losses
from domestic and international operations. Our international
operations, taken as a whole, have been subject to tax at a
lower rate than operations in the United States, primarily due
to tax holidays granted to several of our overseas sites in
Malaysia, Singapore and China. The Malaysian tax holiday is
effective through January 2012, subject to certain conditions,
including maintaining certain levels of research and development
expenditures. The Singapore tax holiday is effective through
March 2011, subject to certain conditions. Several of our China
sites have separate tax holiday agreements.

Certain of our offshore operations are reporting
taxable profits, mostly arising in low-cost locations.
Accordingly, we are recognizing some tax expense related to
those operations. We will not be able to offset this tax expense
with unrecognized deferred tax assets described above, because,
for the most part, those assets did not arise in the
jurisdictions where we are realizing taxable profits.

22



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##### 



Liquidity and Capital Resources 
Continuing Operations

Cash, cash equivalents, and short-term
investments decreased to approximately $1.4 billion at
August 31, 2004 from approximately $1.5 billion at
August 31, 2003. The table below, for the periods
indicated, provides selected consolidated cash flow information
(in millions):

|                                                                                 |  |                       |        |      |  |      |          |   |  |   |          |  
|-------------------------------------------------------------------------------- |  | --------------------- | ------ | ---- |  | ---- | -------- | - |  | - | -------- | -
|                                                                                 |  |                      
|                                                                                 |  | Years Ended August 31
|                                                                                 |  |                      
|                                                                                 |  | 2004                  |        | 2003 |  | 2002
|                                                                                 |  |                       |        |      |  |     
|Net cash (used in) provided by operating
    activities of continuing operations |  | $                     | (8.9   | )    |  | $    | 281.2    |   |  | $ | 2,053.4  |  
|Net cash provided by (used in) investing
    activities of continuing operations |  |                       | 497.1  |      |  |      | 384.8    |   |  |   | (972.1   | )
|Net cash used in financing activities of
    continuing operations               |  |                       | (510.4 | )    |  |      | (1,016.3 | ) |  |   | (1,776.6 | )

We used cash from operating activities of
$8.9 million during fiscal year 2004. This use of cash was
the result of a $251.8 million loss from continuing
operations, a $144.3 million increase in accounts
receivable, net, a $134.1 million increase in inventories
offset by a $139.7 million increase in accounts payable,
non-cash depreciation and amortization charges of
$226.9 million, non-cash impairment charge for property,
equipment and intangible assets of $107.7 million and loss
on the retirement of debt of $77.7 million. The rise in
inventory levels and accounts payable is due to an increase in
forecasted demand from our customers. Accounts receivable, net,
has increased in conjunction with higher net sales.

We generated cash from investing activities of
$497.1 million during fiscal year 2004 primarily due to net
proceeds of $508.0 million received from the disposition of
six of our discontinued operations.

We used cash from financing activities of
$510.4 million during fiscal year 2004 primarily due to the
payment to retire LYONs for $950.2 million offset by
$436.5 million of net proceeds generated from the issuance
of 0.5% convertible senior notes and $111.1 million of
net proceeds generated from the issuance of common stock.

As of August 31, 2004, we had available a
$500 million revolving credit facility that expires on
August 20, 2007. This revolving credit facility was secured
in August 2004. It amends and updates the previous
$250 million credit facility. Our revolving credit facility
is guaranteed by certain of our domestic subsidiaries and
secured by the pledge of domestic accounts receivable, inventory
and equipment, the pledge of equity interests in certain of our
subsidiaries and notes evidencing intercompany debt. Borrowings
under the credit facility bear interest, at our option, at the
London Interbank offering rate (LIBOR) plus a margin of
2.25% based on our current senior secured debt ratings, or the
higher of the Federal Funds Rate plus 1/2 of 1% or Bank of
America N.A.s publicly announced prime rate. As of
August 31, 2004, there were no borrowings outstanding under
this facility. We are subject to compliance with certain
financial covenants set forth in these facilities including, but
not limited to, capital expenditures, cash interest coverage and
leverage. We were in compliance with all applicable covenants as
of August 31, 2004.

On October 28, 2003 Standard and Poors
downgraded our senior unsecured debt rating to B+
with a stable outlook. On October 31, 2003 Moodys
downgraded our senior unsecured debt rating to B1
with a stable outlook. These rating downgrades increase our cost
of capital should we borrow under our revolving lines of credit,
and may make it more expensive for us to raise additional
capital in the future. Such capital raising activities may be on
terms that may not be acceptable to us or otherwise not
available. On June 22, 2004, Standard and Poors
affirmed our senior unsecured rating and revised our outlook to
positive from stable.

In addition, we had $32.1 million in
committed and $176.6 million in uncommitted foreign lines
of credit and other bank facilities as of August 31, 2004
relating to continuing operations. A committed line of credit
obligates a lender to loan us amounts under the credit facility
as long as we adhere to the terms of the credit agreement. An
uncommitted line of credit is extended to us at the sole
discretion of a lender. The interest rates range from the
banks prime lending rate to the banks prime rate
plus 1.0%. As of August 31, 2004, borrowings and guaranteed
amounts were $5.4 million under committed and
$12.1 million under uncommitted foreign lines of credit.
Borrowings are payable on demand. The weighted-average interest
rate was 3.8% for committed and 2.4% for uncommitted foreign
lines of credit as of August 31, 2004.

During fiscal 2004, we issued 17.1 million
shares of common stock for total net proceeds of
$81.7 million. These net proceeds of $81.7 million in
part, along with an additional common stock issuance of
105.6 million shares were used to early settle
approximately 94% of our 7.25% ACES. As of August 31, 2004,
$63.0 million of the

23



---



##### 



ACES debentures remained outstanding. On
August 15, 2004, the remaining ACES debentures were
remarketed and the interest rate was reset at 7.97%. The
proceeds from the remarketing will be used to satisfy the
holders obligation to purchase Solectrons common
stock in November 2004. The 7.97% ACES debentures are due on
November 15, 2006.


Holders of our 3.25% LYONs due November 2020 had
the option to require us to repurchase their notes on
May 20, 2004 in an amount of $587.46 per $1,000
principal amount for a total of approximately
$953.0 million. Solectron repurchased 1.6 million
LYONS for approximately $950.2 million in cash during the
third quarter of fiscal 2004. In addition, our
$150.0 million aggregate principal amount of
7.375% senior notes is due on March 1, 2006, our
$500.0 million aggregate principal amount of
9.625% senior notes is due on February 15, 2009, and
our $450.0 million aggregate principal amount of
0.5% convertible senior notes is due on February 15,
2034.

We have synthetic lease agreements relating to
four manufacturing sites. The synthetic leases have expiration
dates in August 2007. At the end of the lease term, we have an
option, subject to certain conditions, to purchase or to cause a
third party to purchase the facilities subject to the synthetic
leases for the Termination Value, which approximates
the lessors original cost for each facility, or we may
market the property to a third party at a different price. We
are entitled to any proceeds from a sale of the properties to
third parties in excess of the Termination Value and liable to
the lessor for any shortfall not to exceed 85% of the
Termination Value. We provided loans to the lessor equaling
approximately 85% of the Termination Value for each synthetic
lease. These loans are repayable solely from the sale of the
properties to third parties in the future, are subordinated to
the amounts payable to the lessor at the end of the synthetic
leases, and may be credited against the Termination Value
payable if we purchase the properties. The approximate aggregate
Termination Values and loan amounts are $101.3 million and
$86.1 million, respectively, as of August 31, 2004.

In addition, cash collateral of
$15.2 million is pledged for the difference between the
aggregate Termination Values and the loan amounts. Each
synthetic lease agreement contains various affirmative and
financial covenants. A default under a lease, including
violation of these covenants, may accelerate the termination
date of the arrangement. Effective August 31, 2004, we
amended our cash interest coverage and leverage covenants, and
eliminated its minimum cash, minimum tangible net worth, and
minimum liquidity covenants. We were in compliance with all
applicable covenants as of August 31, 2004. Monthly lease
payments are generally based on the Termination Value and 30-day
LIBOR index (1.49% as of August 31, 2004) plus an
interest-rate margin, which may vary depending upon our
Moodys Investors Services and Standard and
Poors ratings, and are allocated between the lessor and us
based on the proportion of the loan amount to the Termination
Value for each synthetic lease.

We account for these synthetic lease arrangements
as operating leases in accordance with SFAS No. 13,
Accounting for Leases, as amended. Our loans to the
lessor and cash collateral were included in other long-term
assets and cash, cash equivalents and short-term investments,
respectively, in the consolidated balance sheets.

Solectron has determined that it is probable that
the expected fair value of the properties at the end of each of
the various synthetic lease terms will be less than the
applicable Termination Value, and the expected shortfall of
$14.9 million is being recognized on a straight-line basis
over the remaining lease term, beginning June 1, 2004.

We believe that our current cash, cash
equivalents, short-term investments, lines of credit and cash
anticipated to be generated from continuing operations and
divestitures of our discontinued operation will satisfy our
expected working capital, capital expenditures, debt service and
investment requirements through at least the next 12 months.

24



---



##### 



The following is a summary of certain obligations
and commitments as of August 31, 2004 for continuing
operations:

|                                                               |  |                        |         |      |  |      |       |      |  |      |       |      |  |            |       |  |  |   |      |  |  |   |       |  |  |   |       | 
|-------------------------------------------------------------- |  | ---------------------- | ------- | ---- |  | ---- | ----- | ---- |  | ---- | ----- | ---- |  | ---------- | ----- |  |  | - | ---- |  |  | - | ----- |  |  | - | ----- | 
|                                                               |  |                       
|                                                               |  | Payments Due by Period
|                                                               |  |                       
|                                                               |  | Total                  |         | FY05 |  | FY06 |       | FY07 |  | FY08 |       | FY09 |  | Thereafter
|                                                               |  |                        |         |      |  |      |       |      |  |      |       |      |  |           
|                                                               |  |                       
|                                                               |  | (In millions)         
|Long term debt                                                 |  | $                      | 1,210.6 |      |  | $    |      |      |  | $    | 172.8 |      |  | $          | 72.4  |  |  | $ | 0.1  |  |  | $ | 500.1 |  |  | $ | 465.2 | 
|Operating lease                                                |  |                        | 197.6   |      |  |      | 57.5  |      |  |      | 35.1  |      |  |            | 28.3  |  |  |   | 17.7 |  |  |   | 14.0  |  |  |   | 45.0  | 
|Operating leases for restructured facilities and
    equipment |  |                        | 71.8    |      |  |      | 30.5  |      |  |      | 14.3  |      |  |            | 12.1  |  |  |   | 6.8  |  |  |   | 3.8   |  |  |   | 4.3   | 
|Other(1)                                                       |  |                        | 256.1   |      |  |      | 256.1 |      |  |      |      |      |  |            |      |  |  |   |     |  |  |   |      |  |  |   |      | 
|                                                               |  |                        |         |      |  |      |       |      |  |      |       |      |  |            |       |  |  |   |      |  |  |   |       |  |  |   |       | 
|                                                               |  | $                      | 1,736.1 |      |  | $    | 344.1 |      |  | $    | 222.2 |      |  | $          | 112.8 |  |  | $ | 24.6 |  |  | $ | 517.9 |  |  | $ | 514.5 | 
|                                                               |  |                        |         |      |  |      |       |      |  |      |       |      |  |            |       |  |  |   |      |  |  |   |       |  |  |   |       | 



---



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

Other long-term liabilities of $55.9 million
disclosed on the financial statements includes deferred tax
liabilities related to timing differences, which due to their
nature are not projected.

Off Balance Sheet Arrangements and Contractual
Obligations

Our off-balance sheet arrangements and
contractual obligations consist of our synthetic and operating
leases, our interest rate swap instrument related to our
long-term debt (described in the We are exposed to
interest rate fluctuations Risk Factor), our foreign
exchange contracts (described in the We are exposed to
fluctuations in foreign currency exchange rates Risk
Factor), and certain indemnification provisions related to our
six divestures (described in the Discontinued
Operations portion below).

A tabular presentation of our contractual
obligations is provided in the Liquidity and Capital
Resources portion of Managements Discussion and
Analysis of Financial Condition and Results of Operations.

Discontinued Operations

During fiscal 2003 and fiscal 2004, as a result
of a full review of our portfolio of businesses, we committed to
a plan to divest a number of business operations that are no
longer part of our strategic plan for the future. In accordance
with SFAS No. 144, we have reported the results of
operations and financial position of these businesses in
discontinued operations within the consolidated statements of
operations and balance sheets for all periods presented. The
companies that we have divested and are in the process of
divesting and that are included in discontinued operations are:
Dy 4 Systems Inc., Kavlico Corporation, Solectrons
MicroTechnology division, SMART Modular Technologies Inc.,
Stream International Inc., our 63% interest in US Robotics
Corporation, and Force Computers, Inc.

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The collective results from all discontinued
operations for all periods presented were as follows (in
millions):

|                                  |                                                          |                         |         |       |      |      |         |        |        |   |         |       |       |  
|--------------------------------- | -------------------------------------------------------- | ----------------------- | ------- | ----- | ---- | ---- | ------- | ------ | ------ | - | ------- | ----- | ----- | -
|                                  |                                                          |                        
|                                  |                                                          | Years Ended August 31  
|                                  |                                                          |                        
|                                  |                                                          | 2004                    |         | 2003  |      | 2002
|                                  |                                                          |                         |         |       |      |     
|Net sales                         |                                                          | $                       | 1,264.9 |       |      | $    | 1,872.1 |        |        | $ | 1,537.5 |      
|Cost of sales                     |                                                          |                         | 1,061.8 |       |      |      | 1,598.5 |        |        |   | 1,335.6 |      
|                                  |                                                          |                         |         |       |      |      |         |        |        |   |         |      
|Gross profit                      |                                                          |                         | 203.1   |       |      |      | 273.6   |        |        |   | 201.9   |      
|                                  | Operating expenses  net                                 |                         |         | 111.6 |      |      |         | 606.5  |        |   |         | 264.6 |      
|                                  |                                                          |                         |         |       |      |      |         |        |        |   |         |      
|                                  |                                                          | Operating income (loss) |         |       | 91.5 |      |         |        | (332.9 | ) |         |       | (62.7 | )
|Interest income  net             |                                                          |                         | 1.4     |       |      |      | 1.5     |        |        |   | 3.7     |      
|Other (expense) income  net      |                                                          |                         | (2.0    | )     |      |      | 1.4     |        |        |   | 1.4     |      
|                                  |                                                          |                         |         |       |      |      |         |        |        |   |         |      
|Income (loss) before income taxes |                                                          |                         | 90.9    |       |      |      | (330.0  | )      |        |   | (57.6   | )    
|Income tax expense (benefit)      |                                                          |                         | 8.0     |       |      |      | 112.2   |        |        |   | (18.2   | )    
|                                  |                                                          |                         |         |       |      |      |         |        |        |   |         |      
|                                  | Income (loss) on discontinued operations, net of
    tax |                         | $       | 82.9  |      |      | $       | (442.2 | )      |   | $       | (39.4 | )    
|                                  |                                                          |                         |         |       |      |      |         |        |        |   |         |      

Fiscal
2004

Net sales, gross profit, operating
expenses  net, and interest income  net
from discontinued operations decreased for the year ended
August 31, 2004 as compared to the same period in fiscal
2003 due to the sale of six discontinued operations during
fiscal 2004. In addition, the aggregate pre-tax gain from the
sale of all six discontinued operations of $190.6 million
was recorded in operating expenses  net for fiscal
2004. In addition, we recorded $123.8 million in operating
expenses  net in restructuring and impairment costs
(including goodwill) in fiscal 2004 compared to
$370.1 million in fiscal 2003.

The sales agreements for all six divestitures
contain certain indemnification provisions under which Solectron
may be required to indemnify the buyer of the divested business
for liabilities, losses, or expenses arising out of breaches of
covenants and certain breaches of representations and warranties
relating to the condition of the business prior to and at the
time of sale. In aggregate, Solectron is generally contingently
liable for up to $81.5 million for a period of 12 to
24 months subsequent to the completion of the sale. As of
August 31, 2004, there were no liabilities recorded under
these indemnification obligations.

Fiscal
2003

Sales and gross profit increased in fiscal 2003
from fiscal 2002 primarily due to fiscal 2003 including a full
year of operations for all the discontinued operations while
fiscal 2002 included partial results as four of our seven
discontinued operations were acquired in fiscal 2002. Operating
expenses increased in fiscal 2003 primarily due to a
$370.1 million in restructuring and impairment costs
(including goodwill) recorded during fiscal 2003 relating to the
discontinued operations. Income tax expense increased
significantly in fiscal 2003 from fiscal 2002 primarily due to
approximately $95.7 million charge recorded to establish
valuation allowances against deferred tax assets related to the
discontinued operations.

Recent Developments

On September 2, 2004, Marty Neese was
appointed as Executive Vice President, Worldwide Sales and
Account Management. Mr. Neese most recently was vice
president of worldwide sales operations at Sanmina-SCI, where he
was responsible for all customer relationship activities. Prior
to that position, Mr. Neese led Sanmina-SCIs program
management activities. In addition, he spent six years at Jabil
Circuit as an SMT line production manager and director of
business development. He also served as a battery commander and
battalion supply and logistics officer in the U.S. Army.
Mr. Neese holds a masters degree in business
administration from the University of Florida and a
bachelors degree in quantitative business systems from the
U.S. Military Academy.

On September 10, 2004, we completed the sale
of our minority interest in ECS Holdings Limited (ECS) for
approximately $16 million in cash.

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On October 18, 2004, we completed the
divesture of our MicroTechnology business operations to
Francisco Partners.

RISK FACTORS

Most of our net sales come from a small
number of customers; if we lose any of these customers, our net
sales could decline significantly.

Most of our annual net sales come from a small
number of our customers. Our ten largest customers accounted for
approximately 59.8%, 60.6%, and 68.1% of net sales from
continuing operations in fiscal years 2004, 2003, and 2002,
respectively. One of these customers individually accounts for
more than ten percent of our annual net sales. Any material
delay, cancellation or reduction of orders from these or other
major customers could cause our net sales to decline
significantly, and we may not be able to reduce the accompanying
expenses at the same time. We cannot guarantee that we will be
able to retain any of our largest customers or any other
accounts, or that we will be able to realize the expected
revenues under existing or anticipated supply agreements with
these customers. Our business, market share, consolidated
financial condition and results of operations will continue to
depend significantly on our ability to obtain orders from new
customers, retain existing customers, realize expected revenues
under existing and anticipated supply agreements, as well as on
the consolidated financial condition and success of our
customers and their customers.

Net sales may not improve, and could decline, in
future periods if there is continued or resumed weakness in
customer demand, particularly in the telecommunications and
computing sectors, resulting from worldwide economic conditions.
In addition, in connection with our efforts to improve our gross
profits, we are engaged in pricing discussions with certain
current customers on specific programs where we feel we are
presently under-compensated for the services and value that we
provide. Where we are not able to reach mutual agreement with a
customer on price adjustments, we have mutually agreed with the
customer to transition the business in question to a new
supplier. While we believe our disengagement from specific
programs with certain customers will ultimately advance our
efforts to return to sustained profitability, there can be no
assurance that such disengagements will not result in a loss of
significant revenue, a lowering of our capacity utilization at
affected sites, and other adverse financial effects.

Our customers may cancel their orders,
change production quantities or locations, or delay
production.

To remain competitive, EMS companies must provide
increasingly rapid product turnaround, at increasingly
competitive prices, for their customers. We generally do not
have long-term contractual commitments from our top customers.
As a result, we cannot guarantee that we will continue to
receive any net sales from our customers. Customers may cancel
their orders, change production quantities or delay production
for a number of reasons outside of our control. Many of our
customers industries have recently experienced a
significant decrease in demand for their products and services,
as well as substantial price competition. The generally
uncertain economic condition of several of our customers
industries has resulted, and may continue to result, in some of
our customers delaying purchases on some of the products we
manufacture for them, and placing purchase orders for lower
volumes of products than previously anticipated. Cancellations,
reductions or delays by a significant customer or by a group of
customers would seriously harm our results of operations by
reducing the volumes of products manufactured by us for the
customers and delivered in that period. Furthermore, delays in
the repayment of our expenditures for inventory in preparation
for customer orders and lower asset utilization in those periods
would result in lower gross profits. In addition, customers may
require that manufacturing of their products be transitioned
from one facility to another to achieve cost and other
objectives. Such transfers, if unanticipated or not properly
executed, could result in various inefficiencies and costs,
including excess capacity and overhead at one facility and
capacity constraints and related strains on our resources at the
other, disruption and delays in product deliveries and sales,
deterioration in product quality and customer satisfaction, and
increased manufacturing and scrap costs.

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.

The majority of our inventory purchases and
commitments are based upon demand forecasts that our customers
provide to us. The customers forecasts, and any changes to
the forecasts, including cancellations, may lead to on-

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hand inventory quantities and on-order purchase
commitments that are in excess of the customers revised
needs, or that become obsolete.


We generally enter into supply agreements with
our significant customers. Under these supply agreements, the
extent of our customers responsibility for excess or
obsolete inventory related to raw materials that were previously
purchased or ordered to meet that customers demand
forecast is defined. If our customers do not comply with their
contractual obligations to purchase excess or obsolete inventory
back from us and we are unable to use or sell such inventory,
our consolidated financial condition could be materially harmed.
Some of our customers are in the telecommunications industry, an
industry that in recent years has experienced declining revenue,
large losses, negative cash flows, and several bankruptcies or
defaults on borrowing arrangements. In the past, some of our
customers have defaulted on their obligations to purchase
inventory back from us. There is a risk that, in the future,
these or other customers may not purchase inventory back from us
despite contractual obligations, which could harm our
consolidated financial condition if we are unable to sell the
inventory at carrying value. In addition, enforcement of these
supply agreements may result in material expenses, delays in
payment for inventory and/or disruptions in our customer
relationships.

We are responsible for excess and obsolete
inventory resulting from inventory purchases in excess of
inventory needed to meet customer demand forecasts at the time
the purchase commitments were made, as well as any inventory
purchases not made pursuant to the customers
responsibility under our supply agreements. For inventory which
is not the customers responsibility, provisions are made
when required to reduce any such excess or obsolete inventory to
its estimated net realizable value, based on the quantity of
such inventory on hand, our customers latest forecasts of
production requirements, and our assessment of available
disposition alternatives such as use of components on other
programs, the ability and cost to return components to the
vendor, and our estimates of resale values and opportunities.
These assessments are necessarily based upon various assumptions
and market conditions which are subject to rapid change, and/or
which may ultimately prove to be inaccurate. Any material
changes in our assumptions or market conditions could have a
significant effect on our estimates of net realizable value,
could necessitate material changes in our provisions for excess
and obsolete inventory, and could have a material adverse impact
on our consolidated financial condition. In addition, in the
normal course of business, bona fide disagreements may arise
over the amount and/or timing of such claims, and in order to
avoid litigation expenses, collection risks, or disruption of
customer relationships, we may elect to settle such disputes for
lesser amounts than we believe we should be entitled to recover.
In these instances, we must bear the economic loss of any such
excess or obsolete inventory, which could have a material
adverse impact on our consolidated financial condition. For
example, we recorded a charge of $76.3 million related to
excess and obsolete inventory during the second quarter of
fiscal 2003, and there can be no assurance that similar charges
at lesser or greater levels will not be necessary in future
periods.

Our non-U.S. locations represent a
significant portion of our net sales; we are exposed to risks
associated with operating internationally.

Approximately 72.3%, 67.3%, and 68.2% of our net
sales from continuing operations are the result of services and
products manufactured in countries outside the United States
during fiscal 2004, 2003, and 2002, respectively. As a result of
our foreign sales and facilities, our operations are subject to
a variety of risks and costs that are unique to international
operations, including the following:



| |   |                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------
| |  | adverse movement of foreign currencies against
    the U.S. dollar in which our results are reported;           
|
| |  | import and export duties, and value added taxes;                                                                
|
| |  | import and export regulation changes that could
    erode our profit margins or restrict exports 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;                                           

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| |   |                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------
| |  | 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 have been granted tax holidays, which are
effective through 2012 subject to some conditions, for our
Malaysian and Singapore sites. We have also been granted various
tax holidays in China. These tax holidays are effective for
various terms and are subject to some conditions. It is possible
that the current tax holidays will be terminated or modified or
that future tax holidays that we may seek will not be granted.
If the current tax holidays are terminated or modified, or if
additional tax holidays are not granted in the future or when
our current tax holidays expire, our future effective income tax
rate could increase.

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

As a result of the recent economic conditions in
the U.S. and internationally, and reduced capital spending as
well as uncertain end-market demand, our customers and
therefore our sales have been difficult to forecast with
accuracy. If there were to be continued or resumed weakness in
these industries which we serve, or any further deterioration in
the business or financial condition of our customers, it could
have a material adverse impact on our business, operating
results and consolidated financial condition. In addition, if
the economic conditions in the United States and the other
markets we serve worsen, we may experience a material adverse
impact on our business, operating results and consolidated
financial condition.

Possible fluctuation of operating results
from quarter to quarter and factors out of our control could
affect the market price of our securities.

Our quarterly earnings and/or stock price may
fluctuate in the future due to a number of factors including the
following:



| |   |                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | differences in the profitability of the types of
    manufacturing services we provide. For example, high velocity
    and low complexity 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;                                                                                                                                                                                                  
|
| |  | 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;                                                                                                                                                                                                                                                                           
|
| |  | 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;                                                                                                                                                                                                                                           

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| |   |                                                                                      
| | - | -------------------------------------------------------------------------------------
| |  | credit rating and stock analyst downgrades;                                          
|
| |  | political and economic developments in countries
    in which we have operations; and
|
| |  | general market conditions.                                                           

If our operating results in the future are below
the expectations of securities analysts and investors, the
market price of our outstanding securities could be harmed.

If we incur more restructuring-related
charges than currently anticipated, our consolidated financial
condition and results of operations may suffer.

If our estimates about previous restructuring
charges prove to be inadequate, our consolidated financial
condition and results of operations may suffer. While we believe
our capacity is appropriate for current revenue levels, we
continue to evaluate our cost structure relative to future
financial results and customer demand. If our estimates about
future financial results and customer demand prove to be
inadequate, our consolidated financial condition and
consolidated results of operations may suffer.

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 are dependent on certain suppliers, including
limited and sole source suppliers, to provide key components
used in our products. We have experienced, and may continue to
experience, delays in component deliveries, which in turn could
cause delays in product shipments and require the redesign of
certain products. In addition, if we are unable to procure
necessary components under favorable purchase terms, including
at favorable prices and with the order lead-times needed for the
efficient and profitable operation of our factories, our results
of operations could suffer. The electronics industry has
experienced in the past, and may experience in the future,
shortages in semiconductor devices, including
application-specific integrated circuits, DRAM, SRAM, flash
memory, certain passive devices such as tantalum capacitors, and
other commodities that may be caused by such conditions as
overall market demand surges or supplier production capacity
constraints. The inability to continue to obtain sufficient
components as and when required, or to develop alternative
sources as and when required, could cause delays, disruptions or
reductions in product shipments or require product redesigns
which could damage relationships with current or prospective
customers, and increase inventory levels and costs, thereby
causing harm to our business.

We potentially bear the risk of price
increases associated with shortages in electronics
components.

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

Our net sales could decline if our
competitors provide comparable manufacturing services and
improved products at a lower cost.

We compete with different contract manufacturers,
depending on the type of service we provide or the geographic
locale of our operations, in an industry which is intensely
competitive. These competitors may have greater manufacturing,
financial, R&D and/or marketing resources than we have. In
addition, we may not be able to offer prices as low as some of
our competitors because those competitors may have lower cost
structures as a result of their geographic location or the
services they provide, or because such competitors are willing
to accept business at lower margins in order to utilize more of
their excess capacity. In that event, our net sales could
decline. We also expect our competitors to continue to improve
the performance of their current products or services, to reduce
their current products or service sales prices and to introduce
new products or services that may offer greater value-added
performance and improved pricing. Any of these could cause a
decline in sales, loss of market acceptance of our products or
services and corresponding loss of market share, or profit
margin compression. We have experienced instances in which
customers have transferred certain portions of their business to
competitors in response to more attractive pricing quotations
than we have been willing to offer, and there can be no
assurance that we will not lose

30



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business in the future in response to such
competitive pricing or other inducements which may be offered by
our competitors.


We depend on the continuing trend of OEMS
to outsource.

A substantial factor in our past revenue growth
was attributable to the transfer of manufacturing and
supply-based management activities from our OEM customers.
Future growth is partially dependent on new outsourcing
opportunities. To the extent that these opportunities are not
available, our future growth would be unfavorably impacted.

Our strategic relationships with major
customers create risks.

In the past several years, we completed several
strategic transactions with OEM customers. Under these
arrangements, we generally acquired inventory, equipment and
other assets from the OEM, and leased (or in some cases
acquired) their manufacturing facilities, while simultaneously
entering into multi-year supply agreements for the production of
their products. There has been strong competition among EMS
companies for these transactions, and this competition may
continue to be a factor in customers selection of their
EMS providers. These transactions contributed to a significant
portion of our past revenue growth, as well as to a significant
portion of our more recent restructuring charges and goodwill
and intangible asset impairments. While we do not anticipate our
acquisitions of OEM plants and equipment in the near future to
return to the levels at which they occurred in the recent past,
there may be occasions on which we determine it to be
advantageous to complete acquisitions in selected geographic
and/or industry markets. As part of such arrangements, we would
typically enter into supply agreements with the divesting OEMs,
but such agreements generally do not require any minimum volumes
of purchases by the OEM and the actual volume of purchases may
be less than anticipated. Arrangements which may be entered into
with divesting OEMs typically would involve many risks,
including the following:



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

As a result of these and other risks, we may be
unable to achieve anticipated levels of profitability under such
arrangements and they may not result in material revenues or
contribute positively to our earnings. Additionally, other OEMs
may not wish to obtain logistics or operations management
services from us.

If we are unable to manage future
acquisitions, and cost-effectively run our operations, our
profitability could be adversely affected.

Our ability to manage and integrate future
acquisitions will require successful integration of such
acquisitions into our manufacturing and logistics
infrastructure, and may require enhancements or upgrades of
accounting and other internal management systems and the
implementation of a variety of procedures and controls. We
cannot guarantee that significant problems in these areas will
not occur. Any failure to enhance or expand these systems and
implement such procedures and controls in an efficient manner
and at a pace consistent with our business activities could harm
our consolidated financial condition and results of operations.
In addition, we may experience inefficiencies from the
management of geographically dispersed facilities and incur
substantial infrastructure and working capital costs. We
incurred approximately $176.8 million (including intangible
impairment charges of approximately $47.5 million) of
restructuring and impairment costs relating to continuing
operations in fiscal 2004 and approximately $2.2 billion
(including goodwill and other intangible impairment charges of
approximately

31



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$1.8 billion) during fiscal 2003. See also
the Risk Factor entitled If We Incur More
Restructuring-Related Charges Than Currently Anticipated, Our
Consolidated Financial Condition and Results of Operations May
Suffer.


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

The sale agreement for each of our divested
businesses contains indemnification provisions under which we
may be required to indemnify the buyer of the divested business
for liabilities, losses, or expenses arising out of breaches of
covenants and certain breaches of representations and warranties
relating to the condition of the business prior to and at the
time of sale. While we believe, based upon the facts presently
known to us, that we have made adequate provision for any such
potential indemnification obligations, it is possible that other
facts may become known in the future which may subject us to
claims for additional liabilities or expenses beyond those
presently anticipated and provided for. Should any such
unexpected liabilities or expenses be of a material amount, our
finances could be adversely affected.

We are exposed to fluctuations in foreign
currency exchange rates.

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

We enter into foreign exchange forward contracts
intended to reduce the short-term impact of foreign currency
fluctuations on foreign currency cash, receivables, investments
and payables. The gains and losses on the foreign exchange
forward contracts are intended to offset the transaction gains
and losses on the foreign currency cash, receivables,
investments, and payables recognized in earnings. We do not
enter into foreign exchange forward contracts for speculative
purposes. Our foreign exchange forward contracts related to
current assets and liabilities are generally three months or
less in original maturity.

As of August 31, 2004, we had outstanding
foreign exchange forward contracts with a total notional amount
of approximately $665.5 million related to continuing
operations. The change in value of the foreign exchange forward
contracts resulting from a hypothetical 10% change in foreign
exchange rates would be offset by the remeasurement of the
related balance sheet items, the result of which would not be
significant.

As of August 31, 2004, the majority of our
foreign currency hedging contracts were scheduled to mature in
approximately three months and there were no material deferred
gains or losses. In addition, our international operations in
some instances act as a natural hedge because both operating
expenses and a portion of sales are denominated in local
currency. In these instances, although an unfavorable change in
the exchange rate of a foreign currency against the
U.S. dollar will result in lower sales when translated to
U.S. dollars, operating expenses will also be lower in
these circumstances. Although approximately 28.4% of our net
sales from continuing operations in fiscal 2004 were denominated
in currencies other than the U.S. dollar, we do not believe
our total exposure to be significant because of natural hedges.

We are exposed to interest rate
fluctuations.

The primary objective of our investment
activities is to preserve principal, while at the same time
maximize yields without significantly increasing risk. To
achieve this objective, we maintain our portfolio of cash
equivalents and short-term investments in a variety of
securities, including government and corporate obligations,
certificates of deposit and money market funds. As of
August 31, 2004, substantially our entire total portfolio
was scheduled to mature in less than three months. A
hypothetical 10% change in interest rates would not have a
material effect on the fair value of our investment portfolios.

32



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##### 



As of August 31, 2004, we had no cash
equivalents and short-term investments that were subject to
interest rate risk (defined as risk of loss of investment fair
value due to interest rate movements). The fair value of our
cash equivalents and short-term investments approximated the
carrying value as of August 31, 2004.

Interest on long-term debt instruments is payable
at fixed rates. In addition, the amount of principal to be
repaid at maturity is also fixed. On November 15, 2002, we
entered into an interest rate swap transaction under which we
pay variable rates and we receive fixed rate. The interest swap
effectively converted $500 million of our long-term debt
with fixed interest rate into debt with variable rates of
interest. Our interest rate swap, which expires on
February 15, 2009, has a total notional amount of
$500 million and relates to our 9.625% $500 million
senior notes. Under this swap transaction we pay an interest
rate equal to the 3-month LIBOR rate plus a fixed spread. In
exchange, we receive fixed interest rates of 9.625%. Our
interest rate swap creates interest rate risk for us. A
hypothetical 50 basis point change in interest rates would
not have a material effect on our consolidated financial
position, results of operations and cash flows over the next
fiscal year.

Failure to attract and retain key personnel
and skilled associates could hurt our operations.

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

Failure to comply with environmental
regulations could harm our business.

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

We own and lease some contaminated sites (for
some of which we have been indemnified by third parties for
required remediation), sites for which there is a risk of the
presence of contamination, and sites with some levels of
contamination for which we may be liable and which may or may
not ultimately require any remediation. We have obtained
environmental insurance to reduce potential environmental
liability exposures posed by some of our operations and
facilities. We believe, based on our current knowledge, that the
cost of any groundwater or soil clean up that may be required at
our facilities would not materially harm our business,
consolidated financial condition and results of operations.
Nevertheless, the process of remediating contamination in soil
and groundwater at facilities is costly and cannot be estimated
with high levels of confidence, and there can be no assurance
that the costs of such activities would not harm our business,
consolidated financial condition and results of operations in
the future.

We may not be able to adequately protect or
enforce our intellectual property rights and could become
involved in intellectual property disputes.

Our ability to effectively compete may be
affected by our ability to protect our proprietary information.
We hold a number of patents, patent applications, and various
other trade secrets and license rights. These patents, trade
secrets, and license rights may not provide meaningful
protection for our manufacturing processes and equipment
innovations, or we might find it necessary to initiate
litigation proceedings to protect our intellectual property
rights. Any such litigation could be lengthy and costly and
could harm our consolidated financial condition.

In the past we have been and may from time to
time continue to be, notified of claims that we may be
infringing patents, copyrights or other intellectual property
rights owned by other parties. In the event of an infringement
claim, we may be required to spend a significant amount of money
to develop a non-infringing alternative, to obtain licenses,
and/or to defend against the claim. We may not be successful in
developing such an alternative or obtaining a license on
reasonable terms, if at all. Any litigation, even where an
infringement claim is without merit, could result in substantial
costs and diversion of resources. Accordingly, the resolution or
adjudication of intellectual property disputes could have a
material adverse effect on our business, consolidated financial
condition and results of operations.

33



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##### 



Our rating downgrades make it more
expensive for us to borrow money.

On October 28, 2003 Standard and Poors
downgraded our senior unsecured debt rating to B+
with a stable outlook. On October 31, 2003 Moodys
downgraded our senior unsecured debt rating to B1
with a stable outlook. These rating downgrades increase our cost
of capital should we borrow under our revolving lines of credit,
and may make it more expensive for us to raise additional
capital in the future. Such capital raising activities may be on
terms that may not be acceptable to us or otherwise not
available. On June 22, 2004, Standard and Poors
affirmed our senior unsecured rating and revised our outlook to
positive from stable.






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

See Managements Discussion and Analysis of
Financial Condition and Results of Operations for factors
related to fluctuations in the exchange rates of foreign
currency and fluctuations in interest rates under Risk
Factors -We are exposed to fluctuations in foreign currency
exchange rates, and We are exposed to interest rate
fluctuations.






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

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

|                                                                        |  |      |    | 
|----------------------------------------------------------------------- |  | ---- | -- | 
|                                                                        |  | Page
|                                                                        |  |     
|Consolidated Balance Sheets                                             |  |      | 35 | 
|Consolidated Statements of Operations                                   |  |      | 36 | 
|Consolidated Statements of Stockholders
    Equity                     |  |      | 37 | 
|Consolidated Statements of Comprehensive Loss                           |  |      | 38 | 
|Consolidated Statements of Cash Flows                                   |  |      | 39 | 
|Notes to the Consolidated Financial Statements                          |  |      | 41 | 
|Report of Independent Registered Public
    Accounting Firm             |  |      | 68 | 
|Financial Statement Schedule II 
    Valuation and Qualifying Accounts |  |      | 73 | 

34



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##### 



SOLECTRON CORPORATION AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

|                                                 |                                                                                                                                |                            |         |          |         |   |         |          |         | 
|------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------ | -------------------------- | ------- | -------- | ------- | - | ------- | -------- | ------- | 
|                                                 |                                                                                                                                |                           
|                                                 |                                                                                                                                | August 31                 
|                                                 |                                                                                                                                |                           
|                                                 |                                                                                                                                | 2004                       |         | 2003    
|                                                 |                                                                                                                                |                            |         |         
|                                                 |                                                                                                                                |                           
|                                                 |                                                                                                                                | (In millions)             
|ASSETS                                          
|Current assets:                                  |                                                                                                                                |                            |         |          |         |   |         |         
|                                                 | Cash and cash equivalents                                                                                                      |                            | $       | 1,412.5  |         |   | $       | 1,425.5  |        
|                                                 | Restricted cash and cash equivalents                                                                                           |                            |         | 17.5     |         |   |         | 42.1     |        
|                                                 | Short-term investments                                                                                                         |                            |         |         |         |   |         | 27.5     |        
|                                                 | Restricted short-term investments                                                                                              |                            |         |         |         |   |         | 19.9     |        
|                                                 | Accounts receivable, less allowance for doubtful
    accounts of $35.7 and $39.1, respectively                                 |                            |         | 1,549.9  |         |   |         | 1,389.1  |        
|                                                 | Inventories                                                                                                                    |                            |         | 1,457.2  |         |   |         | 1,327.3  |        
|                                                 | Prepaid expenses and other current assets                                                                                      |                            |         | 192.9    |         |   |         | 270.3    |        
|                                                 | Current assets of discontinued operations                                                                                      |                            |         | 36.4     |         |   |         | 452.1    |        
|                                                 |                                                                                                                                |                            |         |          |         |   |         |         
|                                                 |                                                                                                                                | Total current assets       |         |          | 4,666.4 |   |         |          | 4,953.8 | 
|Property and equipment, net                      |                                                                                                                                |                            | 726.6   |          |         |   | 781.9   |         
|Goodwill                                         |                                                                                                                                |                            | 134.6   |          |         |   | 134.6   |         
|Other assets                                     |                                                                                                                                |                            | 277.5   |          |         |   | 396.3   |         
|Long-term assets of discontinued operations      |                                                                                                                                |                            | 11.9    |          |         |   | 262.9   |         
|                                                 |                                                                                                                                |                            |         |          |         |   |         |         
|Total assets                                     |                                                                                                                                | $                          | 5,817.0 |          |         | $ | 6,529.5 |         
|                                                 |                                                                                                                                |                            |         |          |         |   |         |         
|                                                
|LIABILITIES AND STOCKHOLDERS
    EQUITY        
|Current liabilities:                             |                                                                                                                                |                            |         |          |         |   |         |         
|                                                 | Short-term debt                                                                                                                |                            | $       | 25.1     |         |   | $       | 973.8    |        
|                                                 | Accounts payable                                                                                                               |                            |         | 1,417.3  |         |   |         | 1,266.6  |        
|                                                 | Accrued employee compensation                                                                                                  |                            |         | 175.2    |         |   |         | 161.0    |        
|                                                 | Accrued expenses                                                                                                               |                            |         | 270.2    |         |   |         | 334.9    |        
|                                                 | Other current liabilities                                                                                                      |                            |         | 224.9    |         |   |         | 164.7    |        
|                                                 | Current liabilities of discontinued operations                                                                                 |                            |         | 46.4     |         |   |         | 333.9    |        
|                                                 |                                                                                                                                |                            |         |          |         |   |         |         
|                                                 |                                                                                                                                | Total current liabilities  |         |          | 2,159.1 |   |         |          | 3,234.9 | 
|Long-term debt                                   |                                                                                                                                |                            | 1,221.4 |          |         |   | 1,817.6 |         
|Other long-term liabilities                      |                                                                                                                                |                            | 55.9    |          |         |   | 32.4    |         
|Long-term liabilities of discontinued operations |                                                                                                                                |                            | 1.8     |          |         |   | 22.6    |         
|                                                 |                                                                                                                                |                            |         |          |         |   |         |         
|                                                 |                                                                                                                                | Total liabilities          |         | $        | 3,438.2 |   |         | $        | 5,107.5 | 
|                                                 |                                                                                                                                |                            |         |          |         |   |         |         
|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; 963.6 and 832.6 shares
    issued and outstanding, respectively |                            |         | 1.0      |         |   |         | 0.8      |        
|                                                 | Additional paid-in capital                                                                                                     |                            |         | 7,775.9  |         |   |         | 6,658.2  |        
|                                                 | Accumulated deficit                                                                                                            |                            |         | (5,209.5 | )       |   |         | (5,040.6 | )      
|                                                 | Accumulated other comprehensive losses                                                                                         |                            |         | (188.6   | )       |   |         | (196.4   | )      
|                                                 |                                                                                                                                |                            |         |          |         |   |         |         
|                                                 |                                                                                                                                | Total stockholders equity |         |          | 2,378.8 |   |         |          | 1,422.0 | 
|                                                 |                                                                                                                                |                            |         |          |         |   |         |         
|Total liabilities and stockholders equity       |                                                                                                                                | $                          | 5,817.0 |          |         | $ | 6,529.5 |         
|                                                 |                                                                                                                                |                            |         |          |         |   |         |         

See accompanying notes to consolidated financial
statements.

35



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##### 



SOLECTRON CORPORATION AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                         |                                          |                                      |          |        |        |      |          |          |          |   |          |          |          |  
|------------------------------------------------------------------------ | ---------------------------------------- | ------------------------------------ | -------- | ------ | ------ | ---- | -------- | -------- | -------- | - | -------- | -------- | -------- | -
|                                                                         |                                          |                                     
|                                                                         |                                          | Years Ended August 31               
|                                                                         |                                          |                                     
|                                                                         |                                          | 2004                                 |          | 2003   |        | 2002
|                                                                         |                                          |                                      |          |        |        |     
|                                                                         |                                          |                                     
|                                                                         |                                          | (In millions, except per-share data)
|Net sales                                                                |                                          | $                                    | 11,638.3 |        |        | $    | 9,828.3  |          |          | $ | 10,738.7 |         
|Cost of sales                                                            |                                          |                                      | 11,058.0 |        |        |      | 9,386.3  |          |          |   | 10,233.8 |         
|                                                                         |                                          |                                      |          |        |        |      |          |          |          |   |          |         
|Gross profit                                                             |                                          |                                      | 580.3    |        |        |      | 442.0    |          |          |   | 504.9    |         
|Operating expenses:                                                      |                                          |                                      |          |        |        |      |          |          |          |   |          |         
|                                                                         | Selling, general and administrative      |                                      |          | 440.9  |        |      |          | 566.1    |          |   |          | 658.2    |         
|                                                                         | Restructuring and impairment costs       |                                      |          | 176.8  |        |      |          | 603.2    |          |   |          | 793.6    |         
|                                                                         | Goodwill impairment                      |                                      |          |       |        |      |          | 1,632.5  |          |   |          | 2,500.0  |         
|                                                                         |                                          |                                      |          |        |        |      |          |          |          |   |          |         
|                                                                         |                                          | Operating loss                       |          |        | (37.4  | )    |          |          | (2,359.8 | ) |          |          | (3,446.9 | )
|Interest income                                                          |                                          |                                      | 14.8     |        |        |      | 26.8     |          |          |   | 61.1     |         
|Interest expense                                                         |                                          |                                      | (144.2   | )      |        |      | (207.1   | )        |          |   | (238.8   | )       
|Other (expense) income  net                                             |                                          |                                      | (85.3    | )      |        |      | 52.4     |          |          |   | 104.8    |         
|                                                                         |                                          |                                      |          |        |        |      |          |          |          |   |          |         
|Operating loss from continuing operations before
    income taxes        |                                          |                                      | (252.1   | )      |        |      | (2,487.7 | )        |          |   | (3,519.8 | )       
|Income tax (benefit) expense                                             |                                          |                                      | (0.3     | )      |        |      | 532.1    |          |          |   | (449.0   | )       
|                                                                         |                                          |                                      |          |        |        |      |          |          |          |   |          |         
|                                                                         |                                          | Loss from continuing operations      |          | $      | (251.8 | )    |          | $        | (3,019.8 | ) |          | $        | (3,070.8 | )
|Discontinued operations:                                                 |                                          |                                      |          |        |        |      |          |          |          |   |          |         
|Income (loss) from discontinued operations                               |                                          |                                      | 90.9     |        |        |      | (330.0   | )        |          |   | (57.6    | )       
|Income tax expense (benefit)                                             |                                          |                                      | 8.0      |        |        |      | 112.2    |          |          |   | (18.2    | )       
|                                                                         |                                          |                                      |          |        |        |      |          |          |          |   |          |         
|                                                                         | Income (loss) on discontinued operations |                                      |          | 82.9   |        |      |          | (442.2   | )        |   |          | (39.4    | )       
|                                                                         |                                          |                                      |          |        |        |      |          |          |          |   |          |         
|                                                                         | Net loss                                 |                                      | $        | (168.9 | )      |      | $        | (3,462.0 | )        |   | $        | (3,110.2 | )       
|                                                                         |                                          |                                      |          |        |        |      |          |          |          |   |          |         
|Basic and diluted net income (loss) per share                            |                                          |                                      |          |        |        |      |          |          |          |   |          |         
|                                                                         | Continuing operations                    |                                      | $        | (0.29  | )      |      | $        | (3.65    | )        |   | $        | (3.93    | )       
|                                                                         | Discontinued operations                  |                                      |          | 0.10   |        |      |          | (0.53    | )        |   |          | (0.05    | )       
|                                                                         |                                          |                                      |          |        |        |      |          |          |          |   |          |         
|                                                                         | Basic and diluted net loss per share     |                                      | $        | (0.19  | )      |      | $        | (4.18    | )        |   | $        | (3.98    | )       
|                                                                         |                                          |                                      |          |        |        |      |          |          |          |   |          |         
|Shares used to compute basic and diluted net
    income (loss) per share |                                          |                                      | 873.9    |        |        |      | 827.7    |          |          |   | 780.9    |         

See accompanying notes to consolidated financial
statements.

36



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##### 



SOLECTRON CORPORATION AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

|                                                                |  |               |       |            |  |              |     |               |  |               |         |        |  |   |          |   |  |   |        |   |  |   |          |  
|--------------------------------------------------------------- |  | ------------- | ----- | ---------- |  | ------------ | --- | ------------- |  | ------------- | ------- | ------ |  | - | -------- | - |  | - | ------ | - |  | - | -------- | -
|                                                                |  |               |       |            |  | Retained     |     | Accumulated   |  |              
|                                                                |  | Common Stock  |       | Additional |  | Earnings     |     | Other         |  | Total        
|                                                                |  |               |       | Paid-In    |  | (Accumulated |     | Comprehensive |  | Stockholders
|                                                                |  | Shares        |       | Amount     |  | Capital      |     | Deficit)      |  | Losses        |         | Equity
|                                                                |  |               |       |            |  |              |     |               |  |               |         |       
|                                                                |  |              
|                                                                |  | (In millions)
|Balances as of August 31, 2001                                  |  |               | 658.2 |            |  | $            | 0.7 |               |  | $             | 3,877.6 |        |  | $ | 1,531.6  |   |  | $ | (259.2 | ) |  | $ | 5,150.7  |  
|                                                                |  |               |       |            |  |              |     |               |  |               |         |        |  |   |          |   |  |   |        |   |  |   |          |  
|Net loss                                                        |  |               |      |            |  | $            |    |               |  | $             |        |        |  | $ | (3,110.2 | ) |  | $ |       |   |  | $ | (3,110.2 | )
|Foreign currency translation                                    |  |               |      |            |  |              |    |               |  |               |        |        |  |   |         |   |  |   | (36.3  | ) |  |   | (36.3    | )
|Unrealized gain on investments                                  |  |               |      |            |  |              |    |               |  |               |        |        |  |   |         |   |  |   | 10.1   |   |  |   | 10.1     |  
|Stock issued under stock option and employee
    purchase plans |  |               | 6.7   |            |  |              |    |               |  |               | 38.8    |        |  |   |         |   |  |   |       |   |  |   | 38.8     |  
|Stock and stock options issued in business
    combinations     |  |               | 160.4 |            |  |              | 0.1 |               |  |               | 2,676.1 |        |  |   |         |   |  |   |       |   |  |   | 2,676.2  |  
|Repurchase of common stock                                      |  |               | (0.5  | )          |  |              |    |               |  |               | (4.5    | )      |  |   |         |   |  |   |       |   |  |   | (4.5     | )
|ACES stock purchase contracts                                   |  |               |      |            |  |              |    |               |  |               | 46.9    |        |  |   |         |   |  |   |       |   |  |   | 46.9     |  
|Deferred stock-based compensation from business
    combination |  |               |      |            |  |              |    |               |  |               | (7.2    | )      |  |   |         |   |  |   |       |   |  |   | (7.2     | )
|Other                                                           |  |               |      |            |  |              |    |               |  |               | 8.2     |        |  |   |         |   |  |   |       |   |  |   | 8.2      |  
|                                                                |  |               |       |            |  |              |     |               |  |               |         |        |  |   |          |   |  |   |        |   |  |   |          |  
|Balances as of August 31, 2002                                  |  |               | 824.8 |            |  | $            | 0.8 |               |  | $             | 6,635.9 |        |  | $ | (1,578.6 | ) |  | $ | (285.4 | ) |  | $ | 4,772.7  |  
|                                                                |  |               |       |            |  |              |     |               |  |               |         |        |  |   |          |   |  |   |        |   |  |   |          |  
|Net loss                                                        |  |               |      |            |  | $            |    |               |  | $             |        |        |  | $ | (3,462.0 | ) |  | $ |       |   |  | $ | (3,462.0 | )
|Foreign currency translation                                    |  |               |      |            |  |              |    |               |  |               |        |        |  |   |         |   |  |   | 109.0  |   |  |   | 109.0    |  
|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 |        |  | $ | (5,040.6 | ) |  | $ | (196.4 | ) |  | $ | 1,422.0  |  
|                                                                |  |               |       |            |  |              |     |               |  |               |         |        |  |   |          |   |  |   |        |   |  |   |          |  
|Net loss                                                        |  |               |      |            |  | $            |    |               |  | $             |        |        |  | $ | (168.9   | ) |  | $ |       |   |  | $ | (168.9   | )
|Foreign currency translation                                    |  |               |      |            |  |              |    |               |  |               |        |        |  |   |         |   |  |   | (1.9   | ) |  |   | (1.9     | )
|Unrealized loss 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 |        |  | $ | (5,209.5 | ) |  | $ | (188.6 | ) |  | $ | 2,378.8  |  
|                                                                |  |               |       |            |  |              |     |               |  |               |         |        |  |   |          |   |  |   |        |   |  |   |          |  

See accompanying notes to consolidated financial
statements.

37



---



##### 



SOLECTRON CORPORATION AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE
LOSS

|                                                                                                                                                 |  |                       |        |      |  |      |          |   |  |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------- | ------ | ---- |  | ---- | -------- | - |  | - | -------- | -
|                                                                                                                                                 |  |                      
|                                                                                                                                                 |  | Years Ended August 31
|                                                                                                                                                 |  |                      
|                                                                                                                                                 |  | 2004                  |        | 2003 |  | 2002
|                                                                                                                                                 |  |                       |        |      |  |     
|                                                                                                                                                 |  |                      
|                                                                                                                                                 |  | (In millions)        
|Net loss                                                                                                                                         |  | $                     | (168.9 | )    |  | $    | (3,462.0 | ) |  | $ | (3,110.2 | )
|Other comprehensive income (loss):                                                                                                               |  |                       |        |      |  |      |          |   |  |   |          |  
|Foreign currency translation adjustments net of
    income tax expense of $0.0 in 2004, $1.7 in 2003, and income tax
    benefit of $6.3 in 2002 |  |                       | (1.9   | )    |  |      | 109.0    |   |  |   | (36.3    | )
|Unrealized (loss) gain on investments net of
    income tax benefit of $0.0 in 2004, $0.3 in 2003, and income tax
    expense of $0.1 in 2002    |  |                       | 9.7    |      |  |      | (20.0    | ) |  |   | 10.1     |  
|                                                                                                                                                 |  |                       |        |      |  |      |          |   |  |   |          |  
|Comprehensive loss                                                                                                                               |  | $                     | (161.1 | )    |  | $    | (3,373.0 | ) |  | $ | (3,136.4 | )
|                                                                                                                                                 |  |                       |        |      |  |      |          |   |  |   |          |  

Accumulated foreign currency translation losses
were $188.6 million at August 31, 2004,
$186.7 million at August 31, 2003 and
$295.7 million at August 31, 2002. Foreign currency
translation adjustments consist of adjustments to consolidate
subsidiaries that use the local currency as their functional
currency and transaction gains and losses related to
intercompany dollar-denominated debt that is not expected to be
repaid in the foreseeable future. Accumulated unrealized loss on
investments was $0 at August 31, 2004, and
$9.7 million at August 31, 2003, and a gain of
$10.3 million at August 31, 2002.

See accompanying notes to consolidated financial
statements.

38



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##### 



SOLECTRON CORPORATION AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                   |                                                                                               |                                                                                    |                                                |        |       |        |   |          |         |        |   |          |         |         |  
|------------------------------------------------------------------ | --------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------- | ---------------------------------------------- | ------ | ----- | ------ | - | -------- | ------- | ------ | - | -------- | ------- | ------- | -
|                                                                   |                                                                                               |                                                                                   
|                                                                   |                                                                                               | Years Ended August 31                                                             
|                                                                   |                                                                                               |                                                                                   
|                                                                   |                                                                                               | 2004                                                                               |                                                | 2003   |       | 2002  
|                                                                   |                                                                                               |                                                                                    |                                                |        |       |       
|                                                                   |                                                                                               |                                                                                   
|                                                                   |                                                                                               | (In millions)                                                                     
|Cash flows from operating activities of
    continuing operations: |                                                                                               |                                                                                    |                                                |        |       |        |   |          |         |        |   |         
|                                                                   | Net loss from continuing operations                                                           |                                                                                    | $                                              | (251.8 | )     |        | $ | (3,019.8 | )       |        | $ | (3,070.8 | )      
|                                                                   | Adjustments to reconcile net loss to net cash
    (used in) provided by operating activities: |                                                                                    |                                                |        |       |        |   |          |         |        |   |          |        
|                                                                   |                                                                                               | Depreciation and amortization                                                      |                                                |        | 226.9 |        |   |          | 245.7   |        |   |          | 327.3   |        
|                                                                   |                                                                                               | Amortization of debt issuance costs and accretion
    of discount on notes payable |                                                |        | 49.4  |        |   |          | 84.6    |        |   |          | 137.5   |        
|                                                                   |                                                                                               | Tax benefit associated with exercise of stock
    options                          |                                                |        |      |        |   |          |        |        |   |          | 3.6     |        
|                                                                   |                                                                                               | Loss (gain) on retirement of debt                                                  |                                                |        | 77.7  |        |   |          | (39.4   | )      |   |          | (75.7   | )      
|                                                                   |                                                                                               | Gain on termination of interest rate swap                                          |                                                |        | (5.6  | )      |   |          |        |        |   |          |        |        
|                                                                   |                                                                                               | Deferred tax charge                                                                |                                                |        | (10.2 | )      |   |          | 541.0   |        |   |          |        |        
|                                                                   |                                                                                               | Impairment of goodwill and intangible assets                                       |                                                |        | 47.5  |        |   |          | 1,804.2 |        |   |          | 2,731.7 |        
|                                                                   |                                                                                               | (Gain) loss on disposal and impairment of
    property and equipment, net          |                                                |        | 60.2  |        |   |          | 157.5   |        |   |          | 321.1   |        
|                                                                   |                                                                                               | Other                                                                              |                                                |        |      |        |   |          | (5.2    | )      |   |          | 23.3    |        
|                                                                   |                                                                                               | Changes in operating assets and liabilities:                                       |                                                |        |       |        |   |          |         |        |   |          |         |        
|                                                                   |                                                                                               |                                                                                    | Accounts receivable, net of allowance          |        |       | (144.3 | ) |          |         | 123.4  |   |          |         | 1,037.3 |  
|                                                                   |                                                                                               |                                                                                    | Inventories                                    |        |       | (134.1 | ) |          |         | 418.6  |   |          |         | 1,635.6 |  
|                                                                   |                                                                                               |                                                                                    | Prepaid expenses and other current assets      |        |       | 2.8    |   |          |         | 112.7  |   |          |         | (510.0  | )
|                                                                   |                                                                                               |                                                                                    | Accounts payable                               |        |       | 139.7  |   |          |         | (144.4 | ) |          |         | (472.5  | )
|                                                                   |                                                                                               |                                                                                    | Accrued expenses and other current liabilities |        |       | (67.1  | ) |          |         | 2.3    |   |          |         | (35.0   | )
|                                                                   |                                                                                               |                                                                                    |                                                |        |       |        |   |          |         |        |   |         
|                                                                   |                                                                                               | Net cash (used in) provided by operating
    activities of continuing operations   |                                                |        | (8.9  | )      |   |          | 281.2   |        |   |          | 2,053.4 |        
|                                                                   |                                                                                               |                                                                                    |                                                |        |       |        |   |          |         |        |   |         
|Cash flows from investing activities of
    continuing operations: |                                                                                               |                                                                                    |                                                |        |       |        |   |          |         |        |   |         
|                                                                   | Change in restricted cash, cash equivalents and
    short-term investments                    |                                                                                    |                                                | 44.5   |       |        |   | 169.8    |         |        |   | (231.9   | )      
|                                                                   | Sales and maturities of short-term investments                                                |                                                                                    |                                                | 27.5   |       |        |   | 252.5    |         |        |   | 665.4    |        
|                                                                   | Purchases of short-term investments                                                           |                                                                                    |                                                |       |       |        |   | (56.1    | )       |        |   | (589.9   | )      
|                                                                   | Acquisition of businesses, net of cash acquired                                               |                                                                                    |                                                |       |       |        |   | (3.8     | )       |        |   | (316.3   | )      
|                                                                   | Acquisition of manufacturing assets and locations                                             |                                                                                    |                                                |       |       |        |   | (45.5    | )       |        |   | (102.2   | )      
|                                                                   | Net proceeds from disposition of businesses                                                   |                                                                                    |                                                | 508.0  |       |        |   |         |         |        |   |         |        
|                                                                   | Capital expenditures                                                                          |                                                                                    |                                                | (149.6 | )     |        |   | (124.6   | )       |        |   | (203.2   | )      
|                                                                   | Purchase of facilities previously under synthetic
    leases                                  |                                                                                    |                                                |       |       |        |   |         |         |        |   | (179.3   | )      
|                                                                   | Proceeds from sale of property and equipment                                                  |                                                                                    |                                                | 58.5   |       |        |   | 60.1     |         |        |   | 129.8    |        
|                                                                   | Proceeds from sale of investments                                                             |                                                                                    |                                                | 10.4   |       |        |   |         |         |        |   |         |        
|                                                                   | Advances from (to) discontinued operations                                                    |                                                                                    |                                                | (2.4   | )     |        |   | 84.1     |         |        |   | (98.1    | )      
|                                                                   | Supply agreement and other                                                                    |                                                                                    |                                                | 0.2    |       |        |   | 48.3     |         |        |   | (46.4    | )      
|                                                                   |                                                                                               |                                                                                    |                                                |        |       |        |   |          |         |        |   |         
|                                                                   |                                                                                               | Net cash provided by (used in) investing
    activities of continuing operations   |                                                |        | 497.1 |        |   |          | 384.8   |        |   |          | (972.1  | )      
|                                                                   |                                                                                               |                                                                                    |                                                |        |       |        |   |          |         |        |   |         

39



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##### 



|                                                                               |                                                                             |                                                                    |         |         |        |      |         |        |          |   |         |          |          |  
|------------------------------------------------------------------------------ | --------------------------------------------------------------------------- | ------------------------------------------------------------------ | ------- | ------- | ------ | ---- | ------- | ------ | -------- | - | ------- | -------- | -------- | -
|                                                                               |                                                                             |                                                                   
|                                                                               |                                                                             | Years Ended August 31                                             
|                                                                               |                                                                             |                                                                   
|                                                                               |                                                                             | 2004                                                               |         | 2003    |        | 2002
|                                                                               |                                                                             |                                                                    |         |         |        |     
|                                                                               |                                                                             |                                                                   
|                                                                               |                                                                             | (In millions)                                                     
|Cash flows from financing activities of
    continuing operations:             |                                                                             |                                                                    |         |         |        |      |         |        |          |   |         |         
|                                                                               | Proceeds used for ACES early settlement                                     |                                                                    | $       | (63.3   | )      |      | $       |       |          |   | $       |         |         
|                                                                               | Net repayment of bank lines of credit                                       |                                                                    |         | (50.5   | )      |      |         | (85.0  | )        |   |         | (193.3   | )       
|                                                                               | Proceeds from issuance of ACES and Senior Notes                             |                                                                    |         | 436.5   |        |      |         |       |          |   |         | 1,553.8  |         
|                                                                               | Net proceeds from termination of interest rate
    swap                     |                                                                    |         | 6.0     |        |      |         |       |          |   |         |         |         
|                                                                               | Repurchase of LYONS                                                         |                                                                    |         | (950.2  | )      |      |         | (967.5 | )        |   |         | (2,835.9 | )       
|                                                                               | Net payments on long-term debt                                              |                                                                    |         |        |        |      |         |       |          |   |         | (318.2   | )       
|                                                                               | Common stock repurchase                                                     |                                                                    |         |        |        |      |         |       |          |   |         | (4.5     | )       
|                                                                               | Net proceeds from issuance of common stock                                  |                                                                    |         | 111.1   |        |      |         | 7.8    |          |   |         | 38.8     |         
|                                                                               | Other                                                                       |                                                                    |         |        |        |      |         | 28.4   |          |   |         | (17.3    | )       
|                                                                               |                                                                             |                                                                    |         |         |        |      |         |        |          |   |         |         
|                                                                               |                                                                             | Net cash used in financing activities of
    continuing operations |         |         | (510.4 | )    |         |        | (1,016.3 | ) |         |          | (1,776.6 | )
|                                                                               |                                                                             |                                                                    |         |         |        |      |         |        |          |   |         |         
|Effect of exchange rate changes on cash and cash
    equivalents               |                                                                             |                                                                    | 9.3     |         |        |      | 32.9    |        |          |   | (25.4   | )       
|                                                                               |                                                                             |                                                                    |         |         |        |      |         |        |          |   |         |         
|Net decrease in cash and cash equivalents                                      |                                                                             |                                                                    | (13.0   | )       |        |      | (317.4  | )      |          |   | (720.7  | )       
|Cash and cash equivalents at beginning of
    period  continuing operations   |                                                                             |                                                                    | 1,425.5 |         |        |      | 1,742.9 |        |          |   | 2,463.6 |         
|                                                                               |                                                                             |                                                                    |         |         |        |      |         |        |          |   |         |         
|Cash and cash equivalents at end of
    period  continuing operations         |                                                                             | $                                                                  | 1,412.5 |         |        | $    | 1,425.5 |        |          | $ | 1,742.9 |         
|                                                                               |                                                                             |                                                                    |         |         |        |      |         |        |          |   |         |         
|SUPPLEMENTAL DISCLOSURES                                                       |                                                                             |                                                                    |         |         |        |      |         |        |          |   |         |         
|Cash paid (received) during the period:                                        |                                                                             |                                                                    |         |         |        |      |         |        |          |   |         |         
|                                                                               | Income taxes                                                                |                                                                    | $       | 6.6     |        |      | $       | (199.6 | )        |   | $       | (70.5    | )       
|                                                                               | Interest                                                                    |                                                                    | $       | 100.8   |        |      | $       | 133.4  |          |   | $       | 70.9     |         
|Non-cash investing and financing activities:                                   |                                                                             |                                                                    |         |         |        |      |         |        |          |   |         |         
|                                                                               | Issuance of common stock for business
    combination, net of cash acquired |                                                                    | $       |        |        |      | $       |       |          |   | $       | 2,528.8  |         
|                                                                               | Early settlement of ACES for stock                                          |                                                                    | $       | 1,006.6 |        |      | $       |       |          |   | $       |         |         
|Cash and cash equivalents at beginning of
    period  discontinued operations |                                                                             | $                                                                  | 32.8    |         |        | $    | 39.0    |        |          | $ | 18.7    |         
|Cash acquired by acquiring discontinued operations                             |                                                                             | $                                                                  |        |         |        | $    |        |        |          | $ | 20.0    |         
|Cash (used in) provided by discontinued operations                             |                                                                             | $                                                                  | (32.8   | )       |        | $    | (6.2    | )      |          | $ | 0.3     |         
|                                                                               |                                                                             |                                                                    |         |         |        |      |         |        |          |   |         |         
|Cash and cash equivalents at end of
    periods  discontinued operations      |                                                                             | $                                                                  |        |         |        | $    | 32.8    |        |          | $ | 39.0    |         
|                                                                               |                                                                             |                                                                    |         |         |        |      |         |        |          |   |         |         

See accompanying notes to consolidated financial
statements.

40



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##### 





|        |                                               
|------- | ----------------------------------------------
|Note 1. | Summary of Significant Accounting
    Policies

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

Year End:Solectrons financial reporting year ends on the last
Friday in August. All fiscal years presented contained
52 weeks. For purposes of presentation in the accompanying
consolidated financial statements and notes, Solectron has
indicated its accounting years end on August 31.

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

Cash Equivalents and Short-Term
Investments:Cash equivalents are
highly liquid investments purchased with an original maturity at
the date of purchase of less than three months. Short-term
investments are investment grade short-term debt instruments
with original maturities greater than three months. These debt
securities are classified as available-for-sale securities. Such
investments are recorded at fair value as determined from quoted
market prices, and the cost of securities sold is determined
based on the specific identification method. Unrealized gains or
losses are reported as a component of comprehensive income or
loss, net of related tax effect.

Restricted Cash, Cash Equivalents and
Short-Term Investments:These assets
are carried at fair values and are restricted as collateral for
specified obligations under certain lease agreements.

Allowance for Doubtful
Accounts:Solectron evaluates the
collectibility of accounts receivable based on a combination of
factors. In cases where Solectron is aware of circumstances that
may impair a specific customers ability to meet its
financial obligations, Solectron records a specific allowance
against amounts due, and thereby reduces the net recognized
receivable to the amount management reasonably believes will be
collected. For all other customers, Solectron recognizes
allowances for doubtful accounts based on the length of time the
receivables are outstanding, industry and geographic
concentrations, the current business environment and historical
experience.

Inventories:Inventories are stated at the lower of weighted average cost or
market. Solectrons industry is characterized by rapid
technological change, short-term customer commitments and rapid
changes in demand, as well as any other lower of cost or market
considerations. Solectron makes provisions for estimated excess
and obsolete inventory based on regular reviews of inventory
quantities on hand and the latest forecasts of product demand
and production requirements from customers. Provisions for
excess and obsolete inventory are also impacted by
Solectrons contractual arrangements with their customers
including their ability or inability to re-sell such inventory
to them.

Solectron executes supply agreements with its
most significant customers. Under these supply agreements, the
customers responsibility for excess or obsolete inventory
related to raw materials that were purchased or ordered to meet
customers demand forecasts is defined. Each supply
agreement specifies the agreed upon definition of excess and
obsolete inventory and the procedures for disposition including
the extent of Solectrons right to sell the inventory back
to the customer. The supply agreements generally allow a period
of time during which Solectron and their customers work together
to reduce or eliminate the amount of potentially excess and
obsolete inventory. After the expiration of the specified time
periods, Solectron may exercise a contractual right to sell all,
or portions of, the remaining excess and obsolete inventory back
to the customer. Unanticipated disagreements may arise
concerning our customers contractual obligations pursuant
to these supply agreements which may require additional
provisions for inventory upon settlement. These settlements are
recorded as a direct charge to cost of goods sold.

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

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

41



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##### 



Property and equipment are evaluated for
impairment whenever events or changes in circumstances indicate
the carrying value of an asset may not be recoverable. An
impairment loss is recognized when estimated undiscounted cash
flows expected to result from the use of the asset plus net
proceeds expected from disposition of the asset (if any) are
less than the carrying value of the asset when an impairment
loss is recognized, the carrying amount of the asset is reduced
to its estimated fair value.

Goodwill and Intangible
Assets:Statement of Financial
Accounting Standards (SFAS) No. 142 requires
goodwill to be tested for impairment on an annual basis and
between annual tests in certain circumstances, and written down
when impaired, rather than being amortized as previous
accounting standards required. Furthermore,
SFAS No. 142 requires purchased intangible assets
other than goodwill to be amortized over their useful lives
unless these lives are determined to be indefinite. Solectron
elected to early adopt this accounting standard effective
September 1, 2001.

In accordance with Statement of Financial
Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets, Solectron
reviews the carrying amount of goodwill for impairment on an
annual basis during the fourth quarter (as of June 1).
Additionally, Solectron performs an impairment assessment of
goodwill whenever events or changes in circumstances indicate
that the carrying value of goodwill may not be recoverable.
Significant changes in circumstances can be both internal to
Solectrons strategic and financial direction, as well as
changes to the competitive and economic landscape. With the
change in operating segments as of Sept 1, 2003, Solectron
determined that there was a single reporting unit for the
purpose of goodwill impairment tests under
SFAS No. 142. For purposes of assessing the impairment
of Solectrons goodwill, Solectron estimates the value of
the reporting unit using its market capitalization as the best
evidence of fair value. This fair value is then compared to the
carrying value of the reporting unit. If the fair value of a
reporting unit is less than its carrying value, Solectron then
allocates the fair value of the unit to all the assets and
liabilities of that unit (including any unrecognized intangible
assets) as if the reporting units fair value was the
purchase price to acquire the reporting unit. The excess of the
fair value of the reporting unit over the amounts assigned to
its assets and liabilities is the implied fair value of the
goodwill. If the carrying amount of the reporting units
goodwill exceeds the implied fair value of that goodwill, an
impairment loss is recognized in an amount equal to that excess.
The process of evaluating the potential impairment of goodwill
is subjective and requires judgment at many points during the
test including future revenue forecasts, discount rates and
various reporting unit allocations.

Intangible assets consist primarily of supply
agreements and intellectual property obtained in asset purchase
transactions. These assets are included within other assets
within the consolidated balance sheets and are carried at cost
less accumulated amortization. Amortization is computed over the
estimated useful lives of the respective assets. Intangible
assets are evaluated for impairment whenever events or changes
in circumstances indicate the carrying value of an asset may not
be recoverable. An impairment loss is recognized when estimated
undiscounted cash flows expected to result from the use of the
asset plus net proceeds expected from disposition of the asset
(if any) are less than the carrying value of the asset when an
impairment loss is recognized, the carrying amount of the asset
is reduced to its estimated fair value.

Income Taxes:Solectron uses the asset and liability method of accounting for
income taxes. Deferred tax assets and liabilities are recognized
for the future consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. When necessary, a
valuation allowance is recorded to reduce tax assets to an
amount for which realization is more likely than not. The effect
of changes in tax rates is recognized in the period in which the
rate change occurs. Solectron provides accruals for contingent
tax liabilities in accordance with SFAS No. 5
Accounting for Contingencies.

Net Loss Per Share:Basic net loss per share and diluted net loss per share are
calculated using the weighted-average number of common shares
outstanding during the period. Potential shares of common stock
and their effects on income were excluded from the diluted loss
per share calculations because the effect would be antidilutive.

Revenue Recognition:Solectrons net sales from continuing operations are
primarily derived from product manufacturing including, but not
limited to, PCBA, sub-system and system assembly. Solectron also
offers services consisting of repair and warranty services.
Revenue from manufacturing services and product sales is
recognized when goods are shipped, title and risk of ownership
have passed, the price to the buyer is fixed or determinable and
recoverability is reasonably assured. Revenue from other
services which is less than 10% is recognized as the services
are performed.

42



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##### 



Employee Stock
Plans:As it is permitted by
SFAS No. 123, Accounting for Stock-Based
Compensation, amended by SFAS No. 148,
Accounting for Stock-Based Compensation 
Transition and Disclosure, Solectron accounts for its
employee stock plans, which generally consist of fixed stock
option plans and an employee stock purchase plan, using the
intrinsic value method under Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations. In
general, as the exercise price of all options granted under
these plans is equal to the market price of the underlying
common stock on the grant date, no stock-based employee
compensation expense is recognized. In certain situations, under
these plans, options to purchase shares of common stock may be
granted at less than fair market value, which results in
compensation expense equal to the difference between the market
value on the date of grant and the purchase price. This expense
is recognized over the vesting period of the options and
included in operations. However, such expense amount has not
been significant. The table below sets out the pro forma amounts
of net loss and net loss per share that would have resulted for
all fiscal years presented, if Solectron accounted for its
employee stock plans under the fair value recognition provisions
of SFAS No. 123.

|                                                                                                             |  |                                      |        |      |  |      |          |   |  |   |          |  
|------------------------------------------------------------------------------------------------------------ |  | ------------------------------------ | ------ | ---- |  | ---- | -------- | - |  | - | -------- | -
|                                                                                                             |  | 2004                                 |        | 2003 |  | 2002
|                                                                                                             |  |                                      |        |      |  |     
|                                                                                                             |  |                                     
|                                                                                                             |  | (In millions, except per-share data)
|Net loss as reported                                                                                         |  | $                                    | (168.9 | )    |  | $    | (3,462.0 | ) |  | $ | (3,110.2 | )
|Stock-based employee compensation expense
    determined under fair value method, net of related tax effects |  |                                      | (60.5  | )    |  |      | (107.0   | ) |  |   | (94.7    | )
|                                                                                                             |  |                                      |        |      |  |      |          |   |  |   |          |  
|Pro forma net loss                                                                                           |  | $                                    | (229.4 | )    |  | $    | (3,569.0 | ) |  | $ | (3,204.9 | )
|                                                                                                             |  |                                      |        |      |  |      |          |   |  |   |          |  
|Net loss per share                                                                                           |  |                                      |        |      |  |      |          |   |  |   |          |  
|Basic and diluted  as reported                                                                              |  | $                                    | (0.19  | )    |  | $    | (4.18    | ) |  | $ | (3.98    | )
|Basic and diluted  pro forma                                                                                |  | $                                    | (0.26  | )    |  | $    | (4.31    | ) |  | $ | (4.10    | )

Stock based employee compensation expense
determined under the fair value method, net of related tax
effects, included $6.5 million, $13.8 million and
$19.0 million of expense relating to discontinued
operations during the fiscal years 2004, 2003 and 2002,
respectively.

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

|                         |  |      |                |      |  |      |                |  |  |  |                | 
|------------------------ |  | ---- | -------------- | ---- |  | ---- | -------------- |  |  |  | -------------- | 
|Stock Options            |  | 2004 |                | 2003 |  | 2002
|                         |  |      |                |      |  |     
|Expected life of options |  |      | 3.9 years      |      |  |      | 3.9 years      |  |  |  | 3.8 years      | 
|Volatility               |  |      | 75%            |      |  |      | 79%            |  |  |  | 70%            | 
|Risk-free interest rate  |  |      | 2.30% to 3.06% |      |  |      | 1.93% to 2.30% |  |  |  | 3.01% to 3.98% | 
|Dividend yield           |  |      | zero           |      |  |      | zero           |  |  |  | zero           | 

|                                |  |                |  |                |  |               
|------------------------------- |  | -------------- |  | -------------- |  | --------------
|Employee Stock Purchase Plan    |  | 2004           |  | 2003           |  | 2002          
|                                |  |                |  |                |  |               
|Expected life of purchase right |  | 6 months       |  | 6 months       |  | 6 months      
|Volatility                      |  | 77%            |  | 79%            |  | 70%           
|Risk-free interest rate         |  | 1.00% to 1.70% |  | 0.99% to 1.51% |  | 1.74% to 2.27%
|Dividend yield                  |  | zero           |  | zero           |  | zero          

Foreign Currency:For foreign subsidiaries using the local currency as their
functional currency, assets and liabilities are translated at
exchange rates in effect at the balance sheet date and income
and expenses are translated at average exchange rates. In
addition, Solectron records adjustments to remeasure dollar
denominated loans to subsidiaries that are permanent in nature.
The effects of these adjustments are reported in other
comprehensive loss. Exchange gains and losses arising from
transactions denominated in a currency other than the functional
currency of the entity involved and remeasurement adjustments
for foreign operations where the U.S. dollar is the
functional currency are included in operating results. To date,
the effects of such transaction gains and losses and
remeasurement adjustments on Solectrons operations have
not been material.

Derivative
Instruments:All derivative
instruments are recorded on the balance sheet at fair value. If
the derivative is designated as a cash flow hedge, the effective
portion of changes in the fair value of the derivative is
recorded in other comprehensive loss and is recognized in the
statement of operations when the hedged item affects

43



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##### 



earnings. Ineffective portions of changes in the
fair value of cash flow hedges are immediately recognized in
earnings. If the derivative is designated as a fair value hedge,
the changes in the fair value of the derivative and of the
hedged item attributable to the hedged risk are recognized in
earnings in the current period. For derivative instruments not
designated as hedging instruments under SFAS No. 133,
changes in fair values are recognized in operating results in
the current period.




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

In January 2003, the Financial Accounting
Standards Board (FASB) issued Interpretation
(FIN) No. 46, Consolidation of Variable
Interest Entities (VIE), (revised December 2003 by FIN
No. 46R), which addresses how a business enterprise should
evaluate whether it has a controlling financial interest in an
entity through means other than voting rights and accordingly
should consolidate the entity. FIN No. 46R, which was
issued in December 2003, replaces FIN No. 46. Solectron is
required to apply FIN No. 46R to variable interests in VIEs
created after December 31, 2003. For variable interests in
VIEs created before January 1, 2004, the Interpretation
will be applied beginning on January 1, 2005. For any VIEs
that must be consolidated under FIN No. 46R that were
created before January 1, 2004, the assets, liabilities and
non-controlling interests of the VIE initially would be measured
at their carrying amounts with any difference between the net
amount added to the balance sheet and any previously recognized
interest being recognized as the cumulative effect of an
accounting change. If determining the carrying amounts is not
practicable, fair value at the date FIN No. 46R first
applies may be used to measure the assets, liabilities and
non-controlling interest of the VIE. Management believes the
adoption of FIN No. 46R will not have a material impact on
Solectrons consolidated financial position, results of
operations or cash flows as Solectron does not have any interest
in VIEs.

In December 2003, the SEC issued Staff Accounting
Bulletin No. 104 (SAB 104), Revenue
Recognition. SAB 104 supercedes SAB 101,
Revenue Recognition in Financial Statements. The
primary purpose of SAB 104 is to rescind accounting
guidance contained in SAB 101 related to multiple element
revenue arrangements, superceded as a result of the issuance of
Emerging Issues Task Force (EITF) Issue No. 00-21,
Revenue Arrangements with Multiple Deliverables.
Additionally, SAB 104 rescinds the SECs Revenue
Recognition in Financial Statements Frequently Asked Questions
and Answers (the FAQ) issued with SAB 101 that
had been codified in Topic 13, Revenue Recognition.
Selected portions of the FAQ have been incorporated into
SAB 104. While the wording of SAB 104 has changed to
reflect the issuance of EITF 00-21, the revenue recognition
principles of SAB 101 remain largely unchanged by the
issuance of SAB 104. The adoption of SAB 104 did not
have a material impact on Solectrons consolidated
financial position, results of operations or cash flows.

In March 2004, the Emerging Issues Task Force
(EITF) reached a consensus on Issue No. 03-1,
The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments. EITF 03-1
provides guidance on other-than-temporary impairment models for
marketable debt and equity securities accounted for under
SFAS No. 115, Accounting for Certain Investments
in Debt and Equity Securities, and SFAS No. 124,
Accounting for Certain Investments Held by Not-for-Profit
Organizations, and non-marketable equity securities
accounted for under the cost method. The EITF developed a basic
three-step model to evaluate whether an investment is
other-than-temporarily impaired. On September 30, 2004, the
FASB approved the issuance of FASB Staff Position
(FSP) EITF 03-1-1, which delays the effective date
until additional guidance is issued for the application of the
recognition and measurement provisions of EITF 03-1 to
investments in securities that are impaired. Solectron does not
expect the adoption of EITF 03-1 to have a material effect
on its consolidated financial position, results of operations or
cash flows.

In September 2004, the EITF reached a consensus
on Issue No. 04-8, The Effect of Contingently
Convertible Debt on Diluted Earnings per Share.
EITF 04-8 requires that all issued securities that have
embedded conversion features that are contingently exercisable
upon the occurrence of a market-price condition should be in the
calculation of diluted earnings per share, regardless of whether
the market price trigger has been met. EITF 04-8 will
become effective in the period when the proposed amendment to
SFAS No. 128, Earnings per Share, becomes
effective. The adoption of EITF 04-8 will not materially
impact Solectrons diluted earnings per share.

Reclassifications: Beginning in fiscal 2003,
Solectron classified certain expense items differently than in
prior periods. Solectron has revised prior period consolidated
financial information to conform the expense classifications to

44



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##### 



the current presentation. None of these
reclassifications had any impact on net loss or net loss per
share for the periods presented. These reclassifications are:




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. In fiscal 2003, Solectron began reporting
    other income and expense items as a separate line item rather
    than including such items in selling, general and administrative
    expenses. Accordingly, Solectron reclassified other income of
    $29.1 million from selling, general and administrative
    expenses to other income-net and $75.7 million of gains on
    retirement of debt from a separate non-operating line item to
    other (expense) income-net in fiscal 2002.
|
| | 2. In fiscal 2003, Solectron classified
    certain items in cost of sales that in previous periods were
    included in selling, general and administrative expenses.
    Accordingly, Solectron reclassified $23.2 million from
    selling, general and administrative expenses to cost of sales in
    fiscal 2002.                                                                                                                                                                         

In addition, Solectron classified research and
development costs differently than in prior periods. Solectron
now classifies research and development costs as selling,
general and administrative expense. Previously, research and
development costs was a separate line item on the consolidated
statements of operations. Solectron has revised prior year
consolidated financial information to conform the expense
classifications to the current presentation. Selling, general
and administrative expense now includes $24.1 million,
$25.4 million and $18.5 million of research and
development expenses for fiscal 2004, 2003 and 2002,
respectively.



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

Cash, cash equivalents and short-term investments
(related to continuing operations and including restricted
amounts) as of August 31, 2004 and 2003, consisted of the
following (in millions):

|                   |       |               |       |             |  |   |   |   | 
|------------------ | ----- | ------------- | ----- | ----------- |  | - | - | - | 
|                   |       | Cash and Cash |       | Short-Term 
|August 31, 2004    |       | Equivalents   |       | Investments
|                   |       |               |       |            
|Cash               |       | $             | 521.5 |             |  | $ |  |  
|Money market funds |       |               | 908.5 |             |  |   |  |  
|                   |       |               |       |             |  |   |   |  
|                   | Total |               | $     | 1,430.0     |  |   | $ |  | 
|                   |       |               |       |             |  |   |   |  

|                          |       |   |       |         |  |   |      |      | 
|------------------------- | ----- | - | ----- | ------- |  | - | ---- | ---- | 
|August 31, 2003           |       |   |       |        
|                          |       |   |       |        
|Cash                      |       | $ | 713.2 |         |  | $ | 19.9 |     
|Money market funds        |       |   | 543.5 |         |  |   |     |     
|Market auction securities |       |   |      |         |  |   | 21.9 |     
|Corporate obligations     |       |   | 210.9 |         |  |   | 5.6  |     
|                          |       |   |       |         |  |   |      |     
|                          | Total |   | $     | 1,467.6 |  |   | $    | 47.4 | 
|                          |       |   |       |         |  |   |      |     

Restricted cash, cash equivalents and short-term
investments are restricted as collateral for specified
obligations under certain lease agreements. Short-term
investments are carried at fair market value, which approximates
cost. Realized and unrealized gains and losses for the fiscal
years ended August 31, 2004 and 2003 were not significant.



|        |            
|------- | -----------
|Note 3. | Inventories

Inventories related to continuing operations as
of August 31, 2004 and 2003, consisted of the following (in
millions):

|                |  |           |         |           |  |   |         | 
|--------------- |  | --------- | ------- | --------- |  | - | ------- | 
|                |  | August 31 |         | August 31
|                |  | 2004      |         | 2003     
|                |  |           |         |          
|Raw materials   |  | $         | 994.4   |           |  | $ | 906.4   | 
|Work-in-process |  |           | 224.0   |           |  |   | 220.4   | 
|Finished goods  |  |           | 238.8   |           |  |   | 200.5   | 
|                |  |           |         |           |  |   |         | 
|Total           |  | $         | 1,457.2 |           |  | $ | 1,327.3 | 
|                |  |           |         |           |  |   |         | 

45



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##### 





|        |                       
|------- | ----------------------
|Note 4. | Property and Equipment

Property and equipment related to continuing
operations as of August 31, 2004 and 2003, consisted of the
following (in millions):

|                                               |  |           |         |           |  |   |         | 
|---------------------------------------------- |  | --------- | ------- | --------- |  | - | ------- | 
|                                               |  | August 31 |         | August 31
|                                               |  | 2004      |         | 2003     
|                                               |  |           |         |          
|Land                                           |  | $         | 85.2    |           |  | $ | 82.1    | 
|Building and improvements                      |  |           | 410.5   |           |  |   | 389.2   | 
|Leasehold improvements                         |  |           | 97.8    |           |  |   | 100.0   | 
|Furniture, fixtures, equipment and other       |  |           | 743.9   |           |  |   | 832.3   | 
|Computer equipment and software                |  |           | 326.3   |           |  |   | 317.9   | 
|                                               |  |           |         |           |  |   |         | 
|                                               |  |           | 1,663.7 |           |  |   | 1,721.5 | 
|Less accumulated depreciation and amortization |  |           | 937.1   |           |  |   | 939.6   | 
|                                               |  |           |         |           |  |   |         | 
|Property and equipment, net                    |  | $         | 726.6   |           |  | $ | 781.9   | 
|                                               |  |           |         |           |  |   |         | 

Solectron reclassified $34.6 million from
furniture, fixtures, equipment and other and $16.7 million
from construction-in-process to $24.5 million in land,
$23.0 million in buildings and improvement, and
$3.8 million in computer equipment and software at
August 31, 2003 to conform to the current year presentation.



|        |                
|------- | ---------------
|Note 5. | Lines of Credit

As of August 31, 2004, Solectron had
available a $500 million revolving credit facility that
expires on August 20, 2007. In August 2004, this revolving
credit facility was secured. It amends and updates the previous
$250 million credit facility. The revolving credit facility
is guaranteed by certain domestic subsidiaries and secured by
the pledge of domestic accounts receivable, inventory and
equipment, the pledge of equity interests in certain
subsidiaries and notes evidencing intercompany debt. Borrowings
under the credit facility bear interest, at Solectrons
option, at the London Interbank offering rate (LIBOR) plus
a margin of 2.25% based on Solectrons current senior
unsecured debt ratings, or the higher of the Federal Funds Rate
plus  1/2 of 1% or Bank of America N.A.s publicly
announced prime rate. As of August 31, 2004, there were no
borrowings outstanding under this facility. Solectron is subject
to compliance with certain financial covenants set forth in
these facilities including, but not limited to, capital
expenditures, cash interest coverage, and leverage. Solectron
was in compliance with all applicable covenants as of
August 31, 2004.

In addition, Solectron had $32.1 million in
committed and $176.6 million in uncommitted foreign lines
of credit and other bank facilities as of August 31, 2004
relating to continuing operations. A committed line of credit
obligates a lender to loan Solectron amounts under the credit
facility as long as the terms of the credit agreement were
adhered to. An uncommitted line of credit is extended to
Solectron at the sole discretion of a lender. The interest rates
range from the banks prime lending rate to the banks
prime rate plus 1.0%. As of August 31, 2004, borrowings and
guaranteed amounts were $5.4 million under committed and
$12.1 million under uncommitted foreign lines of credit.
Borrowings on all these facilities are payable on demand. As of
August 31, 2004, borrowing and guaranteed amounts of
committed and uncommitted foreign lines of credit of
$10.6 million and $6.9 millions are recorded in
short-term debt and accounts payable, respectively, in the
consolidated balance sheets. The weighted-average interest rate
was 3.8% for committed and 2.4% for uncommitted foreign lines of
credit as of August 31, 2004.

46



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##### 





|        |               
|------- | --------------
|Note 6. | Long-term Debt

Long-term debt related to continuing operations
at August 31, 2004 and 2003, consisted of the following (in
millions):

|                                                                                                                                                                                                                       |  |      |         |      |  |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | -
|                                                                                                                                                                                                                       |  | 2004 |         | 2003
|                                                                                                                                                                                                                       |  |      |         |     
|9.625% senior notes, face value of $500.0,
    fair values of $551.3 in 2004 and $532.5 in 2003, due 2009                                                                                                              |  | $    | 519.4   |      |  | $ | 516.4   |  
|0.5% convertible senior notes, face value of
    $450.0, fair value of $389.8 due 2034                                                                                                                                 |  |      | 450.0   |      |  |   |        |  
|7.375% senior notes, face value of $150.0,
    fair values of $156.4 in 2004 and $152.3 in 2003, due 2006                                                                                                              |  |      | 150.0   |      |  |   | 149.9   |  
|7.25% adjustable conversion-rate equity
    securities, face value of $64.3 and $1,100.0,
    2,570,798 units outstanding in 2004 and 44,000,000 in 2003
    fair values of $65.0 in 2004 and $723.6 in 2003, due 2006 |  |      | 63.0    |      |  |   | 1,081.6 |  
|2.75% zero-coupon convertible senior notes, face
    values of $15.2 and $15.9 fair values of $9.9 in 2004 and $9.0
    in 2003, due 2020                                                                              |  |      | 9.9     |      |  |   | 10.1    |  
|3.25% zero-coupon convertible senior notes, face
    values of $5.0 and $1,622.6, fair values of $3.0 in 2004 and
    $912.7 in 2003, due 2020                                                                         |  |      | 3.0     |      |  |   |        | *
|Other, fair values of $26.1 and $59.6                                                                                                                                                                                  |  |      | 26.1    |      |  |   | 59.6    |  
|                                                                                                                                                                                                                       |  |      |         |      |  |   |         |  
|Total long-term debt                                                                                                                                                                                                   |  | $    | 1,221.4 |      |  | $ | 1,817.6 |  
|                                                                                                                                                                                                                       |  |      |         |      |  |   |         |  



---



|  |                                                                                                                                                                                                                   
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | As of August 31, 2003, remaining carrying
    amount of $931 million was classified in short-term debt as
    the holders of these notes had the right to require Solectron to
    repurchase them on May 20, 2004



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

On February 8, 2002, Solectron issued an
aggregate principal amount of $500 million of
9.625% senior notes due 2009. Solectron is required to pay
interest on the notes in cash on February 15 and
August 15 of each year. The indenture governing the terms
of these notes contains restrictive provisions, which limit
Solectron and its subsidiaries from making distributions on
their capital stock, investments, incurring debt, issuing
preferred stock and engaging in assets sales, among other
provisions. As of August 31, 2004, the carrying amount of
the notes was $498.0 million and the $21.4 million
fair market value of the interest rate swap (See Note 7,
Financial Instruments) were classified as long-term
debt. Additionally, Solectron was in compliance with the
restrictive provisions of the indenture at August 31, 2004.



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

On February 17, 2004, Solectron issued
$450 million of convertible senior notes, or 450,000 notes
in $1,000 denomination, to qualified buyers in reliance on
Rule 144A under the Securities Act. The notes are unsecured
and unsubordinated indebtedness of Solectron and will mature on
February 15, 2034. The notes are convertible into shares of
common stock of Solectron at any time prior to maturity,
redemption or repurchase by Solectron, if (1) the price of
our common stock issuable upon conversion of a note reaches 120%
of the conversion price of the notes, or $11.60, (2) the
notes have been called for redemption, (3) specified
corporate transactions occur, or (4) the trading price of
the notes fall below 95% of the average conversion value. The
initial conversion rate is 103.4468 shares per each $1,000
principal amount of notes, subject to adjustment in certain
circumstances. This is equivalent to a conversion price of
approximately $9.67 per share.

Interest on the notes will be paid on
February 15 and on August 15 of each year. On or after
February 20, 2011, Solectron will have the option to redeem
all or a portion of the notes that have not been previously
purchased, repurchased or converted, at 100% of the principal
amount of the notes to be redeemed plus accrued and unpaid
interest and liquidated damages owed, if any, up to, but
excluding, the date of the purchase. Holders of the notes may
require Solectron to purchase all or a portion of the notes for
cash on each of February 15, 2011, 2014, 2019, 2024, and
2029 at a price equal to 100% of the principal amount of the
notes to be repurchased plus accrued and unpaid interest, and
liquidated damages owed, if any, up to, but excluding, the date
of repurchase. Holders will have the option, subject to certain
conditions, to require Solectron to repurchase any notes held by
such holder in the event of a

47



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##### 



change in control, as defined, at a
price of 100% of the principal amount of the notes plus accrued
and unpaid interest and liquidated damages owed, if any, up to,
but excluding, the date of repurchase.


The net proceeds of $436.5 million were
applied to repurchase Solectrons 3.25% LYONs indebtedness
on May 20, 2004. As of August 31, 2004, the carrying
amount of the notes of $450.0 million was classified as
long-term debt.



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

In March 1996, Solectron issued $150 million
aggregate principal amount of senior notes. These notes are in
denominations and have a maturity value of $1,000 each and are
due on March 1, 2006. Interest is payable semiannually at a
rate of 7.375% per annum. The notes may not be redeemed
prior to maturity. As of August 31, 2004, the carrying
amount of the notes of $150.0 million was classified as
long-term debt.



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

In fiscal 2002, Solectron closed its public
offering of $1.1 billion, or 44 million units, of
7.25% ACES. Each ACES unit has a stated amount of $25.00 and
consists of (a) a contract requiring the holder to
purchase, for $25.00, a number of shares of Solectron common
stock to be determined on November 15, 2004, based on the
average trading price of Solectrons common stock at that
time and certain specified settlement rates ranging from
2.1597 shares of Solectrons common stock per purchase
contract to 2.5484 shares of Solectrons common stock
per purchase contract (subject to certain anti-dilution
adjustments); and (b) a $25 principal amount of
7.25% subordinated debenture due 2006. Solectron received
gross proceeds of approximately $1.1 billion from the
transaction. Solectron allocated $46.9 million to the fair
value of the purchase contracts and recorded this amount in
additional paid-in capital. The debentures initially were held
and pledged for Solectrons benefit to secure the
holders obligation to purchase Solectrons common
stock on November 15, 2004.

On May 12, 2004, Solectron finalized the
early settlement of 41.4 million units of its outstanding
7.25% ACES for 2.5484 shares of common stock and $1.97 in
cash per unit (includes $0.44 in cash per unit for accrued
interest as of the settlement date). As a result of the ACES
early settlement offer, Solectron issued 105.6 million
shares of common stock at a fair market value of
$1.0 billion and recorded a $77.7 million loss in
other (expense) income  net.

On August 15, 2004, the remaining ACES
debentures were remarketed and the interest rate was reset at
7.97% which had no financial statement impact. The proceeds from
the remarketing will be used to satisfy the holders
obligation to purchase Solectrons common stock in November
2004. As of August 31, 2004, the remaining carrying amount
of these ACES of $63.0 million was classified as long-term
debt.



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

In November 2000, Solectron issued
2.9 million LYONs at an issue price of $524.78 per
note, which resulted in gross proceeds to Solectron of
approximately $1.5 billion. These notes are unsecured and
unsubordinated indebtedness of Solectron. Solectron will pay no
interest prior to maturity. Each note yields 3.25% with a
maturity value of $1,000 on November 20, 2020. Each note is
convertible to common shares at any time by the holder at a
conversion rate of 11.7862 shares per note. Holders may
require Solectron to purchase all or a portion of their notes on
May 20, 2004, November 20, 2005 and November 20,
2010, at prices of $587.46, $616.57 and $724.42 per note,
respectively, payable in cash or common stock at the option of
Solectron. Also, each holder had the right to require Solectron
to repurchase all or a portion of such holders notes if a
change in control of Solectron occurred on or before
May 20, 2004. On May 20, 2004, Solectron repurchased
approximately 1.6 million LYONs for a total of
$950.2 million in cash. As of August 31, 2004, 5,000
LYONs remain outstanding at a carrying value of approximately
$3.0 million.

In May 2000, Solectron issued 4.025 million
LYONs at an issue price of $579.12 per note, which resulted
in gross proceeds to Solectron of approximately
$2.3 billion. These notes are unsecured and unsubordinated
indebtedness of Solectron. Solectron will pay no interest prior
to maturity. Each note has a yield of 2.75% with a maturity
value of $1,000 on May 8, 2020. Each note is convertible at
any time by the holder to common shares at a conversion rate of
12.3309 shares per note. Holders are able to require
Solectron to purchase all or a portion of their notes on
May 8, 2003 and 2010, at prices of $628.57 and
$761.00 per note, respectively. Also, each holder was able
to require Solectron to repurchase all or a portion of such
holders notes upon a change in control of Solectron
occurring on or

48



---



##### 



before May 8, 2003. Solectron, at its
option, may redeem all or a portion of the notes at any time on
or after May 8, 2003. During the first quarter of fiscal
2003, Solectron repurchased a portion of these LYONs with a
carrying amount totaling $11.5 million for
$11.2 million in cash, which resulted in no significant
gain or loss. On March 31, 2003, Solectron announced its
intention to repurchase any 2.75% LYONs put to it with cash on
May 8, 2003. Accordingly, Solectron repurchased
$514.2 million of these LYONs with cash during the third
quarter of fiscal 2003 resulting in no significant gain or loss.
Issuance costs were fully amortized as of May 8, 2003.
During fiscal 2002, Solectron repurchased a portion of these
LYONs with a carrying amount totaling approximately
$1.9 billion for approximately $1.8 billion in cash
which resulted in a gain of $63 million. As of
August 31, 2004, 15,217 LYONs remain outstanding at a
carrying value of approximately $9.9 million.


The aggregate annual maturities of long-term debt
related to continuing operations are as follows (in millions):

|                        |  |   |         | 
|----------------------- |  | - | ------- | 
|Years Ending August 31: |  |  
|                        |  |  
|2006                    |  | $ | 170.9   | 
|2007                    |  |   | 71.0    | 
|2008                    |  |   |        | 
|2009                    |  |   | 519.4   | 
|2010                    |  |   | 10.0    | 
|Thereafter              |  |   | 450.1   | 
|                        |  |   |         | 
|Total                   |  | $ | 1,221.4 | 
|                        |  |   |         | 



|        |                      
|------- | ---------------------
|Note 7. | Financial Instruments

Fair Value of Financial Instruments

The fair value of Solectrons cash, cash
equivalents, accounts receivable, accounts payable and
borrowings under lines of credit approximates the carrying
amount due to the relatively short maturity of these items. The
fair value of Solectrons short-term investments (see
Note 2, Cash, Cash Equivalents and Short-Term
Investments) is determined based on quoted market prices.
The fair value of Solectrons long-term debt (see
Note 6, Long-Term Debt) is determined based on
broker trading prices.



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

Solectron enters into foreign exchange forward
contracts intended to reduce the short-term impact of foreign
currency fluctuations on foreign currency receivables,
investments and payables. The gains and losses on the foreign
exchange forward contracts are intended to largely offset the
transaction gains and losses on the foreign currency
receivables, investments, and payables recognized in operating
results. Solectron does not enter into foreign exchange forward
contracts for speculative purposes. Solectrons foreign
exchange forward contracts related to current assets and
liabilities are generally three months or less in original
maturity.

As of August 31, 2004, Solectron had
outstanding foreign exchange forward contracts with a total
notional amount of approximately $665.5 million related to
continuing operations.

Solectron uses interest rate swaps to hedge its
mix of short-term and long-term interest rate exposures
resulting from Solectrons debt obligations. As of
August 31, 2004, Solectron had interest rate swaps
outstanding under which it pays variable rates and receives
fixed rates. The interest rate swaps have a total notional
amount of $500 million, relating to the 9.625%
$500 million senior notes expiring on February 15,
2009. Under the swap transactions, Solectron pays an interest
rate equal to the 3-month LIBOR rate plus a fixed spread. In
exchange, Solectron receives a fixed interest rate of 9.625% on
the $500 million. The swaps effectively replace the fixed
interest rate that the Company must pay on all its
9.625% senior notes with variable interest rate. The swaps
are designated as fair value hedges under SFAS No. 133.

The fair value of the outstanding derivatives
referred to above was not significant.

For all derivative transactions, Solectron is
exposed to counterparty credit risk to the extent that the
counterparties may not be able to meet their obligations towards
Solectron. To manage the counterparty risk,

49



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##### 



Solectron limits its derivative transactions to
those with major financial institutions. Solectron does not
expect to experience any material adverse financial consequences
as a result of default by Solectrons counterparties.


During fiscal 2004, Solectron settled another
$500 million swap contract related to the $1.1 billion
ACES at the time of the early settlement of the ACES debentures.
The settlement of that swap contract resulted in a gain of
approximately $5.6 million, which was recorded in other
(expense) income  net.

During fiscal 2003, Solectron settled its swaps
related to the senior notes and received cash proceeds of
approximately $26 million. This gain is being amortized
over the remaining life of the senior notes.

Financial instruments that potentially subject
Solectron to concentrations of credit risk consist of cash, cash
equivalents, short-term investments and trade accounts
receivable. Solectrons short-term investments are managed
by recognized financial institutions which follow
Solectrons investment policy. Such investment policy
limits the amount of credit exposure in any one issue and
requires the investment securities to be investment grade
short-term debt instruments. Concentrations of credit risk in
accounts receivable resulting from sales to major customers are
discussed in Note 13, Major Customers.
Solectron generally does not require collateral for sales on
credit. However, for customers that have limited financial
resources, Solectron may require coverage for this risk
including standby letters of credit, prepayments and consignment
of inventories. Solectron also monitors extensions of credit and
the financial condition of its major customers.



|        |                              
|------- | -----------------------------
|Note 8. | Commitments and Contingencies



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

Solectron has synthetic lease agreements relating
to four manufacturing sites related to continuing operations.
The synthetic leases have expiration dates in August 2007. At
the end of the lease terms, Solectron has an option, subject to
certain conditions, to purchase or to cause a third party to
purchase the facilities subject to the synthetic leases for the
Termination Value, which approximates the
lessors original cost for each facility, or may market the
property to a third party at a different price. Solectron is
entitled to any proceeds from a sale of the properties to third
parties in excess of the Termination Value and is liable to the
lessor for any shortfall not to exceed 85% of the Termination
Value. Solectron has provided loans to the lessor equaling
approximately 85% of the Termination Value for each synthetic
lease. These loans are repayable solely from the sale of the
properties to third parties in the future, are subordinated to
the amounts payable to the lessor at the end of the synthetic
leases, and may be credited against the Termination Value
payable if Solectron purchases the properties. The approximate
aggregate Termination Values and loan amounts were
$101.3 million and $86.1 million, respectively, as of
August 31, 2004.

In addition, cash collateral of
$15.2 million is pledged for the difference between the
aggregate Termination Values and the loan amounts. Each lease
agreement contains various affirmative and financial covenants.
A default under a lease, including violation of these covenants,
may accelerate the termination date of the arrangement.
Effective August 31, 2004, Solectron amended its cash
interest coverage and leverage covenants, and eliminated its
minimum cash, minimum tangible net worth, and minimum liquidity
covenants. Solectron was in compliance with all applicable
covenants as of August 31, 2004. Monthly lease payments are
generally based on the Termination Value and 30-day LIBOR index
(1.49% as of August 31, 2004) plus an interest-rate margin,
which may vary depending upon Solectrons Moodys
Investors Services and Standard and Poors ratings
and are allocated between the lessor and Solectron based on the
proportion of the loan amount to the Termination Value for each
synthetic lease.

Solectron accounts for these synthetic lease
arrangements as operating leases in accordance with
SFAS No. 13, Accounting for Leases, as
amended. Solectrons loans to the lessor and cash
collateral were included in other long-term assets and
restricted cash, restricted cash equivalents and restricted
short-term investments, respectively, in the consolidated
balance sheets.

During fiscal 2004, Solectron determined that it
is probable that the expected fair value of the properties under
the synthetic lease agreements will be less than the Termination
Value at the end of the lease term. The expected shortfall of
$14.9 million is being recognized on a straight-line basis
over the remaining lease term, beginning June 1, 2004.

50



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

Future minimum payments for operating lease
obligations related to continuing operations, including the
synthetic leases discussed above, are as follows:

|                |  |       |       |      |  |      |      |      |  |      |      |      |  |            |      |  |  |  |      |  |  |  |      |  |  |  |      | 
|--------------- |  | ----- | ----- | ---- |  | ---- | ---- | ---- |  | ---- | ---- | ---- |  | ---------- | ---- |  |  |  | ---- |  |  |  | ---- |  |  |  | ---- | 
|                |  | Total |       | FY05 |  | FY06 |      | FY07 |  | FY08 |      | FY09 |  | Thereafter
|                |  |       |       |      |  |      |      |      |  |      |      |      |  |           
|Operating lease |  |       | 197.6 |      |  |      | 57.5 |      |  |      | 35.1 |      |  |            | 28.3 |  |  |  | 17.7 |  |  |  | 14.0 |  |  |  | 45.0 | 

Rent expense was $95.5 million,
$103.7 million and $120.0 million for fiscal 2004,
2003 and 2002, respectively. Sublease income will not have a
significant impact on these amounts.



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

Solectron extends guarantees of
$83.0 million in favor of vendors that supply the
companys subsidiaries. These guarantees have various
expiration terms. In addition, Solectron guarantees used and
unused lines of credits and debt for its own subsidiaries
totaling $208.7 million as of August 31, 2004.
Solectron also guarantees performance of certain subsidiaries in
various transactions such as leases totaling $108.6 million
as of August 31, 2004.



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

Solectron is from time to time involved in
various litigation and legal matters, including the one
described below. By describing the particular matter set forth
below, Solectron does not intend to imply that it or its legal
advisors have concluded or believe that the outcome of this
particular matter is or is not likely to have a material adverse
impact upon Solectrons business or consolidated financial
condition and results of operations.

On March 6, 2003, a putative shareholder
class action lawsuit was filed against Solectron and certain of
its officers in the United States District Court for the
Northern District of California alleging claims under
Section 10(b) and 20(a) of the Securities Exchange Act of
1934, as amended (the Exchange Act), and
Rule 10b-5 promulgated thereunder. The case is entitled
Abrams v. Solectron Corporation et al., Case
No. C-03-0986 CRB. The complaint alleged that the
defendants issued false and misleading statements in certain
press releases and SEC filings issued between September 17,
2001 and September 26, 2002. In particular, plaintiff
alleged that the defendants failed to disclose and to properly
account for excess and obsolete inventory in the former
Technology Solutions business unit during the relevant time
period. Additional complaints making similar allegations were
subsequently filed in the same court, and pursuant to an order
entered June 2, 2003, the Court appointed lead counsel and
plaintiffs to represent the putative class in a single
consolidated action. The Consolidated Amended Complaint, filed
September 8, 2003, alleges an expanded class period of
June 18, 2001 through September 26, 2002, and purports
to add a claim for violation of Section 11 of the
Securities Act of 1933, as amended (the Securities
Act), on behalf of a putative class of former shareholders
of C-MAC Industries, Inc., who acquired Solectron stock pursuant
to the October 19, 2001 Registration Statement filed in
connection with Solectrons acquisition of C-MAC
Industries, Inc. In addition, while the initial complaints
focused on alleged inventory issues at the former Technology
Solutions business unit, the Consolidated Amended Complaint adds
allegations of inadequate disclosure and failure to properly
account for excess and obsolete inventory at Solectrons
other business units. The complaint seeks an unspecified amount
of damages on behalf of the putative class. Solectron believes
the complaint to be without merit, and that it has valid
defenses to the plaintiffs claims. There can be no
assurance, however, that the outcome of the lawsuit will be
favorable to Solectron or will not have a material adverse
effect on Solectrons business, consolidated financial
condition and results of operations. In addition, Solectron may
be forced to incur substantial litigation expenses in defending
this litigation.

51



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##### 





|        |                 
|------- | ----------------
|Note 9. | Retirement Plans

Solectron has various retirement plans that cover
a significant number of its eligible worldwide employees. The
Company sponsors a 401(k) Plan to provide retirement benefits
for its United States employees. This Plan provides for
tax-deferred salary deductions for eligible employees. Employees
may contribute between 1% to 15% of their annual compensation to
this Plan, limited by an annual maximum amount as determined by
the Internal Revenue Service. The Company also makes
discretionary matching contributions, which vest immediately, as
periodically determined by its Board of Directors. The
Companys matching contributions to this plan related to
continuing operations totaled $6.4 million,
$8.3 million, and $8.9 million, respectively, in
fiscal 2004, 2003 and 2002.

In addition, certain of the Companys
non-United States employees are covered by various defined
benefit and defined contribution plans. Solectrons
expenses for these plans related to continuing operations
totaled $2.3 million, $3.9 million and
$2.9 million in fiscal 2004, 2003 and 2002, respectively.



|         |             
|-------- | ------------
|Note 10. | Income Taxes

The components of income taxes (benefit) from
continuing operations for the fiscal periods included in this
report are as follows (in millions):

|          |       |      |       |      |   |      |       |       |  |   |        |        |  
|--------- | ----- | ---- | ----- | ---- | - | ---- | ----- | ----- |  | - | ------ | ------ | -
|          |       | 2004 |       | 2003 |   | 2002
|          |       |      |       |      |   |     
|Current:  |       |      |       |      |   |      |       |       |  |   |        |       
|Federal   |       | $    | 4.0   |      |   | $    | 21.5  |       |  | $ | (171.9 | )     
|State     |       |      | 2.7   |      |   |      | 3.2   |       |  |   | 3.3    |       
|Foreign   |       |      | 3.2   |      |   |      | 14.0  |       |  |   | 15.1   |       
|          |       |      |       |      |   |      |       |       |  |   |        |       
|          |       |      | 9.9   |      |   |      | 38.7  |       |  |   | (153.5 | )     
|          |       |      |       |      |   |      |       |       |  |   |        |       
|Deferred: |       |      |       |      |   |      |       |       |  |   |        |       
|Federal   |       |      |      |      |   |      | 439.7 |       |  |   | (212.0 | )     
|State     |       |      |      |      |   |      | 63.5  |       |  |   | (53.5  | )     
|Foreign   |       |      | (10.2 | )    |   |      | (9.8  | )     |  |   | (30.0  | )     
|          |       |      |       |      |   |      |       |       |  |   |        |       
|          |       |      | (10.2 | )    |   |      | 493.4 |       |  |   | (295.5 | )     
|          |       |      |       |      |   |      |       |       |  |   |        |       
|          | Total |      | $     | (0.3 | ) |      | $     | 532.1 |  |   | $      | (449.0 | )
|          |       |      |       |      |   |      |       |       |  |   |        |       

The overall effective income tax rate (expressed
as a percentage of consolidated financial statement loss from
continuing operations and before income taxes) varied from the
United States statutory income tax rate for all fiscal years
presented as follows:

|                                                                  |  |      |       |      |  |      |       |    |  |  |       |  
|----------------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | -- |  |  | ----- | -
|                                                                  |  | 2004 |       | 2003 |  | 2002
|                                                                  |  |      |       |      |  |     
|Federal tax rate                                                  |  |      | 35.0  | %    |  |      | 35.0  | %  |  |  | 35.0  | %
|State income tax, net of federal tax benefit                      |  |      | (1.1  | )    |  |      | (1.7  | )  |  |  | 0.9   |  
|Income of international subsidiaries taxed at
    different rates |  |      | 17.8  |      |  |      | (11.8 | )  |  |  | (0.7  | )
|Tax holiday                                                       |  |      | 29.7  |      |  |      | 0.4   |    |  |  | 1.6   |  
|Nondeductible goodwill and other permanent items                  |  |      | (7.0  | )    |  |      | (3.5  | )  |  |  | (18.5 | )
|Loss for which no benefit is currently realized                   |  |      | (79.3 | )    |  |      | (20.8 | )  |  |  | (5.5  | )
|Change in beginning valuation allowance                           |  |      | 6.6   |      |  |      | (19.0 | )  |  |  |      |  
|Other                                                             |  |      | (1.6  | )    |  |      |      |    |  |  |      |  
|                                                                  |  |      |       |      |  |      |       |    |  |  |       |  
|Effective income tax rate                                         |  |      | 0.1   | %    |  |      | (21.4 | )% |  |  | 12.8  | %
|                                                                  |  |      |       |      |  |      |       |    |  |  |       |  

52



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The tax effects of temporary differences from
continuing operations that gave rise to significant portions of
deferred tax assets and liabilities as of August 31, 2004
and 2003 were as follows (in millions):

|                               |                                             |      |          |       |   |   |          |       |  
|------------------------------ | ------------------------------------------- | ---- | -------- | ----- | - | - | -------- | ----- | -
|                               |                                             | 2004 |          | 2003 
|                               |                                             |      |          |      
|Deferred tax assets:           |                                             |      |          |       |   |   |          |      
|                               | Accruals and allowances                     |      | $        | 66.6  |   |   | $        | 79.5  |  
|                               | State income tax                            |      |          | 62.2  |   |   |          | 52.0  |  
|                               | Acquired intangible assets                  |      |          | 445.0 |   |   |          | 487.4 |  
|                               | Depreciation                                |      |          | 2.3   |   |   |          |      |  
|                               | Net operating loss carryforward and credits |      |          | 908.4 |   |   |          | 732.3 |  
|                               | Restructuring accruals                      |      |          | 28.3  |   |   |          | 34.3  |  
|                               | Capital loss carryover                      |      |          | 180.5 |   |   |          |      |  
|                               | Other                                       |      |          | 14.9  |   |   |          | 32.6  |  
|                               |                                             |      |          |       |   |   |          |      
|Deferred tax assets            |                                             |      | 1,708.2  |       |   |   | 1,418.1  |      
|Valuation allowance            |                                             |      | (1,619.8 | )     |   |   | (1,362.3 | )    
|                               |                                             |      |          |       |   |   |          |      
|Total deferred tax assets      |                                             | $    | 88.4     |       |   | $ | 55.8     |      
|                               |                                             |      |          |       |   |   |          |      
|Deferred tax liabilities:      |                                             |      |          |       |   |   |          |      
|                               | Depreciation                                |      | $        | (26.4 | ) |   | $        | (9.4  | )
|                               | Other                                       |      |          | (3.8  | ) |   |          |      |  
|                               |                                             |      |          |       |   |   |          |      
|Total deferred tax liabilities |                                             |      | (30.2    | )     |   |   | (9.4     | )    
|                               |                                             |      |          |       |   |   |          |      
|Net deferred tax assets        |                                             | $    | 58.2     |       |   | $ | 46.4     |      
|                               |                                             |      |          |       |   |   |          |      

Deferred tax assets, net of valuation allowance,
were recorded in other current assets and other assets in the
accompanying consolidated balance sheet. Deferred tax
liabilities were recorded in their current liabilities and other
liabilities. Income taxes payable of $162.4 million and
$125.4 million is included in other current liabilities as
of August 31, 2004 and 2003, respectively.

The Company has U.S. federal net operating
losses arising from continuing operations in its
U.S. consolidated group of approximately
$1,413.0 million. The net operating losses, if not
utilized, will expire in 2021 through 2024.

The Company also has U.S. federal capital
loss carryforwards from continuing operations in its
U.S. consolidated group of approximately
$515.9 million. Capital loss carryforwards may only offset
capital gains realized in future years. The capital loss, if not
utilized, will expire in 2009.

As a result of various business acquisitions, the
Company had acquired additional U.S. federal net operating
losses arising from continuing operations from
U.S. subsidiaries totaling approximately
$91.1 million, which will expire if not utilized beginning
in 2004 through 2021. The annual utilization of these net
operating losses is limited under the ownership
change provisions of the U.S. Internal Revenue Code.

The Company also has California state net
operating losses in its unitary group from continuing operations
of approximately $492.2 million, which will expire if not
utilized in 2011 through 2014.

53



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##### 



The Company has net operating loss carryforwards
in various foreign jurisdictions. A summary of significant
foreign net operating loss carryforwards follows (in millions):

|               |  |        |       |            |  |            
|-------------- |  | ------ | ----- | ---------- |  | -----------
|Jurisdiction   |  | Amount |       | Expiration
|               |  |        |       |           
|Australia      |  | $      | 52.4  |            |  | Indefinite 
|Brazil         |  |        | 124.9 |            |  | Indefinite 
|Canada         |  |        | 59.9  |            |  | 2005 - 2010
|France         |  |        | 312.5 |            |  | 2005 - 2009
|Germany        |  |        | 43.7  |            |  | Indefinite 
|Hungary        |  |        | 61.7  |            |  | Indefinite 
|Japan          |  |        | 95.0  |            |  | 2006 - 2009
|Mexico         |  |        | 72.2  |            |  | 2008 - 2014
|Netherlands    |  |        | 161.1 |            |  | Indefinite 
|Romania        |  |        | 79.0  |            |  | 2005 - 2009
|United Kingdom |  |        | 136.9 |            |  | Indefinite 
|Other          |  |        | 51.0  |            |  | Various    

Management has determined that a valuation
allowance in the amount of approximately $1.6 billion is
required with respect to deferred tax assets. Management
believes that it is more likely than not that the remaining
deferred tax assets will be realized, principally through
carrybacks to taxable income in prior years. In the event the
tax benefits relating to the valuation allowance are realized,
$13.4 million would be credited to other comprehensive loss.

Worldwide income (loss) from continuing
operations before taxes for all fiscal years presented consisted
of the following (in millions):

|         |       |      |        |        |   |      |          |          |   |   |          |          |  
|-------- | ----- | ---- | ------ | ------ | - | ---- | -------- | -------- | - | - | -------- | -------- | -
|         |       | 2004 |        | 2003   |   | 2002
|         |       |      |        |        |   |     
|U.S.     |       | $    | (373.4 | )      |   | $    | (304.0   | )        |   | $ | (3,823.3 | )       
|Non-U.S. |       |      | 121.3  |        |   |      | (2,183.7 | )        |   |   | 303.5    |         
|         |       |      |        |        |   |      |          |          |   |   |          |         
|         | Total |      | $      | (252.1 | ) |      | $        | (2,487.7 | ) |   | $        | (3,519.8 | )
|         |       |      |        |        |   |      |          |          |   |   |          |         

Cumulative undistributed earnings of the
international subsidiaries amounted to $864.9 million as of
August 31, 2004, all of which is intended to be permanently
reinvested. The amount of deferred income tax liability that
would result had such earnings been repatriated is estimated to
be approximately $262.3 million which would be absorbed by
a corresponding reversal in valuation allowance.

Solectron has been granted a tax holiday for its
Malaysian sites which is effective through January 31,
2012, subject to certain conditions. In addition, Solectron has
been granted a tax holiday for certain manufacturing operations
in Singapore which is effective through March 31, 2011,
subject to certain conditions including maintaining certain
levels of research and development expenditures. Solectron has
also been granted various tax holidays in China, which are
effective for various terms and are subject to certain
conditions. The net impact of these tax holidays was to decrease
local country taxes by $65.9 million in 2004,
$40.5 million in 2003, and $34.0 million in 2002.

Solectron has established contingency reserves
for income taxes in various jurisdictions in accordance with
SFAS No. 5 Accounting for Contingencies.
The estimate of appropriate tax reserves is based upon the
amount of prior tax benefit which might be at risk upon audit
and upon the reasonable estimate of the amount at risk.
Solectron periodically reassesses the amount of such reserves
and adjusts reserve balances as necessary.



|         |                     
|-------- | --------------------
|Note 11. | Stockholders Equity



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

Solectrons stock option plans provide for
grants of options to employees to purchase common stock at the
fair market value of such shares on the grant date. The options
vest monthly over a four-year period beginning generally on the
grant date. The term of the options is five years for options
granted prior to January 12, 1994, seven years for options
granted prior to September 20, 2001, and ten years for
options granted thereafter. In connection with the

54



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##### 



acquisitions of Force, SMART, Bluegum, Centennial
Technologies, C-MAC and Iphotonics, Solectron assumed all
options outstanding under the related companies option
plans. Options under these plans generally vest over periods
ranging from immediately to five years from the original grant
date and have terms ranging from two to ten years. In the table
contained herein, these options are considered granted in the
year the acquisition occurred. A summary of stock option
activity under the plans for all fiscal years is presented as
follows (in millions, except per-share data):


A summary of stock option activity under the
plans for all fiscal years is presented as follows (in millions,
except per-share data):

|                                                                                      |  |        |       |          |  |        |       |          |  |        |       |          |  |   |       |  |  |  |      |   |  |   |       | 
|------------------------------------------------------------------------------------- |  | ------ | ----- | -------- |  | ------ | ----- | -------- |  | ------ | ----- | -------- |  | - | ----- |  |  |  | ---- | - |  | - | ----- | 
|                                                                                      |  |        |       |          |  |       
|                                                                                      |  | 2004   |       | 2003     |  | 2002  
|                                                                                      |  |        |       |          |  |       
|                                                                                      |  |        |       | Weighted |  |        |       | Weighted |  |        |       | Weighted
|                                                                                      |  | Number |       | Average  |  | Number |       | Average  |  | Number |       | Average 
|                                                                                      |  | of     |       | Exercise |  | of     |       | Exercise |  | of     |       | Exercise
|                                                                                      |  | Shares |       | Price    |  | Shares |       | Price    |  | Shares |       | Price   
|                                                                                      |  |        |       |          |  |        |       |          |  |        |       |         
|Outstanding, beginning of year                                                        |  |        | 64.0  |          |  | $      | 14.30 |          |  |        | 63.2  |          |  | $ | 18.50 |  |  |  | 47.9 |   |  | $ | 22.61 | 
|Granted                                                                               |  |        | 18.0  |          |  | $      | 5.06  |          |  |        | 21.3  |          |  | $ | 3.73  |  |  |  | 26.1 |   |  | $ | 10.40 | 
|Exercised                                                                             |  |        | (5.7  | )        |  | $      | 3.11  |          |  |        | (0.3  | )        |  | $ | 3.54  |  |  |  | (3.1 | ) |  | $ | 6.02  | 
|Cancelled                                                                             |  |        | (22.5 | )        |  | $      | 15.52 |          |  |        | (20.2 | )        |  | $ | 16.43 |  |  |  | (7.7 | ) |  | $ | 21.92 | 
|                                                                                      |  |        |       |          |  |        |       |          |  |        |       |          |  |   |       |  |  |  |      |   |  |   |       | 
|Outstanding, end of year                                                              |  |        | 53.8  |          |  | $      | 12.05 |          |  |        | 64.0  |          |  | $ | 14.30 |  |  |  | 63.2 |   |  | $ | 18.50 | 
|                                                                                      |  |        |       |          |  |        |       |          |  |        |       |          |  |   |       |  |  |  |      |   |  |   |       | 
|Exercisable, end of year                                                              |  |        | 29.7  |          |  | $      | 17.88 |          |  |        | 37.5  |          |  | $ | 18.20 |  |  |  | 36.4 |   |  | $ | 17.64 | 
|                                                                                      |  |        |       |          |  |        |       |          |  |        |       |          |  |   |       |  |  |  |      |   |  |   |       | 
|Weighted-average fair value of options granted at
    market value during the year    |  |        |       |          |  | $      | 3.04  |          |  |        |       |          |  | $ | 2.25  |  |  |  |      |   |  | $ | 6.97  | 
|Weighted-average fair value of options granted
    below market value during the year |  |        |       |          |  | $      | 5.62  |          |  |        |       |          |  | $ | 3.89  |  |  |  |      |   |  |   |      | 

Information regarding the stock options
outstanding at August 31, 2004, is summarized in the table
below (in millions, except number of years and per-share data).

|                |  |             |      |             |  |          |            |           |  |          |       |  |  |  |      |  |  |   |       | 
|--------------- |  | ----------- | ---- | ----------- |  | -------- | ---------- | --------- |  | -------- | ----- |  |  |  | ---- |  |  | - | ----- | 
|                |  |             |      |            
|                |  | Outstanding |      | Exercisable
|                |  |             |      |            
|                |  |             |      | Weighted    |  |          |            |          
|                |  |             |      | Average     |  | Weighted |            |           |  | Weighted
|                |  |             |      | Remaining   |  | Average  |            |           |  | Average 
|Range of        |  | Number of   |      | Contractual |  | Exercise |            | Number of |  | Exercise
|Exercise Price  |  | Shares      |      | Life        |  | Price    |            | Shares    |  | Price   
|                |  |             |      |             |  |          |            |           |  |         
|$1.09 - $3.77   |  |             | 6.9  |             |  |          | 8.12 years |           |  | $        | 3.59  |  |  |  | 3.0  |  |  | $ | 3.53  | 
|$3.99 - $4.24   |  |             | 6.2  |             |  |          | 8.42 years |           |  | $        | 4.06  |  |  |  | 2.3  |  |  | $ | 4.05  | 
|$4.30 - $4.95   |  |             | 0.6  |             |  |          | 7.97 years |           |  | $        | 4.70  |  |  |  | 0.3  |  |  | $ | 4.60  | 
|$5.01 - $5.09   |  |             | 7.5  |             |  |          | 9.80 years |           |  | $        | 5.09  |  |  |  | 0.3  |  |  | $ | 5.09  | 
|$5.13 - $5.81   |  |             | 5.7  |             |  |          | 9.15 years |           |  | $        | 5.58  |  |  |  | 1.3  |  |  | $ | 5.55  | 
|$5.96 - $9.98   |  |             | 3.0  |             |  |          | 7.62 years |           |  | $        | 6.79  |  |  |  | 1.2  |  |  | $ | 7.48  | 
|$10.29 - $10.29 |  |             | 7.2  |             |  |          | 7.07 years |           |  | $        | 10.29 |  |  |  | 5.4  |  |  | $ | 10.29 | 
|$10.34 - $13.81 |  |             | 5.4  |             |  |          | 1.68 years |           |  | $        | 12.20 |  |  |  | 5.2  |  |  | $ | 12.23 | 
|$14.25 - $35.03 |  |             | 7.1  |             |  |          | 3.05 years |           |  | $        | 25.96 |  |  |  | 6.6  |  |  | $ | 26.36 | 
|$35.31 - $51.67 |  |             | 4.2  |             |  |          | 2.92 years |           |  | $        | 43.00 |  |  |  | 4.1  |  |  | $ | 43.02 | 
|                |  |             |      |             |  |          |            |           |  |          |       |  |  |  |      |  |  |   |       | 
|$1.09 - $51.67  |  |             | 53.8 |             |  |          | 6.60 years |           |  | $        | 12.05 |  |  |  | 29.7 |  |  | $ | 17.88 | 
|                |  |             |      |             |  |          |            |           |  |          |       |  |  |  |      |  |  |   |       | 

A total of 50.7 million shares of common
stock were available for grant under Solectrons stock
option plans as of August 31, 2004.

An initial option is granted to each new outside
member of Solectrons Board of Directors to
purchase 20,000 shares of common stock at the fair
value on the date of the grant. On December 1 of each year,
each outside member is granted an additional option to
purchase 20,000 shares of common stock at the fair
market value on such date. These options vest over one year and
have a term of seven years.

55



---



##### 





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

Under Solectrons Employee Stock Purchase
Plan, employees meeting specific employment qualifications are
eligible to participate and can purchase shares semi-annually
through payroll deductions at the lower of 85% of the fair
market value of the stock at the commencement or end of the
offering period. The Purchase Plan permits eligible employees to
purchase common stock through payroll deductions for up to 10%
of qualified compensation. As of August 31, 2004,
approximately 15.0 million shares were available for
issuance under the Purchase Plan.

The weighted average fair value of the purchase
rights granted by Solectron in fiscal 2004, 2003 and 2002 was
$2.19, $1.37, and $5.13, respectively.



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

On May 12, 2004, Solectron issued
17.1 million shares of common stock at a price of
$4.775 per share for total net proceeds of
$81.7 million. These net proceeds of $81.7 million in
part, along with an additional common stock issuance of
105.6 million shares, were used to early settle
approximately 94% of the 7.25% ACES debentures. See Note 6,
Long-Term Debt, for further discussion of the early
settlement of the 7.25% ACES debentures.



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

During fiscal 2003, Solectron issued restricted
stock awards up to 1.4 million shares of common stock to
certain eligible executives. These restricted shares are not
transferable until fully vested and are subject to the Company
Repurchase Option for all unvested shares upon certain early
termination events and also subject to accelerated vesting in
certain circumstances. Compensation expense resulting from the
difference between the market value on the date of the
restricted stock award granted and the purchase price is being
amortized over the vesting period and was $2.5 million and
$1.4 million during the fiscal years 2004 and 2003,
respectively.

During fiscal 2004 and 2003, Solectron also
issued 0.7 million and 0.5 million shares,
respectively, to certain eligible executives at a price below
the market value on the day of the stock option grant.
Compensation expense resulting from the difference between the
market value on the date of the discounted stock options grant
and the purchase price is being amortized over the vesting
period and is not significant.



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

On September 17, 2001, Solectrons
board of directors authorized a $200 million stock
repurchase program. During the first fiscal quarter of 2002,
Solectron repurchased 442,200 shares of its common stock at
an average price of $10.10 for approximately $4.5 million.
There have been no repurchases since then. The stock repurchase
program is subject to certain loan covenants.



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

SFAS No. 131 Disclosure about
Segments of an Enterprise and Related Information
established standards for reporting information about operating
segments in annual financial statements and requires selected
information about operating segments in interim financial
reports issued to stockholders. It also established standards
for related disclosures about products and services, geographic
areas and major customers. Operating segments are defined as
components of an enterprise about which separate financial
information is available that is evaluated regularly by the
chief operating decision maker, or decision making group, in
deciding how to allocate resources and in assessing performance.

Prior to fiscal 2004, the Company had the
following four reportable segments: Global Operations,
Technology Solutions, Global Services and MicroSystems.
Following a comprehensive review of its business strategy,
Solectron committed to a plan to divest a number of business
operations (see also Note 16, Discontinued
Operations, for a discussion of divesting activities). As
a result, Solectron has divested a majority of the assets in the
Global Services, Technology Solutions, and MicroSystems
reportable segments. The assets which were divested are reported
as discontinued operations.

Starting in the first quarter of fiscal 2004,
Solectron realigned to a more integrated organizational
structure in order to appropriately manage the continuing
operations. The Company is now organized into a single operating
segment (Worldwide Operations) in order to deliver integrated
solutions to its customers. Worldwide Operations

56



---



##### 



consists of manufacturing and post-manufacturing
services and is supported by the following functions 
Design and Engineering Services; Sales and
Account Management; Strategy and Marketing; Finance; and
Human Resources.


Solectrons chief operating decision maker
is the Chief Executive Officer. As a result of Solectrons
organizational realignment, the Chief Executive Officer
evaluates financial information on a company-wide basis for
purposes of making decisions and assessing financial
performance. Accordingly, Solectron revised its presentation of
reportable segments from four to one to reflect how the Company
now manages its business.

Geographic information for continuing operations
as of and for the periods presented is as follows (in millions):

|                      |                               |                       |   |          |  |      |   |         |  |  |   |          | 
|--------------------- | ----------------------------- | --------------------- | - | -------- |  | ---- | - | ------- |  |  | - | -------- | 
|                      |                               |                      
|                      |                               | Years Ended August 31
|                      |                               |                      
|                      |                               | 2004                  |   | 2003     |  | 2002
|                      |                               |                       |   |          |  |     
|Geographic net sales: |                               |                       |   |          |  |      |   |         |  |  |   |         
|                      | United States                 |                       | $ | 3,219.4  |  |      | $ | 3,217.7 |  |  | $ | 3,415.8  | 
|                      | Other North and Latin America |                       |   | 1,836.2  |  |      |   | 1,358.7 |  |  |   | 1,735.7  | 
|                      | Europe                        |                       |   | 1,667.4  |  |      |   | 1,590.4 |  |  |   | 1,840.7  | 
|                      | Malaysia                      |                       |   | 1,853.4  |  |      |   | 1,455.0 |  |  |   | 1,410.1  | 
|                      | China                         |                       |   | 1,914.6  |  |      |   | 1,091.3 |  |  |   | 853.9    | 
|                      | Other Asia Pacific            |                       |   | 1,147.3  |  |      |   | 1,115.2 |  |  |   | 1,482.5  | 
|                      |                               |                       |   |          |  |      |   |         |  |  |   |         
|                      |                               |                       | $ | 11,638.3 |  |      | $ | 9,828.3 |  |  | $ | 10,738.7 | 
|                      |                               |                       |   |          |  |      |   |         |  |  |   |         

Geographic net sales are attributable to the
country in which the product is manufactured.

|                   |                               |           |       |           |  |   |         |       | 
|------------------ | ----------------------------- | --------- | ----- | --------- |  | - | ------- | ----- | 
|                   |                               | August 31 |       | August 31
|                   |                               | 2004      |       | 2003     
|                   |                               |           |       |          
|Long-lived assets: |                               |           |       |           |  |   |         |      
|                   | United States                 |           | $     | 277.8     |  |   | $       | 327.0 | 
|                   | Other North and Latin America |           |       | 182.8     |  |   |         | 224.9 | 
|                   | Europe                        |           |       | 145.6     |  |   |         | 203.9 | 
|                   | Asia Pacific                  |           |       | 330.1     |  |   |         | 346.9 | 
|                   |                               |           |       |           |  |   |         |      
|                   |                               | $         | 936.3 |           |  | $ | 1,102.7 |      
|                   |                               |           |       |           |  |   |         |      



|         |                
|-------- | ---------------
|Note 13. | Major Customers

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

|                |  |                       |      |      |  |      |      |   |  |  |      |  
|--------------- |  | --------------------- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                |  |                      
|                |  | Years Ended August 31
|                |  |                      
|                |  | 2004                  |      | 2003 |  | 2002
|                |  |                       |      |      |  |     
|Cisco Systems   |  |                       | 13.2 | %    |  |      | 11.9 | % |  |  | 11.6 | %
|Nortel Networks |  |                       | *    |      |  |      | 12.9 | % |  |  | 15.6 | %



---



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

Solectron has concentrations of credit risk due
to sales to these and other of Solectrons significant
customers. In particular, Nortel Networks accounted for
approximately 15.2% of total accounts receivable related to
continuing operations at August 31, 2003. As of
August 31, 2004, there were no customers who accounted for
greater than 10% of total accounts receivable related to
continuing operations.



|         |              
|-------- | -------------
|Note 14. | Restructuring

Over the past years, Solectron has recorded
restructuring and impairment costs as it rationalized operations
in light of customer demand declines and the economic downturn.
The measures, which included reducing the workforce,
consolidating facilities and changing the strategic focus of a
number of sites, was largely intended to align Solectrons
capacity and infrastructure to anticipated customer demand and
transition our operations to lower cost regions. The
restructuring and impairment costs include employee severance
and benefit costs, costs related to leased

57



---



##### 



facilities abandoned and subleased, impairment of
owned facilities no longer used by Solectron which will be
disposed, costs related to leased equipment that has been
abandoned, and impairment of owned equipment that will be
disposed. For owned facilities and equipment, the impairment
loss recognized was based on the fair value less costs to sell,
with fair value estimated based on existing market prices for
similar assets. Severance and benefit costs and other costs
associated with restructuring activities initiated prior to
January 1, 2003 were recorded in compliance with EITF Issue
No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity.
Severance and benefit costs associated with restructuring
activities initiated on or after January 1, 2003 are
recorded in accordance with SFAS No. 112,
Employers Accounting for Postemployment
Benefits, as Solectron concluded that it had a substantive
severance plan. In accordance with SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities, the estimated lease loss accrued for leased
facilities abandoned and subleased after December 31, 2002
represents the fair value of the lease liability as measured by
the present value of future lease payments subsequent to
abandonment less the present value of any estimated sublease
income. For those facilities abandoned and subleased before
January 1, 2003, as part of restructuring activities under
EITF Issue No. 94-3, the estimated lease loss represents
payments subsequent to abandonment less any estimated sublease
income. In order to estimate future sublease income, Solectron
works with a real estate broker to estimate the length of time
until it can sublease a facility and the amount of rent it can
expect to receive. Estimates of expected sublease income could
change based on factors that affect Solectrons ability to
sublease those facilities such as general economic conditions
and the real estate market, among others.


See also Note 15, Goodwill and
Intangible Assets, for discussion of intangible asset and
goodwill impairment charges.



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

During fiscal 2004, Solectron recorded
restructuring and impairment charges (excluding intangible asset
impairment charges) of $129.3 million related to continuing
operations.

In the fourth quarter of fiscal 2004, Solectron
committed to a plan to incur approximately $20.0 million in
new restructuring charges, of which Solectron recorded
restructuring charges of approximately $19.0 million. These
restructuring actions are to further consolidate facilities,
reduce the workforce in Europe and North America and impair
certain long-lived assets. These new restructuring actions will
result in future savings in salaries and benefits and
depreciation expense, and will result in cash expenditures of
approximately $14.4 million. Solectron expects to complete
this new plan by the end of fiscal 2005.

The employee severance and benefit costs included
in the 2004 restructuring charges previous to the
above-mentioned plan relate to the elimination of approximately
2,100 full-time positions worldwide and all such positions
have been eliminated under this plan. The positions eliminated
were primarily in the Americas and European regions.

Under both restructuring activities mentioned
above, facilities and equipment subject to restructuring were
primarily located in the Americas and Europe. For leased
facilities that will be abandoned and subleased, the lease costs
represent the present value of future lease payments subsequent
to abandonment less estimated sublease income. For owned
facilities and equipment, the impairment loss recognized was
based on the fair value less costs to sell, with fair value
based on estimates of existing market prices for similar assets.

The other exit costs mainly represent program
transfer activity between global operation sites, which are
recorded as the charges are incurred.

The following table summarizes restructuring
charges for all restructuring plans during fiscal 2004 (in
millions):

|                                                                   |  |      |       |        |  |  |          | 
|------------------------------------------------------------------ |  | ---- | ----- | ------ |  |  | -------- | 
|                                                                   |  | 2004 |       | Nature
|                                                                   |  |      |       |       
|Loss on disposal of and impairment of equipment
    and facilities |  | $    | 35.8  |        |  |  | non-cash | 
|Severance and benefit costs                                        |  |      | 27.0  |        |  |  | cash     | 
|Net adjustment to equipment lease loss accrual                     |  |      | (3.0  | )      |  |  | cash     | 
|Net adjustment to facility lease loss accrual                      |  |      | 43.8  |        |  |  | cash     | 
|Other exit costs                                                   |  |      | 25.7  |        |  |  | cash     | 
|                                                                   |  |      |       |        |  |  |          | 
|Total                                                              |  | $    | 129.3 |        |  |  |          | 
|                                                                   |  |      |       |        |  |  |          | 

58



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##### 





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

The employee severance and benefit costs included
in these restructuring charges relate to the elimination of
approximately 9,500 full-time positions worldwide and all
such positions have been eliminated under this plan.
Approximately 57% of the positions eliminated were in the
Americas region, 31% were in Europe and 12% were in Asia.
Facilities and equipment subject to restructuring were primarily
located in the Americas and Europe. For leased facilities that
will be abandoned and subleased, the lease costs represent
future lease payments subsequent to abandonment less estimated
sublease income. For owned facilities and equipment, the
impairment loss recognized was based on the fair value less
costs to sell, with fair value based on estimates of existing
market prices for similar assets. The other exit costs mainly
represent program transfer activity between global operation
sites, which are recorded as the charges are incurred.

During fiscal 2003, Solectron recorded
restructuring and impairment charges (excluding intangible asset
and goodwill impairment charges) of $431.5 million related
to continuing operations. The following table summarizes these
charges (in millions):

|                                               |  |      |       |        |  |         
|---------------------------------------------- |  | ---- | ----- | ------ |  | --------
|                                               |  | 2003 |       | Nature
|                                               |  |      |       |       
|Impairment of equipment                        |  | $    | 47.7  |        |  | non-cash
|Impairment of facilities                       |  |      | 77.8  |        |  | non-cash
|Impairment of other assets                     |  |      | 26.9  |        |  | non-cash
|                                               |  |      |       |        |  |         
|Impairment of equipment, facilities and others |  | $    | 152.4 |        |  |         
|Severance and benefit costs                    |  |      | 220.7 |        |  | cash    
|Loss on leased equipment                       |  |      | 2.2   |        |  | cash    
|Loss on leased facilities                      |  |      | 23.6  |        |  | cash    
|Other exit costs                               |  |      | 32.6  |        |  | cash    
|                                               |  |      |       |        |  |         
|Total                                          |  | $    | 431.5 |        |  |         
|                                               |  |      |       |        |  |         



| |            
| | -----------
| | Fiscal 2002

The employee severance and benefit costs included
in these restructuring charges relate to the elimination of
approximately 15,000 full-time positions worldwide and all
such positions have been eliminated under this plan.
Approximately 69% of the positions eliminated were in the
Americas region, 20% were in Europe and 11% were in Asia. The
employment reductions primarily affected employees in
manufacturing and back office support functions. Facilities and
equipment subject to restructuring were primarily located in the
Americas and Europe. For leased facilities that will be
abandoned and subleased, the lease costs represent future lease
payments subsequent to abandonment less estimated sublease
income. For owned facilities and equipment, the impairment loss
recognized was based on the fair value less costs to sell, with
fair value based on estimated of existing market prices for
similar assets.

During fiscal 2002, Solectron recorded
restructuring and impairment costs of $602.3 million
related to continuing operations. The following table summarizes
these charges (in millions):

|                                               |  |      |       |        |  |         
|---------------------------------------------- |  | ---- | ----- | ------ |  | --------
|                                               |  | 2002 |       | Nature
|                                               |  |      |       |       
|Impairment of equipment                        |  | $    | 120.0 |        |  | non-cash
|Impairment of facilities                       |  |      | 81.0  |        |  | non-cash
|Impairment of IT software and other assets     |  |      | 162.5 |        |  | non-cash
|                                               |  |      |       |        |  |         
|Impairment of equipment, facilities and others |  | $    | 363.5 |        |  |         
|Severance and benefit costs                    |  |      | 115.0 |        |  | cash    
|Loss on leased equipment                       |  |      | 23.8  |        |  | cash    
|Loss on leased facilities                      |  |      | 79.3  |        |  | cash    
|Other exit costs                               |  |      | 20.7  |        |  | cash    
|                                               |  |      |       |        |  |         
|Total                                          |  | $    | 602.3 |        |  |         
|                                               |  |      |       |        |  |         

59



---



##### 



The impairment of equipment, facilities and
others for fiscal 2002 includes $40.5 million of impairment
charges related to intangible assets.

The following table summarizes the continuing
operations restructuring accrual activity in all fiscal years
presented (in millions):

|                                      |  |              |        |                |  |                |       |       |  |       |       |   |  |   |       |   |  |   |        |  
|------------------------------------- |  | ------------ | ------ | -------------- |  | -------------- | ----- | ----- |  | ----- | ----- | - |  | - | ----- | - |  | - | ------ | -
|                                      |  | Severance    |        | Lease Payments |  | Lease Payments |       |       |  |      
|                                      |  | and Benefits |        | on Facilities  |  | on Equipment   |       | Other |  | Total
|                                      |  |              |        |                |  |                |       |       |  |      
|Balance of accrual at August 31, 2001 |  | $            |       |                |  | $              | 50.9  |       |  | $     | 112.5 |   |  | $ | 3.9   |   |  | $ | 167.3  |  
|FY2002 Provision                      |  |              | 115.0  |                |  |                | 83.2  |       |  |       | 30.3  |   |  |   | 20.7  |   |  |   | 249.2  |  
|FY2002 Provision adjustments          |  |              |       |                |  |                | (3.9  | )     |  |       | (6.5  | ) |  |   |      |   |  |   | (10.4  | )
|FY2002 Cash payments                  |  |              | (109.4 | )              |  |                | (71.2 | )     |  |       | (52.1 | ) |  |   | (24.3 | ) |  |   | (257.0 | )
|                                      |  |              |        |                |  |                |       |       |  |       |       |   |  |   |       |   |  |   |        |  
|Balance of accrual at August 31, 2002 |  | $            | 5.6    |                |  | $              | 59.0  |       |  | $     | 84.2  |   |  | $ | 0.3   |   |  | $ | 149.1  |  
|                                      |  |              |        |                |  |                |       |       |  |       |       |   |  |   |       |   |  |   |        |  
|FY2003 Provision                      |  |              | 220.7  |                |  |                | 22.6  |       |  |       | 2.2   |   |  |   | 32.6  |   |  |   | 278.1  |  
|FY2003 Provision adjustments          |  |              |       |                |  |                | 1.0   |       |  |       |      |   |  |   |      |   |  |   | 1.0    |  
|FY2003 Cash payments                  |  |              | (153.2 | )              |  |                | (50.1 | )     |  |       | (57.1 | ) |  |   | (22.4 | ) |  |   | (282.8 | )
|                                      |  |              |        |                |  |                |       |       |  |       |       |   |  |   |       |   |  |   |        |  
|Balance of accrual at August 31, 2003 |  | $            | 73.1   |                |  | $              | 32.5  |       |  | $     | 29.3  |   |  | $ | 10.5  |   |  | $ | 145.4  |  
|                                      |  |              |        |                |  |                |       |       |  |       |       |   |  |   |       |   |  |   |        |  
|FY2004 Provision                      |  |              | 27.0   |                |  |                | 53.7  |       |  |       | 2.3   |   |  |   | 25.7  |   |  |   | 108.7  |  
|FY2004 Provision adjustments          |  |              |       |                |  |                | (9.9  | )     |  |       | (5.3  | ) |  |   |      |   |  |   | (15.2  | )
|FY2004 Cash payments                  |  |              | (71.2  | )              |  |                | (17.5 | )     |  |       | (21.4 | ) |  |   | (34.9 | ) |  |   | (145.0 | )
|                                      |  |              |        |                |  |                |       |       |  |       |       |   |  |   |       |   |  |   |        |  
|Balance of accrual at August 31, 2004 |  | $            | 28.9   |                |  | $              | 58.8  |       |  | $     | 4.9   |   |  | $ | 1.3   |   |  | $ | 93.9   |  
|                                      |  |              |        |                |  |                |       |       |  |       |       |   |  |   |       |   |  |   |        |  

Accruals related to restructuring activities were
recorded in accrued expenses in the accompanying consolidated
balance sheet. Solectron expects to pay approximately
$60.7 million in the next year related to severance and
benefits, lease commitment costs and other exit costs. The
remaining balance, primarily consisting of lease commitment
costs on facilities, is expected to be paid out through 2012.

Note 15.     Goodwill
and Intangible Assets

Goodwill information is as follows for continuing
operations (in millions):

|                           |  |          |          |  
|-------------------------- |  | -------- | -------- | -
|                           |  | Goodwill
|                           |  |         
|Balance at August 31, 2002 |  | $        | 1,748.8  |  
|Goodwill adjustments*      |  |          | 18.3     |  
|Goodwill impairment        |  |          | (1,632.5 | )
|                           |  |          |          |  
|Balance at August 31, 2003 |  | $        | 134.6    |  
|                           |  |          |          |  
|Goodwill adjustments       |  |          |         |  
|Goodwill impairment        |  |          |         |  
|                           |  |          |          |  
|Balance at August 31, 2004 |  | $        | 134.6    |  
|                           |  |          |          |  



---



|  |                                                                                                                                                                                                                                                
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Goodwill adjustments were primarily made based on
    the final appraisal received during the first quarter of fiscal
    2003 related to the acquisition of C-MAC. No significant
    additions resulted from acquisitions during fiscal 2003.

Any goodwill established in connection with an
acquisition that was subsequently considered a discontinued
operation is now included in discontinued operations (See
Note 16, Discontinued Operations).



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

As of June 1, 2004, Solectron performed its
annual impairment test under the guidelines of
SFAS No. 142, Goodwill and Other Intangible
Assets and since the market capitalization of the Company
exceeded the fair value, no goodwill impairment loss was deemed
necessary.

60



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##### 





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

Primarily due to significant industry and
economic trends that continued to negatively affect
Solectrons operations and stock price, Solectron performed
a goodwill impairment test according to the provisions of
SFAS No. 142 during the third quarter of fiscal 2003
in advance of the Companys annual test originally
scheduled for the fourth quarter of fiscal 2003. This impairment
test resulted in an impairment charge of approximately
$1.6 billion related to continuing operations.

The discounted cash flow models used to determine
the fair values of the reporting units were prepared using
revenue and expense projections based on Solectrons
current operating plan as of the date of the test. The revenue
projections were managements best estimates considering
current and expected economic and industry conditions as of the
date of the test. The discounted cash flow model also included a
terminal value for years six and beyond that assumes future free
cash flow growth of 3% based on managements estimates and
standard industry rates used by analysts monitoring
Solectrons industry. The cash flows were discounted using
a weighted average cost of capital of 12% which is
managements best estimate considering the debt and equity
structure of the Company and external industry data. The
discounted cash flows related to the terminal value represents
approximately 72% of total expected future discounted cash flows.



| |            
| | -----------
| | Fiscal 2002

During the fourth quarter of fiscal 2002,
Solectron performed its annual goodwill impairment test in
accordance with SFAS No. 142 which included step one
as described above for each of the reporting units. Results of
step one indicated that an impairment existed within one of its
reporting units since the estimated fair value, based on
expected future discounted cash flows to be generated from the
unit, was less than its carrying value. Pursuant to the second
step of the test, Solectron compared the implied fair value of
the units goodwill (determined by allocating the
units fair value based on expected future discounted cash
flows, to all its assets, recognized and unrecognized, and
liabilities in a manner similar to a purchase price allocation
for an acquired business) to its carrying amount. In connection
with allocating the fair value of this reporting unit, Solectron
also obtained independent valuations of certain unrecognized
intangible assets as well as fixed assets.

The discounted cash flow models used to determine
the fair values of reporting units in the tests were prepared
using revenue and expense projections based on Solectrons
current operating plan. The revenue projections are
managements best estimates considering current and
expected economic and industry conditions. The discounted cash
flow model also included a terminal value for years six and
beyond that assumes future free cash flow growth ranging from 3%
to 4% based on managements estimates and standard industry
rates used by analysts monitoring Solectrons industry. The
cash flows were discounted using a weighted average cost of
capital ranging from 12% to 13% which is managements best
estimate considering the debt and equity structure of the
Company and external industry data. The discounted cash flows
related to the terminal value represents approximately 84% of
total expected future discounted cash flows.

Significant negative industry and economic trends
affecting Solectrons current and future operations as well
as a significant decline in Solectrons stock price
contributed to the fourth quarter impairment test resulting in
an impairment of goodwill of approximately $2.5 billion.



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

The Companys intangible assets are
categorized into three main classes: supply agreements,
intellectual property agreements and other. The supply
agreements primarily resulted from Solectrons acquisitions
of several Nortel manufacturing facilities. The second class
primarily consists of intellectual property agreements resulting
from Solectrons acquisitions of various IBM facilities.
The third class, other, consists of other miscellaneous
intangible assets from Solectrons various asset purchases.

61



---



##### 



The following table summarizes the continuing
operations intangible asset activity for fiscal years 2004 and
2003 (in millions):

|                         |  |            |       |              |  |       |       |       |  |   |       |   |  |   |        |  
|------------------------ |  | ---------- | ----- | ------------ |  | ----- | ----- | ----- |  | - | ----- | - |  | - | ------ | -
|                         |  |            |       | Intellectual |  |       |       |      
|                         |  | Supply     |       | Property     |  |       |       |      
|Fiscal 2004              |  | Agreements |       | Agreements   |  | Other |       | Total
|                         |  |            |       |              |  |       |       |      
|Gross amount             |  | $          | 87.7  |              |  | $     | 108.5 |       |  | $ | 94.8  |   |  | $ | 291.0  |  
|Accumulated amortization |  |            | (86.1 | )            |  |       | (54.5 | )     |  |   | (77.5 | ) |  |   | (218.1 | )
|Impairment               |  |            |      |              |  |       | (47.5 | )     |  |   |      |   |  |   | (47.5  | )
|                         |  |            |       |              |  |       |       |       |  |   |       |   |  |   |        |  
|Carrying value           |  | $          | 1.6   |              |  | $     | 6.5   |       |  | $ | 17.3  |   |  | $ | 25.4   |  
|                         |  |            |       |              |  |       |       |       |  |   |       |   |  |   |        |  

|                         |  |            |        |              |  |       |       |       |  |   |       |   |  |   |        |  
|------------------------ |  | ---------- | ------ | ------------ |  | ----- | ----- | ----- |  | - | ----- | - |  | - | ------ | -
|                         |  |            |        | Intellectual |  |       |       |      
|                         |  | Supply     |        | Property     |  |       |       |      
|Fiscal 2003              |  | Agreements |        | Agreements   |  | Other |       | Total
|                         |  |            |        |              |  |       |       |      
|Gross amount             |  | $          | 228.1  |              |  | $     | 108.5 |       |  | $ | 126.1 |   |  | $ | 462.7  |  
|Accumulated amortization |  |            | (85.7  | )            |  |       | (45.6 | )     |  |   | (71.5 | ) |  |   | (202.8 | )
|Impairment               |  |            | (140.4 | )            |  |       |      |       |  |   | (31.3 | ) |  |   | (171.7 | )
|                         |  |            |        |              |  |       |       |       |  |   |       |   |  |   |        |  
|Carrying value           |  | $          | 2.0    |              |  | $     | 62.9  |       |  | $ | 23.3  |   |  | $ | 88.2   |  
|                         |  |            |        |              |  |       |       |       |  |   |       |   |  |   |        |  

In fiscal 2004, Solectron performed an impairment
test of intangible assets as a result of Solectrons
decision to disengage from certain product lines in the
Computing market. The impairment of $47.5 million was
measured by comparing the intangible assets carrying amounts to
the fair values as determined using discounted cash flow models.

In fiscal 2003, Solectron performed impairment
tests of intangible assets in conjunction with its goodwill
impairment tests in fiscal 2003. These impairments totaled
$171.7 million and occurred primarily due to reduced
expectations of sales to be realized under Solectrons
supply agreements with these customers and were measured by
comparing the intangible assets carrying amounts to the fair
values as determined using discounted cash flow models.

Amortization expense related to continuing
operations was $15.3 million, $29.7 million and
$59.5 million, respectively, in fiscal 2004, 2003, and
2002. The Company expects that its annual amortization expense
as required by SFAS No. 142 for these intangibles
would be approximately $9.0 million for each of the next
two fiscal years and $3.7 million for each of the two
subsequent fiscal years. Intangible assets are included in other
assets in the consolidated balance sheets.

Note 16.     Discontinued
Operations

During the fourth quarter of fiscal 2003 and
first quarter of fiscal 2004, as a result of a full review of
its portfolio of businesses, Solectron committed to a plan to
divest a number of business operations that are outside its core
competencies. These businesses are Dy 4 Systems Inc.,
Kavlico Corporation, Solectrons MicroTechnology division,
SMART Modular Technologies Inc., Stream International Inc.,
Solectrons 63% interest in US Robotics Corporation,
and Force Computers, Inc. The divestiture of these companies
allows Solectron to offer a more focused and integrated set of
supply chain solutions for its customers.

These businesses each qualify as a discontinued
operation component of Solectron under SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets. Solectron has reported the results of operations
and consolidated financial position of these businesses in
discontinued operations within the consolidated statements of
operations and the balance sheets for all periods presented. In
addition, Solectron has excluded the cash flow activity from
these businesses from the statements of cash flows for all
periods presented.

62



---



##### 



The results from discontinued operations were as
follows (in millions):

|                                  |                                                            |                       |         |      |  |      |         |        |   |   |         |       |  
|--------------------------------- | ---------------------------------------------------------- | --------------------- | ------- | ---- |  | ---- | ------- | ------ | - | - | ------- | ----- | -
|                                  |                                                            |                      
|                                  |                                                            | Years Ended August 31
|                                  |                                                            |                      
|                                  |                                                            | 2004                  |         | 2003 |  | 2002
|                                  |                                                            |                       |         |      |  |     
|Net sales                         |                                                            | $                     | 1,264.9 |      |  | $    | 1,872.1 |        |   | $ | 1,537.5 |      
|Cost of sales                     |                                                            |                       | 1,061.8 |      |  |      | 1,598.5 |        |   |   | 1,335.6 |      
|                                  |                                                            |                       |         |      |  |      |         |        |   |   |         |      
|Gross profit                      |                                                            |                       | 203.1   |      |  |      | 273.6   |        |   |   | 201.9   |      
|Operating expenses  net          |                                                            |                       | 111.6   |      |  |      | 606.5   |        |   |   | 264.6   |      
|                                  |                                                            |                       |         |      |  |      |         |        |   |   |         |      
|                                  | Operating income (loss)                                    |                       |         | 91.5 |  |      |         | (332.9 | ) |   |         | (62.7 | )
|Interest income  net             |                                                            |                       | 1.4     |      |  |      | 1.5     |        |   |   | 3.7     |      
|Other (expense) income  net      |                                                            |                       | (2.0    | )    |  |      | 1.4     |        |   |   | 1.4     |      
|                                  |                                                            |                       |         |      |  |      |         |        |   |   |         |      
|Income (loss) before income taxes |                                                            |                       | 90.9    |      |  |      | (330.0  | )      |   |   | (57.6   | )    
|Income tax expense (benefit)      |                                                            |                       | 8.0     |      |  |      | 112.2   |        |   |   | (18.2   | )    
|                                  |                                                            |                       |         |      |  |      |         |        |   |   |         |      
|                                  | Income (loss) from discontinued operations, net
    of tax |                       | $       | 82.9 |  |      | $       | (442.2 | ) |   | $       | (39.4 | )
|                                  |                                                            |                       |         |      |  |      |         |        |   |   |         |      

During fiscal 2004, Solectron completed the sale
of six of its discontinued operations for net cash proceeds of
approximately $508.0 million resulting in a pre-tax gain of
$190.6 which is included in operating expenses  net
for the year ended August 31, 2004 as disclosed above. As a
result of the disposition of these operations, Solectron
transferred approximately $14.5 million from accumulated
foreign currency translation losses, included in accumulated
other comprehensive losses within stockholders equity, and
recognized that amount as part of the pre-tax gain.

During the fourth quarter of fiscal 2004,
Solectron completed the sale of two discontinued operations for
net cash proceeds of $124.6 million resulting in a pre-tax
gain of $57.1 million. Furthermore, during the fourth
quarter of fiscal 2004, Solectron reduced the gain on disposal
of the previous discontinued operations by approximately
$22.0 million due to the resolution of post-close
contingencies. $15.7 million of the adjustment was
triggered as a result of certain events that transpired during
the fourth quarter of fiscal 2004 and relates to the impairment
of a synthetic lease that is being terminated. The termination
of the synthetic lease is expected to be completed in the first
quarter of fiscal 2005 and is subject to potential adjustment
upon ultimate termination. The remaining adjustment amount to
the gain on disposal of discontinued operations prior to the
fourth quarter of fiscal 2004 is due to the resolution of
working capital adjustments and other reconciling items pursuant
to the sales agreements. On October 18, 2004, Solectron
completed the sale of its MicroTechnology business operations.

The sale agreements for all six divestitures
contain certain indemnification provisions under which Solectron
may be required to indemnify the buyer of the divested business
for liabilities, losses, or expenses arising out of breaches of
covenants and certain breaches of representations and warranties
relating to the condition of the business prior to and at the
time of sale. In aggregate, Solectron is generally contingently
liable for up to $81.5 million for a period of 12 to
24 months subsequent to the completion of the sale. As of
August 31, 2004, there were no liabilities recorded under
these indemnification obligations.

Furthermore, Solectron recorded approximately
$123.8 million, $62.8 million and $13.1 million
of restructuring and impairment costs (excluding goodwill
impairment costs) related to discontinued operations which is
also included in operating expenses  net for the
years ended August 31, 2004, 2003, and 2002, respectively,
as disclosed above.

In fiscal 2003, approximately $370.1 million
of restructuring and impairment costs (including goodwill)
included in operating expenses determined in connection with
Solectrons impairment test performed during the third and
fourth quarter of fiscal 2003 was related to discontinued
operations. See Note 15, Goodwill and Intangible
Assets, for further discussion of this impairment test.
This goodwill was established in conjunction with acquisitions
of businesses in fiscal 2002. See Note 19, Business
Combinations, for additional information.

Also in fiscal 2003, approximately
$95.7 million was recorded in discontinued operations
related to establishing a valuation allowance for deferred tax
assets. See Note 10 Income Taxes, for further
discussion of income taxes.

63



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##### 



The current and non-current assets and
liabilities of discontinued operations as of August 31,
2004 and 2003, were as follows (in millions):

|                                                  |                                                              |           |      |           |  |   |       |       | 
|------------------------------------------------- | ------------------------------------------------------------ | --------- | ---- | --------- |  | - | ----- | ----- | 
|                                                  |                                                              | August 31 |      | August 31
|                                                  |                                                              | 2004      |      | 2003     
|                                                  |                                                              |           |      |          
|Cash, cash equivalents and short-term investments |                                                              | $         |     |           |  | $ | 36.4  |      
|Accounts receivable, net                          |                                                              |           | 18.3 |           |  |   | 276.2 |      
|Inventories                                       |                                                              |           | 18.1 |           |  |   | 121.4 |      
|Prepaid expenses and other current assets         |                                                              |           |     |           |  |   | 18.1  |      
|                                                  |                                                              |           |      |           |  |   |       |      
|                                                  | Total current assets of discontinued operations              |           | $    | 36.4      |  |   | $     | 452.1 | 
|                                                  |                                                              |           |      |           |  |   |       |      
|Net property and equipment                        |                                                              | $         | 10.1 |           |  | $ | 126.5 |      
|Goodwill                                          |                                                              |           |     |           |  |   | 112.2 |      
|Other assets                                      |                                                              |           | 1.8  |           |  |   | 24.2  |      
|                                                  |                                                              |           |      |           |  |   |       |      
|                                                  | Total non-current assets of discontinued
    operations      |           | $    | 11.9      |  |   | $     | 262.9 | 
|                                                  |                                                              |           |      |           |  |   |       |      
|Short-term debt                                   |                                                              | $         | 8.9  |           |  | $ | 6.1   |      
|Accounts payable                                  |                                                              |           | 26.0 |           |  |   | 168.1 |      
|Accrued employee compensation                     |                                                              |           | 7.2  |           |  |   | 41.4  |      
|Accrued expenses                                  |                                                              |           | 4.3  |           |  |   | 55.2  |      
|Other current liabilities                         |                                                              |           |     |           |  |   | 63.1  |      
|                                                  |                                                              |           |      |           |  |   |       |      
|                                                  | Total current liabilities of discontinued
    operations     |           | $    | 46.4      |  |   | $     | 333.9 | 
|                                                  |                                                              |           |      |           |  |   |       |      
|                                                  | Total non-current liabilities of discontinued
    operations |           | $    | 1.8       |  |   | $     | 22.6  | 
|                                                  |                                                              |           |      |           |  |   |       |      



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

Basic net loss per share is computed using the
weighted average number of common shares outstanding during the
period.

Due to Solectrons loss from continuing
operations, dilutive potential common shares were excluded from
the computation of diluted loss per share, as inclusion would be
anti-dilutive for the periods presented. Diluted net loss per
common share is computed using the weighted average number of
common and dilutive potential common shares outstanding during
the period; dilutive potential common shares consist of options
to purchase common stock and shares issuable upon conversion of
Solectrons LYONs and ACES. Dilutive potential common
shares would also include shares issuable upon conversion of
Solectrons 0.5% senior notes only if certain
conversion events occur.

The following table summarizes the weighted
average dilutive potential common shares that were excluded from
the computation of diluted loss per share (in millions):

|                                             |                                                                                                    |                                        |  |      |       |      |  |       |       |  |  |      |       | 
|-------------------------------------------- | -------------------------------------------------------------------------------------------------- | -------------------------------------- |  | ---- | ----- | ---- |  | ----- | ----- |  |  | ---- | ----- | 
|                                             |                                                                                                    | 2004                                   |  | 2003 |       | 2002
|                                             |                                                                                                    |                                        |  |      |       |     
|Dilutive potential common shares:            |                                                                                                    |                                        |  |      |       |      |  |       |       |  |  |     
|                                             | Employee stock options                                                                             |                                        |  | 7.0  |       |      |  | 1.2   |       |  |  | 3.5  |      
|                                             | Shares issuable upon conversion of LYONs                                                           |                                        |  | 14.5 |       |      |  | 31.7  |       |  |  | 57.6 |      
|                                             | Shares issuable upon conversion of ACES                                                            |                                        |  | 78.9 |       |      |  | 112.1 |       |  |  | 78.0 |      
|                                             |                                                                                                    |                                        |  |      |       |      |  |       |       |  |  |     
|                                             |                                                                                                    | Total dilutive potential common shares |  |      | 100.4 |      |  |       | 145.0 |  |  |      | 139.1 | 
|                                             |                                                                                                    |                                        |  |      |       |      |  |       |       |  |  |     
|Contingent dilutive potential common shares: |                                                                                                    |                                        |  |      |       |      |  |       |       |  |  |     
|                                             | Shares issuable upon conversion of
    0.5% senior notes, only if certain conversion events occur* |                                        |  | 24.6 |       |      |  |      |       |  |  |     |      
|                                             |                                                                                                    |                                        |  |      |       |      |  |       |       |  |  |     



---



|  |                                                                                                                                                                                                                                         
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | 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.

64



---



##### 





|         |                   
|-------- | ------------------
|Note 18. | Purchase of Assets



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

On February 3, 2003 Solectron entered into a
five-year supply agreement with HP to assemble printed circuit
boards and memory modules for HPs mid- and high-end
enterprise servers, as well as other products. In connection
with this supply agreement, Solectron paid approximately
$5.0 million to acquire certain operating assets. This
transaction was treated as an asset purchase and Solectron
allocated the purchase price based on the fair values of the
assets acquired and liabilities assumed. The $5.0 million
was allocated to inventory, other assets, property, plant,
equipment and intangible assets. In addition, Solectron agreed
to pay HP $52.0 million if HP meets certain minimum revenue
targets over the next five years. Solectron is accounting for
this potential payment as a volume-based incentive. Solectron
accrues a rebate allowance and reduces sales as HP revenue is
generated.

Solectron also acquired an IBM asset recovery
operation in North Carolina and a call and technical support
service center in Italy for an aggregate purchase price of
approximately $14.0 million in cash during the second
quarter of fiscal 2003.



| |            
| | -----------
| | Fiscal 2002

On May 31, 2002, Solectron announced the
completion of a three-year supply agreement to produce optical
networking equipment for Lucent. As part of the three-year
supply agreement, Solectron purchased equipment and inventory
related to Lucents optical product lines for approximately
$99 million in cash. This acquisition was accounted for as
a purchase of assets. Subsequently, as a result of significant
changes in the marketplace and decreased demand, both parties
agreed in October 2002 to unwind this supply agreement. During
the first quarter of fiscal 2003, Solectron received
approximately $48 million in cash from Lucent to unwind
this agreement. No gain or loss was realized with respect to
this unwind transaction as the cash received was equal to the
carrying value of the assets divested. Solectron ceased
production under this agreement in March 2003.



|         |                      
|-------- | ---------------------
|Note 19. | Business Combinations



| |            
| | -----------
| | Fiscal 2002



| |                               
| | ------------------------------
| | C-MAC Industries, Inc. (C-MAC)

During the second quarter of 2002, Solectron
completed its acquisition of 100% of the outstanding common
stock of C-MAC, which provides a comprehensive portfolio of
electronic manufacturing services and solutions to customers
worldwide. The Company attributes the goodwill in this
transaction to managements belief that the acquisition
will enable Solectron to create a diversified provider of
integrated electronic manufacturing solutions that can benefit
from complementary high-end technology capabilities, selected
vertical integration and improved access to growth opportunities
and meet the growing demand by customers for complete
supply-chain management solutions.

The Company issued approximately
98.8 million shares of its common stock, 52.5 million
exchangeable shares of Solectron Global Services Canada Inc.,
which are exchangeable on a one-to-one basis for Solectron
Corporations common stock, and 5 million options to
purchase Solectron Corporations common stock in the
transaction. The purchase price was $2,567 million,
consisting of stock valued at $2,487 million, stock options
valued at $63 million and direct acquisition costs of
$22 million reduced by the intrinsic value of unvested
stock options of $5 million. The value of the common stock
issued was determined based on the average market price of
Solectrons common stock over the five-day period before
and after the terms of the acquisition were agreed to and
announced.

The Companys statements of operations
include C-MACs results from the acquisition date. The
following unaudited pro forma consolidated financial information
presents the combined results of operations of Solectron and
C-MAC as if the acquisition had occurred as of the beginning of
fiscal 2002. The pro forma consolidated financial

65



---



##### 



information does not necessarily reflect the
results of operations that would have occurred if Solectron and
C-MAC constituted a single entity during such period.


|                       |  |                      |          |  
|---------------------- |  | -------------------- | -------- | -
|                       |  | 2002                
|                       |  |                     
|                       |  | (In millions, except
|                       |  | per-share data)     
|Net sales              |  | $                    | 10,897.7 |  
|Net loss               |  | $                    | (3,133.7 | )
|Basic loss per share   |  | $                    | (3.82    | )
|Diluted loss per share |  | $                    | (3.82    | )

The following table summarizes the estimated fair
values of the assets acquired and liabilities assumed at the
date of acquisition (in millions):

|                            |                           |   |         |         |  
|--------------------------- | ------------------------- | - | ------- | ------- | -
|Accounts receivable         |                           | $ | 277.4   |        
|Inventory                   |                           |   | 362.1   |        
|Other current assets        |                           |   | 214.5   |        
|Property and equipment      |                           |   | 186.2   |        
|Goodwill                    |                           |   | 2,143.5 |        
|Other intangible assets     |                           |   | 25.6    |        
|Other long-term assets      |                           |   | 44.2    |        
|                            |                           |   |         |        
|                            | Total assets acquired     |   | $       | 3,253.5 |  
|                            |                           |   |         |        
|Current liabilities         |                           | $ | (316.5  | )      
|Long-term debt              |                           |   | (337.8  | )      
|Other long-term liabilities |                           |   | (32.3   | )      
|                            |                           |   |         |        
|                            | Total liabilities assumed |   | $       | (686.6  | )
|                            |                           |   |         |        

The other intangible assets acquired had a fair
value of approximately $26 million based on an independent
valuation. All the other intangible assets resulting from the
acquisition are classified under the other category
of the table of intangible assets presented in Note 15,
Goodwill and Intangible Assets. The weighted-average
useful life of these intangible assets is approximately six
years. Solectron does not expect these assets to have a residual
value upon full amortization. Approximately $300 million of
goodwill is expected to be deductible for tax purposes.



| |                   
| | ------------------
| | Other Acquisitions

During the first quarter of 2002, Solectron
completed its acquisition of Iphotonics, Inc., an optical
products manufacturer, for approximately 10.2 million
shares of Solectron common stock and 428,000 options to purchase
Solectrons common stock. The purchase price was
$125 million, consisting of stock valued at
$122 million, stock options valued at $3 million and
direct acquisition costs of $1 million. This transaction
resulted in goodwill of approximately $105 million. The
value of the common stock issued was determined based on the
average market price of Solectrons common stock over the
five-day period before and after the terms of the acquisition
were agreed to and announced.

During the first quarter of 2002, Solectron
completed its acquisition of Stream International, Inc., a
global customer relationship management provider, for
approximately $367 million in cash. This transaction
resulted in goodwill of approximately $271 million.

During the second quarter of fiscal 2002,
Solectron completed its acquisition of Artesyn Solutions, Inc.
for approximately $36 million in cash. Artesyn Solutions,
Inc. is a provider of extensive repair, refurbishment, logistics
and supply-chain management and end-of-life planning services
for customers in the computer, printer, storage, server,
wireless and consumer electronics sector. This transaction
resulted in goodwill of approximately $33 million.

During the third quarter of 2002, Solectron
announced the completion of its acquisition of NEC Ibaraki, a
provider of manufacturing, fulfillment and demand forecasting
services. The purchase price of the acquisition was
approximately $17 million in cash. No goodwill resulted
from this transaction.

66



---



##### 



During the fourth quarter of 2002, Solectron
completed its acquisition of MDT, a global provider of
after-sales services for the communications, computer and
electronic storage markets for approximately $70 million in
cash. This transaction resulted in goodwill of approximately
$86 million.

Pro forma financial information related to
Iphotonics, Stream, Artesyn, NEC Ibaraki, and MDT are not
provided as their operations were not significant individually
or in the aggregate to Solectron as a whole.



|         |                  
|-------- | -----------------
|Note 20. | Subsequent Events

On September 10, 2004, Solectron completed
the sale of its minority interest in ECS Holdings Limited
(ECS) for approximately $16 million in cash.

On October 18, 2004, Solectron completed the
sale of its MicroTechnology business operations.



|         |                                                      
|-------- | -----------------------------------------------------
|Note 21. | Quarterly Consolidated Financial Data
    (Unaudited)

The following table contains selected unaudited
quarterly consolidated financial data for fiscal years 2004 and
2003:

|                                                           |  |         |         |         |  |         |         |         |  |   |         |   |  |   |         |  
|---------------------------------------------------------- |  | ------- | ------- | ------- |  | ------- | ------- | ------- |  | - | ------- | - |  | - | ------- | -
|                                                           |  | First   |         | Second  |  | Third   |         | Fourth 
|Fiscal 2004                                                |  | Quarter |         | Quarter |  | Quarter |         | Quarter
|                                                           |  |         |         |         |  |         |         |        
|Net sales                                                  |  | $       | 2,696.8 |         |  | $       | 2,887.4 |         |  | $ | 3,039.9 |   |  | $ | 3,014.2 |  
|Gross profit                                               |  | $       | 127.5   |         |  | $       | 131.1   |         |  | $ | 159.2   |   |  | $ | 162.5   |  
|Gross margin                                               |  |         | 4.7     | %       |  |         | 4.5     | %       |  |   | 5.2     | % |  |   | 5.4     | %
|Loss from continuing operations                            |  | $       | (52.2   | )       |  | $       | (89.7   | )       |  | $ | (65.4   | ) |  | $ | (44.5   | )
|(Loss) income from discontinued operations, net
    of tax |  |         | (67.6   | )       |  |         | 21.7    |         |  |   | 86.7    |   |  |   | 42.1    |  
|                                                           |  |         |         |         |  |         |         |         |  |   |         |   |  |   |         |  
|Net (loss) income                                          |  | $       | (119.8  | )       |  | $       | (68.0   | )       |  | $ | 21.3    |   |  | $ | (2.4    | )
|                                                           |  |         |         |         |  |         |         |         |  |   |         |   |  |   |         |  
|Basic and diluted net loss per share                       |  | $       | (0.14   | )       |  | $       | (0.08   | )       |  | $ | 0.02    |   |  | $ | 0.00    |  

|                                              |  |   |         |   |  |   |         |   |  |   |          |   |  |   |         |  
|--------------------------------------------- |  | - | ------- | - |  | - | ------- | - |  | - | -------- | - |  | - | ------- | -
|Fiscal 2003                                   |  |   |         |   |  |   |         |  
|                                              |  |   |         |   |  |   |         |  
|Net sales                                     |  | $ | 2,668.1 |   |  | $ | 2,359.6 |   |  | $ | 2,357.3  |   |  | $ | 2,443.3 |  
|Gross profit                                  |  | $ | 165.0   |   |  | $ | 60.4    |   |  | $ | 99.2     |   |  | $ | 117.4   |  
|Gross margin                                  |  |   | 6.2     | % |  |   | 2.6     | % |  |   | 4.2      | % |  |   | 4.8     | %
|Loss from continuing operations               |  | $ | (67.3   | ) |  | $ | (103.9  | ) |  | $ | (2,685.9 | ) |  | $ | (162.7  | )
|Loss from discontinued operations, net of tax |  |   | (3.6    | ) |  |   | (6.9    | ) |  |   | (415.3   | ) |  |   | (16.4   | )
|                                              |  |   |         |   |  |   |         |   |  |   |          |   |  |   |         |  
|Net loss                                      |  | $ | (70.9   | ) |  | $ | (110.8  | ) |  | $ | (3,101.2 | ) |  | $ | (179.1  | )
|                                              |  |   |         |   |  |   |         |   |  |   |          |   |  |   |         |  
|Basic and diluted net loss per share          |  | $ | (0.09   | ) |  | $ | (0.13   | ) |  | $ | (3.74    | ) |  | $ | (0.22   | )

In accordance with the disclosure provisions of
APB No. 28, Interim Financial Reporting, the
following extraordinary, unusual, or infrequent items were
recognized in the fourth quarter of fiscal 2004.

Solectron recognized a loss on its investment in
ECS of approximately $6 million. In addition, Solectron had
a loan receivable balance related to its investment in ECS in
the amount of $9 million, payment of which is subject to
certain conditions which Solectron has now concluded are less
likely to be fulfilled. Accordingly, a total charge of
$15 million was recorded in the fourth quarter of fiscal
2004 to write down the value of the investments in ECS. Both
charges were recorded in other (expense) income  net
in the consolidated statements of operations.

In the fourth quarter of fiscal 2004, the Company
completed the conversion of the accounting and inventory
subsystems which resulted in a $5.6 million adjustment to
decrease cost of sales and a $2.0 million adjustment to
decrease operating expenses. The Company does not believe any
previous quarter was materially misstated.

67



---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

The Board of Directors and Stockholders

Solectron Corporation:


We have audited the accompanying consolidated
balance sheets of Solectron Corporation and subsidiaries as of
August 31, 2004 and 2003, and the related consolidated
statements of operations, stockholders equity,
comprehensive loss, and cash flows for each of the years in the
three-year period ended August 31, 2004. In connection with
our audits of the consolidated financial statements, we also
have audited the financial statement schedule. These
consolidated financial statements and financial statement
schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement
schedule based on our audits.

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

In our opinion, the consolidated financial
statements referred to above present fairly in all material
respects, the financial position of Solectron Corporation and
subsidiaries as of August 31, 2004 and 2003, and the
results of their operations and their cash flows for each of the
years in the three-year period ended August 31, 2004, in
conformity with accounting principles generally accepted in the
United States of America. Also in our opinion, the related
financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set
forth therein.

As discussed in Note 1 to the consolidated
financial statements, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets on
September 1, 2001.



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

Mountain View, California

October 18, 2004


68



---



##### 








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

Not applicable.






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

Evaluation of disclosure controls and
procedures.Based on their evaluation,
as of the end of the period covered by this report, our
principal executive officer and principal financial officer have
concluded that our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended, (the Exchange
Act)) are effective to ensure that information required to
be disclosed by us in reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange
Commission rules and forms.

Changes in internal control over financial
reporting.There were no changes in
our internal control over financial reporting which occurred
during the fourth quarter of fiscal year 2004 and which have
materially affected or are reasonably likely to materially
affect our internal control over financial reporting.




PART III






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

The information required by Item 10
regarding our directors, audit committee and audit committee
financial expert is incorporated by reference from the
information under the captions Board and Corporate
Governance Matters, Proposal One 
Election of Directors and Corporate Governance
in our definitive Proxy Statement (Notice of Annual Meeting of
Stockholders) for the fiscal year ended August 27, 2004 to
be held on January 13, 2005 which we will file with the
Securities and Exchange Commission within 120 days after
the end of the fiscal year covered by this Report. The
information required by Item 10 regarding our executive
officers appears immediately following Item 4 under
Part I of this Report.

Code of Ethics

We have adopted a code of ethics that applies to
our principal executive officer and all members of our finance
department, including the principal financial officer and
principal accounting officer. This code of ethics, which
consists of the Special Ethics Obligations for Employees
with Financial Reporting Responsibilities section of our
Code of Business Conduct and Corporate Governance that applies
to employees generally, is posted on our Website. The Internet
address for our Website is http://www.solectron.com, and the
code of ethics may be found as follows:



| |                                                                      
| | ---------------------------------------------------------------------
| | 1. From our main Web page, first click on
    Company,             
|
| | 2. Next, click on Corporate
    Governance.                        
|
| | 3. Finally, click on Code of Business
    Conduct and Ethics Guide.

We intend to satisfy the disclosure requirement
under Item 5.05(c) of Form 8-K regarding certain
amendments to, or waivers from, a provision of this code of
ethics by posting such information on our website, at the
address and location specified above, within four business days
of such amendment or waiver.

Corporate Governance Guidelines and Board
Committee Charters

Our Corporate Governance Guidelines and the
charters for our board committees  the Audit
Committee, Executive Compensation and Management Resources
Committee, and Nominating and Governance Committee 
are available on Solectrons website at
http://www.solectron.com/about/gov.shtml. Stockholders may also
request a free hard copy of the Corporate Governance Guidelines
and the charters from the following address and phone number:



| |                         
| | ------------------------
| | Solectron Corporation   
| | 847 Gibraltar Drive     
| | Milpitas, CA 95035      
| | Attn: Investor Relations
| | Phone: (408) 957-8500.  

69



---



##### 






Item
11:     Executive
Compensation

The information required by Item 11 of
Form 10-K is incorporated by reference to the information
contained in the section captioned Executive Officer
Compensation of Solectrons definitive Proxy
Statement.




Item
12:     Security Ownership of
Certain Beneficial Owners and Management

Information regarding this item is incorporated
herein by reference from the section entitled Security
Ownership of Certain Beneficial Owners and Management and
Securities Authorized for Issuance under Equity
Compensation Plans in Solectrons definitive Proxy
Statement.




Item
13:     Certain Relationships and
Related Transactions

Information with respect to this item is
incorporated herein by reference from the section entitled
Certain Relationships and Related Transactions in
Solectrons definitive Proxy Statement.




Item
14:     Principal Accountant Fees
and Services

The information required by this item is included
under the captions Proposal Two  Ratification
of Appointment of Independent Auditors  Fees and
Services and Audit Committee Pre-Approval of Audit
and Non-Audit Services in our Proxy Statement related to
the 2005 Annual Meeting of Stockholders and is incorporated
herein by reference.




PART IV






|         |                                                                                 
|-------- | --------------------------------------------------------------------------------
|Item 15. | Exhibits, Consolidated Financial Statement
    Schedules and Reports on Form 8-K

|       |  |                                                                                                                                                                                                                           
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 78.                                                                                                                                                
|(a)(3) |  | Exhibits. The exhibits listed in the accompanying
    Index to Exhibits are filed as part of this Annual
    Report on Form 10-K.                                                                                       
|(b)    |  | Reports on Form 8-K.                                                                                                                                                                                                      
|       |  | Report filed on Form 8-K on August 6,
    2004 attaching press release announcing remarketing of
    debentures underlying Registrants equity security units.                                                            
|       |  | Report filed on Form 8-K on August 17,
    2004 attaching press release announcing the successful
    completion of the remarketing of debentures underlying
    Registrants equity security units.                      
|       |  | Report filed on Form 8-K on
    September 15, 2004 regarding certain costs associated with
    exit activities and certain impairment charges.                                                                            

70



---



##### 






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Company has
duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on November 5, 2004.



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



| |     |                   
| | --- | ------------------
| | By: | /s/ MICHAEL CANNON

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



| |                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Pursuant to the requirements of the Exchange Act
    of 1934, this report has been signed by the following persons in
    the capacities and on the dates indicated:

|                                         |  |                                                                                            |  |                  |  | 
|---------------------------------------- |  | ------------------------------------------------------------------------------------------ |  | ---------------- |  | 
|                                         |  |                                                                                            |  |                 
|Signature                                |  | Title                                                                                      |  | Date            
|                                         |  |                                                                                            |  |                 
|/s/ MICHAEL CANNONMichael Cannon         |  | President and Chief Executive Officer
    (Principal Executive Officer)                    |  | November 5, 2004
|                                        
|/s/ KIRAN PATELKiran Patel               |  | Executive Vice President and
    Chief Financial Officer
    (Principal Financial Officer) |  | November 5, 2004
|                                        
|/s/ WARREN J. LIGANWarren J. Ligan       |  | Senior Vice President and
    Corporate Controller
    (Principal Accounting Officer)      |  | November 5, 2004
|                                        
|/s/ RICHARD A. DAMORERichard A. DAmore |  | Director                                                                                   |  | November 5, 2004
|                                        
|/s/ WILLIAM R. GRABERWilliam R. Graber   |  | Director                                                                                   |  | November 5, 2004
|                                        
|/s/ HEINZ FRIDRICHHeinz Fridrich         |  | Director                                                                                   |  | November 5, 2004
|                                        
|/s/ WILLIAM A. HASLERWilliam A. Hasler   |  | Director                                                                                   |  | November 5, 2004
|                                        
|/s/ PAUL R. LOWPaul R. Low, Ph.D.        |  | Director                                                                                   |  | November 5, 2004
|                                        
|/s/ C. WESLEY M. SCOTTC. Wesley M. Scott |  | Director                                                                                   |  | November 5, 2004

71



---



##### 



|                                 |  |          |  |                  |  | 
|-------------------------------- |  | -------- |  | ---------------- |  | 
|                                 |  |          |  |                 
|Signature                        |  | Title    |  | Date            
|                                 |  |          |  |                 
|                                
|/s/ OSAMU YAMADAOsamu Yamada     |  | Director |  | November 5, 2004
|                                
|/s/ CYRIL YANSOUNICyril Yansouni |  | Director |  | November 5, 2004

72



---



##### 



CONSOLIDATED FINANCIAL STATEMENT
SCHEDULE

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

SOLECTRON CORPORATION AND
SUBSIDIARIES

SCHEDULE II  VALUATION AND
QUALIFYING ACCOUNTS

|                                           |  |                       |      |            |  |              |      |              |  |           |      |  |  |   |       |   |  |   |      | 
|------------------------------------------ |  | --------------------- | ---- | ---------- |  | ------------ | ---- | ------------ |  | --------- | ---- |  |  | - | ----- | - |  | - | ---- | 
|                                           |  |                       |      |            |  |              |      |             
|                                           |  |                       |      | Additions  |  |              |      |             
|                                           |  | Balance at            |      |            |  |              |      | Balance at  
|                                           |  | Beginning             |      | Charged to |  |              |      |              |  | End      
|Description                                |  | of Period             |      | Operations |  | Acquisitions |      | (Deductions) |  | of Period
|                                           |  |                       |      |            |  |              |      |              |  |          
|                                           |  |                      
|                                           |  | (Amounts in millions)
|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 | 
|Year ended August 31, 2002:                |  |                       |      |            |  |              |      |              |  |           |      |  |  |   |       |   |  |   |      | 
|Allowance for doubtful accounts receivable |  | $                     | 38.9 |            |  | $            | 8.9  |              |  | $         | 34.3 |  |  | $ | (10.9 | ) |  | $ | 71.2 | 

73



---



##### 



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.                                                                                          
|4.4[G]   |  | Senior Debt Securities Indenture, dated as of
    February 6, 2002, by and between the Registrant and State
    Street and Trust Company of California, N.A., as Trustee.                                                                                                        
|4.5[H]   |  | 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.                                                                                        
|4.6[G]   |  | First Supplemental Indenture, dated as of
    February 6, 2002, by and between the Registrant and State
    Street Bank and Trust Company of California, N.A., as Trustee.                                                                                                       
|4.7[H]   |  | 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.                                                                               
|4.11[I]  |  | 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.              
|4.12[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.                                                          
|4.13[I]  |  | 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.
|10.1[N]  |  | Form of Indemnification Agreement by and between
    the Registrant and its officers, directors and certain other
    employees.                                                                                                                                                 
|10.2[J]  |  | 2003 Employee Stock Purchase Plan.                                                                                                                                                                                                                                               
|10.3[K]  |  | Amended and Restated 1992 Stock Option Plan.                                                                                                                                                                                                                                     
|10.4[K]  |  | 2002 Stock Plan.                                                                                                                                                                                                                                                                 
|10.5     |  | Form of Stock Option Agreement under the 2002
    Stock Plan by and between the Registrant and its officers,
    directors and employees.                                                                                                                                        
|10.6     |  | Form of Restricted Stock Agreement under the 2002
    Stock Plan by and between the Registrant and its officers and
    certain employees.                                                                                                                                       
|10.7     |  | Credit Agreement dated as of August 20,
    2004, among the Registrant, certain subsidiaries of the
    Registrant, Bank of America, N.A., as Administrative Agent and
    Collateral Agent, and certain other lenders.                                                          
|10.8[L]  |  | Solectron Corporation Michael Cannon Employment
    Agreement, entered into as of January 6, 2003.                                                                                                                                                                               
|10.9[L]  |  | Solectron Corporation Stand-Alone Stock Option
    Agreement (Michael Cannon), entered into as of January 6,
    2003.                                                                                                                                                           
|10.10[L] |  | Solectron Corporation Restricted Stock Purchase
    Agreement (Michael Cannon), entered into as of January 6,
    2003.                                                                                                                                                          
|10.11[J] |  | Solectron Corporation Marc Onetto Employment
    Agreement, entered into as of June 18, 2003.                                                                                                                                                                                    



---



##### 



|         |  |                                                                                                                                                           
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|10.12[M] |  | Solectron Corporation Stand-Alone Stock Option
    Agreement (Marc Onetto), entered into as of June 18, 2003.                                             
|10.13[M] |  | Solectron Corporation Restricted Stock Purchase
    Agreement (Marc Onetto), entered into as of July 17, 2003.                                            
|12.1     |  | Computation of ratios of earnings to fixed
    charges.                                                                                                   
|21.1     |  | Subsidiaries of the Registrant.                                                                                                                           
|23.1     |  | Consent of 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.



---

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
    February 8, 2002 (File No. 001-11098)                                                                                                                                                                                               
|   
|[H] |  | Incorporated by reference from Exhibits of
    Registrants Form 8-K, filed with the Commission on
    January 7, 2002 (File No. 001-11098)                                                                                                                                                                                                
|   
|[I] |  | 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)                                                                                                                                                                        
|   
|[J] |  | Incorporated by reference from Exhibits filed
    with the Registrants Annual Report on Form 10-K for
    the fiscal year ended August 31, 2003.                                                                                                                                                                                          
|   
|[K] |  | Incorporated by reference from the
    Exhibit 4.2 of the Registrants Registration Statement
    on Form S-8, filed with the Commission March 8, 2002
    (File No. 333-84076)                                                                                                                                                            
|   
|[L] |  | Incorporated by reference from Exhibits of
    Registrants Form 10-Q for the quarter ended
    February 28, 2003.                                                                                                                                                                                                                         
|   
|[M] |  | Incorporated by reference from Exhibits of
    Registrants Form S-8 filed with the Commission on
    July 17, 2003.                                                                                                                                                                                                                       
|   
|[N] |  | Incorporated by reference from Exhibits of
    Registrants Form 10-K for the year ended August 31,
    1997.