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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q

(MARK ONE)

|    |  |                                                                                        
|--- |  | ---------------------------------------------------------------------------------------
|[X] |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended November 29, 2002

OR

|      |  |                                                                                         
|----- |  | ----------------------------------------------------------------------------------------
|[   ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ___________ TO _____________

Commission file number 1-11098

SOLECTRON CORPORATION

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(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)

777 Gibraltar Drive
Milpitas, California 95035

---

(Address of principal executive offices including zip code)


(408) 957-8500

---

(Registrants telephone number, including area code)


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 reports), and (2) has been subject to such
filing requirements for the past 90 days.

YES [X]   NO [  ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.)

YES [X]    NO [  ]

Indicate the number of shares outstanding of each of the issuers classes
of common stock, as of the latest practicable date.

At January 3, 2003, 826,219,539 shares of Common Stock of the Registrant
were outstanding (including approximately 37 million shares of Solectron Global
Services Canada, Inc., which are exchangeable on a one-to-one basis for the
Registrants common stock)





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TABLE OF CONTENTS



|                              |                                                                                               |                                                         |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                              |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS                  
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS        
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS        
|                              |                                                                                               | Notes to Condensed Consolidated Financial Statements   
|                              | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                              | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                              | ITEM 4. CONTROLS AND PROCEDURES                                                              
|PART II. OTHER INFORMATION   
|                              | Item 1: Legal Proceedings                                                                    
|                              | Item 6: Exhibits and Reports on Form 8-K                                                     
|SIGNATURE                    
|EXHIBIT 99.1                 
|EXHIBIT 99.2                 



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SOLECTRON CORPORATION

INDEX TO FORM 10-Q

|                                                                                              |                                                                                                               |  |    |   | 
|--------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------- |  | -- | - | 
|PART I. FINANCIAL INFORMATION                                                                 |                                                                                                               |  |    |  
|Item 1. Financial Statements                                                                  |                                                                                                               |  |    |  
|                                                                                              | Condensed Consolidated Balance Sheets at November 30, 2002 and August 31, 2002                                |  |    | 3 | 
|                                                                                              | Condensed Consolidated Statements of Operations for the three months ended
November 30, 2002 and 2001         |  |    | 4 | 
|                                                                                              | Condensed Consolidated Statements of Comprehensive Loss for the
three months ended November 30, 2002 and 2001 |  |    | 5 | 
|                                                                                              | Condensed Consolidated Statements of Cash Flows for the three months ended
November 30, 2002 and 2001         |  |    | 6 | 
|                                                                                              | Notes to Condensed Consolidated Financial Statements                                                          |  |    | 7 | 
|Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations |                                                                                                               |  | 16 |  
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |                                                                                                               |  | 31 |  
|Item 4. Controls and Procedures                                                               |                                                                                                               |  | 31 |  
|PART II. OTHER INFORMATION                                                                    |                                                                                                               |  |    |  
|Item 1. Legal Proceedings                                                                     |                                                                                                               |  | 31 |  
|Item 6. Exhibits and Reports on Form 8-K                                                      |                                                                                                               |  | 32 |  
|Signature                                                                                     |                                                                                                               |  | 33 |  
|Certifications                                                                                |                                                                                                               |  | 34 |  

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PART I. FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS




SOLECTRON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
(unaudited)

|                                           |                                                   |                      |                           |                            |         |              |          |            |         |         |         | 
|------------------------------------------ | ------------------------------------------------- | -------------------- | ------------------------- | -------------------------- | ------- | ------------ | -------- | ---------- | ------- | ------- | ------- | 
|                                           |                                                   |                      |                           |                            |         | November 30, |          | August 31,
|                                           |                                                   |                      |                           |                            |         | 2002         |          | 2002      
|                                           |                                                   |                      |                           |                            |         |              |          |           
|ASSETS                                     |                                                   |                      |                           |                            |         |              |          |           
|Current assets:                            |                                                   |                      |                           |                            |         |              |          |           
|                                           | Cash, cash equivalents and short-term investments |                      | $                         | 1,997.6                    |         |              | $        | 2,249.8    |        
|                                           | Accounts receivable, net                          |                      |                           | 1,858.7                    |         |              |          | 1,788.2    |        
|                                           | Inventories                                       |                      |                           | 1,809.0                    |         |              |          | 1,870.0    |        
|                                           | Prepaid expenses and other current assets         |                      |                           | 648.9                      |         |              |          | 752.0      |        
|                                           |                                                   |                      |                           |                            |         |              |          |           
|                                           |                                                   | Total current assets |                           |                            | 6,314.2 |              |          |            | 6,660.0 |        
|Net property and equipment                 |                                                   |                      | 1,081.7                   |                            |         |              | 1,173.0  |           
|Goodwill                                   |                                                   |                      | 2,196.8                   |                            |         |              | 2,163.9  |           
|Other assets                               |                                                   |                      | 1,015.3                   |                            |         |              | 1,017.1  |           
|                                           |                                                   |                      |                           |                            |         |              |          |           
|Total assets                               |                                                   | $                    | 10,608.0                  |                            |         | $            | 11,014.0 |           
|                                           |                                                   |                      |                           |                            |         |              |          |           
|LIABILITIES AND STOCKHOLDERS EQUITY       |                                                   |                      |                           |                            |         |              |          |           
|Current liabilities:                       |                                                   |                      |                           |                            |         |              |          |           
|                                           | Short-term debt                                   |                      | $                         | 548.4                      |         |              | $        | 643.0      |        
|                                           | Accounts payable                                  |                      |                           | 1,472.1                    |         |              |          | 1,509.5    |        
|                                           | Accrued employee compensation                     |                      |                           | 231.1                      |         |              |          | 218.5      |        
|                                           | Accrued expenses                                  |                      |                           | 461.2                      |         |              |          | 527.3      |        
|                                           | Other current liabilities                         |                      |                           | 109.2                      |         |              |          | 106.9      |        
|                                           |                                                   |                      |                           |                            |         |              |          |           
|                                           |                                                   |                      | Total current liabilities |                            |         | 2,822.0      |          |            |         | 3,005.2 |        
|Long-term debt                             |                                                   |                      | 3,010.1                   |                            |         |              | 3,183.9  |           
|Other long-term liabilities                |                                                   |                      | 54.5                      |                            |         |              | 52.2     |           
|                                           |                                                   |                      |                           |                            |         |              |          |           
|                                           |                                                   |                      | Total liabilities         |                            | $       | 5,886.6      |          |            | $       | 6,241.3 |        
|                                           |                                                   |                      |                           |                            |         |              |          |           
|Commitments and contingencies              |                                                   |                      |                           |                            |         |              |          |           
|Stockholders equity:                      |                                                   |                      |                           |                            |         |              |          |           
|                                           | Common stock                                      |                      | $                         | 0.8                        |         |              | $        | 0.8        |        
|                                           | Additional paid-in capital                        |                      |                           | 6,640.7                    |         |              |          | 6,635.9    |        
|                                           | Accumulated deficit                               |                      |                           | (1,649.5                   | )       |              |          | (1,578.6   | )      
|                                           | Accumulated other comprehensive losses            |                      |                           | (270.6                     | )       |              |          | (285.4     | )      
|                                           |                                                   |                      |                           |                            |         |              |          |           
|                                           |                                                   |                      |                           | Total stockholders equity |         |              | 4,721.4  |            |         |         | 4,772.7 | 
|                                           |                                                   |                      |                           |                            |         |              |          |           
|Total liabilities and stockholders equity |                                                   | $                    | 10,608.0                  |                            |         | $            | 11,014.0 |           
|                                           |                                                   |                      |                           |                            |         |              |          |           

See accompanying notes to condensed consolidated financial statements.

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SOLECTRON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(unaudited)

|                                                            |                                     |                |         |                                 |       |      |         |       |       |  
|----------------------------------------------------------- | ----------------------------------- | -------------- | ------- | ------------------------------- | ----- | ---- | ------- | ----- | ----- | -
|                                                            |                                     |                |         | Three Months Ended November 30,
|                                                            |                                     |                |         |                                
|                                                            |                                     |                |         | 2002                            |       | 2001
|                                                            |                                     |                |         |                                 |       |     
|Net sales                                                   |                                     | $              | 3,136.6 |                                 |       | $    | 3,152.2 |      
|Cost of sales                                               |                                     |                | 2,900.0 |                                 |       |      | 2,927.1 |      
|                                                            |                                     |                |         |                                 |       |      |         |      
|Gross profit                                                |                                     |                | 236.6   |                                 |       |      | 225.1   |      
|Operating expenses:                                         |                                     |                |         |                                 |       |      |         |      
|                                                            | Selling, general and administrative |                |         | 202.3                           |       |      |         | 205.5 |      
|                                                            | Research and development            |                |         | 22.1                            |       |      |         | 12.5  |      
|                                                            | Restructuring and impairment costs  |                |         | 101.8                           |       |      |         | 72.9  |      
|                                                            |                                     |                |         |                                 |       |      |         |      
|                                                            |                                     | Operating loss |         |                                 | (89.6 | )    |         |       | (65.8 | )
|Interest income                                             |                                     |                | 10.2    |                                 |       |      | 19.9    |      
|Interest expense                                            |                                     |                | (56.5   | )                               |       |      | (42.7   | )    
|Other income-net                                            |                                     |                | 36.1    |                                 |       |      | 14.3    |      
|                                                            |                                     |                |         |                                 |       |      |         |      
|Loss before income tax benefit                              |                                     |                | (99.8   | )                               |       |      | (74.3   | )    
|Income tax benefit                                          |                                     |                | (28.9   | )                               |       |      | (21.8   | )    
|                                                            |                                     |                |         |                                 |       |      |         |      
|                                                            |                                     | Net loss       |         | $                               | (70.9 | )    |         | $     | (52.5 | )
|                                                            |                                     |                |         |                                 |       |      |         |      
|Basic and diluted net loss per share                        |                                     | $              | (0.09   | )                               |       | $    | (0.08   | )    
|Shares used to compute basic and diluted net
loss per share |                                     |                | 825.5   |                                 |       |      | 663.7   |      

See accompanying notes to condensed consolidated financial statements.

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SOLECTRON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in millions)
(unaudited)

|                                         |  |                                 |       |      |  |   |        |  
|---------------------------------------- |  | ------------------------------- | ----- | ---- |  | - | ------ | -
|                                         |  | Three Months Ended November 30,
|                                         |  |                                
|                                         |  | 2002                            |       | 2001
|                                         |  |                                 |       |     
|Net loss                                 |  | $                               | (70.9 | )    |  | $ | (52.5  | )
|Other comprehensive income (loss):       |  |                                 |       |      |  |   |        |  
|Foreign currency translation adjustments |  |                                 | 15.1  |      |  |   | (76.6  | )
|Unrealized loss on investments           |  |                                 | (0.3  | )    |  |   | (0.7   | )
|                                         |  |                                 |       |      |  |   |        |  
|Comprehensive loss                       |  | $                               | (56.1 | )    |  | $ | (129.8 | )
|                                         |  |                                 |       |      |  |   |        |  

Accumulated unrealized foreign currency translation losses were $280.6 million
at November 30, 2002 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 gains on
investments were $10.0 million at November 30, 2002, and $10.3 million at
August 31, 2002.

See accompanying notes to condensed consolidated financial statements.

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SOLECTRON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)

|                                                             |                                                                                           |                                       |                                                                                 |                                                                |        |                                 |         |        |        |        |        |  
|------------------------------------------------------------ | ----------------------------------------------------------------------------------------- | ------------------------------------- | ------------------------------------------------------------------------------- | -------------------------------------------------------------- | ------ | ------------------------------- | ------- | ------ | ------ | ------ | ------ | -
|                                                             |                                                                                           |                                       |                                                                                 |                                                                |        | Three Months Ended November 30,
|                                                             |                                                                                           |                                       |                                                                                 |                                                                |        |                                
|                                                             |                                                                                           |                                       |                                                                                 |                                                                |        | 2002                            |         | 2001  
|                                                             |                                                                                           |                                       |                                                                                 |                                                                |        |                                 |         |       
|Cash flows from operating activities:                        |                                                                                           |                                       |                                                                                 |                                                                |        |                                 |         |       
|                                                             | Net loss                                                                                  |                                       | $                                                                               | (70.9                                                          | )      |                                 | $       | (52.5  | )     
|                                                             | Adjustments to reconcile net loss to net cash
provided by (used in) operating activities: |                                       |                                                                                 |                                                                |        |                                 |         |        |       
|                                                             |                                                                                           |                                       | Depreciation and amortization                                                   |                                                                |        | 81.5                            |         |        |        | 102.6  |       
|                                                             |                                                                                           |                                       | Amortization of debt issuance costs and accretion
of discount on long-term debt |                                                                |        | 24.6                            |         |        |        | 35.0   |       
|                                                             |                                                                                           |                                       | (Gain) loss on retirement of debt                                               |                                                                |        | (34.2                           | )       |        |        | 3.0    |       
|                                                             |                                                                                           |                                       | Loss (gain) on sale of property and equipment                                   |                                                                |        | 0.9                             |         |        |        | (1.2   | )     
|                                                             |                                                                                           |                                       | Impairment of long-lived assets                                                 |                                                                |        | 18.8                            |         |        |        | 38.2   |       
|                                                             |                                                                                           |                                       | Changes in operating assets and liabilities:                                    |                                                                |        |                                 |         |        |        |        |       
|                                                             |                                                                                           |                                       |                                                                                 | Accounts receivable, net                                       |        |                                 | (75.0   | )      |        |        | 483.1  |  
|                                                             |                                                                                           |                                       |                                                                                 | Inventories                                                    |        |                                 | 76.9    |        |        |        | 458.8  |  
|                                                             |                                                                                           |                                       |                                                                                 | Prepaid expenses and other current assets                      |        |                                 | 11.5    |        |        |        | (15.3  | )
|                                                             |                                                                                           |                                       |                                                                                 | Trade accounts payable, accrued expenses and other liabilities |        |                                 | (41.3   | )      |        |        | (284.9 | )
|                                                             |                                                                                           |                                       |                                                                                 |                                                                |        |                                 |         |       
|                                                             |                                                                                           |                                       | Net cash provided by (used in) operating activities                             |                                                                | $      | (7.2                            | )       |        | $      | 766.8  |       
|                                                             |                                                                                           |                                       |                                                                                 |                                                                |        |                                 |         |       
|Cash flows from investing activities:                        |                                                                                           |                                       |                                                                                 |                                                                |        |                                 |         |       
|                                                             | Change in restricted cash, cash equivalents and short-term investments                    |                                       |                                                                                 | 87.0                                                           |        |                                 |         |       |       
|                                                             | Sales and maturities of short-term investments                                            |                                       |                                                                                 | 159.0                                                          |        |                                 |         | 177.4  |       
|                                                             | Purchases of short-term investments                                                       |                                       |                                                                                 | (45.2                                                          | )      |                                 |         | (203.0 | )     
|                                                             | Acquisition of businesses                                                                 |                                       |                                                                                 |                                                               |        |                                 |         | (321.5 | )     
|                                                             | Acquisitions of manufacturing assets                                                      |                                       |                                                                                 | (30.4                                                          | )      |                                 |         |       |       
|                                                             | Capital expenditures                                                                      |                                       |                                                                                 | (41.6                                                          | )      |                                 |         | (62.7  | )     
|                                                             | Proceeds from sale of property and equipment                                              |                                       |                                                                                 | 15.4                                                           |        |                                 |         | 25.8   |       
|                                                             | Supply agreement and other                                                                |                                       |                                                                                 | 47.1                                                           |        |                                 |         | 9.9    |       
|                                                             |                                                                                           |                                       |                                                                                 |                                                                |        |                                 |         |       
|                                                             |                                                                                           |                                       | Net cash provided by (used in) investing activities                             |                                                                | $      | 191.3                           |         |        | $      | (374.1 | )     
|                                                             |                                                                                           |                                       |                                                                                 |                                                                |        |                                 |         |       
|Cash flows from financing activities:                        |                                                                                           |                                       |                                                                                 |                                                                |        |                                 |         |       
|                                                             | Net repayment of bank lines of credit                                                     |                                       |                                                                                 | (84.9                                                          | )      |                                 |         | (32.4  | )     
|                                                             | Net proceeds from issuance of long-term debt                                              |                                       |                                                                                 |                                                               |        |                                 |         | 21.0   |       
|                                                             | Repurchase of LYONs                                                                       |                                       |                                                                                 | (182.0                                                         | )      |                                 |         | (221.6 | )     
|                                                             | Principal payments on long-term debt and capital lease obligations                        |                                       |                                                                                 | (1.0                                                           | )      |                                 |         | (14.5  | )     
|                                                             | Common stock repurchase                                                                   |                                       |                                                                                 |                                                               |        |                                 |         | (4.5   | )     
|                                                             | Settlement of derivative and other                                                        |                                       |                                                                                 | 29.9                                                           |        |                                 |         | 7.6    |       
|                                                             |                                                                                           |                                       |                                                                                 |                                                                |        |                                 |         |       
|                                                             |                                                                                           | Net cash used in financing activities |                                                                                 | $                                                              | (238.0 | )                               |         | $      | (244.4 | )     
|                                                             |                                                                                           |                                       |                                                                                 |                                                                |        |                                 |         |       
|Effect of exchange rate changes on
cash and cash equivalents |                                                                                           | $                                     | 9.6                                                                             |                                                                |        | $                               | (77.3   | )     
|                                                             |                                                                                           |                                       |                                                                                 |                                                                |        |                                 |         |       
|Net increase (decrease) in cash and cash equivalents         |                                                                                           | $                                     | (44.3                                                                           | )                                                              |        | $                               | 71.0    |       
|Cash and cash equivalents at beginning of period             |                                                                                           |                                       | 1,781.9                                                                         |                                                                |        |                                 | 2,482.3 |       
|                                                             |                                                                                           |                                       |                                                                                 |                                                                |        |                                 |         |       
|Cash and cash equivalents at end of period                   |                                                                                           | $                                     | 1,737.6                                                                         |                                                                |        | $                               | 2,553.3 |       
|                                                             |                                                                                           |                                       |                                                                                 |                                                                |        |                                 |         |       

See accompanying notes to condensed consolidated financial statements.

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SOLECTRON CORPORATION AND SUBSIDIARIES




Notes to Condensed Consolidated Financial Statements

NOTE 1  Basis of Presentation and Recent Accounting Pronouncements

Basis of Presentation

The accompanying financial data as of November 30, 2002 and for the three
months ended November 30, 2002 and 2001 has been prepared by Solectron, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. The August 31, 2002 condensed consolidated balance sheet was
derived from audited financial statements, but does not include all disclosures
required by generally accepted accounting principles. However, Solectron
believes that the disclosures are adequate to make the information presented
not misleading. These condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and the notes
thereto included in Solectrons Annual Report on Form 10-K for the fiscal year
ended August 31, 2002.

In the opinion of management, all adjustments (which include normal recurring
adjustments) necessary to present a fair statement of financial position as of
November 30, 2002, and the results of operations, comprehensive loss and cash
flows for the three months ended November 30, 2002 and 2001, have been made.
The results of operations for the three months ended November 30, 2002 are not
necessarily indicative of the operating results for the full fiscal year or any
future periods.

Solectrons first quarters of fiscal 2003 and 2002 ended on November 29, 2002
and November 30, 2001, respectively. Solectrons fiscal year ended on August
30, 2002. For clarity of presentation, Solectron has indicated its first
quarters as having ended on November 30 and its fiscal year as having ended on
August 31.

As disclosed in Solectrons Annual Report on Form 10-K for the fiscal year
ended August 31, 2002, Solectron reclassified certain other expense from cost
of sales to selling, general and administrative. During the first quarter of
fiscal 2003, Solectron reclassified all other income and expense from selling,
general and administrative to other income-net for all periods presented.
These reclassifications were made to conform to the current period presentation
and had no impact on net loss or net loss per share.

All amounts are in millions of U.S. dollars unless otherwise noted.

Recent Accounting Pronouncements

In August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 requires that the fair value of an asset retirement
obligation be recorded as a liability in the period in which it incurs the
obligation. SFAS No. 143 is effective for fiscal years beginning after June
15, 2002. Solectron adopted SFAS No. 143 on September 1, 2002 and such
adoption did not have a material impact on these condensed consolidated
financial statements.

In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-lived Assets, which supersedes SFAS No. 121, Accounting
for Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The primary
objectives of SFAS No. 144 are to develop one accounting model based on the
framework established in SFAS No. 121 for long-lived assets to be disposed of
by sale, and to address significant implementation issues identified after the
issuance of SFAS No. 121. Solectron adopted SFAS No. 144 on September 1, 2002
and such adoption did not have a material impact on these condensed
consolidated financial statements.

In May 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No.
4, 44 and 64, Amendment of FASB Statement No.13 and Technical Corrections.
SFAS No. 145 requires that certain gains and losses from extinguishments of
debt no longer be classified as an extraordinary item. SFAS No. 145 is
effective for fiscal years beginning after May 15, 2002 (with accounting for
certain transactions effective May 15, 2002). Solectron adopted SFAS No. 145
during the fourth quarter of fiscal 2002 and reclassified gains and losses on
retirement of debt from extraordinary to other income- net for all periods
presented.

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS No. 146 requires that a liability for
costs associated with an exit or disposal activity be recognized and measured
initially at fair value only when the liability is incurred. SFAS No. 146 is
effective for exit or disposal activities that are initiated after December 31,
2002. Solectron does not expect adoption of SFAS No. 146 to have a material
impact on their consolidated financial statements.

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NOTE 2  Inventories

Inventories consisted of:

|                |  |              |         |            |  |   |         | 
|--------------- |  | ------------ | ------- | ---------- |  | - | ------- | 
|                |  | November 30, |         | August 31,
|                |  | 2002         |         | 2002      
|                |  |              |         |           
|Raw materials   |  | $            | 1,284.8 |            |  | $ | 1,308.5 | 
|Work-in-process |  |              | 260.5   |            |  |   | 236.5   | 
|Finished goods  |  |              | 263.7   |            |  |   | 325.0   | 
|                |  |              |         |            |  |   |         | 
|Total           |  | $            | 1,809.0 |            |  | $ | 1,870.0 | 
|                |  |              |         |            |  |   |         | 

NOTE 3  Commitments and Contingencies

Lease Obligations

During fiscal 2002, Solectron restructured its synthetic lease agreements
relating to five manufacturing sites. The synthetic leases have expiration
dates in 2007. At the end of the lease term, 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, 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. In
connection with its restructuring of these synthetic leases, Solectron provided
loans to the lessor equaling approximately 85% of its Termination Value. 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 Termination Values and
loan amounts were $125 million and $106 million, respectively, as of November
30, 2002.

In addition, cash collateral of $19 million is pledged for the difference
between the Termination Values and the loan amounts. The cash collateral was
included in cash, cash equivalents and short-term investments in the
accompanying condensed consolidated balance sheet as of November 30, 2002. 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. Solectron was in compliance with these covenants as of
November 30, 2002. Monthly lease payments are generally based on the
Termination Value and 30-day LIBOR index (1.38% as of November 30, 2002) 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
total 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 were included in other long-term assets in the
condensed consolidated balance sheet as of November 30, 2002.

If Solectron should determine that it is probable that the expected fair value
of the property at the end of the lease term will be less than the Termination
Value, any expected loss will be recognized on a straight-line basis over the
remaining lease term.

Future minimum payments related to operating lease obligations, including the
synthetic leases discussed above, are $119 million (for the remaining nine
months of fiscal 2003), $110 million, $64 million, $48 million, and $39 million
for each of the years in the five-year period ending August 31, 2007 and an
aggregate of $112 million for all years subsequent to August 31, 2007 combined.

Third Party Guarantees

Solectron guarantees $59 million of debt and $75 million of vendor contracts
for its formerly minority-owned affiliate, Pacific City International Holdings.
The majority of these guarantees will expire during December 2002 and January
2003.

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 the Company or their
legal advisors have concluded or believe that the outcome of any of those
particular matters is likely to have a material adverse impact upon Solectrons
business or financial condition. Nor is Solectron a party to other legal
proceedings that individually or in the aggregate are believed to be material
to Solectrons business.

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On August 29, 2002, ATEL Leasing Corporation, a lessor of manufacturing
equipment to Solectron, filed suit against Solectron in the California Superior
Court for the City and County of San Francisco (ATEL Leasing Corp. v. Solectron
Corp., Case No. 412011), alleging that ATEL is entitled to recover as
liquidated damages and not as a penalty amounts equal to the stipulated loss
value of all of the equipment leased to Solectron by ATEL under two equipment
lease agreements, even though the equipment in question was neither lost nor
damaged, and even though Solectron was current on all lease installment
payments (and had paid all applicable late payment fees) under the leases.
ATELs complaint seeks liquidated damages of approximately $26 million, plus
additional interest allegedly accruing thereon, and litigation expenses.
Solectron believes ATELs claims are without merit, and that Solectron has
meritorious defenses. Solectron has filed a cross-complaint against ATEL
seeking damages and other appropriate relief.

On September 19, 2002, one of Solectrons former employees filed a complaint in
the Superior Court of the State of California, Santa Clara County, against
Solectron asserting two claims for wrongful termination. The case is
encaptioned Ronald Sorisho v. Solectron Corporation, et al., Case No. CV811243.
In the complaint, plaintiff alleges that he was wrongfully terminated by
Solectron in supposed retaliation for his alleged efforts to ensure that
Solectron timely recognized a charge for excess, obsolete and slow moving
inventory in the Technology Solutions business unit. Plaintiff seeks
compensatory damages in an amount not less than $2.5 million as well as
punitive damages. Solectron believes Mr. Sorishos claims of wrongful
termination are without merit and intends to vigorously defend
itself. Solectron filed a motion with the court challenging the
sufficiency of Mr. Sorishos complaint, and in response to
this motion, Mr. Sorisho filed an amended complaint in which he
dropped one of his two original wrongful termination claims, but
added a new claim for purported defamation based upon statements
attributed to Solectron in a news article regarding
Mr. Sorishos allegations against Solectron.

NOTE 4  Segment Information

As a result of its acquisition of C-MAC on December 3, 2001, Solectron made
organizational changes and created the MicroSystems business unit. Solectron
now has the following four business units: Global Operations, Technology
Solutions, Global Services and MicroSystems. Each business unit has its own
president and support staff. Solectrons management uses an internal management
reporting system, which provides financial data to evaluate performance and
allocate resources for the four business units. Certain corporate expenses have
been allocated to Solectrons business units and were included for performance
evaluation. The accounting policies for the segments were the same as for
Solectron taken as a whole.

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|                                |  |                                 |         |      |  |   |         |  
|------------------------------- |  | ------------------------------- | ------- | ---- |  | - | ------- | -
|                                |  | Three Months Ended November 30,
|                                |  |                                
|                                |  | 2002                            |         | 2001
|                                |  |                                 |         |     
|Net sales:                      |  |                                 |         |      |  |   |         |  
|Global Operations               |  | $                               | 2,495.7 |      |  | $ | 2,855.9 |  
|Technology Solutions            |  |                                 | 283.6   |      |  |   | 154.5   |  
|Global Services                 |  |                                 | 251.4   |      |  |   | 141.8   |  
|MicroSystems                    |  |                                 | 105.9   |      |  |   |        |  
|                                |  |                                 |         |      |  |   |         |  
|                                |  | $                               | 3,136.6 |      |  | $ | 3,152.2 |  
|                                |  |                                 |         |      |  |   |         |  
|Depreciation and amortization:  |  |                                 |         |      |  |   |         |  
|Global Operations               |  | $                               | 57.5    |      |  | $ | 74.1    |  
|Technology Solutions            |  |                                 | 5.9     |      |  |   | 6.0     |  
|Global Services                 |  |                                 | 9.0     |      |  |   | 4.3     |  
|MicroSystems                    |  |                                 | 4.7     |      |  |   |        |  
|Corporate                       |  |                                 | 4.4     |      |  |   | 18.2    |  
|                                |  |                                 |         |      |  |   |         |  
|                                |  | $                               | 81.5    |      |  | $ | 102.6   |  
|                                |  |                                 |         |      |  |   |         |  
|Interest income:                |  |                                 |         |      |  |   |         |  
|Global Operations               |  | $                               | 1.7     |      |  | $ | 6.6     |  
|Technology Solutions            |  |                                 | 0.4     |      |  |   | 0.3     |  
|Global Services                 |  |                                 | 0.3     |      |  |   | 0.2     |  
|MicroSystems                    |  |                                 |        |      |  |   |        |  
|Corporate                       |  |                                 | 7.8     |      |  |   | 12.8    |  
|                                |  |                                 |         |      |  |   |         |  
|                                |  | $                               | 10.2    |      |  | $ | 19.9    |  
|                                |  |                                 |         |      |  |   |         |  
|Interest expense:               |  |                                 |         |      |  |   |         |  
|Global Operations               |  | $                               | 2.4     |      |  | $ | 3.0     |  
|Technology Solutions            |  |                                 |        |      |  |   | 0.2     |  
|Global Services                 |  |                                 |        |      |  |   | 0.5     |  
|MicroSystems                    |  |                                 | 0.4     |      |  |   |        |  
|Corporate                       |  |                                 | 53.7    |      |  |   | 39.0    |  
|                                |  |                                 |         |      |  |   |         |  
|                                |  | $                               | 56.5    |      |  | $ | 42.7    |  
|                                |  |                                 |         |      |  |   |         |  
|Loss before income tax benefit: |  |                                 |         |      |  |   |         |  
|Global Operations               |  | $                               | (18.9   | )    |  | $ | (51.2   | )
|Technology Solutions            |  |                                 | (1.3    | )    |  |   | (4.0    | )
|Global Services                 |  |                                 | 10.7    |      |  |   | 3.7     |  
|MicroSystems                    |  |                                 | (2.8    | )    |  |   |        |  
|Corporate                       |  |                                 | (87.5   | )    |  |   | (22.8   | )
|                                |  |                                 |         |      |  |   |         |  
|                                |  | $                               | (99.8   | )    |  | $ | (74.3   | )
|                                |  |                                 |         |      |  |   |         |  
|Capital expenditures:           |  |                                 |         |      |  |   |         |  
|Global Operations               |  | $                               | 25.7    |      |  | $ | 36.8    |  
|Technology Solutions            |  |                                 | 2.5     |      |  |   | 5.1     |  
|Global Services                 |  |                                 | 10.3    |      |  |   | 11.9    |  
|MicroSystems                    |  |                                 | 1.6     |      |  |   |        |  
|Corporate                       |  |                                 | 1.5     |      |  |   | 8.9     |  
|                                |  |                                 |         |      |  |   |         |  
|                                |  | $                               | 41.6    |      |  | $ | 62.7    |  
|                                |  |                                 |         |      |  |   |         |  
|Geographic net sales:           |  |                                 |         |      |  |   |         |  
|United States                   |  | $                               | 1,086.3 |      |  | $ | 1,111.5 |  
|Other North and Latin America   |  |                                 | 428.7   |      |  |   | 393.7   |  
|Europe                          |  |                                 | 520.7   |      |  |   | 551.0   |  
|Malaysia                        |  |                                 | 329.3   |      |  |   | 412.7   |  
|Asia Pacific                    |  |                                 | 771.6   |      |  |   | 683.3   |  
|                                |  |                                 |         |      |  |   |         |  
|                                |  | $                               | 3,136.6 |      |  | $ | 3,152.2 |  
|                                |  |                                 |         |      |  |   |         |  

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|                              |  |              |          |            |  |   |          | 
|----------------------------- |  | ------------ | -------- | ---------- |  | - | -------- | 
|                              |  | November 30, |          | August 31,
|                              |  | 2002         |          | 2002      
|                              |  |              |          |           
|Total Assets:                 |  |              |          |            |  |   |          | 
|Global Operations             |  | $            | 6,734.2  |            |  | $ | 7,150.2  | 
|Technology Solutions          |  |              | 505.8    |            |  |   | 499.7    | 
|Global Services               |  |              | 819.3    |            |  |   | 808.2    | 
|MicroSystems                  |  |              | 260.5    |            |  |   | 273.5    | 
|Corporate                     |  |              | 2,288.2  |            |  |   | 2,282.4  | 
|                              |  |              |          |            |  |   |          | 
|                              |  | $            | 10,608.0 |            |  | $ | 11,014.0 | 
|                              |  |              |          |            |  |   |          | 
|Total Assets:                 |  |              |          |            |  |   |          | 
|United States                 |  | $            | 4,380.8  |            |  | $ | 4,624.1  | 
|Other North and Latin America |  |              | 1,576.5  |            |  |   | 1,594.8  | 
|Europe                        |  |              | 1,564.4  |            |  |   | 1,575.2  | 
|Malaysia                      |  |              | 1,180.7  |            |  |   | 1,213.2  | 
|Asia Pacific                  |  |              | 1,905.6  |            |  |   | 2,006.7  | 
|                              |  |              |          |            |  |   |          | 
|                              |  | $            | 10,608.0 |            |  | $ | 11,014.0 | 
|                              |  |              |          |            |  |   |          | 

NOTE 5. Long-Term Debt

Zero-Coupon Convertible Senior 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 has a yield of 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 may require Solectron to repurchase all or a portion of such
holders notes if a change in control of Solectron occurs on or before May 20,
2004. Solectron, at its option, may redeem all or a portion of the notes at any
time on or after May 20, 2004. Solectron is amortizing the issue discount
through May 20, 2004. During the first quarter of fiscal 2003, Solectron
repurchased a portion of these LYONs with a carrying amount totaling $205
million for $171 million in cash which resulted in a gain of $34 million. The
remaining accreted value of these notes was approximately $1.2 billion as of
November 30, 2002 and Solectron may be obligated to purchase these notes on May
20, 2004 for approximately $1.3 billion.

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 may require Solectron to purchase all or a
portion of their notes on May 8, 2003 and May 8, 2010, at prices of $628.57 and
$761.00 per note, respectively. Also, each holder may require Solectron to
repurchase all or a portion of such holders notes upon a change in control of
Solectron occurring on or before May 8, 2003. Solectron, at its option, may
redeem all or a portion of the notes at any time on or after May 8, 2003.
Solectron is amortizing the issue discount through May 8, 2003. During the
first quarter of fiscal 2003, Solectron repurchased a portion of these LYONs
with a carrying amount totaling $11 million for $11 million in cash, which
resulted in no gain or loss. The remaining accreted value of these notes was
$518 million as of November 30, 2002 and Solectron may be obligated to purchase
these notes on May 8, 2003 for $524 million. As of November 30, 2002, these
LYONs are included in short-term debt in the accompanying condensed
consolidated balance sheet.

Adjustable Conversion-Rate Equity Securities (ACES)

During the second quarter of 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

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initially will be held and pledged
for Solectrons benefit to secure the holders obligation to purchase
Solectrons common stock on November 15, 2004. On or about August 15, 2004, the
ACES debentures will be remarketed and, if the remarketing is successful, the
interest rate will be reset at then current rates as described in the
indentures and the proceeds from the remarketing will be used to satisfy the
holders obligation to purchase Solectrons common stock in November 2004. If
the debentures are not successfully remarketed, the interest rate will not be
reset and Solectron may use the pledged debentures to satisfy the holders
obligation to purchase Solectrons common stock in November 2004.
Approximately $80 million of cash, cash equivalents and short-term investments
as of November 30, 2002 were restricted as collateral related to the
obligations for the next four quarterly interest payments.

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 covenants that limit
Solectron and its subsidiaries from making distributions on their capital
stock, investments, incurring debt, issuing preferred stock, engaging in assets
sales, among others.

7.375% Senior Notes

In March 1996, Solectron issued $150 million aggregate principal amount of
senior notes. These notes are in denominations of and have a maturity value of
$1,000 each and are due on March 1, 2006. Interest is payable semiannually at a
rate of 7.375% per annum. The notes may not be redeemed prior to maturity.

NOTE 6. Derivative Instruments

Solectron periodically enters 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 offset the transaction gains and losses
on the foreign currency cash, receivables, investments, and payables recognized
in earnings. The Company 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.

Solectron periodically hedges foreign currency forecasted transactions with
foreign exchange forward contracts. These transactions are treated as cash flow
hedges in accordance with SFAS No. 133. These foreign exchange forward
contracts have original maturities of up to 18 months.

Solectron also uses interest rate swaps to hedge its mix of short-term and
long-term interest rate exposures resulting from Solectrons debt obligations.
During the third quarter of fiscal 2002, Solectron entered into interest rate
swap transactions under which it paid variable rates and received fixed rates.
The interest rate swaps had a total notional amount of $1 billion. $500 million
related to the Companys $1.1 billion ACES and expires on November 15, 2004 and
$500 million related to the 9.625% $500 million senior notes and expired on
February 15, 2009. Under each of these swap transactions, Solectron paid an
interest rate equal to the 3-month LIBOR rate plus a fixed spread. In exchange,
Solectron received fixed interest rates of 7.25% on the $500 million related to
the ACES and 9.625% on the $500 million related to the senior notes. These swap
transactions effectively replaced the fixed interest rates that the Company
must pay on a portion of its ACES and all its 9.625% senior notes with variable
interest rates. These swaps were designated as fair value hedges under SFAS No.
133. On November 15, 2002, the original $500 million of swaps related to the
senior notes were settled. This settlement resulted in cash received and a gain
of approximately $26 million, which is being amortized over the remaining life
of the senior notes. Also on November 15, 2002, Solectron entered into an
additional $500 million of swaps with similar terms and designated the swaps as
fair value hedges of the senior notes under SFAS No. 133.

As of November 30, 2002, Solectron had outstanding foreign exchange forward
contracts with a total notional amount of approximately $356 million. The
interest rate swaps outstanding at November 30, 2002 had aggregate notional
amounts of $1 billion.

The fair values of the derivatives referred to above were 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, 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.

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NOTE 7. Goodwill and Intangible Assets

The following is provided in accordance with Solectrons adoption of the
provisions of SFAS No 142, Goodwill and Other Intangible Assets, during
fiscal 2002. SFAS No. 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually. Solectron performed this test during the fourth
quarter of fiscal 2002, which resulted in an impairment of approximately $2.6
billion. SFAS No. 142 also requires that intangible assets with definite useful
lives be amortized over their respective estimated lives to their estimated
residual values and be reviewed for impairment according to SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets.

Goodwill

Goodwill information for each reportable segment is as follows:

|                     |  |            |         |              |  |              |      |   |  |   |         | 
|-------------------- |  | ---------- | ------- | ------------ |  | ------------ | ---- | - |  | - | ------- | 
|                     |  | August 31, |         | Goodwill     |  | November 30,
|                     |  | 2002       |         | Adjustments* |  | 2002        
|                     |  |            |         |              |  |             
|Global Operations    |  | $          | 1,608.9 |              |  | $            | 33.6 |   |  | $ | 1,642.5 | 
|Technology Solutions |  |            | 79.5    |              |  |              |     |   |  |   | 79.5    | 
|Global Services      |  |            | 407.6   |              |  |              | 0.2  |   |  |   | 407.8   | 
|MicroSystems         |  |            | 67.9    |              |  |              | (0.9 | ) |  |   | 67.0    | 
|                     |  |            |         |              |  |              |      |   |  |   |         | 
|                     |  | $          | 2,163.9 |              |  | $            | 32.9 |   |  | $ | 2,196.8 | 
|                     |  |            |         |              |  |              |      |   |  |   |         | 



---

|* |  | Goodwill adjustments were primarily made based on the final appraisal
received during the quarter related to the acquisition of C-MAC
Industries, Inc.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

Other 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 miscellaneous acquisition
related costs from Solectrons various asset purchases. The following tables
summarize the gross amounts and accumulated amortization for each major class
as of November 30 and August 31, 2002:

November 30, 2002:

|                         |  |            |       |                       |  |       |       |       |  |   |       |   |  |   |        |  
|------------------------ |  | ---------- | ----- | --------------------- |  | ----- | ----- | ----- |  | - | ----- | - |  | - | ------ | -
|                         |  | Supply     |       | Intellectual Property |  |       |       |       |  |   |       |  
|                         |  | Agreements |       | Agreements            |  | Other |       | Total
|                         |  |            |       |                       |  |       |       |      
|Gross amount             |  | $          | 225.9 |                       |  | $     | 106.4 |       |  | $ | 123.0 |   |  | $ | 455.3  |  
|Accumulated amortization |  |            | (81.3 | )                     |  |       | (37.0 | )     |  |   | (67.5 | ) |  |   | (185.8 | )
|                         |  |            |       |                       |  |       |       |       |  |   |       |   |  |   |        |  
|Carrying value           |  | $          | 144.6 |                       |  | $     | 69.4  |       |  | $ | 55.5  |   |  | $ | 269.5  |  
|                         |  |            |       |                       |  |       |       |       |  |   |       |   |  |   |        |  

August 31, 2002:

|                         |  |            |        |                       |  |       |       |       |  |   |       |   |  |   |        |  
|------------------------ |  | ---------- | ------ | --------------------- |  | ----- | ----- | ----- |  | - | ----- | - |  | - | ------ | -
|                         |  | Supply     |        | Intellectual Property |  |       |       |       |  |   |       |  
|                         |  | Agreements |        | Agreements            |  | Other |       | Total
|                         |  |            |        |                       |  |       |       |      
|Gross amount             |  | $          | 445.1  |                       |  | $     | 106.4 |       |  | $ | 163.5 |   |  | $ | 715.0  |  
|Accumulated amortization |  |            | (80.7  | )                     |  |       | (34.6 | )     |  |   | (61.7 | ) |  |   | (177.0 | )
|Impairment               |  |            | (191.2 | )                     |  |       |      |       |  |   | (40.5 | ) |  |   | (231.7 | )
|                         |  |            |        |                       |  |       |       |       |  |   |       |   |  |   |        |  
|Carrying value           |  | $          | 173.2  |                       |  | $     | 71.8  |       |  | $ | 61.3  |   |  | $ | 306.3  |  
|                         |  |            |        |                       |  |       |       |       |  |   |       |   |  |   |        |  

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Amortization expense for the first quarter of fiscal 2003 was $11 million. The
Company expects that its annual amortization expense reportable as required by
SFAS No. 142 for these intangibles for each of the next five fiscal years would
be approximately $48 million each year based on existing balances.

NOTE 8  Restructuring and Impairment

In the second quarter of fiscal 2001, Solectron initiated a restructuring of
its operations in light of the current economic downturn. The measures, which
included reducing the workforce, consolidating facilities and changing the
strategic focus of a number of sites, were largely intended to align
Solectrons capacity and infrastructure to the reduced level of customer demand
as well as to rationalize its footprint worldwide. Additional charges have been
incurred as more was learned about the extent and depth of the economic
downturn. For leased facilities that will be abandoned and subleased, the lease
costs accrued represent future lease payments subsequent to abandonment less
estimated sublease income. For facilities and equipment held for disposal, 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
following summarizes Solectrons restructuring since the activities were
initiated in fiscal 2001.

Three months ended November 30, 2002 and 2001

Solectron continued its restructuring activities in the first quarter of fiscal
2003 and total restructuring and impairment costs of $101.8 million were
charged against earnings. During the first quarter of fiscal 2002, charges of
$72.9 million were recorded.

The following table summarizes restructuring charges in the first quarters of
fiscal 2003 and 2002:

|                                              |  |                                 |       |      |  |        |      |  |  |          |  | 
|--------------------------------------------- |  | ------------------------------- | ----- | ---- |  | ------ | ---- |  |  | -------- |  | 
|                                              |  | Three-Months Ended November 30, |       |      |  |       
|                                              |  |                                 |       |      |  |       
|                                              |  | 2002                            |       | 2001 |  | Nature
|                                              |  |                                 |       |      |  |       
|Impairment of equipment                       |  | $                               | 18.2  |      |  | $      | 31.4 |  |  | non-cash
|Impairment of facilities                      |  |                                 | 0.6   |      |  |        | 4.0  |  |  | non-cash
|Impairment of IT software and other assets    |  |                                 |      |      |  |        | 2.8  |  |  | non-cash
|                                              |  |                                 |       |      |  |        |      |  |  |          |  | 
|Impairment of equipment, facilities and other |  | $                               | 18.8  |      |  | $      | 38.2 |  |  |          |  | 
|                                             
|Severance and benefit costs                   |  | $                               | 61.4  |      |  | $      | 28.3 |  |  | cash    
|Loss on leased equipment                      |  |                                 | 2.9   |      |  |        | 1.3  |  |  | cash    
|Loss on leased facilities                     |  |                                 | 6.9   |      |  |        | 1.1  |  |  | cash    
|Other exit costs                              |  |                                 | 11.8  |      |  |        | 4.0  |  |  | cash    
|                                              |  |                                 |       |      |  |        |      |  |  |          |  | 
|Total                                         |  | $                               | 101.8 |      |  | $      | 72.9 |  |  |          |  | 
|                                              |  |                                 |       |      |  |        |      |  |  |          |  | 

The employee severance and benefit costs included in the restructuring charges
recorded in the first quarter of fiscal 2003 related to approximately 2,500
full-time positions worldwide, all of which have been eliminated. Approximately
46% of the positions were in the Americas region, 36% were in Europe and 18%
were in Asia/Pacific. The employment reductions primarily affected employees
in manufacturing and back office support functions within the Global Operations
business unit. Facilities and equipment subject to restructuring were also
primarily located in the Americas and Europe within the Global Operations
business unit.

The employee severance and benefit costs included in the restructuring charges
recorded in the first quarter of fiscal 2002 related to approximately 2,000
full-time positions worldwide, all of which have been eliminated. Approximately
76% of the positions were in the Americas region and 24% were in Europe. The
employment reductions primarily affected employees in manufacturing and back
office support functions within the Global Operations business unit. Facilities
and equipment subject to restructuring were also primarily located in the
Americas and Europe within the Global Operations business unit.

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##### Table of Contents



Fiscal 2002 and 2001

During fiscal 2002 and 2001, Solectron recorded restructuring and impairment
costs of $615.5 million and $517.3 million, respectively. The following table
summarizes these restructuring charges:

|                                              |  |                        |       |      |  |        |       |  |  |          |  | 
|--------------------------------------------- |  | ---------------------- | ----- | ---- |  | ------ | ----- |  |  | -------- |  | 
|                                              |  | Years Ended August 31, |       |      |  |       
|                                              |  |                        |       |      |  |       
|                                              |  | 2002                   |       | 2001 |  | Nature
|                                              |  |                        |       |      |  |       
|Impairment of equipment                       |  | $                      | 127.8 |      |  | $      | 188.2 |  |  | non-cash
|Impairment of facilities                      |  |                        | 81.0  |      |  |        | 37.7  |  |  | non-cash
|Impairment of other long-lived assets         |  |                        | 162.1 |      |  |        | 42.2  |  |  | non-cash
|                                              |  |                        |       |      |  |        |       |  |  |          |  | 
|Impairment of equipment, facilities and other |  | $                      | 370.9 |      |  | $      | 268.1 |  |  |          |  | 
|                                             
|Severance and benefit costs                   |  | $                      | 119.8 |      |  | $      | 70.0  |  |  | cash    
|Loss on leased equipment                      |  |                        | 23.8  |      |  |        | 117.5 |  |  | cash    
|Loss on leased facilities                     |  |                        | 80.3  |      |  |        | 56.4  |  |  | cash    
|Other exit costs                              |  |                        | 20.7  |      |  |        | 5.3   |  |  | cash    
|                                              |  |                        |       |      |  |        |       |  |  |          |  | 
|Total                                         |  | $                      | 615.5 |      |  | $      | 517.3 |  |  |          |  | 
|                                              |  |                        |       |      |  |        |       |  |  |          |  | 

The employee severance and benefit costs included in the restructuring charges
recorded in fiscal 2002 related to approximately 15,000 full-time positions
worldwide, all of which have been eliminated. Approximately 69% of the
positions were in the Americas region, 20% were in Europe and 11% were in
Asia/Pacific. The employment reductions primarily affected employees in
manufacturing and back office support functions within the Global Operations
business unit. Facilities and equipment subject to restructuring were primarily
located in the Americas and Europe within the Global Operations business unit.

The employee severance and benefit costs included in the restructuring charges
recorded in fiscal 2001 related to approximately 11,800 full-time positions
worldwide, all of which have been eliminated. Approximately 67% of the
positions were in the Americas region, 23% were in Europe and 10% were in
Asia/Pacific. The employment reductions primarily affected employees in
manufacturing and back office support functions within the Global Operations
business unit. Facilities and equipment subject to restructuring were primarily
located in the Americas and Europe within the Global Operations business unit.

The following table summarizes the restructuring accrual activity from
initiation of Solectrons activities through November 30, 2002:

|                                        |  |              |        |                |  |                |       |       |  |       |       |   |  |   |       |   |  |   |        |  
|--------------------------------------- |  | ------------ | ------ | -------------- |  | -------------- | ----- | ----- |  | ----- | ----- | - |  | - | ----- | - |  | - | ------ | -
|                                        |  | Severance    |        | Lease Payments |  | Lease Payments |       |       |  |       |       |   |  |  
|                                        |  | and Benefits |        | on Facilities  |  | on Equipment   |       | Other |  | Total
|                                        |  |              |        |                |  |                |       |       |  |      
|Balance of accrual at September 1, 2000 |  | $            |       |                |  | $              |      |       |  | $     |      |   |  | $ |      |   |  | $ |       |  
|FY2001 Provision                        |  |              | 70.0   |                |  |                | 56.4  |       |  |       | 117.5 |   |  |   | 5.3   |   |  |   | 249.2  |  
|FY2001 Cash payment                     |  |              | (70.0  | )              |  |                | (5.5  | )     |  |       | (5.0  | ) |  |   | (0.9  | ) |  |   | (81.4  | )
|                                        |  |              |        |                |  |                |       |       |  |       |       |   |  |   |       |   |  |   |        |  
|Balance of accrual at August 31, 2001   |  | $            |       |                |  | $              | 50.9  |       |  | $     | 112.5 |   |  | $ | 4.4   |   |  | $ | 167.8  |  
|FY2002 Provision                        |  |              | 119.8  |                |  |                | 84.2  |       |  |       | 30.3  |   |  |   | 20.7  |   |  |   | 255.0  |  
|FY2002 Provision adjustments            |  |              |       |                |  |                | (3.9  | )     |  |       | (6.5  | ) |  |   |      |   |  |   | (10.4  | )
|FY2002 Cash payment                     |  |              | (113.7 | )              |  |                | (67.1 | )     |  |       | (72.2 | ) |  |   | (24.8 | ) |  |   | (277.8 | )
|                                        |  |              |        |                |  |                |       |       |  |       |       |   |  |   |       |   |  |   |        |  
|Balance of accrual at August 31, 2002   |  | $            | 6.1    |                |  | $              | 64.1  |       |  | $     | 64.1  |   |  | $ | 0.3   |   |  | $ | 134.6  |  
|Q1-FY03 provision                       |  |              | 61.4   |                |  |                | 6.9   |       |  |       | 2.9   |   |  |   | 11.8  |   |  |   | 83.0   |  
|Q1-FY03 Cash payments                   |  |              | (61.0  | )              |  |                | (9.1  | )     |  |       | (35.8 | ) |  |   | (0.6  | ) |  |   | (106.5 | )
|                                        |  |              |        |                |  |                |       |       |  |       |       |   |  |   |       |   |  |   |        |  
|Balance of accrual at November 30, 2002 |  | $            | 6.5    |                |  | $              | 61.9  |       |  | $     | 31.2  |   |  | $ | 11.5  |   |  | $ | 111.1  |  
|                                        |  |              |        |                |  |                |       |       |  |       |       |   |  |   |       |   |  |   |        |  

Accruals related to restructuring activities were recorded in accrued expenses
in the accompanying condensed consolidated balance sheets.

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NOTE 9  Loss Per Share Calculation

The calculation of loss per share for the three-month period ended November 30,
2002 did not include 38.5 million common shares issuable upon conversion of
Solectrons LYONs, 112.1 million common shares issuable upon conversion of
Solectrons ACES, or 69.5 million options to purchase common stock, as the
effect would have been antidilutive.

The calculation for the three-month period ended November 30, 2001 did not
include the 108.6 million common shares issuable upon conversion of Solectrons
LYONs, or 63.9 million options to purchase common stock, as the effect would
have been antidilutive.

NOTE 10  Subsequent Events

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
from Lucent to unwind this agreement. No gain or loss was realized with respect
to this unwind transaction and Solectron will continue to produce and support a
portion of Lucents optical networking products through March 2003.




ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement Regarding Forward-Looking Statements

With the exception of historical facts, the statements contained in this
discussion are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, as amended (the Exchange Act), and are subject to the Safe Harbor
provisions created by that statute. Certain statements contained in the
following Managements Discussion and Analysis of Financial Condition and
Results of Operations, including, without limitation, statements containing the
words believes, anticipates, estimates, expects, and words of similar
import, constitute forward-looking statements that involve risks and
uncertainties. Such statements are based on current expectations and are
subject to risk, uncertainties and changes in condition, significance, value
and effect, including those discussed under the heading Risk Factors within the
section of this report entitled Item 2, Managements Discussion and Analysis
of Financial Condition and Results of Operations and reports filed by
Solectron with the Securities and Exchange Commission, specifically, Forms 8-K,
10-Q, 10-K, S-3, S-4 and S-8. 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, including, but not limited to,
statements about our future operating results and business plans. We disclaim
any intention or obligation to update or revise any forward-looking statements
as a result of new information, future events or otherwise.

Critical Accounting Policies

Management is required to make judgments, assumptions and estimates that affect
the amounts reported when we prepare financial statements and related
disclosures in conformity with generally accepted accounting principles in the
United States. Note 1 to the consolidated financial statements in our Annual
Report on Form 10-K for the fiscal year ended August 31, 2002 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
reserves, goodwill and other intangible asset impairments, and restructuring
costs. 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.

Revenue Recognition

Our net sales are primarily derived from full product manufacturing including,
but not limited to, PCBA, sub-system and complete system assembly and
manufacturing of memory products and embedded systems. We also offer services
consisting of repair, warranty and end-customer technical support services.
Revenue from manufacturing services is recognized upon shipment of the
manufactured product. Revenue from other services is recognized as the
services are performed.

Loss Contingencies

We are subject to the possibility of various loss contingencies arising in the
ordinary course of business. We consider the likelihood and our ability to
reasonably estimate the amount of loss in determining loss contingencies.
Estimated loss contingencies are accrued when it is probable that a liability
has been incurred or an asset has been impaired and the amount of loss can be
reasonably estimated. We regularly evaluate information available to us to
determine whether such accruals should be adjusted.

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Inventory Reserves

The majority of our inventory purchase commitments are based upon demand
forecasts that our customers provide to us. The forecasted period is generally
three months, except for long lead-time items for which the period is longer.
Customers frequently make changes to their forecasts, thereby often requiring
that we make changes to our inventory purchases, commitments, and production
scheduling and may require us to cancel open purchase commitments with our
vendors. This process may lead to on-hand inventory quantities and on-order
purchase commitments that are in excess of the customers revised needs, or
parts that become obsolete before use in production.

We execute supply agreements with our most significant customers in our Global
Operations business unit. Under these supply agreements, the responsibility for
excess or obsolete inventory related to raw materials that we purchased or
ordered to meet customers demand forecasts lies with the customers. However,
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 inventory purchases
generally not covered by our supply agreements with our customers or for
inventory purchases for customers with whom we have no supply agreements (as is
generally the case in our business units other than Global Operations).

Each supply agreement specifies the agreed-upon definition of excess and
obsolete inventory and the procedures for disposition including our right to
sell the inventory back to the customer. The supply agreements generally allow
a period of time during which we work collaboratively with our customers to
reduce or eliminate the amount of potentially excess and obsolete inventory.
After the expiration of the specified time period, we may exercise our
contractual right to sell the remaining excess and obsolete inventory back to
the customer. The time period allowed to mitigate excess and obsolete inventory
can be up to 12 months. Consequently, there will be time lags between when
potential excess or obsolete inventory is first identified and when we are paid
from the exercise of our right to sell this inventory to the customer.

We do not provide inventory allowances for excess and obsolete inventory when
(i) the supply agreement provides us with the contractual right to sell
inventory that is considered excess or obsolete back to our customers, and (ii)
we believe the customer is capable of honoring its contractual obligation to
purchase the inventory. If our customers do not comply with their contractual
obligations, the inventory reserves included in our financial statements may be
understated. For example, we are subject to the risk that a customer may not
comply with its contractual obligation to purchase the excess and obsolete
inventory under a supply agreement because the customer is experiencing
weakening financial conditions. Several of our customers, including customers
who have accounted for 10% or more of revenue, were in the telecommunications
industry, an industry that has experienced declining revenue, large losses,
negative cash flows, and several bankruptcies or defaults on borrowing
arrangements. There is a risk that these customers may not purchase inventory
back from us, which could harm our financial condition.

For our Global Operations business unit, we record inventory reserves for
excess and obsolete inventory that we have determined our customers are not
responsible for or for which we believe they are unable to live up to their
obligation to purchase such inventory from us. For our other business units, we
make judgments with respect to recording inventory reserves based on various
factors such as the aging and anticipated future demand of the inventory. In
these other units, we generally do not have the right to require our customers
to purchase excess or obsolete inventory.

Allowance for Doubtful Accounts

We evaluate the collectibility 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 will 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

We perform goodwill impairment tests annually during the fourth quarter of our
fiscal year and more frequently if an event or circumstance indicates that an
impairment loss has occurred. Such events or circumstances may include
significant adverse changes in the general business climate, among others. We
perform the impairment tests at the reporting unit level, which we have
determined to be consistent with our business units (as defined in Note 4 to
the condensed consolidated financial statements) except for our Technology
Solutions and Global Services business units, which were disaggregated further
into two reporting units each. The tests are performed by determining the fair
values of our reporting units using a discounted future cash flow model and
comparing those fair values to the carrying values of the reporting units,
including goodwill. If the fair value of a 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.

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Other Intangible Assets

We perform quarterly impairment tests for other intangible assets. Our
intangible assets are primarily related to supply agreements and intellectual
property obtained from asset acquisitions. Such an asset is considered
impaired if its carrying amount exceeds the sum of the undiscounted cash flows
expected to result from the use and ultimate disposition of the asset. If such
asset is considered to be impaired, the impairment to be recognized is the
amount by which the carrying amount of the asset, if any, exceeds its fair
value determined using a discounted cash flow model. While our cash flow
assumptions and estimated useful lives are consistent with our business plans,
there is significant judgment involved in determining the cash flows
attributable to our other intangible assets.

Restructuring and Related Impairment Costs

We have recorded restructuring and impairment costs as we rationalized our
operations in light of customer demand declines and the current economic
downturn. These restructuring and impairment charges include employee severance
and benefit costs, costs related to leased facilities that will be abandoned
and subleased and owned facilities no longer used by us which will be disposed
of, costs related to leased equipment that has been or will be abandoned 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 estimated based on existing market prices for
similar assets. Severance and benefit costs are recorded in compliance with
Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity. For
leased facilities that will be abandoned and subleased, the estimated lease
loss accrued represents future lease payments subsequent to abandonment less
any estimated sublease income. In order to estimate future sublease income, we
work with an independent broker to determine the length of time until we
believe we can sublease a facility (generally estimated at 24 months) and the
amount of rent we can expect to receive. As of November 30, 2002, the majority
of the facilities we plan to sublease have not been subleased and, accordingly,
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. See Note 8 to the
condensed consolidated financial statements, Restructuring and Impairment,
for further discussion of our restructuring activities.

Results of Operations

The electronics industry is subject to rapid technological change, product
obsolescence and price competition. These and other factors affecting the
electronics industry, or any of Solectrons major customers in particular,
could materially harm Solectrons results of operations. See Risk Factors for
additional factors relating to possible fluctuations of our operating results.

The following table sets forth, for the periods indicated, certain items in the
condensed consolidated statements of operations as a percentage of net sales.
The financial information and the discussion below should be read in
conjunction with the condensed consolidated financial statements and notes
thereto.

|                               |                                     |  |                    |      |      |  |       |      |  
|------------------------------ | ----------------------------------- |  | ------------------ | ---- | ---- |  | ----- | ---- | -
|                               |                                     |  | Three Months Ended
|                               |                                     |  | November 30,      
|                               |                                     |  |                   
|                               |                                     |  | 2002               |      | 2001
|                               |                                     |  |                    |      |     
|Net sales                      |                                     |  | 100.0              | %    |      |  | 100.0 | %   
|Cost of sales                  |                                     |  | 92.5               |      |      |  | 92.9  |     
|                               |                                     |  |                    |      |      |  |       |     
|                               | Gross profit                        |  |                    | 7.5  |      |  |       | 7.1  |  
|Operating expenses:            |                                     |  |                    |      |      |  |       |     
|                               | Selling, general and administrative |  |                    | 6.5  |      |  |       | 6.5  |  
|                               | Research and development            |  |                    | 0.7  |      |  |       | 0.4  |  
|                               | Restructuring and impairment costs  |  |                    | 3.2  |      |  |       | 2.3  |  
|                               |                                     |  |                    |      |      |  |       |     
|Operating loss                 |                                     |  | (2.9               | )    |      |  | (2.1  | )   
|Interest income                |                                     |  | 0.3                |      |      |  | 0.6   |     
|Interest expense               |                                     |  | (1.8               | )    |      |  | (1.3  | )   
|Other income  net             |                                     |  | 1.2                |      |      |  | 0.4   |     
|                               |                                     |  |                    |      |      |  |       |     
|Loss before income tax benefit |                                     |  | (3.2               | )    |      |  | (2.4  | )   
|                               | Income tax benefit                  |  |                    | (0.9 | )    |  |       | (0.7 | )
|                               |                                     |  |                    |      |      |  |       |     
|Net loss                       |                                     |  | (2.3               | )%   |      |  | (1.7  | )%  
|                               |                                     |  |                    |      |      |  |       |     

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Net Sales

We are organized in four business units: Global Operations, Technology
Solutions, Global Services and the recently established MicroSystems created
from our acquisition of C-MAC during the second quarter of fiscal 2002. Our
largest business unit, Global Operations, provided 79.6% and 90.6% of net sales
during the first quarters of fiscal 2003 and 2002, respectively. Our Technology
Solutions business unit contributed 9.0%, and 4.9% of net sales during the
first quarters of fiscal 2003 and 2002, respectively. Our Global Services
business unit contributed 8.0% and 4.5% of net sales during the first quarters
of fiscal 2003 and 2002, respectively. Our MicroSystems business unit
contributed 3.4% of net sales during the first quarter of fiscal 2003.

Net sales for the first quarter of fiscal 2003 of $3.1 billion decreased from
$3.2 billion in the first quarter of fiscal 2002. This decrease was primarily
due to continued weakness in customer demand, particularly in the
telecommunications and networking segments partly offset by increased revenue
resulting from our acquisition of C-MAC Industries, Inc. as well as other
smaller business and manufacturing asset acquisitions completed during the past
year.

Global Operations Business Unit

Net sales in the first quarter of fiscal 2003 declined to $2.5 billion from
$2.9 billion in the first quarter of fiscal 2002. This 12.6% decrease resulted
from weakness in pricing or volume in end markets for telecommunications
infrastructure, networking and computing, partially offset by acquisitions of
C-MAC in December 2001 and certain manufacturing assets of NEC and Lucent
Technologies, Inc. during the third quarter of fiscal 2002.

Technology Solutions Business Unit

Net sales in the first quarter of fiscal 2003 increased to $283.6 million from
$154.5 million in the first quarter of fiscal 2002. This 83.6% increase was
primarily due to additional business wins from existing customers and new
customer wins in the computing, networking, telecommunications and medical
sectors as well as the addition of the military and aerospace business from the
C-MAC acquisition.

Global Services Business Unit

Net sales in the first quarter of fiscal 2003 increased to $251.4 million from
$141.8 million in the first quarter of fiscal 2002. This 77.3% increase was
primarily due to our acquisitions of Stream International, Inc. in October 2001
and Magnetic Data Technologies in June 2002 as well as higher demand for
after-sales support service provided by this business unit.

MicroSystems Business Unit

This new business unit was formed as a result of our acquisition of C-MAC.
MicroSystems is a provider of sensors, controllers, actuators and other
sophisticated components for key sectors of the economy such as automotive and
aviation. Net sales for the first quarter of fiscal 2002 were $105.9 million.
This represented 3.4% of our net sales in the first quarter of fiscal 2003.

International Sales

In the first quarter of fiscal 2003, our international locations contributed
65.4% of consolidated net sales compared to 64.7% in the first quarter of
fiscal 2002. Net sales from our international sites, as a percentage of
consolidated net sales, have grown over the past three fiscal years. The
increase was primarily due to project transfers from sites in the United States
to low-cost locations including Asia/Pacific, Eastern Europe and Latin America.
Our international operations are subject to various risks of doing business
abroad. See Risk Factors for additional factors relating to possible
fluctuations of our international operating results. While these dynamics have
not materially harmed our results of operations, we cannot ensure that there
will not be such an impact in the future.

Major Customers

Certain customers accounted for 10% or more of our net sales. The following
table includes these customers and the percentage of net sales attributed to
them:

|                       |  |                                 |      |      |  |  |      |  
|---------------------- |  | ------------------------------- | ---- | ---- |  |  | ---- | -
|                       |  | Three Months Ended November 30,
|                       |  |                                
|                       |  | 2002                            |      | 2001
|                       |  |                                 |      |     
|Hewlett-Packard/Compaq |  |                                 | 11.7 | %    |  |  | 10.8 | %
|Nortel Networks        |  |                                 | 10.9 | %    |  |  | 13.7 | %
|Cisco Systems          |  |                                 | *    |      |  |  | 11.1 | %



---

|* |  | Less than 10% of net sales.
|- |  | ---------------------------

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Our top ten customers accounted for 58.2% of consolidated net sales in the
first quarter of fiscal 2003 compared to 69.6% in the first quarter of fiscal
2002. We are dependent upon continued revenues from the customers listed above
as well as our other large customers. Sales to these or any other customers
could 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 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 results of operations may
be materially adversely affected.

Gross Profit

Our gross margin percentage increased to 7.5% in the first quarter of fiscal
2003 compared to 7.1% in the first quarter of fiscal 2002. This increase was
primarily the result of our continued consolidation of manufacturing facilities
with excess capacity and transfer of manufacturing to lower cost regions
worldwide. Offsetting the increase, our margin continues to be negatively
affected by inefficiencies associated with reduced demand and restructuring
activities. Since manufacturing transfer costs are accounted for as operational
costs versus restructuring costs, they affected our gross margin. Although we
have begun to see the benefits of our restructuring activities and improved
product mix on our margin, there is no assurance that this trend will continue.

For our Global Operations unit, we anticipate that a larger percentage of our
sales may be derived from systems-build projects that generally yield lower
profit margins than PCB assembly. We expect most of our Technology Solutions
sales may continue to be derived from turnkey projects, which typically yield
lower profit margins than consignment projects. In addition, factors affecting
Technology Solutions profit margins include the sales mix of specialty memory
modules, standard memory modules, communication card products and embedded
computer systems, as well as changes in average memory densities used in memory
products.

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

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

Selling, General and Administrative Expenses

In absolute dollars, our selling, general and administrative (SG&A) expenses
decreased by 1.6% in the first quarter of fiscal 2003 over the first quarter of
fiscal 2002. As a percentage of net sales, SG&A expenses were 6.5% in the first
quarters of both fiscal 2003 and 2002. The decrease in absolute dollars in the
first quarter of fiscal 2003 was primarily due to headcount and other SG&A
expense reductions, which were partially offset by higher SG&A expenses
resulting from our recent acquisitions including C-MAC in December 2001.

Research and Development Expenses

With the exception of our Technology Solutions business unit, our research and
development (R&D) activities have been primarily developing prototype and
engineering design capabilities, developing common tools for electrical
mechanical design, standardizing a single functional test platform, developing
methods for handling, processing and re-flow of high I/O ball grid array, high
reliability environmental stress technology and the implementation of
environmentally friendly assembly processes such as lead free and no-clean.
Technology Solutions R&D efforts are focused on developing
board and system level product solutions servicing the
telecommunications, military and aerospace, and industrial markets.

In absolute dollars, R&D expenses increased 76.8% in the first quarter of
fiscal 2003 compared to the first quarter of fiscal 2002. As a percentage of
net sales, R&D expenses increased to 0.7% in the first quarter of fiscal 2003
compared to 0.4% in the first quarter of fiscal 2002. The increases were
primarily due to our acquisition of C-MAC and the related businesses included
in our MicroSystems and Technology Solutions business units.

Restructuring and Impairment

Beginning in the second quarter of fiscal 2001, we initiated a restructuring of
our operations in light of the current 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 our
capacity and infrastructure to anticipated customer demand as well as to
rationalize our footprint worldwide.

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For leased facilities that will be abandoned and subleased, lease costs charged
to restructuring expense represent future lease payments subsequent to
abandonment less estimated sublease income. For facilities and equipment held
for disposal, 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. In furtherance of the implementation of our restructuring
plans, we expect to incur restructuring-related charges in the range of an
aggregate of $50 to $75 million over the remainder of fiscal 2003 although no
certainty can be attributed to this range. We continue to evaluate our cost
structure relative to our revenue levels and our manufacturing footprint
between high cost and low cost areas and may take additional restructuring
charges in the future. If we were to incur additional restructuring-related
charges, our financial condition and results of operations may suffer.

During the first quarter of fiscal 2003, we continued our restructuring
activities and total restructuring and impairment costs of $101.8 million were
charged against earnings. During the first quarter of fiscal 2002, charges of
$72.9 million were recorded. See Note 8 to the condensed consolidated financial
statements, Restructuring and Impairment, for further discussion of our
restructuring since initiation of the activities in fiscal 2001.

Interest Income

Interest income was $10.2 million in the first quarter of fiscal 2003 compared
to $19.9 million in the first quarter of fiscal 2002. The decrease was due to
reduced average cash, cash equivalent and short-term investment balances and
lower average interest rates compared to the first quarter of fiscal 2002.

Interest Expense

Interest expense was $56.5 million in the first quarter of fiscal 2003 compared
to $42.7 million in the first quarter of fiscal 2002. The increase was due to
the change in our debt structure resulting from the issuance of our ACES and
9.625% senior notes due 2009 during the second quarter of fiscal 2002 for gross
proceeds of approximately $1.6 billion that bear interest at higher rates than
the LYONs that we have been retiring periodically. Since November 30, 2001, we
have retired, for an aggregate $2.8 billion in cash, approximately $5.1 billion
of the original $8.6 billion combined face value of our 4.0% LYONs due 2019,
2.75% LYONs due 2020 and our 3.25% LYONs due 2020. Due to the zero-coupon
feature of the LYONs, the aggregate carrying value of these retired LYONs was
approximately $2.9 billion at the date of the retirements.

Other Income  net

Other income  net was $36.1 million in the first quarter of fiscal 2003
compared to $14.3 million in the first quarter of fiscal 2002. The increase
primarily resulted from the gains totaling $34.2 million on retirement of $372
million face value of our 3.25% LYONs due 2020 for $171 million in cash. These
retired LYONs had a carrying value of $205 million. See Note 1 to the
condensed consolidated financial statements, Basis of Presentation and Recent
Accounting pronouncements, for further discussion of other income-net.

Income Taxes

We reported income tax benefits of $28.9 million in the first quarter of fiscal
2003 and $21.8 million in the first quarter of fiscal 2002 arising from the
losses incurred in those periods. Our effective income tax benefit rates were
29.0% and 29.3% in the first quarters of fiscal 2003 and 2002, respectively.

In general, the effective income tax rate is largely a function of the balance
between income (loss) from domestic and international operations. Our
international operations, taken as a whole, have been taxed at a lower rate
than those 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 July 2011, subject to some conditions,
including maintaining certain levels of research and development expenditures.
The Singapore tax holiday is effective through March 2011, subject to some
conditions. Seven of our China sites have separate tax holiday agreements.
Each agreement expires five years from the first profitable year for each site.

Liquidity and Capital Resources

Cash, cash equivalents and short-term investments decreased to $2.0 billion at
November 30, 2002 from $2.2 billion at August 31, 2002. As of November 30 and
August 31, 2002, restricted balances of $148.3 million and $235.4 million, were
included in the $2.0 billion and $2.2 billion, respectively, of cash, cash
equivalents and short-term investments. Our restricted cash, cash equivalents
and short-term investments are restricted primarily related to leasing
transactions and collateral for our obligations under the ACES securities in an
amount equal to the next four quarterly interest payments.

The decrease in cash, cash equivalents and short-term investments was primarily
a result of our continued repurchase activity of our LYONs. During the first
quarter of fiscal 2003, we used $182 million of our available cash towards the
repurchase of $216 million carrying value of our LYONs. We also used $85
million to repay other short-term debt during the quarter. We also used $72
million for capital expenditures and manufacturing asset acquisitions, which
was offset by receipt of $63 million in cash from the unwinding of our Lucent
outsourcing arrangement and sale of assets held for sale.

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Accounts receivable increased to approximately $1.9 billion at November 30,
2002 from approximately $1.8 billion at August 31, 2002. Inventories decreased
to approximately $1.8 billion at November 30, 2002 from approximately $1.9
billion at August 31, 2002. These changes primarily resulted from our sale of
excess raw materials inventory back to our customers near the end of the first
quarter of fiscal 2003.

As of November 30, 2002, we had available a $250 million revolving line of
credit that expires on February 12, 2003, and a $250 million revolving line of
credit that expires on February 14, 2005. Each of our revolving lines of credit
is guaranteed by certain of our domestic subsidiaries and secured by the pledge
of equity interest in certain of our subsidiaries and notes evidencing
intercompany debt. Borrowings under the credit facilities bear interest, at our
option, at the London Interbank offering rate (LIBOR) plus a margin of 1.75%
based on our 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 November 30, 2002, there were no borrowings
outstanding under these lines of credit. We are subject to compliance with
certain covenants related to these facilities including capital expenditures,
consolidated tangible net worth, cash interest coverage, liquidity and other
restrictions. As of November 30, 2002, we were in compliance with all such
covenants.

On December 18, 2001, Moodys Investors Service and Standard & Poors
downgraded our senior unsecured debt rating to Ba1 and BB+, respectively,
with a negative outlook. On March 22, 2002, Standard and Poors again
downgraded our senior unsecured debt rating to BB with a negative outlook. On
May 14, 2002, Moodys Investors Services further downgraded our senior
unsecured debt rating to Ba3 with a stable outlook. These rating downgrades
will 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.

In addition, we had $31 million in committed and $378 million in uncommitted
foreign lines of credit and other bank facilities as of November 30, 2002. 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 2.0%. As of November 30, 2002, borrowings and guaranteed
amounts were $9 million under committed and $44 million under uncommitted
foreign lines of credit. Borrowings are payable on demand. The weighted-average
interest rate was 6.8% for committed and 3.1% for uncommitted foreign lines of
credit as of November 30, 2002.

We have purchased in the past and may continue to purchase in the future our
remaining LYONs on an opportunistic basis. In addition, our liquidity could be
adversely affected if we require substantial amounts of cash in connection with
our obligations to purchase our LYONs as they become due. Instead of
repurchasing the LYONs with cash, we may elect to offer holders our common
stock or a combination of our cash and common stock. At the time of such
election, it may be in the best interest of our shareholders to satisfy such
obligation in cash, however, we may not have sufficient available cash and we
may not be able to finance the required amount on acceptable terms if at all.
As a result, we may be required to satisfy such obligations with our common
stock, which would be extremely dilutive at our current stock prices. See Risk
factors  Our Obligations Under LYONs May Cause Dilution and Reduction of
Earnings Per Share. Based on the aggregate amount outstanding on November 30,
2002, holders of our 2.75% LYONs due 2020 have the option to require us to
repurchase their notes on May 8, 2003 in an amount of $628.57 per $1,000
principal amount for a total of $524 million. These 2.75% LYONs due 2020 are
classified as short-term debt as of November 30, 2002 in the accompanying
condensed consolidated balance sheet. Based on the aggregate amount outstanding
on November 30, 2002, holders of our 3.25% LYONs due 2020 have 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 $1.3 billion.

Our 7.25% subordinated ACES debentures are due November 15, 2006. On or about
August 15, 2004, the ACES debentures will be remarketed and if the remarketing
is successful, the interest rate will be reset at then current rates as
described in the indentures and the proceeds from the remarketing will be used
to satisfy the holders obligation to purchase our common stock in November
2004. If the debentures are not successfully remarketed, the interest rate
will not be reset and we may use the pledged debentures to satisfy the holders
obligation to purchase our common stock in November 2004. In addition, our $500
million aggregate principal amount of 9.625% senior notes is due February 15,
2009.

During fiscal 2002, we restructured our synthetic lease agreements relating to
five manufacturing sites. The synthetic leases have expiration dates in 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, 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. In connection with the
restructuring of these synthetic leases, we provided loans to the lessor
equaling approximately 85% of its Termination Value. 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 Termination Values and loan amounts
are $125 million and $106 million, respectively, as of November 30, 2002.

In addition, cash collateral of $19 million is pledged for the difference
between the Termination Values and the loan amounts. The cash collateral is
included in cash, cash equivalents and short-term investments in the
accompanying condensed consolidated balance sheet as of November 30, 2002. Each lease agreement contains
various affirmative and financial

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covenants. A default under a lease,
including violation of these covenants, may accelerate the termination date of
the arrangement. We were in compliance with these covenants as of November 30,
2002. Monthly lease payments are generally based on the Termination Value
and 30-day LIBOR index (1.38% as of November 30, 2002) 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 total 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 are included in other long-term assets in the condensed consolidated
balance sheet as of November 30, 2002.

If we should determine that it is probable that the expected fair value of the
property at the end of the lease term will be less than the Termination Value,
any expected loss will be recognized on a straight-line basis over the
remaining lease term.

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

The following is a summary of certain obligations and commitments as of
November 30, 2002:

Payments Due by Period
(in millions)

|                                                     |  |       |         |      |  |          |       |      |  |      |         |      |  |            |      |  |  |   |       |  |  |   |         |     |  |   |       | 
|---------------------------------------------------- |  | ----- | ------- | ---- |  | -------- | ----- | ---- |  | ---- | ------- | ---- |  | ---------- | ---- |  |  | - | ----- |  |  | - | ------- | --- |  | - | ----- | 
|                                                     |  |       |         |      |  |          |       |      |  |      |         |      |  |           
|                                                     |  |       |         |      |  | 9 months |       |      |  |      |         |      |  |            |      |  |  |   |       |  |  |   |         |     |  |  
|                                                     |  | Total |         | FY03 |  | FY04     |       | FY05 |  | FY06 |         | FY07 |  | Thereafter
|                                                     |  |       |         |      |  |          |       |      |  |      |         |      |  |           
|Short term debt (1)                                  |  | $     | 554.2   |      |  | $        | 554.2 |      |  | $    |        |      |  | $          |     |  |  | $ |      |  |  | $ |        |     |  | $ |      | 
|Long term debt (2)                                   |  |       | 3,074.8 |      |  |          |      |      |  |      | 1,310.8 |      |  |            | 2.5  |  |  |   | 152.1 |  |  |   | 1,102.0 | (4) |  |   | 507.4 | 
|Operating lease                                      |  |       | 490.9   |      |  |          | 118.9 |      |  |      | 110.3   |      |  |            | 63.7 |  |  |   | 47.5  |  |  |   | 38.7    |     |  |   | 111.8 | 
|Standby letters of credit and guaranteed amounts (3) |  |       | 68.7    |      |  |          | 49.4  |      |  |      | 18.9    |      |  |            |     |  |  |   |      |  |  |   | 0.4     |     |  |   |      | 
|                                                     |  |       |         |      |  |          |       |      |  |      |         |      |  |            |      |  |  |   |       |  |  |   |         |     |  |   |       | 
|                                                     |  | $     | 4,188.6 |      |  | $        | 722.5 |      |  | $    | 1,440.0 |      |  | $          | 66.2 |  |  | $ | 199.6 |  |  | $ | 1,141.1 |     |  | $ | 619.2 | 
|                                                     |  |       |         |      |  |          |       |      |  |      |         |      |  |            |      |  |  |   |       |  |  |   |         |     |  |   |       | 



---

|(1) |  | Since the holders of our 2.75% LYONs due 2020 have the option to
require us to repurchase their notes on May 8, 2003 in an amount of
$628.57 per $1,000 principal amount at maturity, the payment due
reflects a total of $524 million on such commitment date of May 8, 2003
based on the notes outstanding as of November 30, 2002.                                                                     
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Since the holders of our 3.25% LYONs due 2020 have the option to
require us to repurchase on May 20, 2004 their notes in an amount of
$587.46 per $1,000 principal amount at maturity, the payment due
reflects a total of approximately $1.3 billion on such commitment date
of May 20, 2004 based on the notes outstanding as of November 30, 2002.                                                     
|   
|(3) |  | We guarantee lines of credit, provided by various financial
institutions, for our operating subsidiaries worldwide. Lines of credit,
used and unused, which we guarantee for our subsidiaries totaled $409
million as of November 30, 2002. In addition, we guarantee other
financial transactions entered into by our subsidiaries such as certain
leases, totaling $272 million as of November 30, 2002.
|   
|(4) |  | Assumes a successful remarketing of the ACES in August 2004. In the
event of this successful remarketing, we will receive up to $1.1 billion
proceeds from the exercise of the stock purchase contracts included in
each ACES unit in fiscal 2005. See Note 5 to the condensed consolidated
financial statements, Long-term Debt, for further discussion of our
ACES.                                   

In addition, we guarantee $59 million of debt and $75 million of vendor
contracts for our formerly minority-owned affiliate, Pacific City International
Holdings (PCI). The majority of these guarantees will expire during December
2002 and January 2003.

Recent Development

On January 6, 2003, we announced
that, effective January 10, 2003, Michael R. Cannon has been named
president and chief executive officer and elected to the board of
directors succeeding Koichi Nishimura who, in September, announced
his intention to retire. Our board also elected William A. Hasler,
our lead independent director, to succeed Koichi Nishimura as
chairman of the board. In addition, we announced that Saeed Zohouri,
executive vice president and chief operating officer, left the
Company as part of the chief executive officer transition process.

On May 31, 2002, we announced the completion of a three-year supply agreement
to produce optical networking equipment for Lucent. As part of the three-year
supply agreement, we 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, we received approximately $48 million from Lucent to
unwind this agreement. No gain or loss was realized with respect to this
transaction and we will continue to produce and support a portion of Lucents
optical networking products through March 2003.

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RISK FACTORS

WE ARE EXPOSED TO GENERAL ECONOMIC CONDITIONS, WHICH COULD HAVE A MATERIAL
ADVERSE IMPACT ON OUR BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION.

As a result of the economic downturn in the U.S. and internationally, and
reduced capital spending as well as end-market demand, our customers and
therefore our sales have declined significantly. In particular, we depend on
the telecommunications industry, where the decline began in the second quarter
of fiscal 2001. Continued weakness in this industry or any further
deterioration in the business or financial condition of our customers in this
industry could have a material adverse impact on our business, operating
results and 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 financial
condition.

WE HAVE SIGNIFICANT DEBT LEVERAGE AND DEBT SERVICE OBLIGATIONS.

During the first quarter of fiscal 2003, our fixed charges exceeded our
earnings by $100 million compared to $74 million in the first quarter of fiscal
2002. The fixed charge excess is primarily due to our operating losses. We
compute the ratio of earnings to fixed charges by dividing earnings available
for fixed charges by fixed charges. When the ratio is negative, we report the
excess of fixed charges over earnings rather than a negative ratio. The
computations include our consolidated subsidiaries. For these ratios,
earnings represents (1) income (loss) before tax expense (benefit) and before
adjustments for minority interests, plus (2) fixed charges (excluding
capitalized interest), plus (3) amortization of capitalized interest. Fixed
charges consist of (1) interest on all indebtedness and amortization of debt
discount and expense, plus (2) capitalized interest, plus (3) an interest
factor attributable to rentals under operating leases.

As of November 30, 2002, we had $548 million of short-term indebtedness,
including $518 million of current portion of long-term indebtedness, and
approximately $3 billion of long-term indebtedness (which as in the case of all
LYONs were the accreted values as of that date). We will require substantial
amounts of cash to fund scheduled payments of principal and interest on our
outstanding indebtedness, as well as future capital expenditures and any
increased working capital requirements. In addition, we may require
substantial amounts of cash in connection with our obligations to repurchase
our LYONs. During the first quarter of fiscal 2003, we purchased $18 million
aggregate principal amount at maturity of our 2.75% LYONs due 2020, and $834
million aggregate principal amount at maturity of these LYONs remained
outstanding as of November 30, 2002. Based on the aggregate amount outstanding
on November 30, 2002, holders of our 2.75% LYONs due 2020 will have the option
to require us to repurchase their notes on May 8, 2003 in an amount of $628.57
per $1,000 principal amount for a total of $524 million. During the first
quarter of fiscal 2003, we purchased $372 million aggregate principal amount of
maturity of our 3.25% LYONs due 2020 and approximately $2.2 billion aggregate
principle amount at maturity of these LYONs remained outstanding as of November
30, 2002. Based on the aggregate amount outstanding on November 30, 2002,
holders of our 3.25% LYONs due 2020 will have 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 $1.3 billion. Instead of
repurchasing the LYONs with cash, we may elect to offer holders our common
stock or a combination of our cash and common stock. At the time of such
election, it may be in the best interests of our shareholders to satisfy such
obligation in cash; however, we may not have sufficient cash available and we
may not be able to finance the required amount on acceptable terms if at all.
As a result, we may be required to satisfy such obligations with our common
stock, which would be extremely dilutive at our current stock prices.

OUR ABILITY TO MEET OUR CASH REQUIREMENTS DEPENDS ON A NUMBER OF FACTORS, MANY
OF WHICH ARE BEYOND OUR CONTROL.

Our ability to meet our cash requirements (including our debt service
obligations) is dependent upon our future performance, which will be subject to
financial, business and other factors affecting our operations, many of which
are beyond our control. If we are unable to meet our cash requirements from
operations, we would be required to fund these cash requirements by alternative
financings. The degree to which we may be leveraged could materially and
adversely affect our ability to obtain financing for working capital,
acquisitions or other purposes, could make us more vulnerable to industry
downturns and competitive pressures, or could limit our flexibility in planning
for, or reacting to, changes and opportunities in the electronics manufacturing
industry, which may place us at a competitive disadvantage compared to our
competitors. There can be no assurance that we will be able to obtain
alternative financing, that any such financing would be on acceptable terms, or
that we will be permitted to do so under the terms of our existing financing
arrangements. In the absence of such financing, our ability to respond to
changing business and economic conditions, make future acquisitions, react to
adverse operating results, meet our debt service obligations or fund required
capital expenditures or increased working capital requirements may be adversely
affected.

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

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We execute supply agreements with our most significant customers in our Global
Operations business unit, which accounts for a majority of the inventory we
purchase. Under the supply agreements, the responsibility for excess or
obsolete inventory related to raw materials that
were previously purchased or ordered to meet a customers demand forecast lies
with the customer. If our customers do not comply with their contractual
obligations to purchase excess or obsolete inventory back from us, our
financial condition could be materially harmed. In addition, enforcement of
these supply agreements may result in material expenses or delays in payment
for inventory.

We are solely 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 inventory
purchases generally not covered by our supply agreements or for inventory
purchased for customers with whom we have no supply agreements (as is generally
the case for the customers in our Technology Solutions, Global Services and
MicroSystems business units). In these instances, since we do not have the
right to sell back excess or obsolete inventory to our customers, we must bear
the economic loss of any such excess or obsolete inventory, which could have a
material adverse impact on our financial condition.

THE AGREEMENTS GOVERNING OUR EXISTING AND FUTURE DEBT CONTAIN AND WILL CONTAIN
VARIOUS COVENANTS THAT LIMIT OUR DISCRETION IN THE OPERATION OF OUR BUSINESS.

The agreements and instruments governing our existing and future debt and our
secured credit facilities contain and may, in the future, contain various
restrictive covenants that, among other things, require us to comply with or
maintain certain financial tests and ratios thereby restricting our ability to:



| |  |  | incur debt;                                                  
| | - |  | -------------------------------------------------------------
|
| |  |  | incur or maintain liens;                                     
|
| |  |  | redeem and/or prepay subordinated debt;                      
|
| |  |  | make acquisitions of businesses or entities;                 
|
| |  |  | make investments, including loans, guarantees and advances;  
|
| |  |  | make capital expenditures;                                   
|
| |  |  | engage in mergers, consolidations or certain sales of assets;
|
| |  |  | engage in transactions with affiliates;                      
|
| |  |  | pay dividends or engage in stock redemptions; and            
|
| |  |  | enter into certain restrictive agreements.                   

Our secured credit facilities are secured by a pledge of all of the capital
stock of our material domestic subsidiaries, 65% of the capital stock of our
first-tier material foreign subsidiaries and certain of our intercompany loans.

Our ability to comply with covenants contained in our existing debt and our
secured credit facilities and other indebtedness to which we are or may become
a party may be affected by events beyond our control, including prevailing
economic, financial and industry conditions. Our failure to comply with our
debt-related covenants could result in an acceleration of our indebtedness and
cross-defaults under our other indebtedness, which may have a material adverse
effect on our financial condition. Even if we are able to comply with all
applicable covenants, the restrictions on our ability to operate our business
could harm our business by, among other things, limiting our ability to take
advantage of financings, mergers, acquisitions and other corporate
opportunities.

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 58.2%, and 69.6% of net sales in
the first quarters of fiscal years 2003 and 2002, respectively. Some of these
customers individually account 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 supply agreements with these customers. Our business, market
share, 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 supply agreements,
as well as on the financial condition and success of our customers and their
customers.

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Net sales may decline in future periods due to the continued weakness in
customer demand, particularly in our telecommunications sector, resulting from
the worldwide economic slowdown. In addition, net sales may be adversely
affected due to our unwinding of the Lucent supply agreement, which was
expected to generate $2 billion in revenues over the original three-year
contract period.

OUR CUSTOMERS MAY CANCEL THEIR ORDERS, CHANGE PRODUCTION QUANTITIES OR
LOCATIONS, OR DELAY PRODUCTION.

Electronics manufacturing services (EMS) companies must provide increasingly
rapid product turnaround for their customers. Although we have long-term
contracts with a few of our top ten customers, including Ericsson and Nortel,
under which these customers are obligated to obtain services from us, only
Nortel is obligated to purchase any minimum amount of services. As a result,
we cannot guarantee that we will receive any net sales from these contracts or
any of our other contracts with customers. Customers may cancel their orders,
change production quantities or delay production for a number of reasons. Many
of our customers industries are experiencing a significant decrease in demand
for their products and services. 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, as well as causing a delay in
the repayment of our expenditures for inventory in preparation for customer
orders and lower asset utilization resulting in lower gross margins. 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, can result in inefficiencies and costs due to
resulting excess capacity and overhead at one facility and capacity constraints
and related strains on our resources at the other.

OUR STRATEGIC RELATIONSHIPS WITH MAJOR CUSTOMERS CREATE RISKS.

In the past several years, we have completed several strategic transactions
with Original Equipment Manufacturers (OEM) customers. Under these
arrangements, we generally acquire inventory, equipment and other assets from
the OEM, and lease (or in some cases acquire) their manufacturing facilities,
while simultaneously entering into multi-year supply agreements for the
production of their products. We intend to continue to pursue these OEM
divestiture transactions in the future. There is strong competition among EMS
companies for these transactions, and this competition may increase. These
transactions have contributed to a significant portion of our past revenue
growth, and if we fail to complete similar transactions in the future our
revenue could be harmed. As part of these arrangements, we typically enter into
manufacturing services agreements with these OEMs. These agreements generally
do not require any minimum volumes of purchases by the OEM, and the actual
volume of purchases may be less than anticipated. The arrangements entered into
with divesting OEMs typically involve many risks, including the following:



| |  |  | we may pay a purchase price to the divesting OEMs that exceeds the value we may 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, 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.

As a result of these and other risks, we may be unable to achieve anticipated
levels of profitability under these 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 OUR ACQUISITIONS AND COST EFFECTIVELY ASSIMILATE NEW
OPERATIONS, OUR PROFITABILITY COULD BE ADVERSELY AFFECTED.

We experienced rapid growth over many years until recently. During fiscal 2002,
we completed our acquisition of C-MAC, as well as other smaller transactions.
We intend to consider acquisitions of companies and strategic assets under our
acquisition strategy subject to compliance with any restrictions that may exist
under certain of our financing instruments. These acquisitions may be for
cash, capital stock or any combination of cash and capital stock, or other
property, and may include the incurrence or assumption of indebtedness and a
reduction of our available cash.

In order to achieve anticipated revenue and other financial performance
targets, we must continue to manage our assets and operations efficiently and integrate our
acquisitions. Our acquisitions place a heavy strain on our personnel and
management, manufacturing and other resources.

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Our ability to manage and
integrate our acquisitions, as well as any future acquisitions, will require
progressive increases in manufacturing infrastructure, as well as enhancements
or upgrades of accounting and other internal management systems and the
implementation of a variety of procedures and controls. We cannot assure that
significant problems in these areas will not occur. Any failure to enhance or
expand these systems and implement such procedures and controls in an efficient
manner and at a pace consistent with our business
activities could harm our financial condition and results of operations. In
addition, should we continue to expand geographically, we may experience
inefficiencies from the management of geographically dispersed facilities and
incur substantial infrastructure and working capital costs. We incurred $102
million of restructuring-related charges in the first quarter of fiscal 2003
and $616 million during fiscal 2002. See also the risk factor entitled If we
incur more restructuring-related charges than currently anticipated, our
financial condition and results of operations may suffer.

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
margins 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;                                                                                                                                                                                                                                                           
|
| |  |  | expenses associated with acquisitions;                                                                                                                                                                                                                                                       
|
| |  |  | announcements of operating results and business conditions by our customers;                                                                                                                                                                                                                 
|
| |  |  | announcements by our competitors relating to new customers or technological innovation or new services;                                                                                                                                                                                      
|
| |  |  | economic developments in the electronics industry as a whole;                                                                                                                                                                                                                                
|
| |  |  | credit ratings 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
FINANCIAL CONDITION AND RESULTS OF OPERATIONS MAY SUFFER.

In furtherance of the implementation of the restructuring plan we announced in
fiscal 2001, we expect to incur restructuring-related charges in the range of
an aggregate of $50 to $75 million over the remainder of fiscal 2003, although
no certainty can be attributed to this amount or the timing of its recognition.
We continue to evaluate our cost structure relative to our revenue levels and
may take additional

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restructuring charges in the future. If we incur
additional restructuring-related charges, our financial condition and results
of operations may suffer.

WE DEPEND ON LIMITED OR SOLE SOURCE SUPPLIERS FOR CRITICAL COMPONENTS. THE
INABILITY TO OBTAIN SUFFICIENT COMPONENTS AS REQUIRED 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. Also for our Technology Solutions business unit, we are dependent
upon certain limited or sole source suppliers for critical components used for
our memory module, communications card and embedded computer products. The
electronics industry has experienced in the past, and may experience in the
future, shortages in semiconductor devices, including 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
required, or to develop alternative sources as 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, thereby causing harm to our business.

WE POTENTIALLY BEAR THE RISK OF PRICE INCREASES ASSOCIATED WITH SHORTAGES IN
THE AVAILABILITY OF 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. The memory
module, communications card and embedded computer subsystem industries are also
intensely competitive. These competitors may have greater manufacturing,
financial, R&D and/or marketing resources than we have. In addition, we may not
be able to offer prices as low as some of our competitors because those
competitors may have lower cost structures as a result of their geographic
location or the services they provide. 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, or
profit margin compression.

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

Approximately 65.4% and 64.7% of net sales came from sites outside the United
States during the first quarters of fiscal 2003 and 2002, respectively. As a
result of our foreign sales and facilities, our operations are subject to a
variety of risks that are unique to international operations, including the
following:



| |  |  | adverse movement of foreign currencies against the U.S. dollar in which our results are reported;
| | - |  | -------------------------------------------------------------------------------------------------
|
| |  |  | import and export duties, and value added taxes;                                                 
|
| |  |  | import and export regulation changes that could erode our profit margins or restrict exports;    
|
| |  |  | potential restrictions on the transfer of funds;                                                 
|
| |  |  | disruption of local labor supply;                                                                
|
| |  |  | inflexible employee contracts in the event of business downturns;                                
|
| |  |  | the burden and cost of compliance
with foreign laws; and                                         

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| |  |  | economic and political risks in
emerging or developing economies.
| | - |  | -----------------------------------------------------------------

We have been granted tax holidays, which are effective through 2011 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, if additional
tax holidays are not granted in the future or when our current tax holidays
expire, our effective income tax rate would likely increase.

WE ARE EXPOSED TO FLUCTUATIONS IN FOREIGN CURRENCY EXCHANGE RATES.

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 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.

We periodically hedge foreign currency forecasted transactions with foreign
exchange forward contracts. These transactions are treated as cash flow hedges.
These foreign exchange forward contracts generally have original maturities of
18 months or less.

As of November 30, 2002, we had outstanding foreign exchange forward contracts
with a total notional amount of approximately $356 million. 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 November 30, 2002, the majority of our foreign currency hedging contracts
was 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 21% of our net sales in the first quarter of fiscal 2003 were
denominated in currencies other than U.S. dollar, we do not believe our total
exposure to be significant because of natural hedges.

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
financial condition. For example, if there is an increase in the rate at which
a foreign currency is exchanged for U.S. dollars, it will require more of the
foreign currency to equal a specified amount of U.S. dollars than before the
rate increase. In such cases, and if we price our products and services in the
foreign currency, we will receive less in U.S. dollars than we did before the
rate increase went into effect. If we price our products and services in U.S.
dollars and competitors price their products in local currency, an increase in
the relative strength of the U.S. dollar could result in our prices being
uncompetitive in markets where business is transacted in the local currency.

WE ARE EXPOSED TO INTEREST RATE FLUCTUATIONS.

The primary objective of our investment activities is to preserve principal,
while at the same time, maximize yields without significantly increasing risk.
To achieve this objective, we maintain our portfolio of cash equivalents and
short-term investments in a variety of securities, including both government
and corporate obligations, certificates of deposit and money market funds. As
of November 30, 2002, approximately 98% of our total portfolio was scheduled to
mature in less than six months. In addition, our investments are diversified
and of relatively short maturity. A hypothetical 10% increase in interest rates
would not have a material effect on our investment portfolios.

We had $516 million of cash equivalents and short-term investments that are
subject to interest rate risk as of November 30, 2002. The weighted average
interest rate of these balances as of November 30, 2002 was 1.67%. The fair
value of these cash equivalents and short-term investments approximated the
carrying value of $516 million as of November 30, 2002.

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. During the
third quarter of fiscal 2002, we entered into interest rate swap transactions
under which we paid variable rates and we received fixed rates. The interest
swaps effectively converted $1 billion of our long-term debt with fixed
interest rates into debt with variable rates of interest. Our original interest
rate swaps had a total notional amount of $1 billion upon inception. The first
$500 million related to our 7.25% $1.1 billion ACES, expires on November 15,
2004 and remains outstanding. The second $500 million related to the 9.625%
$500 million senior notes, expired on February 15, 2009 and was settled during
the first quarter of fiscal 2003. Under each of these swap transactions, we
paid an interest rate equal to the 3-month LIBOR rate plus a fixed spread. In
exchange, we received fixed interest rates of 7.25% on the $500 million related
to the ACES and 9.625% on the $500 million related to the senior notes. On
November 15, 2002, the original swaps related to the senior notes were settled.
This settlement resulted in cash received and a gain of approximately $26
million,

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which is being amortized over the remaining life of the senior notes.
Also on November 15, 2002, Solectron entered into swaps with terms similar to
the original used to hedge the interest paid on the senior notes and designated
the swaps as fair value hedges under SFAS No. 133. As of November 30, 2002,
the interest rates we paid were 4.7% for the $500 million related to the ACES
and 7.0% for the $500 million related to the senior notes. Since our investment
portfolio earns variable interest rates, the interest rate swaps allow us to
partially offset the variable rate risk from the investment portfolio.

WE MAY NOT BE ABLE TO ADEQUATELY PROTECT OR ENFORCE OUR INTELLECTUAL PROPERTY
RIGHTS.

Our ability to effectively compete may be affected by our ability to protect
our proprietary information. We hold a number of patents and other license
rights. These patents and license rights may not provide meaningful protection
for our manufacturing processes and equipment innovations, which could result
in litigation. Any resulting litigation could be lengthy and costly and could
harm our financial condition.

WE COULD BECOME INVOLVED IN INTELLECTUAL PROPERTY DISPUTES.

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 or to obtain licenses. We may not be successful in
developing such an alternative or obtaining a license on reasonable terms, if
at all. Any litigation, even without merit, could result in substantial costs
and diversion of resources and could have a material adverse effect on our
business, financial condition and results of operations.

FAILURE TO COMPLY WITH ENVIRONMENTAL REGULATIONS COULD HARM OUR BUSINESS.

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

The investigations of the C-MAC facilities to date indicate that there are some
contaminated sites for which we have been indemnified by third parties for any
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 mitigate certain environmental liabilities
posed by C-MACs 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 C-MAC facilities would not materially harm our business, financial
condition and results of operations. Nevertheless, the process of remediating
contamination in soil and groundwater at the 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, financial condition
and results of operations in the future.

OUR RATING DOWNGRADES MAKES IT MORE EXPENSIVE FOR US TO BORROW MONEY.

On December 18, 2001 Moodys Investors Service and Standard & Poors
downgraded our senior unsecured debt rating to Ba1 and BB+, respectively,
both with negative outlooks. On March 22, 2002, Standard and Poors again
downgraded our senior unsecured debt rating to BB with a negative outlook. On
May 14, 2002, Moodys Investor Services further downgraded our senior unsecured
debt rating to Ba3 with a stable outlook. These rating downgrades will
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 on terms that are acceptable to us or at all. In addition, any
further ratings downgrades may further negatively impact the price of our
common stock and may have other negative implications on our business, many of
which are beyond our control.

OUR OBLIGATIONS UNDER LYONS MAY CAUSE DILUTION AND REDUCTION OF EARNINGS PER
SHARE.

On May 8, 2003, we may become obligated to purchase, at the option of the
holders, all or a portion of the outstanding 2.75% LYONs at a price of $628.57
per note. On May 20, 2004 we may become obligated to purchase, at the option
of the holders, all or a portion of the outstanding 3.25% LYONs at a price of
$587.46 per note. We have the option to pay the purchase price of LYONs in
cash or common stock or any combination thereof. At the time of such election,
it may be in the best interests of our shareholders to satisfy such obligation
in cash, however, we may not have sufficient available cash and we may not be
able to finance the required amounts on acceptable terms, if at all. As a
result, we may be required to satisfy such obligations with our common stock.
If we elect to pay the purchase price, in whole or part, in shares of our
common stock, the number of shares of common stock to be delivered shall equal
the purchase price divided by the average of the sale prices of the common
stock for the five trading day period ending on the third business day prior to
May 8, 2003 or May 20, 2004, as the case may be. On each respective repurchase
date the 2.75% LYONs or the 3.25% LYONs are convertible into common stock at a
price of $50.98 per share or 12.3309 shares per LYON in the case of the 2.75%
LYONs or at a price of $49.84 per

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share or 11.7862 shares per LYON, in the case
of the 3.25% LYONs. In the event that our stock price remains below $50.98 per
share at May 8, 2003 or below $49.84 per share at May 20, 2004, as the case may
be, we may have to issue a significant amount of additional shares to such
holders. Accordingly, our existing stockholders could experience significant
dilution and our earnings per share may be significantly reduced.

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 operations.

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

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




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See Risk Factors for factors related to fluctuations in the exchange rates of
foreign currency and fluctuations in interest rates.




ITEM 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures. Based on their evaluation as
of a date within 90 days of the filing date of this Report, Solectrons
principal executive officer and principal financial officer have concluded that
Solectrons disclosure controls and procedures (as defined in Rules 13a-14(c)
and 15d-14(c) under the Securities Exchange Act of 1934 (the Exchange Act))
are effective to ensure that information required to be disclosed by Solectron
in reports that it files or submits 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 controls. There were no significant changes in Solectrons
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.




PART II. OTHER INFORMATION




Item 1: Legal Proceedings

We from time to time are involved in various litigation and legal matters,
including those described below. By describing the particular matters set
forth below, we do not intend to imply that we or our legal advisors have
concluded or believe that the outcome of any of those particular matters is
likely to have a material adverse impact upon our business or financial
condition. Nor are we party to other legal proceedings that individually or in
the aggregate are believed to be material to our business.

On August 29, 2002, ATEL Leasing Corporation, a lessor of manufacturing
equipment to us, filed suit against us in the California Superior Court for the
City and County of San Francisco (ATEL Leasing Corp. v. Solectron Corp., Case
No. 412011), alleging that ATEL is entitled to recover as liquidated damages
and not as a penalty amounts equal to the stipulated loss value of all of
the equipment leased to us by ATEL under two equipment lease agreements, even
though the equipment in question was neither lost nor damaged, and even though
we were current on all lease installment payments (and had paid all applicable
late payment fees) under the leases. ATELs complaint seeks liquidated
damages of approximately $26 million, plus additional interest allegedly
accruing thereon, and litigation expenses. We believe ATELs claims are
without merit, and that we have meritorious defenses. We have filed a
cross-complaint against ATEL seeking damages and other appropriate relief.

On September 19, 2002, one of our former employees filed a complaint in the
Superior Court of the State of California, Santa Clara County, against us
asserting two claims for wrongful termination. The case is encaptioned Ronald
Sorisho v. Solectron Corporation, et al., Case No. CV811243. In the complaint,
plaintiff alleges that he was wrongfully terminated by us in supposed
retaliation for his alleged efforts to ensure that we timely recognized a
charge for excess, obsolete and slow moving inventory in the Technology
Solutions business unit. Plaintiff seeks compensatory damages in an amount
not less than $2.5 million as well as punitive damages. We believe Mr.
Sorishos claims of wrongful termination are without merit and intend to
vigorously defend ourselves. We filed a motion with the court
challenging the sufficiency of Mr. Sorisho's complaint, and in
response to this motion, Mr. Sorisho filed an amended complaint in
which he dropped one of his two original wrongful termination claims,
but added a  new claim for purported defamation based upon statements attributed
to us in a news article regarding Mr. Sorisho's allegations against
us.

31



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##### Table of Contents






Item 6: Exhibits and Reports on Form 8-K

(a)  Exhibits:

|            |  |                                                                                                                        
|----------- |  | -----------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Exhibit Description                                                                                                    
|            |  |                                                                                                                        
|3.1*        |  | Certificate of Incorporation of the Company, as amended.                                                               
|            |  |                                                                                                                        
|3.2**       |  | Bylaws of the Company, as amended.                                                                                     
|            |  |                                                                                                                        
|3.3***      |  | Certificate of Designation Rights, Preferences and Privileges
of Series A Participating Preferred Stock of the Company.
|            |  |                                                                                                                        
|99.1        |  | Certification of Principal Executive Officer.                                                                          
|            |  |                                                                                                                        
|99.2        |  | Certification of Principal Financial Officer.                                                                          



---

|*   |  | Incorporated by reference from Exhibit 3.1 filed with
Solectrons Form 10-Q for the quarter ended February 28, 2001,
Exhibit 3.1 filed with Solectrons Form 10-Q for the quarter ended
February 25, 2000, and Exhibit 3.1 filed with Solectrons Form
10-Q for the quarter ended February 26, 1999.              
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|**  |  | Incorporated by reference from Exhibit 3.2 filed with
Solectrons Annual Report on Form 10-K for fiscal year ended
August 31, 1997, Exhibit 3.2 filed with Solectrons Form 10-Q for
the quarter ended February 26, 1999 and Exhibit 3.2 filed with
Solectrons Form 10-Q for the quarter ended November 30, 2001.
|   
|*** |  | Incorporated by reference from Exhibit 3.3 filed with
Solectrons Annual Report on Form 10-K for fiscal year ended
August 31, 2001.                                                                                                                                                                               

(b)  Reports on Form 8-K



| | (1) |  | On November 13, 2002, Solectron filed a Current Report on
Form 8-K stating that on November 13, 2002, Solectron submitted to
the Securities and Exchange Commission the Statement under Oath of
Principal Executive Officer and its Principal Financial Officer in
accordance with the SECs June 27, 2002 Order requiring the filing
of sworn statements pursuant to Section 21(a)(1) of Securities and
Exchange Act of 1934.
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | On October 23, 2002, Solectron filed a Current Report on
Form 8-K regarding the press release issued on October 21, 2002
announcing that it has agreed with Lucent Technologies, Inc. to
unwind their outsourcing and asset purchase transaction involving
Lucents optical networking system.                                                                                                                                
|
| | (3) |  | On September 30, 2002, Solectron filed a Current Report
on Form 8-K regarding the press release issued on September 26,
announcing its earnings for the fiscal year ended August 31, 2002.                                                                                                                                                                                                                                    

32



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##### Table of Contents






SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                      |  |                                                                                               
|--------------------- |  | ----------------------------------------------------------------------------------------------
|                      |  | SOLECTRON CORPORATION                                                                         
|                      |  | (Registrant)                                                                                  
|                      |  |                                                                                               
|Date: January 9, 2003 |  |                                                                                               
|                      |  | By /S/ Kiran Patel                                                                            
|                      |  |                                                                                               
|                      |  | Kiran Patel                                                                                   
|                      |  | Executive Vice President,
Chief Financial Officer
(Principal Financial and
Accounting Officer)

33



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##### Table of Contents



CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 (a) OF
THE SARBANES-OXLEY ACT OF 2002

I, Koichi Nishimura, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Solectron
Corporation;                                                                                                                                                                                                                                                  
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results of
operations and cash flows of the Registrant as of, and for, the
periods presented in this quarterly report;                   
|  
|4. |  | The Registrants other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the
Registrant and we have:                                                                                                      



| | a. |  | designed such disclosure controls and procedures to
ensure that material information relating to the Registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | evaluated the effectiveness of the Registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this quarterly report (the
Evaluation Date); and                                                                                                  
|
| | c. |  | presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The Registrants other certifying officer and I have disclosed,
based on our most recent evaluation, to the Registrants auditors and
the audit committee of Registrants board of directors (or persons
performing the equivalent functions):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | all significant deficiencies in the design or
operation of internal controls which could adversely affect the
Registrants ability to record, process, summarize and report
financial data and have identified for the Registrants
auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in
the Registrants internal controls; and                                                                                                                                        



|6. |  | The Registrants other certifying officer and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our
most recent evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: January 9, 2003



| |  |  | /S/ Koichi Nishimura
Koichi Nishimura, Ph.D.
President and Chief Executive Officer
| |  |  | ----------------------------------------------------------------------------------

34



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##### Table of Contents



CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 (a) OF
THE SARBANES-OXLEY ACT OF 2002

I, Kiran Patel, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Solectron
Corporation;                                                                                                                                                                                                                                                  
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results of
operations and cash flows of the Registrant as of, and for, the
periods presented in this quarterly report;                   
|  
|4. |  | The Registrants other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the
Registrant and we have:                                                                                                      



| | a. |  | designed such disclosure controls and procedures to
ensure that material information relating to the Registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | evaluated the effectiveness of the Registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this quarterly report (the Evaluation
Date); and                                                                                                  
|
| | c. |  | presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The Registrants other certifying officer and I have disclosed,
based on our most recent evaluation, to the Registrants auditors and
the audit committee of Registrants board of directors (or persons
performing the equivalent functions):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | all significant deficiencies in the design or operation
of internal controls which could adversely affect the Registrants
ability to record, process, summarize and report financial data
and have identified for the Registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in the
Registrants internal controls; and                                                                                                                                        



|6. |  | The Registrants other certifying officer and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our
most recent evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: January 9, 2003



| |  |  | /S/ Kiran Patel
Kiran Patel
Executive Vice President and Chief Financial Officer
| |  |  | --------------------------------------------------------------------------------

35



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##### Table of Contents



INDEX TO EXHIBITS

|            |  |                                                                                                                        
|----------- |  | -----------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Exhibit Description                                                                                                    
|            |  |                                                                                                                        
|3.1*        |  | Certificate of Incorporation of the Company, as amended.                                                               
|            |  |                                                                                                                        
|3.2**       |  | Bylaws of the Company, as amended.                                                                                     
|            |  |                                                                                                                        
|3.3***      |  | Certificate of Designation Rights, Preferences and Privileges
of Series A Participating Preferred Stock of the Company.
|            |  |                                                                                                                        
|99.1        |  | Certification of Principal Executive Officer.                                                                          
|            |  |                                                                                                                        
|99.2        |  | Certification of Principal Financial Officer.                                                                          



---

|*   |  | Incorporated by reference from Exhibit 3.1 filed with
Solectrons Form 10-Q for the quarter ended February 28, 2001,
Exhibit 3.1 filed with Solectrons Form 10-Q for the quarter ended
February 25, 2000, and Exhibit 3.1 filed with Solectrons Form
10-Q for the quarter ended February 26, 1999.              
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|**  |  | Incorporated by reference from Exhibit 3.2 filed with
Solectrons Annual Report on Form 10-K for fiscal year ended
August 31, 1997, Exhibit 3.2 filed with Solectrons Form 10-Q for
the quarter ended February 26, 1999 and Exhibit 3.2 filed with
Solectrons Form 10-Q for the quarter ended November 30, 2001.
|   
|*** |  | Incorporated by reference from Exhibit 3.3 filed with
Solectrons Annual Report on Form 10-K for fiscal year ended
August 31, 2001.                                                                                                                                                                               

36