Solectron Corporation, Form 10-K, 8/29/2003

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________TO _________

SOLECTRON CORPORATION
(Exact name of Registrant as Specified in its Charter)

777 Gibraltar Drive
Milpitas, California 95035
(Address of Principal Executive Offices including Zip Code)
(408) 957-8500
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:
7.25% Adjustable Conversion-Rate Equity Security Units
3.25% Liquid Yield Option Notes due 2020
2.75% Liquid Yield Option Notes due 2020
Common Stock
Securities registered pursuant to Section 12(g) of the Act:
None

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

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

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

The aggregate market value of the Registrant’s Common Stock held by non-affiliates on October 31, 2003 was approximately $2,878 million (based upon the last reported price of the Common Stock on the New York Stock Exchange on such date). Shares of Common Stock held by each officer, director, and holder of 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of October 31, 2003, there were approximately 836 million shares of the Registrant’s common stock outstanding including approximately 31 million shares of Solectron Global Services Canada, Inc. which are exchangeable on a one-to-one basis for the Registrant’s common stock.

The Registrant’s definitive Proxy Statement for the Annual Meeting of Stockholders to be held on January 7, 2004, which Solectron will file with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this report, is incorporated by reference in Part III of this Form 10-K to the extent stated herein.


			Page
Part I			3
	Item 1.	Business	3
	Item 2.	Properties	10
	Item 3.	Legal Proceedings	12
	Item 4.	Submission of Matters to a Vote of Security Holders	13
Part II			14
	Item 5.	Market for the Registrant’s Common Equity and Related Stockholder Matters	14
	Item 6.	Selected Financial Data	15
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
	Item 7a.	Quantitative and Qualitative Disclosures About Market Risk	38
	Item 8.	Financial Statements and Supplementary Data	38
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	75
	Item 9a.	Controls and Procedures	75
Part III			75
	Item 10.	Directors and Executive Officers of the Registrant	75
	Item 11.	Executive Compensation	75
	Item 12.	Security Ownership of Certain Beneficial Owners and Management	75
	Item 13.	Certain Relationships and Related Transactions	75
	Item 14.	Principal Accountant Fees and Services	76
Part IV			76
	Item 15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	76
Signatures			77

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

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

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

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

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Networking equipment such as routers and switches that move traffic across the Internet;

•

Computing equipment, including workstations, notebooks, desktops, servers, storage systems and peripherals;

•

Consumer products such as high-end cellular phones, set-top boxes, personal/handheld communications devices and home game consoles;

•

Automotive electronics systems and components, including audio and navigation systems, system control modules, pressure sensors and switches, and actuators and body electronics;

•

Semiconductor and test equipment, including wafer fabrication equipment controls, process automation equipment and home appliance electronics controls;

•

Medical products such as X-ray equipment, ultrasound fetal monitors, MRI scanners, blood analyzers, ECG patient monitors, surgical robotic systems, HPLCs, spectrometers, and laser surgery equipment; and

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

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

•

Full product manufacturing, including printed circuit board assembly (PCBA) and complete product systems assembly;

•

Product fulfillment services, including packaging, distribution and installation;

•

End-consumer technical support and customer relationship management (CRM) services.

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

Faster Time-to-Market: Due to intense competitive pressures in the electronics industry, shorter product life cycles require OEMs to reduce the time needed to bring a product to market. OEMs can reduce time-to-market by using our services, expertise and infrastructure. For example, OEMs can partner with us during the stages of product design and product improvement to expedite the transition into large volume production in our manufacturing centers.

Lower Costs: OEMs that work with us can realize significantly lower costs as a result of several factors: our ability to perform services in the most value-adding, cost-effective locations around the world; our ability to pool purchasing across our customer base; our ability to produce multiple products within a given facility; and our flexibility to adapt our operations to changing customer demand.

Better Asset Utilization: By using us to provide supply chain services, OEMs can lower their investment in property, plant and equipment, as well as systems and infrastructure. This lower investment can lead to better asset utilization and higher return on assets for our OEM customers.

Focused Resource Allocation: As a result of market demands, many OEMs focus their resources on activities that add the greatest value. By offering comprehensive electronics supply chain services, we allow OEMs to focus on their own core competencies, such as next-generation product development, marketing and sales.

Leading Manufacturing and Service Technologies: Electronic products, electronics manufacturing and service technologies have become increasingly sophisticated and complex. This makes it difficult for OEMs to maintain the necessary technological expertise to manufacture and repair products internally. OEMs are motivated to work with us to gain access to our expertise in interconnect, test, process, repair and other technologies, such as lead-free manufacturing processes.

Cost-Effective Global Capabilities: We have facilities in Asia/Pacific, Europe, North America and Latin America. Through our global presence, we perform electronics supply chain services in locations to best address our customers’ objectives, including cost containment; compliance with local content regulations; proximity to end markets and end consumers; and the elimination or reduction of expensive freight costs, tariffs and time-consuming customs clearances.

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

OEMs in electronics and technology markets around the world are seeking to increase their competitiveness by expanding their utilization of Electronic Manufacturing Service (EMS) companies. Faced with shorter product life cycles, more complex technology and market pressures to reduce costs and product ramp time, OEMs are turning to EMS providers for a broader range of electronics supply chain services. Outsourcing enables OEMs to concentrate on their core competencies of product research and development, marketing and sales.

Our strategy is to offer our customers significant competitive advantages by having them outsource to us their electronics supply chain service needs. We accomplish this by offering value-added solutions based on our broad and integrated range of services. As a result, we create compelling outsourcing solutions that our customers can utilize in whole or in part.

Capitalize on Industry Growth Trends
Our business benefits from the greater OEM acceptance of, and reliance upon, outsourced manufacturing and supply chain management services. To meet the growing outsourcing needs of OEMs, we offer a wide range of services, including collaborative design support, manufacturing and extensive after-sales technical support, repair and CRM services.

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

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

Efficiency and Cost Competitiveness
We believe that a fundamental requirement for sustained growth and profitability in the EMS industry is to be an efficient and cost-competitive manufacturer. To this end, we are focused on driving efficiency throughout our organization, and have undertaken several initiatives to reduce costs and increase our competitiveness. This includes an initiative to implement Six Sigma Lean quality and manufacturing methods throughout the company, beginning with our manufacturing operations. We believe the implementation of these methods will assist us to eliminate non-value adding activities and increase production efficiencies, resulting in a significant competitive advantage.

Strategic Relationships
We seek to establish long-term strategic relationships with major and emerging OEM leaders in diverse electronics and technology industry segments. Our goal is to strengthen these relationships by delivering value through integrated supply chains, from design to full product manufacturing and distribution, to after-sales services such as product failure analysis and repair.

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

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

Diverse Geographic Operations
We locate our operations based on several considerations including where we can generate manufacturing efficiencies and lower total costs, proximity to customers, proximity to end-markets and end-users, and where we can cost-effectively generate the greatest value. We have operations in the Asia/Pacific region, the Americas and Europe. We believe our facilities in these regions enable us to best meet our customers’ requirements.

In late fiscal 2003, we began shifting from our business unit structure to a functionally aligned organizational structure. Upon completion in early fiscal 2004, customer-oriented functions will be organized by key activities important to our customers and our overall business – Worldwide Design and Engineering Services; Worldwide Operations (which includes logistics, manufacturing, and post-manufacturing services); Worldwide Strategy and Marketing; and Worldwide Sales and Account Management.

In addition to our organizational realignment initiated in late fiscal 2003, we also initiated a portfolio review of our operations to identify those that are not viewed as synergistic to our new strategy. During the fourth quarter of fiscal 2003, we committed to a plan to divest some such operations. Each business unit/operating segment discussed below includes one such operation that is treated as a discontinued operation. Business unit numerical data provided in the following discussion excludes these operations, which are classified as discontinued operations in our consolidated financial statements. However, discussions of the nature of services provided by each business unit and in each geography include the discontinued operations in order to maintain confidentiality during the divestiture process related to these operations. It is also anticipated that as plans to divest certain additional operations are implemented during fiscal 2004, those operations will also qualify for classification as discontinued operations.

Through August 31, 2003, we remained organized into four business units as follows:

Global Operations provides customers with pre-manufacturing, manufacturing, materials management and fulfillment services for printed circuit boards, backplanes, system enclosures and complete electronic products. In fiscal 2003, Global Operations generated sales from continuing operations of $8.8 billion, or 79.7% of our total net sales.

The core function of Global Operations is to provide manufacturing services to meet a wide range of customer needs, from large-volume/low-complexity products to highly complex configure-to-order/build-to-order systems. These manufacturing services include systems and product testing, PCBA, sub-systems assembly, configure-to-order and build-to-order systems assembly; and product installation, as well as related logistical support. Our advanced manufacturing technology processes, failure analysis and test capabilities can help our customers’ products reach the market faster and at lower cost. Our materials management and fulfillment services seek to ensure that the necessary parts and products are in the right place at the right time to meet customer requirements. Materials management includes the planning, purchasing, expediting, warehousing and preparation of components and materials required to assemble products or portions of products. Through product fulfillment, we manufacture, package and ship the products directly to our customers or their customers.

Technology Solutions provides modular memory and embedded systems design and related manufacturing services. Within Technology Solutions, SMART Modular Technologies (SMART) and Force Computers design, manufacture, and market a wide range of flash and DRAM memory modules, input/output (I/O), and embedded computer products to OEM customers that incorporate those products into their own systems. In fiscal 2003, Technology Solutions generated sales from continuing operations of $1.3 billion, or 12.1% of our total net sales.

Through SMART, Technology Solutions offers memory and communications products for OEMs that demand proven technology, quality and logistical support. Through Force Computers, Technology Solutions offers a variety of embedded computer boards and systems serving the telecom/datacom, military and aerospace, medical, and industrial markets.

Global Services groups our post-manufacturing services that provide solutions for products from when they are put in service until they are removed from the market. These services include: product failure analysis and repair; upgrades; re-manufacturing and maintenance through factory and fast-hub service centers located around the world; help-desk support through customer call centers for end users; logistics and parts management including management of strategic stocking locations; returns processing; warehousing; engineering change management; and end-of-life manufacturing. In fiscal 2003, Global Services generated sales from continuing operations of $657.1 million, or 6.0% of our total net sales.

MicroSystems was established as a business unit upon the completion of our acquisition of C-MAC Industries in fiscal 2002. MicroSystems is involved in every stage of the fabrication of hybrid microcircuits from design to manufacturing. It uses state-of-the-art technologies to provide integrated solutions for applications as varied as optical transceivers and pressure sensors. Customer needs for high functionality and miniaturization are supported by MicroSystems’ low-temperature co-fired ceramic (LTCC) operations. The ceramic-based technologies find broad application within the automotive, military, aerospace and telecommunications markets. In fiscal 2003, MicroSystems generated sales from continuing operations of $238.2 million, or 2.2% of total net sales.

A second core technology is based on quartz crystals and frequency products. MicroSystems offers a full range of products and technologies from low-end oscillators to highly sophisticated TCXOs, OCXOs and SAWs. In addition, state of the art ceramic-based and micro-machined silicon (MEM) sensors satisfy a comprehensive range of applications in automotive, industrial and aerospace applications.

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

We have shifted our manufacturing capacity to lower-cost locations over the past few years – Mexico, Eastern Europe and, particularly, Asia. This reflects our belief that OEM customers will be driven by the cost advantages associated with these locations, among other factors, in the coming years. As of August 31, 2003, approximately 70% of our manufacturing capacity in terms of headcount and equipment, and 50% of our manufacturing capacity in terms of square footage, were in these low-cost regions.

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

For our after-sales services, we operate repair and warranty centers based on proximity to transportation infrastructure and proximity to end users. We also operate customer contact centers in various locations that provide qualified workers skilled at handling end-user inquiries.

Our ability to serve our customers effectively also depends upon our materials management and logistic capabilities. Our locations are served by a materials organization consisting of multiple groups across multiple locations, and backed by information technology. The materials group is responsible for ordering, tracking and ensuring that the correct parts are delivered to the correct locations on a just-in-time basis to meet our customers needs.

Our North American facilities are increasingly focused on higher value activities, such as a variety of design services, technology development, NPI, after-sales services, and manufacturing low-volume, highly complex products. Our facilities in Latin America provide supply-chain services that support the North and Latin American markets. The Latin American region’s proximity to North America is useful for production where low-cost and time-to-market, and/or geographical diversity are particular concerns for OEMs.

Global Operations operates facilities that provide electronics design, manufacturing and fulfillment services in the U.S., Canada, Mexico and Brazil. Technology Solutions operates facilities in the U.S., Canada, Puerto Rico and Mexico that provide design and manufacturing services for technology building block products, such as memory modules and embedded systems. Global Services provides electronics product repair and related technical support through service and call centers in the U.S., Canada and Mexico. MicroSystems operates facilities in the U.S. and Canada for the design and production of advanced electronic components, subsystems and systems.

Since fiscal 2001, we have reduced our overall manufacturing and call center presence in North America as a result of our restructuring activities and our strategic shift of manufacturing capacity toward lower-cost regions.

This region is a significant end-market for our customers, and our facilities in Asia/Pacific are located to take advantage of the region’s well-developed supply base, transportation and logistics infrastructure, educated workforce, and lower cost.

Global Operations provides low-cost, mid- to high-volume electronics manufacturing and fulfillment at centers in China, Malaysia, and Indonesia. In addition, the unit operates facilities in Japan, Singapore and Taiwan to provide design, high-complexity electronics manufacturing and fulfillment. Technology Solutions operates a center for the development of technology building block products in India, and a manufacturing facility in Malaysia. Global Services operates electronics repair and technical support centers in Australia, China, Japan and Singapore. MicroSystems operates facilities in China and India for the design and production of advanced electronic components, subsystems and systems.

Our locations in Western Europe are focused on providing high value services, such as electronics design; NPI; high-complexity, low-volume manufacturing; and repair. Our Eastern European locations provide low-cost, high-volume electronics manufacturing services. Driven by our strategy and the general economic downturn, we have streamlined our operations in Western Europe through our restructuring actions.

Global Operations provides electronics design, manufacturing and fulfillment services in France, Germany, Hungary, Romania, Sweden, Turkey and the United Kingdom. Technology Solutions operates a center for the development of technology building block products in the United Kingdom and manufacturing facilities in Germany and Scotland. Global Services provides electronic repair and technical support services at facilities in Belgium, France, Italy, the Netherlands and the United Kingdom. MicroSystems operates facilities in Belgium, Germany and the United Kingdom for the design and production of advanced electronic components, subsystems and systems.

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

See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” for customer sales information.

Backlog consists of contracts or purchase orders with delivery dates scheduled within the next 12 months. At August 31, 2003, our backlog was approximately $1.7 billion, compared with backlog of approximately $1.6 billion at August 31, 2002. Because customers may cancel or reschedule deliveries, often with little or no financial penalty, backlog is not a meaningful indicator of future financial results.

The EMS industry comprises many companies, several of which have substantial market share. We also face competition from current and prospective customers that evaluate our capabilities against the merits of manufacturing products internally. We compete with different companies depending on the type of service or geographic area. We believe the primary basis of competition in our targeted markets is proven execution, reliability, manufacturing technology, flexibility, continuity of supply, quality, responsiveness, value-adding services, ability to serve global customers and price. To remain competitive, we must continue to provide technologically advanced services; deliver solutions that integrate our range of services; maintain high quality levels; offer flexible delivery schedules; deliver finished products on a reliable basis; and compete favorably on price.

As of August 31, 2003, we employed approximately 66,000 associates worldwide, including approximately 13,000 temporary associates.

We hold certain United States and foreign patents and patent licenses relating to certain of the processes and equipment used in our manufacturing technology, as well as certain of the products which we have designed and manufactured. In addition, we have registered trademarks (service marks) in the United States and various other countries throughout the world. Some of these patents and trademarks are related to businesses which we expect to divest in fiscal 2004.

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

We are required to comply with local, state, federal and international environmental laws and regulations relating to the treatment, storage, use, discharge, emission and disposal of hazardous materials used in our manufacturing and service processes. We are also required to comply with laws and regulations relating to occupational safety and health, product take back and product content and labeling. Failing to comply with these present and future laws and regulations could restrict our ability to expand facilities, or could require us to acquire costly equipment or to incur other significant expenses to comply with environmental regulations, and could impair our relations with customers. Moreover, to the extent we are found non-compliant with any of these laws and regulations, we may incur substantial fines and penalties. We are committed to maintaining compliance in all of our facilities and to continuously improving our environmental practices.

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

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

Our Internet address is http://www.solectron.com. We make available on our Internet website, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. Information accessible through our website does not constitue a part of, and is not incorporated into, this annual report on Form 10-K or into any of our other filings with the Securities and Exchange Commission.

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

The table below lists our major facilities leased or owned as of August 31, 2003:


Location	Square Footage		Leased/Owned	Primarily Used

Global Operations
Milpitas, Fremont; California		542,000	leased	PCBA & Systems Integration
Charlotte, North Carolina		456,000	owned	PCBA & Systems Integration
Research Triangle Park, North Carolina		473,000	183,000 leased/290,000 owned	Systems Integration
Columbia, South Carolina		313,000	leased	Systems Integration
Austin, Texas		322,000	leased	PCBA & Systems Integration
Sherbrooke, Quebec, Canada		121,000	owned	Systems Integration
St. Laurent, Quebec, Canada		112,000	leased	Warehouse
Kanata, Ontario, Canada		185,000	71,000 leased/114,000 owned	PCBA & Systems Integration
Dollard des Ormeaux, Quebec, Canada		165,000	leased	Metal Fabrication
Winnipeg, Manitoba, Canada		94,000	owned	PCBA & Systems Integration
Guadalajara, Mexico		632,000	owned	PCBA & Systems Integration
Jaguariuna, Hortolandia; Brazil		282,000	49,000 leased/233,000 owned	PCBA & Systems Integration
Bordeaux, France		190,000	leased	PCBA & Systems Integration
Herrenberg, Germany		110,000	owned	PCBA & Systems Integration
Budapest, Hungary		293,000	owned	Systems Integration
Carrickfergus, Northern Ireland		116,000	leased	Warehouse
Timisoara, Romania		278,000	owned	PCBA & Systems Integration
Dunfermline, Scotland		164,000	owned	PCBA & Systems Integration
Ostersund, Sweden		280,000	owned	PCBA & Systems Integration
Suzhou, China		583,000	owned	PCBA & Systems Integration
Shanghai, China		372,000	leased	PCBA & Systems Integration
Shenzhen, China		230,000	owned	PCBA & Systems Integration
Batam, Indonesia		137,000	leased	PCBA & Systems Integration
Ibaraki, Japan		137,000	leased	PCBA & Systems Integration
Nakaniida, Japan		379,000	owned	PCBA & Systems Integration
Penang, Malaysia		778,000	31,000 leased/747,000 owned	PCBA & Systems Integration
Singapore		370,000	281,000 leased/89,000 owned	PCBA, Systems Integration & Metal Fabrication
Kaohsiung, Taiwan		136,000	owned	PCBA & Systems Integration
Johor, Malysia		125,000	owned	PCBA & Systems Integration
Others		286,000	189,000 leased/97,000 owned	Metal Fabrication, Design & Engineering, Metal Stamping & Backplain Mfg, PCBA & Systems Integration, Administration

Total		8,661,000

Technology Solutions
Aguadilla, Puerto Rico		164,000	leased	Memory Mfg & Engineering
Fremont, California		130,000	leased	Memory Mfg & Engineering
Munich, Germany		276,000	leased	Boards, Systems & Engineering
Others		178,000	leased	Memory Mfg, Design & Engineering

Total		748,000


Location	Square Footage		Leased/Owned	Primarily Used


Global Services
Lincoln, California		405,000	leased	Systems Repair & Refurbish
Milpitas, California		253,000	leased	Systems Repair & Refurbish
Research Triangle Park, North Carolina		323,000	leased	Systems Repair & Refurbish
Austin, Texas		180,000	leased	Systems Repair & Refurbish
Memphis, Tennessee		275,000	leased	Systems Repair & Refurbish
Louisville, Kentucky		300,000	leased	Systems Repair & Refurbish
Beaverton, Oregon		93,000	leased	Call Center
Belleville, Ontario, Canada		87,000	leased	Call Center
Newmarket, Ontario, Canada		185,000	leased	Systems Repair & Refurbish
Cape Breton, Nova Scotia, Canada		100,000	leased	Call Center
Chilliwack, BC, Canada		93,000	leased	Call Center
London, Ontario, Canada		84,000	leased	Call Center
Bordeaux, France		123,000	leased	Systems Repair & Refurbish
Cwmcarn, Wales		102,000	owned	Systems Repair & Refurbish
Sydney, Australia		133,000	leased	Systems Repair & Refurbish
Others		612,000	545,000 leased/67,000 owned	Systems Repair & Refurbish, Call Center

Total		3,348,000

MicroSystems
Moorpark, California		279,000	leased	Sensor Design & Manufacture
Ronse, Belgium		90,000	owned	Design & Manufacture Hybrid Microcircuits
West Palm Beach, Florida		100,000	leased	Design & Manufacture Hybrid Microcircuits
Great Yarmouth, England		82,000	owned	Design & Manufacture Hybrid Microcircuits
Others		326,000	135,000 leased/191,000 owned	Design & Manufacture Oscillators and Hybrid Microcircuits, Automotive Mechatronics, Frequency Products & Quartz Crystal Mfg, Resale Frequency Control Products, Sensor Design & Mfg, Sales Office

Total		877,000

Corporate
Milpitas, California		169,000	leased	Headquarters
San Jose, California		93,000	leased	Administration
Other		20,000	leased	Administration

Total		282,000
Grand total		13,916,000

We are from time to time 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 the Company or its legal advisors have concluded or believe that the outcome of any of those particular matters is or is not likely to have a material adverse impact upon our business or financial condition.

On September 19, 2002, one of our former employees filed a complaint against us in the Superior Court of the State of California, Santa Clara County, 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 we 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. We tendered the defense of the defamation claim to our insurance carrier, and the insurance carrier has assumed the defense of the defamation claim, subject to a reservation of rights. We are also continuing to vigorously defend against Mr. Sorisho’s wrongful termination claim.

On March 6, 2003, a putative shareholder class action lawsuit was filed against us and certain of our officers in the United States District Court for the Northern District of California alleging claims under Section 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. The case is entitled Abrams v. Solectron Corporation et al., Case No. 03-0986 CRB. The complaint alleged that the defendants issued false and misleading statements in certain of our press releases and SEC filings issued between September 17, 2001 and September 26, 2002. In particular, plaintiff alleged that the defendants failed to disclose and to properly account for excess and obsolete inventory in our Technology Solutions business unit during the relevant time period. Additional complaints making similar allegations were subsequently filed in the same court and, pursuant to an order entered June 2, 2003, the Court appointed lead counsel and plaintiffs to represent the putative class in a single consolidated action. The Consolidated Amended Complaint, filed September 8, 2003, alleges an expanded class period of June 18, 2001 through September 26, 2002, and purports to add a claim for violation of Section 11 of the Securities Act of 1933 on behalf of a putative class of former shareholders of C-MAC Industries, Inc., who acquired Solectron stock pursuant to the October 19, 2001 Registration Statement filed in connection with Solectron’s acquisition of C-MAC Industries, Inc. In addition, while the initial complaints focused on alleged inventory issues at the Technology Solutions business unit, the Consolidated Amended Complaint adds allegations of inadequate disclosure and failure to properly account for excess and obsolete inventory at our other business units. The complaint seeks an unspecified amount of damages on behalf of the putative class. We intend to vigorously defend against the consolidated lawsuit. There can be no assurance, however, that the outcome of the lawsuit will be favorable to us or will not have a material adverse effect on our business, financial condition and results of operations. In addition, we may be forced to incur substantial litigation expenses in defending this litigation.

On March 21, 2003, we, all of the current members of our Board of Directors, and two former officers, were named as defendants in a shareholder derivative lawsuit entitled Lifshitz v. Cannon et al., Case No. CV815693, filed in the Santa Clara County, California Superior Court. The plaintiff alleges that he should be permitted to pursue litigation, purportedly for the benefit of the Company, against the individual director and officer defendants for alleged mismanagement and waste of corporate assets during the period from May 2001 to the present, purported breaches of fiduciary duty, “constructive fraud,” “abuse of control,” and alleged violations of the California Corporations Code by certain of the individual defendants who sold some of their Solectron stockholdings during the period from September 2001 through September 2002. On May 19, 2003, Solectron and the individual defendants moved to dismiss the Lifshitz complaint. In the meantime, two substantively identical derivative lawsuits, entitled Schactner v. Cannon, et al., Case No. CV817112, and Nims v. Cannon, et al., Case No. CV817158, were filed in the same Court on May 14 and May 15, respectively. Counsel for the plaintiffs in all three suits subsequently advised the Court that they would be filing a Consolidated Amended Complaint, and accordingly, defendants’ motion to dismiss was taken off calendar pending the filing of the Consolidated Amended Complaint combining the three lawsuits. On June 27, 2003, the plaintiffs served their Consolidated Amended Complaint now alleging that “since January of 1999” all of the current members of Solectron’s Board of Directors, as well as four former officers and directors, purportedly breached their fiduciary duties and participated in or permitted “constructive fraud,” “unjust enrichment,” and alleged violations of the California Corporations Code. The consolidated complaint alleged an unspecified amount of compensatory and punitive damages, and sought the relinquishment of all profits realized by those individual defendants who sold Solectron stock during the relevant period, together with statutory penalties under California Corporations Code section 25402, which plaintiff alleged to be applicable to those sales of Solectron stock. We moved to dismiss the Consolidated Amended Complaint because we do not believe plaintiffs have adequately alleged a basis for plaintiffs to appropriate for themselves the duties of our Board of Directors under applicable Delaware law, and we believe the consolidated complaint contains various factual errors and legal deficiencies. On October 7, 2003, the California Superior Court granted our motion to dismiss, but granted the plaintiffs an opportunity to try to cure the deficiencies in their Consolidated Amended Complaint through a further amended complaint. We anticipate that the plaintiffs will file a further amended complaint within the next 90 days, after which we expect to seek dismissal of that complaint because we do not believe the plaintiffs can show a sufficient basis to allow them to appropriate for themselves the duties of our Board of Directors under applicable Delaware law. We may be forced to incur substantial litigation expenses in defending this litigation.

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

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

Mr. Everett has more than 20 years of sales and sales management experience in high-tech businesses. As executive vice president, sales and account management, Mr. Everett is responsible for generating revenues; forging strong long-term customer relationships; developing major accounts; building high-performance sales teams and sales skills development programs; and creating a dynamic sales infrastructure. Prior to joining Solectron in 2003, Mr. Everett was senior vice president and general manager of the Platform Enabling Division of Phoenix Technologies, a publicly traded provider of device-enabling and management software products for personal computers and other digital products. In 1998 and 1999, he was president and chief executive officer of Dynamic Pictures, a California-based start-up workstation graphics company acquired by 3-D Labs. In 1993 and 1994, Mr. Everett was executive vice president of sales and marketing for SyQuest Technology, and from 1984 to 1993 he was senior vice president, sales and corporate marketing, at Wyse Technology. Mr. Everett earned a bachelor’s degree in business administration from Michigan State University and attended the MBA program at Wayne State (Mich.) University.

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

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

Mr. London joined Solectron in 2002 with nearly 30 years of sales, marketing and engineering management experience in the electronics industry. As executive vice president, strategy and marketing, Mr. London is responsible for strategic planning and market development, as well as integrating and building the company’s design capabilities worldwide. Previously, Mr. London was executive vice president and president of Solectron’s Technology Solutions business unit. Mr. London came to Solectron from Safeguard Scientifics, Inc., a diversified information technology company that identifies, develops and operates emerging technologies, where he served as an executive officer and managing director, technology products. Previously, he was president and chief executive officer of Diva Communications, Inc., a wireless communications equipment manufacturer. Mr. London also held various executive management positions including sales, service and operations in the United States and Asia during eight years with Nortel Networks. His experience also includes various management positions at Rockwell International Telecommunications, Electronic Systems Associates, Pacific Telephone and AT&T. Mr. London holds a master’s degree in business administration from Pepperdine University and a bachelor’s degree in physics from the University of California, Berkeley.

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

Mr. Onetto has nearly 30 years of experience in supply-chain and operational management, as well as finance and information systems. As executive vice president, operations, Mr. Onetto is responsible for manufacturing, materials management, quality, new product introduction, information technology, logistics and repair operations. Mr. Onetto joined Solectron after a 15-year career with GE. Most recently, he was vice president of GE’s European operations. From 1992 through 2002, he held several senior leadership positions involving global supply chain, global quality/six sigma, global process reengineering and chief information officer in GE’s Medical Systems business. Prior to GE, Mr. Onetto spent 12 years with Exxon Corporation, serving in supply-operations, information systems and finance. Mr. Onetto holds a B.A. in economics from the University of Lyon, France, an M.S. in engineering from Ecole Centrale de Lyon and a master’s degree in industrial administration from Carnegie Mellon University, Pittsburgh.

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

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

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

We have not paid any cash dividends since inception and do not intend to pay any cash dividends in the foreseeable future. Additionally, the covenants to our financing agreements prohibit the payment of cash dividends. As of October 31, 2003, there were 8,393 stockholders of record based on data obtained from our transfer agent.

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


Consolidated Statements of Operations Data:		Years Ended August 31

		2003			2002			2001			2000			1999

Net Sales		$	11,014.0		$	11,571.2		$	18,569.0		$	14,137.5		$	9,669.2
Operating income (loss)			(2,399.1	)		(3,555.2	)		(114.1	)		704.2			516.1
Income (loss) from continuing operations			(2,523.9	)		(3,621.1	)		(110.2	)		739.5			514.5
Cumulative effect of change in accounting principle			—			—			—			(3.5	)		—
Income (loss) from discontinued operations, net of tax			(357.1	)		27.9			(47.5	)		—			—

Net income (loss)		$	(3,462.0	)	$	(3,110.2	)	$	(123.5	)	$	497.2		$	350.3
Basic net income (loss) per share:
	Continuing operations	$	(3.75	)	$	(4.02	)	$	(0.12	)	$	0.84		$	0.65
	Cumulative effect of change in accounting principle		—			—			—			(0.01	)		—
	Discontinued operations		(0.43	)		0.04			(0.07	)		—			—

		$	(4.18	)	$	(3.98	)	$	(0.19	)	$	0.83		$	0.65

Diluted net income (loss) per share:
	Continuing operations	$	(3.75	)	$	(4.02	)	$	(0.12	)	$	0.80		$	0.61
	Cumulative effect of change in accounting principle		—			—			—			—			—
	Discontinued operations		(0.43	)		0.04			(0.07	)		—			—

		$	(4.18	)	$	(3.98	)	$	(0.19	)	$	0.80		$	0.61

Consolidated statements of operations financial data for fiscal years 2002 and 2001 differ from those previously reported due to the classification of certain operations as discontinued in fiscal 2003.

In accordance with Statement of Financial Accounting Standards (SFAS) No. 141, “Business Combinations,” Solectron is accounting for all business combinations initiated or completed after June 30, 2001 using the purchase method of accounting. Solectron adopted the remaining provisions of SFAS No. 141 and SFAS No. 142, “Goodwill and Other Intangible Assets” effective September 1, 2001 resulting in the cessation of goodwill amortization. These accounting changes are discussed in Note 1, “Summary of Significant Accounting Policies,” and Note 17, “Goodwill and Other Intangible Assets,” to the consolidated financial statements. In addition, business combinations are discussed and related pro forma disclosures are provided in Note 15, “Business Combinations,” to the consolidated financial statements.

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

In fiscal 2003, Solectron began reporting other income and expense items as a separate line item rather than including such items in selling, general and administrative expenses. Accordingly, Solectron reclassified other income of $30.5 million from selling, general and administrative expenses to other income-net and $75.7 million of gains on retirement of debt from a separate non-operating line item to other income-net in fiscal 2002. In fiscal 2001, Solectron also reclassified other income of $61.1 million from selling, general and administrative expenses to other income-net.

In fiscal 2003, Solectron classified certain items in cost of sales that in previous periods were included in selling, general and administrative expenses. Accordingly, Solectron reclassified $23.2 million and $52.1 million from selling, general and administrative expenses to cost of sales in fiscal 2002 and 2001, respectively.

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

With the exception of historical facts, the statements contained in this annual report are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are subject to the safe harbor provisions set forth in the Exchange Act. These forward-looking statements relate to matters including, but not limited to:

•

our shift from business units to a functionally aligned organizational structure;

•

the anticipated financial impact of recent and future acquisitions and divestitures;

•

the timing and amount of our planned restructuring activities and related estimated cost savings;

•

the expansion of our low-cost manufacturing capacity and redirection of our manufacturing operations to lower-cost facilities;

•

our ability to weather the current economic downturn with a sustainable long-term cost structure to support improved operating efficiency and margins;

•

the anticipated production levels and revenues of manufacturing and supply agreements with customers;

•

the potential impact of, and our strategies for addressing, our current litigation and environmental liability exposure; and

•

various other forward-looking statements contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

We intend that our forward-looking statements be subject to the safe harbors created by the Exchange Act. The forward-looking statements are generally accompanied by words such as “intend,” “anticipate,” “believe,” “estimate,” “expect” and other similar words and statements. Our forward-looking statements are based on current expectations, forecasts and assumptions and are subject to risks, uncertainties and changes in condition, significance, value and effect, including those discussed under the heading “Risk Factors” in this report and in our reports filed with the Securities and Exchange Commission on Forms 10-K, 8-K, 10-Q, 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. Therefore, we can give no assurance that the results implied by these forward-looking statements will be realized. The inclusion of forward-looking information should not be regarded as a representation by our company or any other person that the future events, plans or expectations contemplated by Solectron will be achieved. Furthermore, past performance in operations and share price is not necessarily indicative of future performance. We disclaim any intention or obligation to update or revise any forward-looking statements contained in the documents incorporated by reference herein, whether as a result of new information, future events or otherwise.

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, “Summary of Significant Accounting Policies,” to the consolidated financial statements describes the significant accounting policies and methods used in the preparation of our consolidated financial statements. Estimates are used for, but not limited to, our accounting for contingencies, allowance for doubtful accounts, inventory valuation, goodwill and other intangible asset impairments, restructuring costs, and income taxes. Actual results could differ from these estimates. The following critical accounting policies are impacted significantly by judgments, assumptions and estimates used in the preparation of our consolidated financial statements.

Our net sales are primarily derived from product manufacturing including, but not limited to, PCBA, sub-system and 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 and product sales is generally recognized upon shipment of the manufactured product. Revenue from other services is recognized as the services are performed.

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 the necessity for, and amount of any loss contingencies. Estimated loss contingencies are accrued when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. We regularly evaluate information available to us to determine whether any such accruals should be adjusted.

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

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 is likely to be collected. For all other customers, we recognize allowances for doubtful accounts based on the length of time the receivables are outstanding, industry and geographic concentrations, the current business environment and our historical experience. If the financial condition of our customers deteriorates or if economic conditions worsen, additional allowances may be required.

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 or a prolonged depressed market capitalization, among others. We perform the impairment tests at the reporting unit level, which we have determined to be consistent with our business units except for Technology Solutions and Global Services, which were disaggregated further into two reporting units each, resulting in a total of six reporting units. 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.

Our intangible assets consist primarily of supply agreements and intellectual property obtained from asset acquisitions. Intangible assets are evaluated for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Such an asset is considered impaired if the carrying amount of the asset grouping including the intangible asset exceeds the sum of the undiscounted cash flows expected to result from the use and ultimate disposition of the assets. If such assets are considered to be impaired, the impairment to be recognized is the amount by which the carrying amount of the assets exceeds 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 these cash flows.

We have recorded restructuring and impairment costs as we continue to rationalize 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, 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 and other costs associated with restructuring activities initiated prior to January 1, 2003 were 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.” Severance and benefit costs associated with restructuring activities initiated on or after January 1, 2003 are recorded in accordance with SFAS No. 112, “Employer’s Accounting for Postemployment Benefits,” as we concluded that we had a substantive severance plan. 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 estimate the length of time until we can sublease a facility and the amount of rent we can expect to receive. As of August 31, 2003, the majority of our 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.

We currently have significant deferred tax assets in certain jurisdictions resulting from tax credit carryforwards, net operating losses and other deductible temporary differences, which will reduce taxable income in such jurisdictions in future periods. We established a full valuation allowance for most of our remaining deferred tax assets and recognized a $721 million charge during the third quarter of fiscal 2003. In previous reporting periods, we had provided valuation allowances for future tax benefits resulting from foreign net operating loss carryforwards and for certain other U.S. and foreign deductible temporary differences where we believed future realizability was in doubt. We had believed it was more likely than not that the remaining net deferred tax assets would be realized principally based upon forecasted taxable income, generally within the twenty-year net operating loss carryforward periods. SFAS No. 109 requires a valuation allowance be established when it is “more likely than not” that all or a portion of deferred tax assets will not be realized, and further provides that it is difficult to conclude that a valuation allowance is not needed when there is negative evidence in the form of cumulative losses in recent years. Therefore, cumulative losses weigh heavily in the overall assessment. We identified several significant developments, which we considered in determining the need for nearly a full valuation allowance recorded in the third quarter of fiscal 2003, including the continuing market conditions, the absence of material growth in quarterly revenue levels, the necessity for further cost reduction actions to attain profitability, and the resulting inability to accurately predict sustainable profit levels in the countries in which the deferred tax assets arose sufficient to establish, to the requisite level of certainty, that we would be able to utilize those deferred tax assets. As a result of our assessment, we increased our total valuation allowance on deferred tax assets arising from continuing operations to approximately $1.4 billion at August 31, 2003. We expect to record a full valuation allowance on future tax benefits until we reach a sustained level of profitability in the countries in which deferred tax assets arise.

RESULTS OF OPERATIONS FOR FISCAL YEARS 2003, 2002 AND 2001 – CONTINUING OPERATIONS

The following table summarizes certain items in the consolidated statements of operations as a percentage of net sales. The financial information and the discussion below should be read in conjunction with the accompanying consolidated financial statements and notes thereto. The discussion following the table is provided separately for continuing and discontinued operations. In fiscal 2003, certain operations we plan to divest were classified as discontinued operations. Accordingly, our consolidated statements of operations include these results in discontinued operations for all periods presented. Information related to the discontinued operations results is provided separately following the continuing operations discussion. In addition, we expect that certain operations which are presently included in the following discussion of continuing operations will, as a result of further divestment activity during the course of fiscal 2004, qualify for classification as discontinued operations prior to the end of fiscal 2004.


			Years Ended August 31

			2003			2002			2001

Net sales				100.0	%		100.0	%		100.0	%
Cost of sales				94.7			95.2			92.3

Gross profit				5.3			4.8			7.7
Operating expenses:
	Selling, general and administrative			5.8			6.4			4.3
	Research and development			0.6			0.5			0.4
	Restructuring and impairment costs			5.8			7.0			2.8
	Goodwill impairment			14.9			21.6			—
	Acquisition costs			—			—			0.1
	Goodwill amorization expense			—			—			0.7

		Operating loss		(21.8	)		(30.7	)		(0.6	)
Interest income				0.3			0.6			0.6
Interest expense				(1.9	)		(2.1	)		(0.9	)
Other income-net				0.5			0.9			0.3

Operating loss from continuing operations before income taxes				(22.9	)		(31.3	)		(0.6	)
Income tax expense (benefit)				5.3			(4.2	)		(0.2	)

	Net loss from continuing operations			(28.2)	%		(27.1)	%		(0.4)	%
Discontinued operations:
Income (loss) from discontinued operations				(2.6	)		0.4			(0.3	)
Income tax expense				0.6			0.2			—

	Net loss			(31.4)	%		(26.9)	%		(0.7)	%

For the year ended August 31, 2003, net sales declined to $11.0 billion, a decrease of 4.8% from fiscal 2002. Net sales of $11.6 billion in fiscal 2002 were 37.7% lower than fiscal 2001. These sales declines were primarily attributable to continued weakness in customer demand, particularly in our telecommunications and networking segments, resulting from the worldwide economic slowdown that significantly impacted the electronics industry. The decreases were partially offset by revenues from our acquisitions completed in fiscal 2002, including C-MAC Industries, Inc.

We were organized into four business units including Global Operations, Technology Solutions, Global Services and MicroSystems. Our largest business unit, Global Operations, provided 79.7%, 86.9% and 91.8% of net sales, respectively, for fiscal 2003, 2002 and 2001. Technology Solutions contributed 12.1%, 7.0% and 6.5% of net sales, respectively, for fiscal 2003, 2002 and 2001. Global Services contributed 6.0%, 4.5% and 1.7% of net sales, respectively, in fiscal 2003, 2002 and 2001. MicroSystems contributed 2.2% and 1.6% of net sales during fiscal 2003 and 2002, respectively, and did not exist in fiscal 2001.

Net sales were $8.8 billion, $10.1 billion and $17.1 billion in fiscal years 2003, 2002 and 2001, respectively. The decrease in fiscal 2003 of 12.7% from fiscal 2002 primarily resulted from weakness in end markets for networking, communications, PC/notebooks, and a customer’s decision to move production of a gaming console back in-house. The weaknesses in these areas were partially offset by strength in our

high-end computing, semiconductor, test and consumer products in addition to our business and asset acquisitions during the past year. The decrease in 2002 of 41.0% from fiscal 2001 was due to continued weakness in customer demand, particularly in our telecommunications and networking sectors.

Net sales were $1.3 billion, $809.1 million and $1.2 billion in fiscal years 2003, 2002 and 2001, respectively. The increase in fiscal 2003 of 65.0% from fiscal 2002 was primarily due to increased demand for memory products and embedded computer systems resulting in business wins from new and existing customers. The decrease in 2002 of 32.6% from fiscal 2001 was principally due to sluggish demand and declines in average selling prices of memory components.

Net sales were $657.1 million, $521.7 million and $309.6 million in fiscal years 2003, 2002 and 2001, respectively. Net sales increased 26.0% in fiscal 2003 compared to fiscal 2002. The increase primarily resulted from our acquisitions of Magnetic Data Technologies in June 2002 and IBM’s global asset recovery operations in the second quarter of fiscal 2003. The increase of 68.5% in net sales in fiscal 2002 compared to fiscal 2001 was primarily due to acquisition of Artesyn Solutions, Inc. and higher demand by customers for after-sales support service provided by this business unit.

Net sales were $238.2 million and $184.1 million in fiscal 2003 and 2002, respectively. The increase of 29.4% in fiscal 2003 over fiscal 2002 was primarily due to the acquisition of C-MAC in the second quarter of fiscal 2002 which contributed only three quarters’ results in fiscal 2002.

International locations contributed 64% of consolidated net sales in fiscal 2003, compared with 66% in fiscal 2002 and 53% in fiscal 2001. The increase since fiscal 2001 has primarily been due to project transfers from sites in the United States to lower cost regions. As a result of our international sales and facilities, our operations are subject to the 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 assure that there will not be such an impact in the future.

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

Our top ten customers accounted for 61% of net sales in fiscal 2003, 68% of net sales in fiscal 2002 and 72% of net sales in fiscal 2001. We are dependent upon continued revenues from Nortel Networks, Cisco Systems and Hewlett-Packard as well as our other large customers. We cannot guarantee that these or any other customers will not increase or decrease as a percentage of consolidated net sales either individually or as a group. Consequently, any material decrease in sales to these or other customers could materially harm our results of operations.

We believe that our ability to grow depends on increasing sales to existing customers for their current and future product generations 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 assure that any of our current customers will continue to utilize our services, and if they were to cease using our services, our results of operations might be materially adversely affected.

Our gross margin percentages were 5.3%, 4.8% and 7.7% for fiscal 2003, 2002 and 2001, respectively. The increase in gross margin percentage from 4.8% in fiscal 2002 to 5.3% in fiscal 2003 was primarily due to project transfers from sites in the United States to lower cost regions. This increase from fiscal 2002 was partially offset by inventory charges related to excess and obsolete inventory in Global Operations. The decrease in gross margin percentage from 7.7% in fiscal 2001 to 4.8% in fiscal 2002 was primarily due to inefficiencies associated with reduced demand and inventory charges related to excess and obsolete inventory in Global Operations and Technology Solutions.

During the second quarter of fiscal 2003, we recorded a charge of approximately $76 million related to excess and obsolete inventory in our Global Operations business unit, which was taken due to the continued depressed condition of the telecommunications market. During the fourth quarter of fiscal 2002, we recorded a charge of approximately $97 million to reduce the carrying value of excess and obsolete inventory. This charge was related to excess and obsolete inventory identified in product-oriented Technology Solutions and Global Operations.

For Global Operations, we anticipate a larger percentage of our sales may be derived from systems-build projects that generally yield lower profit margins than PCBA. We expect most of our Technology Solutions sales may continue to be derived from turn-key projects, which typically yield lower profit margins than consignment projects. In addition, factors affecting Technology Solutions’ profit margins include the sales mix of specialty memory modules, standard memory modules, communication card products and embedded computer 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 several factors, including but not limited to, product mix, production efficiencies, utilization of manufacturing capacity, start-up and integration costs of new and acquired businesses, percentage of sales derived from systems-build and turn-key projects, pricing within the electronics industry, component costs and delivery linearity, and the cost structure at individual sites. Over time, gross margins at the individual sites and for Solectron as a whole may continue to fluctuate. Increases in the systems-build business or turn-key projects, additional costs associated with new projects, and price erosion within the electronics industry could harm our gross margin.

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

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

In absolute dollars, our selling, general and administrative (SG&A) expenses decreased $113.4 million in fiscal 2003 compared to fiscal 2002 and decreased $54.1 million in fiscal 2002 compared to fiscal 2001.

As a percentage of net sales, SG&A expenses were 5.8% in fiscal 2003, 6.4% in fiscal 2002 and 4.3% in fiscal 2001. The decrease as a percentage of net sales in fiscal 2003 as compared to fiscal 2002 was due to headcount and other SG&A expense reductions resulting from our continued restructuring and cost containment activities, partially offset by higher SG&A expenses resulting from our fiscal 2002 acquisitions, including C-MAC. The increase as a percentage of net sales in fiscal 2002 as compared to fiscal 2001 resulted from a large reduction in net sales and the benefits from our restructuring activities lagging behind the sales decline.

With the exception of Technology Solutions, 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 concentrated on new product development and improvement of product designs through improvements in functionality and the use of microprocessors in embedded applications.

In absolute dollars, R&D expenses have remained relatively consistent and were $69.1 million, $59.7 million and $65.9 million in fiscal 2003, 2002 and 2001, respectively. As a percentage of net sales, R&D expense was 0.6%, 0.5% and 0.4% of net sales for fiscal 2003, 2002 and 2001, respectively.

Beginning in the second quarter of fiscal 2001, we began a series of restructuring initiatives 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, have been intended to align our capacity and infrastructure to anticipated customer demand, transition our operations to lower cost regions, and rationalize our footprint worldwide. In furtherance of the implementation of the restructuring plan, we expect to incur restructuring-related charges in the range of an aggregate of $50 million to $75 million over the next few quarters, 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 restructuring charges in the future. If we incur additional restructuring-related charges, our financial condition and results of operations may suffer.

Total restructuring and impairment costs of $469.6 million, $615.9 million and $517.3 million (excluding goodwill and intangible impairments) were charged against earnings during fiscal 2003, 2002 and 2001, respectively.

To date, we estimate that we have reduced our annual operating expenses by approximately $1 billion. These reductions relate primarily to reduced headcount, reduced expenses related to leased equipment and facilities and reduced depreciation. We expect our previously announced restructuring activities to be completed by the second half of fiscal 2004. Upon completion of our current planned restructuring activities, we estimate our annual operating expenses will have been reduced by approximately $1.3 billion from earlier levels.

See Note 16, “Restructuring,” to the consolidated financial statements for further discussion of our restructuring since initiation of the activities in fiscal 2001.

Goodwill impairment was approximately $1.6 billion and $2.5 billion for fiscal 2003 and 2002, respectively, as a result of our goodwill impairment tests. There was no goodwill impairment in fiscal 2001. See Note 17, “Goodwill and Other Intangible Assets,” to the consolidated financial statements for further discussion.

During fiscal 2001, we recorded $23.9 million in acquisition and integration costs, which were primarily related to the NEL acquisition and were not includable in the purchase price. There were no acquisition costs in fiscal 2003 and 2002.

We adopted SFAS No. 142, “Goodwill and Other Intangible Assets,” effective September 1, 2001, and discontinued amortization of goodwill beginning in fiscal 2002. The goodwill amortization expense of $139.9 million in fiscal 2001 primarily resulted from the Natsteel Electronics LTD. (NEL) acquisition. During the second quarter of fiscal 2001, we purchased all of the outstanding issued share capital and convertible bonds of NEL for approximately $2.3 billion and $122.4 million, respectively. The NEL acquisition was accounted for under the purchase accounting method and, as a result, we recorded approximately $2 billion of goodwill that was amortized over ten years prior to our adoption of the new standard in fiscal 2002.

Interest income was $31.2 million in fiscal 2003 compared to $69.3 million in fiscal 2002 and $116.9 million in fiscal 2001. The interest income decreases are due to yearly reductions in average cash, cash equivalent and short-term investment balances and average interest rates.

Interest expense was $210.3 million in fiscal 2003 compared to $241.6 million in fiscal 2002 and $175.6 million in fiscal 2001. The interest expense decrease in fiscal 2003 was primarily due to the retirement of approximately $7.0 billion aggregate principal amount at maturity of our Liquid Yield Option™ Notes (LYONs) during the past two fiscal years. This decrease was partially offset by the issuance in fiscal 2002 of our 7.25% Adjustable Conversion-Rate Equity Security units (ACES) and 9.625% Senior Notes due 2009 in the second quarter of fiscal 2002 for gross proceeds of approximately $1.6 billion that bear interest at higher rates than the LYONs. The interest expense increase in fiscal 2002 primarily resulted from our issuance of the ACES and the Senior Notes, which were used to repay lower interest LYONs.

Other income for fiscal 2003 was $54.3 million, compared to $106.4 million in fiscal 2002 and $62.6 million in fiscal 2001. Other income – net primarily consists of gains on retirement of our LYONs. The following table provides the details of the retirement of our 4.0% LYONs due 2019, 2.75% LYONs due 2020 and our 3.25% LYONs due 2020 in each period presented in the accompanying consolidated financial statements (in millions):

The remaining components of other income-net fluctuate primarily due to foreign currency gains and losses and other miscellaneous income and expense items.

See “Basis of Presentation” and “Recent Accounting Pronouncements,” of Note 1, “Summary of Significant Accounting Policies,” to the consolidated financial statements, for further discussion of other income-net.

Our income tax expense was $581.0 million in fiscal 2003. We recorded income tax benefits of $483.0 million in fiscal 2002 and $34.2 million in fiscal 2001 arising from the losses incurred in those periods. Management’s decision to provide a valuation allowance on certain deferred tax assets resulted in the tax expense incurred in fiscal 2003. Our effective income tax benefit rates for continuing operations were approximately 13.3% and 31.0% in fiscal 2002 and 2001, respectively. Our benefit rate in fiscal 2002 was less than the fiscal 2001 rate primarily due to our goodwill impairment, which is mostly nondeductible for tax purposes.

In prior years, the effective income tax rate had been largely a function of the balance between income and losses from domestic and international operations. Our international operations, taken as a whole, have been subject to tax at a lower rate than operations in the United States, primarily due to tax holidays granted to several of our overseas sites in Malaysia, Singapore and China. The Malaysian tax holiday is effective through 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.

Cash and cash equivalents decreased to approximately $1.4 billion at August 31, 2003 from approximately $1.7 billion at August 31, 2002. Our restricted cash, cash equivalents and short-term investments are restricted primarily in connection with the terms of our leasing transactions and under the collateral obligations for our ACES securities, which require an amount equal to the next quarterly interest payment.

The decrease in cash and cash equivalents was primarily a result of the continued retirement of our LYONs. During fiscal 2003, our primary uses of cash included using approximately $1 billion of our available cash towards retirement of our LYONs, which was partially offset by cash inflows, such as cash provided by operating activities of $307 million including income tax refunds received of $200 million and cash provided by investing activities of $358 million.

Accounts receivable decreased to approximately $1.6 billion at August 31, 2003 from approximately $1.7 billion at August 31, 2002, primarily due to a decrease in sales. Inventories decreased to approximately $1.4 billion at August 31, 2003 from approximately $1.8 billion at August 31, 2002, primarily from the sale of excess raw materials inventory back to our customers throughout fiscal 2003 and a $76 million inventory charge related to excess and obsolete inventory in Global Operations during the second quarter of fiscal 2003.

As of August 31, 2003, we had available a $200 million revolving credit facility that expires on February 11, 2004, and a $250 million revolving credit facility that expires on February 14, 2005. Each of our revolving credit facilities is guaranteed by certain of our domestic subsidiaries and secured by the pledge of domestic accounts receivable, inventory and equipment, the pledge of equity interests in certain

of our subsidiaries and notes evidencing intercompany debt. Borrowings under the credit 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 August 31, 2003, there were no borrowings outstanding under these facilities. We are subject to compliance with certain financial covenants set forth in these facilities including, but not limited to, capital expenditures, consolidated tangible net worth, cash interest coverage, leverage, liquidity, and minimum cash. Prior to the end of the fourth quarter of fiscal 2003, we obtained waivers to the minimum cash interest coverage ratio covenant for the quarter. As a result of these amendments, we were in compliance with all applicable covenants as of August 31, 2003.

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 downgraded our senior unsecured debt rating to “BB” with a negative outlook. On May 14, 2002, Moody’s Investors Services downgraded our senior unsecured debt rating to “Ba3” with a stable outlook. On March 21, 2003, Standard and Poor’s downgraded our senior unsecured debt rating to “BB-” with a negative outlook. On June 20, 2003, Standard and Poor’s placed our corporate credit and other ratings on Credit Watch with negative implications. On June 20, 2003, Moody’s placed our ratings under review for possible downgrade. These rating downgrades increase our cost of capital should we borrow under our revolving lines of credit, and may make it more expensive for us to raise additional capital in the future. Such capital raising activities may be on terms that may not be acceptable to us or otherwise not available.

In addition, we had $40.5 million in committed and $245.0 million in uncommitted foreign lines of credit and other bank facilities as of August 31, 2003 related to continuing operations. A committed line of credit obligates a lender to loan us amounts under the credit facility as long as we adhere to the terms of the credit agreement. An uncommitted line of credit is extended to us at the sole discretion of a lender. The interest rates range from the bank’s prime lending rate to the bank’s prime rate plus 2.0%. As of August 31, 2003, borrowings and guaranteed amounts were $18.2 million under committed and $51.1 million under uncommitted foreign lines of credit. Borrowings are payable on demand. The weighted-average interest rate was 5.4% for committed and 0.7% for uncommitted foreign lines of credit as of August 31, 2003.

We have purchased in the past and may continue to purchase in the future our remaining LYONs on an opportunistic basis. We repurchased LYONs with approximately $1.8 billion aggregate principal amount at maturity in fiscal 2003 for approximately $1 billion in cash. We repurchased LYONs with approximately $5.2 billion aggregate principal amount at maturity in fiscal 2002 for approximately $2.8 billion in cash. As a result, we have repurchased substantially all of the 2.75% LYONs due 2020 and the 4.0% LYONs due 2019 leaving only a portion of our 3.25% LYONs due 2020 outstanding. Based on the aggregate amount outstanding on August 31, 2003, holders of our 3.25% LYONs due November 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 $953 million. Our liquidity could be materially adversely affected if we purchase these LYONs with cash. Instead of repurchasing these 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 – We Have Significant Debt Leverage and Debt Service Obligations.” Conversely, satisfying these obligations with cash could impair our liquidity.

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 indenture 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 expect to use the pledged debentures to satisfy the holders’ obligation to purchase our common stock in November 2004. In addition, our $500 million aggregate principal amount of 9.625% senior notes is due on February 15, 2009 and our $150 million aggregate principal amount of 7.375% senior notes is due on March 1, 2006.

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 and liable to the lessor for any shortfall. 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 $124.7 million and $106.0 million, respectively, as of August 31, 2003.

In addition, cash collateral of $18.7 million is pledged for the difference between the Termination Values and the loan amounts. Each synthetic lease agreement contains various affirmative and financial covenants. A default under a lease, including violation of these covenants, may accelerate the termination date of the arrangement. Prior to the end of the fourth quarter of fiscal 2003, we obtained a

waiver to the minimum cash interest coverage ratio covenant for the quarter. As a result of the amendment, we were in compliance with all applicable covenants as of August 31, 2003. Monthly lease payments are generally based on the Termination Value and 30-day LIBOR index (1.1% as of August 31, 2003) 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 August 31, 2003. 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 August 31, 2003 for continuing operations:

(1)

Since the holders of our 3.25% LYONs due November 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 $953 million on such commitment date of May 20, 2004 based on the notes outstanding as of August 31, 2003.

(2)

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 6, “Long-Term Debt,” to the consolidated financial statements for further discussion of our ACES.

In addition, we guarantee used and unused lines of credit and debt for our subsidiaries totaling $285.5 million as of August 31, 2003. We also guarantee performance of certain of our subsidiaries in various transactions such as leases, totaling $249.8 million as of August 31, 2003.

Our off-balance sheet arrangements consist of our synthetic and operating leases, subsidiary guarantees (leases and subsidiary guarantees are both described in the “Liquidity and Capital Resources” portion of Management’s Discussion and Analysis of Financial Condition and Results of Operations), our interest rate swap instruments related to our long-term debt (described in the “We are exposed to interest rate fluctuations” Risk Factor), and our foreign exchange contracts (described in the “We are exposed to fluctuations in foreign currency exchange rates” risk factor).

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

During the fourth quarter of fiscal 2003, as a result of a full review of our portfolio of businesses, we committed to a plan to divest a number of business operations that are no longer part of our strategic plan for the future.

In accordance with SFAS No. 144, we have reported the results of operations and financial position of these businesses in discontinued operations within the statements of operations and balance sheets for all periods presented. Each of our four reportable segments included one of these operations, which are now classified as discontinued operations. In addition, we expect that certain additional operations which are presently included in continuing operations will, as a result of further divestment activity during the course of fiscal 2004, qualify for classification as discontinued operations prior to the end of fiscal 2004.

The collective results from all discontinued operations for all periods presented were as follows:

Sales and gross profit declined slightly in fiscal 2003 from fiscal 2002 primarily due to the continued economic downturn that affected all of our operations. This decline was partially offset by acquisitions during fiscal 2002. Fiscal 2003 included a full year of operations for all the discontinued operations while fiscal 2002 included partial results. Operating expenses increased significantly in fiscal 2003 primarily due to approximately $293 million of our goodwill impairment recorded during the third quarter of fiscal 2003 relating to the discontinued operations. Sales, gross profit and operating expenses increased significantly from fiscal 2001 to fiscal 2002 as only one of the discontinued operations existed prior to fiscal 2002. Income tax expense increased significantly in fiscal 2003 from fiscal 2002 primarily due to approximately $54 million recorded to establish valuation allowances against deferred tax assets related to the discontinued operations.

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. Adoption of SFAS No. 143 did not have a material impact on our 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. We adopted SFAS No. 144 on September 1, 2002 and such adoption did not have a material impact on our consolidated financial statements.

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 was effective for exit or disposal activities initiated after December 31, 2002. Adoption of SFAS No. 146 has primarily resulted in changes to the timing of recognition of restructuring costs as previous accounting literature allowed recognition upon committing to an exit plan.

In November 2002, the FASB issued Interpretation (FIN) No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” which requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantees. It also requires disclosure in interim and annual financial statements of its obligations under certain guarantees it has issued. The initial recognition and measurement provisions of FIN No. 45 are to be applied prospectively to guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements for periods ending after December 15, 2002. Adoption of FIN No. 45 did not have a material impact on our consolidated financial statements.

In December 2002, The FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure,” which amends SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based compensation. In addition, SFAS No. 148 amends the

disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. We adopted the disclosure requirements of SFAS No. 148 during the third quarter of fiscal 2003.

In January 2003, the FASB issued FIN No. 46, “Consolidation of Variable Interest Entities,” which requires variable interest entities, previously referred to as special-purpose entities or off-balance sheet structures, to be consolidated by a company if that company is subject to a majority of the risk of loss from the entity’s activities or is entitled to receive a majority of the entity’s returns or both. The consolidation provisions of FIN No. 46 apply immediately to variable interest entities created after January 31, 2003 and to existing entities in the first fiscal year or interim period beginning after December 15, 2003. Certain disclosure provisions apply in financial statements issued after January 31, 2003. We do not expect this interpretation to have a material impact on its synthetic lease arrangements, as variable interest entities were not used in the transactions.

In April 2003, the FASB issued SFAS No. 149, “Amendments of Statement 133 on Derivative Instruments and Hedging Activities,” which amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133. This statement is effective for contracts entered into or modified after June 30, 2003, with certain exceptions, and for hedging relationships designated after June 30, 2003. Adoption of SFAS No. 149 did not have a material impact on our consolidated financial statements.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity,” which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. Financial instruments that are within the scope of the statement, which previously were often classified as equity, must now be classified as liabilities. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise shall be effective at the beginning of the first interim period beginning after June 15, 2003. Adoption of SFAS No. 150 did not have a material impact on our consolidated financial statements.

On September 2, 2003, we announced that Mr. Ajay Shah resigned as a director of Solectron effective October 6, 2003 in order to devote more time to his personal business interests and investments.

On September 30, 2003, we announced that we reached an agreement with Nortel Networks to extend Solectron’s role as an electronics manufacturing services provider to Nortel Networks. The new supply agreement, which replaces a four-year supply agreement the companies signed in 2000, defines new terms and conditions under which Solectron will offer Nortel Networks a full suite of supply chain services, including design, new product introduction, materials management, manufacturing, product integration and testing, and repair. Additional product-specific contracts will further specify terms as existing business is transitioned to the new contract and as new business is awarded. The new agreement positions us to compete for Nortel Networks’ business over a broad range of product offerings, with actual annual volumes subject to the economic environment and competitive terms and conditions. While the companies have announced their agreement and intention to work together under the terms of the new contract, there is no assurance that we will receive any particular level of revenues from Nortel Networks, that demand for Nortel Networks’ products will reach the levels contemplated by the parties, that Solectron will be successful in its efforts to win additional business from Nortel Networks, or that Solectron will be able to profitably supply products and services to Nortel Networks under the terms of the new agreement.

On October 7, 2003, we announced that Mr. Dennis Wood resigned as a director of Solectron effective October 6, 2003 in order to devote more time to his personal business interests.

On October 28, 2003, Standard and Poor’s downgraded our senior unsecured debt rating to “B+” with a stable outlook.

On October 31, 2003 Moody’s downgraded our senior unsecured debt rating to “B1” from “Ba3” with a stable outlook.

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 from prior years. In particular, we depend on the telecommunications and computing industries, where the decline began in the second quarter of fiscal 2001. If there were to be continued or resumed weakness in these industries or any further deterioration in the business or financial condition of our customers, it could have a material adverse impact

on our business, operating results and 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.

For the fiscal years ended August 31, 2003, 2002 and 2001, our fixed charges exceeded our earnings from continuing operations by approximately $2.8 billion, $3.9 billion and $313 million, respectively. The fixed charge excesses are primarily due to our operating losses. We compute the ratio of earnings from continuing operations 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) 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 August 31, 2003, we had approximately $1 billion of short-term indebtedness, primarily consisting of our obligation related to our 3.25% LYONs due 2020 (which are putable to us on May 20, 2004) and approximately $1.8 billion of long-term indebtedness. We will require substantial amounts of cash to fund scheduled payments of principal and interest on this outstanding indebtedness, as well as future capital expenditures and any increased working capital requirements.

We repurchased LYONs with approximately $1.8 billion aggregate principal amount at maturity in fiscal 2003 for approximately $1 billion in cash. We repurchased LYONs with approximately $5.2 billion aggregate principal amount at maturity in fiscal 2002 for approximately $2.8 billion in cash. As a result, we have repurchased substantially all of the 2.75% LYONs due 2020 and the 4.0% LYONs due 2019 leaving only a portion of our 3.25% LYONs due 2020 outstanding. Based on the aggregate amount outstanding on August 31, 2003, holders of our 3.25% LYONs 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 $953 million. While we have the right to satisfy these obligations with shares of our common stock, because this could result in significant dilution to our stockholders, which in turn could significantly reduce our earnings per share, we are likely, given recent prices of our common stock, to choose to satisfy these obligations with cash. Satisfying these obligations with cash, however, could impair our liquidity.

In addition, the entire principal amount of $500 million of our 9.625% Senior Notes issued in February 2002 is due on February 15, 2009 and the entire $150 million principal amount of our 7.375% senior notes are due on March 1, 2006.

WE MAY NOT BE ABLE TO MEET OUR CASH REQUIREMENTS BECAUSE OF 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.

We generally execute supply agreements with our significant customers in our Global Operations business unit, which accounts for a majority of the inventory we purchase. Under these supply agreements, the extent of our customer’s responsibility for excess or obsolete inventory related to raw materials that were previously purchased or ordered to meet that customer’s demand forecast is defined. If our customers do not comply with their contractual obligations to purchase excess or obsolete inventory back from us and we are unable to use or sell such inventory, our financial condition could be materially harmed. Some of our customers are in the telecommunications industry, an industry that in recent years has experienced declining revenue, large losses, negative cash flows, and several bankruptcies or defaults on borrowing arrangements. There is a risk that these or other customers may not purchase inventory back from us despite contractual

obligations, which could harm our financial condition if we are unable to sell the inventory at carrying value. In addition, enforcement of these supply agreements may result in material expenses, delays in payment for inventory and/or disruptions in our customer relationships.

We are responsible for excess and obsolete inventory resulting from inventory purchases in excess of inventory needed to meet customer demand forecasts at the time the purchase commitments were made, as well as any inventory purchases not made pursuant to the customer’s responsibility under our supply agreements. For inventory which is not the customer’s responsibility, provisions are made when required to reduce any such excess or obsolete inventory to its estimated net realizable value, based on the quantity of such inventory on hand, our customers’ latest forecasts of production requirements, and our assessment of available disposition alternatives such as use of components on other programs, the ability and cost to return components to the vendor, and our estimates of resale values and opportunities. These assessments are necessarily based upon various assumptions and market conditions which are subject to rapid change, and/or which may ultimately prove to be inaccurate. Any material changes in our assumptions or market conditions could have a significant effect on our estimates of net realizable value, could necessitate material changes in our allowances for excess and obsolete inventory, and could have a material adverse impact on our financial condition. In addition, in the normal course of business, bona fide disagreements may arise over the amount and/or timing of such claims, and in order to avoid litigation expenses, collection risks, or disruption of customer relationships, we may elect to settle such disputes for lesser amounts than we believe we should be entitled to recover. In these instances, we must bear the economic loss of any such excess or obsolete inventory, which could have a material adverse impact on our financial condition. For example, we recorded a charge of $76 million related to excess and obsolete inventory in our Global Operations business unit during the second quarter of fiscal 2003, and there can be no assurance that such charges might not be necessary in future periods.

Our substantial debt could have material adverse consequences. For example, it could:

•

require us to dedicate a substantial portion of our cash flow from operations and other capital resources to debt service, thereby reducing our ability to fund working capital, capital expenditures and other cash requirements;

•

make it more difficult or impossible for us to make payments on indebtedness or obligations;

•

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; and

•

limit our ability to incur additional debt on commercially reasonable terms, if at all.

We and our subsidiaries may be able to incur substantial indebtedness in the future, including our ability to borrow under our secured credit facilities. If new debt is added to our and our subsidiaries’ current debt levels, the related risks that we and they now face could intensify.

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 will contain various restrictive covenants that, among other things, require us to comply with or maintain certain financial tests and ratios and restrict our ability to:

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 certain of our material foreign subsidiaries, certain of our intercompany loans and certain additional assets, including inventory, accounts receivable and equipment of us and our domestic subsidiaries. The covenants governing our secured credit facilities also restrict the operations of certain of our subsidiaries, including, in some cases, limiting the ability of our subsidiaries to make distributions to us.

Our ability to comply with covenants contained in 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 obligations could result in an event of default which, if not cured or waived, could result in an acceleration of our indebtedness and cross-defaults under our other indebtedness, which could have a material adverse effect on our financial condition. We obtained waivers related to the minimum cash interest coverage ratio covenants and amendments to our consolidated tangible net worth covenants applicable to various debt and lease agreements as described in “Liquidity and Capital Resources.” We were in compliance with all applicable covenants as of August 31, 2003.

Even if we are able to comply with all applicable covenants, the restrictions on our ability to operate our business in our sole discretion 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 61%, 68% and 72%, respectively, of net sales from continuing operations in fiscal 2003, 2002 and 2001. 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 or anticipated 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 and anticipated supply agreements, as well as on the financial condition and success of our customers and their customers.

Net sales may not improve, and could decline, in future periods if there is continued or resumed weakness in customer demand, particularly in the telecommunications and computing sectors, resulting from worldwide economic conditions. In addition, net sales were adversely affected due to our unwinding of our optical products supply agreement with Lucent during fiscal 2003, which had previously been expected to generate $2 billion in revenues over the original three-year contract period. Sales, gross profit and operating loss from this supply agreement were $92 million, $1 million and $7 million, respectively, in fiscal 2003. Production under this supply agreement substantially ceased in March 2003.

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

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

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

•

we may pay a purchase price to the divesting OEMs that exceeds the value we are ultimately able to realize from the future business of the OEM;

•

the integration into our business of the acquired assets and facilities may be time-consuming and costly;

•

we may be unable to meet the expectations of the OEM as to volume, product quality, timeliness and cost reductions; and

•

if demand for the OEM’s products declines, the OEM may reduce its volume of purchases, and we may not be able to sufficiently reduce the expenses of operating the facility or use the facility to provide services to other OEMs, and we might find it appropriate to close, rather than continue to operate, the facility, and any such actions would require us to incur significant restructuring and/or impairment charges.

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

IF WE ARE UNABLE TO MANAGE OUR ACQUISITIONS AND DIVESTITURES, AND COST-EFFECTIVELY RUN OUR OPERATIONS AND DISPOSE OF NON-STRATEGIC ASSETS, OUR PROFITABILITY COULD BE ADVERSELY AFFECTED.

Until fiscal 2002, we experienced rapid growth over many years. During fiscal 2002, we completed our acquisition of C-MAC, as well as other smaller transactions. While we may consider future acquisitions of companies and strategic assets on a selective basis, subject to compliance with any restrictions that may exist under certain of our financing instruments, we are presently focused on divestiture activity. We are in the process of divesting certain parts of our current operations that we do not believe to be strategic or synergistic to our primary business focus, and we believe such divestments, if successfully and timely completed at the presently anticipated valuations and without undue disruption of operations, present us with the opportunity to improve our liquidity and reduce our interest and operating expenses.

In order to achieve anticipated revenue and other financial performance targets, we must continue to manage our assets and operations efficiently while simultaneously preparing parts of our operations for divestiture. Our divestiture activities are expected to place a heavy strain on various personnel and management resources, and must be carefully managed in order to avoid or minimize disruptions in the business operations of the affected businesses, customer relations and cash flows, and to enable us to maximize the value which we may be able to realize from the divestments. There can be no assurance that such divestment activities will be able to be consummated without an adverse impact on the near-term operations of the affected businesses or on Solectron as a whole. Any failure to successfully manage and consummate the divestments in a timely manner could harm our financial condition and results of operations, as well as adversely impact the realizable value of the divested operations. In addition, there can be no assurance that we will be successful in realizing the presently anticipated benefits from our divestment activities, as such transactions involve significant risks and uncertainties with respect to valuation of the entities to be divested, particularly given the potential disruption of operations inherent in the divestiture process, and may result in significant costs, expenses and charges that may significantly reduce the value which we may realize in connection with the anticipated divestiture transactions. In the event we fail to consummate a divestment, we may need to incur restructuring charges.

Our ability to manage and integrate our acquisitions, as well as any future acquisitions, will require progressive increases in manufacturing and logistics 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 guarantee that significant problems in these areas will not occur. Any failure to enhance or expand these systems and implement such procedures and controls in an efficient manner and at a pace consistent with

our business activities could harm our financial condition and results of operations. In addition, we may experience inefficiencies from the management of geographically dispersed facilities and incur substantial infrastructure and working capital costs. We incurred approximately $2.3 billion (including goodwill and other intangible impairment charges of approximately $1.8 billion) of restructuring and impairment costs relating to continuing operations in fiscal 2003 and approximately $3.3 billion (including goodwill and other intangible asset impairment charges of approximately $2.7 billion) 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;

•

announcements of operating results and business conditions by our customers;

•

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

•

political and economic developments in countries in which we have operations; and

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 continued implementation of the series of restructuring plans which we have initiated commencing in fiscal 2001, we expect to incur restructuring-related charges of an aggregate of approximately $50 million to $75 million over the next few quarters, primarily to consolidate facilities and reduce our workforce in North America and Europe, 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 restructuring charges in the future. If our estimates about future restructuring charges prove to be inadequate, our financial condition and results of operations may suffer. In addition, if we are unable to successfully move production from higher cost to lower cost facilities without experiencing degradation of quality or timeliness of our service to our customers, our business could be harmed.

WE DEPEND ON LIMITED OR SOLE SOURCE SUPPLIERS FOR CRITICAL COMPONENTS. THE INABILITY TO OBTAIN SUFFICIENT COMPONENTS AS REQUIRED, AND UNDER FAVORABLE PURCHASE TERMS, WOULD CAUSE HARM TO OUR BUSINESS.

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

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

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

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

We compete with different contract manufacturers, depending on the type of service we provide or the geographic locale of our operations, in an industry which is intensely competitive. These competitors may have greater manufacturing, financial, R&D and/or marketing resources than we have. In addition, we may not be able to offer prices as low as some of our competitors because those competitors may have lower cost structures as a result of their geographic location or the services they provide, or because such competitors are willing to accept business at lower margins in order to utilize more of their excess capacity. In that event, our net sales could decline. We also expect our competitors to continue to improve the performance of their current products or services, to reduce their current products or service sales prices and to introduce new products or services that may offer greater value-added performance and improved pricing. Any of these could cause a decline in sales, loss of market acceptance of our products or services and corresponding loss of market share, or profit margin compression.

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 PORTION OF OUR NET SALES; WE ARE EXPOSED TO RISKS ASSOCIATED WITH OPERATING INTERNATIONALLY.

Approximately 64%, 66% and 53% of our net sales from continuing operations came from sites outside the United States in fiscal 2003, 2002 and 2001, respectively. As a result of our foreign sales and facilities, our operations are subject to a variety of risks and costs that are unique to international operations, including the following:

•

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

•

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

•

government and license requirements governing the transfer of technology and products abroad;

•

the burden and cost of compliance with import and export regulations and foreign laws; and

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, or if additional tax holidays are not granted in the future or when our current tax holidays expire, our future effective income tax rate could increase.

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

As of August 31, 2003, we had outstanding foreign exchange forward contracts with a total notional amount of approximately $596 million related to continuing operations. The change in value of the foreign exchange forward contracts resulting from a hypothetical 10% change in foreign exchange rates would be offset by the remeasurement of the related balance sheet items, the result of which would not be significant.

As of August 31, 2003, the majority of our foreign currency hedging contracts were scheduled to mature in approximately three months and there were no material deferred gains or losses. In addition, our international operations in some instances act as a natural hedge because both operating expenses and a portion of sales are denominated in local currency. In these instances, although an unfavorable change in the exchange rate of a foreign currency against the U.S. dollar will result in lower sales when translated to U.S. dollars, operating expenses will also be lower in these circumstances. Although approximately 23% of our net sales from continuing operations in 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.

The primary objective of our investment activities is to preserve principal, while at the same time maximize yields without significantly increasing risk. To achieve this objective, we maintain our portfolio of cash equivalents and short-term investments in a variety of securities, including both government and corporate obligations, certificates of deposit and money market funds. As of August 31, 2003 substantially all 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% change in interest rates would not have a material effect on our investment portfolios.

We had approximately $500 million of cash equivalents and short-term investments that are subject to interest rate risk as of August 31, 2003. The weighted average interest rate of these balances as of August 31, 2003 was 1.0%. The fair value of these cash equivalents and short-term investments approximated the carrying value as of August 31, 2003.

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 pay variable rates and we receive 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 interest rate swaps have a total notional amount of $1 billion. The first $500 million of swap

transactions relate to our 7.25% $1.1 billion ACES and expire on November 15, 2004. The second $500 million of swap transactions relate to our 9.625% $500 million senior notes and expire on February 15, 2009. Under each of these swap transactions, we pay an interest rate equal to the 3-month LIBOR rate plus a fixed spread. In exchange, we receive 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, 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 swap transactions used to hedge the interest paid on the senior notes and designated the swaps as fair value hedges under SFAS No. 133.

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.

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

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

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

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 downgraded our senior unsecured debt rating to “BB” with a negative outlook. On May 14, 2002, Moody’s Investors Services downgraded our senior unsecured debt rating to “Ba3” with a stable outlook. On March 21, 2003, Standard and Poor’s downgraded our senior unsecured debt rating to “BB-” with a negative outlook. On June 20, 2003, Standard and Poor’s placed our corporate credit and other ratings on Credit Watch with negative implications. On June 20, 2003, Moody’s placed our ratings under review for possible downgrade. These rating downgrades increase our cost of capital should we borrow under our revolving lines of credit, and may make it more expensive for us to raise additional capital in the future on terms that are acceptable to us or at all, which may have other negative implications on our business, many of which are beyond our control.

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.

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

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

For each fiscal quarter during the two fiscal years ended August 31, 2003 (in millions, except percentages and per-share data):


Fiscal 2003	First Quarter			Second Quarter			Third Quarter			Fourth Quarter

Net sales	$	2,943.3		$	2,637.3		$	2,655.4		$	2,778.0
Gross profit	$	195.8		$	94.0		$	136.4		$	155.8
Gross margin		6.7	%		3.6	%		5.1	%		5.6	%
Loss from continuing operations	$	(74.8	)	$	(115.0	)	$	(2,739.8	)	$	(175.3	)
Income (loss) from discontinued operations, net of tax	$	3.9		$	4.2		$	(361.4	)	$	(3.8	)
Net loss	$	(70.9	)	$	(110.8	)	$	(3,101.2	)	$	(179.1	)
Basic and diluted net loss per share	$	(0.09	)	$	(0.14	)	$	(3.31	)	$	(0.21	)

Fiscal 2002
Net sales	$	3,052.9		$	2,757.5		$	2,832.7		$	2,928.1
Gross profit	$	194.2		$	140.7		$	170.1		$	51.5
Gross margin		6.4	%		5.1	%		6.0	%		1.8	%
Loss from continuing operations	$	(52.8	)	$	(137.4	)	$	(291.2	)	$	(2,656.7	)
Income from discontinued operations, net of tax	$	0.3		$	11.4		$	6.8		$	9.4
Net loss	$	(52.5	)	$	(126.0	)	$	(284.4	)	$	(2,647.3	)
Basic and diluted net loss per share	$	(0.08	)	$	(0.17	)	$	(0.35	)	$	(3.22	)

SOLECTRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions)


			August 31

			2003			2002

ASSETS
Current assets:
	Cash and cash equivalents		$	1,426.1		$	1,749.7
	Restricted cash and cash equivalents			45.6			135.7
	Short-term investments			27.5			232.5
	Restricted short-term investments			19.9			99.7
	Accounts receivable, less allowance for doubtful accounts of $44.7 and $76.0, respectively			1,570.0			1,670.2
	Inventories			1,414.9			1,822.1
	Prepaid expenses and other current assets			281.4			728.6
Current assets of discontinued operations				168.4			221.5

		Total current assets		4,953.8			6,660.0
Net property and equipment				829.0			1,081.3
Goodwill				185.9			1,806.8
Other assets				386.8			931.1
Long-term assets of discontinued operations				174.0			534.8

Total assets			$	6,529.5		$	11,014.0

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Short-term debt		$	977.9		$	636.8
	Accounts payable			1,404.9			1,471.3
	Accrued employee compensation			178.9			196.9
	Accrued expenses			346.5			475.9
	Other current liabilities			200.3			98.8
Current liabilities of discontinued operations				126.4			125.5

		Total current liabilities		3,234.9			3,005.2
Long-term debt				1,817.6			3,181.2
Other long-term liabilities				40.4			45.1
Long-term liabilities of discontinued operations				14.6			9.8

		Total liabilities	$	5,107.5		$	6,241.3

Commitments and contingencies

Stockholders’ equity:
	Preferred stock, $0.001 par value; 1.2 shares authorized; one share issued		$	—		$	—
	Common stock, $0.001 par value; 1,600.0 shares authorized; 832.6 and 824.8 shares issued and outstanding, respectively			0.8			0.8
	Additional paid-in capital			6,658.2			6,635.9
	Accumulated deficit			(5,040.6	)		(1,578.6	)
	Accumulated other comprehensive losses			(196.4	)		(285.4	)

		Total stockholders’ equity		1,422.0			4,772.7

Total liabilities and stockholders’ equity			$	6,529.5		$	11,014.0

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


			Years Ended August 31

			2003			2002			2001

Net sales			$	11,014.0		$	11,571.2		$	18,569.0
Cost of sales				10,432.0			11,014.7			17,137.1

Gross profit				582.0			556.5			1,431.9
Operating expenses:
	Selling, general and administrative			631.5			744.9			799.0
	Research and development			69.1			59.7			65.9
	Restructuring and impairment costs			641.3			807.1			517.3
	Goodwill impairment			1,639.2			2,500.0			—
	Acquisition costs			—			—			23.9
	Goodwill amortization expense			—			—			139.9

		Operating loss		(2,399.1	)		(3,555.2	)		(114.1	)
Interest income				31.2			69.3			116.9
Interest expense				(210.3	)		(241.6	)		(175.6	)
Other income — net				54.3			106.4			62.6

Operating loss from continuing operations before income taxes				(2,523.9	)		(3,621.1	)		(110.2	)
Income tax expense (benefit)				581.0			(483.0	)		(34.2	)

		Net loss from continuing operations	$	(3,104.9	)	$	(3,138.1	)	$	(76.0	)
Discontinued operations:
Income (loss) from discontinued operations				(293.8	)		43.7			(47.5	)
Income tax expense				63.3			15.8			—

	Income (loss) from discontinued operations			(357.1	)		27.9			(47.5	)
	Net loss		$	(3,462.0	)	$	(3,110.2	)	$	(123.5	)

Basic and diluted net income (loss) per share
	Continuing operations		$	(3.75	)	$	(4.02	)	$	(0.12	)
	Discontinued operations			(0.43	)		0.04			(0.07	)

	Basic and diluted net loss per share		$	(4.18	)	$	(3.98	)	$	(0.19	)

Shares used to compute basic and diluted net loss per share				827.7			780.9			641.8

SOLECTRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions)


									Retained			Accumulated
						Additional			Earnings			Other			Total
	Common Stock					Paid-In			(Accumulated			Comprehensive			Stockholders'
	Shares			Amount		Capital			Deficit)			Losses			Equity
Balances as of August 31, 2000		605.0		$	0.6	$	2,259.1		$	1,656.8		$	(114.4	)	$	3,802.1
Net loss		—			—		—			(123.5	)		—			(123.5	)
Adjustment to conform Texas site year end		—			—		—			(1.7	)		—			(1.7	)
Foreign currency translation		—			—		—			—			(139.8	)		(139.8	)
Unrealized loss on investments		—			—		—			—			(5.0	)		(5.0	)
Stock issued under stock option and employee purchase plans		8.6			—		97.7			—			—			97.7
Stock and stock options issued in business combinations		2.5			—		69.8			—			—			69.8
Issuance of common stock		42.1			0.1		1,410.5			—			—			1,410.6
Tax benefit associated with exercise of stock options		—			—		40.5			—			—			40.5

Balances as of August 31, 2001		658.2		$	0.7	$	3,877.6		$	1,531.6		$	(259.2	)	$	5,150.7

Net loss		—		$	—	$	—		$	(3,110.2	)	$	—		$	(3,110.2	)
Foreign currency translation		—			—		—			—			(36.3	)		(36.3	)
Unrealized gain on investments		—			—		—			—			10.1			10.1
Stock issued under stock option and employee purchase plans		6.7			—		38.8			—			—			38.8
Stock and stock options issued in business combinations		160.4			0.1		2,676.1			—			—			2,676.2
Repurchase of common stock		(0.5	)		—		(4.5	)		—			—			(4.5	)
ACES stock purchase contracts		—			—		46.9			—			—			46.9
Deferred stock-based compensation from business combination		—			—		(7.2	)		—			—			(7.2	)
Other		—			—		8.2			—			—			8.2

Balances as of August 31, 2002		824.8		$	0.8	$	6,635.9		$	(1,578.6	)	$	(285.4	)	$	4,772.7

Net loss		—		$	—	$	—		$	(3,462.0	)	$	—		$	(3,462.0	)
Foreign currency translation		—			—		—			—			109.0			109.0
Unrealized loss on investments		—			—		—			—			(20.0	)		(20.0	)
Stock issued under stock option and employee purchase plans		5.1			—		15.5			—			—			15.5
Other		2.7			—		6.8			—			—			6.8

Balances as of August 31, 2003		832.6		$	0.8	$	6,658.2		$	(5,040.6	)	$	(196.4	)	$	1,422.0

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

Accumulated foreign currency translation losses were $186.7 million at August 31, 2003, $295.7 million at August 31, 2002 and $259.4 million at August 31, 2001. 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.

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


				Years Ended August 31

				2003			2002			2001

Cash flows from operating activities of continuing operations:
	Net loss from continuing operations			$	(3,104.9	)	$	(3,138.1	)	$	(76.0	)
	Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
		Depreciation and amortization			263.9			353.1			531.5
		Amortization of debt issuance costs and accretion of discount on notes payable			84.6			137.5			146.5
		Tax benefit associated with exercise of stock options			—			3.6			40.5
		Inventory charge			76.3			97.0			—
		Gain on retirement of debt			(39.4	)		(75.7	)		—
		Deferred tax charge			667.2			—			—
		Adjustment to conform fiscal year ends			—			—			(1.7	)
		Loss (gain) on disposal of property and equipment			5.1			(1.9	)		(10.0	)
		Impairment of property and equipment, goodwill and other long-term assets			1,985.2			3,062.5			268.1
		Other			(5.1	)		22.2			78.5
		Changes in operating assets and liabilities:
			Accounts receivable, net of allowance		89.7			1,031.3			18.5
			Inventories		346.2			1,605.9			1,001.3
			Prepaid expenses and other current assets		36.0			(521.1	)		(79.6	)
			Accounts payable		(107.3	)		(425.3	)		(1,271.6	)
			Accrued expenses and other current liabilities		9.8			(55.9	)		(2.4	)

		Net cash provided by operating activities of continuing operations			307.3			2,095.1			643.6

	Cash flows from investing activities of continuing operations:
		Change in restricted cash, cash equivalents and short-term investments			169.8			(235.4	)		—
		Sales and maturities of short-term investments			252.5			665.4			1,354.3
		Purchases of short-term investments			(56.1	)		(589.9	)		(702.0	)
		Acquisition of businesses, net of cash acquired			(3.8	)		(336.0	)		(2,482.5	)
		Acquisition of manufacturing assets and locations			(45.5	)		(102.2	)		(84.0	)
		Capital expenditures			(136.5	)		(216.1	)		(531.3	)
		Purchase of facilities previously under synthetic leases			—			(179.3	)		—
		Proceeds from sale of property and equipment			60.1			129.8			98.7
		Advances to/from discontinued operations			69.6			(102.5	)		—
		Other			48.3			(46.4	)		(149.9	)

			Net cash provided by (used in) investing activities of continuing operations		358.4			(1,012.6	)		(2,496.7	)

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


			Years Ended August 31

			2003			2002			2001

Cash flows from financing activities of continuing operations:
	Net repayment of bank lines of credit and other debt arrangements			(91.2	)		(203.7	)		(53.5	)
	Proceeds from issuance of ACES and Senior Notes			—			1,553.8			—
	Net proceeds from long-term debt			—			153.4			1,540.7
	Repurchase of LYONS			(967.5	)		(2,835.9	)		—
	Principal payments on long-term debt			—			(471.6	)		(18.3	)
	Common stock repurchase			—			(4.5	)		—
	Net proceeds from stock issued under
	option and employee purchase plans			7.8			38.8			97.7
	Net proceeds from issuance of common stock			—			—			1,381.4
	Other			28.4			(17.3	)		20.6

		Net cash provided by (used in) financing activities of continuing operations		(1,022.5	)		(1,787.0	)		2,968.6

Effect of exchange rate changes on cash and cash equivalents				33.2			(24.7	)		(112.1	)

	Net increase (decrease) in cash and cash equivalents			(323.6	)		(729.2	)		1,003.4
	Cash and cash equivalents at beginning of period — continuing operations			1,749.7			2,478.9			1,475.5

	Cash and cash equivalents at end of period — continuing operations		$	1,426.1		$	1,749.7		$	2,478.9

SUPPLEMENTAL DISCLOSURES Cash paid (received) during the period:
	Income taxes		$	(199.6	)	$	(70.5	)	$	151.4
	Interest		$	133.4		$	70.9		$	11.0
Non-cash investing and financing activities:
	Issuance of common stock for business combination, net of cash acquired		$	—		$	2,528.8		$	61.7

Cash and cash equivalents of discontinued operations at beginning of period			$	31.6		$	3.4		$	—
Cash provided by acquisition of discontinued operations				—			39.7			23.8
Cash used in discontinued operations				(0.5	)		(11.5	)		(20.4	)

Cash and cash equivalents of discontinued operations at end of period			$	31.1		$	31.6		$	3.4

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

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

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

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

Restricted Cash, Cash Equivalents and Short-Term Investments: These assets are carried at fair values and are restricted as collateral for specified obligations under certain lease agreements and certain interest payments on the 7.25% subordinated ACES debentures due November 15, 2006.

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

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

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

Certain depreciation lives were changed from four to five years beginning March 2, 2001. Consequently, the depreciation charges on these assets were lower by $19.8 million in fiscal 2001 than it would have been using a four-year life.

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

Goodwill and Intangible Assets: In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 requires goodwill to be tested for impairment on an annual basis and between annual tests in certain circumstances, and written down when impaired, rather than being amortized as previous accounting standards required. Furthermore, SFAS No. 142 requires purchased intangible assets other than goodwill to be amortized over their useful lives unless these lives are determined to be indefinite.

SFAS No. 142 was effective for fiscal years beginning after December 15, 2001; however, Solectron elected to early adopt the accounting standard effective in fiscal 2002. In accordance with SFAS No. 142, Solectron ceased amortizing goodwill, beginning in fiscal 2002.

The following table presents the impact of adopting SFAS No.142 on net loss and net loss per share had the standard been in effect for the all years presented:


			2003			2002			2001

			(in millions, except per-share data)
Continuing Operations:
	Reported net loss		$	(3,104.9	)	$	(3,138.1	)	$	(76.0	)
		Amortization of goodwill, net of tax		—			—			127.0

	Adjusted net income (loss)		$	(3,104.9	)	$	(3,138.1	)	$	51.0

	Reported basic and diluted net loss per share		$	(3.75	)	$	(4.02	)	$	(0.12	)
	Adjusted basic and diluted net income (loss) per share		$	(3.75	)	$	(4.02	)	$	0.08
Discontinued Operations:
	Reported net income (loss)		$	(357.1	)	$	27.9		$	(47.5	)
		Amortization of goodwill, net of tax		—			—			—

	Adjusted net income (loss)		$	(357.1	)	$	27.9		$	(47.5	)

	Reported basic and diluted net income (loss) per share		$	(0.43	)	$	0.04		$	(0.07	)
	Adjusted basic and diluted net income (loss) per share		$	(0.43	)	$	0.04		$	(0.07	)

Solectron performs goodwill impairment tests annually during the fourth quarter of their 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. Solectron performs the impairment tests at the reporting unit level, which was determined to be consistent with their business units (as defined in Note 12, “Segment and Geographic Information,” to the consolidated financial statements) except for Technology Solutions and Global Services, which were disaggregated further into two reporting units each resulting in a total of six reporting units. The tests are performed by determining the fair values of the 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, Solectron then allocates the fair value of the unit to all the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit’s fair value was the purchase price to acquire the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of the goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.

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

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

Net Loss Per Share: Basic net loss per share is calculated using the weighted-average number of common shares outstanding during the period. Diluted net loss per share is calculated using the weighted-average number of common shares plus dilutive potential common shares outstanding during the period. Anti-dilutive potential common shares are excluded. Potential common shares consist of stock options that are computed using the treasury stock method and shares issuable upon conversion of Solectron’s outstanding convertible debt computed using the as-if-converted method. Share and per-share data presented reflect all stock splits.

Revenue Recognition: Solectron’s net sales are primarily derived from full product manufacturing services including, but not limited to, printed circuit board, sub-system and complete system assembly, and manufacturing of memory products and embedded systems. Solectron also offers services consisting of repair, warranty and end-customer technical support services. Revenue from manufacturing services and product sales is generally recognized upon shipment of the manufactured product. Revenue from other services is recognized as the services are performed.

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

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

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

Derivative Instruments: In September 2000, Solectron adopted SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS No. 137, No. 138 and No. 149. All derivative instruments are recorded on the balance sheet at fair value. If the derivative is designated as a cash flow hedge, the effective portion of changes in the fair value of the derivative is recorded in other comprehensive loss and is recognized in the statement of operations when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are immediately recognized in earnings. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings in the current period. For derivative instruments not designated as hedging instruments under SFAS No. 133, changes in fair values are recognized in earnings in the current period.

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. Adoption of SFAS No. 143 did not have a material impact on Solectron’s 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. 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. Adoption of SFAS No. 144 did not have a material impact on Solectron’s consolidated financial statements.

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. Adoption of SFAS No. 146 has primarily resulted in changes to the timing of recognition of restructuring costs as previous accounting literature allowed recognition upon committing to an exit plan.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure,” which amends SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Compensation costs attributable to Solectron’s stock option plans and employee stock purchase plan are recognized based on any excess of the quoted market price of the stock on the date of grant over the amount the employee is required to pay to acquire the stock, in accordance with the intrinsic-value method under APB No. 25. Such amount, if any, is expensed over the related time-based vesting period, as appropriate. APB No. 25 does not require options to be expensed when granted with an exercise price equal to fair market value. Solectron adopted the disclosure requirements of SFAS No. 148 during the third quarter of fiscal 2003.

In January 2003, the FASB issued FIN No. 46, “Consolidation of Variable Interest Entities,” which requires variable interest entities, previously referred to as special-purpose entities or off-balance sheet structures, to be consolidated by a company if that company is subject to a majority of the risk of loss from the entity’s activities or is entitled to receive a majority of the entity’s returns or both. The consolidation provisions of FIN No. 46 apply immediately to variable interest entities created after January 31, 2003 and to existing entities in the first fiscal year or interim period beginning after December 15, 2003. Certain disclosure provisions apply in financial statements issued after January 31, 2003. Solectron does not expect this interpretation to have a material impact on its synthetic lease arrangements, as variable interest entities were not used in the transactions.

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

			fiscal 2002. In fiscal 2001, Solectron also reclassified other income of $61.1 million from selling, general and administrative expenses to other income-net.

	2.		In fiscal 2003, Solectron classified certain items in cost of sales that in previous periods were included in selling, general and administrative expenses. Accordingly, Solectron reclassified $23.2 million and $52.1 million from selling, general and administrative expenses to cost of sales in fiscal 2002 and 2001, respectively.

Cash, cash equivalents and short-term investments (related to continuing operations and including restricted amounts) as of August 31, 2003 and 2002, consisted of the following:

Solectron had $65.5 and $235.4 million of restricted cash, cash equivalents and short-term investment as of August 31, 2003 and 2002, respectively. Restricted cash, cash equivalents and short-term investments are restricted as collateral for specified obligations under certain lease agreements and certain interest payments on the 7.25% subordinated ACES debentures due November 15, 2006. Short-term investments are carried at fair market value, which approximates cost. Realized and unrealized gains and losses for the fiscal years ended August 31, 2003 and 2002 were not significant.

Inventories related to continuing operations as of August 31, 2003 and 2002, consisted of:

Property and equipment related to continuing operations as of August 31, 2003 and 2002, consisted of:

As of August 31, 2003, Solectron had available a $200 million revolving credit facility that expires on February 11, 2004, and a $250 million revolving credit facility that expires on February 14, 2005. Each of the revolving credit facilities is guaranteed by certain domestic subsidiaries and secured by the pledge of domestic accounts receivable, inventory and equipment, the pledge of equity interests in certain subsidiaries and notes evidencing intercompany debt. Borrowings under the credit facilities bear interest, at Solectron’s option, at the London Interbank offering rate (LIBOR) plus a margin of 1.75% based on Solectron’s current senior unsecured debt ratings, or the higher of the Federal Funds Rate plus 1/2 of 1% or Bank of America N.A.’s publicly announced prime rate. As of August 31, 2003, there were no borrowings outstanding under these facilities. Solectron is subject to compliance with certain financial covenants set forth in these facilities including, but not limited to, capital expenditures, consolidated tangible net worth, cash interest coverage, leverage, liquidity, and minimum cash. Prior to the end of the fourth quarter, Solectron obtained waivers to the minimum cash interest coverage ratio covenants. As a result of these waivers, Solectron was in compliance with all applicable covenants as of August 31, 2003.

In addition, Solectron had $41 million in committed and $245 million in uncommitted foreign lines of credit and other bank facilities as of August 31, 2003 related to continuing operations. A committed line of credit obligates a lender to loan Solectron amounts under the credit facility as long the terms of the credit agreement are adhered to. 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 August 31, 2003, borrowings and guaranteed amounts were $18 million under committed and $51 million under uncommitted foreign lines of credit. Borrowings are payable on demand. The weighted-average interest rate was 5.4 % for committed and 0.7% for uncommitted foreign lines of credit as of August 31, 2003.

Long-term debt related to continuing operations at August 31, 2003 and 2002, consisted of:


	2003			2002

	(in millions)
7.25% adjustable conversion-rate equity securities, face value of $1,100.0, fair values of $723.6 and $545.6, due 2006	$	1,081.6		$	1,072.3
9.625% senior notes, face value of $500.0, fair values of $532.5 and $465.0, due 2009		516.4			497.1
7.375% senior notes, face value of $150.0, fair values of $152.3 and $150.0, due 2006		149.9			149.9
2.75% zero-coupon convertible senior notes, face values of $15.9 and $852.5, fair values of $9.0 in 2003 and $496.1 in 2002, due 2020		10.1			—	*
3.25% zero-coupon convertible senior notes, face values of $1,622.6 and $2,557.1, fair values of $912.7 in 2003 and $1,118.8 in 2002, due 2020		—	**		1,419.7
Other, fair values of $60.2 and $42.2		59.6			42.2

Total long-term debt	$	1,817.6		$	3,181.2

*As of August 31, 2002, remaining carrying amount of $527 million was classified in short-term debt as the holders of these notes had the right to require Solectron to repurchase them on May 8, 2003. The principal amount not repurchased was reclassified to long-term debt as of August 31, 2003 as the next repurchase date occurs in 2010.

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

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 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 issuance cost through May 20, 2004. During fiscal 2002, Solectron repurchased a portion of the LYONs with a carrying amount totaling approximately $183 million for approximately $156 million in cash which resulted in a gain of $27 million. During fiscal 2003, Solectron repurchased a portion of these LYONs with a carrying amount totaling $522 million for $483 million in cash, which resulted in a gain of $39 million. The remaining accreted value of these notes was $931 million as of August 31, 2003 and Solectron may be obligated to purchase these notes on May 20, 2004 for $953 million in cash or common stock or a combination of both.

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 were able to require Solectron to purchase all or a portion of their notes on May 8, 2003 and 2010, at prices of $628.57 and $761.00 per note, respectively. Also, each holder was able to require Solectron to repurchase all or a portion of such holder’s notes upon a change in control of Solectron occurring on or 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. Issuance costs were fully amortized as of 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. On March 31, 2003, Solectron announced its intention to repurchase any 2.75% LYONs put to it with cash on May 8, 2003. Accordingly, Solectron repurchased $514 million of these LYONs with cash during the third quarter of fiscal 2003 resulting in no significant gain or loss. During fiscal 2002, Solectron repurchased a portion of these LYONs with a carrying amount totaling approximately $1.9 billion for approximately $1.8 billion in cash which resulted in a gain of $63 million.

During fiscal 2002, Solectron repurchased LYONs, which were issued in January 1999, with a carrying amount totaling approximately $825.5 million for approximately $839.5 million in cash which resulted in a loss of $14.0 million.

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 $47 million to the fair value of the stock purchase contracts and recorded this amount in additional paid-in capital. The debentures are 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 $20 million of short-term investments as of August 31, 2003 were restricted as collateral related to the obligations for the next quarterly interest payment.

On February 8, 2002, Solectron issued an aggregate principal amount of $500 million of 9.625% senior notes due 2009. Solectron is required to pay interest on the notes in cash on February 15 and August 15 of each year. The indenture governing the terms of these notes contains restrictive provisions, which limit Solectron and its subsidiaries from making distributions on their capital stock, investments, incurring debt, issuing preferred stock and engaging in assets sales, among other provisions.

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

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

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

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

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 pays variable rates and receives fixed rates. The interest rate swaps have a total notional amount of $1 billion. $500 million relates to the Company’s $1.1 billion ACES and expires on November 15, 2004 and $500 million relates to the 9.625% $500 million senior notes expiring on February 15, 2009. Under each of these swap transactions, Solectron pays an interest rate equal to the 3-month LIBOR rate plus a fixed spread. In exchange, Solectron receives fixed interest rates of 7.25% on the first $500 million and 9.625% on the second $500 million. These swap transactions effectively replace 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 are designated as fair value hedges under SFAS No. 133. During fiscal 2003, Solectron settled its swaps related to the senior notes and received cash proceeds of approximately $26 million. This gain is being amortized over the remaining life of the senior notes. Solectron also replaced these swaps with similar instruments designated as fair value hedges under SFAS No. 133 during fiscal 2003.

As of August 31, 2003, Solectron had outstanding foreign exchange forward contracts with a total notional amount of approximately $596 million related to continuing operations.

For all derivative transactions, Solectron is exposed to counterparty credit risk to the extent that the counter parties 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 counter parties.

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

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 and liable to the lessor for any shortfall. 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 August 31, 2003.

In addition, cash collateral of $19 million is pledged for the difference between the Termination Values and the loan amounts. Each lease agreement contains various affirmative and financial covenants. A default under a lease, including violation of these covenants, may accelerate the termination date of the arrangement. Prior to the end of fiscal 2003, Solectron obtained a waiver to the minimum cash

interest coverage ratio covenant. As a result of the waiver, Solectron was in compliance with all applicable covenants as of August 31, 2003. Monthly lease payments are generally based on the Termination Value and 30-day LIBOR index (1.1% as of August 31, 2003) 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 August 31, 2003.

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 continuing operations’ lease obligations, including the synthetic leases discussed above, are $78 million, $35 million, $23 million, $20 million and $17 million in each of the years in the five-year period ending August 31, 2008, and $59 million for periods after that date. Rent expense was $114 million, $127 million and $94 million for the years ended August 31, 2003, 2002 and 2001, respectively. Sublease income did not have a significant impact on these amounts.

Solectron extends guarantees of $65 million in favor of vendors that supply the company’s subsidiaries. These guarantees have various expiration terms. In addition, Solectron guarantees used and unused lines of credits and debt for its own subsidiaries totaling $286 million as of August 31, 2003. Solectron also guarantees performance of certain subsidiaries in various transactions such as leases totaling $250 million as of August 31, 2003.

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 its legal advisors have concluded or believe that the outcome of any of those particular matters is or is not likely to have a material adverse impact upon Solectron’s business or financial condition.

On September 19, 2002, one of Solectron’s former employees filed a complaint against Solectron in the Superior Court of the State of California, Santa Clara County, 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. Solectron tendered the defense of the defamation claim to its insurance carrier and the insurance carrier has assumed the defense of the defamation claim, subject to a reservation of rights. Solectron is also continuing to vigorously defend against Mr. Sorisho’s wrongful termination claim.

On March 6, 2003, a putative shareholder class action lawsuit was filed against Solectron and certain of its officers in the United States District Court for the Northern District of California alleging claims under Section 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. The case is entitled Abrams v. Solectron Corporation et al., Case No. C-03-0986 CRB. The complaint alleged that the defendants issued false and misleading statements in certain press releases and SEC filings issued between September 17, 2001 and September 26, 2002. In particular, plaintiff alleged that the defendants failed to disclose and to properly account for excess and obsolete inventory in the Technology Solutions business unit during the relevant time period. Additional complaints making similar allegations were subsequently filed in the same court, and pursuant to an order entered June 2, 2003, the Court appointed lead counsel and plaintiffs to represent the putative class in a single consolidated action. The Consolidated Amended Complaint, filed September 8, 2003, alleges an expanded class period of June 18, 2001 through September 26, 2002, and purports to add a claim for violation of Section 11 of the Securities Act of 1933 on behalf of a putative class of former shareholders of C-MAC Industries, Inc., who acquired Solectron stock pursuant to the October 19, 2001 Registration Statement filed in connection with Solectron’s acquisition of C-MAC Industries, Inc. In addition, while the initial complaints focused on alleged inventory issues at the Technology Solutions business unit, the Consolidated Amended Complaint adds allegations of inadequate disclosure and failure to properly account for excess and obsolete inventory at the Company’s other business units. The complaint seeks an unspecified amount of damages on behalf of the putative class. Solectron intends to vigorously defend against the consolidated lawsuit. There can be no assurance, however, that the outcome of the

lawsuit will be favorable to Solectron or will not have a material adverse effect on Solectron’s business, financial condition and results of operations. In addition, Solectron may be forced to incur substantial litigation expenses in defending this litigation.

On March 21, 2003, Solectron, all of the current members of its Board of Directors, and two former officers, were named as defendants in a shareholder derivative lawsuit entitled Lifshitz v. Cannon et al., Case No. CV815693, filed in the Santa Clara County, California Superior Court. The plaintiff alleged that he should be permitted to pursue litigation, purportedly for the benefit of Solectron, against the individual director and officer defendants for alleged mismanagement and waste of corporate assets during the period from May 2001 to the present, purported breaches of fiduciary duty, “constructive fraud,” “abuse of control,” and alleged violations of the California Corporations Code by certain of the individual defendants who sold some of their Solectron stockholdings during the period from September 2001 through September 2002. On May 19, 2003, Solectron and the individual defendants moved to dismiss the Lifshitz complaint. In the meantime, two substantively identical derivative lawsuits, entitled Schactner v. Cannon, et al., Case No. CV817112, and Nims v. Cannon, et al., Case No. CV817158, were filed in the same Court on May 14 and May 15, respectively. Counsel for the plaintiffs in all three suits subsequently advised the Court that they would be filing a consolidated amended complaint, and accordingly, defendants’ motion to dismiss was taken off calendar pending the filing of the consolidated amended complaint combining the three lawsuits. On June 27, 2003, the plaintiffs served their consolidated amended complaint now alleging that “since January of 1999” all of the current members of Solectron’s Board of Directors, as well as four former officers and directors, purportedly breached their fiduciary duties and participated in or permitted “constructive fraud,” “unjust enrichment,” and alleged violations of the California Corporations Code. The consolidated complaint alleged an unspecified amount of compensatory and punitive damages, and sought the relinquishment of all profits realized by those individual defendants who sold Solectron stock during the relevant period, together with statutory penalties under California Corporations Code section 25402 which plaintiff alleged to be applicable to those sales of Solectron stock. Solectron moved to dismiss the Consolidated Amended Complaint because Solectron does not believe plaintiffs have adequately alleged a basis for plaintiffs to appropriate for themselves the duties of Solectron’s Board of Directors under applicable Delaware law, and believes that the consolidated complaint contains various factual errors and legal deficiencies. On October 7, 2003, the California Superior Court granted Solectron’s motion to dismiss, but granted the plaintiffs an opportunity to try to cure the deficiencies in their Consolidated Amended Complaint through a further amended complaint. Solectron anticipates that the plaintiffs will file a further amended complaint within the next 90 days, after which Solectron expects to seek dismissal of that complaint because Solectron does not believe plaintiffs can show a sufficient basis to allow them to appropriate for themselves the duties of Solectron’s Board of Directors under applicable Delaware law. Solectron may be forced to incur substantial litigation expenses in defending this litigation.

Solectron has various retirement plans that cover a significant number of its eligible worldwide employees. The Company sponsors a 401(k) Plan to provide retirement benefits for its United States employees. This Plan provides for tax-deferred salary deductions for eligible employees. Employees may contribute between 1% to 15% of their annual compensation to this Plan, limited by an annual maximum amount as determined by the Internal Revenue Service. The Company also makes discretionary matching contributions, which vest immediately, as periodically determined by its Board of Directors. The Company’s matching contributions to this plan related to continuing operations totaled $9 million, $10 million, and $13 million, respectively, in fiscal 2003, 2002 and 2001. In addition, certain of the Company’s non-United States employees are covered by various defined benefit and defined contribution plans. Solectron’s expenses for these plans related to continuing operations totaled $4 million, $3 million and $6 million in fiscal 2003, 2002 and 2001, respectively.

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

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

The tax effects of temporary differences from continuing operations that gave rise to significant portions of deferred tax assets and liabilities as of August 31, 2003 and 2002 were as follows (in millions):


		2003			2002

Deferred tax assets:
	Accruals and allowances	$	86.4		$	240.2
	State income tax		52.0			60.6
	Acquired intangible assets		487.4			319.5
	Depreciation		—			4.4
	Net operating loss carryforward and credits		798.3			227.3
	Restructuring accruals		34.3			70.7
	Other		32.6			—

Deferred tax assets			1,491.0			922.7
Valuation allowance			(1,433.6	)		(314.1	)

Total deferred tax assets		$	57.4		$	608.6

Deferred tax liabilities:
	Foreign inventories expensed for tax	$	—		$	(35.2	)
	Depreciation		(12.6	)		—
	Realized translation gains		—			(8.0	)
	Other		—			(5.7	)

Total deferred tax liabilities			(12.6	)		(48.9	)



Net deferred tax assets		$	44.8		$	559.7

Net deferred tax assets were recorded in other assets in the accompanying consolidated balance sheet.

The Company has U.S. federal net operating loss carryforwards arising from continuing operations in its U.S. consolidated group of approximately $864 million. The net operating loss carryforwards, if not utilized, will expire in 2021 through 2023.

As a result of various business acquisitions, the Company had acquired additional U.S. federal net operating loss carryforwards arising from continuing operations from U.S. subsidiaries totaling approximately $105 million, which will expire if not utilized beginning in 2004 through 2021. The annual utilization of these net operating losses is limited under the “ownership change” provisions of the U.S. Internal Revenue Code.

The Company also has California state net operating losses in its unitary group of approximately $367 million, which will expire if not utilized in 2011 through 2013.

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

Management has determined that a valuation allowance in the amount of approximately $1.4 billion is required with respect to deferred tax assets. Management believes that it is more likely than not that the remaining deferred tax assets will be realized, principally through carrybacks to taxable income in prior years. In the event the tax benefits relating to the valuation allowance are realized, $14 million of such benefits would reduce goodwill and $13 million would be credited to other comprehensive loss.

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

Cumulative undistributed earnings of the international subsidiaries amounted to $630 million as of August 29, 2003, all of which is intended to be permanently reinvested. The amount of deferred income tax liability that would result had such earnings been repatriated is estimated to be approximately $171 million which would be absorbed by a corresponding reversal in valuation allowance.

Solectron has been granted a tax holiday for its Malaysian sites which is effective through July 31, 2011, subject to certain conditions. In addition, Solectron has been granted a tax holiday for certain manufacturing operations in Singapore which is effective through March 2011, subject to certain conditions. Solectron has also been granted various tax holidays in China, which are effective for various terms and are subject to certain conditions. The net impact of these tax holidays was to decrease local country taxes by $45 million ($0.05 per diluted share) in 2003, $37 million ($0.05 per diluted share) in 2002, and $58 million ($0.09 per diluted share) in 2001.

Stock Repurchase
On September 17, 2001, Solectron’s board of directors authorized a $200 million stock repurchase program. During the first fiscal quarter of 2002, Solectron repurchased 442,200 shares of its common stock at an average price of $10.10 for approximately $4.5 million.

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

Stock Option Plans
Solectron’s stock option plans provide for grants of options to employees to purchase common stock at the fair market value of such shares on the grant date. The options vest over a four-year period beginning generally on the grant date. The term of the options is five years for options granted prior to January 12, 1994, seven years for options granted prior to September 20, 2001, and ten years for options granted thereafter. In connection with the acquisitions of Force, SMART, Bluegum, Centennial Technologies, C-MAC and Iphotonics, Solectron assumed all options outstanding under the related companies’ option plans. Options under these plans generally vest over periods ranging from immediately to five years from the original grant date and have terms ranging from two to ten years. In the table contained herein, these options are considered granted in the year the acquisition occurred. No further options may be granted under these plans.

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

Information regarding the stock options outstanding at August 31, 2003, is summarized in the table below (in millions, except number of years and per-share data).


	Outstanding					Exercisable

			Weighted
			Average	Weighted				Weighted
			Remaining	Average				Average
Range of	Number of		Contractual	Exercise		Number of		Exercise
Exercise Price	Shares		Life	Price		Shares		Price

$0.001 - $3.65		5.0	7.85 years	$	2.27		1.8		$	1.69
3.77 - 3.77		7.3	9.02 years		3.77		1.6			3.77
3.99 - 4.24		6.5	9.19 years		4.07		1.1			4.09
4.30 - 9.75		6.6	4.61 years		6.29		4.4			6.55
9.98 - 10.29		11.3	7.99 years		10.29		5.4			10.28
10.34 - 13.30		7.8	2.78 years		12.19		7.3			12.27
13.44 - 24.13		7.7	4.92 years		18.57		5.9			18.98
25.21 - 38.13		6.4	3.75 years		33.04		5.7			33.40
39.10 - 51.67		5.4	3.93 years		44.83		4.3			44.78

$0.001 - $51.67		64.0	6.09 years	$	14.30		37.5		$	18.20

A total of 49.7 million shares of common stock were available for grant under the plans as of August 31, 2003.

An initial option is granted to each new outside member of Solectron’s Board of Directors to purchase 15,000 shares of common stock at the fair value on the date of the grant. On December 1 of each year, each outside member is granted an additional option to purchase 8,000 shares of common stock at the fair market value on such date. These options vest over one year and have a term of seven years.

Under Solectron’s Employee Stock Purchase Plan, employees meeting specific employment qualifications are eligible to participate and can purchase shares semi-annually through payroll deductions at the lower of 85% of the fair market value of the stock at the commencement or end of the offering period. The Purchase Plan permits eligible employees to purchase common stock through payroll deductions for up to 10% of qualified compensation. As of August 31, 2003, approximately 18 million shares were available for issuance under the Purchase Plan.

The weighted average fair value of the purchase rights granted by Solectron in fiscal 2003, 2002 and 2001 was $1.37, $5.13, and $12.90, respectively.

Through August 31, 2003 Solectron was operated and managed by business unit, and the business units are further managed geographically. Each industry segment had its own executive and support staff. Solectron’s management used an internal management reporting system, which provided financial data to evaluate performance and allocate Solectron’s resources on a business unit and geographic basis. Certain corporate expenses were allocated to these operating segments and were included for performance evaluation. Some amortization expenses were also allocated to these operating segments, but the related intangible assets were not allocated. The accounting policies for the segments are the same as for Solectron taken as a whole. Solectron had four reportable operating segments through August 31, 2003: Global Operations, Technology Solutions, Global Services and MicroSystems.

Beginning in late 2003, Solectron began shifting from a business unit organizational structure to a functionally aligned structure. Upon completion in 2004, Solectron will be organized by key activities important to its customers and its overall business — Worldwide Design and Engineering Services; Worldwide Operations (which includes manufacturing and post-manufacturing services); Worldwide Strategy and Marketing; and Worldwide Sales and Account Management. As Solectron’s existing structure was substantially in place as of August 31, 2003, segments are reported consistent with prior periods. Solectron expects to complete its shift to a functional structure in early fiscal 2004 and will revise its segment disclosures accordingly. Information about the operating segments for continuing operations for all fiscal years presented, was as follows:


		2003			2002			2001

		(in millions)
Net sales:
	Global Operations	$	8,783.3		$	10,056.3		$	17,058.3
	Technology Solutions		1,335.4			809.1			1,201.1
	Global Services		657.1			521.7			309.6
	MicroSystems		238.2			184.1			—

		$	11,014.0		$	11,571.2		$	18,569.0

Depreciation and amortization:
	Global Operations	$	188.7		$	264.7		$	446.2
	Technology Solutions		18.3			25.4			22.1
	Global Services		21.5			16.7			10.0
	MicroSystems		12.3			5.1			—
	Corporate		23.1			41.2			53.2

		$	263.9		$	353.1		$	531.5

Interest income:
	Global Operations	$	5.4		$	25.3		$	18.8
	Technology Solutions		0.9			1.3			1.9
	Global Services		0.4			0.2			0.1
	MicroSystems		0.1			0.3			—
	Corporate		24.4			42.2			96.1

		$	31.2		$	69.3		$	116.9

Interest expense:
	Global Operations	$	8.7		$	19.0		$	19.3
	Technology Solutions		0.3			1.2			0.8
	Global Services		0.2			0.5			(0.1	)
	MicroSystems		1.4			0.8			—
	Corporate		199.7			220.1			155.6

		$	210.3		$	241.6		$	175.6

Income (loss) before income taxes from continuing operations:
	Global Operations	$	(2,183.2	)	$	(3,346.3	)	$	4.7
	Technology Solutions		(10.6	)		(91.0	)		20.4
	Global Services		(65.1	)		(14.6	)		38.8
	MicroSystems		(36.8	)		(15.6	)		—
	Corporate		(228.2	)		(153.6	)		(174.1	)

		$	(2,523.9	)	$	(3,621.1	)	$	(110.2	)

Capital expenditures:
	Global Operations	$	89.8		$	318.2		$	448.8
	Technology Solutions		7.8			12.9			22.7
	Global Services		25.2			24.6			12.3
	MicroSystems		7.2			5.4			0.0
	Corporate		6.5			34.3			47.5

		$	136.5		$	395.4		$	531.3

Total assets:
	Global Operations	$	4,091.5		$	7,050.3
	Technology Solutions		589.4			437.0
	Global Services		265.6			383.2
	MicroSystems		88.2			104.8
	Corporate		1,152.4			2,282.4
	Discontinued operations		342.4			756.3

		$	6,529.5		$	11,014.0

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


		2003		2002		2001

		(in millions)
Net sales derived from:
	PCB assembly	$	6,455.1	$	6,645.7	$	13,738.3
	Systems build		2,328.2		3,410.6		3,311.3
	Technology Solutions products		1,335.4		809.1		1,207.9
	Global Services		657.1		521.7		311.5
	MicroSystems		238.2		184.1		—

		$	11,014.0	$	11,571.2	$	18,569.0

Geographic net sales:
	United States	$	3,976.9	$	3,946.9	$	8,651.1
	Malaysia		1,574.0		1,452.5		1,980.4
	Latin America and other North America		1,374.1		1,808.7		2,807.7
	Europe		1,879.4		2,025.5		3,398.8
	Other Asia Pacific		2,209.6		2,337.6		1,731.0

		$	11,014.0	$	11,571.2	$	18,569.0

Long-lived assets:
	United States	$	490.0	$	1,308.8
	Europe		260.9		326.6
	Asia/Pacific and other		650.8		2,183.8
	Discontinued operations		174.0		534.8

		$	1,575.7	$	4,354.0

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

Solectron has concentrations of credit risk due to sales to these and other of Solectron’s significant customers. In particular, Nortel Networks accounted for approximately 10% and 16% of total accounts receivable related to continuing operations at August 31, 2003 and 2002, respectively.

On February 3, 2003 Solectron entered into a five-year supply agreement with HP to assemble printed circuit boards and memory modules for HP’s mid- and high-end enterprise servers, as well as other products. In connection with this supply agreement, Solectron paid approximately $5 million to acquire certain operating assets. This transaction was treated as an asset purchase and Solectron allocated the purchase price based on the fair values of the assets acquired and liabilities assumed. The $5 million was allocated to inventory, other assets, property, plant, equipment and intangible assets. In addition, Solectron agreed to pay HP $52 million if HP meets certain minimum revenue targets over the next five years. If and when HP meets these targets, the $52 million will be paid and recorded as a sales rebate.

Solectron also acquired an IBM asset recovery operation in North Carolina and a call and technical support service center in Italy for an aggregate purchase price of approximately $14 million in cash during the second quarter of fiscal 2003.

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

During the second quarter of fiscal 2001, Solectron acquired IBM’s European Repair Center in Amsterdam, the Netherlands for approximately $10 million in cash. In addition, Solectron assumed responsibility for IBM’s European repair, refurbishment and asset recovery services provided by the Amsterdam operations.

During the second quarter of fiscal 2001, Solectron completed the acquisition of Sony’s manufacturing facilities in Nakaniida, Japan, and Kaohsiung, Taiwan for approximately $75 million in cash. The new sites provide a range of electronics manufacturing services to Sony and other customers.

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

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

The Company’s statements of operations include C-MAC’s results from the acquisition date. The following unaudited pro forma financial information presents the combined results of operations of Solectron and C-MAC as if the acquisition had occurred as of the beginning of fiscal 2002 and 2001. The pro forma financial information does not necessarily reflect the results of operations that would have occurred if Solectron and C-MAC constituted a single entity during such periods.

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

The intangible assets acquired had a fair value of approximately $26 million based on an independent valuation. All the intangible assets resulting from the acquisition are classified under the “other” category of the table of intangible assets presented in Note 17, “Goodwill and Other Intangible Assets”. The weighted-average useful life of these intangible assets is approximately six years. Solectron does not expect these assets to have a residual value upon full amortization.

The $2.1 billion of goodwill resulting from the C-MAC transaction was assigned to the Global Operations, Technology Solutions and MicroSystems business units in the amounts of $2.0 billion, $25 million and $68 million, respectively. Approximately $300 million of these amounts is expected to be deductible for tax purposes.

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

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

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

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

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

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

During the second quarter of 2001, Solectron completed its acquisition of NEL, a competitor. Solectron purchased all of the outstanding issued share capital and convertible bonds for $2.3 billion and $122 million, respectively, in cash. The acquisition was accounted for using the purchase method and resulted in goodwill of approximately $2.0 billion within the Global Operations business unit. As part of the acquisition, Solectron gained key manufacturing sites in China, Hungary, Indonesia, Malaysia, Mexico, Singapore and United States.

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

The following unaudited pro forma financial information presents the combined results of operations of Solectron and NEL as if the acquisition had occurred as of the beginning of fiscal 2001. The pro forma financial information does not necessarily reflect the results of operations that would have occurred had Solectron and NEL constituted a single entity during such period.

During the third quarter of fiscal year 2001, Solectron issued approximately 2.2 million shares of common stock to acquire all of the outstanding capital stock of Centennial. The acquisition, valued at approximately $65 million, was accounted for using the purchase method and resulted in goodwill of approximately $46 million within the Technology Solutions business unit. As a result of the transaction, Solectron gained all of Centennial’s design, manufacturing and marketing capabilities, which include memory module and memory card solutions based on SRAM and flash technologies for OEMs and end-users in markets such as telecommunications, data communications, mobile computing and medical.

During the fourth quarter of fiscal 2001, Solectron completed the acquisition of Shinei, a privately held manufacturer and designer of enclosures for electronics products. The acquisition, valued at approximately $73 million, was accounted for using the purchase method and resulted in goodwill of approximately $63 million within the Global Operations business unit.

Pro forma financial information related to Centennial and Shinei is not provided as their operations were not significant individually or in the aggregate to Solectron as a whole.

Beginning in the second quarter of fiscal 2001, Solectron recorded restructuring and impairment costs as it has continued to rationalize operations in light of customer demand declines and 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 Solectron’s capacity and infrastructure to anticipated customer demand as well as to rationalize its footprint worldwide. The restructuring and impairment costs include employee severance and benefit costs, costs related to leased facilities that will be abandoned and subleased, 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 and other costs associated with restructuring activities initiated prior to January 1, 2003 were 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.” Severance and benefit costs associated with restructuring activities initiated on or after January 1, 2003 are recorded in accordance with SFAS No. 112, “Employer’s Accounting for Postemployment Benefits,” as Solectron concluded that it had a substantive severance plan. 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, Solectron works with an independent broker to estimate the length of time until it can sublease a facility and the amount of rent it can expect to receive. As of August 31, 2003, the majority of the facilities Solectron plans to sublease have not been subleased and, accordingly, estimates of expected sublease income could change based on factors that affect Solectron’s ability to sublease those facilities such as general economic conditions and the real estate market, among others.

See also Note 17, “Goodwill and Other Intangible Assets,” for discussion of intangible asset and goodwill impairment charges.

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

During fiscal 2003, Solecton recorded restructuring and impairment costs of $469.6 million related to continuing operations. The following table summarizes these charges (in millions):

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

During fiscal 2002, we recorded restructuring and impairment costs related to this plan of $615.9 million related to continuing operations. The following table summarizes these charges (in millions):

The employee severance and benefit costs included in these restructuring charges relate to the elimination of approximately 11,800 full-time positions worldwide and all such positions have been eliminated under this plan. Approximately 67% of the positions eliminated 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. For leased facilities that will be abandoned and subleased, the lease costs represent future lease payments subsequent to abandonment less estimated sublease income. For owned facilities and equipment, the impairment loss recognized was based on the fair value less costs to sell, with fair value based on estimates of existing market prices for similar assets.

During fiscal 2001, we recorded restructuring and impairment costs related to this plan of $517.3 million related to continuing operations. The following table summarizes these charges (in millions):

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


	Severance			Lease Payments
	and			on			Lease Payments on
	Benefits			Facilities			Equipment			Other			Total

Balance of accrual at September 1, 2000	$	—		$	—		$	—		$	—		$	—
FY2001 Provison		70.0			56.4			117.5			5.3			249.2
FY2001 Cash payments		(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 Provison		119.8			84.2			30.3			20.7			255.0
FY2002 Provison adjustments		—			(3.9	)		(6.5	)		—			(10.4	)
FY2002 Cash payments		(113.7	)		(67.1	)		(51.9	)		(24.8	)		(257.5	)

Balance of accrual at August 31, 2002		6.1			64.1			84.4			0.3			154.9
FY2003 Provison		234.0			24.3			2.3			34.7			295.3
FY2003 Provison adjustments		—			1.0			—			—			1.0
FY2003 Cash payments		(166.0	)		(51.7	)		(57.3	)		(24.5	)		(299.5	)

Balance of accrual at August 31, 2003	$	74.1		$	37.7		$	29.4		$	10.5		$	151.7

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

In July 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets.” 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. 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. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” Solectron adopted SFAS No. 142 on September 1, 2001.

SFAS No. 142 required that Solectron evaluate existing intangible assets and goodwill acquired in prior purchase business combinations, and to make any necessary reclassifications in order to conform to the new criteria in SFAS No. 141, “Business Combinations,” for recognition apart from goodwill. Upon adoption of SFAS No. 142, Solectron reassessed the useful lives and residual values of all intangible assets acquired in purchase business combinations, and no significant changes were deemed necessary. Solectron was also required to test the intangible assets for impairment within the first interim period and no impairment loss was deemed necessary.

For the transitional goodwill impairment evaluation, SFAS No. 142 required Solectron to perform an assessment of whether there was an indication that goodwill was impaired as of the date of adoption, or step one of the impairment test. To accomplish this, Solectron identified the reporting units to be consistent with the business units as defined in Note 12, “Segment and Geographical Information,” except for the Technology Solutions and Global Services business units which were disaggregated further. Solectron then determined the

carrying value of each reporting unit by allocating the assets and liabilities, including the goodwill and intangible assets, to the units as of the date of adoption. Solectron had up to six months from the date of adoption to determine the fair value of each reporting unit and compare it to the reporting unit’s carrying value. If a reporting unit’s carrying amount exceeds its fair value, an indication exists that the reporting unit’s goodwill is impaired and Solectron was required to perform the second step of the transitional impairment test. During the second quarter of fiscal 2002, Solectron performed step one of the transitional test and concluded that there was no impairment and no second step was necessary.

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

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

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

In addition, Solectron performed an impairment test of other intangible assets during the fourth quarter fiscal 2002. As a result, Solectron recorded an impairment charge related to a supply agreement with a major customer of approximately $191 million. This impairment occurred due to reduced expectations of sales to be realized under the Company’s supply agreement with that customer and was measured by comparing the intangible asset’s carrying amount to the fair value as determined using a discounted cash flow model.

Primarily due to significant industry and economic trends that continued to negatively affect Solectron’s operations and stock price, Solectron performed a goodwill impairment test according to the provisions of SFAS No. 142 during the third quarter of fiscal 2003 in advance of the Company’s annual test originally scheduled for the fourth quarter of fiscal 2003. This impairment test resulted in an impairment charge of approximately $1.6 billion related to continuing operations and was performed using the same methodology as the annual test performed in the fourth quarter of fiscal 2002.

Upon concluding that a test was necessary, SFAS No. 142 required Solectron to perform an assessment of whether there was an indication that goodwill was impaired. Results of step one indicated that potential impairment existed within the Global Operations reporting unit and one of the Global Services reporting units. Step two of the impairment test resulted in impairments of the entire goodwill balances remaining in both the Global Operations reporting unit and one of the Global Services reporting units. Accordingly, Solectron recorded goodwill impairment charges of approximately $1.6 billion related to Global Operations and $275 million related to Global Services during the third quarter of fiscal 2003. Approximately $293 million of this goodwill impairment is related to discontinued operations for fiscal 2003.

In addition to Solectron’s impairment test performed during the third quarter of fiscal 2003, an additional impairment of approximately $15 million was recognized during the fourth quarter of fiscal 2003. This impairment resulted from a decision to sell an operation currently reported within the Microsystems business unit. The impairment represents the entire amount of goodwill allocated to this operation.

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

Goodwill information for each reportable segment is as follows for the continuing operations (in millions). Any goodwill established in connection with an acquisition that was subsequently considered a discontinued operation is now disclosed in discontinued operations (See Note 18, “Discontinued Operations”).

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

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.

Solectron performed impairment tests of other intangible assets in conjunction with its goodwill impairment tests in fiscal 2003 and 2002. As a result, Solectron recorded impairment charges related to supply agreements with major customers of approximately $172 million and $191 million in fiscal 2003 and 2002, respectively. These impairments occurred due to reduced expectations of sales to be realized under Solectron’s supply agreements with these customers and were measured by comparing the intangible assets carrying amounts to the fair values as determined using discounted cash flow models.

The following tables summarize the gross amounts and accumulated amortization for each major class as of August 31, 2003 and 2002:

Amortization expense related to continuing operations was $31 million, $60 million and $81 million, respectively, in fiscal 2003, 2002 and 2001. The Company expects that its annual amortization expense as required by SFAS No. 142 for these intangibles would be approximately $19 million for each of the next three fiscal years and $17 million for each of the two subsequent fiscal years. Intangible assets are included in other assets in the consolidated balance sheets.

During the fourth quarter of fiscal 2003, as a result of a full review of its portfolio of businesses, Solectron committed to a plan to divest a number of business operations that are outside its core competencies and not part of its new strategic plan for the future. Solectron expects to complete the sale of these businesses to third parties within the next fiscal year.

These businesses each qualify as a component of Solectron under SFAS No. 144, “Accounting for the Impairment or Disposal of Long-lived Assets.” Solectron has reported the results of operations and financial position of these businesses in discontinued operations within the statements of operations and the balance sheets for all periods presented. Each of Solectron’s four reportable segments included one of these businesses. After these businesses are sold, Solectron will not have any significant continuing involvement in these operations.

In fiscal 2003, approximately $293 million of goodwill impairment included in operating expenses determined in connection with Solectron’s impairment test performed during the third quarter of fiscal 2003 was related to discontinued operations. See Note 17, “Goodwill and Other Intangible Assets,” for further discussion of this impairment test. This goodwill was established in conjunction with acquisitions of businesses in fiscal 2002. See Note 15, “Business Combinations,” for additional information.

Also in fiscal 2003, approximately $54 million was recorded in discontinued operations related to establishing valuation reserves for deferred tax assets. See Note 10 “Income Taxes,” for further discussion of income taxes.

The current and non-current assets and liabilities of discontinued operations as of August 31, 2003 and 2002, were as follows:


		August 31		August 31
		2003		2002

Cash, cash equivalents and short-term investments		$	32.3	$	32.2
Accounts receivable, net			95.3		118.0
Inventories			33.8		47.9
Prepaid expenses and other current assets			7.0		23.4

	Total current assets of discontinued operations	$	168.4	$	221.5

Net property and equipment		$	71.4	$	91.7
Goodwill			68.9		357.1
Other assets			33.7		86.0

	Total non-current assets of discontinued operations	$	174.0	$	534.8

Short-term debt		$	2.0	$	6.2
Accounts payable			29.8		38.2
Accrued employee compensation			23.5		21.6
Accrued expenses			43.6		51.4
Other current liabilities			27.5		8.1

	Total current liabilities of discontinued operations	$	126.4	$	125.5

	Total non-current liabilities of discontinued operations	$	14.6	$	9.8

Common shares issuable upon exercise of stock options of 1.2 million, 3.5 million and 14.8 million, respectively, were excluded from the diluted calculation for fiscal years 2003, 2002 and 2001 because the effect was anti-dilutive. The calculations of loss per share for the years ended August 31, 2003, 2002 and 2001 did not include 31.7 million, 57.6 million and 100.5 million common shares, respectively, issuable upon conversion of the LYONs as they would have been anti-dilutive.

In addition, the calculations of loss per share for the years ended August 31, 2003 and 2002 did not include 112.1 million and 78.0 million common shares issuable upon conversion of the Company’s ACES, as the effect would have been anti-dilutive.

We have audited the accompanying consolidated balance sheets of Solectron Corporation and subsidiaries as of August 31, 2003 and 2002, and the related consolidated statements of operations, stockholders’ equity, comprehensive loss, and cash flows for each of the years in the three-year period ended August 31, 2003. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly in all material respects, the financial position of Solectron Corporation and subsidiaries as of August 31, 2003 and 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended August 31, 2003, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

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

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

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

Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting occurred during the fourth quarter of fiscal year 2003 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

The information required by Item 10 regarding our directors, audit committee and audit committee financial expert is incorporated by reference from the information under the captions “Proposal — Election of Directors” and “Corporate Governance” in our definitive Proxy Statement (Notice of Annual Meeting of Stockholders) for the fiscal year ended August 29, 2003 to be held on January 7, 2004 which we will file with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Report. The information required by Item 10 regarding our executive officers appears immediately following Item 4 under Part I of this Report.

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

	1.		From our main Web page, first click on “About Solectron,”

	2.		Next, click on “Corporate Governance.”

	3.		Finally, click on “Code of Business Conduct and Ethics Guide.”

We intend to satisfy the disclosure requirement under Item 10 of Form 8-K regarding an amendment to, or waiver from, a provision of this code of ethics by posting such information on our website, at the address and location specified above.

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

Information regarding this item is incorporated herein by reference from the section entitled “Security Ownership of Certain Beneficial Owners and Management,” “Securities Authorized for Issuance under Equity Compensation Plans,” and “Change-in-Control Agreements” in Solectron’s definitive Proxy Statement.

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

The information required by this item is included under the captions “Proposal No. 3:–Ratification of Independent Auditors–Principal Accountant Fees and Services” and “–Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors” in our Proxy Statement related to the 2003 Annual Meeting of Shareholders and is incorporated herein by reference.

	(a)(1)		Financial Statements. The financial statements listed in Item 8: “Financial Statements and Supplementary Data,” above are filed as part of this Annual Report on Form 10-K, beginning on page 35.

	(a)(2)		Financial Statement Schedule. See Schedule II on page 78

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

	(b)		Reports on Form 8-K.

			8-K filed on June 19, 2003 relating to Solectron Corporation’s appointment of former GE executive Marc Onetto to executive vice president of worldwide operations.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on November 14, 2003.


	SOLECTRON CORPORATION

	By:	/S/ Michael Cannon

		Michael Cannon
		President and Chief Executive Officer

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

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


Exhibit
Number		Exhibit Title
3.1 [A]		Certificate of Incorporation of the Registrant, as amended.

3.2		Bylaws of the Registrant, as amended.

3.3 [B]		Certificate of Designation Rights, Preferences and Privileges of Series A Participating Preferred Stock of the Registrant.

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

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

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

4.4 [F]		Senior Debt Securities Indenture, dated as of February 6, 2002, by and between the Registrant and State Street and Trust Company of California, N.A., as Trustee.

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

4.6 [F]		First Supplemental Indenture, dated as of February 6, 2002, by and between the Registrant and State Street Bank and Trust Company of California, N.A., as Trustee.

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

4.8 [F]		Purchase Contract Agreement, dated as of December 27, 2001, by and between the Registrant and State Street Bank and Trust Company of California, N.A., as purchase contract agent.

4.9 [F]		Pledge Agreement, dated as of December 27, 2001, among the Registrant, U.S. Bank Trust, N.A., as collateral agent, custodial agent, and securities intermediary, and State Street Bank and Trust Company of California, N.A., as purchase contract agent.

4.10 [F]		Pledge Agreement, dated as of December 27, 2001, between the Registrant and State Street Bank and Trust Company of California, N.A., as the Trustee for the holders of the Debentures.

4.11 [H]		Amendment No. 1 made and entered into as of January 8, 2002 to Pledge Agreement dated as of December 27, 2001 between the Registrant and State Street Bank and Trust Company of California, N.A., as the Trustee for the holders of the Debentures.

4.12 [F]		Control Agreement, dated as of December 27, 2001, by and between the Registrant and State Street Bank and Trust Company of California, N.A., as Trustee and as securities intermediary and depository bank.

4.13 [H]		Amendment No. 1 made and entered into as of January 8, 2002 to Control Agreement dated as of December 27, 2001 between the Registrant and State Street Bank and Trust Company of California, N.A., as Trustee and as securities intermediary and depository bank.

10.1 [I]		Form of Indemnification Agreement by and between the Registrant and its officers, directors and certain other employees.

10.2		2003 Employee Stock Purchase Plan.

10.3 [J]		Amended and Restated 1992 Stock Option Plan.


Exhibit
Number		Exhibit Title
10.4 [J]		2002 Stock Option Plan.

10.5 [K]		Three-Year facility Credit Agreement, dated as of February 14, 2002, as amended June 18, 2002, August 19, 2003, February 13, 2003 and May 30, 2003, among the Registrant and Goldman, Sachs Credit Partners, L.P., Bank of America, N.A., JP Morgan Chase Bank and The Bank of Nova Scotia.

10.6 [K]		Amended and Restated 364-Day Facility Credit Agreement, dated as of February 13, 2003, as amended M ay 30, 2003, among the Registrant and Goldman, Sachs Credit Partners, L.P., Bank of America, N.A., JP Morgan Chase Bank and The Bank of Nova Scotia.

10.7 [L]		Waiver Agreement, dated as of May 30, 2003, among the Registrant, Goldman Sachs Credit Partners L.P., JP Morgan Chase Bank, The Bank of Novia Scotia, Bank of America, N.A. and certain other lenders.

10.8 [L]		Waiver Agreement, dated as of May 30, 2003, among the Registrant, Bank of America Securities LLC, Goldman Sachs Credit Partners L.P., JP Morgan Chase Bank, The Bank of Novia Scotia, Bank of America, N.A. and other certain lenders.

10.9 [M]		Solectron Corporation Michael Cannon Employment Agreement, entered into as of January 6, 2003.

10.10 [M]		Solectron Corporation Stand–Alone Stock Option Agreement (Michael Cannon), entered into as of January 6, 2003.

10.11 [M]		Solectron Corporation Restricted Stock Purchase Agreement (Michael Cannon), entered into as of January 6, 2003.

10.12		Solectron Corporation Marc Onetto Employment Agreement, entered into as of June 18, 2003.

10.13 [N]		Solectron Corporation Stand-Alone Stock Option Agreement (Marc Onetto), entered into as of June 18, 2003.

10.14 [N]		Solectron Corporation Restricted Stock Purchase Agreement (Marc Onetto), entered into as of July 17, 2003.

10.15		Second Amendment and Waiver, dated as of August 27, 2003, among the Registrant, Bank of America Securities LLC, Goldman Sachs Credit Partners L.P., JP Morgan Chase Bank, The Bank of Nova Scotia, Bank of America, N.A. and other credit lenders.

10.16		Fifth Amendment and Waiver, dated as of August 27, 2003, among the Registrant, Goldman Sachs Credit Partners, L.P., Bank of America, N.A., JP Morgan Chase Bank and the Bank of Nova Scotia.

12.1		Computation of ratios of earnings to fixed charges.

21.1		Subsidiaries of the Registrant.

23.1		Consent of KPMG LLP, Independent Auditors.

31.1		Certification of Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes–Oxley Act of 2002.

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


Exhibit
Number		Exhibit Title
		2000, and Exhibit 3.1 filed with the Registrant’s Form 10-Q for the quarter ended February 26, 1999.

[B]		Incorporated by reference from Exhibit 3.3 filed with the Registrant’s Annual Report on Form 10-K for the fiscal year ended August 31, 2001.

[C]		Incorporated by reference from Exhibit 1.1 of Registrant’s Form 8-K, filed with the Commission on May 16, 2000 (File No. 001-11098)

[D]		Incorporated by reference from Exhibits of Registrant’s Form 8-K, filed with the Commission on November 21, 2000 (File No. 001-11098)

[E]		Incorporated by reference from Exhibit 4.1 of Registrant’s Registration Statement on Form 8-A filed with the Commission on July 13, 2001 (File No. 001-11098), and Exhibit 4.2 to Amendment No. 1 of Form 8-A filed with the Commission on December 4, 2001 (File No. 001-11098)

[F]		Incorporated by reference from Exhibits of Registrant’s Form 8-K, filed with the Commission on February 8, 2002 (File No. 001-11098)

[G]		Incorporated by reference from Exhibits of Registrant’s Form 8-K, filed with the Commission on January 7, 2002 (File No. 001-11098)

[H]		Incorporated by reference from Exhibits of Registrant’s Amendment No. 1 to Form 8-K, filed with the Commission on January 10, 2002 (File No. 001-11098)

[I]		Incorporated by reference from Exhibits of Registrant’s Form 10-K for the year ended August 31, 1997.

[J]		Incorporated by reference from the Exhibit 4.2 of the Registrant’s Registration Statement on Form S–8, filed with the Commission March 8, 2002 (File No. 333-84076)

[K]		Incorporated by reference from Exhibits of Registrant’s Form 10-Q for the quarter ended February 28, 2002, Form 10-Q for the quarter ended May 31, 2002 and Form 10-Q for the quarter ended February 29, 2003.

[L]		Incorporated by reference from Exhibits of Registrant’s Form 10-Q for the quarter ended May 30, 2003.

[M]		Incorporated by reference from Exhibits of Registrant’s Form 10-Q for the quarter ended February 28, 2003.

[N]		Incorporated by reference from Exhibits of Registrant’s Form S-8 filed with the Commission on July 17, 2003.

81 EX-3.2 3 f93929exv3w2.txt EXHIBIT 3.2 EXHIBIT 3.2 CERTIFICATE OF AMENDMENT TO THE BYLAWS OF SOLECTRON CORPORATION The undersigned, being the Secretary of Solectron Corporation, a Delaware corporation, hereby certifies that the Board of Directors of the Corporation, acting by unanimous resolution passed on October 8, 2003, approved an amendment to Article III, Section 3.14 of the Bylaws of this Corporation to provide in its entirety as follows: "3.14 FEES AND COMPENSATION OF DIRECTORS Unless otherwise restricted by the certificate of incorporation or these bylaws, the board of directors shall have the authority to fix the compensation of directors." Dated: October 23, 2003 /s/ Michael F. Grady - --------------------------------- Michael F. Grady, Secretary CERTIFICATE OF AMENDMENT TO THE BYLAWS OF SOLECTRON CORPORATION The undersigned, being the Secretary of Solectron Corporation, a Delaware corporation, hereby certifies that the Board of Directors of the Corporation, acting by unanimous resolution passed on October 8, 2003, approved an amendment to Article III, Section 3.15 of the Bylaws of this Corporation to provide in its entirety as follows: "3.15 APPROVAL OF LOANS TO EMPLOYEES OTHER THAN EXECUTIVE OFFICERS The corporation shall not, directly or indirectly, loan or arrange for the loan of money, or otherwise be involved in any new extension of credit, or any renewal of any pre-existing loan or extension of credit, to any Director or Executive Officer of the corporation of any of its subsidiaries. The corporation may lend money to, or guarantee any obligation of, or otherwise assist any other employee of the corporation or of its subsidiaries whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in this section shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. In addition, nothing in the foregoing shall be construed as nullifying any pre-existing loan or credit arrangements which may have been entered into with any Director or Executive Officer prior to the July 30, 2002 enactment of Section 402 of the Sarbanes-Oxley Act of 2002, but no such pre-existing arrangements shall be renewed, nor material modifications made to any term thereof." Dated: October 23, 2003 /s/ Michael F. Grady - ------------------------------- Michael F. Grady, Secretary CERTIFICATE OF AMENDMENT TO THE BYLAWS OF -1- SOLECTRON CORPORATION The undersigned, being the Secretary of Solectron Corporation, a Delaware corporation, hereby certifies that the Board of Directors of the Corporation approved an amendment to Article III, Section 3.2 of the Bylaws of this Corporation effective November 8, 2001 to provide in its entirety as follows: "3.2 NUMBER OF DIRECTORS The Board of Directors shall consist of eleven (11) members. The number of directors may be changed by amendment to this bylaw, duly adopted by the Board of Directors or by the stockholders, or by a duly adopted amendment to the certificate of incorporation." Dated: January 4, 2002 /s/ Susan Wang - ----------------------------- Susan Wang, Secretary CERTIFICATE OF AMENDMENT TO THE BYLAWS OF SOLECTRON CORPORATION The undersigned, being the Secretary of Solectron Corporation, a Delaware corporation, hereby certifies that the Board of Directors of the Corporation approved an amendment to the Bylaws of the Corporation that reads as follows, effective as of the date indicated below: "3.2 NUMBER OF DIRECTORS The Board of Directors shall consist of ten (10) members. The number of directors may be changed by an amendment to this Bylaw, duly adopted by the Board of Directors or by the stockholders, or by duly adopted amendment to the certificate of incorporation." Dated: May 13, 1998 /s/ Susan Wang - --------------------------- Susan Wang, Secretary CERTIFICATE OF AMENDMENT TO THE BYLAWS OF SOLECTRON CORPORATION The undersigned, being the Secretary of Solectron Corporation, a Delaware corporation, hereby certifies that Article IV, Section 4.1 of the Bylaws of this Corporation was amended by the Board of Directors effective January 13, 1999 to provide in its entirety as follows: "4.1 COMMITTEES OF DIRECTORS The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, with each committee to consist of one or more of the directors of the corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors or in the bylaws of the corporation, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority to (i) amend the certificate of incorporation -2- (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors as provided in Section 151(a) of the General Corporation Law of Delaware, fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation), (ii) adopt an agreement of merger or consolidation under Sections 251 or 252 of the General Corporation Law of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets (iv) recommend to the stockholders a dissolution of the corporation or a revocation of a dissolution, or (v) amend the bylaws of the corporation; and, unless the board resolution establishing the committee, the bylaws or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of Delaware." /s/ Susan Wang - -------------------------- Susan Wang, Secretary AMENDED AND RESTATED BYLAWS OF SOLECTRON CORPORATION ARTICLE I CORPORATE OFFICES 1.1 REGISTERED OFFICE The registered office of the corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle, State of Delaware. The name of the registered agent of the corporation at such location is CT Corporation. 1.2 OTHER OFFICES The Board of Directors may at any time establish other offices at any place or places where the corporation is qualified to do business. ARTICLE II MEETINGS OF STOCKHOLDERS 2.1 PLACE OF MEETINGS Meetings of stockholders shall be held at the principal executive office of the corporation, within or outside the State of Delaware, unless some other appropriate and convenient location be designated for that purpose from time to time by the Board of Directors. 2.2 ANNUAL MEETING Annual meetings of the Stockholders shall be held, each year, at the time and on the day as designated by resolution of the Board of Directors. -3- At the annual meeting, the stockholders shall elect a Board of Directors, consider reports of the affairs of the corporation and transact such other business as may be properly brought before the meeting. 2.3 SPECIAL MEETINGS A special meeting of the stockholders may be called at any time by the Board of Directors, the Chairman of the Board, the President, the Secretary, or holders of shares entitled to cast not less than ten (10) percent of the votes at the meeting. Except as next provided, notice shall be given as for the annual meeting. Upon receipt of a written request addressed to the Chairman, President, or Secretary, mailed or delivered personally to such officer by any person (other than the Board) entitled to call a special meeting of stockholders, such officer shall cause notice to be given, to the stockholders entitled to vote, that a meeting will be held at a time requested by the person or persons calling the meeting, not less than twenty five nor more than sixty days after the receipt of such request. 2.4 NOTICE OF STOCKHOLDERS' MEETINGS All notices of meetings with stockholders shall be in writing and shall be sent or otherwise given in accordance with Section 2.6 of these bylaws not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting. The notice shall specify the place, date, and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Notice of meetings, annual or special, shall be given in writing not less than ten (10) nor more than sixty (60) days before the date of the meeting, to stockholders entitled to vote thereat by the Secretary or an assistant secretary, or if there be no such officer, or in the case of his neglect or refusal, by any director or stockholder. Such notices or any reports shall be given personally or by mail or other means of written communication and shall be sent to the stockholder's address appearing on the books of the corporation, or supplied by him to the corporation for the purpose of notice. Notice of any meeting of stockholders shall specify the place, the day and the hour of meeting, and (1) in case of a special meeting, the general nature of the business to be transacted and no other business may be transacted, or (2) in the case of an annual meeting, those matters which the Board at date of mailing, intends to present for action by the stockholders. At any meetings where directors are to be elected, notice shall include the names of the nominees, if any, intended at date of Notice to be presented by management for election. If a shareholder supplies no address, notice shall be deemed to have been given to him if mailed to the place where the principal executive office of the Company, inside or outside the State of Delaware, is situated, or published at least once in some newspaper of general circulation in the County of said principal office. 2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS To be properly brought before an annual meeting or special meeting, nominations for the election of director or other business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder. For such nominations or other business to be considered properly brought before the meeting by a stockholder such stockholder must have given timely notice and in proper form of his intent to bring such business before such meeting. To be timely, such stockholder's notice must be delivered to or mailed and received by the Secretary of the corporation not less than ninety (90) days prior to the meeting; provided, however, that in the event that less than one-hundred (100) days notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. To be in proper form, a stockholder's notice to the secretary shall set forth: (i) the name and address of the stockholder who intends to make the nominations or propose the business and, as the case may be, the name and address of the person or persons to be nominated or the nature of the business to be proposed; (ii) a representation that the stockholder is a holder of record of stock of the corporation entitled to vote at such meeting and, if applicable, intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice or introduce the business specified in the notice; (iii) if applicable, a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; -4- (iv) such other information regarding each nominee or each matter of business to be proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had the nominee been nominated, or intended to be nominated, or the matter been proposed, or intended to be proposed by the Board of Directors; and (v) if applicable, the consent of each nominee to serve as director of the corporation if so elected. The chairman of the meeting may refuse to acknowledge the nomination of any person or the proposal of any business not made in compliance with the foregoing procedure. 2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE Written notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the corporation. An affidavit of the Secretary or an assistant secretary or of the transfer agent of the corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. 2.7 QUORUM The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum is not present or represented at any meeting of the stockholders, then the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed. If a quorum be initially present, the stockholders may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum, if any action taken is approved by a majority of the stockholders required initially to constitute a quorum. When a quorum is present or represented at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which, by express provisions of the statutes or of the certificate of incorporation, a different vote is required, in which case such express provision shall govern and control the decision of the question. 2.8 ADJOURNED MEETING; NOTICE When a meeting is adjourned to another time or place, unless these bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than forty-five (45) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 2.9 VOTING The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.12 and Section 2.14 of these bylaws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgers and joint owners of stock and to voting trusts and other voting agreements). Except as may otherwise be provided in the certificate of incorporation or the last paragraph of this Section 2.9, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder. At a stockholders' meeting at which directors are to be elected, or at elections held under special circumstances, a stockholder shall be entitled to cumulate votes (i.e., cast for any candidate a number of votes greater than the number of votes which such stockholder normally is entitled to cast). Each holder of stock of any class or series who elects to cumulate votes shall be entitled to as many votes as equals the number of votes which (absent this provision as to cumulative voting) he would be entitled to cast for the election of directors with respect to his shares of stock multiplied by the number of directors to be elected by him, and he may cast all of such votes for a single director or may distribute them among the number to be voted for, or for any two or more of them, as he may see fit, so long as the name of the candidate for director shall have been placed in nomination prior to the voting and the stockholder, or any other holder of the same class or series of stock, has given notice at the meeting prior to the voting of the intention to cumulate votes. -5- 2.10 WAIVER OF NOTICE Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice unless so required by the certificate of incorporation or these bylaws. 2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING Unless otherwise provided in the certificate of incorporation, any action required by this chapter to be taken at any annual or special meeting of stockholders of a corporation, or any action that may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice, and without a vote if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. If the action which is consented to is such as would have required the filing of a certificate under any section of the General Corporation Law of Delaware if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written notice and written consent have been given as provided in Section 228 of the General Corporation Law of Delaware. 2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof or entitled to express consent or dissent to corporate action in writing without a meeting (if otherwise permitted by these bylaws and the corporation's certificate of incorporation), or entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall be not more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. If the Board of Directors does not so fix a record date, the fixing of such record date shall be governed by the provisions of Section 213 of the General Corporation Law of Delaware. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. 2.13 PROXIES Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for him by a written proxy, signed by the stockholder and filed with the Secretary, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A proxy shall be deemed signed if the stockholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the stockholder or the stockholder's attorney-in-fact. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(e) of the General Corporation Law of Delaware. 2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list of stockholders or the -6- books of the corporation, or to vote in person or by proxy at any meeting of stockholders and of the number of shares held by each such stockholder. 2.15 CONDUCT OF BUSINESS Meetings of stockholders shall be presided over by the Chairman of the Board, if any, or in his absence by the President, or in his absence by a Vice President, or in the absence of the foregoing persons by a chairman designated by the Board of Directors, or in the absence of such designation by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. The chairman of any meeting of stockholders shall determine the order of business and the procedures at the meeting, including such matters as the regulation of the manner of voting and conduct of business. ARTICLE III DIRECTORS 3.1 POWERS Subject to the provisions of the General Corporation Law of Delaware and any limitations in the certificate of incorporation or these bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors. Each director shall exercise such powers and otherwise perform such duties in good faith, in the manner such director believes to be in the best interests of the corporation, and with such care, including reasonable inquiry, using ordinary prudence, as a person in a like position would use under similar circumstances. 3.2 NUMBER OF DIRECTORS The Board of Directors shall consist of eight (8) members. The number of directors may be changed by an amendment to this bylaw, duly adopted by the Board of Directors or by the stockholders, or by a duly adopted amendment to the certificate of incorporation. 3.3 ELECTION QUALIFICATION AND TERM OF OFFICE OF DIRECTORS Except as provided in Section 3.4 of these bylaws, at each annual meeting of stockholders, directors of the corporation shall be elected to hold office until the expiration of the term for which they are elected, and until their successors have been duly elected and qualified; except that if any such election shall not be so held, such election shall take place at a stockholders' meeting called and held in accordance with the Delaware General Corporation Law. The term of office of a director shall begin immediately after election. Directors need not be stockholders unless so required by the certificate of incorporation or these bylaws, wherein other qualifications for directors may be prescribed. Election of directors need not be by written ballot unless a stockholder demands election by written ballot at the meeting and before voting begins. 3.4 RESIGNATION AND VACANCIES Any director may resign at any time upon written notice to the corporation. Any vacancy occurring in the Board of Directors because of resignation or death of a director may be filled by a majority of the remaining members of the Board of Directors, although such majority is less than a quorum, or by a sole remaining director, and each director so elected shall hold office until his successor is elected at the next succeeding annual meeting of stockholders at which the class to which the directorship belongs is to be elected or at a special meeting called for that purpose. Unless otherwise provided in the certificate of incorporation or these bylaws: (i) Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. -7- (ii) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the certificate of incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. If at any time, by reason of death or resignation or other cause, the corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law of Delaware. If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole board (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten (10) percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the General Corporation Law of Delaware as far as applicable. 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE The Board of Directors of the corporation may hold meetings, both regular and special, either within or outside the State of Delaware, at such place as is designated in the notice of the meeting. Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. Accurate minutes of any meeting of the Board of Directors or any committee thereof shall be maintained by the Secretary or other office designated for that purpose. 3.6 FIRST MEETINGS The first meeting of each newly elected Board of Directors shall be held immediately following the adjournment of the annual meetings of the stockholders. 3.7 REGULAR MEETINGS Regular meetings of the Board of Directors may be held without notice at the corporate offices or such other place, within or without the State of Delaware, at such time and place as the Board designates. 3.8 SPECIAL MEETINGS; NOTICE Special meetings of the Board may be called at any time by the President or, if he is absent or unable or refuses to act, by any vice president or the Secretary or by any two directors, or by one director if only one is provided. At least forty-eight (48) hours notice of the time and place of special meetings shall be delivered personally to the directors or personally communicated to them by a corporate officer by telephone or telegraph. If the notice is sent to a director by letter, it shall be addressed to him at his address as it is shown upon the records of the corporation (or if it is not so shown on such records or is not readily ascertainable, at the place in which the meetings of the directors are regularly held). In case such notice is mailed, it shall be deposited in the United States mail, postage prepaid, in the place in which the principal executive office of the corporation is located, at least four (4) days prior to the time of the holding of the meeting. Such mailing, telegraphing, telephoning or delivery as above provided shall be due, legal and personal notice to such director. When all of the directors are present at any directors' meeting, however called or noticed, and either (i) sign a written consent thereto on the records of such meeting, or (ii) if a majority of the directors is present and if those not present sign a waiver of notice of such meeting or a consent to holding the meeting or an approval of the minutes thereof, whether prior to or after the holding of such meeting, which said waiver, consent or approval shall be filed with the Secretary of the corporation or (iii) if a director attends a meeting without notice, but without protesting, prior thereto or at its commencement, the lack of notice to him, then the transactions thereof are as valid as if had at a meeting regularly called and noticed. 3.9 QUORUM -8- A majority of the number of directors as fixed by the certificate of incorporation or bylaws, shall be necessary to constitute a quorum for the transaction of business, and the action of a majority of the directors present at any meeting at which there is a quorum, when duly assembled, is valid as a corporate act; provided that a minority of the directors, in the absence of a quorum, may adjourn from time to time, but may not transact any business. A meeting at which a quorum is initially present may continue to transact business, notwithstanding the withdrawal of directors, if any action taken is approved by a majority of the required quorum for such meeting. 3.10 WAIVER OF NOTICE Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice unless so required by the certificate of incorporation or these bylaws. 3.11 ADJOURNED MEETING; NOTICE Notice of the time and place of holding an adjourned meeting need not be given to absent directors if the time and place be fixed at the eeting adjourned and held within twenty-four (24) hours, but if adjourned more than twenty-four (24) hours, notice shall be given to all directors not present at the time of the adjournment. 3.12 CONDUCT OF BUSINESS Meetings of the Board of Directors shall be presided over by the Chairman of the Board, if any, or in his absence by the President, or in their absence by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. The chairman of any meeting shall determine the order of business and the procedures at the meeting. 3.13 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the Board or committee. 3.14 FEES AND COMPENSATION OF DIRECTORS Directors, as such, shall not receive any stated salary for their services, but by resolution of the Board, a fixed sum and expense of attendance, if any, may be allowed for attendance at each regular and special meeting of the Board; provided that nothing herein contained shall be construed to preclude any director from serving the Company in any other capacity and receiving compensation therefor. 3.15 APPROVAL OF LOANS TO OFFICERS The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiary, including any officer or employee who is a director of the corporation or its subsidiary, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in this section shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. 3.16 REMOVAL OF DIRECTORS Unless otherwise restricted by statute, by the certificate of incorporation or by these bylaws, any director or the entire Board of Directors may be removed with or without cause by the holders of a majority of the shares then entitled to vote at an election of directors; provided, however, that, so long as stockholders of the corporation are entitled to cumulative voting, no individual director may be removed without cause (unless the entire board is removed) if the number of votes cast against such removal would be sufficient to elect the director if then cumulatively voted at an election of the class of directors of which the director is a part. Whenever the holders of any class or series are entitled to elect one or more directors by the certificate of incorporation, such director -9- or directors may be removed without cause only if there are sufficient votes by the holders of the outstanding shares of that class or series. A vacancy created by the removal of a director may be filled only by the approval of the stockholders. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director's term of office. 3.17 ADVISORY DIRECTORS The Board of Directors from time to time may elect one or more persons to be Advisory Directors who shall not by such appointment be members of the Board of Directors. Advisory Directors shall be available from time to time to perform special assignments specified by the President, to attend meetings of the Board of Directors upon invitation and to furnish consultation to the Board. The period during which the title shall be held may be prescribed by the Board of Directors. If no period is prescribed, the title shall be held at the pleasure of the Board. ARTICLE IV COMMITTEES 4.1 COMMITTEES OF DIRECTORS The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, with each committee to consist of two or more of the directors of the corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors or in the bylaws of the corporation, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority to (i) amend the certificate of incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors as provided in Section 151(a) of the General Corporation Law of Delaware, fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation), (ii) adopt an agreement of merger or consolidation under Sections 251 or 252 of the General Corporation Law of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets (iv) recommend to the stockholders a dissolution of the corporation or a revocation of a dissolution, or (v) amend the bylaws of the corporation; and, unless the board resolution establishing the committee, the bylaws or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of Delaware. 4.2 COMMITTEE MINUTES Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. 4.3 MEETINGS AND ACTION OF COMMITTEES Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these bylaws, Section 3.5 (place of meetings and meetings by telephone), Section 3.7 (regular meetings), Section 3.8 (special meetings and notice), Section 3.9 (quorum), Section 3.10 (waiver of notice), Section 3.11 (adjournment and notice of adjournment), Section 3.12 (conduct of business) and Section 3.13 (action without a meeting), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the Board of Directors and its members; provided, however, that the time of regular meetings of committees may also be called by resolution of the Board of Directors and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board of Directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws. -10- ARTICLE V OFFICERS 5.1 OFFICERS The officers of the corporation shall be chairman of the board or a president or both, a secretary, and a chief financial officer. The corporation may also have, at the discretion of the Board of Directors, one or more vice presidents, one or more assistant secretaries, and any such other officers as may be appointed in accordance with the provisions of Section 5.2 of these bylaws. Any number of offices may be held by the same person. 5.2 ELECTION OF OFFICERS Except as otherwise provided in this Section 5.2, the officers of the corporation shall be chosen annually by the Board of Directors, and each shall hold his office until he shall resign or shall be removed or otherwise disqualified to serve, or his successor shall be elected and qualified. The Board of Directors may appoint such officers and agents of the business as the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the Board of Directors may from time to time determine. Any vacancy occurring in any office of the corporation shall be filled in the manner prescribed in the Bylaws for regular appointments to such office. 5.3 REMOVAL AND RESIGNATION OF OFFICERS Any officer may be removed, either with or without cause, by an affirmative vote of the majority of the Board of Directors at any regular or special meeting of the Board or, except in the case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors or, in the case of an officer appointed by the President, by the President. Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. 5.4 CHAIRMAN OF THE BOARD The Chairman of the Board, if such an officer be elected, shall, if present, preside at meetings of the Board of Directors and exercise and perform such other powers and duties as may from time to time be assigned to him by the Board of Directors or as may be prescribed by these bylaws. 5.5 PRESIDENT Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board, if there be such an officer, the President, unless otherwise determined by the Board of Directors, shall be the chief executive officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction, and control of the business and the officers of the corporation. He shall preside at all meetings of the stockholders and, in the absence or nonexistence of a chairman of the board, at all meetings of the Board of Directors. He shall have the general powers and duties of management usually vested in the office of president of a corporation and shall have such other powers and duties as may be prescribed by the Board of Directors or these bylaws. 5.6 VICE PRESIDENTS In the absence or disability of the President, the Vice Presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, a Vice President designated by the Board of Directors, shall perform all the duties of the President and when so acting shall have all the powers of, and be subject to all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors, these bylaws, the President or the Chairman of the Board. 5.7 SECRETARY -11- The Secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the Board of Directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders. The minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at directors' meetings or committee meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof. The Secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the Board of Directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors required to be given by law or by these bylaws. He shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by these bylaws. 5.8 CHIEF FINANCIAL OFFICER The Chief Financial Officer shall keep and maintain, or cause to be kept and maintained in accordance with generally accepted accounting principles, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares. The books of account shall at all reasonable times be open to inspection by any director. The Chief Financial Officer shall deposit all monies and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the Board of Directors. He shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the President and directors, whenever they request it, an account of all of his transactions as Chief Financial Officer and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or these bylaws. ARTICLE VI INDEMNITY 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS The corporation shall, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, indemnify each of its directors and officers against expenses (including attorneys' fees), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.1, a "director" or "officer" of the corporation includes any person (i) who is or was a director or officer of the corporation, (ii) who is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, including, without limitation, any direct or indirect subsidiary of the corporation, or (iii) who was a director or officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.2 INDEMNIFICATION OF OTHERS The corporation shall have the power, to the extent and in the manner permitted by the General Corporation Law of Delaware, to indemnify each of its employees and agents (other than directors and officers) against expenses (including attorneys' fees), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.2, an "employee" or "agent" of the corporation (other than a director or officer) includes any person (i) who is or was an employee or agent of the corporation, (ii) who is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including, without limitation, any direct or indirect subsidiary of the corporation, or (iii) who was an employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.3 INSURANCE -12- The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of the General Corporation Law of Delaware and this Section 6. 6.4 PAYMENT OF EXPENSES IN ADVANCE Expenses incurred in defending any civil or criminal action or proceeding for which indemnification is required pursuant to Section 6.1, or for which indemnification is permitted pursuant to Section 6.2 following authorization thereof by the Board of Directors, may be paid by the corporation in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such amount if it shall ultimately be determined that the indemnified party is not entitled to be indemnified as authorized in this Section 6. 6.5 INDEMNITY NOT EXCLUSIVE The indemnification provided by this Section 6 shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, to the extent that such additional rights to indemnification are authorized in the certificate of incorporation. 6.6 CONFLICTS No indemnification or advance shall be made under this Section 6, except where such indemnification or advance is mandated by law or the order, judgment or decree of any court of competent jurisdiction, in any circumstance where it appears: (a) That it would be inconsistent with a provision of the certificate of incorporation, these bylaws, a resolution of the stockholders or an agreement in effect at the time of the accrual of the alleged cause of the action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or (b) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement. ARTICLE VII RECORDS AND REPORTS 7.1 MAINTENANCE AND INSPECTION OF RECORDS The corporation shall, either at its principal executive office or at such place or places as designated by the Board of Directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these bylaws as amended to date, accounting books, and other records. Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in Delaware or at its principal place of business. 7.2 INSPECTION BY DIRECTORS Any director shall have the right to examine the corporation's stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper. -13- 7.3 REPRESENTATION OF SHARES OF OTHER CORPORATIONS The Chairman of the Board, the President, any Vice President, the Chief Financial Officer, the Secretary, or any other person authorized by the Board of Directors or the President or a Vice President, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority. 7.4 SUBSIDIARY CORPORATIONS Shares of this corporation owned by a subsidiary shall not be entitled to vote on any matter. A subsidiary for these purposes is defined as a corporation, the shares of which possessing more than 25% of the total combined voting power of all classes of shares entitled to vote, are owned directly or indirectly through one or more subsidiaries. ARTICLE VIII GENERAL MATTERS 8.1 STOCK CERTIFICATES; PARTLY PAID SHARES The shares of a corporation shall be represented by certificates, provided that the Board of Directors of the corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock represented by certificates and, upon request, every holder of uncertificated shares, shall be entitled to have a certificate signed by, or in the name of the corporation by the Chairman of the Board of Directors, or the President or Vice President, and by the Chief Financial Officer or the secretary of such corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, or upon the books and records of the corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon. 8.2 LOST CERTIFICATES Except as provided in this Section 8.2, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and canceled at the same time. The corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the corporation a bond sufficient to indemnity it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares. 8.3 CONSTRUCTION; DEFINITIONS Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Delaware General Corporation Law shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. 8.4 DIVIDENDS -14- The directors of the corporation, subject to any restrictions contained in the certificate of incorporation, may declare and pay dividends upon the shares of its capital stock pursuant to the General Corporation Law of Delaware. Dividends may be paid in cash, in property, or in shares of the corporation's capital stock. The directors of the corporation may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. 8.5 FISCAL YEAR The fiscal year of the corporation shall be fixed by resolution of the Board of Directors and may be changed by the Board of Directors. 8.6 SEAL The corporation may adopt a corporate seal, which may be altered at pleasure, and may use the same by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. 8.7 TRANSFER OF STOCK Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books. 8.8 STOCK TRANSFER AGREEMENTS The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Delaware. 8.9 REGISTERED STOCKHOLDERS The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. 8.10 EXECUTION OF CONTRACTS The Board of Directors, except as in the Bylaws otherwise provided, may authorize any officer or officers, agent or agents, to enter into any contract or execute and instrument in the name of and on behalf of the corporation. Such authority may be general or confined to specific instances. Unless so authorized by the Board of Directors, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or agreement, or to pledge its credit, or to render it liable for any purpose or to any amount, except as provided in Sec. 142 of Delaware General Corporation Law. ARTICLE IX AMENDMENTS The original or other bylaws of the corporation may be adopted, amended or repealed by a majority of the stockholders entitled to vote; provided, however, that the corporation may, in its certificate of incorporation, confer the power to adopt, amend or repeal bylaws upon the directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal bylaws. Whenever an amendment or new bylaw is adopted, it shall be copied in the book of bylaws with the original bylaws, in the appropriate place. If any bylaw is repealed, the fact of repeal with the date of the meeting at which the repeal was enacted or written assent was filed shall be stated in said book. ARTICLE X -15- DISSOLUTION If it should be deemed advisable in the judgment of the Board of Directors of the corporation that the corporation should be dissolved, the Board, after the adoption of a resolution to that effect by a majority of the whole Board at any meeting called for that purpose, shall cause notice to be mailed to each stockholder entitled to vote thereon of the adoption of the resolution and of a meeting of stockholders to take action upon the resolution. At the meeting a vote shall be taken for and against the proposed dissolution. If a majority of the outstanding stock of the corporation entitled to vote thereon votes for the proposed dissolution, then a certificate stating that the dissolution has been authorized in accordance with the provisions of Section 275 of the General Corporation Law of Delaware and setting forth the names and residences of the directors and officers shall be executed, acknowledged, and filed and shall become effective in accordance with Section 103 of the General Corporation Law of Delaware. Upon such certificate's becoming effective in accordance with Section 103 of the General Corporation Law of Delaware, the corporation shall be dissolved. ARTICLE XI CUSTODIAN 11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES The Court of Chancery, upon application of any stockholder, may appoint one or more persons to be custodians and, if the corporation is insolvent, to be receivers, of and for the corporation when: (i) at any meeting held for the election of directors the stockholders are so divided that they have failed to elect successors to directors whose terms have expired or would have expired upon qualification of their successors; or (ii) the business of the corporation is suffering or is threatened with irreparable injury because the directors are so divided respecting the management of the affairs of the corporation that the required vote for action by the Board of Directors cannot be obtained and the stockholders are unable to terminate this division; or (iii) the corporation has abandoned its business and has failed within a reasonable time to take steps to dissolve, liquidate or distribute its assets. 11.2 DUTIES OF CUSTODIAN The custodian shall have all the powers and title of a receiver appointed under Section 291 of the General Corporation Law of Delaware, but the authority of the custodian shall be to continue the business of the corporation and not to liquidate its affairs and distribute its assets, except when the Court of Chancery otherwise orders and except in cases arising under Sections 226(a)(3) or 352(a)(2) of the General Corporation Law of Delaware. CERTIFICATE OF ADOPTION OF AMENDED AND RESTATED BYLAWS OF SOLECTRON CORPORATION Certificate by Secretary of Adoption by Incorporator -16- The undersigned hereby certifies that she is the duly elected, qualified, and acting Secretary of Solectron Corporation and that the foregoing Amended and Restated Bylaws, comprising twenty-two (22) pages, were adopted as the Bylaws of the corporation on January 14, 1998, by the Board of Directors. IN WITNESS WHEREOF, the undersigned has hereunto set her hand and affixed the corporate seal this 14th day of January 1998. /s/ Susan Wang - --------------------------- Susan Wang, Secretary AMENDED AND RESTATED BYLAWS OF SOLECTRON CORPORATION Effective as of January 14, 1998 -17- EX-10.2 4 f93929exv10w2.txt EXHIBIT 10.2 Exhibit 10.2 SOLECTRON CORPORATION EMPLOYEE STOCK PURCHASE PLAN . . . TABLE OF CONTENTS

-I- TABLE OF CONTENTS (CONTINUED)

-II- SOLECTRON CORPORATION 2003 EMPLOYEE STOCK PURCHASE PLAN SECTION 1 PURPOSE Solectron Corporation hereby establishes Solectron Corporation 2003 Employee Stock Purchase Plan, effective as of January 15, 2003, in order to provide eligible employees of the Company and its participating Affiliates with the opportunity to purchase Common Stock through payroll deductions or, if payroll deductions are not permitted under local laws, through other means as specified by the Committee. The Plan is intended to qualify as a Code Section 423(b) Plan, although the Company makes no undertaking nor representation to maintain such qualification. In addition, this Plan document authorizes the grant of options under a Non-423(b) Plan which do not qualify under Section 423(b) of the Code pursuant to rules, procedures or sub-plans adopted by the Board (or its designate) designed to achieve desired tax or other objectives. SECTION 2 DEFINITIONS 2.1 "1934 Act" means the Securities Exchange Act of 1934, as amended. Reference to a specific Section of the 1934 Act or regulation thereunder shall include such Section or regulation, any valid regulation promulgated under such Section, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such Section or regulation. 2.2 "Affiliate" means any (i) Subsidiary, and (ii) any other entity other than the Company in an unbroken chain of entities beginning with the Company if, at the time of the granting of the option, each of the entities, other than the last entity in the unbroken chain, owns or controls 50 percent or more of the total ownership interest in one of the other entities in such chain. 2.3 "Board" means the Board of Directors of the Company. 2.4 "Code" means the Internal Revenue Code of 1986, as amended. Reference to a specific Section of the Code or regulation thereunder shall include such Section or regulation, any valid regulation promulgated under such Section, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such Section or regulation. 2.5 "Code Section 423(b) Plan" means an employee stock purchase plan which is designed to meet the requirements set forth in Section 423(b) of the Code, as amended. 2.6 "Committee" shall mean the committee appointed by the Board to administer the Plan. Any member of the Committee may resign at any time by notice in writing mailed or delivered to the Secretary of the Company. As of the effective date of the Plan, the Plan shall be administered by the Compensation Committee of the Board. 2.7 "Common Stock" means the common stock of the Company. 2.8 "Company" means Solectron Corporation, a Delaware corporation. 2.9 "Compensation" means a Participant's base salary or regular wages (including sick pay and vacation pay) and any sales commissions. The Committee, in its discretion, may (on a uniform and nondiscriminatory basis) establish a different definition of Compensation prior to an Enrollment Date for all options to be granted on such Enrollment Date. 2.10 "Eligible Employee" means every Employee of an Employer, except (a) any Employee who immediately after the grant of an option under the Plan, would own stock and/or hold outstanding options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any Affiliate of the Company (including stock attributed to such Employee pursuant to Section 424(d) of the Code), or (b) as provided in this Section 2.8. The Committee, in its discretion, from time to time may, prior to an Enrollment Date for all options to be granted on such Enrollment Date, determine (on a uniform and nondiscriminatory basis) that an Employee shall not be an Eligible Employee if he or she: (1) has not completed at least two years of service since his or her last hire date (or such lesser period of time as may be determined by the Committee in its discretion), (2) customarily works not more than 20 hours per week (or such lesser period of time as may be determined by the Committee in its discretion), (3) customarily works not more than 5 months per calendar year (or such lesser period of time as may be determined by the Committee in its discretion), (4) is an officer or other manager, or (5) is a highly compensated employee under Section 414(q) of the Code, provided the exclusion of Employees in such categories is not prohibited under applicable local law. An Employee who otherwise is an Eligible Employee shall be treated as continuing to be such while the Employee is on sick leave or other leave of absence approved by the Employer, except that if the period of leave exceeds ninety days and the Employee's right to reemployment is not guaranteed by statute or contract, he or she shall cease to be an Eligible Employee on the 91st day of such leave. 2.11 "Employee" means an individual who is a common-law employee of any Employer as reflected on the payroll records of the Employer on the Enrollment Date. With respect to a particular Participant, Employer means the Company or Affiliate (as the case may be) which directly employs the Participant. 2.12 "Employer" or "Employers" means any one or all of the Company and those Affiliates which, with the consent of the Board or the Committee, have adopted the Plan. In the event the Employer is not a Subsidiary, its Employees shall participate in the Non-423(b) Plan. 2.13 "Enrollment Date" means such dates as may be determined by the Committee (in its discretion and on a uniform and nondiscriminatory basis) from time to time. 2.14 "Grant Date" means any date on which a Participant is granted an option under the Plan. 2.15 "Non-423(b) Plan" means an employee stock purchase plan which does not meet the requirements set forth in Section 423(b) of the Code, as amended. 2.16 "Participant" means an Eligible Employee who (a) has become a Participant in the Plan pursuant to Section 4.1 and (b) has not ceased to be a Participant pursuant to Section 8 or Section 9. 2.17 "Plan" means Solectron Corporation Employee Stock Purchase Plan, as set forth in this instrument and as hereafter amended from time to time, which includes (i) a Code Section 423(b) Plan, and (ii) a Non-423(b) Plan. 2 2.18 "Purchase Date" means such dates as may be determined by the Committee (in its discretion and on a uniform and nondiscriminatory basis) from time to time prior to an Enrollment Date for all options to be granted on such Enrollment Date. 2.19 "Subsidiary" means any corporation in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain then owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. SECTION 3 SHARES SUBJECT TO THE PLAN 3.1 Number Available. A maximum of 20,000,000 shares of Common Stock shall be available for issuance pursuant to the Plan. Shares sold under the Plan may be newly issued shares or treasury shares. 3.2 Adjustments. In the event of any reorganization, recapitalization, stock split, reverse stock split, stock dividend, combination of shares, merger, consolidation, offering of rights or other similar change in the capital structure of the Company, the Committee may make such adjustment, if any, as it deems appropriate in its sole discretion in the number, kind and purchase price of the shares available for purchase under the Plan and in the maximum number of shares subject to any option under the Plan. SECTION 4 ENROLLMENT 4.1 Participation. Each Eligible Employee may elect to become a Participant by enrolling or re-enrolling in the Plan effective as of any Enrollment Date. In order to enroll, an Eligible Employee must complete, sign and submit to the Company an enrollment form in such form, manner and by such deadline as may be specified by the Committee from time to time (in its discretion and on a nondiscriminatory basis). The Committee may prescribe electronic enrollment procedures. Any Participant whose option expires and who has not withdrawn from the Plan automatically will be re-enrolled in the Plan on the Enrollment Date immediately following the Purchase Date on which his or her option expires. 4.2 Payroll Withholding and Contribution. On his or her enrollment form, each Participant must elect to make Plan contributions via payroll withholding from his or her Compensation or, if payroll withholding is not permitted under local laws, via such other means as specified by the Committee. Pursuant to such procedures as the Committee may specify from time to time, a Participant may elect to have withholding equal to or otherwise contribute a whole percentage from 1% to 20% (or such lesser percentage that the Committee may establish from time to time for all options to be granted on any Enrollment Date). If permitted by the Committee, a Participant instead may elect to have a specific amount withheld or to contribute a specific amount, in dollars or in the applicable local currency (subject to such uniform and nondiscriminatory rules as the Committee in its discretion may specify). A Participant may elect to increase or decrease his or her rate of payroll withholding or contributions by submitting a new enrollment election in accordance with such procedures as may be established by the Committee from time to time. A Participant may stop his or her payroll withholding or contributions by submitting a new enrollment form in accordance with such procedures as may be established by the Committee from time to time. In order to be effective as of a specific date, an enrollment election must be received by the Company no later than the deadline specified by the Committee, in its discretion and on a nondiscriminatory basis, from time to time. Any Participant who is automatically re-enrolled in the Plan will be deemed to have elected to continue his or her payroll withholding or contributions at the percentage last elected by the Participant. 3 SECTION 5 OPTIONS TO PURCHASE COMMON STOCK 5.1 Grant of Option. On each Enrollment Date on which the Participant enrolls or re-enrolls in the Plan, he or she shall be granted an option to purchase shares of Common Stock. 5.2 Duration of Option. Each option granted under the Plan shall expire on the earliest to occur of (a) the completion of the purchase of shares on the last Purchase Date occurring within 27 months of the Grant Date of such option, (b) such shorter option period as may be established by the Committee from time to time prior to an Enrollment Date for all options to be granted on such Enrollment Date, or (c) the date on which the Participant ceases to be such for any reason. Until otherwise determined by the Committee for all options to be granted on an Enrollment Date, the period referred to in clause (b) in the preceding sentence shall mean the period from the applicable Enrollment Date through the last business day prior to the Enrollment Date that is approximately 24 months later. 5.3 Number of Shares Subject to Option. The maximum number of shares available for purchase by each Participant under the option will be established by the Committee from time to time prior to an Enrollment Date for all options to be granted on such Enrollment Date. In addition and notwithstanding the preceding, to the extent required under Section 423(b) of the Code, an option (taken together with all other options then outstanding under this Plan and under all other similar employee stock purchase plans of the Employers) shall not give the Participant the right to purchase shares at a rate which accrues in excess of $25,000 of fair market value at the applicable Grant Dates of such shares in any calendar year during which such Participant is enrolled in the Plan at any time. 5.4 Other Terms and Conditions. Each option shall be subject to the following additional terms and conditions: (a) payment for shares purchased under the option shall be made only through payroll withholding under Section 4.2, unless payroll withholding is not permitted under local laws as determined by the Committee, in which case the Participant may contribute by such other means as specified by the Committee; (b) purchase of shares upon exercise of the option will be accomplished only in accordance with Section 6.1; (c) the price per share under the option will be determined as provided in Section 6.1; and (d) the option in all respects shall be subject to such other terms and conditions (applied on a uniform and nondiscriminatory basis), as the Committee shall determine from time to time in its discretion. SECTION 6 PURCHASE OF SHARES 6.1 Exercise of Option. Subject to Section 6.2, on each Purchase Date, the funds then credited to each Participant's account shall be used to purchase whole shares of Common Stock. Any cash remaining after whole shares of Common Stock have been purchased shall be rolled over and used to purchase shares on the next Purchase Date (unless the individual no longer is a Participant, in which case the cash shall be refunded to him or her). The price per 4 Share of the Shares purchased under any option granted under the Plan shall be eighty-five percent (85%) of the lower of: (a) the closing price per Share on the Grant Date for such option on the New York Stock Exchange; or (b) the closing price per Share on the Purchase Date on the New York Stock Exchange. 6.2 Delivery of Shares. As directed by the Committee in its sole discretion, shares purchased on any Purchase Date shall be delivered directly to the Participant or to a custodian or broker (if any) designated by the Committee to hold shares for the benefit of the Participants. As determined by the Committee from time to time, such shares shall be delivered as physical certificates or by means of a book entry system. 6.3 Exhaustion of Shares. If at any time the shares available under the Plan are over-enrolled, enrollments shall be reduced to eliminate the over-enrollment, as the Committee determines (in a uniform and nondiscriminatory manner). For example, the Committee may determine that such reduction method shall be "bottom up", with the result that all option exercises for one share shall be satisfied first, followed by all exercises for two shares, and so on, until all available shares have been exhausted. Any funds that, due to over-enrollment, cannot be applied to the purchase of whole shares shall be refunded to the Participants (without interest thereon, except as otherwise required under local laws). SECTION 7 WITHDRAWAL 7.1 Withdrawal. A Participant may withdraw from the Plan by submitting a withdrawal form to the Company in such form and manner as the Committee may specify. A withdrawal will be effective only if it is received by the Company by the deadline specified by the Committee (in its discretion and on a uniform and nondiscriminatory basis) from time to time. When a withdrawal becomes effective, the Participant's payroll withholding or contributions shall cease and all amounts then credited to the Participant's account shall be distributed to him or her (without interest thereon, except as otherwise required under local laws). SECTION 8 CESSATION OF PARTICIPATION 8.1 Termination of Status as Eligible Employee. A Participant shall cease to be a Participant immediately upon the cessation of his or her status as an Eligible Employee (for example, because of his or her termination of employment from all Employers for any reason). As soon as practicable after such cessation, the Participant's payroll contributions shall cease and all amounts then credited to the Participant's account shall be distributed to him or her (without interest thereon, except as otherwise required under local laws). SECTION 9 DESIGNATION OF BENEFICIARY 9.1 Designation. Each Participant may, pursuant to such uniform and nondiscriminatory procedures as the Committee may specify from time to time, designate one or more Beneficiaries to receive any cash amounts credited to the Participant's account at the time of his or her death. Notwithstanding any contrary provision of this Section 9, Sections 9.1 and 5 9.2 shall be operative only after (and for so long as) the Committee determines (on a uniform and nondiscriminatory basis) to permit the designation of Beneficiaries. 9.2 Changes. A Participant may designate different Beneficiaries (or may revoke a prior Beneficiary designation) at any time by delivering a new designation (or revocation of a prior designation) in like manner. Any designation or revocation shall be effective only if it is received by the Committee. However, when so received, the designation or revocation shall be effective as of the date the designation or revocation is executed (whether or not the Participant still is living), but without prejudice to the Committee on account of any payment made before the change is recorded. The last effective designation received by the Committee shall supersede all prior designations. 9.3 Failed Designations. If a Participant dies without having effectively designated a Beneficiary, or if no Beneficiary survives the Participant, the cash balance in the Participant's account shall be payable to his or her estate. SECTION 10 ADMINISTRATION 10.1 Plan Administrator. The Plan shall be administered by the Committee. The Committee shall have the authority to control and manage the operation and administration of the Plan. 10.2 Actions by Committee. Each decision of a majority of the members of the Committee then in office shall constitute the final and binding act of the Committee. The Committee may act with or without a meeting being called or held and shall keep minutes of all meetings held and a record of all actions taken by written consent. 10.3 Powers of Committee. The Committee shall have all powers and discretion necessary or appropriate to supervise the administration of the Plan and to control its operation in accordance with its terms, including, but not by way of limitation, the following discretionary powers: (a) To interpret and determine the meaning and validity of the provisions of the Plan and the options and to determine any question arising under, or in connection with, the administration, operation or validity of the Plan or the options; (b) To determine any and all considerations affecting the eligibility of any employee to become a Participant or to remain a Participant in the Plan; (c) To cause an account or accounts to be maintained for each Participant; (d) To determine the time or times when, and the number of shares for which, options shall be granted; (e) To establish and revise an accounting method or formula for the Plan; (f) To designate a custodian or broker to receive shares purchased under the Plan and to determine the manner and form in which shares are to be delivered to the designated custodian or broker; (g) To determine the status and rights of Participants and their Beneficiaries or estates; 6 (h) To employ such brokers, counsel, agents and advisers, and to obtain such broker, legal, clerical and other services, as it may deem necessary or appropriate in carrying out the provisions of the Plan; (i) To establish, from time to time, rules for the performance of its powers and duties and for the administration of the Plan; (j) To adopt such procedures and subplans as are necessary or appropriate to permit participation in the Plan by employees who are foreign nationals or employed outside of the United States or to facilitate legal, tax or regulatory compliance outside the United States; and (k) To delegate to any one or more of its members or to any other person (including, but not limited to, employees of any Employer) severally or jointly, the authority to perform for and on behalf of the Committee one or more of the functions of the Committee under the Plan. 10.4 Decisions of Committee. All actions, interpretations, and decisions of the Committee shall be made in the sole discretion of the Committee and shall be conclusive and binding on all persons, and shall be given the maximum deference permitted by law. 10.5 Administrative Expenses. All expenses incurred in the administration of the Plan by the Committee, or otherwise, including legal fees and expenses, shall be paid and borne by the Employers, except any stamp duties or transfer taxes applicable to the purchase of shares may be charged to the account of each Participant. Any brokerage fees for the purchase of shares by a Participant shall be paid by the Company, but fees and taxes (including brokerage fees) for the transfer, sale or resale of shares by a Participant, or the issuance of physical share certificates, shall be borne solely by the Participant. 10.6 Eligibility to Participate. No member of the Committee who is also an employee of an Employer shall be excluded from participating in the Plan if otherwise eligible, but he or she shall not be entitled, as a member of the Committee, to act or pass upon any matters pertaining specifically to his or her own account under the Plan. 10.7 Indemnification. Each of the Employers shall, and hereby does, indemnify and hold harmless the members of the Committee and the Board, from and against any and all losses, claims, damages or liabilities (including attorneys' fees and amounts paid, with the approval of the Board or the Committee, in settlement of any claim) arising out of or resulting from the implementation of a duty, act or decision with respect to the Plan, so long as such duty, act or decision does not involve gross negligence or willful misconduct on the part of any such individual. SECTION 11 AMENDMENT, TERMINATION, AND DURATION 11.1 Amendment, Suspension, or Termination. The Board or the Committee, in its sole discretion, may amend or terminate the Plan, or any part thereof, at any time and for any reason. If the Plan is terminated, the Board or the Committee, in its discretion, may elect to terminate all outstanding options either immediately or upon completion of the purchase of shares on the next Purchase Date (which, notwithstanding Section 2.15, may be sooner than originally scheduled, if determined by the Board or the Committee in its discretion), or may elect to permit options to expire in accordance with their terms (and participation to continue through such expiration dates). If the options are terminated prior to expiration, all amounts then credited to Participants' accounts which have not been used to purchase shares shall be returned to the 7 Participants (without interest thereon, except as otherwise required under local laws) as soon as administratively practicable. 11.2 Duration of the Plan. The Plan shall commence on the date specified herein, and subject to Section 11.1 (regarding the Board's and the Committee's right to amend or terminate the Plan), shall remain in effect thereafter. SECTION 12 GENERAL PROVISIONS 12.1 Participation by Affiliates. One or more Affiliates of the Company may become participating Employers by adopting the Plan and obtaining approval for such adoption from the Board or the Committee. By adopting the Plan, an Affiliate shall be deemed to agree to all of its terms, including (but not limited to) the provisions granting exclusive authority (a) to the Board and the Committee to amend the Plan, and (b) to the Committee to administer and interpret the Plan. An Employer may terminate its participation in the Plan at any time. 12.2 Inalienability. In no event may either a Participant, a former Participant or his or her Beneficiary, spouse or estate sell, transfer, anticipate, assign, hypothecate, or otherwise dispose of any right or interest under the Plan; and such rights and interests shall not at any time be subject to the claims of creditors nor be liable to attachment, execution or other legal process. Accordingly, for example, a Participant's interest in the Plan is not transferable pursuant to a domestic relations order. 12.3 Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. 12.4 Requirements of Law. The granting of options and the issuance of shares shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or securities exchanges as the Committee may determine are necessary or appropriate. 12.5 Compliance with Rule 16b-3. Any transactions under this Plan with respect to officers (as defined in Rule 16a-1 promulgated under the 1934 Act) are intended to comply with all applicable conditions of Rule 16b-3. To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee. Notwithstanding any contrary provision of the Plan, if the Committee specifically determines that compliance with Rule 16b-3 no longer is required, all references in the Plan to Rule 16b-3 shall be null and void. 12.6 No Enlargement of Employment Rights. Neither the establishment or maintenance of the Plan, the granting of options, the purchase of shares, nor any action of any Employer or the Committee, shall be held or construed to confer upon any individual any right to be continued as an employee of the Employer nor, upon dismissal, any right or interest in any specific assets of the Employers other than as provided in the Plan. Each Employer expressly reserves the right to discharge any employee at any time, with or without cause. 12.7 Apportionment of Costs and Duties. All acts required of the Employers under the Plan may be performed by the Company for itself and its Affiliates, and the costs of the Plan may be equitably apportioned by the Committee among the Company and the other Employers. Whenever an Employer is permitted or required under the terms of the Plan to do or 8 perform any act, matter or thing, it shall be done and performed by any officer or employee of the Employers who is thereunto duly authorized by the Employers. 12.8 Captions. The captions contained in and the table of contents prefixed to the Plan are inserted only as a matter of convenience, and in no way define, limit, enlarge or describe the scope or intent of the Plan nor in any way shall affect the construction of any provision of the Plan. EXECUTION IN WITNESS WHEREOF, Solectron Corporation, by its duly authorized officer, has executed this Plan on the date indicated below. SOLECTRON CORPORATION Dated: __________, 2002 By -------------------------------- Title: 9 EX-10.12 5 f93929exv10w12.txt EXHIBIT 10.12 EXHIBIT 10.12 SOLECTRON CORPORATION MARC ONETTO EMPLOYMENT AGREEMENT This Agreement is entered into on June 18, 2003 (the "EFFECTIVE DATE") by and between Solectron Corporation (the "COMPANY"), and Marc Onetto ("EXECUTIVE"). 1. Duties and Scope of Employment. (a) Positions and Duties. As of the Effective Date, Executive will serve as the Executive Vice President of Worldwide Operations of the Company. Executive's principal place of employment will be at the Company's headquarters in Milpitas, California. Executive will render such business and professional services in the performance of his duties, consistent with Executive's position within the Company, as will reasonably be assigned to him by the Company's Chief Executive Officer. The Executive shall report to the Company's President and Chief Executive Officer. The Company's worldwide operations shall report to Executive, including Manufacturing, Materials, Information Technology, Logistics (including transportation) and all company wide quality programs. The period of Executive's employment under this Agreement is referred to herein as the "EMPLOYMENT TERM." (b) Obligations. During the Employment Term, Executive will devote Executive's full business efforts and time to the Company. For the duration of the Employment Term, Executive agrees not to actively engage in any other employment, occupation or consulting activity for any direct or indirect remuneration without the prior approval of the President and Chief Executive Officer (which approval will not be unreasonably withheld); provided, however, that Executive may, without the approval of the President and Chief Executive Officer, serve in any capacity with any civic, educational or charitable organization, provided such services do not interfere with Executive's obligations to the Company. It is understood and agreed by the Company and Executive that Executive's obligation to commence performing services hereunder is subject to Executive's possible need of continuing to provide transitional services to Executive's present employer for such period as such employer may reasonably request, and that during such period of transitional services for such employer, Executive will be treated by the Company as being on an unpaid leave of absence from the Company. 2. At-Will Employment. Executive and the Company agree that Executive's employment with the Company constitutes "at-will" employment. Executive and the Company acknowledge that this employment relationship may be terminated at any time, upon written notice to the other party, with or without good cause or for any or no cause, at the option either of the Company or Executive. However, as described in this Agreement, Executive may be entitled to severance benefits depending upon the circumstances of Executive's termination of employment. Upon the termination of Executive's employment with the Company for any reason, the Executive will be entitled to payment of all accrued but unpaid vacation, expense reimbursements and other benefits due to Executive through his termination date under any Company-provided or paid plans, policies and arrangements, and Executive will also be entitled to payment of the vested portion, if any, of his Deferred Compensation (as adjusted for investment returns thereon) in accordance with his payout election pursuant to Section 4(g). 3. Term of Agreement. This Agreement will have an initial term of two (2) years commencing on the Effective Date. On the second annual anniversary of the Effective Date and on each annual anniversary of the Effective Date thereafter, this Agreement automatically will renew for an additional term of one year unless at least thirty (30) days prior to such anniversary, Executive or the Company gives the other party written notice that the Agreement will not be renewed. If Executive incurs a termination of employment that entitles Executive to receive the payments and benefits described in Sections 8, 9, and 11 of this Agreement will not terminate until all of Executive's and the Company's obligations under the Agreement have been satisfied. 4. Compensation. (a) Base Salary. The Company will initially pay Executive an annual salary of $600,000 as compensation for his services (the "BASE SALARY"). The Base Salary will be paid periodically in accordance with the Company's normal payroll practices and be subject to the usual, required withholding. Executive's salary will be subject to review and adjustments will be made based upon the Company's standard practices. (b) Signing Bonus. Executive will receive a bonus as the result of executing this Agreement in the gross amount of $1,000,000 (the "SIGNING BONUS") to be paid within thirty (30) days of the Effective Date. If, before the third annual anniversary of the Effective Date, the Executive's employment is terminated by the Company for Cause or by the Executive without Good Reason, the Executive shall be required to repay the amount of such signing bonus to the Company in full within 30 days following such termination date. (c) Annual Bonus. Executive's annual target bonus will be 100% of his Base Salary ("TARGET BONUS") with an annual maximum bonus of 200% of his Base Salary. Executive's annual bonus will be payable upon achievement of performance goals established by the Compensation Committee of the Board (the "COMMITTEE"). Notwithstanding anything in the foregoing to the contrary, the Executive's annual bonus for his first year of employment will be guaranteed to equal at least $600,000, and shall be determined in accordance with the following two sentences. For purposes of the Company's fiscal year ending August 31, 2003, the Executive shall receive a pro rata annual bonus equal to (x) the greater of (i) $600,000 and (ii) the full year actual annual bonus, multiplied by (y) a fraction, the numerator of which is the number of days between and including the Effective Date and August 31, 2003 and the denominator of which is 365 (the "Fiscal 2003 Fraction"). For purposes of the Company's fiscal year ending August 31, 2004, the Executive shall receive an annual bonus equal to the greater of (x) (i) $600,000 multiplied by the difference between 1 and the Fiscal 2003 Fraction (the "Fiscal 2004 Fraction") plus (ii) the actual full year annual bonus (if any) multiplied by the difference between 1 and the Fiscal 2004 Fraction or (y) the actual full year annual bonus. (d) Stock Option. As of the Effective Date, Executive will be granted a nonstatutory stock option to purchase 1,600,000 shares of the Company's Common Stock (the "COMMON STOCK") at an exercise price equal to the fair market value per share on the date of grant (the "OPTION"). The Option will vest as to 1/48th of the shares subject to the Option upon the Executive's completion of each full month of Service (as defined in Section 13) over the forty-eight (48)-month period measured from the date of grant. Notwithstanding anything in the foregoing to the contrary, the Shares subject to the Option shall become fully vested upon the occurrence of a Change in Control. The Option may be granted from one of the Company's stock option plans or pursuant to a stand-alone stock option agreement, or a combination of both. As a result, the Option will be subject to the terms, definitions and provisions of the Company's 2 stock option plan under which it is granted, if any, (the "OPTION PLAN") and the stock option agreement by and between Executive and the Company (the "OPTION AGREEMENT"), both of which documents are incorporated herein by reference; provided, however, that the terms and provisions of the Option Agreement shall be substantially the same as if the portion of the Option represented by such Option Agreement had been granted under the Option Plan. The Company shall take such actions as are necessary to register the shares relating to such Options under the applicable securities laws on or before the date such Options become exercisable. (e) Restricted Stock. Immediately upon the commencement of employment, the Company will issue Executive 400,000 shares of Common Stock (the "RESTRICTED STOCK") at $0.001 per share. In the event Executive's Service (as defined in Section 13) terminates for any reason, and subject to the provisions of this Agreement, the Company will have the right to repurchase the Restricted Stock at $0.001 per share (the "REPURCHASE RIGHT"). Subject to the accelerated vesting provisions set forth herein, all of the Restricted Stock will vest and be released from the Company's Repurchase Right upon the Executive's continuation in Service through the fourth anniversary of the commencement of employment. Notwithstanding anything in the foregoing to the contrary, all of the Restricted Stock will vest and be released from the Company's Repurchase Right upon the occurrence of a Change in Control. The Restricted Stock will be subject to a restricted stock agreement by and between Executive and the Company (the "RESTRICTED STOCK AGREEMENT"), which such agreement is hereby incorporated by reference and will provide that Executive may satisfy the minimum withholding tax obligation that may arise upon the vesting of such Restricted Stock with shares of Restricted Stock that so vest and are released from the Company's Repurchase Right on such date and that are valued, for such purpose, at the closing price per share of Common Stock on such date. The Company shall take such actions as are necessary to register the Restricted Stock under the applicable securities laws on or before the date such Restricted Stock ceases to be subject to the Company's Repurchase Right. (f) Future Equity Awards. The Executive acknowledges that the next scheduled equity award date for all senior executives is September 2005, but the Committee is not precluded from making earlier awards if it chooses to do so in its sole discretion. (g) Deferred Compensation. On the Effective Date, the Company will credit $800,000 under its Executive Deferred Compensation Plan, as amended and restated effective January 1, 2003 (the "DEFERRED COMPENSATION PLAN") for the benefit of Executive (the "DEFERRED COMPENSATION PAYMENT"). The Deferred Compensation Payment (as adjusted for investment returns thereon) will vest upon the eighth annual anniversary of the commencement of the Executive's employment. Notwithstanding anything in the foregoing to the contrary, the Deferred Compensation Payment will vest upon the occurrence of a Change in Control. The entire Deferred Compensation Payment will be held in a so-called rabbi trust, and Executive will have the right to invest and reinvest the Deferred Compensation Payment and earnings thereon throughout the deferral period, subject to the terms of the Deferred Compensation Plan. Executive will elect the schedule for the deferred payout of the Deferred Compensation Payment 3 within thirty (30) days after the Effective Date and such election will be consistent with the deferred payment provisions of Articles 5 and 6 of the Deferred Compensation Plan. 5. Employee Benefits. During the Employment Term, Executive will be eligible to participate in accordance with the terms of all Company employee benefit plans, policies and arrangements that are applicable to other senior executives of the Company, as such plans, policies and arrangements and terms may exist from time to time; provided that the Company shall waive any waiting periods or pre-existing condition clauses under its welfare benefit plans so that welfare benefit plan coverage for the Executive and his eligible dependents shall being on the Effective Date. 6. Relocation. Executive will receive the Company's standard executive relocation package to move from his current residence to the metropolitan area containing the Company's headquarters. A copy of the Company's executive relocation policy has been provided to Executive and is incorporated herein by reference. 7. Expenses. The Company will reimburse Executive for reasonable travel, entertainment or other expenses incurred by Executive in the furtherance of or in connection with the performance of Executive's duties hereunder, in accordance with the Company's expense reimbursement policy as in effect from time to time. 8. Regular Severance. (a) Termination Without Cause; Resignation for Good Reason. In the event that the Company terminates Executive's employment for reasons other than "Cause" (as defined in Section 13) or "Disability" (as defined in Section 13), or in the event Executive resigns as a result of "Good Reason" (as defined in Section 13), either of which occur prior to a "Change of Control" (as defined in Section 13) or after twelve (12) months following a Change of Control, then Executive will be entitled to (A) the immediate vesting of the Deferred Compensation Payment (as adjusted for investment returns thereon) and payment in accordance with his payout election pursuant to Section 4(g) and (B) the immediate vesting and release from the Company's Repurchase Right of the Restricted Stock, and (C) Executive shall have no repayment obligation with respect to the Signing Bonus described in Section 4(b). In addition, Executive will receive a six (6)-month consulting contract (substantially in the form attached hereto as Exhibit A) with the aggregate consulting fees (which shall be paid ratably during the consulting period in accordance with the Company's regular payroll schedule) equal to one-half (1/2) of the sum of his annual Base Salary and Target Bonus, each at the level then in effect. During the consulting term (which shall commence immediately upon termination of Executive's employment with the Company), the Executive shall receive Company-paid coverage for Executive and Executive's eligible dependents under the Company's "Benefit Plans" (as defined in Section 13). Following the end of the consulting period, Executive will receive: (i) a lump-sum payment equal to one (1) times his annual Base Salary and Target Bonus, plus one (1) month (base salary and pro rated target bonus) per full year of service in excess of six (6) years service, not to exceed a maximum of twenty-four (24) months base and target bonus, each at the level then in effect, and (ii) Company-paid coverage for Executive and Executive's eligible dependents under the Company's Benefit Plans for the twelve (12) months following the end of the consulting period. 4 (b) Voluntary Termination without Good Reason; Termination for Cause. If Executive's employment with the Company terminates voluntarily by Executive without Good Reason or for Cause by the Company, then (i) all further vesting of the Executive's outstanding options to purchase Common Stock will terminate immediately, (ii) all payments of compensation by the Company to Executive hereunder will terminate immediately (except as to amounts already earned), (iii) the Executive's vested rights to his Restricted Stock will be determined in accordance with Section 4(e), (iv) the Executive will be paid all accrued but unpaid vacation, expense reimbursements and other benefits due to Executive through his termination date under any Company-provided or paid plans, policies and arrangements, (v) Executive will be entitled to payment of the vested portion, if any, of his Deferred Compensation Payment (as adjusted for investment returns thereon) in accordance with his payout election pursuant to Section 4(g), and (vi) Executive will only be eligible for severance benefits in accordance with the Company's established policies as then in effect. (c) Termination due to Death or Disability. If Executive's employment with the Company terminates due to the Executive's death or Disability (as defined in Section 13), then Executive (or his estate) will be entitled to (A) the immediate vesting of the Deferred Compensation Payment (as adjusted for investment returns thereon) and payment in accordance with his payout election pursuant to Section 4(g) and (B) the immediate vesting and release from the Company's Repurchase Right of the Restricted Stock, and (C) Executive (or his estate) shall have no repayment obligation with respect to the Signing Bonus described in Section 4(b). Upon such termination, (i) all further vesting of the Executive's outstanding options to purchase Common Stock will terminate immediately, provided that any vested options shall remain exercisable until the earlier of the one year anniversary of Executive's death or termination due to Disability or the end of the original option term, (ii) all payments of compensation by the Company to Executive hereunder will terminate immediately (except as to amounts already earned), and (iii) the Executive (or his estate) will be paid all accrued but unpaid vacation, expense reimbursements and other benefits due to Executive through his termination date under any Company-provided or paid plans, policies and arrangements. 9. Change of Control Severance. (a) Termination Without Cause; Resignation for Good Reason. If within twelve (12) months following a Change of Control the Company (or acquiring entity) terminates Executive's employment for reasons other than "Cause" (as defined in Section 13) or "Disability" (as defined in Section 13), or Executive resigns for "Good Reason" (as defined in Section 13), then Executive will receive: (i) a lump sum payment equal to two (2) times his annual Base Salary and Target Bonus, both at the level in effect immediately prior to his termination date or (if greater) at the level in effect immediately prior to the Change in Control, (ii) Company-paid coverage for Executive and Executive's eligible dependents under the Company's "Benefit Plans" (as defined in Section 13) for thirty-six (36) months following such termination, and (iii) any Options (as described in Section 4(d)) shall remain exercisable until the earlier of the two year anniversary of such termination or resignation or the end of the original option term. In addition, Executive shall have no repayment obligation with respect to the Signing Bonus described in Section 4(b). For the avoidance of doubt, Executive's rights to his Deferred Compensation Payment (described in Section 4(g)), his Restricted Stock (described in 5 Section 4(e)) and his Options (described in Section 4(d)) shall have become fully vested upon the occurrence of a Change in Control. (b) Voluntary Termination without Good Reason; Termination for Cause. If within twelve (12) months following a Change in Control, Executive's employment with the Company terminates voluntarily by Executive without Good Reason or for Cause by the Company, then (i) all further vesting of the Executive's outstanding options to purchase Common Stock will terminate immediately, (ii) all payments of compensation by the Company to Executive hereunder will terminate immediately (except as to amounts already earned), (iii) the Executive will be paid all accrued but unpaid vacation, expense reimbursements and other benefits due to Executive through his termination date under any Company-provided or paid plans, policies and arrangements, (iv) Executive will be entitled to payment of his Deferred Compensation (described in Section 4(g)) (which shall become fully vested upon a Change in Control) (as adjusted for investment returns thereon) in accordance with his payout election pursuant to Section 4(g), (v) Executive will be entitled to his Restricted Shares (described in Section 4(e)) (which shall have become fully vested upon a Change in Control), (vi) Executive will be entitled to his Options (described in Section 4(d)) and (vii) Executive will only be eligible for severance benefits in accordance with the Company's established policies as then in effect. (c) Termination due to Death or Disability. In the event the Executive's employment terminates by reason of death or "Disability" (as defined in Section 13) within twelve (12) months following a Change of Control, then (i) all further vesting of the Executive's outstanding options to purchase Common Stock will terminate immediately, provided that any vested options shall remain exercisable until the earlier of the one year anniversary of Executive's death or termination due to Disability or the end of the original option term, (ii) all payments of compensation by the Company to Executive hereunder will terminate immediately (except as to amounts already earned), and (iii) the Executive (or his estate) will be paid all accrued but unpaid vacation, expense reimbursements and other benefits due to Executive through his termination date under any Company-provided or paid plans, policies and arrangements. In addition, Executive (or his estate) shall have no repayment obligation with respect to the Signing Bonus described in Section 4(b). For the avoidance of doubt, Executive's rights to his Deferred Compensation Payment (described in Section 4(g)), his Restricted Stock (described in Section 4(e)) and his Options (described in Section 4(d)) shall have become fully vested upon the occurrence of a Change in Control. 10. Conditions to Receipt of Severance; No Duty to Mitigate. (a) Separation Agreement and Release of Claims. The receipt of any severance pursuant to Sections 8 and 9 will be subject to executive signing and not revoking a separation agreement and release of claims in a form reasonably acceptable to the Company. Such agreement will provide (among other things) that Executive will not disparage the Company and the Company (acting through its directors and officers) or its directors and officers will not disparage the Executive during the twenty-four (24)-month period following a termination that would otherwise trigger the payment of severance under Sections 8 and 9. No severance pursuant to such Sections will be paid or provided until the separation agreement and release agreement becomes effective. 6 (b) Non-Competition. In the event of a termination of Executive's employment that would otherwise entitle Executive to the receipt of severance pursuant to Sections 8 and 9, Executive agrees not to engage in "Competition" (as defined in Section 13) during the twenty-four (24)-month period following such termination. In the event Executive engages in Competition within such period, all continuing payments and benefits to which Executive may otherwise be entitled pursuant to Sections 8 and 9 will immediately cease (including Executive's ability to exercise any outstanding stock options) and the Company will be entitled to monetary damages (not to exceed the value of the applicable severance benefits actually paid pursuant to Sections 8 and 9) or equitable relief in the event of a breach of such covenant. (c) Nonsolicitation. The receipt of any severance benefits pursuant to Sections 8 and 9 will be subject to Executive not violating the provisions of Section 17. In the event Executive breaches the provisions of Section 17, all continuing payments and benefits to which Executive may otherwise be entitled pursuant to Sections 8 and 9 will immediately cease (including Executive's ability to exercise any outstanding stock options). (d) No Duty to Mitigate. Executive will not be required to mitigate the amount of any payment contemplated by this Agreement, nor will any earnings that Executive may receive from any other source reduce any such payment. 11. Golden Parachute Excise Tax. (a) In the event it will be determined that any payment or distribution by the Company or other amount with respect to the Company to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 12 (a "PAYMENT"), is (or will be) subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "CODE") or any interest or penalties are (or will be) incurred by Executive with respect to the excise tax imposed by Section 4999 of the Code with respect to the Company (the excise tax, together with any interest and penalties, are hereinafter collectively referred to as the "EXCISE TAX"), Executive will be entitled to receive an additional cash payment (a "GROSS-UP PAYMENT") from the Company in an amount equal to the sum of the Excise Tax and an amount sufficient to pay the cumulative Excise Tax and all cumulative income taxes (including any interest and penalties imposed with respect to such taxes) relating to the Gross-Up Payment so that the net amount retained by Executive is equal to all payments to which Employee is entitled pursuant to the terms of this Agreement (excluding the Gross-Up Payment) or otherwise less income taxes (but not reduced by the Excise Tax or by income taxes attributable to the Gross-Up Payment). (b) Subject to the provisions of Section 11(c), all determinations required to be made under this Section 11, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at the determination, will be made by a nationally recognized certified public accounting firm selected by the Company with the consent of Executive, which should not unreasonably be withheld (the "ACCOUNTING FIRM") which will provide detailed supporting calculations both to the Company and Executive within thirty (30) days after the receipt of notice from Executive that 7 there has been a Payment, or such earlier time as is requested by the Company. All fees and expenses of the Accounting Firm will be borne solely by the Company. The Company, as determined in accordance with this Section 11, will pay any Gross-Up Payment to Executive within five (5) days after the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by Executive, it will so indicate to Executive in writing. Any determination by the Accounting Firm will be binding upon the Company and Executive; provided, however, that as a result of uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm, it is possible that Gross-Up Payments that the Company should have made will not have been made (an "UNDERPAYMENT"), consistent with the calculations required to be made hereunder. In the event the Company exhausts its remedies in accordance with Section 11(c), or elects not to exercise such remedies, and Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm will determine the amount of underpayment that has occurred and the Underpayment will be promptly paid by the Company to or for the benefit of Executive. (c) Executive will notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require a Gross-Up Payment (that has not already been paid by the Company). The notification will be given as soon as practicable but no later than ten (10) business days after Executive is informed in writing of the claim and will apprise the Company of the nature of the claim and the date on which the claim is requested to be paid. Executive will not pay the claim prior to the expiration of the 30-day period following the date on which Executive gives notice to the Company or any shorter period ending on the date that any payment of taxes with respect to the claim is due. If the Company notifies Executive in writing prior to the expiration of the 30-day or shorter period that it desires to contest the claim, Executive will: (i) give the Company any information reasonably requested by the Company relating to the claim; (ii) take any action in connection with contesting the claim as the Company will reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to the claim by an attorney reasonably selected by the Company; (iii) cooperate with the Company in good faith in order effectively to contest the claim; and (iv) permit the Company to participate in any proceedings relating to the claim. (d) The Company will bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with the contest and will indemnify and hold Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of the representation and payment of costs and expenses. Without limitation of the forgoing provisions of this Section 11, the Company will control all proceedings taken in connection with the contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings, and conferences 8 with the taxing authority in respect of the claim and may, at its sole option, either direct Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Executive agrees to prosecute the contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company will determine. If the Company directs Executive to pay the claim and sue for a refund, the Company will advance the amount of the payment to Executive, on an interest-free basis, and will indemnify and hold Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to the advance or with respect to any imputed income with respect to the advance; and any extension of the statute of limitations relating to payment of taxes for the taxable year of Executive with respect to which the contested amount is claimed to be due will be limited solely to the contested amount. The Company's control of the contest will be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and Executive will be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 11(d), Executive becomes entitled to receive any refund with respect to the claim, Executive will, subject to the Company's compliance with the requirements of Section 11(d), promptly pay to the Company the amount of the refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Executive of an amount advanced by the Company pursuant to this Section 11(d), a determination is made that Executive will not be entitled to any refund with respect to the claim and the Company does not notify Executive in writing of its intent to contest the denial of refund prior to the expiration of thirty (30) days after the determination, then the advance will be forgiven and will not be required to be repaid and the amount of the advance will offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. (e) Should the Company elect not to contest the Internal Revenue Service claim in accordance with the foregoing provisions of Section 11(c) or otherwise not provide Executive with written notice of its intention to contest such claim within the applicable thirty (30) day or shorter notice period provided in Section 11(c), then the Company will promptly thereafter pay Executive the applicable Gross-Up Payment attributable to such claim. 12. Attorneys' Fees. The Company will reimburse Executive's reasonable attorneys' fees and other professional fees (up to $35,000) in connection with the negotiation, preparation and execution of this Agreement with the Company. 13. Definitions. (a) Benefit Plans. For purposes of this Agreement, "BENEFIT PLANS" means plans, policies or arrangements that the Company sponsors (or participates in) and that immediately prior to Executive's termination of employment provide Executive and/or Executive's eligible dependents with medical, dental, vision and/or financial counseling benefits. Benefit Plans do not include any other type of benefit (including, but not by way of limitation, disability, life insurance or retirement benefits). A requirement that the Company provide Executive and Executive's eligible dependents with coverage under the Benefit Plans will not be satisfied unless the coverage is no less favorable than that provided to Executive and Executive's eligible dependents immediately prior to Executive's termination of employment. 9 Notwithstanding any contrary provision of Sections 8 and 9, but subject to the immediately preceding sentence, the Company may, at its option, satisfy any requirement that the Company provide coverage under any Benefit Plan by instead providing coverage under a separate plan or plans providing coverage that is no less favorable or by paying Executive a lump-sum payment which is, on an after-tax basis, sufficient to provide Executive and Executive's eligible dependents with equivalent coverage under a third party plan that is reasonably available to Executive and Executive's eligible dependents. (b) Cause. For purposes of this Agreement, "CAUSE" will mean (i) a willful failure by Executive to substantially perform Executive's material duties under this Agreement other than a failure resulting from the Executive's complete or partial incapacity due to physical or mental illness or impairment, (ii) a willful act by Executive that constitutes gross misconduct and is injurious to the Company, (iii) a willful breach by Executive of a material provision of this Agreement, (iv) a material and willful violation by Executive of a federal or state law or regulation applicable to the business of the Company which is injurious to the Company, or (v) Executive's conviction or plea of guilty or no contest to a felony. The Company will not terminate Executive's employment for Cause without first providing Executive with written notice specifically identifying the acts or omissions constituting the grounds for a Cause termination and, with respect to clauses (i) through (iv), a reasonable cure period of not less than thirty (30) days following such notice. No act or failure to act by Executive will be considered "willful" unless committed without good faith and without a reasonable belief that the act or omission was in the Company's best interest. (c) Change of Control. For purposes of this Agreement, "CHANGE OF CONTROL" means the occurrence of any of the following: (i) the sale, lease, conveyance or other disposition of all or substantially all of the Company's assets to any "person" (as such term is used in Section 13(d) of the Securities Exchange Act of 1934, as amended), entity or group of persons acting in concert; (ii) any person or group of persons becoming the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 30% or more of the total voting power represented by the Company's then outstanding voting securities; (iii) a merger or consolidation of the Company with any other corporation, other than a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its controlling entity) at least 50% of the total voting power represented by the voting securities of the Company or such surviving entity (or its controlling entity) outstanding immediately after such merger or consolidation; or (iv) a contest for the election or removal of members of the Board that results in the removal from the Board of at least 33% of the incumbent members of the Board. 10 (d) Competition. The Company will create a written list of up to six companies that compete with the Company (each a "COMPETITOR"). The Company may revise such list (by adding new companies to the list and reducing a like number of companies from the list at the same time) in writing until the last thirty (30) days of Executive's employment with the Company. For purposes of this Agreement, Executive will be deemed to have engaged in "COMPETITION" if he renders services for any of the six or fewer Competitors on the list described in the previous two sentences. (e) Disability. For purposes of this Agreement, "DISABILITY" will mean that Executive has been unable to perform the principal functions of Executive's duties due to a physical or mental impairment, but only if such inability has lasted or is reasonably expected to last for at least six (6) months. Whether Executive has a Disability will be determined by the Board based on evidence provided by one or more physicians selected by the Board and reasonably acceptable to Executive. (f) Good Reason. For purposes of this Agreement, "GOOD REASON" will mean (without Executive's written consent): (i) any reduction in Executive's title, (ii) any employee other than the Chief Executive Officer is inserted above Executive in the Company's organizational structure, (iii) the Executive reports to anyone other than the Chief Executive Officer or the Board, (iv) the operations described in Section 1(a) above are taken away from the Executive, (v) a material reduction in Executive's authority, status or responsibilities, (vi) a reduction in the aggregate level of Executive's compensation (including Base Salary, Target Bonus and benefits) of more than 10%, other than a percentage reduction which is the same for all officers of the Company, (vii) a material breach by the Company of its obligations to Executive under this Agreement, (viii) any relocation of Executive's principal place of employment by more than twenty-five (25) miles, or (ix) the issuance by the Company of a notice of nonrenewal under Section 3. With respect to clause (vii), Executive will not resign for Good Reason without first providing the Company with written notice specifically identifying the acts or omissions constituting the grounds for a Good Reason termination and a reasonable cure period of not less than thirty (30) days following such notice. (g) Service. For purposes of this Agreement, "SERVICE" means the performance of services by Executive as an officer, employee, consultant or board member of the Company or any parent or subsidiary corporation (as such terms are defined in Sections 424(e) and (f) of the Internal Revenue Code). 14. Confidential Information. Executive agrees to enter into the Company's standard Confidential Information and Invention Assignment Agreement (the "CONFIDENTIAL INFORMATION AGREEMENT") upon commencing employment hereunder. 15. Assignment. This Agreement will be binding upon and inure to the benefit of (a) the heirs, executors and legal representatives of Executive upon Executive's death and (b) any successor of the Company. Any such successor of the Company will be deemed substituted for the Company under the terms of this Agreement for all purposes. For this purpose, "SUCCESSOR" means any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company. Except as otherwise permitted by the terms of the 11 Option Plan and the Option Agreement, none of the rights of Executive to receive any form of compensation payable pursuant to this Agreement may be assigned or transferred except by will or the laws of descent and distribution. Any other attempted assignment, transfer, conveyance or other disposition of Executive's right to compensation or other benefits will be null and void. 16. Notices. All notices, requests, demands and other communications called for hereunder will be in writing and will be deemed given (i) on the date of delivery if delivered personally, (ii) one (1) day after being sent by a well established commercial overnight service, or (iii) four (4) days after being mailed by registered or certified mail, return receipt requested, prepaid and addressed to the parties or their successors at the following addresses, or at such other addresses as the parties may later designate in writing: If to the Company: Solectron Corporation 847 Gibraltar Drive Milpitas, CA 95035 Attn: Chairman, Compensation Committee of the Board of Directors If to Executive: at the last residential address known by the Company. 17. Non-Solicitation. For a period beginning on the Effective Date and ending twenty-four (24) months after the Executive ceases to be employed by the Company, Executive, directly or indirectly, whether as employee, owner, sole proprietor, partner, director, member, consultant, agent, founder, co-venturer or otherwise, will: (i) not solicit, induce or influence any person to leave employment with the Company; or (ii) not directly or indirectly solicit business from any of the Company's substantial customers and users on behalf of any Competitor (as defined in Section 13(d)). 18. Severability. In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement will continue in full force and effect without said provision. 19. Arbitration. (a) General. In consideration of Executive's service to the Company, its promise to arbitrate all employment related disputes and Executive's receipt of the compensation, pay raises and other benefits paid to Executive by the Company, at present and in the future, Executive agrees that any and all controversies, claims, or disputes with anyone (including the Company and any employee, officer, director, shareholder or benefit plan of the Company in their capacity as such or otherwise) arising out of, relating to, or resulting from Executive's service to the Company under this Agreement or otherwise or the termination of Executive's service with the Company, including any breach of this Agreement, will be subject to binding arbitration under the Arbitration Rules set forth in California Code of Civil Procedure Section 1280 through 1294.2, including Section 1283.05 (the "RULES") and pursuant to 12 California law. Disputes which Executive agrees to arbitrate, and thereby agrees to waive any right to a trial by jury, include any statutory claims under state or federal law, including, but not limited to, claims under Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, the Age Discrimination in Employment Act of 1967, the Older Workers Benefit Protection Act, the California Fair Employment and Housing Act, the California Labor Code, claims of harassment, discrimination or wrongful termination and any statutory claims. Executive further understands that this Agreement to arbitrate also applies to any disputes that the Company may have with Executive. (b) Procedure. Executive agrees that any arbitration will be administered by the American Arbitration Association ("AAA") and that a neutral arbitrator will be selected in a manner consistent with its National Rules for the Resolution of Employment Disputes. The arbitration proceedings will be held in Santa Clara County, CA and will allow for discovery according to the rules set forth in the National Rules for the Resolution of Employment Disputes or California Code of Civil Procedure. Executive agrees that the arbitrator will have the power to decide any motions brought by any party to the arbitration, including motions for summary judgment and/or adjudication and motions to dismiss and demurrers, prior to any arbitration hearing. Executive agrees that the arbitrator will issue a written decision on the merits. Executive also agrees that the arbitrator will have the power to award any remedies, including attorneys' fees and costs, available under applicable law. Executive understands the Company will pay for any administrative or hearing fees charged by the arbitrator or AAA except that Executive will pay the first $200.00 of any filing fees associated with any arbitration Executive initiates. Executive agrees that the arbitrator will administer and conduct any arbitration in a manner consistent with the Rules and that to the extent that the AAA's National Rules for the Resolution of Employment Disputes conflict with the Rules, the Rules will take precedence. (c) Remedy. Except as provided by the Rules, arbitration will be the sole, exclusive and final remedy for any dispute between Executive and the Company. Accordingly, except as provided for by the Rules, neither Executive nor the Company will be permitted to pursue court action regarding claims that are subject to arbitration. Notwithstanding, the arbitrator will not have the authority to disregard or refuse to enforce any lawful Company policy, and the arbitrator will not order or require the Company to adopt a policy not otherwise required by law which the Company has not adopted. (d) Availability of Injunctive Relief. In addition to the right under the Rules to petition the court for provisional relief, Executive agrees that any party may also petition the court for injunctive relief where either party alleges or claims a violation of this Agreement or the Confidentiality Agreement or any other agreement regarding trade secrets, confidential information, nonsolicitation or Labor Code Section 2870. In the event either party seeks injunctive relief, the prevailing party will be entitled to recover reasonable costs and attorneys' fees. (e) Administrative Relief. Executive understands that this Agreement does not prohibit Executive from pursuing an administrative claim with a local, state or federal administrative body such as the Department of Fair Employment and Housing, the Equal Employment Opportunity Commission or the workers' compensation board. This Agreement does, however, preclude Executive from pursuing court action regarding any such claim. 13 (f) Voluntary Nature of Agreement. Executive acknowledges and agrees that Executive is executing this Agreement voluntarily and without any duress or undue influence by the Company or anyone else. Executive further acknowledges and agrees that Executive has carefully read this Agreement and that Executive has asked any questions needed for Executive to understand the terms, consequences and binding effect of this Agreement and fully understand it, including that Executive is waiving Executive's right to a jury trial. Finally, Executive agrees that Executive has been provided an opportunity to seek the advice of an attorney of Executive's choice before signing this Agreement. 20. Attorneys' Fees in the Event of Litigation. In the event of any litigation between the Company and Executive under this Agreement (including arbitration as provided in Section 20), the Executive will be entitled to reasonable attorneys' fees incurred in connection therewith if the Executive prevails on a material issue. 21. Integration. This Agreement, together with the Option Plan, Option Agreement, Restricted Stock Agreement, the Deferred Compensation Plan and the Confidential Information Agreement represents the entire agreement and understanding between the parties as to the subject matter herein and supersedes all prior or contemporaneous agreements whether written or oral. No waiver, alteration, or modification of any of the provisions of this Agreement will be binding unless in writing that specifically references this Section 22 and signed by duly authorized representatives of the parties hereto. 22. Waiver of Breach. The waiver of a breach of any term or provision of this Agreement, which must be in writing, will not operate as or be construed to be a waiver of any other previous or subsequent breach of this Agreement. 23. Headings. All captions and section headings used in this Agreement are for convenient reference only and do not form a part of this Agreement. 24. Tax Withholding. All payments made pursuant to this Agreement will be subject to withholding of applicable taxes. 25. Governing Law. This Agreement will be governed by the laws of the State of California (with the exception of its conflict of laws provisions). 26. Acknowledgment. Executive acknowledges that he has had the opportunity to discuss this matter with and obtain advice from his private attorney, has had sufficient time to, and has carefully read and fully understands all the provisions of this Agreement, and is knowingly and voluntarily entering into this Agreement. 27. Counterparts. This Agreement may be executed in counterparts, and each counterpart will have the same force and effect as an original and will constitute an effective, binding agreement on the part of each of the undersigned. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 14 IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by their duly authorized officers, as of the day and year first above written. COMPANY: SOLECTRON CORPORATION /s/ Kevin O'Connor - -------------------------------------------- By: Kevin O'Connor Title: Senior Vice President, Human Resources Date: 18 June 2003 EXECUTIVE: /s/ Marc Onetto - -------------------------------------------- Marc Onetto Date: 18 June 2003 15 EX-10.15 6 f93929exv10w15.txt EXHIBIT 10.15 EXHIBIT 10.15 SECOND AMENDMENT AND WAIVER This SECOND AMENDMENT AND WAIVER (this "Amendment") is entered into as of August 27, 2003, among SOLECTRON CORPORATION, a Delaware corporation (the "Borrower"), BANC OF AMERICA SECURITIES LLC ("BAS"), as joint lead arranger and joint book runner, GOLDMAN SACHS CREDIT PARTNERS L.P. ("GSCP"), as joint lead arranger, joint book runner and co-syndication agent, JPMORGAN CHASE BANK ("JPMorgan"), as co-syndication agent, THE BANK OF NOVA SCOTIA ("Scotiabank"), as documentation agent, the lenders party hereto (each, a "Lender," and collectively, the "Lenders"), and Bank of America, N.A., as Administrative Agent. The Borrower, BAS, GSCP, JPMorgan, Scotiabank, the Lenders, and the Administrative Agent entered into an Amended and Restated 364-Day Credit Agreement dated as of February 13, 2003 which agreement was amended by a First Amendment Agreement dated as of July 9, 2003 (as in effect as of the date of this Amendment, the "Credit Agreement"). The Borrower has requested that the Lenders waive non-compliance with certain provisions of the Credit Agreement and agree to certain amendments to the Credit Agreement, and the Lenders party hereto have agreed to such request, subject to the terms and conditions of this Amendment. In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows: 1. Definitions; References; Interpretation. (a) Unless otherwise specifically defined herein, each term used herein (including in the Recitals hereof) which is defined in the Credit Agreement shall have the meaning assigned to such term in the Credit Agreement. (b) As used herein, "Amendment Documents" means this Amendment, the Consent and Agreement related hereto and the Credit Agreement (as amended by this Amendment). (c) Each reference to "this Agreement," "hereof," "hereunder," "herein" and "hereby" and each other similar reference contained in the Credit Agreement, and each reference to "the Credit Agreement" and each other similar reference in the other Loan Documents, shall from and after the Effective Date refer to the Credit Agreement as amended hereby. (d) The rules of interpretation set forth in Sections 1.02 and 1.05 of the Credit Agreement shall be applicable to this Amendment. 2. Waiver. Subject to and upon the conditions hereof, the Lenders party hereto hereby waive, effective as of the date of satisfaction of the conditions set forth in Section 5 (the "Effective Date"), non-compliance with Section 7.13(c) of the Credit Agreement (Cash Interest Coverage Ratio) (the "Waived Provision"), solely for the fiscal quarter ending August 29, 2003 (the "Applicable Quarter") and agree that failure of the Borrower to satisfy the Waived Provision as it relates to the Applicable Quarter shall not constitute a Default or Event of Default under the Credit Agreement; provided however, that the effectiveness of the waiver of the Waived Provision shall continue only so long as the Cash Interest Coverage Ratio for the Applicable Quarter is at or above 1.8 to 1.0. 3. Amendments to Credit Agreement. Subject to the terms and conditions hereof, the Credit Agreement is amended as follows, effective as of the Effective Date: (a) The defined terms "Consolidated Net Income" and "Maturity Date" in Section 1.01 of the Credit Agreement are amended in their entirety to read as follows: "Consolidated Net Income" means, for any period, for the Borrower and its Subsidiaries on a consolidated basis, the net income of the Borrower and its Subsidiaries from continuing operations (before extraordinary items, and excluding gains or losses from Dispositions of assets) for that period plus, in connection with measuring compliance with Sections 7.13(a), 7.13(b) and 7.13(c) only, profits or losses from discontinued operations for the fiscal quarters ending February 28, 2003, May 31, 2003 and August 29, 2003 to the extent any such fiscal quarter is included in that period. "Maturity Date" means (a) (i) November 30, 2003, or (ii), if the Borrower shall have consummated a Minimum Capital Raise on or before November 30, 2003, February 11, 2004, or (b) such earlier date upon which the Aggregate Revolving Commitments may be terminated in accordance with the terms hereof. (b) Section 4.02(c) of the Credit Agreement is amended to read as follows: (c) The Administrative Agent shall have received a Request for Credit Extension in accordance with the requirements hereof. Any such Request for Credit Extension which is a Loan Notice shall include a certification by a Responsible Officer of the Borrower that the Borrower is in compliance with the Liquidity Ratio then in effect, calculated as of the date of such Credit Extension. (c) Section 7.05(j) of the Credit Agreement is amended to read as follows: (j) the Borrower and each Subsidiary may make Dispositions not otherwise permitted hereunder; provided that (i) such Disposition is for Fair Market Value, (ii) at the time of any disposition and after giving effect thereto, no Default or no Event of Default shall exist or shall result from such Disposition, and (iii) the Net Disposition Proceeds from all such Dispositions by the Borrower and its Subsidiaries, together, shall not exceed (x) in any fiscal year (other than the fiscal year ending August 31, 2004), 5% of the Consolidated Total Assets of the Borrower and its Subsidiaries as of the last day of the immediately prior fiscal year and (y) in the fiscal year ending August 31, 2004, 10% of the Consolidated Total Assets of the Borrower and its Subsidiaries as of August 29, 2003. (d) Section 7.13(d) of the Credit Agreement is amended to read as follows: (d) Liquidity Ratio. Permit the Liquidity Ratio (i) as of the fiscal quarters of the Borrower ending November 30, 2002, February 28, 2003, May 31, 2003, and November 30, 2003, to be less than 1.2 to 1.0, and (ii) as of the fiscal quarter ending August 29, 2003, to be less than 1.3 to 1.0; provided, however, that if after November 30, 2002, the Borrower issues new senior Debt Securities in an aggregate principal amount of at least $300,000,000.00 but less than $500,000,000.00, the Borrower shall not permit the Liquidity Ratio for any fiscal quarter of the Borrower ending after such issuance to be less than 1.0 to 1.0; and provided, further, that if after November 30, 2002, the Borrower issues new senior Debt Securities in an aggregate principal amount equal to or greater than $500,000,000.00, the Borrower shall not permit the Liquidity Ratio for any fiscal quarter of the Borrower ending after such issuance to be less than 0.9 to 1.0. For the avoidance of doubt, assets and liabilities of Subsidiaries whose operations have been discontinued will continue to be included in the determination of the Liquidity Ratio. (e) References in the Agreement to the Borrowing Base, Borrowing Base Date and related definitions and provisions shall be disregarded and deemed to be deleted from the Agreement. (f) The Loan Notice attached to the Credit Agreement as Exhibit A is amended and restated in its entirety to read as set forth in Exhibit A hereto. 4. Representations and Warranties. The Borrower hereby represents and warrants to the Administrative Agent and the Lenders as follows: (a) No Default or Event of Default has occurred and is continuing (or would result from the amendment of the Credit Agreement contemplated hereby). (b) The execution, delivery and performance by the Borrower of the Amendment Documents have been duly authorized by all necessary corporate and other action and do not and will not require any registration with, consent or approval of, or notice to or action by, any Person (including any Governmental Authority) in order to be effective and enforceable. (c) The Amendment Documents constitute the legal, valid and binding obligations of the Borrower, enforceable against it in accordance with their respective terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting creditor's rights generally and by equitable principles (regardless of whether enforcement is sought in equity or at law). (d) All representations and warranties of the Borrower contained in the Credit Agreement are true and correct in all material respects (except to the extent such representations and warranties expressly refer to an earlier date, in which case they shall be true and correct as of such earlier date and except that this subsection (d) shall be deemed instead to refer to the last day of the most recent quarter and year for which financial statements have then been delivered in respect of the representation and warranty made in Section 5.05 of the Credit Agreement and to take into account any amendments to the Schedules to the Credit Agreement and other disclosures made in writing by the Borrower to the Administrative Agent and the Lenders after the Closing Date and approved by the Administrative Agent and the Required Lenders). (e) There has occurred since July 9, 2003, no event or circumstance that has resulted or could reasonably be expected to result in a Material Adverse Effect. (f) The Borrower is entering into this Amendment on the basis of its own investigation and for its own reasons, without reliance upon the Administrative Agent and the Lenders or any other Person. (g) The Borrower's obligations under the Credit Agreement and under the other Loan Documents are not subject to any defense, counterclaim, set-off, right of recoupment, abatement or other claim. 5. Conditions of Effectiveness. (a) The effectiveness of Section 2 and Section 3 of this Amendment shall be subject to the satisfaction of each of the following conditions precedent: (1) The Administrative Agent shall have received from the Borrower and the Required Lenders a duly executed original (or, if elected by the Administrative Agent, an executed facsimile copy) of this Amendment. (2) The Administrative Agent shall have received the consent of the Subsidiaries of the Borrower party to the Pledge Agreement, the Interco Subordination Agreement, the Security Agreement or the Guaranty, in form and substance satisfactory to the Administrative Agent, in their capacities as such, to the execution and delivery hereof by the Borrower. (3) The Administrative Agent shall have received evidence of payment by the Borrower of all fees, costs and expenses due and payable as of the date hereof hereunder and under the Credit Agreement, including any fees arising under or referenced in Section 6 of this Amendment and any costs and expenses payable under Section 7(g) of this Amendment (including the Administrative Agent's Attorney Costs, to the extent invoiced on or prior to the date hereof). (4) The Administrative Agent shall have received from the Borrower, in form and substance satisfactory to the Administrative Agent, copies of the resolutions passed by the board of directors of the Borrower, certified as of the date hereof by the Secretary or an Assistant Secretary of the Borrower, authorizing the execution, delivery and performance of this Amendment, together with such incumbency certificates and/or other certificates of Responsible Officers of the Borrower, as the Administrative Agent may require to establish the identities of and verify the authority and capacity of each Responsible Officer thereof authorized to act as such in connection with this Amendment and each other Loan Document to which the Borrower is a party. (5) The Administrative Agent shall have received all other documents it or the Required Lenders may reasonably request relating to any matters relevant hereto, all in form and substance satisfactory to the Administrative Agent. (6) The Effective Date shall have occurred on or before August 31, 2003. (b) For purposes of determining compliance with the conditions specified in Section 5(a), each Lender that has executed this Amendment shall be deemed to have consented to, approved or accepted, or to be satisfied with, each document or other matter either sent, or made available for inspection, by the Administrative Agent to such Lender for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to such Lender. (c) From and after the Effective Date, the Credit Agreement is amended as set forth herein. Except as expressly amended pursuant hereto, the Credit Agreement shall remain unchanged and in full force and effect and is hereby ratified and confirmed in all respects. (d) The Administrative Agent will notify the Borrower and the Lenders of the occurrence of the Effective Date. 6. Fees. The Borrower shall pay (through the Administrative Agent) to each Lender that executes and delivers this Amendment by no later than 12:00 p.m. (Pacific time) on August 27, 2003, a non-refundable amendment fee equal to 0.05% of such Lender's Revolving Loan Commitment as of the Effective Date. Such amendment fee shall be fully-earned upon becoming due and payable, shall not be refundable for any reason whatsoever and shall be in addition to any fee, cost or expense otherwise payable by the Borrower pursuant to the Credit Agreement or this Amendment. 7. Miscellaneous. (a) The Borrower acknowledges and agrees that the execution and delivery by the Administrative Agent and the Lenders of this Amendment shall not be deemed to create a course of dealing or an obligation to execute similar waivers or amendments under the same or similar circumstances in the future. (b) This Amendment shall be binding upon and inure to the benefit of the parties hereto and thereto and their respective successors and assigns. (c) This Amendment shall be governed by and construed in accordance with the law of the State of New York (including Sections 5-1401 and 5-1402 of the General Obligations Law of the State of New York), provided that the Administrative Agent and the Lenders shall retain all rights arising under Federal law. (d) This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Each of the parties hereto understands and agrees that this document (and any other document required herein) may be delivered by any party thereto either in the form of an executed original or an executed original sent by facsimile transmission to be followed promptly by mailing of a hard copy original, and that receipt by the Administrative Agent of a facsimile transmitted document purportedly bearing the signature of a Lender or the Borrower shall bind such Lender or the Borrower, respectively, with the same force and effect as the delivery of a hard copy original. Any failure by the Administrative Agent to receive the hard copy executed original of such document shall not diminish the binding effect of receipt of the facsimile transmitted executed original of such document of the party whose hard copy page was not received by the Administrative Agent. (e) This Amendment and the other Amendment Documents contain the entire and exclusive agreement of the parties hereto with reference to the matters discussed herein. This Amendment supersedes all prior drafts and communications with respect hereto. This Amendment may not be amended except in accordance with the provisions of Section 10.01 of the Credit Agreement. (f) If any term or provision of this Amendment shall be deemed prohibited by or invalid under any applicable law, such provision shall be invalidated without affecting the remaining provisions of this Amendment, the Credit Agreement or the Loan Documents. (g) The Borrower agrees to pay or reimburse Bank of America (including in its capacities as Collateral Agent and as Administrative Agent), GSCP, JPMorgan and Scotiabank upon demand, for all reasonable costs and expenses (including reasonable Attorney Costs) incurred by Bank of America (including in its capacities as Collateral Agent and as Administrative Agent), GSCP, JPMorgan and Scotiabank in connection with the development, preparation, negotiation, execution and delivery of the Amendment Documents. [Signature pages follow] IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment and Waiver to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. SOLECTRON CORPORATION By: /s/ Perry G. Hayes ---------------------- Title: Treasurer & VP A-7 BANK OF AMERICA, N.A., as Administrative Agent and Lender By: /s/ James P. Johnson ------------------------------------ Name: James P. Johnson Title: Managing Director A-8 GOLDMAN SACHS CREDIT PARTNERS L.P. By: /s/ Rob Shatzman ------------------------------------ Name: Rob Schatzman Title: Vice President A-9 THE BANK OF NOVA SCOTIA By: /s/ Kent Leonard ------------------------------------ Name: Kent Leonard Title: Director A-10 BNP PARIBAS By: /s/ Jean Plassard ------------------------------------ Name: Jean Plassard Title: Managing Director By: /s/ Rafael Lumanlan ------------------------------------ Name: Rafael Lumanlan Title: Director A-11 DBS BANK LTD., LOS ANGELES AGENCY By: /s/ Charles Ong ------------------------------------ Name: Charles Ong Title: General Manager A-12 FLEET NATIONAL BANK By: Greg Roux /s/ ------------------------------------ Name: Greg Roux Title: Managing Director A-13 JPMORGAN CHASE BANK By: /s/ William Rindfuss ------------------------------------ Name: William Rindfuss Title: Vice President A-14 WHIPPOORWILL ASSOCIATES, INC. AS AGENT FOR THE PRESIDENT AND FELLOWS OF HARVARD COLLEGE By: /s/ David A. Strumwasser ------------------------------------ Name: David A. Strumwasser Title: Managing Director A-15 THE ROYAL BANK OF SCOTLAND PLC By: ____________________________________ Name: Title: A-16 STANDARD CHARTERED BANK By: /s/ Joseph Cuevas ------------------------------------ Name: Joseph Cuevas Title: Vice President By: ------------------------------------ Name: Title: A-17 SUNTRUST BANK By: ____________________________________ Name: Title: A-18 TRS CALLISTO LLC By: /s/ Rosemaary F. Dunne ------------------------------------ Name: Rosemary F. Dunne Title: Vice President A-19 EX-10.16 7 f93929exv10w16.txt EXHIBIT 10.16 EXHIBIT 10.16 FIFTH AMENDMENT AND WAIVER This FIFTH AMENDMENT AND WAIVER (this "Amendment") is entered into as of August 27, 2003, among SOLECTRON CORPORATION, a Delaware corporation (the "Borrower"), SOLECTRON CORPORATION, a Delaware corporation (the "Borrower"), GOLDMAN SACHS CREDIT PARTNERS L.P. ("GSCP"), as sole lead arranger, sole book runner and co-syndication agent, JPMORGAN CHASE BANK ("JPMorgan"), as co-syndication agent, THE BANK OF NOVA SCOTIA ("Scotiabank"), as documentation agent, the lenders party hereto (each, a "Lender," and collectively, the "Lenders"), and BANK OF AMERICA, N.A., as Administrative Agent. The Borrower, GSCP, JPMorgan, Scotiabank, the Lenders, and the Administrative Agent entered into a Three-Year Credit Agreement dated as of February 14, 2002, which agreement was amended by an Amendment Agreement dated as of June 18, 2002, a Second Amendment Agreement dated as of August 19, 2002, a Third Amendment Agreement dated as of February 13, 2003, and a Fourth Amendment Agreement dated as of July 9, 2003 (as in effect as of the date of this Amendment, the "Credit Agreement"). The Borrower has requested that the Lenders waive non-compliance with certain provisions of the Credit Agreement and agree to certain amendments to the Credit Agreement, and the Lenders party hereto have agreed to such request, subject to the terms and conditions of this Amendment. In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows: 1. Definitions; References; Interpretation. (a) Unless otherwise specifically defined herein, each term used herein (including in the Recitals hereof) which is defined in the Credit Agreement shall have the meaning assigned to such term in the Credit Agreement. (b) As used herein, "Amendment Documents" means this Amendment, the Consent and Agreement related hereto and the Credit Agreement (as amended by this Amendment). (c) Each reference to "this Agreement," "hereof," "hereunder," "herein" and "hereby" and each other similar reference contained in the Credit Agreement, and each reference to "the Credit Agreement" and each other similar reference in the other Loan Documents, shall from and after the Effective Date refer to the Credit Agreement as amended hereby. (d) The rules of interpretation set forth in Sections 1.02 and 1.05 of the Credit Agreement shall be applicable to this Amendment. 2. Waiver. Subject to and upon the conditions hereof, the Lenders party hereto hereby waive, effective as of the date of satisfaction of the conditions set forth in Section 5 (the "Effective Date"), non-compliance with Section 7.13(c) of the Credit Agreement (Cash Interest Coverage Ratio) (the "Waived Provision"), solely for the fiscal quarter ending August 29, 2003 Fifth Amendment and Waiver (3-Year) 1 (the "Applicable Quarter") and agree that failure of the Borrower to satisfy the Waived Provision as it relates to the Applicable Quarter shall not constitute a Default or Event of Default under the Credit Agreement; provided however, that the effectiveness of the waiver of the Waived Provision shall continue only so long as the Cash Interest Coverage Ratio for the Applicable Quarter is at or above 1.8 to 1.0. 3. Amendments to Credit Agreement. Subject to the terms and conditions hereof, the Credit Agreement is amended as follows, effective as of the Effective Date: (a) The defined terms "Borrowing Base Date" and "Consolidated Net Income" in Section 1.01 of the Credit Agreement are amended in their entirety to read as follows: "Borrowing Base Date" means November 30, 2003, if the Borrower shall not have consummated a Minimum Capital Raise on or before such date. "Consolidated Net Income" means, for any period, for the Borrower and its Subsidiaries on a consolidated basis, the net income of the Borrower and its Subsidiaries from continuing operations (before extraordinary items, and excluding gains or losses from Dispositions of assets) for that period plus, in connection with measuring compliance with Sections 7.13(a), 7.13(b) and 7.13(c) only, profits or losses from discontinued operations for the fiscal quarters ending February 28, 2003, May 31, 2003 and August 29, 2003 to the extent any such fiscal quarter is included in that period. (b) Section 4.02(c) of the Credit Agreement is amended to read as follows: (c) The Administrative Agent and, if applicable, the L/C Issuer shall have received a Request for Credit Extension in accordance with the requirements hereof. Any such Request for Credit Extension which is a Loan Notice shall include a certification by a Responsible Officer of the Borrower that the Borrower is in compliance with the Liquidity Ratio then in effect, calculated as of the date of such Credit Extension. (c) Section 6.16 of the Credit Agreement is amended to read as follows: 6.16 Borrowing Base Certificate. The Borrower shall deliver to the Administrative Agent by no later than November 30, 2003, unless a Minimum Capital Raise has been consummated on or before such date, (a) a completed Borrowing Base Certificate and (b) full and complete reports with respect to the Receivables of the Borrower and its U.S. Subsidiaries, including information as to concentration, aging, identity of Receivables Debtors, letters of credit securing Receivables, disputed Receivables and other matters, as the Administrative Agent shall reasonably request. After the Borrowing Base Date, the Borrower shall deliver to the Administrative Agent, as soon as available but in any event by no later than ten Business Days after the end of each calendar month, a completed Borrowing Base Certificate, together with the related collateral reports described above. Without limiting any other provisions of the Loan Documents, if the Minimum Capital Raise has not been consummated on or before October 31, 2003, the Borrower shall cooperate fully with and permit access by the Agent-Related Persons and their consultants from after that date for purposes of auditing Fifth Amendment and Waiver (3-Year) 2 the Receivables in connection with the implementation of the Borrowing Base and pay to Administrative Agent upon demand all reasonable costs and expenses of such audit. (d) Section 7.05(j) of the Credit Agreement is amended to read as follows: (j) the Borrower and each Subsidiary may make Dispositions not otherwise permitted hereunder; provided that (i) such Disposition is for Fair Market Value, (ii) at the time of any disposition and after giving effect thereto, no Default or no Event of Default shall exist or shall result from such Disposition, and (iii) the Net Disposition Proceeds from all such Dispositions by the Borrower and its Subsidiaries, together, shall not exceed (x) in any fiscal year (other than the fiscal year ending August 31, 2004), 5% of the Consolidated Total Assets of the Borrower and its Subsidiaries as of the last day of the immediately prior fiscal year and (y) in the fiscal year ending August 31, 2004, 10% of the Consolidated Total Assets of the Borrower and its Subsidiaries as of August 29, 2003. (e) Section 7.13(d) of the Credit Agreement is amended to read as follows: (d) Liquidity Ratio. Permit the Liquidity Ratio (i) as of the fiscal quarters of the Borrower ending November 30, 2002, February 28, 2003, May 31, 2003, and November 30, 2003, to be less than 1.2 to 1.0, (ii) as of the fiscal quarter ending August 29, 2003, to be less than 1.3 to 1.0, and (iii) as of the fiscal quarters ending February 28, 2004 and thereafter, to be less than 1.0 to 1.0; provided, however, that if after November 30, 2002, the Borrower issues new senior Debt Securities in an aggregate principal amount of at least $300,000,000.00 but less than $500,000,000.00, the Borrower shall not permit the Liquidity Ratio for any fiscal quarter of the Borrower ending after such issuance to be less than 1.0 to 1.0; and provided, further, that if after November 30, 2002, the Borrower issues new senior Debt Securities in an aggregate principal amount equal to or greater than $500,000,000.00, the Borrower shall not permit the Liquidity Ratio for any fiscal quarter of the Borrower ending after such issuance to be less than 0.9 to 1.0. For the avoidance of doubt, assets and liabilities of Subsidiaries whose operations have been discontinued will continue to be included in the determination of the Liquidity Ratio. (f) The Loan Notice attached to the Credit Agreement as Exhibit A is amended and restated in its entirety to read as set forth in Exhibit A hereto. 4. Representations and Warranties. The Borrower hereby represents and warrants to the Administrative Agent and the Lenders as follows: (a) No Default or Event of Default has occurred and is continuing (or would result from the amendment of the Credit Agreement contemplated hereby). (b) The execution, delivery and performance by the Borrower of the Amendment Documents have been duly authorized by all necessary corporate and other action and do not and will not require any registration with, consent or approval of, or notice to or action by, any Person (including any Governmental Authority) in order to be effective and enforceable. (c) The Amendment Documents constitute the legal, valid and binding obligations of the Borrower, enforceable against it in accordance with their respective terms, except to the extent Fifth Amendment and Waiver (3-Year) 3 that the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting creditor's rights generally and by equitable principles (regardless of whether enforcement is sought in equity or at law). (d) All representations and warranties of the Borrower contained in the Credit Agreement are true and correct in all material respects (except to the extent such representations and warranties expressly refer to an earlier date, in which case they shall be true and correct as of such earlier date and except that this subsection (d) shall be deemed instead to refer to the last day of the most recent quarter and year for which financial statements have then been delivered in respect of the representation and warranty made in Section 5.05 of the Credit Agreement and to take into account any amendments to the Schedules to the Credit Agreement and other disclosures made in writing by the Borrower to the Administrative Agent and the Lenders after the Closing Date and approved by the Administrative Agent and the Required Lenders). (e) There has occurred since July 9, 2003, no event or circumstance that has resulted or could reasonably be expected to result in a Material Adverse Effect. (f) The Borrower is entering into this Amendment on the basis of its own investigation and for its own reasons, without reliance upon the Administrative Agent and the Lenders or any other Person. (g) The Borrower's obligations under the Credit Agreement and under the other Loan Documents are not subject to any defense, counterclaim, set-off, right of recoupment, abatement or other claim. 5. Conditions of Effectiveness. (a) The effectiveness of Section 2 and Section 3 of this Amendment shall be subject to the satisfaction of each of the following conditions precedent: (1) The Administrative Agent shall have received from the Borrower and the Required Lenders a duly executed original (or, if elected by the Administrative Agent, an executed facsimile copy) of this Amendment. (2) The Administrative Agent shall have received the consent of the Subsidiaries of the Borrower party to the Pledge Agreement, the Interco Subordination Agreement, the Security Agreement or the Guaranty, in form and substance satisfactory to the Administrative Agent, in their capacities as such, to the execution and delivery hereof by the Borrower. (3) The Administrative Agent shall have received evidence of payment by the Borrower of all fees, costs and expenses due and payable as of the date hereof hereunder and under the Credit Agreement, including any fees arising under or referenced in Section 6 of this Amendment and any costs and expenses payable under Section 7(g) of this Amendment (including the Administrative Agent's Attorney Costs, to the extent invoiced on or prior to the date hereof). Fifth Amendment and Waiver (3-Year) 4 (4) The Administrative Agent shall have received from the Borrower, in form and substance satisfactory to the Administrative Agent, copies of the resolutions passed by the board of directors of the Borrower, certified as of the date hereof by the Secretary or an Assistant Secretary of the Borrower, authorizing the execution, delivery and performance of this Amendment, together with such incumbency certificates and/or other certificates of Responsible Officers of the Borrower, as the Administrative Agent may require to establish the identities of and verify the authority and capacity of each Responsible Officer thereof authorized to act as such in connection with this Amendment and each other Loan Document to which the Borrower is a party. (5) The Administrative Agent shall have received all other documents it or the Required Lenders may reasonably request relating to any matters relevant hereto, all in form and substance satisfactory to the Administrative Agent. (6) The Effective Date shall have occurred on or before August 31, 2003. (b) For purposes of determining compliance with the conditions specified in Section 5(a), each Lender that has executed this Amendment shall be deemed to have consented to, approved or accepted, or to be satisfied with, each document or other matter either sent, or made available for inspection, by the Administrative Agent to such Lender for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to such Lender. (c) From and after the Effective Date, the Credit Agreement is amended as set forth herein. Except as expressly amended pursuant hereto, the Credit Agreement shall remain unchanged and in full force and effect and is hereby ratified and confirmed in all respects. (d) The Administrative Agent will notify the Borrower and the Lenders of the occurrence of the Effective Date. 6. Fees. The Borrower shall pay (through the Administrative Agent) to each Lender that executes and delivers this Amendment by no later than 12:00 p.m. (Pacific time) on August 27, 2003, a non-refundable amendment fee equal to 0.05% of such Lender's Revolving Loan Commitment as of the Effective Date. Such amendment fee shall be fully-earned upon becoming due and payable, shall not be refundable for any reason whatsoever and shall be in addition to any fee, cost or expense otherwise payable by the Borrower pursuant to the Credit Agreement or this Amendment. 7. Miscellaneous. (a) The Borrower acknowledges and agrees that the execution and delivery by the Administrative Agent and the Lenders of this Amendment shall not be deemed to create a course of dealing or an obligation to execute similar waivers or amendments under the same or similar circumstances in the future. (b) This Amendment shall be binding upon and inure to the benefit of the parties hereto and thereto and their respective successors and assigns. Fifth Amendment and Waiver (3-Year) 5 (c) This Amendment shall be governed by and construed in accordance with the law of the State of New York (including Sections 5-1401 and 5-1402 of the General Obligations Law of the State of New York), provided that the Administrative Agent and the Lenders shall retain all rights arising under Federal law. (d) This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Each of the parties hereto understands and agrees that this document (and any other document required herein) may be delivered by any party thereto either in the form of an executed original or an executed original sent by facsimile transmission to be followed promptly by mailing of a hard copy original, and that receipt by the Administrative Agent of a facsimile transmitted document purportedly bearing the signature of a Lender or the Borrower shall bind such Lender or the Borrower, respectively, with the same force and effect as the delivery of a hard copy original. Any failure by the Administrative Agent to receive the hard copy executed original of such document shall not diminish the binding effect of receipt of the facsimile transmitted executed original of such document of the party whose hard copy page was not received by the Administrative Agent. (e) This Amendment and the other Amendment Documents contain the entire and exclusive agreement of the parties hereto with reference to the matters discussed herein. This Amendment supersedes all prior drafts and communications with respect hereto. This Amendment may not be amended except in accordance with the provisions of Section 10.01 of the Credit Agreement. (f) If any term or provision of this Amendment shall be deemed prohibited by or invalid under any applicable law, such provision shall be invalidated without affecting the remaining provisions of this Amendment, the Credit Agreement or the Loan Documents. (g) The Borrower agrees to pay or reimburse Bank of America (including in its capacities as Collateral Agent and as Administrative Agent), GSCP, JPMorgan and Scotiabank upon demand, for all reasonable costs and expenses (including reasonable Attorney Costs) incurred by Bank of America (including in its capacities as Collateral Agent and as Administrative Agent), GSCP, JPMorgan and Scotiabank in connection with the development, preparation, negotiation, execution and delivery of the Amendment Documents. [Signature pages follow] Fifth Amendment and Waiver (3-Year) 6 IN WITNESS WHEREOF, the parties hereto have caused this Fifth Amendment and Waiver to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. SOLECTRON CORPORATION By: /s/ Perry G. Hayes ------------------------- Title: Treasurer & VP A-7 BANK OF AMERICA, N.A., as Administrative Agent and Lender By: /s/ James P. Johnson ------------------------------------ Name: James P. Johnson Title: Managing Director A-8 GOLDMAN SACHS CREDIT PARTNERS L.P. By: /s/ Rob Schatzman ------------------------------------ Name: Rob Schatzman Title: Vice President A-9 THE BANK OF NOVA SCOTIA By: /s/ Kent Leonard ------------------------------------ Name: Kent Leonard Title: Director A-10 BNP PARIBAS By: /s/ Jean Plassard ------------------------------------ Name: Jean Plassard Title: Managing Director By: /s/ Rafael Lumanlan ------------------------------------ Name: Rafael Lumanlan Title: Director A-11 CSAM FUNDING II By: /s/ Andrew Marshak ------------------------------------ Name: Andrew Marshak Title: Authorized Signatory A-12 DBS BANK LTD., LOS ANGELES AGENCY By: /s/ Charles Ong ------------------------------------ Name: Charles Ong Title: General Manager A-13 FLEET NATIONAL BANK By: /s/ Greg Roux ---------------------------------- Name: Greg Roux Title: Managing Director A-14 JPMORGAN CHASE BANK By: /s/ William Rindfuss ------------------------------------ Name: William Rindfuss Title: Vice President A-15 MORGAN STANLEY SENIOR FUNDING, INC. By: /s/ Jaap L. Tonckens ------------------------------------ Name: Jaap L. Tockens Title: Vice President A-16 THE ROYAL BANK OF SCOTLAND PLC By: ____________________________________ Name: Title: A-17 STANDARD CHARTERED BANK By: /s/ Joseph Cuevas ----------------------------------- Name: Joseph Cuevas Title: Vice President By: ------------------------------------ Name: Title: A-18 EX-12.1 8 f93929exv12w1.txt EXHIBIT 12.1 . . . EXHIBIT 12.1 COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES (in millions, except ratios)

EX-21.1 9 f93929exv21w1.txt EXHIBIT 21.1 . . . EXHIBIT 21.1 SUBSIDIARIES OF THE REGISTRANT

Evreux Bat SCI France Fine Pitch Technology, Inc. California, USA Force Computer France SARL France Force Computers GmbH Germany Force Computers, Inc Delaware, USA Force Computers (India) Pvt. Ltd. India Force Computers Japan KK Japan Force Computers Sweden AB Sweden Force Computers U.K. Limited UK G.H.Z Technologies Inc. Canada Iphotonics, Inc. Maryland, USA DY4 Systems, Virginia, Inc. Virginia, USA Kavlico Corporation California, USA Kavlico GmbH Germany LG Technologies Group Inc. Canada Magnetic Data Belgium, N.V. Belgium Magnetic Data California, LLC Delaware, USA Magnetic Data Tennessee, LLC Delaware, USA Magnetic Data Texas, LLC Delaware, USA Solectron Manufactura de Mexico S.A. de C.V. Mexico Magnetic Data Minnesota, LLC Delaware, USA Solectron Global Services Singapore Pte. Ltd. Singapore MDT, Ltd. Cayman Islands, British West Indies Memquest, Inc Delaware, USA Memquest Limited UK Metaltek, Inc. Delaware, USA NatSteel Electronics Inc California, USA NatSteel Electronics International Ltd. British Virgin Island Navox Corporation Delaware, USA NEL (US) Holdings, Inc. Delaware, USA NP Online Pte. Ltd. Singapore Patria Design Centre Pte. Ltd. Singapore Patria Design, Inc. California, USA PCI-SLR Technology (Guangzhou) Co., Limited China PT Solectron Technolgy Indonesia Indonesia R&M Metaltek Inc. Canada Revhold Ltd. UK Sam Surface Treat Pte. Ltd. Singapore Scrantom Engineering, Inc. California, USA Shanghai Shinei Industrial Co., Ltd China Shinei International Pte. Ltd. Singapore Shinei Scotland Limited Scotland Shinei USA, Inc Oregon, USA SLR Europe Holdings C.V. Netherlands Smart Modular Technologies (Deutschland) GmbH Germany Smart Modular Technologies (Europe) Limited UK Smart Modular Technologies (FSC), Inc. Barbados Smart Modular Technologies, Inc. California, USA Smart Modular Technologies (MA), Inc. Delaware, USA Smart Modular Technologies (P.R.), Inc. California, USA Smart Modular Technologies (Puerto Rico), Inc. Cayman Islands, British West Indies Smart Modular Technolgoies Sdn. Bhd. Malaysia SMIS R&D Inc. Canada Solectron Australia Pty. Ltd. Australia Solectron (Beijing) Electronic Equipment Repair Services Co., Ltd. China Solectron Brasil Ltda. Brazil Solectron California Corporation California, USA Solectron Canada Holdings, Inc. Canada Solectron Canada ULC Canada Solectron Capital Trust 1 Delaware, USA Solectron Cayman Ltd. Cayman Islands, British West Indies Solectron Corporation Delaware, USA

Solectron da Amazonia Ltda. Brazil Solectron do Brasil Holdings Ltda. Brazil Solectron Elektronik Uretim ve Pazarlama Danayi ve Ticaret Anonim Sirketi Turkey Solectron Europe B.V. Netherlands Solectron Europe Holdings LLC Delaware, USA Solectron Federal Systems, Inc. Delaware, USA Solectron France Holding SASU France Solectron France SAS France Solectron Funding Corporation Delaware, USA Solectron Global Services Australia Pty Limited Australia Solectron Global Services Canada, Inc. Canada Solectron Global Services (Hong Kong) Limited Hong Kong Solectron Global Services, Inc. California, USA Solectron Global Services Mexico S.A. de C.V. Mexico Solectron Global Services (USA), Inc. Delaware, USA Solectron GmbH Germany Solectron Grundbesitz GmbH Germany Solectron (HK) Technology Ltd. British Virgin lslands Solectron Holding Deutschland GmbH Germany Solectron Holdings Ltd. Delaware, USA Solectron Hungary Electronics Manufacturing Co., Ltd. Hungary Solectron Industrial Comercial, Servicios e Exportadora do Brasil Ltda. Brazil Solectron International Distribution Canada Limited Partnership Canada Solectron International Distribution, Inc. California, USA Solectron International (Netherlands) BV Netherlands Solectron IPCS Pte. Ltd. Singapore Solectron Ireland Cayman Islands, British West Indies Solectron Ireland (Foreign Branch office of Cayman Subsidiary) Cayman Islands Solectron Ireland Holding Ltd Cayman Islands, British West Indies Solectron K.K. Japan Solectron Malaysia Sdn. Bhd. Malaysia Solectron Massachusetts Corporation California, USA Solectron Mauritius Holdings Limited Mauritius Solectron Mauritius Limited Mauritius Solectron Netherlands B.V. Netherlands Solectron Nova Soctia ULC Canada Solectron Romania SRL Romania Solectron Scotland Limited UK Solectron Servicios Monterrey S.A. de C.V. Mexico Solectron Servicios S.A. de C.V. Mexico Solectron (Shanghai) Technology Co. Ltd. China Solectron (Shenzhen) Technology Co. Ltd. China Solectron Singapore Holdings Pte. Ltd. Singapore Solectron South Carolina Corporation South Carolina, USA Solectron (Suzhou) Technology Co., Ltd. China Solectron Sweden AB Sweden Solectron Taiwan Co., Ltd. Taiwan Solectron Technology, Inc. California, USA Solectron Technology Sdn. Bhd. Malaysia Solectron Technology Singapore Pte. Ltd. Singapore Solectron Telecommunications Pty. Limited Australia Solectron Texas, Inc. Delaware, USA Solectron Texas, LP Delaware, USA Solectron UK Limited UK Stream International (Bermuda) Ltd. Bermuda Stream International Canada Inc. Canada Stream International Europe B.V. Netherlands Stream International GmbH Germany Stream International Inc. Delaware, USA

Stream International Inc. Nevada, USA Stream International (N.I.) Limited. UK Stream International Nordic AB Sweden Stream New York, Inc. Delaware, USA Stream Servicios de Apoyo Informatico SRL Spain Thai Integrated Electronic Co. Ltd. Thailand US Robotics Corporation Delaware, USA Corporate Software Limited K.K. Japan Solectron Israel Co. Ltd. Israel PCI-Nel Technology Co. Ltd. Singapore PCI-Technology Ltd. Singapore Shinei Electronic Technology (Shanghai) Co. Ltd. Shanghai Solectron Electronic Technology (Shanghai) Co. Ltd. China Solectron Global Holdings L. P. Cayman Islands Solectron Global Services Italy S.R.L. Italy Solectron Servicios Chihuahua S.A. de C.V. Mexico Solectron (Shanghai) Electronic Equipment Repair Services Co., Ltd. China Solectron (Waigaoqiao) Technology Co. Ltd. China Stream Tracmail (Mauritius) Ltd. Mauritius Stream Tracmail Pvt Ltd. India Solectron Holdings Ltd. Delaware, USA

EX-23.1 10 f93929exv23w1.txt EXHIBIT 23.1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT The Board of Directors Solectron Corporation: We consent to the incorporation by reference in the registration statements (Nos. 333-69443, 333-46304, 333-46300, 333-40176, 333-34494, 333-92269, 333-75865, 333-85949, 333-89035, 333-75813, 333-24293, 333-02523, 333-17643, 333-56220, 333-56464, 333-60684, 333-64454, 333-69182, 333-73238, 333-74946, 333-84066, 333-96823, 033-58580, 333-46686, 033-57575, 033-75270, 033-33461, 033-58210, 333-83297, 333-02945, 333-15983, 333-49206, 333-102534, 333-102535, and 333-107127) on Forms S-3, S-4 and S-8 of Solectron Corporation of our report dated November 10, 2003, with respect to the consolidated balance sheets of Solectron Corporation and subsidiaries as of August 31, 2003 and 2002, and the related consolidated statements of operations, stockholders' equity, comprehensive income (loss), and cash flows for each of the years in the three-year period ended August 31, 2003, and the related financial statement schedule, which report appears in the August 31, 2003 annual report on Form 10-K of Solectron Corporation. Our report dated November 10, 2003 contains an explanatory paragraph stating that effective as of September 1, 2001, the Company adopted the provisions of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets". /S/ KPMG LLP Mountain View, California November 10, 2003 EX-31.1 11 f93929exv31w1.txt EXHIBIT 31.1 EXHIBIT 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002 I, Michael Cannon, certify that: 1. I have reviewed this annual report on Form 10-K of Solectron Corporation; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 14, 2003 /S/ Michael Cannon ------------------------------------- Michael Cannon President and Chief Executive Officer EX-31.2 12 f93929exv31w2.txt EXHIBIT 31.2 EXHIBIT 31.2 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 annual report on Form 10-K of Solectron Corporation; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 14, 2003 /S/ Kiran Patel ------------------------------ Kiran Patel Executive Vice President and Chief Financial Officer EX-32.1 13 f93929exv32w1.txt EXHIBIT 32.1 EXHIBIT 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Michael Cannon, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of Solectron Corporation on Form 10-K for the annual period ended August 29, 2003 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-K fairly presents in all material respects the financial condition and results of operations of Solectron Corporation. Date: November 14, 2003 /S/ Michael Cannon --------------------------------------- Michael Cannon President and Chief Executive Officer EX-32.2 14 f93929exv32w2.txt EXHIBIT 32.2 EXHIBIT 32.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Kiran Patel, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of Solectron Corporation on Form 10-K for the annual period ended August 29, 2003 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-K fairly presents in all material respects the financial condition and results of operations of Solectron Corporation. Date: November 14, 2003 /S/ Kiran Patel -------------------- Kiran Patel Executive Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----


Delaware		94-2447045
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)


PART I
	ITEM 1: BUSINESS
	ITEM 2: PROPERTIES
	ITEM 3: LEGAL PROCEEDINGS
	ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
	ITEM 5: MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
	ITEM 6: SELECTED FINANCIAL DATA
	ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
	ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
	ITEM 9a. CONTROLS AND PROCEDURES
PART III
	ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
	ITEM 11: EXECUTIVE COMPENSATION
	ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
	ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
	ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART IV
	ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
SIGNATURES
EXHIBIT 3.2
EXHIBIT 10.2
EXHIBIT 10.12
EXHIBIT 10.15
EXHIBIT 10.16
EXHIBIT 12.1
EXHIBIT 21.1
EXHIBIT 23.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2


Name	Age	Position

Michael R. Cannon	51	President and Chief Executive Officer
David Everett	60	Executive Vice President, Sales and Account Management
Perry Hayes	50	Vice President, Treasurer and Investor Relations
Warren J. Ligan	50	Vice President and Corporate Controller
Craig London	57	Executive Vice President, Strategy and Marketing
Kevin O’Connor	45	Senior Vice President, Human Resources
Marc Onetto	53	Executive Vice President, Operations
Kiran Patel	55	Executive Vice President and Chief Financial Officer


	High		Low

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

Fiscal 2002
Fourth quarter	$	8.11	$	2.56
Third quarter		10.68		6.99
Second quarter		16.45		8.09
First quarter		15.50		9.91


	Years Ended August 31

	2003	2002	2001

Hewlett-Packard	12.3%	11.0%	10.6%
Nortel Networks	11.5%	14.5%	11.9%
Cisco Systems	11.4%	11.6%	11.5%
Ericsson	*	*	13.7%


Consolidated Balance Sheet Data*	August 31

	2003		2002		2001		2000		1999

Working capital	$	1,718.9	$	3,654.8	$	6,014.8	$	5,411.4	$	3,162.7
Total assets		6,529.5		11,014.0		13,079.9		10,375.6		5,420.5
Long-term debt		1,824.4		3,183.9		5,027.5		3,319.5		922.7
Stockholders’ equity		1,422.0		4,772.7		5,150.7		3,802.1		3,166.9


	Payments Due by Period
	(in millions)


	Total		FY04		FY05		FY06		FY07		FY08		Thereafter

Short term debt (1)	$	998.6	$	998.6	$	—	$	—	$	—	$	—	$	—
Long term debt (2)		1,817.6		—		25.2		162.3		1111.0		0.5		518.6
Operating lease		227.2		75.7		34.4		22.8		19.8		16.6		57.9


	Page
Unaudited Quarterly Financial Information		39
Consolidated Balance Sheets		40
Consolidated Statement of Operations		41
Consolidated Statements of Stockholders’ Equity		42
Consolidated Statements of Comprehensive Loss		43
Consolidated Statement of Cash Flows		44
Notes to the Consolidated Financial Statements		46
Independent Auditors’ Report		74
Financial Statement Schedule II — Valuation and Qualifying Accounts		78


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


			Cash and
			Cash		Short-Term
			Equivalents		Investments

			(in millions)
		Fiscal 2003
Cash			$	717.3	$	19.9
Money market funds				543.5		—
Certificates of deposit				—		—
Market auction securities				—		21.9
U.S. government securities				—		—
Corporate obligations				210.9		5.6
Other				—		—

	Total		$	1,471.7	$	47.4

		Fiscal 2002
Cash			$	937.7	$	—
Money market funds				692.8		—
Certificates of deposit				24.8		11.4
Market auction securities				157.8		75.2
U.S. government securities				30.6		130.4
Corporate obligations				—		73.0
Other				41.7		42.2

	Total		$	1,885.4	$	332.2


Years Ending August 31:

2005		25.2
2006		162.3
2007		1,111.0
2008		0.5
Thereafter		518.6

Total	$	1,817.6


		2003		2002			2001

Current:
Federal		$	21.5	$	(186.6	)	$	11.9
State			3.2		3.5			2.6
Foreign			17.9		17.3			39.2

			42.6		(165.8	)		53.7

Deferred:
Federal			464.8		(212.5	)		(78.9	)
State			63.5		(53.5	)		(14.3	)
Foreign			10.1		(51.2	)		5.3

			538.4		(317.2	)		(87.9	)



	Total	$	581.0	$	(483.0	)	$	(34.2	)


Jurisdiction	Amount		Expiration

Brazil		$120.6	Indefinite
Canada		218.6		2004 - 2010
France		279.4		2004 - 2008
Germany		83.9	Indefinite
Ireland		62.7	Indefinite
Japan		82.7		2006 - 2008
Malaysia		81.8	Indefinite
Singapore		71.5	Indefinite
United Kingdom		190.9	Indefinite
Other		240.8	Various



Accounts receivable		$	277.4
Inventory			362.1
Other current assets			214.5
Property and equipment			186.2
Goodwill			2,143.5
Other intangible assets			25.6
Other long-term assets			44.2

	Total assets acquired	$	3,253.5

Current liabilities		$	(316.5	)
Long-term debt			(337.8	)
Other long-term liabilities			(32.3	)

	Total liabilities assumed	$	(686.6	)



Cash		$	55.3
Accounts receivable			357.3
Inventory			393.8
Other current assets			48.6
Property and equipment			242.4
Goodwill			1,974.9
Other assets			75.2

	Total assets acquired	$	3,147.5

Short-term debt		$	(251.5	)
Accounts payable and accrued liabilities			(428.9	)
Other liabilities			(12.4	)

	Total liabilities assumed	$	(692.8	)


	2003		Nature

Impairment of equipment	$	67.4	non-cash
Impairment of facilities		80.0	non-cash
Impairment of other assets		26.9	non-cash

Impairment of equipment, facilities and others	$	174.3
Severance and benefit costs		234.0	cash
Loss on leased equipment		2.3	cash
Loss on leased facilities		24.3	cash
Other exit costs		34.7	cash

Total	$	469.6


	August 31,		Goodwill			Goodwill			August 31,
	2002		Adjustments*			Impairment			2003

Global Operations	$	1,591.4	$	33.1		$	(1,624.5	)	$	—
Technology Solutions		55.1		(0.3	)		—			54.8
Global Services		136.9		(15.5	)					121.4
MicroSystems		23.4		1.0			(14.7	)		9.7

	$	1,806.8	$	18.3		$	(1,639.2	)	$	185.9


				Intellectual
	Supply			Property
	Agreements			Agreements			Other			Total

Gross amount	$	228.1		$	108.5		$	126.1		$	462.7
Accumulated amortization		(85.7	)		(45.6	)		(71.5	)		(202.8	)
Impairment		(140.4	)		—			(31.3	)		(171.7	)

Carrying value	$	2.0		$	62.9		$	23.3		$	88.2


Signature	Title	Date

	President and Chief
/S/ Michael Cannon	Executive Officer (Principal
	Executive Officer)	November 14, 2003
Michael Cannon

	Executive Vice President and
/S/ Kiran Patel	Chief Financial Officer
	(Principal Financial Officer)	November 14, 2003
Kiran Patel

/S/ Warren J. Ligan	Corporate Vice President and
	Chief Accounting Officer	November 14, 2003
Warren J. Ligan

/S/ Richard A. D’Amore
	Director	November 14, 2003
Richard A. D’Amore

/S/ Charles A. Dickinson
	Director	November 14, 2003
Charles A. Dickinson

/S/ Heinz Fridrich
	Director	November 14, 2003
Heinz Fridrich

/S/ William A. Hasler
	Director	November 14, 2003
William A. Hasler

/S/ Kenneth E. Haughton
	Director	November 14, 2003
Kenneth E. Haughton, Ph.D.

/S/ Paul R. Low
	Director	November 14, 2003
Paul R. Low, Ph.D.

/S/ C. Wesley M. Scott
	Director	November 14, 2003
C. Wesley M. Scott

/S/ Osamu Yamada
	Director	November 14, 2003
Osamu Yamada


			Additions

	Balance at		Charged							Balance at
	Beginning		To							End
	of Period		Operations		Acquisitions		(Deductions)			of Period

Description Year ended August 31, 2003: Allowance for doubtful accounts receivable	$	86.7	$	15.2	$	—	$	(54.0	)	$	47.9
Year ended August 31, 2002: Allowance for doubtful accounts receivable	$	40.8	$	9.2	$	47.6	$	(10.9	)	$	86.7
Year ended August 31, 2001: Allowance for doubtful accounts receivable	$	8.6	$	33.6	$	44.1	$	(45.5	)	$	40.8