SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
_____________________
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
______________________________________________
Mark One
[x] Annual report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 [Fee Required]
For the Fiscal Year Ended August 31, 1995, or
[ ] Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 [No Fee Required]
For the Transition Period From to .
Commission File Number 2-33228-40
SOLECTRON CORPORATION
(Exact name of registrant as specified in its charter)
California 94-2447045
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification Number)
777 Gibraltar Drive, Milpitas, California 95035
(Address of principal executive offices and Zip Code)
Registrant's telephone number, including area code: (408) 957-8500
Securities registered pursuant to Section 12(b) of the Act:
Common Stock traded on New York Stock Exchange
Liquid Yield Option TM Notes traded on New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: Common Stock
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 report(s)), and (2) has been subject to such
filing requirements for the past 90 days.
YES ___X___ NO __________
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. [ ]
The aggregate market value of the Registrant's Common Stock
held by non-affiliates on October 31, 1995
(based upon the last reported price of the Common Stock on the
New York Stock Exchange on such date) was $__40.25__.
As of October 31, 1995, there were _49,776,863_ shares of the
Registrant's Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on January 9, 1996, which the Company 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.
SOLECTRON CORPORATION
1995 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Part I Page
Item 1. Business 3
Item 2. Properties 12
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of
Security Holders 12
Part II
Item 5. Market for the Registrant's Common
Equity and Related Stockholder Matters 13
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 13
Item 8. Financial Statements and
Supplementary Data 18
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 31
Part III
Item 10. Directors and Executive Officers of
the Registrant 31
Item 11. Executive Compensation 35
Item 12. Security Ownership of Certain
Beneficial Owners and Management 35
Item 13. Certain Relationships and Related
Transactions 35
Part IV
Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K 35
Signatures 36
Part I
ITEM 1. BUSINESS
Solectron Corporation is an independent provider of
customized manufacturing services to electronics original
equipment manufacturers (OEMs). Solectron provides a wide
variety of pre-manufacturing, manufacturing and post-
manufacturing services. The Company's goal is to offer its
customers competitive advantages such as access to advanced
manufacturing technologies, shortened product time-to-market,
reduced cost of production and more effective asset
utilization that can be attained from outsourcing their
manufacturing. The Company currently conducts operations in
the Western and Eastern United States, Europe and Southeast
Asia. The Company believes that the geographically diverse
locations of its facilities enable it to build closer regional
relationships with its customers and to better meet its
customer's cost and local market content requirements.
Solectron Corporation was incorporated in California in
August 1977. Solectron's corporate headquarters are located
at 777 Gibraltar Drive, Milpitas, California 95035. The
Company's telephone number is (408) 957-8500. As used
herein, "Solectron" and the "Company" refer to Solectron
Corporation and its subsidiaries, unless the context otherwise
requires.
Industry Overview
Solectron is benefiting from increased worldwide market
acceptance of the use of manufacturing specialists in the
electronics industry. Many electronics OEMs have adopted and
are becoming increasingly reliant upon manufacturing
outsourcing strategies. The Company believes the trend towards
outsourcing manufacturing will continue. OEMs utilize
manufacturing specialists for many reasons including the
following:
Reduce Time to Market. Due to intense competitive pressures
in the electronics industry, OEMs are faced with increasingly
shorter product life-cycles and therefore have a growing need
to reduce the time required to bring a product to market. OEMs
can reduce their time to market by using a manufacturing
specialist's manufacturing expertise and infrastructure.
Reduce Capital Investment. As electronic products have become
more technologically advanced, the manufacturing process has
become increasingly automated, requiring a greater level of
investment in capital equipment. Manufacturing specialists
enable OEMs to gain access to advanced manufacturing
facilities, thereby reducing the OEMs' overall capital
equipment requirements.
Focus Resources. Because the electronics industry is
experiencing greater levels of competition and more rapid
technological change, many OEMs increasingly are seeking to
focus their resources on activities and technologies in which
they add the greatest value. By offering comprehensive
electronics assembly and related manufacturing services,
manufacturing specialists allow OEMs to focus on their own
core competencies such as product development and marketing.
Access Leading Manufacturing Technology. Electronic products
and electronics manufacturing technology have become
increasingly sophisticated and complex, making it difficult
for OEMs to maintain the necessary technological expertise to
manufacture products internally. OEMs are motivated to work
with a manufacturing specialist in order to gain access to the
specialist's expertise in interconnect, test and process
technologies.
Improve Inventory Management and Purchasing Power.
Electronics industry OEMs are faced with increasing
difficulties in planning, procuring and managing their
inventories efficiently due to frequent design changes, short
product life-cycles, large investments in electronic
components, component price fluctuations and the need to
achieve economies of scale in materials procurement. OEMs can
reduce production costs by using a manufacturing specialist's
volume procurement capabilities. In addition, a manufacturing
specialist's expertise in inventory management can provide
better control over inventory levels and increase the OEM's
return on assets.
Access Worldwide Manufacturing Capabilities. OEMs are
increasing their international activities in an effort to
lower costs and access foreign markets. Manufacturing
specialists with worldwide capabilities are able to offer such
OEMs a variety of options on manufacturing locations to better
address their objectives regarding cost, shipping location,
frequency of interaction with manufacturing specialists and
local content requirements of end-market countries.
Strategy
The Company's strategy emphasizes the following key elements:
Quality. Solectron believes that product quality is a
critical success factor in the electronics manufacturing
market. The Company strives for continuous improvement of its
processes and has adopted a number of quality improvement and
measurement techniques to monitor its performance. The
Company has received numerous superior service and quality
awards, including the Malcolm Baldrige National Quality Award
in October 1991, the State of California Governor's Golden
State Award in September 1994, and numerous awards from its
customers such as Apple Computer, Applied Materials, Exabyte,
Hewlett-Packard Company, International Business Machines
Corporation (IBM) and Sun Microsystems, Inc. Nearly all the
Company's manufacturing facilities are certified under
ISO-9002, an international quality standard for manufacturing
and distribution management systems.
Manufacturing Partnerships. An important element of
Solectron's strategy is to establish partnerships with major
and emerging OEM leaders in the electronics industry. Due to
the costs inherent in supporting customer relationships, the
Company focuses its efforts on customers with which the
opportunity exists to develop long-term business partnerships.
The Company's goal is to provide its customers with total
manufacturing solutions for both new and more mature products,
as well as across product generations. The Company's
manufacturing services range from providing just-in-time
delivery on low to medium volume turnkey and consignment
projects and projects that require more value-added services,
to servicing OEMs that require price-sensitive, high-volume
production. In order for the Company to continue to develop
long-term business partnerships with leading OEMs in the
electronics industry, the Company will be required to continue
to increase staffing and other expenses, as well as its
expenditures on capital equipment and leasehold improvements.
The Company's customers generally do not commit to firm
production schedules for more than one quarter. Should the
Company increase its expenditures in anticipation of a future
level of sales which does not materialize, its profitability
would be adversely affected. On occasion, customers may
require rapid increases in production which can place an
excessive burden on the Company's resources. In order to
maintain its sales growth and profitability, the Company will
be required to continue managing its assets efficiently.
Turnkey Capabilities. Another element of Solectron's strategy
is to provide a complete range of manufacturing management and
value-added services, including materials management, board
design, concurrent engineering, assembly of complex printed
circuit boards and other electronic assemblies, test
engineering, software manufacturing, accessory packaging and
post-manufacturing services. The Company believes that as
manufacturing technologies become more complex and as product
life-cycles shorten, OEMs will increasingly contract for
manufacturing on a turnkey basis as they seek to reduce their
time to market and capital asset and inventory costs. A
substantial portion of the Company's revenue is from its
turnkey business. The Company believes that the ability to
manage and support large turnkey projects is a critical
success factor and a significant barrier to entry for the
market it serves. In addition, the Company believes that due
to the difficulty and long lead-time required to change
manufacturers, turnkey projects generally increase an OEM's
dependence on its manufacturing specialist, resulting in
greater stability of the Company's customer base and in closer
working relationships. The Company has been successful in
establishing sole source positions with many of its customers
for certain of their products.
Advanced Manufacturing Process Technology. Solectron intends
to continue to offer its customers the most advanced
manufacturing process technologies, including surface mount
technology (SMT) assembly and testing and emerging
interconnect technologies. The Company has developed
substantial SMT expertise including advanced, vision-based
component placement equipment. The Company believes that the
cost of SMT assembly facilities and the technical capability
required to operate a high-yield SMT operation are significant
competitive factors in the market for electronic assembly. The
Company also has the capability to manufacture using
tape-automated-bonding, chip-on-substrate, chip-on-flex, ball-
grid arrays and other more advanced manufacturing processes.
However, to date the Company has not utilized these
manufacturing processes on a significant scale.
Diverse Geographic Operations. An important element of
Solectron's strategy is to establish production facilities in
areas of high customer density or where manufacturing
efficiencies can be achieved. The Company currently has
operations in the Western and Eastern United States, Europe
and Southeast Asia. The Company believes that its facilities
in these diverse geographic locations enable Solectron to
better address its customers' objectives regarding cost,
shipping location, frequency of interaction with manufacturing
specialists and local content requirements of end-market
countries. See "International Manufacturing Capability" below.
In addition, the Company also has a business development
office in Tokyo, Japan. Solectron intends to continue to
expand its operations as necessary to continue to serve its
existing customers and to develop new business.
International Manufacturing Capability
Western United States. The Company's headquarters and largest
manufacturing operations are located in Silicon Valley,
principally at a single site in Milpitas, California. The
Company believes that the location of these facilities in one
of the largest concentrations of OEM electronics manufacturers
permits it to more efficiently provide electronic assembly,
manufacturing management and other services to such OEMs. In
September 1993, the Company acquired operations in Everett,
Washington. In addition to serving customers in that region,
this facility specializes in low volume, high mix production.
Eastern United States. The Company's Eastern United States
operations are located in Charlotte, North Carolina and were
acquired in September 1992 from IBM. This facility is staffed
by personnel with extensive electronics manufacturing and
product design experience. The Company believes that the
Charlotte facility allows it to better pursue new business
opportunities with new and existing customers with Eastern
United States operations because of Charlotte's status as a
transportation hub and its relative proximity to major Eastern
United States electronics markets.
Europe. The Company has three European sites. One site is
located in Bordeaux, France and was also acquired in September
1992 from IBM. The Bordeaux facility is staffed largely by
former IBM employees, many with extensive electronics
manufacturing and product design experience. In connection
with the acquisitions from IBM, IBM committed to purchase from
the Bordeaux facility certain volumes of sub-assemblies for a
period of three years ending in December 1995. While the
Company expects to continue to do business with IBM after the
agreement expires, there can be no guarantee that such
business will be avaialable at satisfactory terms to the
Company. However, Solectron believes that its Bordeaux
facility will continue to allow it to better serve IBM and to
develop new business with other customers having European
operations.
In September 1993, the Company also acquired operations
in Dunfermline, Scotland. The facility was expanded in fiscal
1995 to accommodate increased customer demand. Solectron
believes that this facility allows it to better serve the
many electronics OEMs located in the United Kingdom and
Ireland.
In November 1995, the Company completed a transaction
with Hewlett-Packard GmbH (HP), a subsidiary of Hewlett
-Packard Company, to acquire the assets of HP's printed
circuit board assembly operation in Boeblingen, Germany. This
facility is expected to allow the Company to better serve the
German market and Hewlett-Packard.
Southeast Asia. The Company's Southeast Asia manufacturing
operation is located in Penang, Malaysia and was opened in
1991. This facility was expanded in fiscal 1994 due to
increased customer demand. The Penang operation was
established to better serve the needs of OEMs requiring
price-sensitive, high-volume production capabilities and to
provide more efficient manufacturing services to customers
located in Southeast Asia. The facility currently provides
electronics assembly, materials management and other services
to customers located in Malaysia, Singapore, Japan, the United
States and other locations.
The Company has established operations in five new
locations since September 1992. As the Company manages the
existing operations and expands geographically, it may
experience certain inefficiencies from the management of
geographically dispersed operations. In addition, the
Company's results of operations will be adversely affected if
these new facilities do not achieve revenue growth sufficient
to offset increased expenditures associated with geographic
expansion.
In fiscal 1995, approximately 38% of the Company's sales
were from operations outside of the United States. As a
result of continued customer demand overseas, the Company
expects foreign sales as a percentage of total sales to
increase. As a result of its foreign sales and facilities,
the Company's operations are subject to risks of doing
business abroad, including fluctuations in the value of
currency, export duties, import controls and trade barriers
(including quotas), restrictions on the transfer of funds,
employee turnover, work stoppages, longer payment cycles,
greater difficulty in accounts receivable collection, burdens
of complying with a wide variety of foreign laws and, in
certain parts of the world, political instability. While to
date these factors have not had an adverse impact on the
Company's results of operations, there can be no assurance
that there will not be such an impact in the future.
Manufacturing
Solectron's Approach
To achieve excellence in manufacturing, the Company
combines advanced manufacturing technology, such as
computer-aided manufacturing and testing, with Japanese
manufacturing techniques, including just-in-time
manufacturing, total quality control, statistical process
control and continuous flow manufacturing. Just-in-time
manufacturing is a production technique which minimizes
work-in-process inventory and manufacturing cycle time while
enabling the Company to deliver products to customers in the
quantities and time frame required. Total quality control is a
management philosophy which seeks to impart high levels of
quality in every operation of the Company and is accomplished
by the setting of quality objectives for every operation,
tracking performance against those objectives, identifying
work flow and policy changes required to achieve higher
quality levels and a commitment by executive management to
support changes required to deliver higher quality.
Statistical process control is a set of analytical and
problem-solving techniques based on statistics and process
capability measurements through which the Company can track
process inputs and resulting quality and determine whether a
process is operating within specified limits. The goal is to
reduce variability in the process, as well as eliminate
aberrations which contribute to quality below the acceptable
range of each process performance standard. Continuous flow
manufacturing is a manufacturing technique for making
operators responsible for quality, thereby eliminating
separate quality control staffs and minimizing the
perpetuation of defects through large quantities of assembled
units.
In order to successfully implement these management
techniques, Solectron has developed the ability to timely
collect and utilize large amounts of data. The Company
believes this ability is critical to a successful assembly
operation and represents a significant competitive factor,
especially in large turnkey projects. To manage this data, the
Company uses sophisticated computer systems for material
resource planning, shop floor control, work-in-process
tracking, statistical process control and activity-based
product costing.
In implementing its manufacturing approach, the Company
emphasizes timely delivery and accurate, up-to-date
documentation for each product. The Company develops an
appropriate production process and a complete set of
manufacturing process instructions, inspection plans and a
quality assurance plan. In the case of turnkey orders, the
Company analyzes each customer's materials specifications to
identify the suppliers from whom to purchase the materials.
The Company then plans and executes purchase orders and
receives, inspects and warehouses components, expedites
critical components and delivers a complete set of components
to the production floor for assembly in sufficient time to
meet customer requirements.
Responsiveness to customers, particularly as to
engineering changes once manufacturing has commenced, is an
important component of Solectron's manufacturing approach.
Many products manufactured by the Company are in the early
stages of their product life cycle and therefore may have many
design or engineering changes. Upon receiving an engineering
change notice, the Company identifies the impact of such
changes on the production process, current inventory and open
purchase orders. To support a continuous production flow while
minimizing excess and obsolete inventory costs for the
customer, the Company restructures bills of material and
expedites orders for new components, as authorized. The
Company also identifies and makes changes to its manufacturing
instructions and test plans. In order to assure prompt
customer response, the Company assigns each project a project
manager, quality assurance engineer, product engineer, test
engineer and customer service representative. Solectron
maintains regular contact with its customers to assure
adequate information exchange, document control and activities
coordination necessary to support a high level of quality and
on-time delivery.
Electronic Assembly and Other Services
Solectron's electronic assembly activities consist
primarily of the placement and attachment of electronic and
mechanical components on printed circuit boards and flexible
cables. The Company also assembles higher-level sub-systems
and systems incorporating printed circuit boards and complex
electromechanical components, in some cases manufacturing and
packaging products for shipment directly to the customer's
distributors. In addition, Solectron provides other
manufacturing services including refurbishment, disk
duplication and packaging services and remanufacturing.
Solectron manufactures on a turnkey basis with Solectron
directly procuring some or all of the components necessary for
production, and on a consignment basis, where the OEM customer
supplies all components for assembly.
In conjunction with its assembly activities, Solectron
also provides computer-aided testing of printed circuit
boards, sub-systems and systems, which contributes
significantly to the Company's ability to deliver high quality
products on a consistent basis. The Company has developed
specific strategies and routines to test board and system
level assemblies. In-circuit tests verify that all components
have been properly inserted and that the electrical circuits
are complete. Functional tests determine if the board or
system assembly is performing to customer specifications. The
Company either designs and procures test fixtures and develops
its own test software or utilizes the customer's existing test
fixtures and test software. In addition, the Company also
provides environmental stress tests of the board or system
assembly.
Solectron provides turnkey manufacturing management to
meet its customers' requirements, including procurement and
materials management and consultation on board design and
manufacturability. Individual customers may select various
services from among the Company's full range of turnkey
capabilities.
Procurement and materials management consists of the
planning, purchasing, expediting, warehousing, preparing and
financing of the components and materials required to assemble
a printed circuit board or electronic system. OEMs have
increasingly utilized electronic manufacturing specialists to
purchase all or some components directly from component
manufacturers or distributors and to finance and warehouse the
components.
The Company also assists its customers in evaluating
board designs for manufacturability. Solectron evaluates the
board design for ease and quality of manufacture and, when
appropriate, recommends design changes to reduce manufacturing
costs or lead times or to increase the quality of finished
assemblies. The Company also offers board design services for
a fee. Board design services consist of the engineering and
design associated with the arrangement and interconnection of
specified components on printed circuit boards to achieve an
OEM's desired level of functionality.
Sales and Marketing
Sales and marketing at Solectron is an integrated process
involving direct salespeople and project managers, as well as
the Company's senior executives. The Company's sales
resources are directed at multiple management and staff levels
within targeted accounts. The Company also uses independent
sales representatives in certain geographic areas. The Company
also receives unsolicited inquiries resulting from advertising
and public relations activities, as well as referrals from
current customers. These opportunities are evaluated against
the Company's customer selection criteria and are assigned to
direct salespeople or independent sales representatives, as
appropriate. Historically, the Company has had substantial
recurring sales from existing customers.
Over 90% of the Company's net sales during fiscal 1995
were derived from customers which were also customers during
fiscal 1994. Although Solectron seeks to diversify its
customer base, a small number of customers currently are
responsible for a significant portion of the Company's net
sales. During fiscal 1995, 1994, and 1993, the Company's ten
largest customers accounted for over 70%, 73%, and 75% of
consolidated net sales respectively. However, with the
exception of IBM Corporation, which represented 21%, 28% and
26% of net sales in fiscal 1995, 1994 and 1993, respectively,
Apple Computer, Inc. which represented 12% of net sales in
fiscal 1994, and Sun Microsystems, Inc. which represented 12%
of net sales in fiscal 1993, no other individual customer
accounted for more than 10% of the Company's net sales in any
of these years.
Backlog
Backlog consists of contracts or purchase orders with
delivery dates scheduled within the next twelve months. At
August 31, 1995, Solectron's backlog was approximately $520
million. The backlog was approximately $350 million at August
31, 1994. Because customers may cancel or reschedule
deliveries, backlog is not a meaningful indicator of future
financial results.
Competition
The electronic assembly and manufacturing industry is
comprised of a large number of companies, several of which
have achieved substantial market share. The Company also
faces competition from current and prospective customers which
evaluate Solectron's capabilities against the merits of
manufacturing products internally. Solectron competes with
different companies depending on the type of service or
geographic area. Certain of the Company's competitors have
broader geographic breadth. They also may have greater
manufacturing, financial, research and development and
marketing resources than the Company. The Company believes
that the primary basis of competition in its targeted markets
is manufacturing technology, quality, responsiveness, the
provision of value-added services and price. To remain
competitive, the Company must continue to provide
technologically advanced manufacturing services, maintain
quality levels, offer flexible delivery schedules, deliver
finished products on a reliable basis and compete favorably on
the basis of price. The Company currently may be at a
competitive disadvantage as to price when compared to
manufacturers with lower cost structures, particularly with
respect to manufacturers with established facilities where
labor costs are lower.
Employees
As of August 31, 1995, the Company employed 11,049
persons, including 2,982 temporary employees. Of the
Company's 11,049 persons employed, 4,579 were employed by the
Company's foreign operations.
Patents and Trademarks
The Company obtained a limited number of U.S. patents in
1995 related to the process and equipment used in its surface
mount technology. These patents are considered valuable to
the Company.
Although the Company does not believe that its
manufacturing process infringes on the intelectual property
rights of third parties, there can be no assurance that third
parties will not assert infringement claims against the
Company in the future. If such an assertion where to be
made, it may become necessary or useful for the Company
to enter into licensing arrangements or to resolve such an
issue through litigation. However, there can be no asurance
that such license rights would be available to the Company on
commercially acceptable terms or that any such litigation
could be resolved favorably. Additionally, such litigation
could be lengthy and costly and could have a material adverse
effect on the Company's financial condition regardless
of the outcome of such litigation.
The Company does not believe that trademark protection
is an important competitive factor in its market.
ITEM 2: PROPERTIES
The Company's domestic manufacturing facilities are located in
California, North Carolina and Washington. In and around
Milpitas, California, Solectron Corporation leases
approximately 1,112,000 square feet of facilities under leases
expiring through 2000. In Charlotte, North Carolina,
the Company owns a single facility of approximately
175,000 square feet on 73 acres of land and occupies an
additional facility of approximately 36,000 square feet
under a short-term lease. In Everett, Washington, the
Company leases approximately 70,000 square feet.
In Europe, the Company owns approximately 319,000 square feet
of facilities on 240 acres of land in Bordeaux, France. In
Dunfermline, Scotland, the Company owns two facilities
totaling approximately 213,000 square feet on approximately
15 acres of land. In connection with the November 1995
acquisition its site in Boeblingen, Germany, the Company now
leases facilities in Boeblingen approximating 50,000 square
feet.
The Company's Asian manufacturing operation is located in
Penang, Malaysia. The Company owns facilities of 196,000
square feet on 5 acres of land which are leased pursuant to a
60-year lease.
Around the world, the Company is subject to a variety of
environmental regulations relating to the use, storage,
discharge and disposal of hazardous chemicals used during its
manufacturing process. Any failure by the Company to comply
with present and future regulations could subject it to future
liabilities or the suspension of production. In addition,
such regulations could restrict the Company's ability to
expand its facilities or could require the Company to acquire
costly equipment or to incur other significant expenses to
comply with environmental regulations.
ITEM 3: LEGAL PROCEEDINGS
Not applicable.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during
the fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS
Common Stock Information
The following table sets forth the quarterly high and low per
share sales prices of the Company's common stock for the two-
year period ended August 31, 1995, as quoted on the New York
Stock Exchange.
Per share trading price range:
First Quarter Second Quarter Third Quarter Fourth Quarter
1995 1994 1995 1994 1995 1994 1995 1994
High 31 3/8 28 5/8 27 1/4 33 1/4 31 32 1/2 38 5/8 31 1/4
Low 24 3/4 20 3/4 22 1/2 26 1/8 22 7/8 25 3/4 30 1/8 23 3/4
ITEM 6: SELECTED FINANCIAL DATA
Five year selected financial highlights
(in thousands except per share data)
For the years ended 8/31, 1995 1994 1993 1992 1991
Consolidated Statement of Income Data:
Net Sales $2,065,559 $1,456,779 $836,326 $406,883 $265,363
Operating income 123,434 88,350 53,140 27,153 17,903
Income before income taxes 120,494 84,159 48,613 24,144 16,442
Net income 79,526 55,545 30,600 14,488 9,229
Fully diluted net
income per share $1.62 $1.18 $0.75 $0.44 $0.35
Consolidated Balance Sheet Data:
Working capital $355,603 $309,203 $265,025 $199,254 $35,313
Total Assets 940,855 766,395 603,285 308,737 135,117
Long-term debt and capital 30,043 140,709 137,011 130,933 12,479
lease obligations
Shareholder's equity 538,141 330,789 260,980 104,245 47,146
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
Solectron's net sales are derived from sales to electronics
original equipment manufacturers. The majority of the
Company's customers compete in the telecommunications,
computer peripherals, workstation, and personal computer
segments of the electronics industry. The Company uses
advanced manufacturing technologies in assembly and
manufacturing management of complex printed circuit boards and
electronics systems.
Operating results are affected by a number of factors,
including the degree of turnkey manufacturing, the material
content and volume of products built, manufacturing
efficiencies, utilization of capacity, start-up costs associated
with new customer projects, and price competition. Over the
past several years, the Company's strategy has been to increase
the percentage of sales it derives from turnkey manufacturing,
which currently represents a substantial portion of the
Company's sales. Turnkey projects, in which the Company
procures some or all of the components necessary for production,
typically generate higher net sales and higher gross profits
with lower gross margins than consignment projects due
to the inclusion in the Company's operating results of sales
and costs associated with the purchase and sale of components.
The increase in gross profit and the decrease in gross margin
over the past several years has been due primarily to this shift
toward turnkey manufacturing. More recently, the Company has
assembled products with varying degrees of material content,
which has caused the Company's gross margin to fluctuate. In
addition, the degree of startup costs and inefficiencies
associated with new customer projects has affected the
Company's gross margin.
The Company has manufacturing operations in six
locations: three in the U.S., two in Europe, and one in
Malaysia. Additionally, on August 17, 1995, the Company
executed definitive agreements with Hewlett-Packard GmbH (HP),
a subsidiary of Hewlett-Packard Company, to acquire HP's
printed circuit board assembly operation in Boeblingen,
Germany. This transaction is expected to close in November
1995. As the Company manages its existing operations and
expands geographically, it may experience certain
inefficiencies from the management of geographically
dispersed operations.
Around the world, the Company is subject to a variety of
environmental regulations relating to the use, storage,
discharge, and disposal of hazardous chemicals used during its
manufacturing process. Any failure by the Company to comply
with present and future regulations could subject it to future
liabilities or the suspension of production. In addition, such
regulations could restrict the Company's ability to expand its
facilities or could require the Company to make significant
expenditures to comply with environmental regulations.
The Company competes within the electronics manufacturing
services (EMS) segment of the electronics industry. The EMS
segment is currently growing at a faster rate than the overall
electronics industry, but the EMS segment is also comprised of
a large number of companies, some of which have achieved
substantial market share. In addition to competing with other
EMS companies, the Company also faces competition from current
and prospective customers that evaluate Solectron's
capabilities against the merits of manufacturing products
internally. The Company believes that the primary basis of
competition in its targeted markets is manufacturing
technology, quality, responsiveness, the provision of value-
added services, and price.
Results of Operations
The following table sets forth the percentage of net sales of
certain items in the Consolidated Statements of Income. The
financial information and the discussion below should be read
in conjunction with the Consolidated Financial Statements and
Notes thereto.
Years ended August 31, 1995 1994 1993
Net sales 100.0% 100.0% 100.0%
Cost of sales 90.2 90.0 88.2
Gross profit 9.8 10.0 11.8
Operating expenses:
Selling, general and
administrative 3.6 3.6 5.0
Research and development 0.2 0.3 0.4
Operating income 6.0 6.1 6.4
Net interest expense 0.1 0.3 0.6
Income before income taxes 5.9 5.8 5.8
Income taxes 2.0 2.0 2.1
Net income 3.9% 3.8% 3.7%
Net Sales
During the past few years, the Company's net sales have
increased significantly due primarily to an increasing trend
toward outsourcing within the electronics industry. In fiscal
1995, net sales grew to $2.1 billion, an increase of $609
million, or 42%, over the previous year. Net sales in fiscal
1994 were $1.5 billion, an increase of $620 million, or 74%,
over fiscal 1993. The increase in fiscal 1995 was due to
increased orders from existing customers, the addition of new
customers, and growth in the Company's turnkey business. The
increase in fiscal 1994 was due to increased orders from
existing customers, conversion of certain customers to turnkey
arrangements, and the acquisition in September 1993 of
manufacturing sites in Scotland and Washington.
The Company's two largest customers during fiscal 1995
and 1994 were International Business Machines Corporation
(IBM) and Apple Computer, Inc. (Apple). Net sales to IBM in
fiscal 1995 and 1994 were 21% and 28% of consolidated net sales,
respectively. Net sales to Apple in fiscal 1995 and 1994 were
less than 10% and 12% of consolidated net sales, respectively.
While net sales to these customers increased in absolute amounts
during fiscal 1995 compared to fiscal 1994, the Company has
obtained significant new business from other customers,
thereby reducing its dependency on these accounts. Net sales
to the Company's top ten customers accounted for 70% of
consolidated net sales during both fiscal 1995 and fiscal
1994. The Company is dependent upon continued revenues from
IBM, Apple, and the rest of its top ten customers. Any material
change in orders from these or other customers could have a
material effect on the Company's results of operations.
Net sales at the Company's foreign sites grew at a faster
rate over the last year than net sales at the Company's
domestic sites. Foreign locations contributed 38% of
consolidated net sales in fiscal 1995, compared to 35% for
fiscal 1994. As a result of the Company's foreign sales and
facilities, the Company's operations are subject to risks of
doing business abroad, including fluctuations in the value of
currency, changes to import and export regulations, possible
restrictions on the transfer of funds, and in certain parts of
the world, political instability. While to date these dynamics
have not had a materially adverse impact on the Company's
results of operations, there can be no assurance that there
will not be such an impact in the future.
The Company's operation in California contributed a
substantial portion of the Company's net sales and operating
income during fiscal 1995 and 1994. The performance of this
operation is expected to continue as a significant factor in
the overall financial results of the Company. Any material
change to the customer base, product mix, efficiency, or other
attributes of this site could have a material effect on the
Company's consolidated results of operations.
Over the past few years, the Company's revenues have
grown substantially. The Company believes that its ability to
continue to achieve rapid growth will depend primarily on
growth in sales to existing customers for their current and
future product generations and successful marketing to new
customers. The Company has no firm long-term volume
commitments from its customers and over the last few years has
experienced reduced lead-time in customer orders. 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
assured. The Company has a manufacturing services agreement
with IBM at the France facility that expires on December 31,
1995. While the Company expects to continue business with IBM
after the agreement expires, there can be no guarantee that
such business will be available at satisfactory terms to the
Company. Because of these factors, there can be no assurance
that the Company's historical revenue growth rate will
continue.
The Company currently serves the electronics industry,
which is subject to rapid technological change, product
obsolescence, and price competition. These and other factors
affecting the electronics industry, or any of the Company's
major customers in particular, could have a materially
adverse effect on the Company's results of operations.
Gross Profit Gross profit increased by $55.5 million, or 38%,
in fiscal 1995 compared to fiscal 1994 and $47.5 million, or
48%, during fiscal 1994 compared to fiscal 1993. Gross margin
decreased to 9.8% in fiscal 1995, from 10.0% in fiscal 1994
and 11.8% in fiscal 1993. The slight decrease in gross margin
in fiscal 1995 compared to fiscal 1994 resulted primarily from
underutilization of the facility in France, manufacturing
inefficiencies at the Scotland and North Carolina sites from
new project start-up costs, and growth in turnkey business at
the Scotland site. Offsetting these factors were improved
efficiencies at the Company's operation in California
and improvements in product mix. In fiscal 1994, the Company's
gross margin was lower than fiscal 1993 due to an increase in
turnkey business and larger concentrations of high volume, low
margin business.
In the future, the Company's gross margin is expected to
depend primarily on product mix, the level of inefficiencies
associated with new customer projects, and pricing within the
electronics industry.
While the availability of raw materials appears adequate
to meet the Company's current revenue projections, component
availability to support revenue increases beyond the Company's
current plans is limited. Furthermore, availability of
customer-consigned parts and unforeseen shortages of components
on the world market are beyond the Company's control and could
adversely affect revenue levels and operating efficiencies.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses increased
to $73.6 million in fiscal 1995, compared to $53.8 million in
fiscal 1994 and $42.0 million in fiscal 1993. However, SG&A
expenses as a percentage of net sales decreased to 3.6% in
fiscal 1995 and 1994 from 5.0% in fiscal 1993, as the Company
leveraged its fixed operating expenses. The increases in SG&A
expenses during these periods were due primarily to growth in
personnel and related departmental expenses at all
manufacturing locations and investments in information
systems. These expenditures are designed to support the
increased size and complexity of the Company's business. In
fiscal 1994, the increase in SG&A expenses was also due to the
acquisitions of the Scotland and Washington sites in September
1993. The Company anticipates SG&A expenses will increase in
absolute amounts in the future as the Company builds the
infrastructure necessary to support its current and
prospective business.
Research and Development Expenses
The primary focus of the Company's recent research and
development efforts has been on developing high density
interconnecting technologies and deploying processes into
manufacturing. Technologies include ball-grid array (plastic,
ceramic, and tape platforms), chip-on-substrate by wire
bonding, tape-automated bonding, flip-chip, VOC-free, no-clean
manufacturing, no-lead soldering, and fluxless soldering.
Research and development expenses increased
to $4.8 million in fiscal 1995 from $4.2 million in fiscal
1994 and $3.8 million in fiscal 1993.
Net Interest Expense
Net interest expense was $2.9 million in fiscal 1995, compared
to $4.2 million in fiscal 1994 and $4.5 million in fiscal
1993. The decrease in fiscal 1995 compared to fiscal 1994 was
due primarily to the voluntary conversion of nearly 80% of the
Company's outstanding zero-coupon subordinated notes during
the fourth quarter of fiscal 1995.
Income Taxes
Income taxes increased to $41.0 million in fiscal 1995 from
$28.6 million in fiscal 1994 and $18.0 million in fiscal 1993,
due primarily to increased income before income taxes. The
Company's effective income tax rate decreased from 37% in
fiscal 1993 to 34% in fiscal 1994 and remained at 34% in
fiscal 1995. The principal reasons for a lower effective
income tax rate in fiscal 1995 and 1994 compared to fiscal
1993 were an increase in profits from foreign operations
which are taxed at lower rates than in the United States
and the impact of certain tax advantaged short-term investments
in the United States. The Company has a tax holiday in Malaysia
that expires in January 1997, subject to certain extensions.
If the tax holiday is not extended, the Company's effective
income tax rate may increase.
Liquidity and Capital Resources
Working capital was $355.6 million at the end of fiscal 1995,
an increase of $46.4 million from the end of fiscal 1994. This
increase reflects primarily the growth in net sales during
fiscal 1995 and the required investment in working capital to
support this growth. The increase in working capital was
financed primarily by cash generated from operations. The
Company anticipates that further increases in working capital
will be required to support anticipated revenue growth.
During fiscal 1995 the Company invested $113.6 million
in new capital assets, primarily surface mount assembly and test
equipment to meet current and expected production levels. To
support growth and to replace aging equipment, the Company
expects capital expenditures in fiscal 1996 to be in the range
of $75 million to $120 million. Beginning in September 1997,
the Company will be required to pledge approximately $44
million of cash or marketable securities as collateral for its
obligation under the terms of the Company's operating lease
for certain of its facilities in California. The lease expires
in September 1999.
In addition to the Company's working capital as of August
31, 1995, which includes cash and cash equivalents of $90.0
million and short-term investments of $58.6 million, the Company
also has available a $100 million unsecured domestic revolving
credit facility, subject to financial covenants and
restrictions, and $33 million in available foreign credit
facilities. During the fourth quarter of fiscal 1995, nearly
80% of the Company's outstanding zero-coupon subordinated
notes were voluntarily converted to common stock. The result
of these conversions was to decrease long-term debt by $113.9
million, decrease other assets by $3.0 million (unamortized
debt issuance costs), and increase common stock by $110.9
million.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by item 8 of form 10-K is presented
here in the following order:
Unaudited Quarterly Financial Information
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Independent Auditors' Report
Unaudited Quarterly Financial Information
For each fiscal quarter during the two fiscal years ended
August 31,
(in thousands, except per share data)
First Quarter Second Quarter Third Quarter Fourth Quarter
1995
Net sales $506,678 $471,266 $516,892 $570,723
Gross profit $ 45,443 $ 46,369 $ 52,379 $ 57,639
Gross margin 9.0% 9.8% 10.1% 10.1%
Operating income $ 28,721 $ 28,419 $ 31,917 $ 34,377
Operating margin 5.7% 6.0% 6.2% 6.0%
Net income $ 18,194 $ 18,034 $ 20,328 $ 22,970
Primary net
income per share $ 0.43 $ 0.43 $ 0.48 $ 0.48
Fully diluted net
income per share $ 0.38 $ 0.38 $ 0.42 $ 0.45
1994
Net sales $321,840 $327,208 $365,083 $442,648
Gross profit $ 32,879 $ 34,768 $ 38,585 $ 40,096
Gross margin 10.2% 10.6% 10.6% 9.1%
Operating income $ 19,168 $ 20,267 $ 23,697 $ 25,218
Operating margin 6.0% 6.2% 6.5% 5.7%
Net income $ 11,890 $ 12,375 $ 14,690 $ 16,590
Primary net
income per share $ 0.28 $ 0.29 $ 0.35 $ 0.39
Fully diluted net
income per share $ 0.26 $ 0.27 $ 0.31 $ 0.35
Consolidated Balance Sheets
As of August 31, (in thousands) 1995 1994
Assets
Current assets:
Cash and cash equivalents $ 89,959 $ 67,906
Short-term investments 58,643 94,070
Accounts receivable, less allowances
of $3,501 and $2,459, respectively 254,898 188,794
Inventories 298,809 232,389
Prepaid expenses and other current assets 24,049 18,977
Total current assets 726,358 602,136
Net property and equipment 203,609 147,822
Other assets 10,888 16,437
Total assets $940,855 $766,395
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt and
capital lease obligations $ 4,796 $ 3,149
Accounts payable 310,680 241,930
Accrued employee compensation 28,705 21,598
Accrued expenses 15,264 16,257
Other current liabilities 11,310 9,999
Total current liabilities 370,755 292,933
Long-term debt and capital lease obligations 30,043 140,709
Other long-term liabilities 1,916 1,964
Total liabilities 402,714 435,606
Shareholders' equity:
Preferred stock, no par value; 1,200
shares authorized; no shares issued --- ---
Common stock, no par value; 80,000 shares
authorized; 49,584 and 41,302 shares
issued and outstanding, respectively 329,265 206,257
Retained earnings 206,321 126,795
Cumulative translation adjustment and other 2,555 (2,263)
Total shareholders' equity 538,141 330,789
Commitments
Total liabilities and shareholders' equity $940,855 $766,395
See accompanying notes to consolidated financial statements.
Consolidated Statements of Income
(in thousands, except per share data)
Years ended August 31, 1995 1994 1993
Net sales $2,065,559 $1,456,779 $836,326
Cost of sales 1,863,729 1,310,451 737,458
Gross profit 201,830 146,328 98,868
Operating expenses:
Selling, general and administrative 73,554 53,816 41,965
Research and development 4,842 4,162 3,763
Operating income 123,434 88,350 53,140
Interest income 6,611 6,484 6,051
Interest expense (9,551) (10,675) (10,578)
Income before income taxes 120,494 84,159 48,613
Income taxes 40,968 28,614 18,013
Net income $ 79,526 $ 55,545 $ 30,600
Net income per share:
Primary $ 1.82 $ 1.32 $ 0.80
Fully diluted $ 1.62 $ 1.18 $ 0.75
Weighted average number of shares:
Primary 43,773 42,205 38,132
Fully diluted 52,582 52,033 47,816
See accompanying notes to consolidated financial statements.
Consolidated Statements of Shareholders Equity
Cumulative
Common Common Translation Total
Stock Stock Retained Adjustment Shareholders'
(In thousands) Shares Amount Earnings and Other Equity
Balances as of 8/31, 1992 32,988 $63,595 $40,650 $ --- $104,245
Proceeds from public
offering, net 6,644 127,566 --- --- 127,566
Options exercised 881 2,028 --- --- 2,028
Stock issued under employee
purchase plan 123 1,740 --- --- 1,740
Tax benefit associated with
exercise of stock options --- 2,810 --- --- 2,810
Net income --- --- 30,600 --- 30,600
Cumulative translation
adjustment and other --- --- --- (8,009) (8,009)
Balances as of 8/31, 1993 40,636 197,739 71,250 (8,009) 260,980
Options exercised 527 3,601 --- --- 3,601
Stock issued under employee
purchase plan 126 2,697 --- --- 2,697
Conversion of long-term debt 13 174 --- --- 174
Tax benefit associated with
exercise of stock options --- 2,046 --- --- 2,046
Net income --- --- 55,545 --- 55,545
Cumulative translation
adjustment and other --- --- --- 5,746 5,746
Balances as of 8/31, 1994 41,302 206,257 126,795 (2,263) 330,789
Options exercised 573 7,858 --- --- 7,858
Stock issued under employee
purchase plan 131 2,901 --- --- 2,901
Conversion of long-term debt 7,578 110,915 --- --- 110,915
Tax benefit associated with
exercise of stock options --- 1,334 --- --- 1,334
Net income --- --- 79,526 --- 79,526
Cumulative translation
adjustment and other --- --- --- 4,818 4,818
Balances as of 8/31, 1995 49,584 $329,265 $206,321 $ 2,555 $538,141
See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows
Years ended August 31, (in thousands) 1995 1994 1993
Cash flows from operating activities:
Net income $ 79,526 $ 55,545 $ 30,600
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 61,416 45,708 26,381
Interest accretion on zero-coupon
subordinated note 8,240 8,894 8,235
Other 3,763 2,349 1,745
Changes in operating assets and liabilities:
Accounts receivable (64,906) (51,870) (82,192)
Inventories (63,654) (66,221) (97,383)
Prepaid expenses and other current assets (4,566) (6,470) (5,243)
Accounts payable 63,681 65,283 116,778
Accrued expenses and other
current liabilities 3,223 12,689 21,625
Net cash provided by operating activities 86,723 65,907 20,546
Cash flows from investing activities:
Purchases of short-term investments (183,299) (338,192) (391,824)
Sales and maturities of short-term
investments 218,805 380,335 319,574
Purchases of facilities, equipment,
and other assets --- (14,383) (55,215)
Capital expenditures (113,613) (58,959) (68,286)
Other (426) (1,998) (950)
Net cash used in investing activities (78,533) (33,197) (196,701)
Cash flows from financing activities:
Proceeds from bank lines of credit 4,366 --- ---
Repayments of long-term debt and
capital lease obligations (3,484) (8,864) (7,245)
Net proceeds from sale of common stock 10,759 6,298 131,334
Net cash provided by (used in) financing
activities 11,641 (2,566) 124,089
Effect of exchange rate changes on
cash and cash equivalents 2,222 2,530 (1,208)
Net increase (decrease) in cash and
cash equivalents 22,053 32,674 (53,274)
Cash and cash equivalents at beginning of year 67,906 35,232 88,506
Cash and cash equivalents at end of year $ 89,959 $ 67,906 $ 35,232
Supplemental Disclosures
Cash paid:
Interest $ 482 $ 1,242 $ 2,436
Income taxes 44,429 25,551 10,552
Non-cash investing and financing activities:
Issuance of common stock upon conversion
of long-term debt 110,915 174 ---
Tax benefit associated with exercise of
stock options 1,334 2,046 2,810
New equipment acquired under long-term debt --- --- 1,800
Debt incurred to purchase facilities,
equipment, and other assets --- --- 3,640
See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements
Note 1 Summary of Significant Accounting Policies
(a) Description of Operations and Principles of Consolidation
Solectron Corporation (the Company) is an independent provider
of customized manufacturing services to original equipment
manufacturers in the electronics industry and operates in this
one industry segment. The Company's primary services include
materials procurement, materials management, and the
manufacture and testing of printed circuit board assemblies.
Other manufacturing services include systems assembly,
flexible cable assembly, disk duplication, and packaging. In
addition, the Company provides pre-manufacturing services,
such as consultation on product design and manufacturability,
and post-manufacturing services, including fulfillment, repair
and refurbishment, upgrades, and end-of-product-life
manufacturing. The Company's services include turnkey
services, where the Company procures certain or all of the
materials required for product assembly, and consignment
services, where the customer supplies the materials necessary
for product assembly. Turnkey services include material
procurement and warehousing in addition to manufacturing, and
involve greater resource investment than consignment services.
The Company has manufacturing operations located in the United
States, Europe, and Asia.
The accompanying consolidated financial statements
include the accounts of the Company and its subsidiaries after
elimination of intercompany accounts and transactions.
(b) Cash Equivalents and Short-Term Investments
Cash equivalents are highly liquid investments purchased with
an original maturity of less than three months.
The Company adopted Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," effective September 1, 1994.
Under the provisions of SFAS No. 115, the Company has
classified its investments in debt securities as "available-
for-sale." 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 and losses are
included in shareholders' equity. Adoption of SFAS No. 115 did
not have a material effect on the Company's consolidated
financial position. See Note 2.
(c) Inventories
Inventories are stated at the lower of weighted average cost
or market. See Note 3.
(d) 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 lease terms of the respective
assets, using the straight-line method. Estimated useful lives
are presented below. See Note 4.
Machinery and equipment 2 - 5 years
Equipment recorded under capital lease 3 - 5 years
Furniture and fixtures 3 - 5 years
Leasehold improvements Lease term
Buildings 6 - 50 years
The Financial Accounting Standards Board recently issued
SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." This
statement requires long-lived assets to be evaluated for
impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. The Company will adopt SFAS No. 121 on September
1, 1996 and does not expect its provisions to have a material
effect on the Company's consolidated results of operations in
the year of adoption.
(e) Other Assets
Other assets include debt issuance costs associated with the
outstanding zero-coupon subordinated notes described in Note 6
and goodwill related to the purchase of facilities and
equipment described in Note 13. Debt issuance costs are
amortized using the effective interest rate method over the
debt term (20 years). Goodwill is amortized using the straight-
line method over ten years.
(f) Income Taxes
As described in Note 9, the Company adopted SFAS No. 109,
"Accounting for Income Taxes," effective September 1, 1993.
The adoption of SFAS No. 109 did not have a material effect on
the Company's consolidated results of operations.
(g) Net Income Per Share
Primary net income per share is computed using the weighted
average number of common shares and dilutive common equivalent
shares outstanding during the related period. Common
equivalent shares consist of stock options which are computed
using the treasury stock method. Fully diluted net income per
share assumes full conversion of the Company's outstanding
zero-coupon subordinated notes.
(h) Revenue Recognition
The Company recognizes revenue upon shipment of product to
its customers.
(i) Foreign Currency
Assets and liabilities of foreign subsidiaries where the local
currency is the functional currency are translated at year-end
exchange rates. The effects of these translation adjustments
are reported as
a component of shareholders' equity. 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 income.
To date, the effect on income of such amounts has been
immaterial.
(j) Derivatives
Gains and losses on foreign currency forward exchange
contracts designated as hedges of assets and liabilities are
included in income concurrently with the offsetting losses and
gains on the related balance sheet item. See Note 7.
(k) Year-End
The Company's financial reporting year consists of either 52-
or 53-week periods ending on the last Friday in August. Fiscal
years 1993, 1994, and 1995 each contained 52 weeks; however,
fiscal year 1996 will contain 53 weeks. For purposes of
presentation in the accompanying financial statements and
notes thereto, the Company has indicated its accounting years
as ending on August 31.
Note 2 Cash, Cash Equivalents, and Short-term Investments
Cash, cash equivalents, and short-term investments consisted of
the following:
Cash and Cash Short-term
As of August 31, 1995 (in thousands) Investments Equivalents
Cash $32,050 $ ---
Money market funds 41,342 ---
Certificates of deposit 11,909 7,944
U.S. government securities --- 11,225
Municipal obligations 3,000 39,474
Other 1,658 ---
Total $89,959 $58,643
As of August 31, 1995 unrealized gains and losses were
not material. All of the Company's short-term investments
mature within two years, except certain municipal obligations
which have stated maturities greater than nine years. For
these securities, the Company has the option of adjusting the
respective interest rates or liquidating these investments at
face value on stated auction dates at intervals up to 180
days.
Note 3 Inventories
Inventories consisted of:
As of August 31, (in thousands) 1995 1994
Raw materials $206,221 $164,817
Work-in-process 92,588 67,572
Total $298,809 $232,389
Note 4 Property and Equipment
Property and equipment consisted of:
As of August 31, (in thousands) 1995 1994
Land, buildings and improvements $ 36,100 $ 29,686
Equipment recorded under capital leases --- 1,235
Machinery and equipment 261,702 165,212
Furniture and fixtures 36,296 27,517
Leasehold improvements 15,923 12,398
Construction-in-progress 908 2,049
Total 350,929 238,097
Less accumulated depreciation
and amortization 147,320 90,275
Net property and equipment $203,609 $147,822
Accumulated amortization on equipment under capital
leases was $1,235,000 as of August 31, 1994. The related
amortization expense is included in depreciation expense in
the accompanying consolidated financial statements.
Note 5 Lines of Credit
The Company has $100 million available under an unsecured
domestic revolving line of credit expiring June 30, 1997,
which, at the Company's option, currently bears interest at either
the bank's prime rate, the London interbank offering rate
(LIBOR) plus 0.8%, or the bank's certificate of deposit rate
plus 0.8%. As of August 31, 1995 and 1994, there were no
borrowings under this line of credit. The agreement contains
certain financial covenants; limits new indebtedness, business
acquisitions, and repurchases of the Company's common stock,
and prohibits the payment of cash dividends. The agreement
also stipulates that if the Company pledges any cash, cash
equivalents, or short-term investments, the amount of
available borrowing under this line
of credit will be reduced.
The Company also has $37 million in foreign lines of
credit and other bank facilities. Borrowings are payable on demand.
The interest rates range from the bank's prime lending rate to
the bank's prime rate plus 2.0%. As of August 31, 1995,
borrowings under these lines of credit were $4.4 million and
are included in other current liabilities in the accompanying
consolidated financial statements.
Note 6 Long-Term Debt
Long-term debt and capital lease obligations consisted of:
As of August 31, (in thousands) 1995 1994
Zero-coupon subordinated notes
due 2012, convertible into
1,973 and 9,551 shares of
common stock, respectively $30,043 $135,848
Term loans, bearing interest at rates
ranging from 7.2% to 12%
due serially until June 1996;
secured by equipment 1,054 4,205
Other 3,742 3,805
Total long-term debt and
capital lease obligations 34,839 143,858
Less current portion of long-term debt
and capital lease obligations 4,796 3,149
Total Long-term debt $30,043 $140,709
In May 1992, the Company issued 460,000 zero-coupon
subordinated notes at an initial issue price of $252.57 per
note. These notes have a maturity value of $1,000 each payable
on May 5, 2012. The Company is accreting the issue price to
the maturity value using the effective interest rate
(approximately 7%). The notes are subordinated to all existing
and future senior indebtedness of the Company. Each note is
convertible at any time by the holder into 20.792 shares of
common stock. Notes may be redeemed by the holder on
May 5, 1997, 2002, and 2007 for a per note purchase price
of $356.28, $502.57, and $708.92, respectively. The Company,
at its option, may pay the purchase price on any of these
redemption dates in cash or common stock, or any combination
of both. Beginning on May 5, 1996, the notes are redeemable
for cash at the option of the Company, in whole or
in part, at redemption prices equal to the issue price plus
accrued original issue discount through the date of
redemption. The indenture governing the zero-coupon
subordinated notes contains cross-default provisions. The
market price of these notes, based on a market transaction on
August 22, 1995, was $734 per note. During fiscal 1995,
364,457 notes were voluntarily converted by the holders of the
notes into 7,577,802 shares of common stock. If these
conversions had occurred at the beginning of fiscal 1995,
primary net income per share for fiscal 1995 would have been
$1.67.
Note 7 Financial Instruments
(a) Fair Value of Financial Instruments
The fair value of the Company's cash, cash equivalents,
accounts receivable, and accounts payable approximates the
carrying amount due to the relatively short maturity of these
items. The fair value of the Company's short-term investments
and long-term debt is determined based on quoted market prices
(see Notes 2 and 6).
(b) Derivatives
The Company enters into forward exchange contracts to hedge
foreign currency exposures on a continuing basis for periods
consistent with its committed exposures. The Company's hedging
transactions are considered non-trading and do not involve
speculation. These transactions do not subject the Company to
risk of accounting loss because gains and losses on these
contracts offset losses and gains on the assets, liabilities,
and transactions being hedged. The Company is exposed to
credit-related losses in the event of nonperformance by the
parties in these contracts. The amount of unrealized gain at
risk was immaterial as of August 31, 1995. The Company had
$77.0 million and $38.0 million of net foreign currency
forward exchange contracts outstanding at the end of fiscal
years 1995 and 1994, respectively, primarily for
the purchase of European currencies.
(c) Business and Credit Concentrations
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash, cash
equivalents, short-term investments, and trade accounts
receivable. The Company's cash, cash equivalents, and short-
term investments are managed by recognized financial
institutions which follow the Company's investment policy. The
Company's investments are comprised of investment grade short-
term debt instruments, and the Company's investment policy
limits the amount of credit exposure in any one issue.
Concentrations of credit risk result from sales to major
customers as discussed in Note 12. The Company generally does
not require collateral for sales on credit. The Company
closely monitors extensions of credit and has not experienced
significant credit losses in the past.
Note 8 Commitments
The Company leases various facilities under operating lease
agreements. The facility leases expire at various dates
through 2000. Substantially all leases require the Company to
pay property taxes, insurance, and normal maintenance costs.
All of the Company's leases have fixed minimum lease payments
except the lease for certain facilities in California.
Payments under this lease are periodically adjusted based on
LIBOR rates. This lease provides the Company with the option
at the end of the lease of either acquiring the property at
its original cost or arranging for the property to be
acquired. The Company is contingently liable under a first
loss clause for a decline in market value of the leased
facilities up to $44.2 million in the event the Company does
not purchase the property at the end of the five-year lease
term. The Company must also maintain compliance with financial
covenants similar to its credit facilities.
Future minimum payments related to lease obligations are
$9.4 million, $8.0 million, $7.0 million, $5.5 million, and
$1.6 million in each of the years in the five-year period
ending August 31, 2000.
Rent expense was $10.8 million, $11.1 million, and $9.4
million for the years ended August 31, 1995, 1994, and 1993,
respectively.
Note 9 Income Taxes
The Company adopted SFAS No. 109 effective September 1, 1993.
The cumulative effect of this change in accounting for income
taxes was not material. Prior years' financial statements have
not been restated to apply the provisions of SFAS No. 109.
The components of income taxes are as follows:
Years ended August 31, (in thousands) 1995 1994 1993
Current:
Federal $34,922 $17,682 $11,569
State 4,370 4,151 3,361
Foreign 4,346 7,121 3,375
total current 43,638 28,954 18,305
Deferred:
Federal (3,474) (313) (292)
State 15 (67) ---
Foreign 789 40 ---
total deferred $40,968 $28,614 $18,013
The overall effective income tax rate (expressed as a
percentage of financial statement income before income taxes)
differs from the expected U.S. income tax rate as follows:
Years ended August 31, 1995 1994 1993
Federal tax rate 35.0% 35.0% 34.0%
State income tax, net of
federal tax benefit 2.4 3.2 4.5
Tax exempt interest (0.7) (1.0) (2.0)
Income of foreign subsidiaries
taxed at different rates (4.2) (3.5) (1.7)
Other 1.5 0.3 2.2
Effective income tax rate 34.0% 34.0% 37.0%
The tax effects of temporary differences that give rise
to significant portions of deferred tax assets and liabilities
are as follows:
As of August 31, (in thousands) 1995 1994
Deferred tax assets:
Accruals, allowances, and reserves $ 10,326 $ 7,006
State income tax 920 478
Pre-operating costs 164 277
Acquired intangible assets 463 72
Other 278 434
Total deferred tax assets 12,151 8,267
Deferred tax liabilities:
Plant and equipment (1,779) (1,642)
Other (2,070) (996)
Total deferred tax liabilities (3,849) (2,638)
Net deferred tax assets $ 8,302 $ 5,629
Based on the Company's historical operating income,
management believes it is more likely than not that the
Company will realize the benefit of the deferred tax assets
recorded and, accordingly, has established no valuation
allowance.
Worldwide income before income taxes consisted of the
following:
Years ended August 31, (in thousands) 1995 1994 1993
U.S. $ 91,537 $54,241 $36,163
Non-U.S. 28,957 29,918 12,450
Total $120,494 $84,159 $48,613
The Company has not provided for U.S. federal and foreign
withholding taxes on approximately $55.5 million of foreign
subsidiaries' undistributed earnings as of August 31, 1995
because such earnings are intended to be reinvested
indefinitely. The amount of income tax liability that would
result had such earnings been repatriated is approximately
$9.2 million.
The Company has a tax holiday in Malaysia that expires in
January, 1997 subject to certain extensions.
Note 10 Shareholders' Equity
(a) Stock Split
On October 11, 1993 the Board of Directors approved a 2 for 1
split of the Company's common stock effective October 27,
1993. The consolidated financial statements have been
retroactively adjusted to reflect the stock split.
(b) Stock Option Plans
The Company'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
November 17, 1993 and seven years for options granted
thereafter. A summary of stock option activity under the plans
follows:
Years ended August 31, 1995 1994
Number of Exercise Number of Exercise
Shares Price Shares Price
Outstanding at
beginning
of year 4,067,143 $1.81-$30.75 2,923,526 $0.94-$23.69
Granted 778,250 26.63- 37.38 1,836,000 26.94- 30.75
Exercised (572,780) 1.81- 30.75 (526,629) 0.94- 27.31
Canceled (280,773) 1.94- 37.38 (165,754) 1.94- 30.75
Outstanding
at end
of year 3,991,840 $1.94-$37.38 4,067,143 $1.81-$30.75
Exercisable
at end
of year 1,924,029 $1.94-$37.38 1,390,228 $1.81-$30.75
A total of 7,188,395 shares of common stock remain
reserved for issuance under the plans as of August 31, 1995.
Each independent member of the Company's Board of
Directors is granted 6,000 stock options each December 1 at
the fair market value as of that date. Such options vest over
one year.
(c) Employee Stock Purchase Plan
Under the Company's Employee Stock Purchase Plan (the Purchase
Plan), employees meeting specific employment qualifications
are eligible to participate and can purchase shares quarterly
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, 1995, 1,529,981
shares remain available for issuance under the Purchase Plan.
Note 11 Business Segment Information
Information about the Company's operations in different
geographic regions is presented in the table below:
Operating Identifiable
(in thousands) Net Sales Income Assets
Fiscal 1995
United States $1,280,397 $ 94,078 $609,245
Europe 534,038 15,316 213,996
Asia 251,124 14,040 117,614
Total $2,065,559 $123,434 $940,855
Fiscal 1994
United States $ 945,742 $ 58,488 $485,854
Europe 389,257 22,286 201,262
Asia 121,780 7,576 79,279
Total $1,456,779 $ 88,350 $766,395
Fiscal 1993
United States $ 601,449 $ 40,908 $441,658
Foreign (primarily Europe) 234,877 12,232 161,627
Total $ 836,326 $ 53,140 $603,285
Note 12 Major Customers
Net sales to major customers as a percentage of consolidated
net sales were as follows:
Years ended August 31, 1995 1994 1993
IBM 21% 28% 26%
Apple < 10% 12% < 10%
Sun Microsystems, Inc. < 10% < 10% 12%
Note 13 Asset Acquisitions
In September 1992, the Company purchased facilities and
printed circuit board assembly equipment located in Charlotte,
North Carolina and Bordeaux, France, from IBM for a purchase
price of $58.9 million. In September 1993, the Company acquired
similar operations in Dunfermline, Scotland and printed
circuit board assembly equipment in Everett, Washington. In
conjunction with these asset acquisitions, the Company also
purchased inventory and hired certain employees associated
with the assembly operations conducted at these sites.
These acquisitions have been accounted for by the
purchase method of accounting, and accordingly the purchase
price has been allocated to the assets acquired based on
estimated fair values at the date of acquisition. The excess
of purchase price over the estimated fair values of the assets
acquired has been recorded as goodwill, which is being
amortized over ten years.
On August 17, 1995, the Company executed definitive
agreements with Hewlett-Packard GmbH (HP), a subsidiary of
Hewlett-Packard Company, to acquire HP's printed circuit board
assembly operation in Boeblingen, Germany. The transaction is
expected to close in November 1995.
The Board of Directors and Shareholders
Solectron Corporation:
We have audited the accompanying consolidated balance sheets
of Solectron Corporation and subsidiaries as of August 31,
1995 and 1994, and the related consolidated statements of
income, shareholders' equity, and cash flows for each of the
years in the three-year period ended August 31, 1995. These
consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on
our audits.
We conducted our audits in accordance with generally
accepted auditing standards. 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, 1995 and 1994, and the results
of their operations and their cash flows for each
of the years in the three-year period ended August 31, 1995,
in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
San Jose, California
September 8, 1995
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The Company's executive officers and directors and their ages
as of August 31, 1995 are as follows:
Name Age Position
Charles A. Dickinson (3) 71 Chairman of the Board,
President Solectron Europe,
and Director
Koichi Nishimura,Ph.D. 57 President, Chief Executive
Officer, and Director
Stephen T. Ng 40 Senior Vice President
and Chief Materials Officer
Leslie T. Nishimura 51 Senior Vice President
and President Solectron
Washington, Inc.
Ken Tsai 52 Senior Vice President
and President Solectron Asia
Susan S. Wang 44 Senior Vice President,
Chief Financial Officer,
and Secretary
Walter W. Wilson 51 Senior Vice President
and President Solectron
North America
Saeed Zohouri, Ph.D. 44 Senior Vice President
and Chief Technology
Officer
Winston H. Chen, Ph.D.(3) 53 Director
Richard A. D'Amore (1) 41 Director
Kenneth E. Haughton, Ph.D.(3) 67 Director
Paul R. Low, Ph.D. (2)(1) 62 Director
W. Ferrell Sanders (2) 58 Director
Osamu Yamada 65 Director
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Nominating Committee
Mr. Charles A. Dickinson has served as a director of the
Company since 1984, and as Chairman of the Board of Directors
from 1986 to 1990 and from 1994 to the present. He served as
an independent management consultant to the Company from 1991
to 1993. He served as President, Solectron France, S.A. from
1992 to 1993 and has served as President, Solectron Europe
since 1993. From 1986 to 1990, he was Chairman of the Board
of Directors, President and Chief Executive Officer of Vermont
Micro Systems, Inc., a manufacturer of microcomputer-based
graphics cards. He currently serves as a director of Vermont
Micro Systems, Inc.
Dr. Koichi Nishimura has served as a director since 1991,
Chief Executive Officer since 1992 and President since 1990.
He was Co-Chief Executive Officer from 1991 to 1992 and Chief
Operating Officer from 1988 to 1991. From 1964 to 1988,
Dr. Nishimura was employed by International Business Machines
Corporation ("IBM") in various technology and management
positions. He also serves as a director of Merix Corporation,
a manufacturer of technologically advanced electronic
interconnection products.
Mr. Leslie T. Nishimura is President of Solectron
Washington, Inc. and has served as Senior Vice President of
the Company since 1989, President of Solectron Asia from 1991
to 1993, Secretary of the Company from 1989 to 1992 and Vice
President, Manufacturing Technology of the Company from 1978
to 1989. Mr. Nishimura's prior experience includes various
materials, production control and inventory control
supervisory positions at Ritter Co., Burndy Corporation and
the Norden Division of United Technologies, Inc.
Ms. Susan S. Wang has served as Secretary of the Company
since 1992 and Senior Vice President and Chief Financial
Officer of the Company since 1990. She was Vice President,
Finance and Chief Financial Officer of the Company from 1986
to 1990 and Director of Finance of the Company from 1984 to
1986. Prior to joining the Company, Ms. Wang held various
accounting and finance positions with Xerox Corporation. Ms.
Wang also held accounting and auditing positions with Westvaco
Corp. and Price Waterhouse & Co. She is a certified public
accountant.
Mr. Walter W. Wilson has served as President, Solectron
North America since September 1995, President, Solectron
California Corporation since March 1992 and Senior Vice
President of the Company since 1990. From 1989 to 1990 he
served as an operational Vice President of the Company. From
1965 to 1989 Mr. Wilson was employed by IBM in manufacturing
and product development. During his IBM tenure, he held
management positions in the United States, West Germany and
Japan.
Mr. Ken Tsai is President of Solectron Asia and has
served as Senior Vice President of the Company since May 1995,
Vice President of the Company from 1990 to 1995. He served as
Director of Manufacturing for the Company from 1989 to 1990
and in various manufacturing and other positions from 1984 to
1989. Prior to joining Solectron, Mr. Tsai served in various
management and business planning positions at American
Cyanamid Company from 1968 to 1984.
Dr. Winston H. Chen has served as a director of the
Company since 1978, Chairman of the Board from 1990 to 1994,
President from 1979 to 1990, Chief Executive Officer from 1984
to 1991, and as Co-Chief Executive Officer from 1991 through
1992. Dr. Chen is currently Chairman of the Paramitas
Foundation. From 1970 to 1978, Dr. Chen served as Process
Technology and Development Manager of IBM. He also serves as
a director of Intel Corporation, Megatest Corporation, SCEcorp
and Paramitas Investment Corp.
Mr. Richard A. D'Amore has served as a director of the
Company since 1985. Mr. D'Amore has been a general partner of
various venture capital funds affiliated with Hambro
International Venture Funds since 1982 and a general partner
of North Bridge Venture Partners since 1992. He also serves
as a director of Math Soft, Inc. and VEECO.
Dr. Kenneth E. Haughton has served as a director of the
Company since 1985. Dr. Haughton is currently an independent
consultant. From 1990 to 1991, he was Vice President of
Engineering at Da Vinci Graphics, a computer graphics firm.
From 1989 to 1990, Dr. Haughton was an independent consultant,
and from 1982 to 1989, he served as Dean of Engineering at
Santa Clara University. He also serves as a director of
Seagate Technology, a manufacturer of disk drives.
Dr. Paul R. Low has served as a director of the Company
since 1993 and is currently the President of PRL Associates.
Prior to founding PRL Associates, Dr. Low worked for IBM from
1957 to 1992. Dr. Low held senior management and executive
positions with successively increasing responsibility,
including President, General Technology Division and IBM
Corporate Vice President; President of General Products
Division; and General Manager, Technology Products business
line, also serving on IBM's corporate management board. He
also serves as a director of Applied Materials, Inc., VEECO,
Nexgen, and Number Nine.
Mr. W. Ferrell Sanders has served as a director of the
Company since 1986. Since 1987, Mr. Sanders has been a
general partner of Asset Management Associates Venture Fund, a
venture capital management firm. From 1981 to 1987, he was an
independent management consultant. He also serves as a
director of Adaptec, Inc.
Mr. Osamu Yamada has served as a director of the Company
since 1994. Mr. Yamada is currently an advisor to The
Mitsubishi Bank, Limited. From 1990 to 1991, he was Chairman
and Chief Executive Officer of BankCal Tri-State Corporation,
a wholly owned subsidiary of The Mitsubishi Bank, Limited.
From 1987 to 1990, he was Senior Managing Director of The
Mitsubishi Bank, Limited, and in an overlapping period from
1985 to 1990, he was also Chairman, President and Chief
Executive Officer of Bank of California. Prior to that, he
held a number of key management positions with The Mitsubishi
Bank, Limited organization. Mr. Yamada currently serves as a
director of PictureTel and on number of boards of major
universities and cultural centers.
Mr. Stephen T. Ng joined Solectron in September 1989 as
Vice President, Worldwide Material Purchasing and is currently
Senior Vice President and Chief Materials Officer of the
Company. Prior to joining Solectron, Mr. Ng had 11 years
experience in materials management in various capacities with
Xerox Corporation. His last position prior to joining
Solectron was Manager, Material Operations at Xerox
Corporation. Mr. Ng holds an MBA from the University of
Dallas and is a certified purchasing manager.
Dr. Saeed Zohouri is Senior Vice President and Chief
Technology Officer at Solectron Corporation. Dr. Zohouri
joined Solectron in 1980; he has held various management
positions and has also served as Director of Technology. Dr.
Zohouri was promoted to his current position in 1994. His
prior experience includes teaching chemistry at a major
international university. Dr. Zohouri holds a master of
science degree in organic chemistry from Manchester University
in England and a doctorate degree in chemistry from Stanford
University.
There is no family relationship among any of the
foregoing individuals.
ITEM 11: EXECUTIVE COMPENSATION
The information required by item 11 of Form 10-K is
incorporated by reference to the information contained in the
section captioned "Executive Officer Compensation" of the
Registrant's definitive Proxy Statement (Notice of Annual
Meeting of Shareholders) for the fiscal year ended August 31,
1995 to be held on January 9, 1996 which the Company will file
with the Securities and Exchange Commission within 120 days
after the end of the fiscal year covered by this report.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information regarding this item is incorporated herein by
reference from the section entitled "Security Ownership of
Certain Beneficial Owners and Management" of the Registrant's
definitive Proxy Statement (Annual Meeting of Shareholders)
for the fiscal year ended August 31, 1995.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to this item is incorporated herein
by reference from the section entitled "Certain Transactions"
of the Registrant's definitive Proxy Statement (Annual Meeting
of Shareholders) for the fiscal year ended August 31, 1995.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(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.
2. Financial Statement Schedules. The financial
statement Schedule ii - VALUATION AND QUALIFYING ACCOUNTS is
filed as part of this annual report in Form 10-K.
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
During the fiscal quarter ended August 31, 1995 no current
reports on Form 8-K were filed.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SOLECTRON CORPORATION
(Registrant)
Date: November 20, 1995 By /s/ Koichi Nishimura
(Koichi Nishimura, President
and Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and
on the dates indicated.
Name Title Date
President, Chief Executive
/s/ Koichi Nishimura Officer, and Director 11/20/1995
Koichi Nishimura
Chief Financial Officer
(Principal Financial and
Accounting Officer), Senior
/s/ Susan S. Wang Vice President, and Secretary 11/20/1995
Susan S. Wang
Chairman of the Board,
President Solectron Europe,
/s/ Charles A. Dickinson and Director 11/20/1995
Charles A. Dickinson
/s/ Winston H. Chen Director 11/20/1995
Winston H. Chen
/s/ Richard A. D'Amore Director 11/20/1995
Richard A. D'Amore
/s/ Kenneth E. Haughton Director 11/20/1995
Kenneth E. Haughton
/s/ Paul R. Low Director 11/20/1995
Paul R. Low
/s/ W. Ferrell Sanders Director 11/20/1995
W. Ferrell Sanders
/s/ Osamu Yamada Director 11/20/1995
Osamu Yamada
SOLECTRON CORPORATION AND SUBSIDIARIES
SCHEDULE ii - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Amounts
Charged
Balance at (Credited) Balance at
Beginning To Recoveries End
Description of Period Operations (Deductions) of Period
Fiscal 1993
Allowance for doubtful
accounts recievable $1,010 $849 $3 $1,861
Fiscal 1994
Allowance for doubtful $1,861 $989 ($391) $2,459
accounts receivable
Fiscal 1995
Allowance for doubtful
accounts receivable $2,459 $1,602 ($560) $3,501
accounts receivable
INDEX TO EXHIBITS
Exhibit
Number Description
3.1 [viii] Articles of Incorporation of Company, as
amended
3.2 [viii] Bylaws of Company
4.1 [ii] Form of Certificate for Liquid Yield Option Notes
(LYONs)
4.2 [ii] Form of Indenture between the Company and
Bankers Trust Company, relating to the LYONs.
10.1 [i] Preferred Stock Purchase Agreement dated
September 29, 1983, together with amendments thereto
dated February 28, 1984 and June 23, 1988.
10.2 [i] Form of Indemnification Agreement between
Company and its officers, directors and
certain other key employees.
10.3 [i] Amendment to form of Indemnification Agreement.
10.4 [iv] 1983 Incentive Stock Option Plan, as amended
August 13, 1991.
10.5 [vi] 1988 Employee Stock Purchase Plan, as amended
October 1992.
10.6 [v] Amended and Restated 1992 Stock Option Plan.
10.7 [iii] Master Asset Transfer and Stock Purchase
Agreement dated August 17, 1992, as
amended, between Company and International Business
Machines Corporation.
10.8 [vi]+ ECAT Manufacturing Agreement dated August 17, 1992,
between Company and International
Business Machines Corporation (the "ECAT Agreement").
10.9 [vi]+ Amendment to the ECAT Agreement dated September 30, 1992
between Company and International Business Machines.
10.10 [vii] Stock Acquisition Agreement dated August 28, 1993,
between Company and Solectron California Corporation
10.11 [vii] Multicurrency Credit Agreement dated June 30, 1993,
between Company and Bank of America
National Trust and Savings Association as Agent and Issuing
Bank
10.12 [viii] Lease Agreement between BNP Leasing Corporation, as
Landlord, and Company, as Tenant, Effective
September 6, 1994.
10.13 [viii] Purchase Agreement, by and between Company and BNP
Leasing Corporation, dated September 6, 1994
10.14 [viii] Pledge and Security Agreement, by and between Company,
As Debtor, and BNP Leasing Corporation, as Secured
Party, dated September 6, 1994
10.15 [viii] Assignment and Assumption Agreement between Company and
Solectron California Corporation, dated November 9, 1994
10.16 [viii] Custodial Agreement by and between Company, Banque
Nationale De Paris, and BNP Leasing Corporation, dated
September 6, 1994
10.17 [viii] First Amendment to Multicurrency Credit
Agreement, dated August 29, 1994
10.18 [viii] Second Amendment to Multicurrency Credit
Agreement, dated September 30, 1994
11.1 Statement re: Computation of Net Income Per Share.
21.1 Subsidiaries of the Registrant
23.1 Consent of Independent Auditors
27.1 Financial Data Schedule
INDEX TO EXHIBITS (Continued)
Footnotes Description
[i] Incorporated by reference to the Exhibits to
Company's Registration Statement on Form S-1 (File No.
33-22840).
[ii] Incorporated by reference to the Exhibits to
Company's Registration Statement on Form S-1 filed
April 6, 1992 (Registration No. 33-46971).
[iii] Incorporated by reference to the Company's Form
8-K filed October 15, 1992.
[iv] Incorporated by reference to the Exhibits to
Company's Registration Statement on
Form S-8 (File No. 33-46686)
[v] Incorporated by reference to the Exhibits to
Company's Registration Statement on Form S-8, filed
Febuary 2, 1995 (File No. 33-75270)
[vi] Incorporated by reference to the Exhibits to
Company's Form 10-K for the year ended August 31, 1992
[vii] Incorporated by reference to the Exhibits to
Company's Form 10-K for the year ended August 31, 1993
[viii] Incorporated by reference to the Exhibits to
Company's Form 10-K for the year ended August 31, 1994
+ Confidential treatment has been granted for
certain portions of these documents.
Exhibit 11.1
SOLECTRON CORPORATION AND SUBSIDIARIES STATEMENT
REGARDING COMPUTATION OF NET INCOME PER SHARE
(in thousands, except per share data)
Twelve months ended August 31, 1995 1994 1993
Weighted average number
of common stock
equivalents:
Primary:
Common stock 42,861 41,023 36,698
Common stock equivalents -
stock options 912 1,182 1,434
43,773 42,205 38,132
Fully diluted:
Common shares issuable upon
assummed conversion of
zero-coupon subordinated
notes 8,286 9,557 9,562
Incremental increase in
common stock equivalent
options using end of
period market price 523 271 122
52,582 52,033 47,816
Net income $ 79,526 $ 55,545 $ 30,600
Interest accretion on
zero-coupon subordinated
notes, net of taxes 5,439 5,944 5,283
Net income - fully diluted $ 84,965 $ 61,489 $ 35,883
Net income per share - primary $1.82 $1.32 $0.80
Net income per share -
fully diluted $1.62 $1.18 $0.75
Exhibit 21.1
SOLECTRON CORPORATION
SUBSIDIARIES
Jurisdiction of
Subsidiary Incorporation or Organization
Solectron California Corporation California
Solectron Technology, Inc. California
Solectron Washington, Inc. California
Solectron France, S.A. France
Solectron Scotland Limited Scotland
Solectron Japan, Inc. Japan
Solectron Technology SDN. BHD. Malaysia
Exhibit 23.1
Consent of Independent Auditors
The Board of Directors and Shareholders
Solectron Corporation:
We consent to incorporation by reference in the registration
statements (Nos. 33-75270, 33-58580, 33-46686 and 33-33461)
on Form S-8 of Solectron Corporation of our report dated
September 8, 1995, relating to the consolidated balance
sheets of Solectron Corporation and subidiaries as of
August 31, 1995 and 1994, and the related consolidated
statements of income, shareholders' equity, cash flows for
each of the years in the three-year period ended
August 31, 1995, and related schedule, which report appears
in the August 31, 1995, annual report on Form 10-K of Solectron
Corporation.
KPMG Peat Marwick LLP
San Jose, California
November 16, 1995
Exhibit 27.1
_______________________________
TMTrademark of Merrill Lynch & Co., Inc.
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0
0
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</TABLE>
