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, 1996, 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 1-11098
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
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____1 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 November 15, 1996 (based upon the last
reported price of the Common Stock on the New York Stock Exchange
on such date)was $3,091 million.
As of November 15, 1996, there were 52,966,689 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, 1997, 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
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Part I
Page
Item 1. Business 3
Item 2. Properties 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Part II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 10
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 8. Financial Statements and Supplementary Data 18
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 35
Part III
Item 10. Directors and Executive Officers of the Registrant 36
Item 11. Executive Compensation 38
Item 12. Security Ownership of Certain Beneficial Owners and
Management 38
Item 13. Certain Relationships and Related Transactions 38
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 39
Signatures 40
PART I
ITEM 1. SOLECTRON 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. Solectron's goal is to offer its customers the
significant competitive advantages that can be obtained from
manufacturing outsourcing such as access to advanced
manufacturing technologies, shortened product time-to-market,
reduced cost of production, and more effective asset utilization.
Solectron currently conducts operations in the Western,
Southwestern and Eastern United States, Europe and Southeast
Asia. Solectron believes that the geographically diverse
locations of its facilities enable it to build closer regional
relationships with its customers and to better meet its
customers' 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. Solectron's
telephone number is (408) 957-8500.
The information contained within this overview of the
business, is qualified in its entirety by, and is subject to, the
detailed information, consolidated financial statements and notes
thereto contained elsewhere within this document under
"Management's Discussion and Analysis of Financial Condition and
Results of Operations", "Financial Statements and Supplementary
Data".
Industry Overview
Solectron is benefiting from increased worldwide market
acceptance of, and reliance upon, the use of manufacturing
specialists by many electronics OEMs. Solectron 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 Investment. As electronic products have become more
technologically advanced and shipped in greater unit volumes, the
necessary investment required for internal manufacturing has
increased significantly for working capital, capital equipment,
labor, systems, and infrastructure. Use of manufacturing
specialists enables OEMs to gain access to advanced, high volume
manufacturing capabilities while substantially reducing overall
resource 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
manufacturing location options to better address their objectives
regarding cost, shipping location, frequency of interaction with
manufacturing specialists, and local content requirements of end-
market countries.
Strategy
Solectron's goal is to offer its customers the significant
competitive advantages of manufacturing outsourcing, such as
access to advanced manufacturing technologies, shortened product
time-to-market, reduced cost of production, and more effective
asset utilization. To achieve this goal Solectron's strategy
emphasizes the following key elements:
Quality. Solectron believes that product quality is a
critical success factor in the electronics manufacturing market.
Solectron strives for continuous improvement of its processes and
has adopted a number of quality improvement and measurement
techniques to monitor its performance. Solectron has received
numerous superior service and quality awards, including the
Malcolm Baldrige National Quality Award in 1991, the State of
California Governor's Golden State Award in 1994, the North
Carolina Quality Leadership Award in 1996, the Malaysian Quality
Management Excellence Award in 1996, the Texas Quality Award in
1996, and numerous awards from its customers. All of Solectron's
manufacturing facilities, except for Everett, Washington and the
recently acquired Fine Pitch Technology, Inc., 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 diverse segments across the electronics
industry. Solectron's customer base consists of leaders in
industry segments such as networking, telecommunications,
workstations, personal computers, computer peripherals,
instrumentation, semiconductor equipment, and avionics. Due to
the costs inherent in supporting customer relationships,
Solectron focuses its efforts on customers with which the
opportunity exists to develop long-term business partnerships.
Solectron's goal is to provide its customers with total
manufacturing solutions for both new and more mature products, as
well as across product generations. Solectron'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.
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. Solectron 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 Solectron's revenue is from its turnkey
business. Solectron 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, Solectron 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 Solectron's
customer base and in closer working relationships. Solectron 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. Solectron has developed substantial SMT expertise
including advanced, vision-based component placement equipment.
Solectron 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. Solectron 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 Solectron 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. Solectron currently has operations
in the Western, Southwestern and Eastern United States, Europe
and Southeast Asia. Solectron 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 endmarket countries. In
addition, Solectron 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. Solectron's headquarters and largest
manufacturing operations are located in Silicon Valley,
principally in Milpitas, California. Solectron 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 addition, Solectron has a smaller site
strategically located in Everett, Washington to help serve
Solectron's customers in the Pacific Northwest and elsewhere.
In March 1996, Solectron completed its acquisition of Fine
Pitch Technology, Inc., headquartered in San Jose, California.
Fine Pitch Technology provides extensive prototype services for
electronics OEMs, further enhancing Solectron's ability to
address the needs of design teams who require almost immediate
availability of highly complex prototype assemblies.
Subsequent to the 1996 fiscal year end, the Company announced
it has reached a definitive agreement to acquire Force Computers,
Inc., an independent manufacturer and supplier of VME and
embedded computer platforms based on open systems technology,
with expertise in ASIC design, software development, board
design, systems integration and manufacturing. Force Computers
also provides support services, such as system configurations,
application consulting, and training to its customers. This
strategic acquisition of Force Computers is expected to further
enhance the Company's array of services, particularly in pre-
manufacturing areas. The acquisition, which is expected to be
completed in December 1996, is subject to various closing
conditions, including obtaining Force Computers' shareholder
approval. Force Computers' corporate headquarters are located in
San Jose, California. Its European headquarters and a
significant portion of its manufacturing operations are located
in Munich, Germany. Force Computers also has direct subsidiaries
located in the United Kingdom, France, Sweden, Belgium, Israel
and Japan all of which provide sales support. There can be no
assurance that the transaction will close or that if closed, the
Company will successfully integrate the Force Computers business
into its operations.
Southwestern United States. In March 1996, Solectron
acquired the Custom Manufacturing Services business located in
Austin, Texas from Texas Instruments Incorporated (TI). This
facility is staffed primarily by former TI personnel with
extensive manufacturing experience. Solectron believes that the
Austin facility is situated in a geographic region with strong
growth of electronics OEMs which will allow Solectron to better
service its existing customers and to attract new ones.
Eastern United States. Solectron's Eastern United States
operations are located in Charlotte, North Carolina. This
facility is staffed by personnel with extensive electronics
manufacturing and product design experience. Solectron believes
that the Charlotte facility allows it to better pursue new
business opportunities with new and existing customers having
Eastern United States operations because of Charlotte's status as
a transportation hub and its relative proximity to major Eastern
United States electronics markets. Subsequent to Solectron's 1996
fiscal year end, Solectron announced its intention to add a
facility in the Boston, Massachusetts area during fiscal 1997.
Europe. Solectron has three European sites. One site is
located in Bordeaux, France. This facility was purchased from
International Business Machines Corporation (IBM) in September
1992. Solectron also has operations in Dunfermline, Scotland.
Solectron believes that this facility allows it to better serve
the many electronics OEMs located in the United Kingdom and
Ireland. In November 1995, Solectron completed the acquisition of
Hewlett-Packard Company's printed circuit board assembly
operation in Boeblingen, Germany. Over time, this facility is
expected to allow Solectron to better serve the German market and
Hewlett-Packard.
Southeast Asia. Solectron's Southeast Asia manufacturing
operations are primarily located in Penang, Malaysia. 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. During fiscal 1996, Solectron
further expanded its Penang operations and added a facility in
Johor, Malaysia, and purchased TI's Custom Manufacturing Services
operations in Kuala Lumpur, Malaysia. The operations of the Kuala
Lumpur location are being transferred to Solectron's Penang
facility during fiscal 1997. Solectron intends to add a facility
in Suzhou, China during fiscal 1997.
As Solectron manages the existing operations and expands
geographically, it may experience certain inefficiencies from the
management of geographically dispersed operations. In addition,
Solectron'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 1996, approximately 30% of Solectron's sales were
from operations outside of the United States. As a result of
continuous customer demand overseas, Solectron expects foreign
sales to increase. Solectron's foreign sales and 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 Solectron'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, Solectron 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 Solectron 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 Solectron 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 Solectron 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.
In order to successfully implement these management
techniques, Solectron has developed the ability to collect and
utilize large amounts of data in a timely manner. Solectron
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,
Solectron 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, Solectron
emphasizes timely delivery and accurate, up-to-date documentation
for each product. Solectron 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, Solectron analyzes each customer's materials
specifications to identify the suppliers from whom to purchase
the materials. Solectron 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 Solectron 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, Solectron 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, Solectron
restructures bills of material and expedites orders for new
components, as authorized. Solectron also identifies and makes
changes to its manufacturing instructions and test plans. In
order to assure prompt customer response, Solectron 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.
Electronics Assembly and Other Services
Solectron's electronics assembly activities consist
primarily of the placement and attachment of electronic and
mechanical components on printed circuit boards and flexible
cables. Solectron 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 its customers'
distributors. In addition, Solectron provides other manufacturing
services including refurbishment and remanufacturing. Solectron
manufactures on a turnkey basis, directly procuring some or all
of the components necessary for production, and on a consignment
basis, where the OEM customer supplies all or some 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
Solectron's ability to deliver high quality products on a
consistent basis. Solectron 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. Solectron either designs and procures
test fixtures and develops its own test software or utilizes its
customers' existing test fixtures and test software. In addition,
Solectron 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 Solectron'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.
Solectron 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.
Solectron 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 salespersons and project managers, as well as
Solectron's senior executives. Solectron's sales resources are
directed at multiple management and staff levels within targeted
accounts. Solectron also uses independent sales representatives
in certain geographic areas. Solectron also receives unsolicited
inquiries resulting from advertising and public relations
activities, as well as referrals from current customers. These
opportunities are evaluated against Solectron's customer
selection criteria and are assigned to direct salespersons or
independent sales representatives, as appropriate. Historically,
Solectron has had substantial recurring sales from existing
customers.
Over 80% of Solectron's net sales during fiscal 1996 were
derived from customers which were also customers during fiscal
1995. Although Solectron seeks to diversify its customer base, a
small number of customers currently are responsible for a
significant portion of Solectron's net sales. During fiscal 1996,
1995, and 1994, Solectron's ten largest customers accounted for
64%, 70%, and 70% of consolidated net sales, respectively.
However, with the exception of Hewlett-Packard Company, which
represented 11% of sales in fiscal 1996, IBM Corporation which
represented 21% and 28% of net sales in fiscal 1995 and 1994,
respectively, and Apple Computer, Inc. which represented 12% of
net sales in fiscal 1994, no other individual customer accounted
for more than 10% of Solectron'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, 1996, Solectron's backlog was approximately $612 million. The
backlog was approximately $520 million at August 31, 1995.
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. Solectron 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
Solectron's competitors have broader geographic breadth. They
also may have greater manufacturing, financial, research and
development, and marketing resources than Solectron. Solectron
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, Solectron 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.
Solectron 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, 1996, Solectron employed 12,999 persons,
including 2,218 temporary employees. Of Solectron's 12,999
persons employed, 4,596 were employed by Solectron's foreign
operations.
Patents and Trademarks
Solectron has obtained a limited number of U.S. patents
related to the process and equipment used in its surface mount
technology. These patents are considered valuable to Solectron.
Although Solectron does not believe that its manufacturing
process infringes on the intellectual property rights of third
parties, there can be no assurance that third parties will not
assert infringement claims against Solectron in the future. If
such an assertion were to be made, it may become necessary or
useful for Solectron to enter into licensing arrangements or to
resolve such an issue through litigation. However, there can be
no assurance that such license rights would be available to
Solectron 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 Solectron's financial condition regardless of
the outcome of such litigation.
Solectron 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, Texas, North Carolina and Washington. In and around
Milpitas, California, Solectron California Corporation leases
approximately 1,319,000 square feet of facilities under leases
expiring through 2001 and subleases approximately 29,000 square
feet to a third party on a short term lease. In connection with
the March 1996 acquisition of the CMS business, the Company
leases approximately 456,000 square feet in Austin, Texas. This
lease is subject to expiration in 1999. In Charlotte, North
Carolina, the Company owns facilities of approximately 247,000
square feet on 73 acres of land and occupies an additional
facility of approximately 40,000 square feet under a short-term
lease. In Everett, Washington, the Company leases approximately
75,000 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 of it's
site in Boeblingen, Germany, the Company now leases facilities in
Boeblingen, approximating 54,000 square feet.
The Company's Asian manufacturing operations are located in
Penang and Johor Malaysia, with temporary operations in Kuala
Lumpur, Malaysia. The Company owns facilities of 228,000 square
feet in Malaysia, and 42,000 square feet in Johor. The facilities
in Kuala Lumpur approximate 25,000 square feet.
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
STOCKHOLDER MATTERS
Common Stock Information
The following table sets forth the quarterly high and low per
share sales prices of Solectron's Common Stock for the two-year
period ending August 31, 1996, as quoted on the New York Stock
Exchange.
High Low
------ ------
Fiscal 1995
First Quarter 31 3/8 24 3/4
Second Quarter 27 1/4 22 1/2
Third Quarter 31 22 7/8
Fourth Quarter 38 5/8 30 1/8
Fiscal 1996
First Quarter 43 5/8 35
Second Quarter 50 1/8 36 1/2
Third Quarter 50 40 1/4
Fourth Quarter 43 7/8 31
Solectron has not paid any dividends since its inception and
does not intend to pay any dividends in the foreseeable future.
Additionally, the covenants to the Company's financing agreements
prohibit the payment of cash dividends. At August 31, 1996,
there were approximately 1,162 shareholders of record based on
data obtained from the Company's transfer agent..
ITEM 6: SELECTED FINANCIAL DATA
The following selected historical financial information of
Solectron has been derived from the historical consolidated
financial statements and should be read in conjunction with the
consolidated financial statements and the notes included therein.
<TABLE>
Five year selected financial highlights
(in thousands, except per share data)
<CAPTION>
Years Ended August 31,
-------------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
Consolidated Statements of Income Data:
Net sales $2,817,191 $2,065,559 $1,456,779 $836,326 $406,883
Operating income 175,425 123,434 88,350 53,140 27,153
Income before income taxes 173,077 120,494 84,159 48,613 24,144
Net income 114,232 79,526 55,545 30,600 14,488
Fully diluted net income per share $2.17 $1.62 $1.18 $0.75 $0.44
</TABLE>
<TABLE>
<CAPTION>
As of August 31,
-------------------------------------------
1996 1995 1994 1993 1992
----- ------ ----- ----- -----
Consolidated Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Working capital $ 786,355 $355,603 $309,203 $265,025 $199,254
Total assets 1,452,198 940,855 766,395 603,285 308,737
Long-term debt and capital
lease obligations 386,927 30,043 140,709 137,011 130,933
Shareholders' equity $ 700,569 $538,141 $330,789 $260,980 $104,245
</TABLE>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of
Financial Condition and Results of operations contains forward-
looking statements which involve risks and uncertainties.
Solectron's actual results could differ materially from those
anticipated in these forward looking statements as a result of
certain factors, including those factors set forth under "Risks
and Uncertainties" below.
General
Solectron's net sales are derived from sales to electronics
systems original equipment manufacturers (OEMs). The majority of
Solectron's customers compete in the telecommunications, computer
peripherals, workstation, and personal computer sectors of the
electronics industry segment. Solectron uses advanced
manufacturing technologies in assembly and manufacturing
management of complex printed circuit boards and electronics
systems. Solectron also provides pre-manufacturing and post-
manufacturing services. A discussion of some of the potential
fluctuations in operating results is discussed under "Risks and
Uncertainties".
Solectron's operating results are affected by a number of
factors, including the material content and volume of products
built, manufacturing efficiencies, utilization of capacity, start-
up costs associated with new customer projects, the degree of
turnkey manufacturing, and price competition. Turnkey
manufacturing currently represents a substantial portion of
Solectron's sales. Turnkey projects, in which Solectron procures
some or all of the components necessary for production, typically
generate higher net sales and higher gross profits with lower
gross profit percentages than consignment projects due to the
inclusion in Solectron's operating results of sales and costs
associated with the purchase and sale of components. During the
past few years, Solectron has assembled products with varying
degrees of material content, which has caused Solectron's gross
margin to fluctuate. In addition, the degree of startup costs and
inefficiencies associated with new sites and new customer
projects has affected Solectron's gross margin.
Solectron has manufacturing operations in eleven locations,
five of which are in the United States, three are in Europe, two
in Malaysia, and one is currently being developed in China. The
U.S. sites include the site in Austin, Texas, which was purchased
from Texas Instruments Incorporated in March 1996 for
approximately $132 million. The acquisition resulted in
approximately $38 million in goodwill.
On September 25, 1996, the Company executed a definitive
agreement to acquire Force Computers Inc., a designer and
provider of OEM platforms for the embedded market. The
transaction is valued at between $187.5 million and $205 million
and will be accounted for using the pooling-of-interests method
of accounting. The transaction is subject to a number of closing
conditions and is expected to close in November 1996.
As Solectron manages its existing operations and expands
geographically, it may experience certain inefficiencies due to
the management of geographically dispersed operations. See "Risks
and Uncertainties" for further discussion of some of the
potential fluctuations in operating results associated with the
management of growth and geographic expansion, including the
pending acquisition of Force Computers.
Results of Operations
The electronics industry is subject to rapid technological
change, product obsolescence, and price competition. These and
other factors affecting the electronics industry, or any of
Solectron's major customers in particular, could have a material
adverse effect on Solectron's results of operations. See "Risks
and Uncertainties -- Potential Fluctuations in Operating Results"
and "Competition" for further discussion of potential
fluctuations in operating results.
The following table sets forth, for the periods indicated,
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,
---------------------------------
1996 1995 1994
------ ------ ------
Net sales 100.0% 100.0% 100.0%
Cost of sales 90.0 90.2 90.0
----- ----- -----
Gross profit 10.0 9.8 10.0
Operating expenses:
Selling, general and administrative 3.6 3.6 3.6
Research and development 0.2 0.2 0.3
---- ---- ----
Operating income 6.2 6.0 6.1
Net interest expense 0.1 0.1 0.3
---- ---- ----
Income before income taxes 6.1 5.9 5.8
Income taxes 2.1 2.0 2.0
---- ---- ----
Net income 4.0% 3.9% 3.8%
===== ===== =====
Net Sales
Over the past several years Solectron's net sales have grown
significantly, primarily due to an increasing trend toward
outsourcing within the electronics industry. In fiscal 1996, net
sales grew to approximately $2.8 billion, an increase of $752
million, or 36%, over the previous year. Net sales in fiscal 1995
were $2.1 billion, an increase of $609 million, or 42%, over
fiscal 1994. The sales increase in fiscal 1996 was due to
increased orders from both new and existing customers at existing
sites, the acquisition of the Custom Manufacturing Services (CMS)
business from Texas Instruments Incorporated (TI) in March 1996,
the acquisition of the German site in November 1995, and
continued growth in Solectron's business overall. The increase in
fiscal 1995 over fiscal 1994 was due to increased orders from
existing customers, the addition of new customers, and growth in
Solectron's turnkey business.
Solectron's largest customer during fiscal 1996 was Hewlett-
Packard Company (HP). Net sales to HP in fiscal 1996 were 11% of
consolidated net sales. Net sales to HP in fiscal 1995 were less
than 10% of consolidated net sales. Solectron's largest customer
during fiscal 1995 was International Business Machines
Corporation (IBM) with net sales of 21% of 1995 consolidated net
sales. Net sales to IBM in fiscal 1996 were less than 10% of
consolidated net sales. The decrease in sales to IBM, as a
percentage of consolidated net sales, reflects both a decrease in
actual sales volume to IBM and an overall increase in Solectron's
total consolidated net sales from all other customers. The
decrease in actual sales volume to IBM is primarily due to the
expiration of the manufacturing services agreement with IBM at
Solectron's Bordeaux, France facility which expired on December
31, 1995. Solectron has no other significant agreements of this
type with any of its customers.
Over the last three years, the number of customers which
represent more than 10% of consolidated net sales has declined.
During the same period, the percentage of total sales represented
by Solectron's top ten customers has declined from 70% in 1994
and 1995, to 64% in 1996. These changes have occurred primarily
due to Solectron's ability to obtain significant new business
from other customers, thereby reducing its dependency on these
accounts. Solectron is still dependent upon continued revenues
from HP and the rest of its top ten customers and there can be no
guarantee that these or any other customers will not increase or
decrease as a percentage of consolidated net sales either
individually or as a group. Consequently, any material decrease
in sales to these or other customers could have a material
adverse effect on Solectron's results of operations.
Net sales at Solectron's foreign sites, as a whole, grew at
a slower rate over the last year than aggregate net sales at
Solectron's domestic sites. Foreign locations contributed 30% of
consolidated net sales in fiscal 1996, compared to 38% for fiscal
1995. The principal reason for the difference in overall sales
growth rates between domestic and foreign sites was the
acquisition of the CMS business from TI, which is almost entirely
comprised of domestic sales, and the expiration of the
manufacturing services agreement with IBM at Solectron's
Bordeaux, France facility. Sales at the new site in Germany
partially offset the decline of sales at the Bordeaux site.
As a result of Solectron's foreign sales and facilities,
Solectron's operations are subject to risks of doing business
abroad. While to date these dynamics have not had a materially
adverse impact on Solectron's results of operations, there can be
no assurance that there will not be such an impact in the future.
See "Risks and Uncertainties -- International Operations" for a
further discussion of potential fluctuations in operating results
associated with the risks of doing business abroad.
Solectron's operations in Milpitas, California contributed a
substantial portion of Solectron's net sales and operating income
during fiscal 1996, 1995, and 1994. The performance of this
operation is expected to continue as a significant factor in the
overall financial performance of Solectron. Any material adverse
change to the customer base, product mix, efficiency, or other
attributes of this site could have a material adverse effect on
Solectron's consolidated results of operations.
Solectron believes that its ability to continue to achieve
growth will depend upon growth in sales to existing customers for
their current and future product generations, successful
marketing to new customers and future geographic expansion.
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. In
addition, there can be no assurance that any of Solectron's
current customers will continue to utilize Solectron's services.
Because of these factors, there can be no assurance that
Solectron's historical revenue growth rate will continue. See
"Risks and Uncertainties" for a discussion of certain factors
affecting the management of growth, geographic expansion and
potential fluctuations in sales and results of operations.
Gross Profit
Gross profit increased by $80.5 million, or 40%, in fiscal
1996 compared to fiscal 1995 and $55.5 million, or 38%, during
fiscal 1995 compared to fiscal 1994. The gross margin increased
to 10.0% in fiscal 1996, from 9.8% in fiscal 1995. The gross
margin was also 10.0% in fiscal 1994. The slight increase in the
gross margin in fiscal 1996 compared to fiscal 1995 resulted from
manufacturing efficiencies realized at Solectron's Charlotte,
North Carolina and Milpitas, California sites, increased
utilization of the facilities in Charlotte, North Carolina, and
product mix. Offsetting these factors were continued
inefficiencies at the Scotland site which are partially driven by
slower than expected revenue growth. Also, the acquisition of the
Austin, Texas site in March 1996, which currently has a lower
gross margin than Solectron as a whole, negatively impacted
Solectron's overall margin. However, the Austin site continues to
experience improvements in its margins. In fiscal 1995,
Solectron's gross margin was lower than in fiscal 1994 primarily
due to underutilization of its facility in France and
manufacturing inefficiencies at the Scotland and North Carolina
sites.
For the foreseeable future, Solectron's gross margin is
expected to depend primarily on product mix, production
efficiencies, utilization of manufacturing capacity, integration
of newly acquired businesses, the percentage of sales derived
from turnkey manufacturing, and pricing within the electronics
industry. There can be no assurance that Solectron's gross margin
will not decrease in future periods. See "Risks and Uncertainties
- -- Potential Fluctuations in Operating Results" for a discussion
of certain factors that may affect Solectron's gross margin.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses
increased to $100.3 million in fiscal 1996, compared to $73.6
million in fiscal 1995 and $53.8 million in fiscal 1994. However,
SG&A expenses as a percentage of net sales volume remained
constant at 3.6% in fiscal 1996, 1995, and 1994, reflecting
Solectron's intention to continue developing its infrastructure
but also to limit its growth in SG&A spending relative to its
growth in revenue. The dollar increases in SG&A expenses during
these periods were primarily due to growth in personnel and
related departmental expenses at all locations and continuing
investments in information systems. These expenditures are
designed to support the increased size and complexity of
Solectron's business. The acquisitions of the sites in Germany
and Texas and to a lesser extent, Fine Pitch Technology, Inc.,
during fiscal 1996 as well as the acquisitions of the sites in
Scotland and Washington during fiscal 1994 also contributed to
the increase in SG&A expenses over the past three years
presented. Solectron anticipates SG&A expenses will increase in
absolute amounts in the future as Solectron builds the
infrastructure necessary to support its current and prospective
business. See "Risks and Uncertainties -- Management of Growth,"
and "Potential Fluctuations in Operating Results".
Research and Development Expenses
Research and development activities have been focused
primarily on the development of prototype and engineering design
capabilities, fine pitch interconnecting technologies (which
include ball-grid array, tape-automated bonding, multichip
modules, chip-on-flex, chip-on-board, and flip chip), high
reliability environmental stress test technology, and the
implementation of environmentally-friendly assembly processes,
such as VOC-free and no-clean. Research and development expenses
increased to $6.7 million in fiscal 1996 from $4.8 million in
fiscal 1995 and $4.2 million in fiscal 1994.
Net Interest Expense
Net interest expense was $2.3 million in fiscal 1996,
compared to $2.9 million in fiscal 1995 and $4.2 million in
fiscal 1994. However, both interest expense and interest income
increased significantly during fiscal 1996. The increase in
interest expense is due to the two debt offerings which occurred
in the second and third quarters. Solectron expects interest
expense for fiscal 1997 to be approximately $25 million. The
increase in interest income is due to the income earned on the
remaining undeployed portions of the cash raised from the two
debt offerings. Solectron expects to utilize more of the
undeployed cash during fiscal 1997 in order to fund anticipated
future growth. The decrease in fiscal 1995 compared to fiscal
1994 was primarily due to the voluntary conversion of nearly 80%
of Solectron's outstanding zero-coupon subordinated notes during
the fourth quarter of fiscal 1995. See "Risks and Uncertainties -
- - Management of Growth," and "Potential Fluctuations in Operating
Results".
Income Taxes
Income taxes increased to $58.8 million in fiscal 1996 from
$41.0 million in fiscal 1995 and $28.6 million in fiscal 1994,
due primarily to increased income before income taxes.
Solectron's effective income tax rate remained constant at 34% in
fiscal 1996, 1995, and 1994. The effective income tax rate is
largely a function of the balance between income from domestic
and foreign operations. Foreign operations for Solectron are
generally taxed at lower rates than in the United States. At its
Penang, Malaysia site, Solectron currently benefits from a tax
holiday that expires in January 1997. Solectron is seeking to
obtain a new tax holiday which, if granted, would last for five
years. If the new tax holiday is not granted, Solectron's
effective income tax rate would likely increase.
Liquidity and Capital Resources
Working capital was $786 million at the end of fiscal 1996,
compared to $356 million at the end of fiscal 1995. In addition
to increases in working capital generated from existing sites,
the increase over fiscal 1995 is largely due to the additional
cash and investments on hand as a result of the two debt
offerings during fiscal 1996 (discussed below) and an increase in
working capital resulting from the acquisition of the sites in
Germany and Texas. As Solectron continues to grow in size it will
generally require greater amounts of working capital to support
its operations. During 1995 the increase in working capital was
financed by cash generated from operations.
Net cash used in investing activities was $360 million in
fiscal 1996, consisting primarily of the CMS acquisition from TI
for approximately $132 million, $123 million in net investments
of monies raised during the debt offerings, and capital
expenditures of $115 million primarily for surface mount assembly
and test equipment to meet current and expected production
levels.
In addition to planned increases in working capital to
support anticipated increases in net sales, Solectron also
expects capital expenditures in fiscal 1997 to be in the range of
$130 million to $170 million. Beginning in September 1997,
Solectron will be required to pledge approximately $52 million of
cash or marketable securities as collateral for its obligation
under the terms of Solectron's operating lease for certain of its
facilities in Milpitas, California. The lease expires in
September 1999. Solectron intends to re-negotiate the terms of
the lease before September 1997.
In addition to Solectron's working capital as of August 31,
1996, which includes cash and cash equivalents of $229 million
and short-term investments of $182 million, Solectron also has
available a $100 million unsecured domestic revolving credit
facility, subject to financial covenants and restrictions, and
$48.2 million in available foreign credit facilities. During the
third quarter of fiscal 1996, the remaining outstanding zero-
coupon, subordinated notes converted to common stock. The result
of the conversions in the third quarter was a reduction in long-
term debt of approximately $30 million and an increase in common
stock of approximately $30 million. During fiscal 1996 Solectron
completed two private financings. The first was for $230 million
aggregate principal amount of 6% convertible, subordinated notes
due 2006. It was completed at the end of the second quarter of
fiscal 1996. The second offering, completed early in the third
quarter of fiscal 1996, was for $150 million aggregate principal
amount of 7 3/8% senior notes due 2006. Approximately $132
million of the proceeds from these two offerings (collectively
the "notes") was used to complete the CMS transaction in March
1996. The remainder of the proceeds is being used to finance the
working capital for Solectron's expected growth. Interest expense
on the notes is expected to be approximately $25 million annually
and will be offset in part by interest earned on undeployed cash
and short-term investments. Solectron believes the proceeds from
the notes together with the cash generated from operations and
Solectron's available credit will provide adequate working
capital for fiscal 1997.
Risks and Uncertainties
Customer Concentration; Dependence on the Electronics Industry
During fiscal 1996 Solectron's sales volume in the personal
computer and peripheral segments experienced significant
fluctuations. While Solectron's declines in sales revenues in
some segments were offset by increases in sales revenues in other
market segments, there can be no assurance that sales within any
particular market segment will not experience decreases which
could have an adverse effect on Solectron's sales.
A small number of customers are currently responsible for a
significant portion of Solectron's net sales. During the fiscal
year ended August 31, 1996, Solectron's ten largest customers
accounted for over 64% of consolidated net sales, and in the
fiscal years 1995 and 1994, Solectron's ten largest customers
accounted for 70% of consolidated net sales. Solectron is
dependent upon continued revenues from its top ten customers. The
percentage of Solectron's sales to its major customers may
fluctuate from period to period. Significant reductions in sales
to any of these customers could have a material adverse effect on
Solectron's results of operations. Solectron has no firm long-
term volume purchase commitments from its customers, and over the
past few years has experienced reduced lead-times in customer
orders. In addition, customer contracts can be canceled and
volume levels can be changed or delayed. The timely replacement
of canceled, delayed or reduced contracts with new business
cannot be assured. These risks are increased because a majority
of Solectron's sales are to customers in the electronics
industry, which is subject to rapid technological change and
product obsolescence. The factors affecting the electronics
industry in general, or any of Solectron's major customers in
particular, could have a material adverse effect on Solectron's
results of operations.
Management of Growth; Geographic Expansion
Solectron has experienced substantial growth over the last
five fiscal years, with net sales increasing from $265 million in
fiscal 1991 to $2.8 billion in fiscal year 1996. In recent years,
Solectron has acquired facilities in six locations, including
Solectron's most recent purchase of the contract manufacturing
services ("CMS") business of Texas Instruments Incorporated
("TI"). There can be no assurance that Solectron's historical
revenue growth will continue. There can also be no assurance that
Solectron will successfully manage the integration of the CMS
business, or that Solectron will successfully manage the
integration of the Force business, if the Merger closes, or any
other business it may acquire in the future. As Solectron manages
its existing operations and expands geographically, it may
experience certain inefficiencies as it integrates new operations
and manages geographically dispersed operations. In addition,
Solectron's results of operations could be adversely affected if
its new facilities do not achieve growth sufficient to offset
increased expenditures associated with geographic expansion.
Should Solectron 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 Solectron's resources.
CMS Acquisition from Texas Instruments Incorporated
The acquisition of the CMS business from TI entails a number
of risks, including successfully managing the transition of
customers from TI to Solectron, transitioning business from Kuala
Lumpur to Penang, transitioning employees at the Austin site from
TI to Solectron, integrating purchasing operations and
information systems, and managing a larger and more
geographically disparate business. In addition, the CMS business
will increase Solectron's expenses and working capital
requirements. In the event Solectron is unsuccessful in
integrating the CMS business into Solectron's business,
Solectron's results of operations could be materially adversely
affected.
Pending Acquisition of Force Computers Inc.
In September 1996, Solectron entered into an agreement to
purchase Force Computers Inc., a designer and provider of OEM
computer platforms for the embedded market. The proposed
acquisition is expected to close in November 1996, subject to
various conditions to closing, including termination of the
waiting period under applicable antitrust laws and the receipt of
necessary third party consents. The proposed acquisition of
Force Computers entails a number of risks, including successfully
managing the integration of the operations, retention of key
employees at Force Computers, and managing an increasingly larger
and more geographically disparate business. In addition,
Solectron has no significant prior experience in managing and
operating a computer platform design business. There can be no
assurance the Company will successfully manage this business or
obtain the anticipated customer synergy. In the event that
Solectron is unsuccessful in managing and integrating the Force
Computers business, the acquisition could require significant
additional management attention. If the Company is unsuccessful
in integrating and managing the Force Computers business,
Solectron's results of operations could be materially adversely
affected.
International Operations
During fiscal 1996, foreign locations contributed
approximately 30% of consolidated net sales. As a result of its
foreign sales and facilities, Solectron's operations are subject
to risks of doing business abroad, including but not limited to,
fluctuations in the value of currency, tax rates and export
duties, changes to import and export regulations (including
quotas), possible restrictions on the transfer of funds, employee
turnover, labor unrest, longer payment cycles, greater difficulty
in collecting accounts receivable, the burdens and costs of
compliance with a 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 Solectron's results of
operations, there can be no assurance that there will not be such
an impact in the future. In addition, at its Penang, Malaysia
site, Solectron currently benefits from a tax holiday which
expires in January 1997. Solectron is seeking to have the tax
holiday extended. If the tax holiday is not extended, Solectron's
effective income tax rate would likely increase.
Availability of Components
A substantial portion of Solectron's net sales are derived
from turnkey manufacturing in which Solectron provides both
materials procurement and assembly services. In turnkey
manufacturing, Solectron potentially bears the risk of component
price increases, which could adversely affect Solectron's gross
profit margins. At various times there have been shortages of
components in the electronics industry. If significant shortages
of components should occur, Solectron may be forced to delay
manufacturing and shipments, which could have a material adverse
effect on Solectron's results of operations.
While the availability of raw materials appears adequate to
meet Solectron's current revenue projections, component
availability to support increased demand beyond Solectron's
current plans is limited. Furthermore, availability of customer-
consigned parts and unforeseen shortages of components on the
world market are beyond Solectron's control and could adversely
affect revenue levels and operating efficiencies.
Potential Fluctuations in Operating Results
Solectron's margins and operating results are affected by a
number of factors, including product mix, additional costs
associated with new projects, price erosion within the
electronics industry, capacity utilization, price competition,
the degree of automation that can be used in the assembly
process, the efficiencies that can be achieved by Solectron in
managing inventories and fixed assets, the timing of orders from
major customers, fluctuations in demand for customer products,
the timing of expenditures in anticipation of increased sales,
customer product delivery requirements, and increased costs and
shortages of components or labor. Solectron's turnkey
manufacturing, which typically results in higher net sales and
gross profits but lower gross profit margins than consignment
assembly and testing services, represents a substantial
percentage of net sales. All of these factors can cause
fluctuations in Solectron's operating results over time. Because
of these factors, there can be no assurance that Solectron's
margins or results of operations will not fluctuate or decrease
in the future.
Competition
The electronics assembly and manufacturing industry is
comprised of a large number of companies, several of which have
achieved substantial market share. Solectron 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
Solectron's competitors have broader geographic breadth. They
also may have greater manufacturing, financial, research and
development, and marketing resources than Solectron. Solectron
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 be competitive,
Solectron must provide technologically advanced manufacturing
services, high product quality levels, flexible delivery
schedules, and reliable delivery of finished products on a timely
and price-competitive basis. Solectron currently may be at a
competitive disadvantage as to price when compared to
manufacturers with lower cost structures, particularly with
respect to manufacturers with facilities established where labor
costs are lower.
Intellectual Property Protection
Solectron's ability to compete may be affected by its
ability to protect its proprietary information. Solectron
obtained a limited number of U.S. patents in 1995 related to the
process and equipment used in its surface mount technology.
Solectron believes these patents are valuable. However, there can
be no assurance that these patents will provide meaningful
protection for Solectron's manufacturing process and equipment
innovations.
The Company's management believes it has not infringed on any
patents, however, there can be no assurance that third parties
will not assert infringement claims against Solectron or its
customers in the future. In the event a third party does assert
an infringement claim, Solectron may be required to expend
significant resources to develop a non-infringing manufacturing
process or to obtain licenses to the manufacturing process which
is the subject of litigation. There can be no assurance that
Solectron would be successful in such development or that any
such licenses would be available on commercially acceptable
terms, if at all. In addition, such litigation could be lengthy
and costly and could have a material adverse effect on
Solectron's financial condition regardless of the outcome of such
litigation.
Environmental Compliance
Solectron 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 Solectron to comply with present and future
regulations could subject it to future liabilities or the
suspension of production. In addition, such regulations could
restrict Solectron's ability to expand its facilities or could
require Solectron to acquire costly equipment or incur other
significant expenses to comply with environmental regulations.
Dependence on Key Personnel and Skilled Employees
Solectron's continued success depends to a large extent upon
the efforts and abilities of key managerial and technical
employees. The loss of services of certain key personnel could
have a material adverse effect on Solectron. Solectron's business
also depends upon its ability to continue to attract and retain
senior managers and skilled employees. Failure to do so could
adversely affect Solectron's operations.
Possible Volatility of Market Price of Common Stock
The trading price of the common stock is subject to
significant fluctuations in response to variations in quarterly
operating results, general conditions in the electronics
industry, and other factors. In addition, the stock market is
subject to price and volume fluctuations which affect the market
price for many high technology companies in particular, and which
often are unrelated to operating performance.
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, 1996 (in thousands, except percentages and per share data):
First Second Third Fourth
1996 Quarter Quarter Quarter Quarter
- ------- -------- -------- -------- ----------
Net sales $690,624 $ 657,176 $680,554 $788,837
Gross profit $ 66,346 $ 65,361 $71,793 $ 78,878
Gross margin 9.6% 9.9% 10.5% 10.0%
Operating income $ 40,803 $ 41,944 $44,701 $ 47,977
Operating margin 5.9% 6.4% 6.6% 6.1%
Net income $ 27,347 $ 27,650 $ 27,720 $ 31,515
Primary net income per share $ 0.54 $ 0.54 $ 0.53 $ 0.59
Fully diluted net income per share $ 0.52 $ 0.52 $ 0.53 $ 0.59
First Second Third Fourth
1995 Quarter Quarter Quarter Quarter
- ------------------------------ ------- ------- ------- -------
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
SOLECTRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
As of August 31,
------------------------
1996 1995
ASSETS -------- -------
Current assets:
Cash and cash equivalents $ 228,830 $ 89,959
Short-term investments 181,520 58,643
Accounts receivable, less allowances of
$2,992 and $3,501, respectively 341,200 254,898
Inventories 368,862 298,809
Prepaid expenses and other current assets 24,312 24,049
------- --------
Total current assets 1,144,724 726,358
Net property and equipment 249,570 203,609
Other assets 57,904 10,888
------- --------
Total assets $1,452,198 $ 940,855
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accrued interest and current portion of
long-term debt $ 14,094 $ 4,796
Accounts payable 280,840 310,680
Accrued employee compensation 38,216 28,705
Accrued expenses 9,280 15,264
Other current liabilities 15,939 11,310
------- -------
Total current liabilities 358,369 370,755
Long-term debt and capital lease obligations 386,927 30,043
Other long-term liabilities 6,333 1,916
------- -------
Total liabilities 751,629 402,714
------- -------
Shareholders' equity:
Preferred stock, no par value; 1,200
shares authorized; no shares issued -- --
Common stock, no par value; 80,000
shares authorized; 52,511 and 49,584 shares
issued and outstanding, respectively 378,319 329,265
Retained earnings 320,553 206,321
Cumulative translation adjustment and other 1,697 2,555
------- -------
Total shareholders' equity 700,569 538,141
------- -------
Commitments
Total liabilities and shareholders'
equity $1,452,198 $940,855
========= ========
See accompanying notes to consolidated financial statements.
SOLECTRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
YEARS ENDED AUGUST 31,
----------------------------------------
1996 1995 1994
---------- ---------- ----------
Net sales $2,817,191 $2,065,559 $1,456,779
Cost of sales 2,534,813 1,863,729 1,310,451
---------- ---------- ----------
Gross profit 282,378 201,830 146,328
Operating expenses:
Selling, general and administrative 100,260 73,554 53,816
Research and development 6,693 4,842 4,162
------- ------- -------
Operating income 175,425 123,434 88,350
Interest income 13,302 6,611 6,484
Interest expense (15,650) (9,551) (10,675)
------- ------- -------
Income before income taxes 173,077 120,494 84,159
Income taxes 58,845 40,968 28,614
------- ------- -------
Net income $ 114,232 $ 79,526 $ 55,545
======== ======= =======
Net income per share:
Primary $ 2.19 $ 1.82 $ 1.32
Fully diluted $ 2.17 $ 1.62 $ 1.18
Weighted average number of shares:
Primary 52,127 43,773 42,205
Fully diluted 55,177 52,582 52,033
See accompanying notes to consolidated financial statements.
<TABLE>
SOLECTRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
<CAPTION>
Cumulative
Common Stock Translation Total
------------ Retained Adjustment Shareholders'
Shares Amount Earnings And Other Equity
------ ------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Balances as of August 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 August 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 August 31, 1995 49,584 329,265 206,321 2,555 538,141
Options exercised 619 10,164 -- -- 10,164
Stock issued under employee
purchase plan 139 4,339 -- -- 4,339
Conversion of long-term debt 1,973 30,402 -- -- 30,402
Stock issued in business
combination 196 1,668 -- -- 1,668
Tax benefit associated with
exercise of stock options -- 2,481 -- -- 2,481
Net income -- -- 114,232 -- 114,232
Cumulative translation adjustment
and other -- -- -- (858) (858)
------ ------ ------ ------ ------
Balances as of August 31, 1996 52,511 $378,319 $320,553 $ 1,697 $700,569
====== ======= ======= ===== =======
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
SOLECTRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended August 31,
---------------------------------
1996 1995 1994
--------- --------- ----------
Cash flows from operating activities:
Net income $ 114,232 $ 79,526 $ 55,545
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 84,804 61,416 45,708
Interest accretion on zero-coupon
subordinated notes 1,173 8,240 8,894
Interest accrual on long-term debt 12,507 -- --
Other 5,629 3,763 2,349
Changes in operating assets and liabilities:
Accounts receivable (32,379) (64,906) (51,870)
Inventories (27,053) (63,654) (66,221)
Prepaid expenses and other current
assets (234) (4,566) (6,470)
Accounts payable (56,784) 63,681 65,283
Accrued expenses and other current
liabilities 8,753 3,223 12,689
------- ------- -------
Net cash provided by operating activities 110,648 86,723 65,907
------- ------- ------
Cash flows from investing activities:
Purchases of short-term investments (781,266) (183,299) (338,192)
Sales and maturities of short-term
investments 658,436 218,805 380,335
Purchase of facilities (131,893) -- (14,383)
Capital expenditures (115,446) (113,613) (58,959)
Other 9,806 (426) (1,998)
------- -------- -------
Net cash used in investing activities (360,363) (78,533) (33,197)
-------- -------- --------
Cash flows from financing activities:
Proceeds from bank lines of credit 6,340 4,366 --
Proceeds from long-term debt 380,000 -- --
Debt acquisition costs (7,808) -- --
Repayments of long-term debt and capital
lease obligations (4,796) (3,484) (8,864)
Net proceeds from sale of common stock 14,503 10,759 6,298
------- ------- -------
Net cash provided by (used in) financing
activities 388,239 11,641 (2,566)
------- ------- ------
Effect of exchange rate changes on
cash and cash equivalents 347 2,222 2,530
------- ------- -------
Net increase in cash and cash equivalents 138,871 22,053 32,674
Cash and cash equivalents at beginning of year 89,959 67,906 35,232
------- ------- -------
Cash and cash equivalents at end of year $ 228,830 $ 89,959 $ 67,906
======= ======= =======
Supplemental Disclosures
Cash paid:
Interest $ 517 $ 482 $ 1,242
Income taxes 54,937 44,429 25,551
Non-cash investing and financing activities:
Issuance of common stock upon conversion of
long-term debt 30,402 110,915 174
Issuance of common stock for business
combination 1,668 -- --
Tax benefit associated with exercise of
stock options 2,481 1,334 2,046
See accompanying notes to consolidated financial statements.
SOLECTRON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 1996 and 1995
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.
In addition, the Company provides consultation on board design
and manufacturability, as well as system level assembly and test,
flexible cable assembly, refurbishment, packaging, and
remanufacturing services. These 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.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(b) Cash Equivalents and Short-Term Investments: Cash
equivalents are highly liquid investments purchased with an
original maturity of less than three months. Short-term
investments are investment grade short-term debt instruments with
original maturities greater than three months and less than two
years.
Investments in debt securities are classified 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 reported as a component of
shareholders' equity. 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 Company adopted Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of"
effective September 1, 1996. This statement requires long-lived
assets to be evaluated for impairment whenever events or changes
in circumstances indicate that the carrying value of an asset may
not be recoverable. The adoption of SFAS No. 121 is not expected
to have a material impact on the Company's consolidated results
of operations.
(e) Other Assets: Other assets include goodwill related to
the purchase of facilities and equipment described in Note 14 and
debt issuance costs associated with the outstanding convertible
and senior notes described in Note 6. Debt issuance costs are
amortized using the straight-line method over the debt term (ten
years). Goodwill is also amortized using the straight-line method
over ten years.
(f) Income Taxes: The Company uses the asset and liability
method of accounting for income taxes. Under the asset and
liability method, deferred tax assets and liabilities are
recognized for the future consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
When necessary, a valuation allowance is recorded to reduce tax
assets to an amount whose realization is more likely than not.
(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 convertible notes.
(h) Revenue Recognition: The Company recognizes revenue
upon shipment of product to its customers.
(i) Employee Stock Plans: The Company accounts for its
stock option plan and its employee stock purchase plans in
accordance with provisions of the Accounting Principles Board's
Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to
Employees." In 1995, the Financial Accounting Standards Board
released SFAS No. 123, "Accounting for Stock Based Compensation."
SFAS No. 123 provides an alternative to APB 25 and is effective
for fiscal years beginning after December 15, 1995. The Company
intends to continue to account for its employee stock plans in
accordance with the provisions of APB 25. Accordingly, SFAS No.
123 will not have any impact on the Company's reported financial
position or consolidated results of operations.
(j) 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 separate 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 United States dollar is the
functional currency are included in income. To date, the effect
on income of such amounts has been immaterial.
(k) 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.
Gains and losses on hedges of firm commitments and anticipated
transactions are deferred and included in the basis of the
transaction when it occurs. See Note 7.
(l) Year-End: The Company's financial reporting year
consists of either 52-week or 53-week periods ending on the last
Friday in August. Fiscal years 1994 and 1995 each contained 52
weeks, and fiscal year 1996 contained 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 at August 31:
Cash And Cash Short-Term
Equivalents Investments
------------- -----------
(in thousands)
1996
- -------
Cash $ 30,865 $ --
Money market funds 76,595 --
Certificates of deposit 31,779 12,308
U.S. government securities 44,922 139,202
Corporate obligations 34,680 29,179
Municipal obligations 9,989 --
Other -- 831
-------- -------
$ 228,830 $ 181,520
======== ========
1995
- -------
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 --
------- ------
$ 89,959 $ 58,643
======== ========
As of August 31, 1996 and 1995, unrealized gains and losses
were not material. As of August 31, 1996, all of the Company's
short-term investments mature within two years, except
approximately $10 million of market option investments which have
stated maturities greater than fifteen 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 28 days.
Note 3: Inventories
Inventories as of August 31, 1996 and 1995 consisted of:
1996 1995
------- -------
(in thousands)
Raw materials $ 253,646 $ 206,221
Work-in-process 115,216 92,588
-------- --------
$ 368,862 $298,809
======== ========
Note 4: Property and Equipment
Property and equipment as of August 31, 1996 and 1995
consisted of:
1996 1995
-------- --------
(in thousands)
Land, buildings, and improvements $ 37,872 $ 36,100
Machinery and equipment 344,812 261,702
Furniture and fixtures 55,591 36,296
Leasehold improvements 27,749 15,923
Construction-in-progress 773 908
------- -------
466,797 350,929
Less accumulated depreciation
and amortization 217,227 147,320
------- -------
Net property and equipment $ 249,570 $ 203,609
======== ========
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 0.75%, or the bank's certificate of deposit rate plus 0.75%.
As of August 31, 1996 and 1995, there were no borrowings under
this line of credit. The agreement contains certain financial
covenants, restricts capital purchases, acquisitions and other
indebtedness, and restricts the payment of cash dividends and
repurchases of the Company's stock in the open market. 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 $66.2 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, 1996,
borrowings and restricted amounts under these lines of credit
were $18.0 million.
Note 6: Long-Term Debt
Long-term debt and capital lease obligations at August 31,
1996 and 1995 consisted of:
1996 1995
-------- --------
(in thousands)
6% subordinated notes due 2006, face value
$230,000, convertible into 3,402 shares of
common stock $ 236,976 $ --
7 3/8% senior notes due 2006, face value
$150,000 $ 155,257 --
7% zero-coupon, subordinated notes
due 2012, convertible into 1,973 shares of
common stock at the end of 1995. Converted
into common stock during 1996 -- 30,043
Other 8,788 4,796
------ ------
Total long-term debt and capital lease
obligations 401,021 34,839
Less current portion of long-term debt
and capital lease obligations 14,094 4,796
------- ------
$ 386,927 $30,043
======== ========
In February 1996, the Company issued 6% convertible,
subordinated notes due 2006 for an aggregate principal amount of
$230 million. These notes are in denominations of and have a
maturity value of $1,000 each payable on March 1, 2006. Interest
is payable semi-annually at 6%. 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 shares of common
stock at a conversion price of $67.61 per share. Beginning on
March 3, 1999, the notes are redeemable for cash at the option of
the Company, in whole or in part, at redemption prices ranging
from 104.2% of the principal amount in 1999, to 100% of the
principal amount in year 2006. Upon a change in control of the
Company, each holder of the notes has the right to require the
Company to repurchase the notes for 100% of the principal amount.
In March 1996, the Company issued $150 million aggregate
principal amount of senior notes. The notes are in denominations
of and have a maturity value of $1,000 each and are due on March
1, 2006. The notes pay interest at 7 3/8% semi-annually. The
notes may not be redeemed prior to maturity.
As of August 31, 1995, approximately 95,000 zero-coupon,
subordinated notes were outstanding. In May 1996, the remainder
of these notes were converted into approximately 1.97 million
shares of common stock.
Note 7: Financial Instruments
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 is
determined based on quoted market prices. See Note 2.
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 non-performance by the parties in
these contracts. However, because these contracts have maturities
of less than three months, the amounts of unrealized gains and
losses are immaterial. The Company had $37 million and $77
million of net foreign currency forward exchange contracts
outstanding at the end of fiscal years 1996 and 1995,
respectively, primarily for the purchase of European currencies.
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 in accounts receivable resulting from sales to major
customers are discussed in Note 13. 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
2001. 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 Milpitas, 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
$13.9 million, $12.4 million, $9.2 million, $6.2 million, and
$1.1 million in each of the years in the five-year period ending
August 31, 2001. Rent expense was $17.0 million, $10.8 million,
and $11.1 million for the years ended August 31, 1996, 1995, and
1994, respectively.
Note 9: Retirement Plans
The Company has various retirement plans which cover a
significant number of its employees. The major pension plans are
defined contribution plans, which provide pension benefits in
return for services rendered, provide an individual account for
each participant, and have terms that specify how contributions
to the participant's account are to be determined rather than the
amount of pension benefits the participant is to receive.
Contributions to these plans are based on varying percentages of
each participant's base salary. The Company's expense for the
defined contribution plans totaled $2.3 million, $1.0 million,
and $0.5 million in 1996, 1995, and 1994, respectively.
Note 10: Income Taxes
The components of income taxes are as follows (in
thousands):
Years Ended August 31,
------------------------------
1996 1995 1994
------ ------ ------
Current:
Federal $ 51,004 $ 34,922 $17,682
State 7,445 4,370 4,151
Foreign 4,204 4,346 7,121
------ ------ ------
62,653 43,638 28,954
Deferred:
Federal (2,579) (3,474) (313)
State (233) 15 (67)
Foreign (996) 789 40
------ ------ ------
Total $ 58,845 $ 40,968 $ 28,614
======= ======= =======
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,
---------------------------------
1996 1995 1994
------- ------- -------
Federal tax rate 35.0% 35.0% 35.0%
State income tax, net of federal
tax benefit 2.8 2.4 3.2
Tax exempt interest (0.1) (0.7) (1.0)
Income of foreign subsidiaries
taxed at different rates (4.5) (4.2) (3.5)
Other 0.8 1.5 0.3
---- ---- ----
Effective income tax rate 34.0% 34.0% 34.0%
==== ==== ====
The tax effects of temporary differences that give rise to
significant portions of deferred tax assets and liabilities are
as follows (in thousands):
As of August 31,
------------------------
1996 1995
------ ------
Deferred tax assets:
Accruals, allowances, and reserves $11,949 $10,326
State income tax -- 920
Pre-operating costs 234 164
Acquired intangible assets 875 463
Other 1,181 278
----- -----
Total deferred tax assets 14,239 12,151
====== ======
Deferred tax liabilities:
Plant and equipment (1,496) (1,779)
State income tax (469) --
Other (616) (2,070)
------- -------
Total deferred tax liabilities (2,581) (3,849)
------ -------
Net deferred tax assets $11,658 $ 8,302
====== ======
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 (in thousands):
Years Ended August 31,
---------------------------
1996 1995 1994
------ ------ ------
U.S. $ 140,900 $ 91,537 $ 54,241
Non-U.S. 32,177 28,957 29,918
------- ------- -------
Total $ 173,077 $ 120,494 $ 84,159
======= ======= =======
The Company has not provided for U.S. federal and foreign
withholding taxes on approximately $84.6 million of foreign
subsidiaries' undistributed earnings as of August 31, 1996
because such earnings are intended to be reinvested indefinitely.
The amount of income tax liability that would result had such
earnings been repatriated is estimated to be approximately $16
million.
The Company has a tax holiday in Malaysia which expires in
January 1997. The Company is seeking a second tax holiday in
Malaysia.
Note 11: Shareholders' Equity
(a) 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:
Number Of Exercise
Years Ended August 31, Shares Price
- ------------------------------ ----------- -----------
1996
Outstanding at beginning of year 3,991,840 $ 1.94 - $37.38
Granted 1,586,939 35.25 - 44.63
Exercised (618,887) 1.94 - 41.00
Canceled (244,104) 13.81 - 44.63
----------- --------------
Outstanding at end of year 4,715,788 $ 7.00 - $44.63
========= ==============
Shares exercisable at end of year 2,511,843 $ 7.00 - $44.63
========= ==============
1995
Outstanding at beginning of year 4,067,143 $ 1.81 - $30.75
Granted 778,250 26.63 - 37.38
Exercised (572,780) 1.81 - 30.75
Canceled (280,773) 1.94 - 37.38
--------- ---------------
Outstanding at end of year 3,991,840 $ 1.94 - $37.38
========= =============
Shares exercisable at end of year 1,924,029 $ 1.94 - $37.38
========= =============
A total of 6,389,328 shares of common stock remain reserved
for issuance under the plans as of August 31, 1996.
Each independent member of the Company's Board of Directors
is granted 6,000 stock options each December 1 at the then
current fair market value. Such options vest over one year.
(b) 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, 1996,
1,390,918 shares remain available for issuance under the Purchase
Plan.
Note 12: Business Segment Information
Information about the Company's operations in different
geographic regions is presented in the table below:
Operating Identifiable
Net Sales Income Assets
---------- ---------- ------------
(in thousands)
Fiscal 1996
United States $ 1,981,788 $ 142,470 $1,117,875
Europe 490,606 7,775 224,172
Asia 344,797 25,180 110,151
--------- -------- ---------
$ 2,817,191 $ 175,425 $1,452,198
========= ======== =========
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
--------- -------- --------
$ 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
---------- --------- ----------
$ 1,456,779 $ 88,350 $ 766,395
========= ======= ========
Note 13: Major Customers
Net sales to major customers as a percentage of consolidated
net sales were as follows (* represents sales less than 10%):
Years Ended August 31,
------------------------------
1996 1995 1994
------ ------ ------
Hewlett-Packard 11% * *
IBM * 21% 28%
Apple Computer * * 12%
As a result of sales to these and other of the Company's
significant customers, the Company does have concentrations of
credit risk. This situation is intensified due to the fact that
the majority of the Company's customers are in the same industry.
The Company believes its reserves for bad debt are adequate
considering its concentrations of credit risk.
Note 14: Asset Acquisitions
In November 1995, the Company purchased certain assets from
the printed circuit assembly operation of Hewlett-Packard GmbH, a
subsidiary of Hewlett-Packard Company, located in Boeblingen,
Germany. The purchase price for these assets was not material and
was financed with existing cash and short-term investments.
In March 1996, the Company exchanged common stock and common
stock options for all of the outstanding stock and options of
Fine Pitch Technology, Inc., a provider of prototype services.
This transaction was accounted for under the pooling-of-interests
method. The results of operations for Fine Pitch Technology are
not material to the Company's consolidated results of operations
and accordingly, pro-forma information has not been disclosed and
historical information has not been restated.
In March 1996, the Company completed its purchase of Texas
Instruments Incorporated's Custom Manufacturing Services (CMS)
business. This business, principally located in Austin, Texas,
was acquired for approximately $132 million. Under the terms of
the agreement, Solectron purchased the CMS business in Austin,
Texas and certain assets of the CMS business in Kuala Lumpur,
Malaysia (collectively the CMS operations). The Company is moving
the CMS business in Kuala Lumpur to Solectron's Penang, Malaysia
operations over the course of approximately one year from the
time of acquisition. This transaction was accounted for under the
purchase method of accounting. The acquisition resulted in
goodwill of approximately $38 million which is being amortized on
a straight-line basis over 10 years.
The CMS operations' fiscal year ends July 31, 1996. The
Company's consolidated financial position as of August 31, 1996
includes the financial position of the CMS operations as of July
31, 1996, and the Company's consolidated results of operations
and cash flows for the year ended August 31, 1996 include the
results of operations and cash flows of the CMS operations for
the four-month period ended July 31, 1996.
The following pro forma combined financial information gives
effect to the acquisition of the CMS operations on a purchase
accounting basis for the years ended August 31, 1996 and 1995 as
if the CMS operations had been acquired at the beginning of the
periods presented. The preparation of this financial information
requires the use of management's estimates. This pro forma
financial information includes certain adjustments for goodwill
amortization, increased depreciation expense, a decrease in
interest income (related to the assumed liquidation of certain
current investments for the purchase of the CMS operations), and
the related income tax effects.
This pro forma combined information is not purported to be
indicative of the results that would have actually been obtained
if the combination had been in effect during the periods
indicated, or that may be obtained in the future. In addition, it
does not reflect the effects of any synergy that might be
achieved from the newly combined operations.
Pro forma financial information:
Years Ended August 31,
--------------------------------
1996 1995
---------- ----------
Net revenues $ 3,152,962 $ 2,492,530
Net income $ 115,085 $ 79,651
Primary earnings per share $ 2.21 $ 1.82
Fully diluted earnings per share $ 2.19 $ 1.62
Note 15: Subsequent Event (Unaudited)
On September 25, 1996, the Company executed a definitive
agreement to acquire Force Computers Inc., a designer and
provider of OEM computer platforms for the embedded market. The
transaction is to be accounted for under the pooling-of-interests
method and is valued at between $187.5 million and $205.0
million. The transaction is expected to close in November 1996
and is not expected to have a material impact on the Company's
financial position or results of operations.
INDEPENDENT AUDITORS' REPORT
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, 1996
and 1995, 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, 1996. In connection with our
audits of the consolidated financial statements, we also have
audited the financial schedule as of August 31, 1996 and for each
of the years in the three-year period ended August 31, 1996.
These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with 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, 1996 and 1995, and the results of their operations
and their cash flows for each of the years in the three-year
period ended August 31, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set
forth therein.
KPMG PEAT MARWICK LLP
Palo Alto, California
September 13, 1996
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
Solectron's executive officers and directors and their ages as of
August 31, 1996 are as follows:
Name Age Position
- ---------------------------- ------ -------------------------------
Koichi Nishimura, Ph.D. 58 President, Chief Executive
Officer, and Chairman of the Board
David Kynaston 55 Vice President and President
Solectron Europe
Stephen T. Ng 41 Senior Vice President and Chief
Materials Officer
Leslie T. Nishimura 52 Senior Vice President and
President Solectron Washington, Inc.
Ken Tsai 53 Senior Vice President and
President Solectron Asia
Susan Wang 45 Senior Vice President, Chief
Financial Officer, and Secretary
Walter W. Wilson 52 Senior Vice President and President
Solectron North America
Saeed Zohouri, Ph.D. 45 Senior Vice President, Chief
Technology Officer and President
Solectron California Corporation
Winston H. Chen, Ph.D. (3) 55 Director
Richard A. D'Amore (1) 43 Director
Charles A. Dickinson (3) 73 Director
Heinz Fridrich (1) 63 Director
Kenneth E. Haughton, Ph.D. (2) 68 Director
Paul R. Low, Ph.D. (1) 63 Director
W. Ferrell Sanders (2) 59 Director
Osamu Yamada (3) 67 Director
- ---------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Nominating Committee
Dr. Koichi Nishimura has served as a director since 1991,
Chairman of the Board since September 1996, 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.
Mr. David Kynaston joined Solectron in February 1996 as Vice
President and President of Solectron Europe. Mr. Kynaston has
worked for Phillips Electronics for the past 15 years in various
capacities, including Managing Director of Philip's Mullard Ltd.
subsidiary, Managing Director of the Business Communications
Systems Division, and most recently, Managing Director of the
Private Mobile Radio Division. Mr. Kynaston has also held senior
technical management positions at EMI Medical Ltd. and Cambridge
Scientific Instruments Ltd.
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 Solectron. 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. Leslie T. Nishimura is President of Solectron
Washington, Inc. and has served as Senior Vice President of
Solectron since 1989, President of Solectron Asia from 1991 to
1993, Secretary of Solectron from 1989 to 1992 and Vice
President, Manufacturing Technology of Solectron 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.
Mr. Ken Tsai is President of Solectron Asia and has served
as Senior Vice President of Solectron since May 1995, Vice
President of Solectron from 1990 to 1995. He served as Director
of Manufacturing for Solectron 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.
Ms. Susan Wang has served as Secretary of Solectron since
1992 and Senior Vice President and Chief Financial Officer of
Solectron since 1990. She was Vice President, Finance and Chief
Financial Officer of Solectron from 1986 to 1990 and Director of
Finance of Solectron from 1984 to 1986. Prior to joining
Solectron, 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 from March 1992 to February 1996 and
Senior Vice President of Solectron since 1990. From 1989 to 1990
he served as an operational Vice President of Solectron. 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.
Dr. Saeed Zohouri is Senior Vice President and Chief
Technology Officer since 1994 and President Solectron California
Corporation since March 1996. Dr. Zohouri joined Solectron in
1980; he has held various management positions and has also
served as Director of Technology. His prior experience includes
teaching chemistry at a major international university.
Dr. Winston H. Chen has served as a director of Solectron
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
and Edison International.
Mr. Richard A. D'Amore has served as a director of Solectron
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., VEECO and Xionics Instruments.
Mr. Charles A. Dickinson has served as a director of
Solectron since 1984, and as Chairman of the Board of Directors
from 1986 to 1990 and from 1994 to September 1996. He served as
an independent consultant to Solectron from 1991 to 1993 and is
currently serving in that capacity. He served as President,
Solectron Europe from September 1993 to February 1996. From 1986
to 1990, he was Chairman of the Board of Directors, President and
Chief Executive Officer of Vermont Micro Systems, Inc. He also
serves as a director of Trident Microsystems, Inc.
Mr. Heinz Fridrich has served as a director of the Company
since April 1996. Mr. Fridrich is currently a member of the
faculty of the University of Florida. From 1950 to 1993, Mr.
Fridrich held a number of manufacturing and operations management
positions in Europe and the United States with IBM. He currently
serves as a director of Central Hudson Gas & Electric Company in
Poughkeepsie, New York.
Dr. Kenneth E. Haughton has served as a director of
Solectron 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.
Dr. Paul R. Low has served as a director of Solectron 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, Number Nine, NCD, XION, and IPAC.
Mr. W. Ferrell Sanders has served as a director of Solectron
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 Solectron 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 on a number of boards of major universities and cultural
centers. He also serves as a director of PictureTel.
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, 1996 to be
held on January 9, 1997 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, 1996.
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, 1996.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON
FORM 8-K
(a) 1. Financial Statements. The financial statements listed in
Item 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA, above are
file as part of this Annual Report on Form 10-K.
2. Financial Statement Schedule. 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, 1996 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 26, 1996 By /s/ Koichi Nishimura
(Koichi Nishimura, President,
Chief Executive Officer, and
Chairman of the Board)
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
Officer, and
Chairman of the
/s/ Koichi Nishimura, Ph.D. Board November 26, 1996
Koichi Nishimura
Chief Financial
Officer (Principal
Financial and
Accounting Officer),
Senior Vice
President, and
/s/ Susan Wang Secretary November 26, 1996
Susan Wang
/s/ Winston H. Chen Director November 26, 1996
Winston Chen, Ph.D.
/s/ Richard A. D'Amore Director November 26, 1996
Richard A. D'Amore
/s/ Charles A. Dickinson Director November 26, 1996
Charles A. Dickinson
/s/ Heinz Fridrich Director November 26, 1996
Heinz Fridrich
/S/ Kenneth E. Haughton Director November 26, 1996
Kenneth E. Haughton, Ph.D.
/s/ Paul R. Low Director November 26, 1996
Paul R. Low, Ph.D.
/s/ W. Ferrell Sanders Director November 26, 1996
W. Ferrell Sanders
/s/Osamu Yamada Director November 26, 1996
Osamu Yamada
SOLECTRON CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Amounts
Balance at Charged Balance at
Beginning To End
Description of Period Operations (Deductions) Of Period
Fiscal 1994
Allowance for doubtful
accounts receivable $ 1,861 $ 989 ($391) $2,459
Allowance for doubtful
accounts receivable $ 2,459 $1,602 ($560) $3,501
Allowance for doubtful
accounts receivable $ 3,501 $1,651 ($2,160) $2,992
INDEX TO EXHIBITS
Exhibit
Number Description
2.1 [ii] Agreement and Plan of Reorganization, by and among the Company,
Force Acq. Corp. and Force Computers, Inc. as amended.
3.1 [viii] Articles of Incorporation of Company, as amended.
3.2 [viii] Bylaws of Company.
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.
10.8 [iii]+ Asset Purchase Agreement dated as of January 29, 1996, as amended
and restated as of March 29, 1996 by and among Solectron Texas,
L.P., the Company and Texas Instruments, Incorporated.
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 the Company's
Registration Statement on Form S-4 as amended, filed November 20,
1996. (File No. 333-15983).
[iii] Incorporated by reference to the Exhibits of the Company's Form
10-Q for the quarter ended February 29, 1996.
[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 February 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 NET INCOME PER SHARE
(in thousands, except per share data)
Years ended August 31,
--------------------------------
1996 1995 1994
Weighted average number of shares of common
stock and common stock equivalents:
Primary:
Common Stock 50,838 42,861 41,023
Common stock and equivalents - stock options 1,289 912 1,182
------ ------ ------
52,127 43,773 42,205
Fully Diluted:
Common shares issuable upon assumed
conversion of convertible subordinated
notes 3,044 8,286 9,557
Incremental increase in common stock
equivalent options using end of period
market price 6 523 271
----- ----- -----
55,177 52,582 52,033
Net Income $114,232 $ 79,526 $55,545
Interest accretion on convertible
subordinated notes, net of taxes 5,499 5,439 5,944
Net income - fully diluted $119,731 $ 84,965 $ 61,489
======= ======= ======
Net income per share - primary $2.19 $1.82 $1.32
===== ===== =====
Net income per share - fully diluted $2.17 $1.62 $1.18
===== ===== =====
Exhibit 21.1
SOLECTRON CORPORATION SUBSIDIARIES
State or Other Jurisdiction of
Subsidiary Incorporation or Organization
- ------------ ------------------------------
Solectron California Corporation California
Solectron Technology, Inc. California
Solectron Washington, Inc. California
Fine Pitch Technology, Inc. California
Solectron Massachusetts Corporation California
Solectron Texas, Inc. Delaware
Solectron France, S.A. France
Solectron GmbH Germany
Solectron Scotland Limited Scotland
Solectron Japan, Inc. Japan
Solectron Technology SDN. BHD. Malaysia
Solectron (Suzhou) Technology Co., Ltd Suzhou, PRC
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS
SOLECTRON CORPORATION:
We consent to the incorporation by reference in the statements
(Nos. 333-02523, 33-75270, 33-58580, 33-58580,33-46686, and 33-
33461) on Forms S-3 and S-8 of Solectron Corporation of our
report dated September 13, 1996, relating to the consolidated
balance sheets of Solectron Corporation and subsidiaries as of
August 31, 1996 and 1995, and the related combined statements of
income, shareholders' equity, and cash flows for each of the
years in the three-year period ended August 31, 1996, and the
related schedule, which report appears in the August 31, 1996,
annual report on Form 10-K of Solectron Corporation.
Palo Alto, California
November 25, 1996
KPMG Peat Marwick LLP
___________________________
1
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