<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED FEBRUARY 27, 1998.
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________________ TO
_________________
COMMISSION FILE NUMBER 1-11098
SOLECTRON CORPORATION
(Exact Name of Registrant as specified in its Charter)
Delaware 94-2447045
(State or other jurisdiction (IRS Employer
of 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
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
At March 31, 1998, 115,872,771 shares of Common Stock of the Registrant
were outstanding.
1
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SOLECTRON CORPORATION
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
February 28, 1998 and August 31, 1997 3
Condensed Consolidated Statements of Income for
for the three months and six months ended
February 28, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows
for the six months ended February 28, 1998
and 1997 5 - 6
Notes to Condensed Consolidated Financial
Statements 7 - 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 - 20
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Changes in Securities 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22 - 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
Signature 24
2
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ITEM 1. FINANCIAL STATEMENTS
<TABLE>
SOLECTRON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
February 28, August 31,
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and
short-term investments $ 426,121 $ 482,902
Accounts receivable, net 480,318 418,682
Inventories 582,728 494,622
Prepaid expenses and other
current assets 86,755 79,426
---------- ----------
Total current assets 1,575,922 1,475,632
Net property and equipment 388,024 326,361
Other assets 52,709 50,426
---------- ----------
Total assets $2,016,655 $1,852,419
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ -- $ 1,464
Accounts payable 475,641 415,896
Accrued employee compensation 46,526 56,218
Accrued expenses 10,666 24,787
Other current liabilities 64,285 45,577
---------- ----------
Total current liabilities 597,118 543,942
Long-term debt 386,343 385,850
Other long-term liabilities 2,779 3,558
---------- ----------
Total liabilities 986,240 933,350
---------- ----------
Commitments
Stockholders' equity:
Common stock 115 115
Additional paid-in capital 467,683 451,093
Retained earnings 572,343 478,612
Cumulative translation adjustment (9,726) (10,751)
---------- ----------
Total stockholders' equity 1,030,415 919,069
---------- ----------
Total liabilities and
stockholders' equity $2,016,655 $1,852,419
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
<TABLE>
SOLECTRON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<CAPTION>
Three Months Ended Six Months Ended
February 28, February 28,
____________________ ____________________
1998 1997 1998 1997
_________ _________ _________ _________
<S> <C> <C> <C> <C>
Net sales $1,186,831 $ 858,698 $2,323,651 $1,666,423
Cost of sales 1,060,669 756,500 2,073,730 1,478,077
_________ _________ _________ _________
Gross profit 126,162 102,198 249,921 188,346
Operating expenses:
Selling, general
& administrative 47,985 42,512 99,924 75,184
Research &
development 4,945 4,123 9,327 5,313
Acquisition costs - - - 4,000
_________ _________ _________ _________
Operating income 73,232 55,563 140,670 103,849
Interest income 6,542 7,536 13,119 13,749
Interest expense (6,326) (6,183) (12,839) (12,994)
_________ _________ _________ _________
Income before
income taxes 73,448 56,916 140,950 104,604
Income tax expense 24,605 19,351 47,219 35,564
_________ _________ _________ _________
Net income $ 48,843 $ 37,565 $ 93,731 $ 69,040
========= ========= ========= =========
Net income per share:
Basic $ 0.42 $ 0.33 $ 0.81 $ 0.63
========= ========= ========= =========
Diluted $ 0.41 $ 0.32 $ 0.78 $ 0.61
========= ========= ========= =========
Weighted average number
of shares:
Basic 115,414 112,552 115,124 109,220
========= ========= ========= =========
Diluted 126,164 116,439 126,100 113,019
========= ========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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<TABLE>
SOLECTRON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
Six Months Ended
February 28,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 93,731 $ 69,040
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 61,164 51,742
Tax benefit associated with the
exercise of stock options 269 5,265
Other 7,856 3,812
Changes in operating assets and
liabilities:
Accounts receivable (61,190) (14,125)
Inventories (87,422) (63,987)
Prepaid expenses and other
current assets (10,779) (7,703)
Accounts payable 59,291 86,639
Accrued expenses and other
current liabilities (8,060) 4,991
---------- ----------
Net cash provided by operating
activities 54,860 135,674
---------- ----------
Cash flows from investing activities:
Sales and maturities of short-term
investments 137,543 105,879
Purchases of short-term investments (162,461) (202,277)
Capital expenditures (143,519) (53,915)
Proceeds from leasing transactions 18,342 --
Other (1,550) 5,556
---------- ----------
Net cash used in investing
activities (151,645) (144,757)
---------- ----------
</TABLE>
(continued on next page)
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
<TABLE>
SOLECTRON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(In thousands)
<CAPTION>
Six Months Ended
February 28,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from financing activities:
Repayments of long-term debt (2,007) (106)
Net proceeds from sale of common stock 16,588 18,512
Other (97) (3,429)
---------- ----------
Net cash provided by financing
activities 14,484 14,977
---------- ----------
Effect of exchange rate changes on
cash and cash equivalents 602 (1,301)
---------- ----------
Net (decrease) increase in cash and
cash equivalents (81,699) 4,593
Cash and cash equivalents at
beginning of period 225,073 228,830
---------- ----------
Cash and cash equivalents at
end of period $ 143,374 $ 233,423
========== ==========
SUPPLEMENTAL DISCLOSURES
Cash paid during the period:
Income taxes $ 37,781 $ 42,590
Interest $ 2,431 $ 13,134
Non-cash investing and financing
activities:
Issuance of common stock for
business combination $ -- $ 18,335
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
SOLECTRON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Basis of Presentation
The accompanying condensed consolidated balance sheets as of February
28, 1998 (unaudited) and August 31, 1997, the unaudited condensed
consolidated statements of income for the three- and six-month periods
ended February 28, 1998 and 1997, and the unaudited condensed
consolidated statements of cash flows for the six months ended February
28, 1998 and 1997 have been prepared on substantially the same basis as
the annual consolidated financial statements. Management believes the
financial statements reflect all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the
financial position, operating results and cash flows for the periods
presented. The results of operations for the three- and six-month
periods ended February 28, 1998 are not necessarily indicative of
results to be expected for the entire year. These condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto for the year ended
August 31, 1997 included in the Company's Annual Report to Stockholders.
For clarity of presentation, the Company has indicated its second fiscal
quarter as ending on February 28, and its fiscal year as ending on
August 31, whereas in fact, the Company's second quarter of fiscal 1998
ended on February 27, 1998, its second quarter of fiscal 1997 ended on
February 28, 1997 and its 1997 fiscal year ended on August 29, 1997.
NOTE 2 - Inventories
Inventories consisted of (in thousands):
<TABLE>
<CAPTION>
February 28, August 31,
1998 1997
----------- -----------
<S> <C> <C>
Raw materials $ 419,106 $ 365,630
Work-in-process 163,622 128,992
----------- -----------
Total $ 582,728 $ 494,622
=========== ===========
</TABLE>
NOTE 3 - Net Income Per Share
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share."
SFAS No. 128 replaced the previously reported primary and fully diluted
net income per share with basic and diluted net income per share. Basic
net income per share is calculated using the weighted average number of
common shares outstanding during the period. Diluted net income per
share is calculated using the weighted average number of common shares
plus dilutive common equivalent shares outstanding during the period.
Common equivalent shares consist of stock options that are computed
using the treasury stock method and shares issuable upon conversion of
the Company's outstanding convertible notes.
7
<PAGE>
All net income per share amounts for all periods have been presented,
and where necessary, restated to conform to the requirements of SFAS No.
128.
The following table sets forth the computation of basic and diluted
income per share for the three- and six-month periods ended February 28,
1998 and 1997.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
February 28, February 28,
__________________ __________________
1998 1997 1998 1997
________ ________ ________ ________
<S> <C> <C> <C> <C>
Net income - basic $ 48,843 $ 37,565 $ 93,731 $ 69,040
Interest expense from
convertible subordinated
notes, net of taxes 2,398 -- 4,796 --
________ ________ ________ ________
Net income - diluted $ 51,241 $ 37,565 $ 98,527 $ 69,040
======== ======== ======== ========
Shares used to compute
net income per share:
Basic:
Weighted average shares 115,414 112,552 115,124 109,220
======== ======== ======== ========
Diluted:
Weighted average shares 115,414 112,552 115,124 109,220
Common stock equivalents -
stock options 3,946 3,887 4,172 3,799
Common shares issuable
upon assumed conversion
of convertible subordinated
notes 6,804 -- 6,804 --
________ ________ ________ ________
Total diluted shares 126,164 116,439 126,100 113,019
======== ======== ======== ========
Net income per share - basic $ 0.42 $ 0.33 $ 0.81 $ 0.63
======== ======== ======== ========
Net income per share - diluted $ 0.41 $ 0.32 $ 0.78 $ 0.61
======== ======== ======== ========
</TABLE>
For the three- and six-month periods ended February 28, 1998, options to
purchase 1.3 million shares of common stock with exercise prices greater
than the average fair market value of the Company's stock for the period
of $40.25 and $40.82, respectively, are not included in the calculation
because the effect would have been antidilutive. For the three- and six-
month periods ended February 28, 1997, options to purchase 1.0 million
and 1.1 million shares, respectively, of common stock with exercise
prices greater than the average fair market value of the Company's stock
for the period of $28.33 and $26.87, respectively, are not included in
the calculation because the effect would have been antidilutive. In
addition, the inclusion of the 6.8 million common shares issuable upon
conversion of the convertible subordinated notes in the calculations for
the three- and six- month periods ended February 28, 1997 would also
have been antidilutive.
8
<PAGE>
NOTE 4 - Asset Securitization Arrangement
In September 1997, the Company entered into an asset securitization
arrangement with a bank under which it may sell up to $120 million of
eligible accounts receivable. The arrangement is subject to certain
financial covenants and management representations. No transactions have
occurred under this arrangement.
NOTE 5 - Commitments
The Company leases various facilities under operating lease agreements.
These leases expire at various dates through the year 2006.
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 the market value of the property of up to $52.1 million
in the event that the Company does not purchase the property at the end
of the lease term. The Company must also maintain compliance with
financial covenants similar to its credit facilities. Future minimum
lease payments related to lease obligations are approximately $17.0
million, $11.8 million, $9.0 million, $6.5 million and $4.2 million in
each of the years in the five year period ending August 31, 2002 and an
aggregate $1.1 million for periods after that date.
NOTE 6 - Pending Acquisition of NCR Operations
On April 2, 1998, the Company announced that it had signed an asset
purchase agreement with NCR Corporation (NCR) under which Solectron will
acquire NCR's manufacturing assets in three cities for approximately
$100 million. Under the terms of the agreement, NCR will outsource the
manufacturing of its computer and retail products to Solectron for at
least five years and Solectron will hire approximately 1,200 NCR
manufacturing and related support employees. The transaction is expected
to close in the Company's third fiscal quarter of 1998. Completion of
the transaction is subject to applicable government approvals and
various conditions of closing.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Certain statements contained in the following Management's Discussion
and Analysis of Financial Condition and Results of Operations,
including, without limitation, statements containing the words
"believes," "anticipates," "estimates," "expects," and words of similar
import, constitute forward-looking statements 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 "Trends 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 networking, data and voice communications,
workstation, personal computer and computer peripheral segments of the
electronics industry. The Company 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 included under
"Trends and Uncertainties".
As of February 28, 1998, excluding the locations of the Force Computers
and Fine Pitch Technologies subsidiaries, the Company had manufacturing
operations in fourteen locations, of which six are located in North
America and eight are overseas. Solectron also has its Asia/Pacific
headquarters office in Taipei, Taiwan and a sales support office located
in Japan. Force Computers and Fine Pitch Technologies are both
headquartered in San Jose, California. Force's European headquarters
and a significant portion of its operations are located in Munich,
Germany. In addition to its headquarters locations, Force has sales
support offices in various locations in the United States and
internationally. Fine Pitch has operations in California and in
Massachusetts.
During 1997, the Company established a strategic, global manufacturing
partnership with Ericsson Telecom AB's Business Area Infocom Systems
(Ericsson). The Company has established a New Product Introduction
center in Norrkoping and Stockholm, Sweden, and production from certain
Ericsson plants worldwide has been transferred to Solectron
manufacturing sites around the world. In October 1997, Solectron
acquired certain assets, primarily equipment and inventory, of
Ericsson's printed circuit board assembly operation located in Brazil.
In addition, Solectron's subsidiary, Solectron Brasil Ltda., hired
approximately 370 persons formerly employed by Ericsson Telecomunicacoes
S.A. in Brazil.
On April 2, 1998, the Company announced that it had signed an asset
purchase agreement with NCR Corporation (NCR) under which Solectron will
acquire NCR's manufacturing assets in three cities for approximately
$100 million. Under the terms of the agreement, NCR will outsource the
manufacturing of its computer and retail products to Solectron for at
least five years and Solectron will hire approximately 1,200 NCR
manufacturing and related support employees. The transaction is expected
to close in the Company's third fiscal quarter of 1998. Completion of
the transaction is subject to applicable government approvals and
various conditions of closing.
10
<PAGE>
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 an adverse material effect on
Solectron's results of operations. See "Trends 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, certain items
in the Consolidated Statements of Income as a percentage of net sales.
The financial information and the discussion below should be read in
conjunction with the Condensed Consolidated Financial Statements and
Notes thereto.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
February 28, February 28,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 89.4 88.1 89.2 88.7
------- ------- ------- -------
Gross profit 10.6 11.9 10.8 11.3
Operating expenses:
Selling, general &
administrative 4.0 4.9 4.3 4.5
Research & development .4 .5 .4 .3
Acquisition costs - - - .2
------- ------- ------- -------
Operating income 6.2 6.5 6.1 6.3
Interest (income)
expense, net - (.2) - -
------- ------- ------- -------
Income before
income taxes 6.2 6.7 6.1 6.3
Income taxes 2.1 2.3 2.1 2.1
------- ------- ------- -------
Net income 4.1% 4.4% 4.0% 4.2%
======= ======= ======= =======
</TABLE>
Net Sales
Net sales for the three- and six-month periods of fiscal 1998 grew to
$1.2 billion and $2.3 billion, respectively, increases of 38.2% and
39.4%, respectively, over the same periods in fiscal 1997. The sales
growth is attributable to significant increases in sales volume from
both existing and new customers worldwide, including the completion of
the transfer of production from certain Ericsson plants to various
Solectron locations around the world.
Within the Americas, sites that benefited most from start up and major
new programs had substantial increases in net sales for the fiscal 1998
periods compared to the fiscal 1997 periods. Sales growth at the Texas
site was particularly strong as a result of these factors. In addition,
the new sites in Mexico and Brazil contributed incremental net sales to
the fiscal 1998 periods. Sales at the Milpitas, California site
decreased in the three-month period of fiscal 1998 compared to the same
period of fiscal 1997 and increased only slightly for the six-month
11
<PAGE>
period of fiscal 1998 over the six-month period of fiscal 1997 due to
two factors: (1) deliberate management actions initiated in the fourth
quarter of fiscal 1997 to achieve improved global load balancing and
specific product program transitioning and (2) an overall softening in
demand from a cross section of customers near the end of the second
quarter of fiscal 1998. Sales in all of the Company's European and Asian
operations, except for Japan, increased in the fiscal 1998 periods over
the comparable periods of fiscal 1997 primarily as a result of core
business growth and new accounts. Sales growth in the Company's location
in Scotland was particularly strong due to the transfer of a major
customer's printed circuit board assembly activities to that operation.
Although the Company does not currently anticipate any future decline in
sales, to lessen the potential impact of any possible future declines to
customers within any particular region or market segment, the Company is
committed to seeking diversification of its customer base among many
countries, market segments and product lines within market segments.
Hewlett-Packard Company (HP) was Solectron's largest customer in the
first half of both fiscal 1998 and 1997. Net sales to HP during the
three- and six-month periods of fiscal 1998 accounted for 13.8% and
14.6%, respectively, compared to 15.5% and 14.0% for the same periods in
fiscal 1997. In addition, Sun Microsystems, Inc. accounted for 12.3% and
11.2%, respectively, and Cisco Systems, Inc. accounted for 11.4% and
10.3%, respectively, of net sales in the three- and six-month periods of
fiscal 1998. Bay Networks, Inc. accounted for 11.0% and 11.1 % of net
sales, respectively, in the three- and six-month periods of fiscal 1997.
No other customers accounted for more than 10% of net sales during any
of the periods presented.
Solectron's top ten customers accounted for 67.1% and 65.8% of
consolidated net sales in the first half of fiscal 1998 and 1997,
respectively. 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 an adverse material effect on Solectron's results of
operations.
In the first half of fiscal 1998, international locations contributed
34.5% of consolidated net sales compared to 24.4% in the same period of
fiscal 1997. In addition to the sales growth factors for Europe and Asia
noted above, the Company's international sales also benefited from the
addition in fiscal 1998 of the sites in Mexico and Brazil. The rate of
international versus domestic sales, as well as international sales
versus domestic sales as a percentage of the Company's overall sales can
fluctuate significantly over time.
As a result of Solectron's international sales and facilities,
Solectron's operations are subject to risks of doing business abroad.
While to date these dynamics have not had an adverse material effect on
Solectron's results of operations, there can be no assurance that there
will not be such an impact in the future. See "Trends 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 the first
half of fiscal 1998 and fiscal 1997. In recent quarters, management has
undertaken deliberate actions to achieve improved global load balancing
12
<PAGE>
by transferring certain projects from the Milpitas site to other sites
worldwide. However, the performance of the Milpitas operation is
expected to continue as a significant factor in the overall financial
performance of Solectron. Any adverse material change to the customer
base, product mix, efficiency, or other attributes of this site could
have an adverse material 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 "Trends 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
The gross margin percentage decreased to 10.8% for the first half of
fiscal 1998 period from 11.3% for the same period of fiscal 1997. The
decrease was due primarily to start-up costs associated with the
Company's operations in China and Mexico, as well as a shift toward
higher volume projects that typically have lower margins.
For the foreseeable future, Solectron's gross margin is expected to
depend primarily on product mix, production efficiencies, utilization of
manufacturing capacity, start-up and integration costs of new and
acquired businesses, the percentage of sales derived from system build
projects, pricing within the electronics industry and the cost structure
at individual sites. Over time, gross margins at the individual sites
and for the Company as a whole may continue to fluctuate. Printed
circuit board assembly projects typically have higher gross margin
percentages than system build projects. Increases in system build
business, additional costs associated with new projects and price
erosion within the electronics industry could adversely affect the
Company's gross margin. Additionally, changes in product mix could
cause the Company's gross margin to fluctuate. Also, while the
availability of raw materials appears adequate to meet the Company's
current revenue projections for the foreseeable future, component
availability is still subject to lead time and other constraints that
could possibly limit the Company's revenue growth. Because of these
factors and others discussed under "Trends and Uncertainties" below,
there can be no assurance that the Company's gross margin will not
fluctuate or decrease in future periods.
Selling, General and Administrative Expenses
In absolute dollars, selling, general and administrative (SG&A) expenses
increased 12.9% and 32.9%, respectively, for the three- and six-month
periods of fiscal 1998 over the same periods in fiscal 1997. For the
second quarter of fiscal 1998, the increase is due to growth within the
Company's Force Computers subsidiary plus the addition of new sites in
China, Mexico, Brazil and Sweden, partially offset by cost-containment
measures in established locations. In addition to the increases related
to these new sites and the inclusion of Force for the full fiscal 1998
13
<PAGE>
period, the increase for the six-month period of fiscal 1998 resulted
from investment in infrastructure such as personnel and related
departmental expenses at all manufacturing locations as well as
continuing investment in information systems to support the increased
size and complexity of the Company's business. As a percentage of net
sales, SG&A expenses were 4.0% and 4.3%, respectively, in the fiscal
1998 periods and 4.9% and 4.5%, respectively, in the fiscal 1997
periods, respectively. The most significant reason for the fiscal 1998
decrease in SG&A expenses as a percentage of net sales is the
significant increase in the sales base partially offset by the
inclusion of Force, which has a more sales-intensive operating
structure, and the costs associated with starting up new sites and
investments in the Company's information systems. The Company
anticipates SG&A expenses will continue to increase in terms of absolute
dollars in the future, and may possibly increase as a percentage of
revenue, as the Company continues to build the infrastructure necessary
to support its current and prospective business.
Research and Development Expenses
With the exception of its Force Computers operation, the Company's
research and development (R&D) 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. Force's R&D efforts are concentrated on new
product development and improvement of product designs through
improvements in functionality and support of next generation micro-
processors. Research and development expenses, as a percentage of net
sales, were 0.4% in both the three- and six-month periods of fiscal 1998
and 0.5% and 0.3%, respectively, in the fiscal 1997 periods. The
increase in R&D expenses in the first half of fiscal 1998 compared to
the first half of fiscal 1997 is due to the acquisition of Force in
November 1996. The Company expects that R&D expenses will increase in
absolute dollars in the future and may increase as a percentage of net
sales as Force continues to invest in its R&D efforts and additional R&D
projects are undertaken at certain of the Company's Asian sites.
Acquisition Costs
A one time charge for acquisition costs of approximately $4.0 million
was incurred in fiscal 1997 as a result of the acquisition of Force
Computers during the quarter ended November 30, 1996.
Net Interest Income (Expense)
Net interest income was $0.2 million and $0.3 million, respectively, for
the three- and six-month periods of fiscal 1998 compared to $1.4 million
and $0.8 million, respectively, for the fiscal 1997 periods. Interest
expense on the Company's long-term debt is approximately $6.2 million
per quarter and has been offset by interest earned on undeployed cash
and investments. In the first half of fiscal 1998, the Company
capitalized approximately $450,000 of interest expense related to the
construction of its new facilities in Mexico and China. Solectron
expects to utilize more of the undeployed cash during fiscal 1998 in
order to fund anticipated future growth. See "Trends and Uncertainties -
- - Management of Growth," and "Potential Fluctuations in Operating
Results."
14
<PAGE>
Income Taxes
Income taxes increased to $47.2 million in the first half of fiscal 1998
from $35.6 million in the fiscal 1997 period primarily due to increased
income before income taxes. Solectron's effective income tax rate
decreased slightly to 33.5% in the fiscal 1998 period from 34% in fiscal
1997.
In general, the effective income tax rate is largely a function of the
balance between income from domestic and international operations.
Solectron's international operations, taken as a whole, have been taxed
at a lower rate than in the United States, primarily due to the tax
holiday granted to the Company's Penang, Malaysia site. The Malaysian
tax holiday is effective through January 31, 2002, subject to certain
conditions. The Company has also been granted various tax holidays in
China, which are effective for various terms and are subject to certain
conditions.
Liquidity and Capital Resources
Working capital was $979 million at February 28, 1998 compared to $932
million at the end of fiscal 1997. A major component of working capital
at February 28, 1998 continues to be undeployed cash from the proceeds
of the two debt offerings during fiscal 1996. Approximately $100 million
of these funds is expected to be used in the third quarter of fiscal
1998 to complete the purchase of the NCR operations. As Solectron
continues to grow, it is expected that the Company will require greater
amounts of working capital to support its operations. The Company
believes that its current level of working capital together with cash
generated from operations and the Company's available credit facilities
will provide adequate working capital for the foreseeable future.
Inventory levels fluctuate directly with the volume of the Company's
manufacturing. Changes or significant fluctuations in product market
demands can cause fluctuations in inventory levels which may result in
changes in levels of inventory turns and liquidity. Historically, the
Company has been able to manage its inventory levels with regard to
these fluctuations. However, should material fluctuations occur in
product demand, the Company could experience slower turns and reduced
liquidity.
In the first half of fiscal 1998, the Company invested approximately
$144 million in capital expenditures. A large portion of these
expenditures related to the purchase of new equipment, primarily surface
mount assembly and test equipment, to meet current and expected
production levels, as well as to replace or upgrade older equipment that
was retired or sold. Significant expenditures were also made for the
acquisition of land and buildings for the Company's new manufacturing
sites, principally in China, Mexico and Brazil. The Company expects
total capital expenditures in fiscal 1998 to be in the range of $160
million to $200 million. In the second quarter of fiscal 1998, the
Company entered into an arrangement with a third-party leasing company
under which certain of the Company's fixed assets have been sold to the
leasing company and leased back. The Company is accounting for these as
operating leases.
In addition to working capital as of February 28, 1998, which includes
cash and cash equivalents of $143 million and short-term investments of
$283 million, the Company has available a $100 million unsecured
multicurrency revolving credit facility and a $120 million asset
securitization arrangement. Both of these facilities are subject to
15
<PAGE>
financial covenants. The Company also has approximately $73.8 million in
available foreign credit facilities.
Trends and Uncertainties
Customer Concentration; Dependence on the Electronics Industry
In the first half of fiscal 1998 and for the full years of fiscal 1997,
1996 and 1995, the Company's ten largest customers accounted for at
least 64% of consolidated net sales. The Company is dependent upon
continued revenues from its top ten customers. Any material delay,
cancellation or reduction of orders from these or other significant
customers could have an adverse material effect on the Company's results
of operations. During the first half of fiscal 1998, HP accounted for
14.6% of net sales compared to 14.0% during the same period of fiscal
1997. There can be no assurance that the Company will continue to do
business with HP or any other customer.
The percentage of the Company's sales to its major customers may
fluctuate from period to period. Significant reductions in sales to any
of these customers would have an adverse material effect on the
Company's results of operations. The Company 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 the Company'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 the Company's major customers in
particular, could have an adverse material effect on the Company's
results of operations.
There can be no assurance that sales to customers within any particular
market segment will not experience decreases which could have an adverse
effect on the Company's sales.
Management of Growth; Geographic Expansion
The Company has experienced substantial growth over the last five fiscal
years, with net sales increasing from $836 million in fiscal 1993 to
$3.7 billion in fiscal year 1997. In recent years, the Company has
acquired or established facilities in many locations. In the first
quarter of fiscal 1998, the Company announced the opening of its
Asia/Pacific headquarters office in Taipei, Taiwan; began operations in
Guadalajara, Mexico; and, as further discussed in "Partnership with
Ericsson and Related Transactions," established a manufacturing facility
near Sao Paulo, Brazil, and opened a New Product Introduction center in
Sweden. In addition, in December 1997, the Company announced its
intention to acquire certain manufacturing facilities and employees from
NCR. (See "Pending Acquisition of NCR Operations.") During fiscal 1997,
the Company announced the establishment of new manufacturing facilities
in Suzhou, China; began operations at its manufacturing facility in
Westborough, Massachusetts; and, in November 1996, acquired Force
Computers Inc., which has operations in California and Germany. The
Company continually evaluates growth and acquisition opportunities and
may pursue additional opportunities over time. There can be no
assurance that the Company's historical revenue growth will continue or
that the Company will successfully manage the facilities in China and
Mexico, the partnership with and acquisitions from Ericsson, the
16
<PAGE>
proposed acquisition from NCR or any other business it may acquire in
the future. As the Company manages its existing operations and expands
geographically, it may experience certain inefficiencies as it
integrates new operations and manages geographically dispersed
operations. In addition, the Company'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. The Company's expenses and working capital requirements will
continue to increase as the new facilities become fully operational and
the transactions with Ericsson and NCR are completed. Should the
Company increase its expenditures in anticipation of a future level of
sales which does not materialize, its profitability would be adversely
affected. On occasion, customers may require rapid increases in
production which can place an excessive burden on the Company's
resources.
Partnership with Ericsson and Related Transactions
During 1997, the Company established a strategic, global manufacturing
partnership with Ericsson Telecom AB's Business Area Infocom Systems
(Ericsson). The Company has established a New Product Introduction
center in Norrkoping and Stockholm, Sweden, and production from certain
Ericsson plants worldwide has been transferred to Solectron
manufacturing sites around the world. In October 1997, Solectron
acquired certain assets, primarily equipment and inventory, of
Ericsson's printed circuit board assembly operation located in Brazil.
In addition, Solectron's subsidiary, Solectron Brasil Ltda., hired
approximately 370 persons formerly employed by Ericsson Telecomunicacoes
S.A. in Brazil. Under the terms of the agreement, Ericsson will contract
for Solectron's services from Solectron Brasil Ltda. through September
1999. Thereafter, Solectron will bear the risk of filling the
manufacturing capacity at the site with renewed business from Ericsson
or new business from other customers.
The transactions with Ericsson entail a number of risks, including
successfully managing the integration of the operations, retention of
key employees, integrating purchasing operations and information
systems, managing an increasingly larger and more geographically
disparate business and renewing the Ericsson business or replacing it
with new business after expiration of the Ericsson commitment. In
addition, the completion of the transactions with Ericsson will increase
Solectron's expenses and working capital requirements and there is no
assurance that Solectron will achieve sufficient revenue to offset the
increased expenses. There can be no assurance that Solectron will
successfully manage the risks of these transactions.
Pending Acquisition of NCR Operations
On April 2, 1998, the Company announced that it had signed an asset
purchase agreement with NCR under which Solectron will acquire NCR's
manufacturing assets in three cities, two in the United States and one
in Ireland, for approximately $100 million. If the transaction is
completed, Solectron will hire approximately 1,200 NCR manufacturing and
related support employees currently employed at these locations. Under
the terms of the agreement, NCR will outsource the manufacturing of its
computer and retail products to Solectron for at least five years.
Thereafter, Solectron will bear the risk of filling the manufacturing
capacity at the site with renewed business from NCR or new business from
other customers. The transaction is expected to close in the Company's
third fiscal quarter of 1998. Completion of the transaction is subject
to applicable government approvals and various conditions of closing.
17
<PAGE>
The transaction with NCR entails a number of risks, including
successfully managing the integration of the operations, retention of
key employees, integrating purchasing operations and information
systems, managing an increasingly larger and more geographically
disparate business, obtaining customers other than NCR for these
facilities and renewing the NCR business or replacing it with new
business after expiration of the NCR commitment. In addition, the
completion of the transactions with NCR will increase Solectron's
expenses and working capital requirements and there is no assurance that
Solectron will achieve sufficient revenue to offset the increased
expenses. There can be no assurance the transaction will close or that
Solectron will successfully manage the risks of this transaction.
International Operations
As a result of its international sales and facilities, the Company's
operations are subject to risks of doing business abroad, including but
not limited to, fluctuations in the value of currency, 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 material impact on
the Company's results of operations, there can be no assurance that
there will not be such an impact in the future.
Southeast Asia is currently experiencing currency, economic and
political instability. To date, the Company's operations have not
experienced any significant adverse effects from this instability.
However, to the extent the Company's worldwide customers sell the
products manufactured by Solectron into the Southeast Asia market, the
customer's sales may be adversely affected, which could decrease demand
for the Company's manufacturing services. The Company cannot predict
whether such a decrease in demand will materialize and if it does,
whether it will have an adverse material effect on the Company's results
of operations.
The Company has been granted a tax holiday for its Penang, Malaysia site
which is effective through January 31, 2002, subject to certain
conditions. The Company has also been granted various tax holidays in
China. These tax holidays are effective for various terms and are
subject to certain conditions. There is no assurance that any future
tax holidays that the Company may seek will be granted. If additional
tax holidays are not granted in the future, the Company's effective
income tax rate would likely increase.
Availability of Components
A substantial portion of the Company's net sales are derived from
turnkey manufacturing in which the Company provides both materials
procurement and assembly. In turnkey manufacturing, the Company
potentially bears the risk of component price increases, which could
adversely affect the Company's gross profit margins. At various times
there have been shortages of components in the electronics industry. If
significant shortages of components should occur, the Company may be
forced to delay manufacturing and shipments, which could have an adverse
material effect on the Company's results of operations.
18
<PAGE>
Potential Fluctuations in Operating Results
The Company's operating results are affected by a number of factors,
including the mix of turnkey and consignment projects, capacity
utilization, price competition, the degree of automation that can be
used in the assembly process, the efficiencies that can be achieved by
the Company 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. 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. Solectron assembles products
with varying degrees of material content, which may cause Solectron's
gross margin to fluctuate. In addition, the degree of startup costs and
inefficiencies associated with new sites and new customer projects may
affect Solectron's gross margin. All of these factors can cause
fluctuations in the Company's operating results.
Competition
The electronics assembly and manufacturing industry is comprised of a
large number of companies, several of which have achieved substantial
market share. The Company also faces competition from current and
prospective customers which evaluate Solectron's capabilities against
the merits of manufacturing products internally. Solectron competes
with different companies depending on the type of service or geographic
area. Certain of the Company's competitors may have greater
manufacturing, financial, research and development and marketing
resources than the Company. The Company believes that the primary basis
of competition in its targeted markets is manufacturing technology,
quality, responsiveness, the provision of value-added services and
price. To be competitive, the Company 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. The Company currently may be at a
competitive disadvantage as to price when compared to manufacturers with
lower cost structures, particularly with respect to manufacturers with a
greater number of established facilities where labor costs are lower.
Intellectual Property Protection
The Company's ability to compete may be affected by its ability to
protect its proprietary information. The Company holds a limited number
of U.S. patents related to the process and equipment used in its surface
mount technology. In addition, the Company's subsidiary, Force
Computers, holds a number of patents related to VME technology. The
Company believes these patents are valuable. However, there can be no
assurance that these patents will provide meaningful protection for the
Company's manufacturing process and equipment innovations or Force's
technology.
There can be no assurance that third parties will not assert
infringement claims against the Company or its customers in the future.
In the event a third party does assert an infringement claim, the
Company may be required to expend significant resources to develop a
non-infringing manufacturing process or technology or to obtain licenses
19
<PAGE>
to the manufacturing process or technology which is the subject of
litigation. There can be no assurance that the Company 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 an adverse
material effect on the Company's financial condition regardless of the
outcome of such litigation.
Environmental Compliance
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.
Dependence on Key Personnel and Skilled Employees
The Company'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 an adverse material
effect on the Company. The Company'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 the Company's
operations.
"Year 2000" Issues
The Company is aware of the issues associated with the programming code
in existing computer systems as the year 2000 approaches. The "Year
2000" problem is pervasive and complex, as many computer systems will be
affected in some way by the rollover of the two-digit year value to 00.
Systems that do not properly recognize such data could generate
erroneous information or cause a system to fail. The Year 2000 issue
creates risk for the Company from unforeseen problems in its own
computer systems and from third parties with whom the Company deals on
financial transactions worldwide. Failures of the Company's and/or third
parties' computer systems could have a material impact on the Company's
ability to conduct its business.
The Company has formed a worldwide task force that is currently
analyzing the Company's computer systems to identify any potential Year
2000 issues. Based on the results of this analysis, the task force will
develop a strategy to address the issues and take appropriate corrective
action. The Company has not yet determined the timetable or the cost
related to achieving Year 2000 compliance.
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.
20
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary objective of the Company's investment activities is to
preserve principal while at the same time maximizing yields without
significantly increasing risk. To achieve this objective, the Company
maintains its portfolio of cash-equivalents and short-term investments
in a variety of securities, including both government and corporate
obligations, certificates of deposit and money market funds.
Approximately 80% of the Company's portfolio matures in less than 6
months. Because the Company's investments are diversified and of
relatively short maturity, a hypothetical 10% increase in interest rates
would not have a material effect on the Company's financial position.
The Company does not use derivative financial instruments for
speculative purposes. Furthermore, it does not hedge its foreign
currency denominated transactions in a manner that entirely offsets the
effects of changes in foreign currency exchange rates. The Company uses
foreign currency borrowings and foreign currency forward contracts to
hedge a portion of the currency risks of transactions denominated in
foreign currencies. Gains and losses on these foreign currency hedges
are generally offset by corresponding losses and gains on the underlying
transaction. In addition, the Company's international operations in many
instances act as a natural hedge because both sales and operating
expenses are denominated in local currency. Therefore, although an
unfavorable change in the exchange rate of a foreign currency against
the U.S. dollar will result in lower sales when translated to U.S.
dollars, operating expenses will also be lower in these circumstances.
The Company's debt instruments are subject to fixed interest rates and,
in the case of the convertible notes, to fixed conversion ratios into
the Company's common stock. In addition, the amount of principal to be
repaid at maturity is also fixed. Therefore, the Company is not subject
to market risk from its debt instruments.
21
<PAGE>
SOLECTRON CORPORATION AND SUBSIDIARIES
Part II. OTHER INFORMATION
Item 1: Legal Proceedings
None
Item 2: Changes in Securities
None
Item 3: Defaults upon Senior Securities
None
Item 4: Submission of Matters to a Vote of Security Holders
(a) The Company held its Annual Meeting of Stockholders
on January 14, 1998.
(b) At the meeting, the following proposals received the
votes listed below:
<TABLE>
<CAPTION>
<S> <C>
Proposal I: Election of Directors
Dr. Koichi Nishimura Votes for: 103,446,659
Votes withheld: 327,709
Dr. Winston H. Chen Votes for: 103,444,694
Votes withheld: 329,674
Richard A. D'Amore Votes for: 103,261,692
Votes withheld: 512,676
Charles A. Dickinson Votes for: 103,425,244
Votes withheld: 349,124
Heinz Fridrich Votes for: 103,440,051
Votes withheld: 334,317
Dr. Kenneth E. Haughton Votes for: 103,436,346
Votes withheld: 338,022
Dr. Paul R. Low Votes for: 103,200,038
Votes withheld: 574,330
Osamu Yamada Votes for: 103,162,007
Votes withheld: 612,361
</TABLE>
Proposal II: Approval of an amendment in the
Company's Certificate of Incorporation to permit
stockholders to take action by written consent in
lieu of a meeting
Votes for: 87,749,029
Votes against: 645,209
Abstentions: 641,021
22
<PAGE>
Proposal III: Ratification of the appointment of
KPMG Peat Marwick LLP as independent accountants of
the Company for the fiscal year ended August 31, 1997
Votes for: 102,877,994
Votes against: 118,615
Abstentions: 777,759
Item 5: Other Information
None
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None
23
<PAGE>
SOLECTRON CORPORATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOLECTRON CORPORATION
(Registrant)
Date: April 9, 1998 By: /s/ Susan Wang
______________________
Susan S. Wang
Senior Vice President, Chief
Financial Officer and Secretary
(Principal Financial and
Accounting Officer)
24
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-28-1998
<PERIOD-START> AUG-30-1997
<PERIOD-END> FEB-27-1998
<CASH> 143,374
<SECURITIES> 282,747
<RECEIVABLES> 484,231
<ALLOWANCES> (3,913)
<INVENTORY> 582,728
<CURRENT-ASSETS> 1,575,922
<PP&E> 756,165
<DEPRECIATION> (368,141)
<TOTAL-ASSETS> 2,016,655
<CURRENT-LIABILITIES> 597,118
<BONDS> 386,343
0
0
<COMMON> 115
<OTHER-SE> 1,030,300
<TOTAL-LIABILITY-AND-EQUITY> 2,016,655
<SALES> 2,323,651
<TOTAL-REVENUES> 2,323,651
<CGS> 2,073,730
<TOTAL-COSTS> 2,073,730
<OTHER-EXPENSES> 109,200
<LOSS-PROVISION> 51
<INTEREST-EXPENSE> 12,839
<INCOME-PRETAX> 140,950
<INCOME-TAX> 47,219
<INCOME-CONTINUING> 93,731
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 93,731
<EPS-PRIMARY> 0.81
<EPS-DILUTED> 0.78
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE INFORMATION IN THIS FINANCIAL DATA SCHEDULE HAS BEEN RESTATED TO
REFLECT THE EFFECT OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS
NO. 128, "EARNINGS PER SHARE."
</LEGEND>
<RESTATED>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-29-1997
<PERIOD-START> AUG-31-1996
<PERIOD-END> FEB-28-1997
<CASH> 233,423
<SECURITIES> 277,918
<RECEIVABLES> 374,457
<ALLOWANCES> (3,973)
<INVENTORY> 445,424
<CURRENT-ASSETS> 1,365,363
<PP&E> 528,219
<DEPRECIATION> (279,060)
<TOTAL-ASSETS> 1,674,713
<CURRENT-LIABILITIES> 479,059
<BONDS> 389,015
0
0
<COMMON> 112
<OTHER-SE> 804,740
<TOTAL-LIABILITY-AND-EQUITY> 1,674,713
<SALES> 1,666,423
<TOTAL-REVENUES> 1,666,423
<CGS> 1,478,077
<TOTAL-COSTS> 1,478,077
<OTHER-EXPENSES> 84,142
<LOSS-PROVISION> 355
<INTEREST-EXPENSE> 12,994
<INCOME-PRETAX> 104,604
<INCOME-TAX> 35,564
<INCOME-CONTINUING> 69,040
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 69,040
<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.61
</TABLE>
