SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                 ---------------

                                    FORM 8-K

                                 CURRENT REPORT

                     PURSUANT TO SECTION 13 OR 15(D) OF THE
                       SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): September 5, 2000



                              SOLECTRON CORPORATION
 ------------------------------------------------------------------------------
              (Exact name of registrant as specified in charter)



          DELAWARE                   1-11098               94-2447045
--------------------------    ---------------     -------------------
(State or other jurisdiction      (Commission            (IRS Employer
      of incorporation)          File Number)         Identification No.)

777 GIBRALTAR DRIVE, MILPITAS, CALIFORNIA                     95035
-----------------------------------------              ------------
(Address of principal executive offices)                  (Zip Code)

Registrant's telephone number, including area code      (408) 957-8500



                                 NOT APPLICABLE
 ------------------------------------------------------------------------------
        (Former name or former address, if changed since last report.)



<PAGE>



Item 5. Other Events

On April 28, 2000, Solectron  Corporation  (Solectron) completed its acquisition
of AMERICOM Wireless  Services,  Inc.  (AMERICOM).  Solectron also completed the
acquisition of the Bluegum Group (Bluegum) on July 14, 2000.  Included herein as
Exhibit 99.1 are (i) the audited supplemental  consolidated financial statements
of Solectron and subsidiaries as of August 31, 1999 and 1998 and for each of the
years in the  three-year  period  ended  August 31, 1999 and (ii) the  unaudited
supplemental  condensed  consolidated  financial  statements  of  Solectron  and
subsidiaries  as of May 31, 2000 and 1999 and for the  nine-month  periods ended
May 31, 1999 and 1998. These supplemental consolidated financial statements give
retroactive  effect to the  acquisitions of AMERICOM and Bluegum which were both
accounted for as a pooling of interests.

Item 7. Financial Statements and Exhibits

(a)   Exhibits

    Exhibit                        Description                         Page
    -------                        -----------                         ----
     23.1     Consent of KPMG LLP, Independent Auditors..............   5

     99.1     Selected Supplemental Consolidated Financial Data......   6

              Management's Discussion and Analysis of Financial
               Condition and Results of Operations....................  6



              Quantitative and Qualitative Disclosures About Market
                Risk.................................................  23


              Supplemental Financial Statements and Data.............  25

              Independent Auditors' Report...........................  65

              Financial Statement Schedule...........................  66

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


                                       2
<PAGE>



                                   SIGNATURES

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

Date: September 5, 2000               SOLECTRON CORPORATION

                                      /s/ SUSAN S. WANG
                                      Susan S. Wang
                                      Senior Vice President,
                                      Chief Financial Officer and Secretary
                                      (Principal Financial and
                                      Accounting Officer)



                                       3
<PAGE>



                                  EXHIBIT INDEX


  Exhibit                          Description
  -------                          -----------

   23.1     Consent of KPMG LLP, Independent Auditors
   99.1     Selected Supplemental Consolidated Financial Data
            Management's Discussion and Analysis of Financial
              Condition an Results of Operations
            Quantitative and Qualitative Disclosures About Market Risk
            Supplemental Financial Statements and Data
            Independent Auditors' Report
            Financial Statement Schedule

                                       4
<PAGE>


                                                                  EXHIBIT 23.1

                         CONSENT OF INDEPENDENT AUDITORS

THE BOARD OF DIRECTORS
SOLECTRON CORPORATION

We consent to the  incorporation  by  reference in the  registration  statements
(Nos.  333-92269,   333-89035,   333-85949,   333-75813,   33-75865,  333-69443,
333-24293,   333-17643,   333-02523,  33-57575,  33-58580,  33-46686,  33-75270,
33-33461,  333-34494,  and  333-40176)  on Forms S-3,  S-4 and S-8 of  Solectron
Corporation  of our report dated August 28, 2000,  relating to the  supplemental
consolidated  balance sheets of Solectron  Corporation  and  subsidiaries  as of
August 31, 1999 and 1998, and the related supplemental  consolidated  statements
of income,  stockholders' equity,  comprehensive income, and cash flows for each
of the years in the  three-year  period ended  August 31, 1999,  and the related
financial  statement  schedule,  which  report  appears  in the Form  8-K  dated
September 5, 2000 of Solectron Corporation.

                                    KPMG LLP

Mountain View, California
September 5, 2000


                                       5


<PAGE>
                                                              EXHIBIT 99.1


SELECTED SUPPLEMENTAL CONSOLIDATED FINANCIAL DATA

The  following  selected  supplemental  consolidated  financial  information  of
Solectron,  combined with  AMERICOM and Bluegum on a pooling of interests  basis
should  be read in  conjunction  with the  supplemental  consolidated  financial
statements  and the  notes  included  therein,  and the  unaudited  supplemental
condensed consolidated financial statements and notes included elsewhere in this
document.

                          Selected Financial Highlights
                     (In millions, except per share data)

Consolidated Statements of Income Data:

                 Nine Months Ended
                       May 31,                Years Ended August 31,
                 ----------------- --------------------------------------------
                    2000     1999     1999    1998     1997     1996     1995
                 -------- -------- -------- -------- --------  -------  -------


Net sales        $9,401.3 $6,961.7 $9,669.2 $6,102.2 $4,408.5 $3,231.8 $2,347.2
Operating income    461.2    366.1    516.1    368.6    303.2    213.6    144.0
Income before
  income taxes      488.0    362.3    514.5    375.5    307.5    213.2    140.6
Net income          326.2    246.8    350.3    251.3    203.7    139.6     92.2
Basic net income
 per share(1)        0.54     0.46     0.65     0.49     0.42     0.31     0.25
Diluted net income
 per share(1)        0.52     0.44     0.61     0.47     0.40     0.30     0.22


Consolidated Balance Sheet Data:

                    As of May 31,                As of August 31,
                  ----------------- --------------------------------------------
                     2000     1999     1999    1998     1997     1996     1995
                  -------- -------- -------- -------- -------- --------  -------
Net working
capital           $5,738.2 $2,062.3 $3,162.7 $1,278.1 $1,137.5 $  860.9 $  377.5
Total assets       9,221.4  3,967.7  5,420.5  2,843.7  2,209.9  1,627.9  1,034.4
Long-term debt     3,295.8    917.7    922.7    386.8    386.2    388.3     31.8
Stockholders'
  equity           3,584.6  1,968.1  3,166.9  1,475.4  1,150.2    787.8    564.8


(1) All net  income  per  share  amounts  have  been  adjusted  to  reflect  the
    two-for-one stock splits through March 8, 2000.

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.

Solectron  provides  electronics  manufacturing  services to original  equipment
manufacturers  (OEMs) who design and sell  networking  equipment,  workstations,
personal  and  notebook  computers,  computer  peripherals,   telecommunications
equipment or other electronic equipment.  These OEMs include Cisco Systems, Inc.
(Cisco),  Compaq Computer Corporation (Compaq),  Ericsson Telecom AB (Ericsson),
Hewlett-Packard  Company, Inc. (HP), International Business Machines Corporation
(IBM) and Nortel  Networks  Limited  (Nortel).  These  companies  contract  with
Solectron to build their products or to obtain other related services.

                                       6
<PAGE>



Solectron  furnishes  integrated  supply-chain  solutions  that span the  entire
product life cycle - from technology solutions, to manufacturing and operations,
to global services. These services include the following range of services:

-     Advanced building block design solutions;
-     Product design and manufacturing;
-     New product introduction management;
-     Materials purchasing and management;
-     Prototyping;
-     Printed circuit board assembly (the process of placing  components on an
      electrical printed circuit board that controls the processing  functions
      of a personal computer or other electronic equipment);
-     Systems  assembly (for example,  building  complete systems such as mobile
      telephones and testing them to ensure functionality);
-     Distribution;
-     Product repair; and
-     Warranty services.

Solectron's  performance  of these  services  allows  its  customers  to  remain
competitive  by focusing on their core  competencies  of sales,  marketing,  and
research and  development.  We have  manufacturing  facilities  in the Americas,
Europe and Asia/Pacific.  This geographic presence gives our customers access to
manufacturing  services  in the  locations  where they need to be close to their
expanding markets for faster product delivery.

During 1997, Solectron established a strategic, global manufacturing partnership
with  Ericsson's  Business Area Infocom  Systems.  We  established a New Product
Introduction  (NPI)  center in Sweden and  transferred  production  from certain
Ericsson  plants  worldwide  to our  manufacturing  sites  around the world.  In
October 1997, we acquired certain assets,  primarily equipment and inventory, of
Ericsson's  printed circuit board (PCB) assembly operation located in Sao Paulo,
Brazil.

In February 1998, Bluegum, an Australian subsidiary of Solectron, acquired IBM's
manufacturing  facility in  Wangaratta,  Australia.  Under the  agreements,  IBM
outsourced the manufacturing and functional  testing of PCB and the assembly and
system final  testing of personal  computers  and servers to Solectron for three
years. IBM also made available  certain of its  intellectual  property rights to
Solectron.

In April 1998,  Solectron acquired NCR Corporation's (NCR) manufacturing  assets
in Columbia,  South Carolina;  Duluth,  Georgia; and Dublin,  Ireland. Under the
terms of the agreement,  NCR outsourced the  manufacturing  of certain  computer
components to Solectron for at least five years.

In June 1998,  Solectron acquired IBM'S Electronic Card Assembly and Test (ECAT)
manufacturing assets in Charlotte,  North Carolina,  and non-exclusive rights to
certain IBM intellectual property.  Under the terms of the agreement, we provide
PCB assembly services to IBM in North America for three years. In addition,  IBM
made  available  to  Solectron  intellectual  property  rights  covering  a wide
spectrum of  technologies  and  capabilities.  IBM also  provided  to  Solectron
failure  analysis  and  characterization   tools  for  process  development  and
manufacturing, including fault detection and isolation.

In September 1998, Solectron's Australian subsidiary,  Bluegum, acquired another
manufacturing   facility  in   Australia   through   the   purchase  of  Alcatel
telecommunications manufacturing operations based in Liverpool, New South Wales.
Alcatel  specializes in building  next-generation  networks and end-to-end  data
voice  solutions.  Under the  agreements,  we  provide a range of  manufacturing
services to Alcatel for three years including  telecommunications  equipment and
PCB assembly.  Alcatel also made available certain of its intellectual  property
rights to Solectron.

In October 1998, Solectron acquired the wireless telephone  manufacturing assets
of  Mitsubishi  Consumer  Electronics  America,  Inc.'s (MCEA)  Cellular  Mobile
Telephone  (CMT)  division  in  Braselton,  Georgia.  MCEA was a  subsidiary  of
Mitsubishi Electric Corporation

                                       7
<PAGE>

(Mitsubishi).  Under the terms of the agreement, we provide MCEA-CMT with a full
range of manufacturing  services for five years,  including NPI management,  PCB
assembly and full systems assembly for MCEA's branded and private-label cellular
products sold in North  America.  In October 1999, we combined the operations of
Braselton and Duluth into a newly constructed manufacturing facility in Suwanee,
Georgia.

In February 1999,  Solectron  acquired IBM's  Electronic  Card Assembly and Test
(ECAT)  manufacturing  assets in  Austin,  Texas,  and  non-exclusive  rights to
certain IBM intellectual property.  Under the terms of the agreement, we provide
PCB  assembly  for   motherboards   used  in  IBM's  mobile  computer   products
manufactured  worldwide for three years. These services include physical design,
early prototyping, new product launch, PCB assembly and test, volume production,
end-of-life  support,  field return services and life cycle management.  We also
provide IBM's  worldwide  design teams a full range of  integrated  NPI services
which involve  pre-manufacturing  support, such as design and layout,  component
and  concurrent  engineering,  test  development,   prototype,  procurement  and
assembly.

In July 1999,  Solectron issued common stock to acquire Sequel,  Inc.  (Sequel).
Sequel was a privately held  corporation  specializing in notebook  computer and
liquid crystal display repair service and support. We acquired Sequel's business
operations in San Jose,  California;  Memphis,  Tennessee;  and Reading,  United
Kingdom. We also assumed Sequel's ownership in joint-venture operations in Japan
and  Taiwan.  The  acquisition  is  expected  to enable us to expand  our global
support services capabilities by adding quick-turn service operations,  customer
service  centers and  help-desk  support for the  end-users  of  Solectron-built
products.

In  August  1999,   Solectron  acquired  the  manufacturing  assets  of  Trimble
Navigation  Limited  (Trimble)  in  Sunnyvale,   California,  and  assumed  full
manufacturing  responsibility of Trimble's Global  Positioning  System (GPS) and
related  radio  frequency  (RF)  technology  products for three  years.  Trimble
specializes in RF products  enabled by GPS technology.  We also acquired certain
intellectual  property  rights related to RF technology.  Under the terms of the
agreement,  we provide  Trimble a full range of integrated  services  across the
entire  product  life cycle  including  design  consultation,  prototyping,  NPI
management, and volume PCB and systems assembly.

In September 1999,  Solectron announced the acquisition of manufacturing  assets
in several phases of IBM's Netfinity server operations in Greenock, Scotland. In
addition,  we acquired certain IBM intellectual  property rights included in the
design  and  manufacture  of PC  server  motherboards.  Under  the  terms of the
agreement,  we  assumed  NPI  and  manufacturing   responsibility  for  the  PCB
assemblies used in IBM's Netfinity server lines which were formerly manufactured
at IBM's Greenock  operations.  We provide IBM full-service NPI management which
includes a full range of premanufacturing  services,  specifically component and
concurrent engineering, test development,  prototype,  procurement and assembly.
We also  provide IBM for three  years fully  integrated  PCB  assembly  services
including  early  prototyping,  new product  launch,  assembly and test,  volume
production,  end-of-life  support  and life  cycle  management.  The  volume PCB
assembly  services were transferred from IBM's Greenock facility to our existing
global  manufacturing  operations.  In  addition,  we  have  established  a new,
full-service  NPI center in Port  Glasgow,  Scotland,  to support the IBM design
teams.

In October 1999, Solectron signed a definitive agreement with Acer, Inc. (Acer),
a core unit of the Acer Group, the world's  third-largest  PC  manufacturer,  to
form a strategic  alliance to provide global design,  manufacturing  and service
solutions for OEM-branded  personal  computers,  servers and workstations.  As a
result of the alliance, it is expected that customers will be able to access the
extensive technology,  motherboard and system-level design services,  and global
supply-base,   manufacturing,   distribution,   logistics  and  global  services
operations of both  companies to further  streamline  their global supply chain.
Solectron  and  Acer  plan  to  leverage  their  combined  resources,  including
facilities,  systems  and  personnel,  to provide  the  industry's  first  fully
integrated,  global and optimized end-to-end design,  manufacturing and services
solution.  The  companies  will manage this  alliance  under a joint  management
matrix.

                                       8
<PAGE>

In November 1999, Solectron acquired NULOGIX Technical Services, Inc. (NULOGIX),
a wholly owned subsidiary of IBM Canada, in its entirety.  NULOGIX is located in
Vaughan,  Canada, and specializes in repair,  remanufacturing and refurbishment.
With this  acquisition,  we expect to be able to provide the  Canadian  market a
full range of value-added  global  service  solutions.  These  services  include
product repair,  upgrades,  remanufacturing  and maintenance through factory and
fast-hub  service  centers located around the world;  help-desk  support through
customer call centers for  end-users;  logistics and parts  management;  returns
processing;   warehousing;   engineering  change  management;   and  end-of-life
manufacturing.

In  November  1999,   Solectron  completed  its  acquisition  of  SMART  Modular
Technologies,  Inc.  (SMART)  which was accounted for as a pooling of interests.
SMART is a  designer  and  manufacturer  of memory  modules  and  memory  cards,
embedded computers, and I/O products. Through the acquisition,  Solectron gained
a manufacturing  presence in Aguada,  Puerto Rico, and additional  manufacturing
capacity through SMART's facilities in Fremont,  California;  Penang,  Malaysia;
and East Kilbride,  Scotland.  In addition,  Solectron  gained design centers in
Fremont, California; Bangalore, India; Boston, Massachusetts; and Ayr, Scotland.
The  acquisition  enables  Solectron  to expand  its  service  capabilities  and
infrastructure by integrating SMART into the technology business unit with Force
Computers, Inc. (Force). In addition,  Solectron is benefiting from the business
purchase  transaction  of  Compaq's  embedded  and real  time  product  line and
business in Fremont, California and Scotland by SMART in August 1999.

In March 2000,  Solectron  completed  the  acquisition  of the  complex  systems
manufacturing assets of Ericsson's  telecommunications  infrastructure equipment
operations  in  Longuenesse,  France,  and  Ostersund,  Sweden.  As  part of the
agreement,  we provide a complete range of integrated  supply-chain solutions to
Ericsson.   This  includes  supply-base  management,   early  prototyping,   NPI
management, complex PCB assembly,  configure-to-order and build-to-order complex
systems assembly, and global services.

In March 2000,  Solectron  completed the acquisition of Alcatel's  manufacturing
business in Aguadilla,  Puerto Rico. As part of the acquisition, we assumed full
manufacturing   responsibility   for  Alcatel's  PCB  products  focused  on  the
networking and  telecommunication  industries.  Additionally,  we will provide a
full  range of  manufacturing  services  to  Alcatel  for the next  three  years
including prototyping and high-volume PCB assembly.

In April 2000,  Solectron completed the acquisition of the manufacturing  assets
of  Premisys   Communications,   Inc.,  a  wholly  owned   subsidiary  of  Zhone
Technologies,  Inc.  (Zhone).  Zhone  is  a  communications  equipment  provider
integrating  expertise  in  voice,  video  and data  communications.  Under  the
agreement, we become Zhone's virtual supply-chain partner and signed a five-year
commitment  with  Zhone to  provide  product  life  cycle  management  services,
including NPI through repair and end-of-life services.

In April  2000,  Solectron  completed  the  acquisition  of  AMERICOM  which was
accounted for as a pooling of interests. AMERICOM, a privately held corporation,
specializes  in  wireless  handset  repair  and   refurbishment  and  outsourced
technical  customer support services.  As part of the transaction,  we expect to
gain  specialized  repair and testing  equipment and assume  responsibility  for
AMERICOM's business operations in Los Angeles, California; Louisville, Kentucky;
Baltimore,  Maryland; and Dallas, Texas; as well as AMERICOM's field technicians
and support operations throughout the United States.

In  June  2000,  Solectron  acquired  the  manufacturing  assets  of six  Nortel
manufacturing and repair facilities including Calgary, Canada; Research Triangle
Park,  North  Carolina;  Monterrey,  Mexico;  Cwmcarn,  Wales;  Pont de Buis and
Douarnenez,  France;  and Monkstown,  Northern  Ireland.  On August 31, 2000, we
completed an additional  asset  acquisition at Nortel  manufacturing  and repair
operation  in  Turkey.  We  will  provide  prototyping,   PCB  assembly,   small
sub-assembly  and repair  services to Nortel in these  locations.  Following the
transaction  in  Northern  Ireland,  Solectron  purchased  a 50,000  square-foot
facility in Carrickfergus,  just outside of Belfast. During renovations, we will
operate from  Nortel's  facility in Monkstown  and will transfer work to the new
site, which is expected to be fully  operational in September 2000. The new site
will be a NPI  center  that  will  serve


                                       9
<PAGE>

Nortel  telecommunications  needs and manufacture  optical networking  products.
Under the terms of the agreements with Nortel,  we will pay  approximately  $900
million to assume the assets  contemplated  in these  agreements.  The companies
also  entered into a multi-year  supply  agreement,  in excess of $10 billion in
sales, with the option to renew.

In  June  2000,   Solectron  completed  the  acquisition  of  IBM  Corporation's
manufacturing operations in Hortolandia, Sao Paulo state, Brazil. We will assume
responsibility  for the systems  configuration  and  assembly of IBM's  Personal
Systems Group,  Retail Systems  Solutions  Group,  and Enterprise  Systems Group
products sold into the Brazilian,  Mercosul and Andean  markets.  As part of the
multi-year agreement,  we will provide IBM with an extensive range of integrated
services including NPI support, PCB and systems assembly,  product configuration
services, repair and end-of-life product support.

In July 2000,  Solectron  completed  the  acquisition  of  Bluegum,  Australia's
leading electronics  contract  manufacturer.  The transaction was accounted as a
pooling  of   interests.   It  is  expected  that   Solectron   will  gain  NPI,
manufacturing, systems assembly, and services capability in Liverpool, New South
Wales; and Wangaratta and Melbourne, Victoria; and program offices in Sydney and
North Melbourne, Australia and Singapore.

RESULTS OF OPERATIONS

The  electronics  industry  is subject to rapid  technological  change,  product
obsolescence  and  price  competition.  These and other  factors  affecting  the
electronics industry, or any of Solectron's major customers in particular, could
materially harm Solectron's results of operations.

In addition,  Solectron  acquired AMERICOM  effective April 28, 2000 and Bluegum
effective  July 14,  2000,  accounting  for both  acquisitions  as a pooling  of
interests.  Accordingly,  our historical financial statements have been restated
retroactively to include the financial results of both AMERICOM and Bluegum.

RESULTS OF OPERATIONS FOR YEARS ENDED AUGUST 31, 1999, 1998 AND 1997

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

                                       10
<PAGE>
                                         Years Ended August 31,
                                        -----------------------
                                         1999     1998    1997
                                        ------   ------  ------
           Net sales                     100.0%   100.0%  100.0%
           Cost of sales                  90.3     89.1    87.6
                                        ------   ------   -----
           Gross profit                    9.7     10.9    12.4
           Operating expenses:
             Selling, general and
               Administrative              3.9      4.4     4.9
             Research and development      0.4      0.5     0.5
             Acquisition costs              --       --     0.1
                                        ------   ------   -----
               Operating income            5.4      6.0     6.9
           Net interest income              --      0.1     0.1
                                        ------   ------  ------
           Income before income taxes      5.4      6.1     7.0
           Income taxes                    1.7      2.0     2.4
                                        ------   ------  ------
           Net income                      3.7%     4.1%    4.6%
                                        ======   ======  ======

NET SALES

Solectron's net sales have increased  significantly  in each of the past several
years,  reflecting the growing trend toward  outsourcing  within the electronics
industry. For the year ended August 31, 1999, net sales grew to $9.7 billion, an
increase  of 58.5% over  fiscal  1998 net sales.  Fiscal  1998 net sales of $6.1
billion were 38.4%  greater  than fiscal  1997.  The sales growth in fiscal 1999
compared to fiscal 1998 was  attributable to significant  sales volume increases
from our  worldwide  customers  and from our  acquisitions.  The sales growth in
fiscal 1998 over fiscal 1997 was primarily due 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.  Solectron does not currently  anticipate any future
decline in sales,  but  continues to seek  diversification  of our customer base
among many countries, market segments and product lines within market segments.

Manufacturing and Operations

Net sales from our worldwide  manufacturing  operations group have contributed a
significant  share of total sales for the past three fiscal  years.  Fiscal year
1999 sales grew to $8.5 billion,  an increase of 62.1% over fiscal year 1998. In
fiscal year 1998 net sales of $5.2 billion were 45.8% greater than fiscal 1997.

Within the  Americas,  sales growth was  primarily  due to demand  increases and
acquisitions of assets from Ericsson, NCR, IBM ECAT and Mitsubishi during fiscal
1999 and 1998.  Sales from the  acquisition of IBM ECAT in Austin,  Texas,  were
recognized  beginning in March 1999 because the Texas site consistently  reports
its  results one month in arrears.  In  addition,  the Mexico site was among the
largest  contributors due to the strong demand growth in fiscal 1999 as compared
to fiscal 1998. The Milpitas,  California,  site also  experienced  sales growth
despite the  strategic  transfer of personal  computer PCB programs and computer
peripherals  systems  assembly  programs  to Mexico and  networking  business to
Penang.  The sales  growth from fiscal 1997 to fiscal 1998 was  attributable  to
start-up and major new programs at the Texas and  Massachusetts  sites,  and the
addition  of new sites in Mexico and Brazil in fiscal  1998.  Additionally,  the
acquired sites from NCR and IBM ECAT in Charlotte  contributed  incremental  net
sales to fiscal 1998 as compared to fiscal 1997.

Solectron's  operations  in  Milpitas,  California,  contributed  a  substantial
portion of Solectron's  net sales and operating  income during fiscal 1999, 1998
and 1997. In recent  years,  management  has  undertaken  deliberate  actions to
achieve improved global load balancing by transferring certain projects from the
Milpitas site to other sites worldwide. However, the performance of the Milpitas
operation  is expected to  continue  to be 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 materially
harm Solectron's consolidated results of operations.

                                       11
<PAGE>

In Europe,  net sales at all of Solectron's  European sites  increased in fiscal
1999 over fiscal  1998.  The increase was  principally  due to overall  business
growth and increased  demand from our  telecommunications  customers.  Net sales
from our European operations in fiscal 1998 increased over fiscal 1997 primarily
due to core business growth and new accounts.  Sales growth at the Scotland site
was  particularly  strong due to the ramp up of major  customers'  PCB  assembly
activities.  The new locations in Sweden also  contributed to the sales increase
in fiscal 1998 compared to fiscal 1997.

All  Asia/Pacific  sites  contributed  to the sales increase in fiscal 1999 over
fiscal 1998 primarily due to core business growth.  In particular,  sales growth
at the Penang, Malaysia, site was attributable to increased demand from personal
computer   customers  and  networking   business   transferred   from  Milpitas,
California.  The Johor,  Malaysia,  site also experienced higher product demand.
Net sales from the Asia/Pacific manufacturing locations increased in fiscal 1998
over fiscal 1997 primarily as a result of certain projects  transferred from the
Milpitas,  California, site to meet demand growth. In addition, Bluegum acquired
Alcatel's  telecommunications  manufacturing  operations  in  New  South  Wales,
Australia in September 1998.

Technology Solutions

The technology solutions group consists of SMART Modular Technologies,  Inc. and
Force  Computers,  subsidiaries  of Solectron.  This business unit was formed on
November  30,  1999  coincident  with the  merger  of  SMART.  Net sales for the
technology  solutions  business  unit consist of sales of specialty and standard
memory products,  PC cards,  embedded computer modules and  communications  card
products. Net sales for fiscal years 1999, 1998 and 1997 were $1.1 billion, $830
million,  and $795 million,  respectively.  The increase in fiscal 1999 of 37.0%
over  fiscal  1998  was  primarily  due to an  increase  in the  average  memory
densities of the standard  memory  products,  as well as an increase in embedded
computer  and  communications  card  products.  Fiscal 1998 sales were  slightly
higher than fiscal 1997 due to an increase in sales of standard memory products,
communications card products and embedded computer modules,  partially offset by
a substantial  decline in the cost of certain  memory devices used in production
and a decrease in sales of specialty products.

Global Services

This  group  was  established  in June  1999.  It  consists  of  three  business
acquisitions  including  Sequel  in July  1999,  NULOGIX  in  November  1999 and
AMERICOM in April 2000,  as well as a small  division of  Solectron in Milpitas.
Net sales were $103.9 million,  $65.4 million, and $47.5 million in fiscal years
1999, 1998 and 1997, respectively.


                                       12
<PAGE>

Net Sales from  International  Sites - Net sales from Solectron's  international
sites, as a percentage of consolidated net sales, have grown over the last three
fiscal years.  International locations contributed 33% of consolidated net sales
in fiscal  1999,  compared  to 28% in fiscal 1998 and 21% in fiscal  1997.  As a
result of Solectron's international sales and facilities, Solectron's operations
are  subject  to the  risks of doing  business  abroad.  While,  to date,  these
dynamics have not materially harmed Solectron's results of operations, we cannot
assure that there will not be such an impact in the future.

Net Sales to Major Customers - Three major customers accounted for more than 10%
of our net sales in fiscal 1999,  1998 and 1997. The following table lists these
customers and the percentage of net sales attributed to them.

                                             Years Ended August 31,
                                            -----------------------
                                              1999   1998     1997
                                            ------  ------  -------
           Compaq Computer Corporation
           (Compaq)                            12%     *       *
           Cisco Systems, Inc. (Cisco)         11%    10%      *
           Hewlett-Packard Company (HP)         *     11%     11%

* net sales less than 10%

No other  customers  accounted  for more than 10% of net sales during any of the
years presented.

Solectron's top ten customers accounted for 74% of net sales in fiscal 1999, 68%
of net  sales  in  fiscal  1998  and 63% of net  sales in  fiscal  1997.  We are
dependent upon continued revenues from Compaq,  Cisco, HP, IBM and our other top
ten customers.  We cannot  guarantee that these or any other  customers will not
increase  or  decrease  as  a  percentage  of  consolidated   net  sales  either
individually  or as a group.  Consequently,  any  material  decrease in sales to
these  or  other  customers  could  materially  harm   Solectron's   results  of
operations.

Solectron  believes  that its ability to continue  achieving  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,  we cannot  assure that any of
Solectron's  current  customers will continue to utilize  Solectron's  services.
Because of these factors,  we cannot assure that Solectron's  historical revenue
growth rate will continue.

GROSS PROFIT

The gross margin  percentages  were 9.7%,  10.9% and 12.4% for fiscal 1999, 1998
and 1997, respectively. The reductions primarily reflect increased sales derived
from systems build  projects that  generally  yield lower  margins,  green field
start-up operations,  and an increase in the proportion of technology solutions'
net sales derived from its lower margin  standard memory  products.  Solectron's
net sales from systems  build  projects  contributed  21% of net sales in fiscal
1999,  19% of net sales in fiscal  1998 and 9% of net sales in fiscal  1997.  In
addition,  the  amortization  of  intellectual  property  resulting from certain
acquisitions reduced gross margins. The decrease in fiscal 1998 from fiscal 1997
was primarily  due to a shift toward  higher  volume  projects and systems build
projects that typically have lower margins and start-up  costs  associated  with
our operations in China and Mexico.

For  our  worldwide  manufacturing  operations,  we  anticipate  that  a  larger
percentage  of our  sales  may be  derived  from  systems-build  projects  which
generally  yield lower profit  margins  than PCB  assembly.  For our  technology
solutions  business,  we expect  that a majority  of our sales  from  technology
solutions may continue to be derived from turnkey projects which typically yield
lower  profit  margins  than the  consignment  projects.  In  addition,  factors
affecting technology  solutions' profit margins include the mix between sales of
specialty memory modules,  standard memory modules,  communication card products

                                       13
<PAGE>

and embedded  computer  modules,  as well as changes in average memory densities
used in  memory  products.  Currently,  a  significant  amount  of net sales are
derived from the sales of standard  memory  modules which  typically  have lower
profit margins than its specialty memory modules.

In the  foreseeable  future,  Solectron's  overall  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, percentage of sales derived from systems-build and turnkey projects,
pricing within the electronics industry, component costs and delivery linearity,
and the cost  structure at  individual  sites.  Over time,  gross margins at the
individual  sites  and for  Solectron  as a whole  may  continue  to  fluctuate.
Increases in the systems-build  business or turnkey  projects,  additional costs
associated with new projects,  and price erosion within the electronics industry
could harm our gross margin.

In  addition,  we have  experienced  component  shortages.  While the  component
availability  fluctuates from time to time and is still subject to lead time and
other  constraints,  this could possibly have a negative impact on our sales and
gross  margins for the  foreseeable  future.  Therefore,  we cannot  assure that
Solectron'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  41.6% in fiscal  1999 over  fiscal 1998 and 24.3% in fiscal 1998 over
fiscal 1997.  The dollar  increase in fiscal 1999  primarily  reflects  expenses
associated with sales growth including increased human resources costs necessary
to support business  infrastructure and further development costs of information
systems, as well as increased costs of acquisition related activities.  Expenses
incurred  relating to the  business  acquisition  from  Alcatel in  Australia by
Bluegum and the asset acquisitions from Mitsubishi in Braselton, Georgia and IBM
ECAT in Austin,  Texas,  also contributed to the increase in SG&A expenses.  The
fiscal 1998 increase was due to investment in  infrastructure  such as personnel
and related  departmental  expenses at all  manufacturing  locations  as well as
investment in  information  systems to support the increased size and complexity
of our business. Additionally, the sites added in fiscal 1998, including Brazil,
NCR and IBM ECAT in Charlotte,  North  Carolina,  contributed to the increase in
SG&A expenses.

As a percentage of net sales,  SG&A  expenses were 3.9% in fiscal 1999,  4.4% in
fiscal 1998 and 4.9% in fiscal 1997.  The primary reason for the fiscal 1999 and
1998 decrease in SG&A  expenses as a percentage of net sales is the  significant
increase  in the sales  base,  partially  offset by the  costs  associated  with
investments  in our business  infrastructure,  information  systems and start-up
costs for new sites.  We  anticipate  SG&A expenses will continue to increase in
terms  of  absolute  dollars  in the  future  and  may  possibly  increase  as a
percentage of net sales as we continue to develop the  infrastructure  necessary
to support our current and prospective business.

RESEARCH AND DEVELOPMENT EXPENSES

With the  exception  of our  technology  solutions  business  unit,  Solectron'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.
Technology  solutions' R&D efforts are concentrated on the design and testing of
new products to be included in its memory,  embedded  computers  and I/O product
lines.

As a percentage of net sales, R&D expenses were 0.4% in fiscal 1999, and 0.5% in
fiscal 1998 and 1997.  In absolute  dollars,  R&D  expenses  increased  35.5% in
fiscal 1999 over fiscal  1998 and 27.2% in fiscal  1998 over  fiscal  1997.  The
increases in R&D expenses were  primarily due to technology  solutions  business
unit's focused efforts on the  development

                                       14
<PAGE>

and  improvement  of its products.  We expect that R&D expenses will increase in
absolute  dollars in the future and may  increase as a  percentage  of net sales
while  technology  solutions  and the acquired  IBM sites  continue to invest in
their R&D efforts.  In addition,  certain new R&D projects will be undertaken at
some of Solectron's  Asia/Pacific  sites,  particularly at the sites in Malaysia
because of the tax holiday. (See "Income Taxes.")

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  in
November 1996.

NET INTEREST INCOME (EXPENSE)

Net interest  expense was $1.6  million in fiscal 1999  compared to net interest
income  of $6.9  million  and $4.3  million  in  fiscal  1998 and  fiscal  1997,
respectively. The net interest expense in fiscal 1999 versus net interest income
in fiscal  1998 was  primarily  attributable  to the  issuance  of 4% yield zero
coupon  convertible  senior  notes in January  1999,  partially  offset by lower
interest  expense from the redemption of 6% convertible  subordinated  notes due
2006 which were  converted  to common  stock in March  1999.  SMART's  secondary
public offering of common stock completed  during September 1997 has resulted in
significant  increases  in  interest  income  during  fiscal 1998 as compared to
fiscal 1997.

In fiscal 1999, we capitalized  approximately  $3.2 million of interest  expense
related to the costs of computer  software  developed  for  internal use and the
facility  construction  projects at the Brazil, China, Mexico and Romania sites.
We expect  to use more of our cash and  short  term  investments  during  future
periods in order to fund anticipated future growth.

INCOME TAXES

Income taxes  increased to $164.2  million in fiscal 1999 from $124.2 million in
fiscal 1998 and $103.8 million in fiscal 1997, primarily due to increased income
before income taxes. Solectron's effective income tax rate decreased slightly to
31.9% in fiscal 1999 from 33.1% in fiscal 1998 and 33.8% 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
those  in the  United  States,  primarily  due to the  tax  holiday  granted  to
Solectron's  sites in Malaysia.  The Malaysian tax holiday is effective  through
January  31,  2002,  subject to some  conditions,  including  certain  levels of
research and development  expenditures.  Solectron has also been granted various
tax holidays in China,  which are effective for various terms and are subject to
some conditions.

LIQUIDITY AND CAPITAL RESOURCES

Net  working  capital  was $3.2  billion at August 31,  1999,  compared  to $1.3
billion at August 31, 1998. A major  component of working  capital at August 31,
1999,  primarily  consisted  of  cash  from  the  proceeds  of the  zero  coupon
convertible senior notes in January 1999 and the common stock offering in August
1999.

During fiscal 1999, we used approximately  $164.2 million of cash and short-term
investments to fund our asset  acquisitions  including  Mitsubishi in Braselton,
Georgia;  IBM's ECAT in Austin,  Texas; and Trimble in Sunnyvale,  California as
well   as   business   acquisitions   including   Alcatel's   telecommunications
manufacturing  operations in New South Wales,  Australia by Bluegum and Compaq's
embedded  and real time product  line and  business in Fremont,  California  and
Scotland by SMART.  In the first nine months of fiscal 2000, we used  additional
funds for our acquisitions.  As we continue to grow, it is expected that we will
require greater amounts of working capital to support our operations. We believe
that our current level of working  capital,  together with cash  generated  from
operations and our available  credit  facilities,  will provide adequate working
capital for operations for the


                                       15
<PAGE>

foreseeable  future.  However,  we may need to raise additional funds to finance
our  rapid  expansion,   including   establishing  new  locations  or  financing
additional  acquisitions.  We cannot assure that such funds, if needed,  will be
available on terms acceptable to us or at all.

Inventory   levels   fluctuate   directly   with  the   volume  of   Solectron's
manufacturing. Changes or significant fluctuations in product market demands can
cause  fluctuations in inventory  levels that may result in changes of inventory
turns and  liquidity.  Historically,  we have been able to manage our  inventory
levels with regard to these fluctuations.  However, should material fluctuations
occur in product demand, we could experience slower turns and reduced liquidity.
The  increase  in  inventory  levels  at  year-end  1999 from  year-end  1998 is
substantially a result of overall growth and the greater number of manufacturing
locations at August 31, 1999, compared to August 31, 1998, as each location must
maintain  a level of  inventory  adequate  to allow the  location  to respond to
customer manufacturing requirements.  Subsequent to the year end of fiscal 1999,
Solectron  has  experienced   shortages  in  certain  components   resulting  in
incomplete kits which contributed to an increase in inventory on hand.

Cash provided by operating  activities was $96.6 million in fiscal 1999,  $212.3
million in fiscal  1998 and $217.8  million in fiscal  1997.  The  decreases  in
fiscal  1999 and  1998  were  primarily  due to  increased  levels  of  accounts
receivable  and  inventory,  partially  offset by increases in net income before
depreciation and amortization, and current liabilities.

During fiscal 1999,  Solectron invested  approximately $449.4 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  our  new  manufacturing  sites,
principally in Brazil,  Mexico and Romania.  We expect capital  expenditures  in
fiscal 2000 to be approximately $450 million.

In addition to working  capital as of August 31, 1999,  which  included cash and
cash  equivalents of $1.4 billion and short-term  investments of $453.6 million,
Solectron has available a $100 million unsecured multi-currency revolving credit
facility is subject to certain financial  covenants.  We also have approximately
$105  million in unused  foreign  credit  facilities  of which $24  million is a
committed credit line.

RESULTS OF OPERATIONS FOR NINE MONTHS ENDED MAY 31, 2000 AND 1999

The following table sets forth, for the periods indicated,  certain items in the
Unaudited  Supplemental  Condensed  Consolidated   Statements  of  Income  as  a
percentage of net sales.  The financial  information  and the  discussion  below
should  be  read  in  conjunction  with  the  unaudited  supplemental  condensed
consolidated financial statements and notes thereto.


                                       16
<PAGE>
                                              Nine Months Ended
                                                  May 31,
                                              -----------------
                                                2000      1999
                                              -------   -------
         Net sales                              100.0%    100.0%
         Cost of sales                           90.8      90.4
                                              -------   -------
         Gross profit                             9.2       9.6
         Operating expenses:
           Selling, general and
             administrative                       3.4       3.9
           Research and development               0.5       0.5
           Acquisition and restructuring          0.4        --
                                              -------   -------
         costs
           Operating income                       4.9       5.2
           Net interest income (expense)          0.3      (0.1)
                                              -------   -------
         Income before income taxes and
           cumulative effect of change
           in accounting principle                5.2       5.1
         Income tax expense                       1.7       1.6
                                              -------   -------
         Income before cumulative effect of
           change in accounting principle         3.5       3.5
                                              -------   -------
         Cumulative effect of change in
           accounting principle                    --        --
                                              -------   -------
         Net income                               3.5%      3.5%
                                              =======   =======

NET SALES

Net sales for the  nine-month  period of fiscal 2000  increased to $9.4 billion,
35.0% over the same  period in fiscal  1999.  The growth in sales was  primarily
attributable  to major new program  ramp-ups,  strong  demand from our customers
worldwide and acquisitions made during fiscal 1999 and through the third quarter
of fiscal  2000.  However,  the sales  increase  was  constrained  by  component
shortages.

Solectron has three  business  units  including  manufacturing  and  operations,
technology   solutions,   and  global   services.   Our  core  business   group,
manufacturing  and operations,  provided 87.5% and 87.0%,  respectively,  of net
sales for the nine-month  periods in fiscal 2000 and 1999. Our newly established
technology  solutions group consisting of SMART and Force  contributed 10.8% and
12.0%, respectively,  of net sales for the nine-month periods in fiscal 2000 and
1999. The new global services unit pooled with AMERICOM and the services unit of
Bluegum, which started in fiscal 2000, contributed 1.7% and 1.0%,  respectively,
of net sales for the nine-month periods in fiscal 2000 and 1999.

Manufacturing and Operations

Net sales from our worldwide manufacturing operations group grew to $8.3 billion
for the  nine-month  period in fiscal 2000 compared to $6.1 billion for the same
period in fiscal 1999.  This  increase was 35.8% over the  comparable  period of
fiscal 1999.  The  increase in net sales was  principally  due to strong  demand
growth   from   our   customers    and    acquisitions    including    Alcatel's
telecommunications  manufacturing business in Liverpool, Australia by Bluegum in
September 1998;  manufacturing assets of Mitsubishi in October 1998; IBM ECAT in
Austin,  Texas in February  1999;  Trimble,  California  in August  1999;  IBM's
Netfinity server operations in Greenock,  Scotland in September 1999; Ericsson's
telecommunications  infrastructure  equipment operations in Longuenesse,  France
and  Ostersund,  Sweden in March 2000;  and Zhone,  California in April 2000; as
well as the acquisition of Alcatel's manufacturing business in Aguadilla, Puerto
Rico in March 2000.

Within the Americas, the Milpitas site in California, Guadalajara site in Mexico
and Charlotte site in North Carolina were the largest contributors primarily due
to new programs from our customers.  However, sales in the Americas were impeded
by the  shortage of  components.  Sales growth in the  Milpitas  site  continued
despite the  strategic  transfer of personal  computer PCB programs and computer
peripherals  systems  assembly  programs  to Mexico and  networking  business to
Penang.
                                       17
<PAGE>

In Europe,  the net sales increase in the nine-month  period of fiscal 2000 over
the same period of fiscal 1999  primarily  resulted from greater demand from our
mobile phone and telecommunications customers. Additionally, the acquisitions of
manufacturing assets of IBM's Netfinity server operations in Greenock,  Scotland
in September 1999 and  Ericsson's  telecommunications  infrastructure  equipment
operations  in  Longuenesse,   France  and  Ostersund,   Sweden  in  March  2000
contributed incremental net sales for the nine-month period in fiscal 2000.

In  Asia/Pacific,  the net sales growth was  primarily  due to demand  growth in
mobile  phones,  networking  and personal  computer  projects for the nine-month
period in fiscal 2000 compared to the same period of fiscal 1999.  Additionally,
the China site started expanding in production to meet demand growth. Our Penang
site in Malaysia  continues to benefit from the growth of  networking  business.
Also, Bluegum acquired Alcatel's telecommunications  manufacturing operations in
New South Wales, Australia in September 1998.

Technology Solutions

Net sales from our new  technology  solutions  group,  which  includes SMART and
Force, grew 22.6% to $1.0 billion for the nine-month period over the same period
of fiscal 1999.  The increase in net sales  primarily  resulted  from an overall
increase in the average memory densities  incorporated  into the standard memory
products  and  growth  in sales of  communication  card  products  and  embedded
computer  modules.  In  addition,  the  embedded  and real time product line and
business  acquired  during August 1999 from Compaq  further  contributed  to the
increase.  The increase in net sales was partially offset by declines in average
selling prices.

Global Services

This  newly  established  group  reported  net sales of $160.2  million  for the
nine-month  period of fiscal 2000  compared to $68.4 million for the same period
in fiscal 1999. Net sales benefited from the business  acquisitions of Sequel in
July 1999,  NULOGIX in November  1999,  AMERICOM in April 2000, and the services
unit of Bluegum in July 2000.

Concentration of Sales - The operations in Milpitas,  California,  contributed a
substantial  portion of Solectron's net sales and operating income during fiscal
1999,  1998 and 1997.  In recent years,  management  has  undertaken  deliberate
actions to achieve  improved  global  load  balancing  by  transferring  certain
projects  from  the  Milpitas  site  to  other  sites  worldwide.  However,  the
performance  of  the  Milpitas  operation  is  expected  to  continue  to  be  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 materially harm Solectron's  consolidated  results
of operations.

International  Sales - In the first nine  months of fiscal  2000,  international
locations  contributed  42.8% of consolidated net sales compared to 37.9% in the
same period of fiscal 1999. As a result of Solectron's  international  sales and
facilities,  Solectron's  operations  are subject to the risks of doing business
abroad.  While these dynamics have not materially harmed Solectron's  results of
operations,  we  cannot  assure  that  there  will not be such an  impact in the
future, including potential adverse effects in operating results associated with
the risks of doing business abroad.

                                       18
<PAGE>

Net Sales to Major  Customers - Several of our  customers  accounted  for 10% or
more of our net sales in the  nine-month  periods of fiscal  2000 and 1999.  The
following  table  details  these  customers  and  the  percentage  of net  sales
attributed to them.
                                             Nine Months Ended
                                                  May 31,
                                             -----------------
                                               2000      1999
                                             -------   -------
           Cisco Systems, Inc. (Cisco)          12%       10%
           Ericsson Telecom AB (Ericsson)       11%        *
           Compaq Computer Corporation           *        13%
           (Compaq)

----------------
* Less than 10%.

No other  customer  accounted  for more than 10% of net sales  during any of the
periods presented.

Solectron's  top  ten  customers   accounted  for  approximately  71%  and  75%,
respectively,  of consolidated net sales in the first nine months of fiscal 2000
and 1999.  We are dependent  upon  continued  revenues from Cisco,  Ericsson and
Compaq,  as well as our other top ten customers.  We cannot guarantee that these
or any  other  customers  will not  increase  or  decrease  as a  percentage  of
consolidated  net sales either  individually  or as a group.  Consequently,  any
material  decrease in sales to these or other  customers  could  materially harm
Solectron's results of operations.

Solectron  believes  that its ability to continue  achieving  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,  we cannot  assure that any of
Solectron's  current  customers will continue to utilize  Solectron's  services.
Because of these factors,  we cannot assure that Solectron's  historical revenue
growth rate will continue.

GROSS PROFIT

The gross  margin  percentage  decreased  to 9.2% for the  nine-month  period of
fiscal 2000 compared with 9.6% for the same period of fiscal 1999. The reduction
was primarily attributable to manufacturing  inefficiencies due to non-linearity
of materials receipts, a high level of business  development  activities and new
site integration  support  expenditures,  as well as capacity ramp-up for future
demand growth.

For  our  worldwide  manufacturing  operations,  we  anticipate  that  a  larger
percentage  of our  sales  may be  derived  from  systems-build  projects  which
generally  yield lower profit  margins  than PCB  assembly.  For our  technology
solutions  business,  we expect  that a majority  of our sales  from  technology
solutions may continue to be derived from turnkey projects which typically yield
lower  profit  margins  than the  consignment  projects.  In  addition,  factors
affecting technology  solutions' profit margins include the mix between sales of
specialty memory modules,  standard memory modules,  communication card products
and embedded  computer  modules,  as well as changes in average memory densities
used in memory  products.  Currently,  a  significant  majority of net sales are
derived from the sales of standard  memory  modules which  typically  have lower
profit margins than its specialty memory modules.

In the  foreseeable  future,  Solectron's  overall  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, percentage of sales derived from systems-build and turnkey projects,
pricing within the electronics industry, component costs and delivery linearity,
and the cost  structure at  individual  sites.  Over

                                       19
<PAGE>

time,  gross  margins at the  individual  sites and for Solectron as a whole may
continue  to  fluctuate.  Increases  in the  systems-build  business  or turnkey
projects,  additional  costs  associated  with new  projects,  and price erosion
within the electronics industry could harm our gross margin.

In  addition,  we have  experienced  component  shortages.  While the  component
availability  fluctuates from time to time and is still subject to lead time and
other  constraints,  this could possibly have a negative impact on our sales and
gross  margins for the  foreseeable  future.  Therefore,  we cannot  assure that
Solectron'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 19.4%,  for the nine-month  period of fiscal 2000 over the same period
of fiscal 1999.  As a percentage  of net sales,  SG&A expenses were 3.4% for the
nine-month  period  in the  fiscal  2000 and 3.9% for the  comparable  period in
fiscal  1999.  The  increase  in  absolute  dollars  for the fiscal  2000 period
primarily resulted from increased human resources and information  systems costs
to support sales growth and increased costs of acquisition  related  activities.
The decline as a percentage of net sales for the fiscal 2000 period reflects our
on-going effort to manage operating  expenses relative to sales growth and gross
margin  levels.  We anticipate  SG&A expenses will increase in terms of absolute
dollars in the future, and may possibly increase as a percentage of revenue,  as
we  continue  to  invest  in  our  infrastructure  such  as  marketing,   sales,
supply-base  management as well as continuing  investment in information systems
to support the increased size and complexity of our business.

RESEARCH AND DEVELOPMENT EXPENSES

With the exception of our technology solutions operations,  Solectron'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. Technology solutions'
R&D efforts are  concentrated  on new product  development  and  improvement  of
product  designs  through   improvements  in   functionality   and  the  use  of
microprocessors in embedded applications.

As a percentage of net sales, R&D expenses were 0.5% for both nine-month periods
in fiscal 2000 and 1999. In absolute dollars, R&D expenses were $44.7 million in
the first  nine  months of fiscal  2000  compared  to $32.5  million in the same
period of fiscal  1999.  The  increase in R&D expenses in the fiscal 2000 period
compared to the fiscal 1999 period was  primarily due to increased R&D effort at
technology  solutions and new R&D projects initiated at various sites. We expect
that R&D  expenses  will  increase  in  absolute  dollars  in the future and may
increase as a percentage  of net sales as SMART and Force  continue to invest in
their R&D efforts and additional R&D projects are undertaken at certain sites.

ACQUISITION AND RESTRUCTURING COSTS

For the  nine-month  period of fiscal 2000,  acquisition  costs of $25.5 million
included  $20.3  million  recorded  in the second  quarter of fiscal  1999 which
related to the merger of SMART consisting of investment banker fees, legal fees,
accounting  fees,  registration  fees and other  incidentals.  During  the third
quarter of fiscal  2000,  acquisition  costs of $5.2  million  were  recorded in
connection  with the  acquisition  of  AMERICOM.  These  costs  included  direct
transaction fees, as well as legal fees, accounting fees,  registration fees and
other incidentals.

Total restructuring costs of $7.7 million for the nine-month period comprised of
$4.7 million which was recorded in the second quarter of fiscal 2000  associated
with the  consolidation  of certain  facilities  as a result of the mergers with
SMART and Sequel.


                                       20
<PAGE>

These restructuring  transaction costs of $4.7 million included lease exit costs
of approximately $2.4 million, fixed asset write-offs and other incidental costs
of approximately $1.4 million,  as well as severance costs of approximately $0.9
million.  In the third  quarter  of  fiscal  2000,  restructuring  costs of $1.8
million related to  re-alignment of the operations in Atlanta,  Georgia in third
quarter of fiscal 2000. Such  restructuring  costs consisted of severance costs,
long-term  assets written off and other  incidental  costs.  Additionally,  $1.2
million  was  recorded  for  long-term  assets  written  off  due to  operations
restructured in Wangaratta, Australia.

As of May 31, 2000,  liabilities related to restructuring  activities,  totaling
approximately  $3.6  million,  are  expected  to be  paid  out by the end of the
calendar year 2000.

NET INTEREST INCOME (EXPENSE)

Net interest  income was $26.8  million for the first nine months of fiscal 2000
compared to $3.8 million of net  interest  expense for the same period of fiscal
1999. The net interest income in the fiscal 2000 periods primarily resulted from
interest income earned on undeployed  cash and investments  from the proceeds of
the 2.75%  zero-coupon  convertible  senior notes which were issued in May 2000,
offset  in  part  by  interest  expense  on the 4% and  2.75  yield  zero-coupon
convertible  senior  notes as well as on the 7 3/8% senior  notes.  In the first
nine-month period of fiscal 2000, we capitalized  approximately  $0.9 million of
interest  expense  related  to the  costs of  computer  software  developed  for
internal  use. We expect to utilize more of the  undeployed  cash during  fiscal
2000 in order to fund anticipated future growth.

INCOME TAXES

For the  nine-month  period of fiscal  2000,  income  taxes  increased to $158.3
million  from  $115.5  million in the  fiscal  1999  period.  The  increase  was
primarily due to increased income before income taxes. 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  those in the  United
States,  primarily  due to the tax  holiday  granted  to  Solectron's  sites  in
Malaysia.  The  Malaysian  tax holiday is  effective  through  January 31, 2002,
subject to some conditions, including certain levels of research and development
expenditures.  Solectron  has also been  granted  various tax holidays in China,
which are effective for various terms and are subject to some conditions.

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE

Statement  of  Position  (SOP)  98-5,   "Reporting  on  the  Costs  of  Start-up
Activities."  This SOP  requires  companies  to expense  all costs  incurred  in
connection with start-up activities. The Company recorded a cumulative effect of
change in accounting  principle of $3.5 million, net of $1.6 million tax benefit
in the first quarter of fiscal 2000.

LIQUIDITY AND CAPITAL RESOURCES

Net working capital was $5.7 billion at May 31, 2000 compared to $3.2 billion at
the end of fiscal 1999.  During the first nine months of fiscal 2000, cash, cash
equivalents  and  short-term  investments  increased  to $3.4  billion from $1.9
billion  which  reflects  the  proceeds of 2.75% yield  zero-coupon  convertible
senior debt issued in May 2000.

We used $297.7 million for acquisitions of additional  manufacturing assets from
Trimble in  California,  acquisition  funding of  manufacturing  assets at IBM's
Netfinity  server  operations  in  Greenock,  Scotland;  Ericsson  in France and
Sweden; and Zhone,  California;  as well as the business acquisitions of NULOGIX
in Canada and  Compaq's  embedded  and real time  product  line and  business in
Fremont,  California and Scotland, and Alcatel Puerto Rico during the first nine
months of fiscal 2000.

                                       21
<PAGE>

As we continue to grow, it is expected that we will require  greater  amounts of
working capital to support our operations.  We believe that our current level of
working capital,  together with cash generated from operations and our available
credit facilities,  will provide adequate working capital for our operations for
the  foreseeable  future.  However,  we may  need to raise  additional  funds to
finance our rapid expansion,  including  establishing new locations or financing
additional  acquisitions.  We cannot assure that such funds, if needed,  will be
available on terms acceptable to us or at all.

Inventory   levels   fluctuate   directly   with  the   volume  of   Solectron's
manufacturing. Changes or significant fluctuations in product market demands can
cause  fluctuations in inventory  levels that may result in changes of inventory
turns and  liquidity.  The  increase  in  inventory  levels at May 31, 2000 from
fiscal year end 1999 was primarily due to ramp-up  programs,  incomplete kits on
hand  awaiting  short   components,   and  purchased   inventory  through  asset
acquistions.

In the first nine months of fiscal 2000,  Solectron  invested  $323.5 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 which was retired or sold.  Expenditures  were also made for the
construction of buildings for the sites in Mexico,  Romania,  North Carolina and
Massachusetts.  We  expect  total  capital  expenditures  in  fiscal  2000 to be
approximately $450 million.

In  addition  to cash  and  cash  equivalents  of $2.6  billion  and  short-term
investments  of $0.8 billion as of May 31, 2000,  Solectron has available a $100
million unsecured  multicurrency revolving credit facility that expires in April
2002. This credit facility is subject to certain  financial  covenants.  We also
have approximately $105 million in unused foreign credit facilities of which $24
million is committed credit line.

"YEAR 2000" ISSUES

Solectron  developed a  comprehensive  program to address the issues  associated
with the programming  code in the computer  systems as the year 2000 approached.
The Year 2000  problem  was  pervasive  and  complex,  since  computer  systems,
manufacturing  equipment and industrial control systems would have been affected
in some way by the  rollover  of the two digit  year value to 00.  Systems  that
could  not  properly  recognize  such  dates  could  have  generated   erroneous
information  or caused a system to fail. The Year 2000 issue created risk for us
from  unforeseen  problems in our systems and from those of third  parties  with
whom we do business.

We  experienced  no significant  operational  or  administrative  problems as we
passed  the  transition  to the  year  2000.  While  the New Year  rollover  was
potentially  the most critical  period,  the computer  related  problems may not
surface for months from now. We will continue to diligently  monitor the systems
for any Year 2000  issues  and any other  date  related  computer  issues in the
coming  months.  Any  failure of  Solectron's  and/or  third  parties'  computer
systems, manufacturing equipment and industrial control systems could materially
harm our ability to conduct business.

The total cost for the  completion  of Year 2000 program was  approximately  $35
million. Of this amount,  approximately $10.0 million was for the replacement of
capital equipment,  approximately half of which comprises  noncompliant  systems
that would not otherwise have been replaced at that point in time. A significant
portion of these costs was not  incremental  to us, but rather  represented  the
redeployment  of  existing  resources.   Certain  other  information  technology
projects  were  delayed due to the focus on Year 2000  issues.  The total amount
spent on the program in the prior fiscal year ended  August 31, 1999,  was $27.0
million,  of which $18.0  million  principally  pertained  to payroll  costs for
personnel  involved  in the program  and costs of outside  consultants  and $9.0
million  principally  pertained to capital  expenditures.  Prior to fiscal 1999,
costs of software and hardware  applications  incurred for Year 2000  compliance
were not  tracked  separately,  but were  estimated  to be in the  range of $2.0
million to $3.0 million.

                                       22
<PAGE>

RECENT ACCOUNTING PRONOUNCEMENTS

Effective in the first quarter of fiscal 1999,  Solectron  adopted  Statement of
Financial Accounting Standards No. 130 (SFAS No. 130), "Reporting  Comprehensive
Income," which requires us to report and display certain  information related to
comprehensive  income.  Comprehensive  income  includes  net  income  and  other
comprehensive  income. Other comprehensive income is classified  separately into
foreign currency items,  minimum pension liability  adjustments,  and unrealized
gains and  losses on certain  investments  in debt and  equity  securities.  The
adoption  of SFAS No.  130 had no  impact  on  Solectron's  financial  position,
results of operations or cash flows.

Effective in the first  quarter of fiscal 1999,  Solectron  adopted the American
Institute of Certified Public  Accountants  (AICPA)  Statement of Position (SOP)
98-1,  "Accounting for the Costs of Computer Software  Developed or Obtained for
Internal  Use."  SOP 98-1  provides  guidance  on  accounting  for the  costs of
computer  software  developed or obtained  for internal use and for  determining
when specific costs should be capitalized and when they should be expensed.  The
impact  of  adopting  SOP  98-1 was not  significant  to  Solectron's  financial
position, results of operations or cash flows.

In April 1998,  the AICPA issued SOP 98-5,  "Reporting  on the Costs of Start-Up
Activities." SOP 98-5 requires that all start-up costs related to new operations
must be  expensed  as  incurred.  In  addition,  all  start-up  costs  that were
capitalized in the past must be written off when SOP 98-5 is adopted. We adopted
SOP 98-5 in the first quarter of fiscal 2000.

In June 1998,  the  Financial  Accounting  Standards  Board (FASB) issued SFAS
No. 133,  "Accounting for Derivative  Instruments and Hedging  Activities." As
amended  by SFAS  No.  137 and  138,  SFAS  No.  133  establishes  methods  of
accounting  for  derivative  financial   instruments  and  hedging  activities
related to those  instruments as well as other hedging  activities.  Solectron
anticipates  that  the  adoption  of SFAS No.  133  will  not have a  material
impact  on its  financial  position,  results  of  operations  or cash  flows.
Solectron will adopt SFAS No. 133 in its first fiscal quarter of 2001.

In December  1999, the  Securities  and Exchange  Commission  (SEC) issued Staff
Accounting   Bulletin   (SAB)  No.  101,   "Revenue   Recognition  in  Financial
Statements,"  which provides  guidance related to revenue  recognition  based on
interpretations  and  practices  followed by the SEC and was effective the first
fiscal  quarter of fiscal years  beginning  after December 15, 1999 and requires
companies to report any changes in revenue recognition as a cumulative change in
accounting principle at the time of implementation in accordance with Accounting
Principles Board opinion 20, "Accounting Changes." Subsequently, SAB No.101A and
101B  were  issued  to  delay  the  implementation  of SAB No.  101.  It will be
effective  for  Solectron  in the  Company's  fourth  quarter  of  fiscal  2001.
Solectron is currently  evaluating the impact,  if any, SAB No. 101 will have on
its financial position or results of operations.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

FOREIGN CURRENCY EXCHANGE RATES RISK

We do not use derivative  financial  instruments for speculative  purposes.  Our
policy is to hedge our foreign  currency  denominated  transactions  in a manner
that  substantially  offsets the effects of changes in foreign currency exchange
rates.  Presently,  we use foreign  currency  borrowings  and  foreign  currency
forward contracts to hedge only those currency exposures associated with certain
assets and liabilities  denominated in non functional currencies.  Corresponding
gains and losses on the underlying  transaction  generally  offset the gains and
losses on these foreign currency hedges.

As of August 31,  1999,  all of the  foreign  currency  hedging  contracts  were
scheduled  to mature in less  than  three  months  and  there  were no  material
deferred  gains or losses.  In addition,  our  international  operations in some
instances act as a natural hedge because both  operating  expenses and a portion
of sales are denominated in local currency.  In these


                                       23
<PAGE>

instances,  including our current  experience  involving the  devaluation of the
Brazilian real, 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.
Also, since less than 12% of Solectron's net sales are denominated in currencies
other  than  the  U.S.  dollar,  we do not  believe  our  total  exposure  to be
significant.

Solectron  has  currency   exposures  arising  from  both  sales  and  purchases
denominated in currencies other than the functional currency of Solectron sites.
Fluctuations  in the rate of exchange  between the  currency of the exposure and
the functional currency of the Solectron site could seriously harm our business,
operating results and financial condition.  For example, if there is an increase
in the rate at which a foreign currency is exchanged for U.S.  dollars,  it will
require more of the foreign currency to equal a specified amount of U.S. dollars
than before the rate increase.  In such cases,  and if we price our products and
services in the foreign  currency,  we will receive less in U.S. dollars than we
did before the rate  increase  went into  effect.  If we price our  products and
services in U.S. dollars and competitors price their products in local currency,
an increase in the  relative  strength of the U.S.  dollar  could  result in our
prices being  uncompetitive in markets where business is transacted in the local
currency.

INTEREST RATE RISK

The primary  objective of our  investment  activities is to preserve  principal,
while at the same time, maximize yields without  significantly  increasing risk.
To achieve this  objective,  we maintain our portfolio of cash  equivalents  and
short-term investments in a variety of securities, including both government and
corporate obligations, certificates of deposit and money market funds. As of May
31, 2000,  approximately  85% of our total  portfolio was scheduled to mature in
less than six  months.  As of August 31,  1999,  approximately  93% of our total
portfolio  was  scheduled  to  mature  in one year or less,  with the  remainder
maturing  in  less  than  two  years.  See  Note  2  of  Notes  to  Supplemental
Consolidated Financial Statements.

The following table presents the amounts of our cash  equivalents and short-term
investments that are subject to interest rate risk by year of expected  maturity
and weighted average interest rates as of August 31, 1999:

                                   2000      2001     Total   Fair Value
                                 -------   -------  --------  ----------
                                         (dollars in millions)
        Cash equivalents and     $1,326.4  $111.4   $1,437.8   $1,437.8
        short-term investments
        Average interest rates       5.25%   5.39%

We have  entered  into an interest  rate swap  transaction  under which we pay a
fixed rate of interest  hedging  against the variable  interest rates charged by
the lessor for the facility  lease at Milpitas,  California.  The interest  rate
swap expires in the year 2002,  which  coincides  with the maturity  date of the
lease term. As we intend to hold the interest rate swap until the maturity date,
we are not subject to market risk.  In fact,  such  interest rate swap has fixed
the interest rate for the facility lease, thus reducing interest rate risk.

Solectron's  long-term debt  instruments are subject to fixed interest rates. In
addition, the amount of principal to be repaid at maturity is also fixed. In the
case of the convertible  notes,  such notes are based on fixed conversion ratios
into common  stock.  Therefore,  we are not exposed to variable  interest  rates
related to our long-term debt instruments.


                                       24
<PAGE>
SUPPLEMENTAL FINANCIAL STATEMENTS AND DATA

            Unaudited Supplemental Quarterly Financial Information

For each fiscal  quarter during the first nine months ended May 31, 2000 and two
fiscal  years  ended  August 31, 1999 and August 31,  1998 (in  millions  except
percentages and per share data):

                                          First    Second    Third     Fourth
           2000                           Quarter  Quarter   Quarter   Quarter
           ----                          --------  -------   --------  --------
      Net sales                          $2,834.6  $2,921.7  $3,645.0
      Gross profit                       $  277.0  $  279.9  $  305.5
      Gross margin                            9.8%      9.6%      8.4%
      Operating income                   $  155.3  $  135.7  $  170.2
      Operating margin                        5.5%      4.6%      4.7%
      Income before cumulative effect of
        change in accounting principle   $  113.3  $   96.7  $  119.7
      Cumulative effect of change in
        accounting principle,
        net of income tax benefi         $   (3.5) $     --  $     --
                                         --------  --------  --------
      Net income                         $  109.8  $  96.7   $  119.7
                                         ========  ========  ========
      Basic net income per share: (1)
        Income before cumulative effect of
         change in accounting principle  $  0.19   $   0.16  $   0.20
        Cumulative effect of change in
          accounting principle           $ (0.01)  $     --  $     --
                                         --------  --------  --------
        Net income                       $  0.18   $   0.16  $   0.20
                                         --------  --------  --------
      Diluted net income per share: (1)
        Income before cumulative effect
         of change in accounting
         principle                       $   0.18  $   0.16   $   0.19
        Cumulative effect of change in
         accounting principle            $  (0.01) $     --   $     --
                                         --------  --------   --------
        Net income                       $   0.17  $   0.16   $   0.19
                                         ========  ========   ========
           1999
           ----
      Net sales                          $2,272.0  $2,249.3  $2,440.4  $2,707.5
      Gross profit                       $  211.7  $  216.9  $  240.8  $  266.9
      Gross margin                            9.3%      9.6%      9.9%      9.9%
      Operating income                   $  115.1  $  117.0  $  134.0  $  150.0
      Operating margin                        5.1%      5.2%      5.5%      5.5%
      Net income                         $   77.5  $   78.4  $   90.9  $  103.5
      Basic net income
        per share(1)                     $   0.15  $   0.15  $   0.16  $   0.18
      Diluted net income
       per share(1)                      $   0.14  $   0.14  $   0.16  $   0.17

           1998
           ----
      Net sales                          $1,340.9  $1,369.4  $1,465.0  $1,926.9
      Gross profit                       $  160.3  $  158.6  $  159.6  $  188.1
      Gross margin                           12.0%     11.6%     10.9%      9.8%
      Operating income                   $   90.0  $   92.4  $   83.4  $  102.8
      Operating margin                        6.7%      6.7%      5.7%      5.3%
      Net income                         $   61.7  $   63.1  $   57.8  $   68.7
      Basic net income
        per share (1)                    $   0.12  $   0.12  $   0.11  $   0.13
      Diluted net income
        per share (1)                    $   0.12  $   0.12  $   0.11  $   0.13

(1) Adjusted to reflect two-for-one stock splits through March 8, 2000.

                                       25
<PAGE>



                     SOLECTRON CORPORATION AND SUBSIDIARIES
                   SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
                     (In millions, except per share data)

                                                    As of August 31,
                                                  ------------------
                                                    1999       1998
                                                  --------  --------
         ASSETS
         Current assets:
           Cash and cash equivalents              $1,428.1  $  306.4
           Short-term investments                    453.6     183.5
           Accounts receivable, less allowances
             Of $6.4 and $4.7, respectively        1,282.5     785.5
           Inventories                             1,197.0     843.8
           Prepaid expenses and other
             current assets                          121.2     136.3
                                                  --------  --------
             Total current assets                  4,482.4   2,255.5
         Net property and equipment                  723.8     505.3
         Other assets                                214.3      82.9
                                                  --------  --------
         Total assets                             $5,420.5  $2,843.7
                                                  ========  ========

         LIABILITIES AND STOCKHOLDERS' EQUITY
         Current liabilities:
           Short-term debt                        $   46.9  $   23.8
           Accounts payable                        1,050.4     751.2
           Accrued employee compensation             103.7      83.2
           Accrued expenses                           46.6      39.6
           Other current liabilities                  72.1      79.6
                                                  --------  --------
             Total current liabilities             1,319.7     977.4
         Long-term debt                              922.7     386.8
         Other long-term liabilities                  11.2       4.1
                                                  --------  --------
             Total liabilities                     2,253.6   1,368.3
                                                  --------  --------
         Commitments
         Stockholders' equity:
           Preferred stock, $.001 par value; 1.2
             shares authorized; no shares issued        --        --
           Common stock,  $.001 par value;  800.0
             shares  authorized;  594.1 and 519.9
             shares  issued and  outstanding,
             respectively,  adjusted for stock split
             effective March 8, 2000                   0.3       0.2
           Additional paid-in capital              2,081.4     658.6
           Retained earnings                       1,173.1     824.8
           Accumulated other comprehensive losses    (87.9)     (8.2)
                                                  --------  --------
              Total stockholders' equity           3,166.9   1,475.4
                                                  --------  --------
         Total liabilities and stockholders'
           equity                                 $5,420.5  $2,843.7
                                                  ========  ========


See accompanying notes to supplemental consolidated financial statements.


                                       26
<PAGE>



                    SOLECTRON CORPORATION AND SUBSIDIARIES
                SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
                     (In millions, except per share data)

                                           Years Ended August 31,
                                        ---------------------------
                                          1999     1998      1997
                                        -------- --------  --------

         Net sales                       $9,669.2 $6,102.2 $4,408.5
         Cost of sales                    8,732.9  5,435.6  3,862.1
                                         -------- -------- --------
         Gross profit                       936.3    666.6    546.4
         Operating expenses:
           Selling, general and
            Administrative                  379.7    268.1    215.7
           Research and development          40.5     29.9     23.5
           Acquisition costs                  --       --       4.0
                                         -------- -------- --------
         Operating income                   516.1    368.6    303.2
         Interest income                     36.7     32.3     31.2
         Interest expense                   (38.3)   (25.4)   (26.9)
                                         -------- -------- --------
         Income before income taxes         514.5    375.5    307.5
         Income taxes                       164.2    124.2    103.8
                                         -------- -------- --------
         Net income                      $  350.3 $  251.3 $  203.7
                                         ======== ======== ========
         Net income per share:
           Basic                         $   0.65 $   0.49 $   0.42
           Diluted                       $   0.61 $   0.47 $   0.40
         Weighted average number of shares:
           Basic                            542.6    510.1    487.4
           Diluted                          579.0    556.6    507.8

See accompanying notes to supplemental consolidated financial statements.



                                       27
<PAGE>

                    SOLECTRON CORPORATION AND SUBSIDIARIES
         SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                  (In millions)

<TABLE>
<CAPTION>
                                                                             Accumulated
                                     Common Stock    Additional                Other            Total
                                   ---------------   Paid-In     Retained   Comprehensive    Stockholders'
                                    Shares  Amount   Capital     Earnings   Income(losses)      Equity
                                   ------- -------  -----------  ---------  --------------  -------------
     <S>                           <C>    <C>       <C>          <C>        <C>             <C>

     Balances as of August 31,1996  460.3    $0.1    $ 415.2      $ 370.7     $    1.8          $ 787.8
     Net income                        --      --         --        203.7           --            203.7
     Foreign currency translation      --      --         --           --        (12.4)           (12.4)
     Stock issued under stock
       option and employee
       purchase plans                15.1      --       42.0           --           --             42.0
     Stock issued in business
       combination                   24.8      --       24.0           --           --             24.0
     Issuance of common stock, net    2.9      --       86.9           --           --             86.9
     Repayment of shareholder
       note receivable                 --      --        0.3           --           --              0.3
     Tax benefit associated with
       exercise of stock options       --      --       17.9           --           --             17.9
                                   ------   ------   -------      --------    --------         --------
     Balances as of August 31,1997  503.1     0.1      586.3        574.4        (10.6)         1,150.2
     Net income                        --      --         --        251.3           --            251.3
     Foreign currency translation      --      --         --           --          2.4              2.4
     Stock issued under stock
       option and employee
       purchase plans                15.4     0.1       54.2           --           --             54.3
     Issuance of common stock, net    1.9      --       15.7           --           --             15.7
     Repayment of shareholder
       note receivable                0.1      --        0.1           --           --              0.1
     Cash dividends                    --      --         --         (0.9)          --             (0.9)
     Repurchase of common stock      (0.6)     --       (9.2)          --           --             (9.2)
     Tax benefit associated with
       exercise of stock options       --      --        11.5          --           --             11.5
                                   -------  ------   -------      -------     --------          --------
     Balances as of August 31,1998  519.9     0.2      658.6        824.8         (8.2)         1,475.4
     Net income                        --      --         --        350.3           --            350.3
     Foreign currency translation      --      --         --           --        (78.6)           (78.6)
     Unrealized loss on investments    --      --         --           --         (1.1)            (1.1)
     Stock issued under stock
       option and employee
       purchase plans                12.7      --       81.5           --           --             81.5
     Issuance of common stock
       dividends                       --     0.1         --         (0.1)          --               --
     Conversion of long-term
       debt, net                     27.2      --      225.3           --           --            225.3
     Issuance of common stock,
       net of issuance
       costs of $32.5                34.2      --    1,069.9           --           --          1,069.9
     Stock issued in business
       combination                    0.5      --       17.8           --           --             17.8
     Cash dividends                    --      --         --         (1.9)          --             (1.9)
     Repurchase of common stock      (0.4)     --       (7.1)          --           --             (7.1)
     Tax benefit associated with
       exercise of stock options       --      --       35.4           --           --             35.4
                                   ------  ------   --------     --------     --------         --------
     Balances as of August 31,1999  594.1    $0.3   $2,081.4     $1,173.1     $  (87.9)        $3,166.9
                                   ======  ======   ========     ========     ========         ========

</TABLE>

See accompanying notes to supplemental consolidated financial statements.


                                       28
<PAGE>



                    SOLECTRON CORPORATION AND SUBSIDIARIES
         SUPPLEMENTAL CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                  (In millions)

                                         Years Ended August 31,
                                        ------------------------
                                          1999    1998     1997
                                        -------  -------  ------
Net income                               $350.3   $251.3  $203.7
Other comprehensive income (loss):
Foreign currency translation
 adjustments, net of income tax benefit
 of $0.4 in 1999                          (78.6)    2.4   (12.4)
Unrealized loss on investments, net of
 income tax benefit of $0.6 in 1999        (1.1)     --      --
                                         ------   ------  ------
Comprehensive income                     $270.6   $253.7  $191.3
                                         ======   ======  ======

-----------

Accumulated foreign currency translation losses were $86.8 million at August 31,
1999, $8.2 million at August 31, 1998, and $10.6 million at August 31, 1997. For
fiscal year 1999, the foreign currency  translation loss primarily resulted from
the  devaluation of the Brazilian  real.  Most of Solectron's  foreign  currency
translation  adjustment  amounts  relate to  investments  which are permanent in
nature.  To the  extent  that  such  amounts  relate  to  investments  which are
permanent  in  nature,  no  adjustment  for  income  taxes is made.  Accumulated
unrealized losses on investments were $1.1 million at August 31, 1999.



See accompanying notes to supplemental consolidated financial statements.



                                       29
<PAGE>


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

                                               Years Ended August 31,
                                             --------------------------
                                               1999      1998     1997
                                             -------- --------- -------
        Cash flows from operating Activities:
          Net income                          $350.3    $251.3   $203.7
          Adjustments to reconcile net
           income to net cash provided
           by operating activities:
            Depreciation and amortization      200.4     134.6    109.9
            Non-cash interest expense           18.5       --       --
            Tax benefit associated with the
             exercise of stock options          35.4      11.5     17.9
            Gain on disposal of fixed assets    (4.6)     (2.3)     --
            Other                                5.5      (0.6)    (6.9)
            Changes in operating assets
             and liabilities:
              Accounts receivable             (505.2)   (271.2)  (110.0)
              Inventories                     (329.7)   (165.2)  (115.9)
              Prepaid expenses and other
               current assets                   16.2     (38.7)   (62.3)
              Accounts payable                 294.8     248.8    143.4
              Accrued expenses and other
               current liabilities              15.0      44.1     38.0
                                              ------    ------   ------
        Net cash provided by
          Operating activities                  96.6     212.3    217.8
                                              ------    ------   ------
        Cash flows from investing activities:
          Purchases of short-term             (598.0)   (244.9)  (310.8)
        investments
          Sales and maturities of short-term
           investments                         327.8     358.1    204.4
          Acquisition of manufacturing
           locations and assets               (164.2)   (204.0)     --
          Capital expenditures                (449.4)   (279.1)  (205.7)
          Proceeds from sales of fixed
           assets                               41.7      60.4     11.5
          Other                                (32.0)    (15.6)    16.5
                                              ------    ------   ------
        Net cash used in investing
          activities                          (874.1)   (325.1)  (284.1)
                                              ------    ------   ------

   (continued)
                                       30
<PAGE>


                    SOLECTRON CORPORATION AND SUBSIDIARIES
        SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
                                  (In millions)

                                       Years Ended August 31,
                                     ---------------------------
                                       1999      1998     1997
                                     --------  -------  --------
Cash flows from financing activities:
  Net proceeds from bank
   lines of credit                       22.1     22.8      0.8
  Net proceeds from issuance of
   long-term debt                       732.1      1.4       --
  Repayments of long-term debt           (2.7)    (2.3)    (4.7)
  Repurchase of common stock             (7.1)    (9.2)      --
  Proceeds from exercise of stock
   options                               81.5     54.3     42.0
  Net proceeds from issuance of
   common stock                       1,069.9     15.7     86.9
  Dividends paid                         (1.4)    (0.4)      --
  Other                                  (0.4)    (2.2)      --
                                      -------   ------   ------
Net cash provided by financing
  activities                          1,894.0     80.1    125.0
                                      -------   ------   ------
Effect of exchange rate changes on
  cash and cash equivalents               5.2      1.7     (3.5)
                                      -------   ------   ------
Net increase (decrease) in cash
  and cash equivalents                1,121.7    (31.0)    55.2
Cash and cash equivalents at
  beginning of year                     306.4    337.4    282.2
                                      -------   ------   ------
Cash and cash equivalents at
  end of year                        $1,428.1   $306.4   $337.4
                                     ========   ======   ======

Cash paid:
  Interest                            $  27.7   $ 25.7   $ 38.7
  Income taxes                        $ 114.5   $ 93.7   $108.6
Non cash investing and financing
 activities:
  Issuance of common stock upon
   conversion of long-term debt, net  $ 225.4   $   --   $   --
  Issuance of common stock for
   business combination, net
   of cash acquired                   $  14.7   $   --   $ 24.0

See accompanying notes to supplemental consolidated financial statements.


                                       31
<PAGE>



                    SOLECTRON CORPORATION AND SUBSIDIARIES
           NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)  Description of Operations and Principles of  Consolidation:  Solectron (the
Company) provides integrated supply chain solutions that span the entire product
life  cycle,  including  technology,  manufacturing  and  global  services.  The
Company's  primary  services  include  the  manufacturing  and  testing  of  PCB
assemblies  as well as system  level  assembly and  testing.  In  addition,  the
Company designs,  manufactures  and markets memory modules,  flash memory cards,
high performance embedded computer modules and systems and I/O product solutions
primarily to the computer,  networking,  telecommunications  and medical imaging
industries.  The Company  also  provides  materials  procurement  and  materials
management in support of its  manufacturing,  assembly and testing services.  In
addition,  the Company's services include preproduction planning such as product
design and product prototyping;  distribution;  and end-of-life product services
involving  product repair and warranty  services.  The Company has manufacturing
operations located in the Americas, Europe and Asia/Pacific.

The accompanying  supplemental  consolidated  financial  statements  include the
accounts of Solectron and its  subsidiaries  after  elimination of  intercompany
accounts and transactions.

On April 28, 2000,  Solectron completed its acquisition of AMERICOM, a privately
held corporation  which specializes in wireless handset repair and refurbishment
and  outsourced   technical   customer   support   services.   Solectron  issued
approximately  1.8  million  shares  of its  common  stock to  exchange  for all
outstanding  common  stock  and  to  extinguish   obligations  under  the  stock
appreciation rights plan of AMERICOM.  On July 14, 2000, Solectron completed the
acquisition of Bluegum which is a leading electronics  contract  manufacturer in
Australia. Solectron issued approximately 2.3 million shares of its common stock
to exchange for all outstanding common shares and stock options of Bluegum. Both
transactions were accounted for as a pooling of interests.

Accordingly,  Solectron's  historical  financial  statements  have been restated
retroactively  to include the financial  results of AMERICOM and Bluegum.  While
AMERICOM's  fiscal year was from January 1 to December 31, Bluegum's fiscal year
was from July 1 to June 31 since its inception  from February  1998.  AMERICOM's
results of  operations  for the years ended  December  31,  1999,  1998 and 1997
together with Bluegum's  results of operations for the years ended June 30, 1999
and 1998 have been combined with Solectron's results of operations for the years
ended August 31, 1999, 1998 and 1997, respectively. AMERICOM's balance sheets as
of December 31, 1999 and 1998 together with Bluegum's  balance sheets as of June
30,  1999 and 1998 have been  combined  with  Solectron's  balance  sheets as of
August 31, 1999 and 1998, respectively.  Both AMERICOM and Bluegum changed their
fiscal year ends to coincide with Solectron's beginning in fiscal 2000.

Restated financial  information includes certain adjustments for the elimination
of net sales and cost of sales  related to  shipments by Solectron to Bluegum as
well as for certain reclassifications made to AMERICOM's and Bluegum's financial
statements to conform with Solectron's financial statement  presentation.  There
were  no  adjustments  necessary  to  conform  the  accounting  policies  of the
combining companies.

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

                                       32
<PAGE>

investments  are investment  grade  short-term  debt  instruments  with original
maturities greater than three months.

Solectron accounts for its investments in debt and equity securities pursuant to
the provisions of Statement of Financial  Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."  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.  If
material,   unrealized   gains  or  losses  are   reported  as  a  component  of
comprehensive income or loss, net of related tax effect.

(c)  Inventories:  Inventories  are  stated at the lower of  weighted  average
cost or market.

(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  related  lease  terms,  using  the  straight-line  method.
Estimated useful lives are presented below.

               Machinery and equipment      2 - 5 years
               Furniture and fixtures       3 - 5 years
               Leasehold improvements       Lease term
               Buildings*                   15-20 years

* Useful lives for buildings in China,  Australia and Scotland are 30 years,  40
  years and 50 years, respectively.

(e)  Other  Assets:  Other  assets  consist  of  intangible  assets,   including
intellectual  property  rights,  goodwill and debt  issuance  costs.  Intangible
assets are amortized using the straight-line  method,  over the expected life of
the  asset - ten years for  intellectual  property  rights  and  goodwill.  Debt
issuance costs related to the zero-coupon convertible senior notes are amortized
using the  effective  interest  method over seven  years.  Debt  issuance  costs
related to the senior notes are amortized using the straight-line  method, which
does not differ  materially from the effective  interest  method,  over the debt
term of ten years.

(f) Impairment of Long-Lived  Assets:  Solectron  reviews property and equipment
for impairment  whenever  events or changes in  circumstances  indicate that the
carrying amount of an asset may not be recoverable.  Recoverability  of property
and equipment is measured by comparison  to its carrying  amount,  including the
unamortized  portion of goodwill  allocated to the property  and  equipment,  to
future net cash flows the property and  equipment  are expected to generate.  If
such assets are  considered to be impaired,  the  impairment to be recognized is
measured  by the  amount  by which  the  carrying  amount  of the  property  and
equipment,  including the allocated  goodwill,  if any,  exceeds its fair market
value.  Solectron  assesses the recoverability of  enterprise-level  goodwill by
determining  whether the unamortized  goodwill balance can be recovered  through
undiscounted  future net cash  flows of the  acquired  operation.  The amount of
enterprise-level  goodwill  impairment,  if any, is measured  based on projected
discounted  future net cash flows using a discount rate reflecting the Company's
average cost of funds.

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

(h) 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  potential  common shares  outstanding  during the period.
Potential  common shares  consist of

                                       33
<PAGE>

stock  options  that are  computed  using the  treasury  stock method and shares
issuable upon conversion of Solectron's  outstanding  convertible notes computed
using the as-if-converted method. Share and per-share data presented reflect the
two-for-one stock splits effective through March 8, 2000.

(i)  Revenue  Recognition:  Solectron  recognizes  revenue  upon  shipment  of
product to its customers.

(j) Employee  Stock Plans:  Solectron  accounts for its stock option plans and
its Employee Stock Purchase Plan using the intrinsic value method.

(k) Foreign Currency: For foreign subsidiaries using the local currency as their
functional currency,  assets and liabilities are translated at exchange rates in
effect at the  balance  sheet date and income and  expenses  are  translated  at
average  exchange  rates.  The  effects  of these  translation  adjustments  are
reported in other comprehensive  income.  Exchange gains and losses arising from
transactions denominated in a currency other than the functional currency of the
entity involved and remeasurement  adjustments for foreign  operations where the
U.S.  dollar is the  functional  currency are included in income.  To date,  the
effect of such amounts on net income has not been material.

(l) 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
items.  Gains and losses on hedges of firm commitments are deferred and included
in the basis of the transaction when it occurs.

(m) Year End:  Solectron's  financial  reporting year ends on the last Friday in
August.  Fiscal years 1999, 1998 and 1997 each contained 52 weeks.  For purposes
of presentation in the accompanying  financial  statements and notes,  Solectron
has indicated its accounting years as ending on August 31.

Solectron's  subsidiaries,  Solectron Texas,  Inc. (Texas) and Solectron Brasil,
Ltda.  (Brazil),  report  their  results  one  month  in  arrears.   Solectron's
supplemental  consolidated  financial  position  as of August 31, 1999 and 1998,
include the financial position of the Texas and Brazil operations as of July 31,
1999 and 1998.  Similarly,  Solectron's  supplemental  consolidated  results  of
operations and cash flows for the years ended August 31, 1999 and 1998,  include
the results of operations and cash flows of the Texas and Brazil  operations for
the twelve-month periods ended July 31, 1999 and 1998. Solectron's  supplemental
consolidated  results of operations and cash flows for the year ended August 31,
1997,  include the results of operations  and cash flows of the Texas  operation
for the twelve-month period ended July 31, 1997.

(n) Recent Accounting  Pronouncements:  Effective in the first quarter of fiscal
1999,  Solectron  adopted  Statement of Financial  Accounting  Standards No. 130
(SFAS No. 130), "Reporting  Comprehensive Income," which requires the Company to
report  and  display  certain  information  related  to  comprehensive   income.
Comprehensive  income includes net income and other comprehensive  income. Other
comprehensive  income is  classified  separately  into foreign  currency  items,
minimum  pension  liability  adjustments,  and  unrealized  gains and  losses on
certain investments in debt and equity securities.  The adoption of SFAS No. 130
had no impact on Solectron's  financial position,  results of operations or cash
flows.

Effective in the first  quarter of fiscal 1999,  Solectron  adopted the American
Institute of Certified Public  Accountants  (AICPA)  Statement of Position (SOP)
98-1,  "Accounting for the Costs of Computer Software  Developed or Obtained for
Internal  Use."  SOP 98-1  provides  guidance  on  accounting  for the  costs of
computer  software  developed or obtained  for internal use and for  determining
when specific costs should be capitalized and when they should be expensed.  The
impact  of  adopting  SOP  98-1 was not  significant  to  Solectron's  financial
position, results of operations or cash flows.

In April 1998,  the AICPA issued SOP 98-5,  "Reporting  on the Costs of Start-Up
Activities." SOP 98-5 requires that all start-up costs related to new operations
must be  expensed  as


                                       34
<PAGE>

incurred. In addition, all start-up costs that were capitalized in the past must
be written off when SOP 98-5 is adopted.  Solectron expects that the adoption of
SOP 98-5 will not have a material impact on its financial  position,  results of
operations or cash flows.

In June 1998,  the  Financial  Accounting  Standards  Board (FASB) issued SFAS
No. 133,  "Accounting for Derivative  Instruments and Hedging  Activities." As
amended  by SFAS  No.  137 and  138,  SFAS  No.  133  establishes  methods  of
accounting  for  derivative  financial   instruments  and  hedging  activities
related to those  instruments as well as other hedging  activities.  Solectron
anticipates  that  the  adoption  of SFAS No.  133  will  not have a  material
impact  on its  financial  position,  results  of  operations  or cash  flows.
Solectron will adopt SFAS No. 133 in its first fiscal quarter of 2001.

In December  1999, the  Securities  and Exchange  Commission  (SEC) issued Staff
Accounting   Bulletin   (SAB)  No.  101,   "Revenue   Recognition  in  Financial
Statements,"  which provides  guidance related to revenue  recognition  based on
interpretations  and  practices  followed by the SEC and was effective the first
fiscal  quarter of fiscal years  beginning  after December 15, 1999 and requires
companies to report any changes in revenue recognition as a cumulative change in
accounting principle at the time of implementation in accordance with Accounting
Principles Board opinion 20, "Accounting Changes." Subsequently, SAB No.101A and
101B  were  issued  to  delay  the  implementation  of SAB No.  101.  It will be
effective  for  Solectron  in the  Company's  fourth  quarter  of  fiscal  2001.
Solectron is currently  evaluating the impact,  if any, SAB No. 101 will have on
its financial position or results of operations.

(o)  Reclassifications:  Certain prior year amounts have been  reclassified to
conform to the 1999 presentation.


                                       35
<PAGE>


NOTE 2. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

Cash,  cash  equivalents  and short-term  investments as of August 31, 1999, and
1998, consisted of the following:

                                           Cash and
                                             Cash       Short-Term
                                          Equivalents   Investments
                                          -----------   -----------
                                             (in millions)
              1999
              ----------------------------
              Cash                          $  229.6        $   --
              Money market funds               119.7           0.7
              Certificates of deposit           55.1          38.8
              Market auction securities         33.5          39.1
              U.S. government securities       603.9         274.4
              Corporate obligations            313.9         100.6
              Other                             72.4           --
                                            -------         ------
                Total                       $1,428.1        $453.6
                                            ========        ======

              1998
              ----------------------------
              Cash                           $ 138.6       $    --
              Money market funds                74.2            --
              Certificates of deposit            0.1          11.4
              Market auction securities         10.7          28.8
              U.S. government securities        52.0         118.2
              Corporate obligations              6.0          17.5
              Municipal obligations              5.4            --
              Other                             19.4           7.6
                                             -------        ------
                Total                        $ 306.4        $183.5
                                             =======        ======

Short-term  investments  are carried at fair market  value,  which  approximates
cost.  As of August 31,  1999 and 1998,  unrealized  gains and  losses  were not
significant.  Realized  gains and losses for the fiscal  years ended  August 31,
1999 and 1998 were not significant.  As of August 31, 1999, approximately 93% of
Solectron's  short-term  investments  mature  in one  year  or  less,  with  the
remainder maturing in less than two years.

NOTE 3. INVENTORIES

Inventories as of August 31, 1999 and 1998, consisted of:

                                           1999      1998
                                         --------   ------
                                           (in millions)
          Raw materials                  $  862.9   $617.3
          Work-in-process                   237.6    175.6
          Finished goods                     96.5     50.9
                                         --------   ------
            Total                        $1,197.0   $843.8
                                         ========   ======


                                       36
<PAGE>


NOTE 4. PROPERTY AND EQUIPMENT

Property and equipment as of August 31, 1999 and 1998, consisted of:

                                               1999    1998
                                             -------  ------
                                              (in millions)
              Land                            $ 24.8  $ 23.6
              Buildings and improvements       142.8    99.4
              Leasehold improvements            61.8    46.7
              Factory equipment                749.9   575.4
              Computer equipment and
               software                        168.9    92.1
              Furniture, fixtures and other     48.9    38.9
              Construction-in-progress          94.0    59.3
                                              ------  ------
                                             1,291.1   935.4
              Less accumulated depreciation
               and amortization                567.3   430.1
                                              ------  ------
              Net property and equipment      $723.8  $505.3
                                              ======  ======

NOTE 5. LINES OF CREDIT

Solectron has available a $100 million unsecured multicurrency revolving line of
credit that expires April 30, 2002.  Borrowings  under the credit  facility bear
interest,  at  Solectron's  option,  at either the bank's prime rate, the London
interbank  offering  rate (LIBOR) plus a margin,  or the bank's  certificate  of
deposit  (CD) rate plus a margin.  The margin under the LIBOR or CD rate options
will vary depending on Solectron's  Standard & Poor's Corporation and/or Moody's
Investor  Services,  Inc. rating for its long-term  senior  unsecured debt. This
margin was 0.4% at August 31, 1999. Under the credit agreement, the Company must
meet certain financial covenants.  As of August 31, 1999 and 1998, there were no
borrowings outstanding under this line of credit.

In May 1999,  Solectron  entered  into a new  unsecured  revolving  bank line of
credit agreement that expired in May 2000.  Borrowings under this agreement were
limited to $30 million and bear  interest at either one percent below the bank's
prime rate or a 1% spread over LIBOR,  at  Solectron's  option.  The Company was
required to  maintain  specified  levels of  tangible  net worth and comply with
certain other covenants  related to this line of credit.  As of August 31, 1999,
no borrowings were outstanding under this agreement.

Additionally, AMERICOM had a bank line of credit of $12 million as of its fiscal
year ended December 31, 1999.  Borrowings against this line of credit, which was
terminated  in May 2000,  were $8.0  million  with an interest  rate of 8.5% per
annum.

Solectron also had  approximately  $127 million in uncommitted  foreign lines of
credit and other bank facilities as of August 31, 1999.  Borrowings were payable
on demand.  The interest  rates ranged from the bank's prime lending rate to the
bank's prime rate plus 2.0%. As of August 31, 1999,  borrowings  and  guaranteed
amounts   under  these  lines  of  credit   were  $41   million,   which  had  a
weighted-average  interest  rate of 5.1% per  annum.  In  addition,  Solectron's
Australian site, Bluegum,  had approximately $42.5 million in committed lines of
credit with its local banks, which were terminated in July 2000. As of Bluegum's
fiscal  year ended June 30,  1999,  borrowings  under these lines of credit were
$15.6 million and had a  weighted-average  interest rate of 6.95% per annum, and
it had a non-interest bearing short-term note balance of $1.8 million to be paid
off in two six-month  installments  by June 30, 2000 to IBM  resulting  from its
acquisition of IBM's manufacturing facility in Wangaratta, Australia in February
1998.

Solectron  had an asset  securitization  arrangement  with a bank under which it
might sell up to $220  million of eligible  accounts  receivable.  There were no
borrowings  outstanding  under  this  arrangement  as of August  31,  1999.  The
securitization  arrangement, at Solectron's discretion, was not renewed upon its
expiration in September 1999.


                                       37
<PAGE>


NOTE 6. LONG-TERM DEBT

Long-term debt at August 31, 1999 and 1998, consisted of (in millions):

                                                     1999     1998
                                                   -------  --------
           Zero coupon convertible senior notes
             due 2019, face value $1,656.0,
             fair value of $1,029.9 in 1999         $767.6       --
           6% subordinated notes due 2006, face
             value $230.0, fair value of $333.5
             in 1998 converted into 27.2 shares
             of common stock                            --   $230.0
           7 3/8% senior notes due 2006, face value
             $150.0, fair value of $143.8 in 1999
             and $157.7 in 1998                      149.8    149.8
           Other, fair value of $5.3 in 1999 and
             $7.0 in 1998                              5.3      7.0
                                                    ------   ------
            Total long-term debt                    $922.7   $386.8
                                                    ======   ======

In January 1999, Solectron issued 1,656,000 zero coupon convertible senior notes
to qualified institutional investors in a private placement at an issue price of
$452.89 per note which resulted in gross proceeds of approximately $750 million.
These notes are unsecured and unsubordinated  indebtedness with a maturity value
aggregating $1.656 billion. There will be no interest payment prior to maturity.
Each note has a yield of 4% with a maturity value of $1,000 on January 27, 2019.
Solectron is amortizing the issue discount using the effective  interest  method
over the term of the notes.  Each note is  convertible at any time by the holder
at a conversion  rate of 14.944  shares per note,  adjusted for the  two-for-one
stock splits effective  through March 8, 2000.  Holders may require Solectron to
purchase  all or a portion of their notes on January 27,  2002,  and January 27,
2009,  at a price of $510.03  and  $672.97 per note,  respectively.  Also,  each
holder may require  Solectron to  repurchase  all or a portion of such  holder's
notes upon a change in control of Solectron  occurring on or before  January 27,
2002. Solectron,  at its option, may redeem all or a portion of the notes at any
time on or after  January  27,  2003.  In  addition,  Solectron  filed  with the
Securities Exchange Commission a registration statement for resales of the notes
and the common stock issuable upon conversion.  Such registration  statement was
declared effective in June 1999.

In  February  1996,  Solectron  issued  convertible  subordinated  notes  for an
aggregate  principal amount of $230 million.  The notes were in denominations of
and had a maturity value of $1,000 each, payable on March 1, 2006.  Interest was
payable  semiannually at 6%. Each note was convertible at any time by the holder
into  shares  of  common  stock at a  conversion  price of  $33.80  per share as
adjusted for the two-for-one  stock splits through March 8, 2000. The notes were
redeemable  at the  option  of  Solectron  beginning  on March 3,  1999.  During
February  and  March  1999,  all  of the  convertible  subordinated  notes  were
voluntarily converted into shares of common stock.

In March 1996,  Solectron  issued $150  million  aggregate  principal  amount of
senior notes.  These notes are in  denominations of and have a maturity value of
$1,000 each and are due on March 1, 2006. Interest is payable  semiannually at a
rate of 7 3/8% per annum. The notes may not be redeemed prior to maturity.

NOTE 7. FINANCIAL INSTRUMENTS

Fair Value of Financial Instruments

The fair value of Solectron'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 Solectron's  short term  investments
(see Note 2) is  determined  based on quoted  market  prices.  The fair value of
Solectron's  long-term  debt (see Note 6) is determined  based on broker trading
prices.


                                       38
<PAGE>

Derivatives

Solectron  enters into  forward  exchange  contracts to hedge  foreign  currency
exposures  on a  continuing  basis for  periods  consistent  with its  committed
exposures.  These  transactions  generally  do not expose  Solectron  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
counterparties  to these contracts  expose Solectron to credit related losses in
the event of nonperformance.  However, the counterparties to these contracts are
substantial  and  creditworthy  multinational  commercial  banks.  The  risk  of
counterparty  nonperformance  associated with these  contracts is remote.  Since
these contracts generally have maturities of less than three months, the amounts
of unrealized gains and losses are immaterial. Foreign currency forward exchange
contracts  outstanding  totaled $66.0 million at the end of fiscal year 1999 and
$31.3 million at the end of fiscal year 1998. These contracts were originated by
Solectron's  international  subsidiaries  primarily for the purchase and sale of
European currencies, U.S. dollar, Malaysian ringgit and Japanese yen to mitigate
foreign currency exposures.

Business and Credit Concentrations

Financial  instruments that potentially  subject  Solectron to concentrations of
credit risk consist of cash, cash equivalents,  short-term investments and trade
accounts   receivable.   Solectron's   cash,  cash  equivalents  and  short-term
investments are managed by recognized  financial  institutions  which follow the
Company's  investment policy. Such investment policy limits the amount of credit
exposure in any one issue and the  maturity  date of the  investment  securities
that  typically   comprise   investment  grade   short-term  debt   instruments.
Concentrations  of credit risk in accounts  receivable  resulting  from sales to
major customers are discussed in Note 13.  Solectron  generally does not require
collateral for sales on credit. The Company also closely monitors  extensions of
credit and has not experienced significant credit losses in the past.

NOTE 8. COMMITMENTS AND CONTINGENCIES

Solectron  leases various  facilities  under  operating  lease  agreements.  The
facility  leases  outstanding  as of August 31,  1999  expire at  various  dates
through 2008. All such leases require Solectron to pay property taxes, insurance
and normal maintenance costs.  Payments of some leases are periodically adjusted
based on LIBOR  rates.  Certain  leases for  Solectron's  facilities,  including
Milpitas and San Jose, California;  Everett,  Washington;  Suwanee, Georgia; and
Columbia,  South  Carolina,  provide  Solectron with an option at the end of the
lease term of either  acquiring  the property at its original  cost or arranging
for the property to be acquired.  For these  leases,  Solectron is  contingently
liable  under a first loss  clause for a decline in market  value of such leased
facilities up to 85% of the original  costs,  or  approximately  $129 million in
total as of August  31,  1999,  in the event  Solectron  does not  purchase  the
properties or reach an agreement  with the lessor to extend the lease at the end
of the  respective  lease terms.  Under such  agreements,  the Company must also
maintain  compliance with financial  covenants similar to its credit facilities.
During September 1999, Solectron entered into another similar facility lease for
Milpitas,  California,  under which the Company is contingently  liable up to an
additional amount of approximately $21 million for a decline in market value.

In  addition,   Solectron  periodically  enters  into  lease  arrangements  with
third-party  leasing companies under which it sells fixed assets and leases them
back from the leasing  companies.  Solectron is  accounting  for these leases as
operating leases.

Future minimum payments related to lease obligations, including the $129 million
contingent  liability discussed above, are $73.2 million,  $58.5 million,  $93.5
million,  $59.6  million and $69.4 million in each of the years in the five-year
period ending August 31, 2004,  and an aggregate  $5.0 million for periods after
that date.  Rent expense was $89.3 million,  $35.9 million and $24.6 million for
the years ended August 31, 1999, 1998 and 1997, respectively.

                                       39
<PAGE>

SMART  Modular  Technologies,  Inc.  (SMART),  a wholly  owned  subsidiary  of
Solectron  Corporation,  and certain of SMART's  ex-officers and  ex-directors
have been named as defendants in six  securities  class action  lawsuits filed
in the United States  District Court for the Northern  District of California,
Boren v. SMART  Modular  Technologies,  Inc.,  et al., No. C 98 20692 JW (PVT)
(filed July 1, 1998),  Woszczak v. SMART Modular  Technologies,  Inc., et al.,
No. C 98 2617 JL (filed July 2, 1998),  Bisson v. SMART Modular  Technologies,
Inc.,  et al.,  No. C 98 20714 JF  (filed  July 8,  1998),  D'Amato  v.  SMART
Modular  Technologies,  Inc., et al., No. C 98 2804 PJH (filed July 16, 1998),
Cha v.  SMART  Modular  Technologies,  Inc.,  et al.,  No. C 98 2833 BZ (filed
July 17, 1998) and Chang v. SMART  Modular  Technologies,  Inc., et al., No. C
98 3151 SI (filed  August 13, 1998)  (collectively,  the  "Federal  Actions").
The  plaintiffs in the Federal  Actions allege that  defendants  made material
misrepresentations  and omissions  during the period from July 1, 1997 through
May 21, 1998 in violation of Section 10(b) of the  Securities  Exchange Act of
1934  and  Rule  10b-5  promulgated  thereunder.   The  Federal  Actions  were
consolidated  on October 9, 1998,  and a  consolidated  complaint was filed on
November 30, 1998 (the "Federal  Complaint").  On November 2, 1999, defendants
filed a motion to dismiss the Federal Complaint. This motion is pending.

On October 22,  1998, a putative  securities  class  action  lawsuit,  captioned
Reagan v. SMART Modular  Technologies,  Inc., et al.,  Case No.  H204162-5  (the
"State  Complaint"),  was filed  against  SMART and certain of  ex-officers  and
ex-directors  in the  Superior  Court of the  State  of  California,  County  of
Alameda.  The State Complaint alleges  violations of Sections 25400 and 25500 of
the California  Corporations Code and seeks  unspecified  damages on behalf of a
purported  class of purchasers of SMART common stock during the period from July
1, 1997 through May 21, 1998. The factual allegations of the State Complaint are
nearly  identical  to the  factual  allegations  contained  within  the  Federal
Complaint.  On February 22, 1999, the Superior  Court granted  SMART's motion to
stay the state action pending resolution of the federal action.

While the  Company  believes  that all claims  related to the state and  federal
securities  actions are without  merit and intends to defend  itself  vigorously
against these actions,  it is possible that an  unfavorable  outcome may result.
The Company is unable to estimate the financial  impact, if any, of these cases.
Accordingly,  no  amounts  have been  accrued in the  accompanying  supplemental
consolidated financial statements.

NOTE 9. RETIREMENT PLANS

Solectron has various  retirement  plans that cover a significant  number of its
associates.  The major  plans are  defined  contribution  plans,  which  provide
retirement  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
retirement benefits the participant is to receive.  Contributions to these plans
are based on varying percentages of each participant's base salary.  Solectron's
expense for the defined  contribution plans totaled $11.3 million,  $5.0 million
and $3.2 million in 1999, 1998 and 1997, respectively.


                                       40
<PAGE>

NOTE 10. INCOME TAXES

The components of income taxes for the fiscal years ended August 31, 1999,  1998
and 1997, were as follows (in millions):

                                          1999   1998    1997
                                         ------ ------  ------
                Current:
                  Federal                $ 81.6 $ 90.1  $ 75.7
                  State                    15.2   16.4    14.4
                  Foreign                  29.7   19.9     7.5
                                         ------ ------  ------
                                          126.5  126.4    97.6
                                         ------ ------  ------
                Deferred:
                  Federal                  (3.1)  (7.9)  (10.3)
                  State                     1.4   (1.8)   (1.4)
                  Foreign                   4.0   (4.0)    --
                                         ------ ------  -----
                                            2.3  (13.7)  (11.7)
                                         ------ ------  ------
                Charge in lieu of taxes
                  attributable to
                  employee stock plans     35.4   11.5    17.9
                                         ------ ------  ------
                      Total              $164.2 $124.2  $103.8
                                         ====== ======  ======

The overall  effective  income tax rate  (expressed as a percentage of financial
statement income before income taxes) varied from the U.S.  statutory income tax
rate for the fiscal years ended August 31, 1999, 1998 and 1997, as follows:

                                              1999    1998   1997
                                             -----   -----  -----
            Federal tax rate                 35.0%   35.0%  35.0%
            State income tax, net of
             federal tax benefit              2.9     3.2    3.1
            Income of international
             subsidiaries taxed at
             different rates                  0.1    (1.0)  (0.9)
            Tax holiday                      (5.9)   (5.6)  (3.0)
            Tax credits                      (0.1)   (0.1)  (0.4)
            Tax exempt interest income       (0.3)   (0.4)  (0.2)
            FSC benefit                      (0.1)   (0.1)  (0.1)
            Other                             0.3     2.1    0.3
                                             ----    ----   ----
            Effective income tax rate        31.9%   33.1%  33.8%
                                             ====    ====   ====

The tax effects of temporary  differences that gave rise to significant portions
of deferred tax assets and  liabilities as of August 31, 1999 and 1998,  were as
follows (in millions):

                                                  1999   1998
                                                 -----  -----
            Deferred tax assets:
             Accruals, allowances and reserves   $19.3  $22.4
             State income tax                      5.4    7.1
             Acquired intangible assets            3.3    1.9
             Net undistributed profits of
              Subsidiaries                         2.8    2.2
             Plant and equipment                   4.0    5.8
             Net operating loss carryover          8.0    0.6
             Other                                 5.2    3.7
                                                 -----  -----
            Total deferred tax assets             48.0   43.7
                                                 -----  -----
            Deferred tax liabilities:
             Depreciation                         (3.3)  (0.5)
             Other                                (2.7)  (0.3)
                                                 -----  -----
            Total deferred tax liabilities        (6.0)  (0.8)
                                                 -----  -----
            Net deferred tax assets              $42.0  $42.9
                                                 =====  =====

Based on Solectron'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.  Accordingly,  Solectron  has not  established  any  valuation
allowance.

                                       41
<PAGE>

Worldwide income before income taxes for the fiscal years ended August 31, 1999,
1998 and 1997, consisted of the following (in millions):


                                        1999   1998   1997
                                       ------ ------ ------
                      U.S.             $349.7 $279.2 $263.1
                      Non-U.S.          164.8   96.3   44.4
                                       ------ ------ ------
                         Total         $514.5 $375.5 $307.5
                                       ====== ====== ======

Cumulative undistributed earnings of the international  subsidiaries amounted to
$374.6 million as of August 31, 1999, of which  approximately  $351.7 million is
intended to be permanently  reinvested.  The amount of income tax liability that
would result had such earnings been repatriated is estimated to be approximately
$82.2 million.

Solectron  has been  granted a tax  holiday  for its  Malaysian  sites  which is
effective through January 31, 2002, subject to certain conditions. Solectron has
also been granted various tax holidays in China, which are effective for various
terms and are subject to certain conditions.

NOTE 11. STOCKHOLDERS' EQUITY

Issuance of Common Stock

In August 1999,  Solectron sold, through an underwritten  public offering,  34.1
million  shares of common stock which  generated  net proceeds of  approximately
$1.1 billion.

Stock Repurchase

During fiscal 1999, SMART repurchased approximately 454,000 shares of its common
stock in the open market at an average  purchase price of $15.75 per share and a
total cost of approximately $7.1 million.  During fiscal 1998, SMART repurchased
approximately  632,000  shares  of its  common  stock in the open  market  at an
average  purchase  price of $14.50 per share and a total  cost of  approximately
$9.2 million.  As of August 31, 1999,  all shares  repurchased by SMART had been
reissued  pursuant  to the  exercise  of stock  options  previously  granted  to
employees from its various stock plans.

Stock Split

Effective February 24, 1999 and March 8, 2000,  Solectron completed  two-for-one
stock splits effected as stock dividends.  All references to share and per share
data have been retroactively adjusted to reflect the stock splits.


                                       42
<PAGE>

Pro Forma Fair Value Disclosures

Solectron  accounts for its employee  stock plans,  which consist of fixed stock
option plans and an Employee  Stock  Purchase  Plan,  using the intrinsic  value
method under APB No. 25. No compensation expense related to these plans has been
recognized in the Company's financial  statements.  The table below sets out the
pro forma  amounts  of net  income  and net  income  per share  that  would have
resulted for the fiscal years ended August 31, 1999, 1998 and 1997, if Solectron
accounted  for its  employee  stock  plans  under  the  fair  value  recognition
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation."

                                          1999    1998    1997
                                        ------- ------- -------
                                  (in millions, except per share data)
              Net income:
                           As reported   $350.3  $251.3  $203.7
                           Pro forma     $314.3  $222.0  $189.3

              Net income per share:
              Basic        As reported   $ 0.65  $ 0.49  $ 0.42
                           Pro forma     $ 0.58  $ 0.43  $ 0.39
              Diluted      As reported   $ 0.61  $ 0.47  $ 0.40
                           Pro forma     $ 0.55  $ 0.42  $ 0.37

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

                                   1999          1998            1997
                               -----------  ------------   ----------
        Expected life of
         options               3 to 5 years  3 to 5 years  4.3 to 5 years
        Expected life of
         purchase rights         3 months      3 months       3 months
        Volatility              48% to 80%    44% to 80%     40% to 78%
        Risk-free interest
         rate                  4.5% to 5.8%  5.1% to 5.9%   5.2% to 6.5%
        Dividend yield             zero          zero           zero

Options vest over several years and new option  grants are  generally  made each
year.  In  addition,  the pro forma  disclosures  required  by SFAS No.  123 are
effective for options granted after the Company's fiscal year 1995. Accordingly,
the pro forma  amounts  shown above may not be  representative  of the pro forma
effect on reported net income in future years.

Stock Option Plans

Solectron's  stock option plans  provide for grants of options to  associates 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.  In connection  with the
acquisition of Force  Computers,  Inc. in November 1996,  Solectron  assumed all
options  outstanding  under the Force option plan.  Options under the Force plan
generally  vest over a four-year  period  beginning on the grant date and have a
ten-year term. No further options may be granted under the Force plan.

In connection with the merger with SMART Modular Technologies,  Inc. in November
1999,  Solectron  assumed all options  outstanding  under the SMART  plans.  The
options vest over a three to five year period  beginning  generally on the grant
date. The term of the options is five years for 10%  shareholders  (participants
who own stock  possessing  more than 10% of the voting  power of all  classes of
SMART's  outstanding  capital  stock)  and ten years for all other  options.  In
October 1995,  the Board of Directors  suspended the issuance of further  grants
under the 1989 Stock Plan.  No further  options  may be granted  under the SMART
plans.

                                       43
<PAGE>

In connection with the merger with Bluegum in July 2000,  Solectron  assumed all
options  outstanding  under the Bluegum plan. The options vested  immediately on
the date of grant and the term of the options is five years.  No further options
may be granted under the Bluegum plan.

A summary of stock  option  activity  under the plans for the fiscal years ended
August 31, 1999, 1998 and 1997, follows (in millions, except per share data):

                                    1999            1998              1997
                              ---------------  ----------------  ---------------
                                     Weighted          Weighted         Weighted
                              Number Average   Number  Average   Number Average
                              of    Exercise   of      Exercise  of     Exercise
                              Shares Price     Shares  Price     Shares Price
      Outstanding,
       beginning of year       45.5   $ 7.37   47.1    $ 4.71    44.6   $ 3.48
      Granted                  15.6   $18.04   15.5    $11.82    14.9   $ 7.32
      Assumed from
       Force plan                --       --     --        --     3.4   $ 0.55
      Exercised               (11.5)  $ 5.69  (14.2)   $ 3.19   (13.8)  $ 2.43
      Canceled                 (3.7)  $ 8.39   (2.9)   $ 8.50    (2.0)  $ 5.50
                              -----           -----             -----
      Outstanding,
       end of year             45.9   $11.29   45.5    $ 7.37    47.1   $ 4.71
                               ====            ====             =====
      Exercisable
       at year-end             22.0   $ 7.61   12.3    $ 9.62    10.7   $11.31
                               ====            ====              ====
      Weighted-average
       fair value of
       options granted
       during the year                 $7.07           $ 4.40           $ 2.98


Information  regarding  the stock  options  outstanding  at August 31, 1999,  is
summarized in the table below (in millions, except number of years and per share
data).

                                    Outstanding              Exercisable
                         -------------------------------  -----------------
                                  Weighted
                                  Average      Weighted            Weighted
            Range of     Number   Remaining    Average    Number   Average
            Exercise     of       Contractual  Exercise   of       Exercise
            Prices       Shares   Life         Price      Shares   Price
         -------------   ------   -----------  ---------  ------   --------

         $ 0.33-$ 1.50*     0.7   5.09 years    $  0.84    0.6     $  0.78
         $ 1.51-$ 3.26      0.1   0.40 years    $  1.97    0.1     $  1.97
         $ 3.27-$ 4.75      7.7   2.57 years    $  4.21    7.5     $  4.20
         $ 4.76-$ 6.00      7.0   3.41 years    $  5.78    5.0     $  5.76
         $ 6.01-$11.00     10.0   4.90 years    $  9.27    4.9     $  8.99
         $11.01-$13.50     10.4   6.28 years    $ 12.85    2.3     $ 12.77
         $13.51-$16.50      1.1   8.50 years    $ 15.86    0.2     $ 16.08
         $16.51-$26.50      8.1   7.47 years    $ 21.20    1.4     $ 20.73
         $26.51-$36.50      0.8   7.21 years    $ 35.76     --     $ 36.09
                           ----                           ----
         $ 0.33-$36.50     45.9   5.14 years    $ 11.29   22.0     $  7.61
                           ====                           ====

*Options  in this range of exercise  prices  represent  the  options  assumed in
connection with the acquisition of Force and Bluegum.

A total of 32.0  million  shares of common  stock  remain  reserved for issuance
under the plans as of August 31, 1999.

On December 1, of each year,  each  independent  member of Solectron's  Board of
Directors  is granted an option to purchase  6,000 shares of common stock at the
fair market value on such date. These options vest over one year and have a term
of five years.


                                       44
<PAGE>

Employee Stock Purchase Plan

Under Solectron's Employee Stock Purchase Plans (the Purchase Plans), associates
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 Plans permit eligible  associates to purchase common stock
through payroll deductions for up to 15% of qualified compensation. As of August
31, 1999,  3.7 million  shares remain  available for issuance under the Purchase
Plans.

The weighted  average fair value of the purchase  rights granted by Solectron in
fiscal  1999,  1998 and 1997 was  $9.67,  $4.99  and  $2.96,  respectively.  The
weighted-average  fair value of the purchase  rights  granted by SMART in fiscal
1999, 1998 and 1997 was $5.69, $5.86 and $3.41, respectively.

NOTE 12. SEGMENT AND GEOGRAPHIC INFORMATION

Solectron  provides  integrated  supply  chain  solutions  that span the  entire
product  life cycle,  including  technology,  manufacturing  and  services.  The
Company has 45 manufacturing facilities in the Americas, Europe and Asia/Pacific
to serve these similar customers.  Solectron is operated and managed by industry
segment, as well as geographically.  Each industry segment has its own president
and support staff.  Solectron's management uses an internal management reporting
system,  which provides  important  financial data, to evaluate  performance and
allocate  Solectron's  resources on an industry  segment and  geographic  basis.
Intersegment  adjustments are related  primarily to intersegment  sales that are
generally recorded at prices that approximate arm's length transactions. Certain
corporate  expenses are allocated to these  operating  segments and are included
for performance  evaluation.  Some  amortization  expenses are also allocated to
these operating  segments,  but the related intangible assets are not allocated.
The accounting  policies for the segments are the same as for Solectron taken as
a whole.  Solectron has three reportable  operating segments:  manufacturing and
operations,  global  services and technology  solutions.  Information  about the
operating  segments for the fiscal  years ended August 31, 1999,  1998 and 1997,
was as follows:



                                       45
<PAGE>



                                          1999       1998       1997
                                       --------   --------    -------
                                                 (in millions)
        Net sales:
        Manufacturing and operations   $8,495.6   $5,240.2    $3,594.5
        Technology solutions            1,137.5      830.4       794.8
        Global services                   103.9       65.4        47.5
        Intersegment adjustments          (67.8)     (33.8)      (28.3)
                                       --------   --------    --------
                                       $9,669.2   $6,102.2    $4,408.5
                                       ========   ========    ========
        Depreciation and amortization:
        Manufacturing and operations   $  167.8   $  110.2    $   96.0
        Technology solutions               21.5       16.7         9.3
        Global services                     2.2        1.5         1.2
        Corporate                           8.9        6.2         3.4
                                       --------   --------    --------
                                       $  200.4   $  134.6    $  109.9
                                       ========   ========    ========
        Interest income:
        Manufacturing and operations   $    8.0   $    7.1    $    3.4
        Technology solutions                7.2        8.3         2.7
        Global services                      --         --          --
        Corporate                          21.4       17.7        24.9
        Intersegment adjustments            0.1       (0.8)        0.2
                                       --------   --------    --------
                                       $   36.7   $   32.3    $   31.2
                                       ========   ========    ========
        Interest expense:
        Manufacturing and operations   $    3.4   $    1.9    $    0.1
        Technology solutions                0.7        0.5         0.3
        Global services                      --         --          --
        Corporate                          34.5       23.7        26.7
        Intersegment adjustments           (0.3)      (0.7)       (0.2)
                                       --------   --------    --------
                                       $   38.3   $   25.4    $   26.9
                                       ========   ========    ========
        Pre-tax income:
        Manufacturing and operations   $  484.0   $  302.8    $  235.5
        Technology solutions               82.6       81.4        79.5
        Global services                     9.6        5.5         3.5
        Corporate                         (61.7)     (14.2)      (11.0)
                                       --------   --------    --------
                                       $  514.5   $  375.5    $  307.5
                                       ========   ========    ========
        Capital expenditures:
        Manufacturing and operations   $  392.0   $  225.7    $  174.1
        Technology solutions               24.1       40.1        24.2
        Global services                     3.8        2.7         0.5
        Corporate                          29.5       10.6         6.9
                                       --------   --------    --------
                                       $  449.4   $  279.1    $  205.7
                                       ========   ========    ========
        Total Assets:
        Manufacturing and operations   $3,344.7   $2,298.0    $1,454.4
        Technology solutions              556.7      430.0       386.2
        Global services                    64.8       19.3        12.0
        Corporate                       2,717.0      942.4       886.9
        Intersegment adjustments       (1,262.7)    (846.0)     (529.6)
                                       --------   --------    --------
                                       $5,420.5   $2,843.7    $2,209.9
                                       ========   ========    ========


                                       46
<PAGE>
The following  enterprise  wide  information is provided in accordance with SFAS
No. 131.  Geographic  net sales  information  reflects  the  destination  of the
product shipped. Long-lived assets information is based on the physical location
of the asset. No country, other than the United States,  accounted for more than
10% of total sales or total assets in the periods presented.  For major customer
information,  the Company's  operating segments  contributed various percentages
aggregating  up to 10% or more of  consolidated  net  sales  for such  customers
identified in Note 13.

                                         1999      1998      1997
                                      --------  --------   --------
                                               (in millions)
      Net sales derived from:
           PCB assembly               $6,502.0  $4,167.9   $3,224.9
           Systems build               2,058.6   1,128.6      393.9
           Technology solutions
             products                  1,108.6     805.7      789.7
                                      --------  --------   --------

                                      $9,669.2  $6,102.2   $4,408.5
                                      ========  ========   ========
      Geographic net sales:
           United States              $6,514.3  $4,380.1   $3,497.6
           Europe                      1,959.4   1,271.8      679.2
           Asia/Pacific and other      1,230.0     469.8      251.0
           Intersegment adjustments      (34.5)    (19.5)     (19.3)
                                      --------  --------   --------
                                      $9,669.2  $6,102.2   $4,408.5
                                      ========  ========   ========
      Long-lived assets:
           United States              $  523.2  $  304.0   $  229.2
           Europe                        100.1      95.7       65.5
           Asia/Pacific and other        314.8     188.5      108.5
                                      --------  --------   --------
                                      $  938.1  $  588.2   $  403.2
                                      ========  ========   ========

NOTE 13. MAJOR CUSTOMERS

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

                                                1999   1998  1997
                                                ----   ----  ----
             Compaq Computer Corp. (Compaq)     12%     *     *
             Cisco Systems, Inc. (Cisco)        11%    10%    *
             Hewlett-Packard Company (HP)        *     11%   11%

-----------

* net sales less than 10%

Solectron  has  concentrations  of  credit  risk due to sales to these and other
Solectron's   significant   customers.   In  particular,   Compaq  accounts  for
approximately   12%  of  total   accounts   receivable,   and  HP  accounts  for
approximately  9%  of  total  accounts   receivable  at  August  31,  1999.  The
concentration of credit risk is intensified  because the majority of Solectron's
customers are in the same industry.  The Company considers its concentrations of
credit risk in  establishing  the reserves  for bad debt and believes  that such
reserves are adequate.

NOTE 14. PURCHASE OF ASSETS

In October 1998, Solectron acquired the wireless telephone manufacturing assets,
primarily  inventory  and  fixed  assets,  of  Mitsubishi  Consumer  Electronics
America,  Inc.'s (MCEA) Cellular  Mobile  Telephone (CMT) division in Braselton,
Georgia. MCEA was a subsidiary of Mitsubishi Electric Corporation  (Mitsubishi).
The  acquisition  was  accounted  for as a purchase of assets,  and the purchase
price of approximately $25 million was allocated to the assets acquired based on
their  relative fair values at the date of  acquisition.  Under the terms of the
agreement,  the Company will provide MCEA-CMT with a full range of manufacturing
services for five years, including NPI management, PCB assembly and full systems
assembly for MCEA's branded and  private-label  cellular  products sold in North
America.

In February 1999,  Solectron  acquired IBM's  Electronic  Card Assembly and Test
(ECAT)   manufacturing   assets,   primarily   inventory,   in  Austin,   Texas.
Additionally,  Solectron
                                       47

<PAGE>

acquired the non-exclusive  rights to use certain IBM intellectual  property for
approximately $53 million. The total purchase price for the manufacturing assets
and  intellectual  property  rights was  approximately  $83 million,  subject to
adjustment.  The transaction was accounted for as a purchase of assets,  and the
purchase  price was allocated to the assets  acquired based on the relative fair
values  of the  assets  at the  date of  acquisition.  Under  the  terms  of the
agreements,  Solectron  will  provide  assembly for  motherboards  used in IBM's
mobile  computer  products  manufactured  worldwide  for the next  three  years.
Solectron  will  also  provide  IBM's  worldwide  design  teams a full  range of
integrated NPI services.

In  August  1999,  Solectron  acquired  the  manufacturing   assets,   primarily
inventory, of Trimble Navigation Limited (Trimble) in Sunnyvale, California, and
assumed full manufacturing responsibility of Trimble's Global Positioning System
(GPS) and related radio  frequency (RF)  technology  products for the next three
years.  Additionally,  Solectron acquired certain  intellectual  property rights
related to RF technology for approximately $11 million. The total purchase price
for the transaction was  approximately $27 million,  subject to adjustment.  The
acquisition  was accounted for as a purchase of assets,  and the purchase  price
was  allocated to the acquired  assets based on the relative  fair values of the
assets at the date of acquisition.

NOTE 15. BUSINESS COMBINATIONS

In September 1998, Bluegum acquired Alcatel's  telecommunications  manufacturing
operations in New South Wales,  Australia.  This  transaction  was accounted for
under the purchase method of accounting, and the purchase price of approximately
$23.3  million was allocated to the assets  acquired  based on the relative fair
values of the assets at the date of acquisition. Pro forma results of operations
are not presented because the effect of this acquisition is not significant.

In July 1999, Solectron issued  approximately  520,000 shares of common stock to
acquire all of the outstanding  capital stock of Sequel. It was a privately held
corporation  specializing in notebook computer and liquid crystal display repair
service and  support.  This  transaction  was  accounted  for under the purchase
method  of  accounting.   The  consolidated  financial  statements  include  the
operating  results of Sequel from the date of  acquisition.  The total  purchase
price was approximately $17.8 million,  subject to adjustments.  The acquisition
was  accounted  for  as a  purchase  of a  business  resulting  in  goodwill  of
approximately  $4 million.  Pro forma  results of  operations  are not presented
because the effect of this acquisition is not significant.

In August 1999, SMART acquired  Compaq's embedded and real time product line and
business in Fremont,  California and Scotland.  Pursuant to the agreement, SMART
acquired certain assets with a fair value totaling $1.2 million. The acquisition
was  accounted  for under the purchase  method of  accounting,  and the purchase
price of approximately  $16.2 million was allocated to the assets acquired based
on the  relative  fair  values  of the  assets  at the date of  acquisition.  In
addition, the Company may be required to pay an earn-out payment to Compaq in an
amount not to exceed $5 million provided  certain  milestones are met during the
twelve month period from September 1, 1999 to August 31, 2000. Pro forma results
of operations  are not presented  because the effect of this  acquisition is not
significant.

NOTE 16. NET INCOME PER SHARE

Share and per share data presented  reflect the two-for-one stock splits through
March 8, 2000.  The  following  table sets  forth the  computation  of basic and
diluted net income per share.

                                       48
<PAGE>




                                             Years Ended August 31,
                                         ----------------------------
                                            1999      1998     1997
                                         --------- --------- --------
                                                  (in millions
                                             except per share data)
       Net income - basic                $  350.3  $  251.3  $  203.7
        Interest expense from
         convertible subordinated
         notes, net of  taxes                 5.0       9.6        -
                                         --------  --------  --------
       Net income - diluted              $  355.3  $  260.9  $  203.7
                                         ========  ========  ========

       Weighted average shares - basic      542.6     510.1     487.4
        Common shares issuable upon
         stock options exercised             22.6      19.3      20.4
        Common shares issuable upon
         conversion of convertible
         subordinated notes                  13.8      27.2        -
                                          -------  --------  --------

       Weighted average shares - diluted    579.0     556.6     507.8
                                          =======  ========  ========

       Net income per share - basic       $  0.65  $   0.49  $   0.42
                                          =======  ========  ========


       Net income per share - diluted     $  0.61  $   0.47  $   0.40
                                          =======  ========  ========

When the  exercise  price of an option to purchase  common stock is greater than
the average fair market price of the period, such option is not included for the
calculation because the effect would have been antidilutive.

During fiscal 1999,  1998 and 1997, the exercise price for 3.9 million  options,
9.9 million options and 2.0 million options,  respectively were greater than the
average fair market value of the Company's  common stock and  consequently  were
excluded from the diluted calculation.

In addition,  the calculation for the year ended August 31, 1999 did not include
the 24.7 million  common  shares  issuable  upon  conversion  of the zero coupon
senior notes as they would have been antidilutive.  The calculation for the year
ended August 31, 1997, did not include the 27.2 million  common shares  issuable
upon  conversion of the convertible  subordinated  notes as they would have been
antidilutive.

NOTE 17. SUBSEQUENT EVENTS

On April 28, 2000,  Solectron completed its acquisition of AMERICOM, a privately
held corporation  which specializes in wireless handset repair and refurbishment
and  outsourced   technical   customer   support   services.   Solectron  issued
approximately  1.8  million  shares  of its  common  stock in  exchange  for all
outstanding  common  stock  and  to  extinguish   obligations  under  the  stock
appreciation rights plan of AMERICOM. On July 14, 2000, Solectron also completed
the acquisition of Bluegum which is a leading electronics contract  manufacturer
in Australia.  Solectron issued  approximately  2.3 million shares of its common
stock in  exchange  for all  outstanding  common  shares  and stock  options  of
Bluegum.  Both  acquisitions  were  accounted  for as a  pooling  of  interests.
Accordingly,  the accompanying supplemental financial data have been restated to
include both AMERICOM and Bluegum.

The results of operations  previously  reported by the separate  enterprises and
the combined  amounts  presented in the accompanying  supplemental  consolidated
financial statements are summarized below:

                                       49
<PAGE>
                                     Years Ended August 31,
                                 -------------------------------
                                    1999       1998       1997
                                 ---------  ---------  ---------
                                                (in millions)
               Net sales
                 Solectron       $ 8,391.4  $ 5,288.3  $ 3,694.4
                 SMART *             995.9      714.6      694.6
                 Americom **          63.7       36.7       24.5
                 Bluegum ***         247.2       87.2         -
                 Eliminations        (29.0)     (24.6)      (5.0)
                                 ---------  ---------  ---------
                                 $ 9,669.2  $ 6,102.2  $ 4,408.5
                                 =========  =========  =========

               Net income
                 Solectron       $   294.0  $   198.8  $   158.1
                 SMART *              53.5       51.5       45.4
                 Americom **           2.8        1.8        0.2
                 Bluegum ***            -        (0.5)        -
                 Eliminations           -        (0.3)        -
                                 ---------  --------- ----------
                                 $   350.3  $   251.3  $   203.7
                                 =========  =========  =========

*   Results are for the years ended October 31.
**  Results are for the years ended December 31.
*** Results are for the years ended June 30.

No  adjustments  were necessary to conform  accounting  policies of the combined
entities.

On November 30, 1999,  Solectron  completed its  acquisition of SMART which is a
designer and manufacturer of memory modules and memory cards, embedded computers
and I/O products.  Under the terms of the agreement,  each share of SMART common
stock was exchanged for 0.51 shares of Solectron common stock.  Solectron issued
approximately  47.6  million  shares of  Solectron  common stock and assumed all
stock options held by SMART  employees.  The  acquisition was accounted for as a
pooling of interests.

On March 1, 2000,  Solectron  completed the  acquisition of the complex  systems
manufacturing assets of Ericsson's  telecommunications  infrastructure equipment
operations  in  Longuenesse,  France,  and  Ostersund,  Sweden.  As  part of the
agreement,  Solectron will provide a complete  range of integrated  supply chain
solutions to Ericsson. This includes supply base management,  early prototyping,
New Product  Introduction (NPI) management,  complex printed circuit board (PCB)
assembly,  configure-to-order  and build-to-order  complex systems assembly, and
global services.

Effective March 8, 2000, Solectron had a two-for-one stock split effected in the
form of stock  dividend  and issued to the holders of record as of February  23,
2000. Share and per share data presented reflect such stock split transaction.

On  March  31,  2000,   Solectron   completed  the   acquisition   of  Alcatel's
manufacturing  business  in  Aguadilla,  Puerto  Rico.  Alcatel  specializes  in
building next generation  networks and end-to-end data voice solutions.  As part
of the acquisition of Alcatel's  manufacturing business in Aguadilla,  Solectron
will  assume  full  manufacturing  responsibility  for  Alcatel's  PCB  products
focussed  on the  networking  and  telecommunication  industries.  Additionally,
Solectron will provide a full range of manufacturing services to Alcatel for the
next three years including prototyping and high volume PCB assembly.

On June 5, 2000,  Solectron  acquired  the  manufacturing  assets of four Nortel
manufacturing  facilities  including  Calgary,  Canada;  Research Triangle Park,
North Carolina;  Monterrey,  Mexico;  and Cwmcarn,  Wales. On June 30, 2000, the
Company  completed the purchase of  manufacturing  assets at two Nortel Networks
manufacturing  and repair  facilities  located  in Pont de Buis and  Douarnenez,
France, and Monkstown, Northern Ireland. On August 31, 2000, Solectron completed
an additional  asset  acquisition at Nortel  Networks  manufacturing  and repair
operation in Turkey.  Solectron will provide  prototyping,  PCB assembly,  small
sub-assembly and repair services to Nortel in these  locations.  Under the terms
of the agreements,  Solectron will pay approximately  $900 million to assume the
assets
                                       50
<PAGE>


contemplated in these  agreements.  The companies also entered into a multi-year
supply agreement, in excess of $10 billion in sales, with the option to renew.


                                       51

<PAGE>




                    SOLECTRON CORPORATION AND SUBSIDIARIES
              SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEETS
                                  (In millions)
                                   (Unaudited)


                                                    May 31,   August 31,
                                                     2000       1999
                                                  ---------   ---------
         ASSETS
         Current assets:
           Cash, cash equivalents and
             short-term investments                $3,419.9   $1,881.7
           Accounts receivable, net                 1,856.7    1,282.5
           Inventories                              2,549.3    1,197.0
           Prepaid expenses and other
             current assets                           236.3      121.2
                                                   --------   --------
             Total current assets                   8,062.2    4,482.4
         Net property and equipment                   848.2      723.8
         Other assets                                 311.0      214.3
                                                   --------   --------
         Total assets                              $9,221.4   $5,420.5
                                                   ========   ========

         LIABILITIES AND STOCKHOLDERS' EQUITY
         Current liabilities:
           Short-term debt                         $   57.8   $   46.9
           Accounts payable                         1,850.5    1,050.4
           Accrued employee compensation              120.2      103.7
           Accrued expenses                           122.5       46.6
           Other current liabilities                  173.0       72.1
                                                   --------   --------
             Total current liabilities              2,324.0    1,319.7
         Long-term debt                             3,295.8      922.7
         Other long-term liabilities                   17.0       11.2
                                                   --------   --------
             Total liabilities                      5,636.8    2,253.6
                                                   --------   --------
         Commitments
         Stockholders' equity:
           Common stock                                 0.6        0.3
           Additional paid-in capital               2,221.5    2,081.4
           Retained earnings                        1,485.7    1,173.1
           Accumulated other comprehensive losses    (123.2)     (87.9)
                                                   --------   --------
              Total stockholders' equity            3,584.6    3,166.9
                                                   --------   --------
         Total liabilities and
           stockholders' equity                    $9,221.4   $5,420.5
                                                   ========   ========


See  accompanying  notes  to  supplemental   condensed   consolidated  financial
statements.

                                       52
<PAGE>
                    SOLECTRON CORPORATION AND SUBSIDIARIES
           SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                     (In millions, except per share data)
                                   (Unaudited)



                                              Nine Months Ended
                                                   May 31,
                                             --------------------
                                                2000       1999
                                             ---------  ---------

         Net sales                           $ 9,401.3  $ 6,961.7

         Cost of sales                         8,538.9    6,292.3
                                             ---------  ---------
         Gross profit                            862.4      669.4
         Operating expenses:
           Selling, general and
             administrative                      323.3      270.8
           Research and development               44.7       32.5
           Acquisition and restructuring
             costs                                33.2         --
                                             ---------  ---------
             Operating income                    461.2      366.1
           Interest income                        67.4       23.4
           Interest expense                      (40.6)     (27.2)
                                             ---------  ---------
         Income before income taxes and
           cumulative effect of change
           in accounting principle               488.0      362.3
         Income tax expense                      158.3      115.5
                                             ---------  ---------
         Income before cumulative effect of
           change in accounting principle        329.7      246.8
         Cumulative effect of change in
           accounting principle                   (3.5)        --
                                             ---------  ---------

         Net income                            $ 326.2  $   246.8
                                             =========  =========

         Basic net income per share:
           Income before cumulative effect
            of change in accounting
            principle                        $    0.55  $    0.46
           Cumulative effect of change in
            accounting principle                 (0.01)        --
                                             ---------  ---------
                                             $    0.54  $    0.46
                                             =========  =========

         Diluted net income per share:
           Income before cumulative effect
            of change in accounting
            principle                        $    0.53  $    0.44
           Cumulative effect of change in
            accounting principle                 (0.01)        --
                                             ---------  ---------
                                             $    0.52  $    0.44
                                             =========  =========

         Shares used to compute net income
           per shares:

             Basic                               597.8      534.4
             Diluted                             622.7      573.8


See  accompanying  notes  to  supplemental   condensed   consolidated  financial
statements.

                                       53
<PAGE>

                    SOLECTRON CORPORATION AND SUBSIDIARIES
    SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                  (In millions)
                                   (Unaudited)





                                                  Nine Months Ended
                                                       May 31,
                                                ---------------------
                                                   2000        1999
                                                ---------   ---------
Net income                                         $326.2      $246.8

Other comprehensive income (loss):
Foreign currency translation adjustments,
 net of income tax benefit of $1.0 in
 fiscal 2000                                        (33.7)      (56.9)
Unrealized loss on investments, net of
 income tax benefit of $1.0 in fiscal 2000           (1.6)         -
                                                 --------   ---------
Comprehensive income                              $ 290.9    $  189.9
                                                 ========   =========



---------------
Accumulated  foreign currency  translation losses were $120.5 million at May 31,
2000 and $86.8 million at August 31, 1999. For the  nine-month  period of fiscal
year 1999, the foreign  currency  translation  loss primarily  resulted from the
devaluation  of the Brazilian  real.  The  translation  loss for the  nine-month
period of fiscal year 2000 was  principally due to the weakened French franc and
British sterling.  Most of Solectron's foreign currency  translation  adjustment
amounts relate to investments  which are permanent in nature. To the extent that
such amounts relate to investments  which are permanent in nature, no adjustment
for income taxes is made. Accumulated unrealized losses on investments were $2.7
million at May 31, 2000 and $1.1 million at August 31, 1999.



See  accompanying  notes  to  supplemental   condensed   consolidated  financial
statements.


                                       54
<PAGE>


                    SOLECTRON CORPORATION AND SUBSIDIARIES
         SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (In millions)
                                   (Unaudited)

                                                  Nine Months Ended
                                                       May 31,
                                                ---------------------
                                                   2000        1999
                                                ---------   ---------


        Cash flows from operating activities:
          Net income                            $  326.2     $ 246.8
          Adjustments to reconcile net
           income to net cash provided
           by operating activities:
            Depreciation and amortization          173.1       139.1
            Non-cash interest expense               27.4        10.6
            Tax benefit associated with the
             exercise of stock options              52.6        21.5
            Cumulative effect of change in
             accounting principle for
             Start-up costs                          3.5          --
            Other                                   (4.7)      (15.1)
            Changes in operating assets
             and liabilities:
              Accounts receivable                 (637.7)     (255.8)
              Inventories                       (1,192.4)     (182.1)
              Prepaid expenses and other
               current assets                      (98.6)      (10.1)
              Accounts payable                     874.3        63.9
              Accrued expenses and other
               current liabilities                 198.7        16.6
                                                --------    --------
        Net cash (used in) provided by
          Operating activities                    (277.6)       35.4
                                                --------    --------
        Cash flows from investing activities:
          Purchases of short-term               (1,079.1)     (494.6)
        investments
          Sales and maturities of short-term
           investments                             699.8       286.7
          Acquisition of manufacturing
           locations and assets                   (297.7)     (108.4)
          Capital expenditures                    (323.5)     (328.9)
          Proceeds from sales of fixed
           assets                                   71.7        16.8
          Other                                    (13.5)      (15.4)
                                                ---------   --------
        Net cash used in investing activities     (942.3)     (643.8)
                                                ---------    -------





   (continued)

                                       55

<PAGE>



                    SOLECTRON CORPORATION AND SUBSIDIARIES
   SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
                                  (In millions)
                                   (Unaudited)

                                                  Nine Months Ended
                                                       May 31,
                                                ---------------------
                                                   2000        1999
                                                ---------   ---------




Cash flows from financing activities:
  Net proceeds from bank lines of credit              4.5       14.4
  Net proceeds from issuance of
   long-term debt                                 2,297.3      732.2
  Repayments of long-term debt                       (0.5)      (2.0)
  Repurchase of common stock                           --       (7.2)
  Proceeds from exercise of stock
   options                                           97.1       55.1
  Net proceeds from issuance of
   common stock                                      11.1        8.9
  Dividends paid                                     (1.4)      (1.1)
  Other                                               8.3       15.8
                                                  -------    -------
Net cash provided by financing
  activities                                      2,416.4      816.1
                                                  -------    -------
Effect of exchange rate changes on
  cash and cash equivalents                         (15.2)       0.3
                                                 --------    -------
Net increase (decrease) in cash
  and cash equivalents                            1,181.3      208.0
Cash and cash equivalents at
  beginning of year                               1,417.4      306.4
                                                 --------    -------
Cash and cash equivalents at
  end of year                                    $2,598.7    $ 514.4
                                                 ========    =======

Cash paid:
  Interest                                        $  15.8    $  27.4
  Income taxes                                    $ 103.3    $  85.7
Non cash investing and financing activities:
  Issuance of common stock upon
   conversion of long-term debt, net              $    --    $ 230.0
  Issuance of common stock for
   business combination, net
   of cash acquired                               $   1.0    $    --


See  accompanying  notes  to  supplemental   condensed   consolidated  financial
statements.


                                       56
<PAGE>



Notes to Supplemental Condensed Consolidated Financial Statements

NOTE A - Basis of Presentation

The accompanying unaudited supplemental condensed consolidated balance sheets as
of May 31,  2000 and August 31,  1999,  and the related  unaudited  supplemental
condensed consolidated statements of income for the nine-month periods ended May
31,  2000  and  1999,  and the  unaudited  supplemental  condensed  consolidated
statements of comprehensive income for the nine-month periods ended May 31, 2000
and 1999, and the unaudited supplemental  condensed  consolidated  statements of
cash flows for the nine months ended May 31, 2000 and 1999 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
Company's financial  position,  operating results and cash flows for the periods
presented.  The results of operations  for the  nine-month  period ended May 31,
2000 are not  necessarily  indicative  of results to be expected  for the entire
year. These unaudited  supplemental  condensed consolidated financial statements
should  be read in  conjunction  with the  supplemental  consolidated  financial
statements and notes thereto for the year ended August 31, 1999 included in Item
5. of this Current Report on Form 8-K.

For clarity of presentation, the Company has indicated its third fiscal quarters
as ending on May 31, 2000 and 1999,  and its fiscal year as ending on August 31,
1999. In fact, the Company's third quarter of fiscal 2000 ended on May 26, 2000,
its third  quarter of fiscal 1999 ended on May 28, 1999 and its 1999 fiscal year
ended on August 27, 1999.

On April 28, 2000,  Solectron  acquired  AMERICOM,  a privately held corporation
which  specializes in wireless handset repair and  refurbishment  and outsourced
technical customer support services.  Solectron issued approximately 1.8 million
shares of its common stock in exchange for all  outstanding  common stock and to
extinguish  obligations under the stock appreciation rights plan of AMERICOM. On
July  14,  2000,  Solectron  acquired  Bluegum  which is a  leading  electronics
contract  manufacturer in Australia.  Solectron issued approximately 2.3 million
shares of its common stock in exchange  for all  outstanding  common  shares and
stock options of Bluegum.  Both  transactions  were  accounted for as pooling of
interests.

Accordingly,  Solectron's  historical  financial  statements  have been restated
retroactively  to include the financial  results of AMERICOM and Bluegum.  While
AMERICOM's  fiscal year was from January 1 to December 31, Bluegum's fiscal year
was from July 1 to June 31 since its inception from February 1998.  AMERICOM and
Bluegum  changed  their fiscal years to coincide with  Solectron's  beginning in
fiscal 2000.

Since the results of operations  of AMERICOM from  September 1, 1999 to December
31,  1999 are  included  in  fiscal  year  1999 as well as in first  and  second
quarters  of fiscal  2000,  net income of $1.3  million for such period has been
recorded as an adjustment to retained  earnings in first quarter of fiscal 2000.
In addition, Bluegum's results of operations for July and August of 1999 are not
included in any fiscal period  presented and net loss of $78,000 for such period
has been recorded as an adjustment to retained  earnings in the first quarter of
fiscal 2000.

Restated financial  information includes certain adjustments for the elimination
of net sales and cost of sales  related to  shipments by Solectron to Bluegum as
well as for  certain  reclassifications  made on  AMERICOM's  and  Bluegum's  to
conform  with  Solectron's  financial  statement  presentation.  There  were  no
adjustments  necessary  to conform  the  accounting  policies  of the  combining
companies.


                                       57
<PAGE>



NOTE B - Inventories

Inventories consisted of (in millions):


                                          May 31,    August 31,
                                           2000         1999
                                         --------    ----------
                                             (in millions)
          Raw materials                  $2,006.0     $  862.9
          Work-in-process                   380.8        237.6
          Finished goods                    162.5         96.5
                                         --------     --------
            Total                        $2,549.3     $1,197.0
                                         ========     ========



                                       58
<PAGE>
NOTE C - Net Income Per Share

The following  table sets forth the  computation of basic and diluted net income
per share for the nine-month periods ended May 31, 2000 and 1999.

                                                  Nine Months Ended
                                                       May 31,
                                                ---------------------
                                                   2000        1999
                                                ---------   ---------
                                                    (in millions
                                                except per share data)

       Income before cumulative effect
         of change in accounting principle      $  329.7    $   246.8

       Cumulative effect of change in
         accounting principle, net of
         income tax benefit                         (3.5)          --

       Interest expense from
       convertible subordinated notes,
          net of income taxes                         --          5.0
                                                --------    ---------

       Net income - diluted                     $  326.2    $   251.8
                                               =========    =========

       Weighted average shares - basic             597.8        534.4

       Common shares issuable upon
         exercise of stock options                  24.9         20.9

       Common shares issuable upon
         assumed conversion of
         convertible subordinated notes               --         18.5
                                               ---------    ---------

       Weighted average shares - diluted           622.7        573.8
                                               =========    =========

       Basic net income per share:
         Income before cumulative
           effect of change in
           accounting principle                $    0.55    $    0.46

         Cumulative effect of change in
           accounting principle                    (0.01)          --
                                               ---------    ---------


              Net income per share             $    0.54    $    0.46
                                               =========    =========


       Diluted net income per share:
         Income before cumulative
           effect of change in
           accounting principle                $    0.53    $    0.44


         Cumulative effect of change in
           accounting principle                    (0.01)          --
                                               ---------    ---------

              Net income per share             $    0.52    $    0.44
                                               ==========   =========

For the  nine-month  period ended May 31, 2000,  options to purchase 1.9 million
shares of the  Company's  common  stock with  exercise  prices  greater than the
average fair market  values of its common stock for such period at $39.43,  were
not included in the calculation because the effect would have been antidilutive.

Prior to  fiscal  2000,  the  fiscal  years of  Solectron  and  SMART  differed.
Solectron's  condensed  consolidated  statements  of income  for the  nine-month
period  ended May 31, 1999 were  combined  with SMART's  condensed  consolidated
statements  of  income  for the  nine-month

                                       59
<PAGE>

period  ended July 31,  1999.  For  Solectron,  options to purchase  3.4 million
shares of Solectron's common stock with exercise prices greater than the average
fair market values of its common stock at $19.69 for the nine-month period ended
May 31, 1999 were not included in the calculation  because the effect would have
been antidilutive.  For SMART, options to purchase 1.5 million shares of SMART's
common stock with exercise prices greater than the average fair market values of
its common  stock at $18.31 for the  nine-month  period ended July 31, 1999 were
not included in the calculation because the effect would have been antidilutive.

In addition,  the calculation  for the nine-month  period ended May 31, 2000 did
not include the 24.7  million  and 49.6  million  common  shares  issuable  upon
conversion  of the  zero-coupon  senior  convertible  notes  due 2019 and  2020,
respectively, as they would have been antidilutive.

NOTE D - Commitments

Solectron  leases various  facilities  under  operating  lease  agreements.  The
facility  leases  expire at various  dates  through  2014.  Most of such  leases
require Solectron to pay property taxes, insurance and normal maintenance costs.
Payments of some leases are periodically  adjusted based on LIBOR rates. Certain
leases for Solectron's  facilities,  including  Milpitas,  Fremont and San Jose,
California; Everett, Washington; Suwanee, Georgia; and Columbia, South Carolina,
provide  Solectron  with an  option  at the  end of the  lease  term  of  either
acquiring  the property at its original cost or arranging for the property to be
acquired. For these leases,  Solectron is contingently liable under a first loss
clause for a decline in market value of such leased  facilities up to 85% of the
original  costs, or  approximately  $170 million in total as of May 31, 2000, in
the  event  Solectron  does  not  purchase  the  properties  at  the  end of the
respective lease terms.  Under such  agreements,  the Company must also maintain
compliance  with  financial  covenants  similar  to its $100  million  unsecured
multicurrency revolving credit facility.

Additionally,   Solectron  periodically  enters  into  lease  arrangements  with
third-party  leasing companies under which it sells fixed assets and leases them
back from the leasing  companies.  Solectron is  accounting  for these leases as
operating leases.

NOTE E - Segment Information

The Company has transitioned its operations into three strategic  business units
- manufacturing and operations,  technology solutions, and global services. Each
business unit has its own president and support  staff.  Solectron's  management
uses an internal management reporting system, which provides important financial
data, to evaluate  performance  and allocate  resources for these three business
units.  Intersegment  adjustments were related  primarily to intersegment  sales
that  were  generally   recorded  at  prices  that  approximated   arm's  length
transactions.  Certain  corporate  expenses  were  allocated to these  operating
segments  and  were  included  for  performance  evaluation.  Some  amortization
expenses  were also  allocated  to these  operating  segments,  but the  related
intangible assets were not allocated.  The accounting  policies for the segments
were the same as for Solectron taken as a whole.

                                       60
<PAGE>
Segment  information by business units for the nine-month  periods ended May 31,
2000 and 1999, was as follows:
                                       Nine Months Ended
                                            May 31,
                                     ---------------------
                                         2000       1999
                                     ---------   ---------

        Net sales:
        Manufacturing and operations $8,281.2     $6,099.7
        Technology solutions          1,044.4        851.8
        Global services                 160.2         68.4
        Intersegment adjustments        (84.5)       (58.2)
                                     --------     --------
                                     $9,401.3     $6,961.7
                                     ========     ========
        Depreciation and
          amortization:
        Manufacturing and operations $  129.1     $  118.0
        Technology solutions             19.3         15.3
        Global services                  10.4          0.9
        Corporate                        14.3          4.9
                                     --------     --------
                                     $  173.1     $  139.1
                                     ========     ========
        Interest income:
        Manufacturing and operations $    5.7     $    5.7
        Technology solutions              5.1          5.2
        Global services                   0.1           --
        Corporate                        82.2         23.9
        Intersegment adjustments        (25.7)       (11.4)
                                     --------     --------
                                     $   67.4     $   23.4
                                     ========     ========
        Interest expense:
        Manufacturing and operations $   30.0     $   13.8
        Technology solutions              0.8          0.9
        Global services                   1.1          0.4
        Corporate                        34.9         23.5
        Intersegment adjustments        (26.2)       (11.4)
                                     --------     --------
                                     $   40.6     $   27.2
                                     ========     ========
        Pre-tax income:
        Manufacturing and operations $  449.1     $  335.0
        Technology solutions             44.9         59.9
        Global services                  (0.3)         6.2
        Corporate                       (10.8)       (38.8)
                                     --------     --------
                                     $  482.9 a,b $  362.3
                                     ========     ========
        Capital expenditures:
        Manufacturing and operations $  270.1     $  289.6
        Technology solutions             21.6         15.9
        Global services                  12.2          1.7
        Corporate                        19.6         21.7
                                     --------     --------
                                     $  323.5     $  328.9
                                     ========     ========


                                       May 31,    August 31,
                                        2000         1999
                                     ----------   ----------
        Total Assets:
        Manufacturing and operations   $ 5,249.7   $ 3,344.7
        Technology solutions               602.8       556.7
        Global services                    110.3        64.8
        Corporate                        5,611.0     2,717.0
        Intersegment Adjustments        (2,352.4)   (1,262.7)
                                       ---------    --------
                                       $ 9,221.4    $5,420.5
                                       ==========   ========

                                       61
<PAGE>

----------------------------
a.Includes $5.1 million for cumulative effect of change in accounting  principle
  for start-up costs.

b.Reflects  acquisition  costs of $16.5 million,  $5.2 million and $3.8 million,
  respectively, recorded in technology solutions, global services and corporate;
  and  restructuring  costs of $2.8  million,  $1.9  million  and $3.0  million,
  respectively,   recorded  in  technology   solutions,   global   services  and
  manufacturing and operations.


NOTE F - Zero-Coupon Convertible Senior Notes

In May 2000, Solectron issued 4,025,000 zero-coupon  convertible senior notes at
an issue price of $579.12 per note which resulted in gross proceeds to Solectron
of approximately  $2.3 billion under an effective  registration  statement filed
with the  Securities  and Exchange  Commission.  These notes are  unsecured  and
unsubordinated  indebtedness  of  Solectron  with a maturity  value  aggregating
$4.025  billion.  There  will be no  interest  payment  by  Solectron  prior  to
maturity.  Each note has a yield of 2.75% with a maturity value of $1,000 on May
8, 2020. Solectron is amortizing the issue discount using the effective interest
method over the term of the notes.  Each note is  convertible at any time by the
holder at a  conversion  rate of 12.3309  shares per note.  Holders  may require
Solectron  to purchase all or a portion of their notes on May 8, 2003 and May 8,
2010,  at a price of $628.57  and  $761.00 per note,  respectively.  Also,  each
holder may require  Solectron to  repurchase  all or a portion of such  holder's
notes  upon a change in  control of the  Company  occurring  on or before May 8,
2003. Solectron,  at its option, may redeem all or a portion of the notes at any
time on or after May 8, 2003.

Note G - Pooling of Interests

On April 28, 2000,  Solectron completed the acquisition of AMERICOM, a privately
held corporation  which specializes in wireless handset repair and refurbishment
and  outsourced  technical  customer  support  services  and  accounted  for the
transaction  as a pooling  of  interests.  Solectron  issued  approximately  1.8
million shares of its common stock in exchange for all outstanding  stock and to
extinguish  obligations  under the stock  appreciation  rights plan of AMERICOM.
This  transaction  was  previously  not  considered  material  to the  Company's
consolidated  results of  operations,  and the  Company's  historical  financial
statements  were not restated to reflect the  financial  position and results of
operations  of AMERICOM.  Acquisition  costs of $5.2  million  were  recorded in
connection  with the  acquisition  of  AMERICOM.  These  costs  included  direct
transaction fees, as well as legal fees, accounting fees,  registration fees and
other incidentals.

On July 14, 2000,  Solectron  completed the  acquisition  of Bluegum,  a leading
electronics  contract  manufacturer in Australia,  and issued  approximately 2.3
million shares of its common stock in exchange for all outstanding common shares
and stock options of Bluegum. This acquisition was accounted for as a pooling of
interests.  As the  combined  effect of Bluegum  Group and  AMERICOM  are deemed
material  to  the  Company's  consolidated  financial  statements,   Solectron's
historical financial statements have been restated  retroactively to include the
financial results of AMERICOM and Bluegum.

The results of operations  previously  reported by the separate  enterprises and
the  combined  amounts  presented  in the  accompanying  supplemental  condensed
consolidated financial statements are summarized below:

                                       62
<PAGE>
                                   Nine Months Ended
                                        May 31,
                                 --------------------
                                   2000        1999
                                 --------   ---------
                                     (in millions)
               Net sales
                 Solectron       $ 8,372.2  $ 6,005.3
                 SMART *             889.6      745.5
                 Americom **          53.5       44.0
                 Bluegum ***         124.8      188.3
                 Eliminations        (38.8)     (21.4)
                                 ---------  ---------
                                 $ 9,401.3  $ 6,961.7
                                 =========  =========
               Net income
                 Solectron       $   307.7  $   205.1
                 SMART *              28.4       39.2
                 Americom **          (2.8)       2.0
                 Bluegum ***          (6.9)       0.5
                 Eliminations         (0.2)        -
                                 ---------  ---------
                                 $   326.2  $   246.8
                                 =========  =========

*   Results  are for the nine  months  ended May 31,  2000 and July 31,  1999.
**  Results are for the nine months ended May 31, 2000 and September  30, 1999.
*** Results are for the nine months ended May 31, 2000 and March 31, 1999.

No  adjustments  were necessary to conform  accounting  policies of the combined
entities.

NOTE H - Acquisitions of Manufacturing Assets and Business

On March 1, 2000,  Solectron  completed the  acquisition of the complex  systems
manufacturing assets of Ericsson's  telecommunications  infrastructure equipment
operations in Longuenesse,  France,  and Ostersund,  Sweden.  The total purchase
price for the  manufacturing  assets and  intangible  assets  was  approximately
$162.2  million,  subject to adjustment.  The transaction was accounted for as a
purchase of assets,  and the purchase price was allocated to the assets acquired
based on the relative fair values of the assets at the date of  acquisition.  As
part of the  agreement,  Solectron  will provide a complete  range of integrated
supply-chain solutions to Ericsson. This includes supply-base management,  early
prototyping,  NPI  management,  complex  PCB  assembly,  configure-to-order  and
build-to-order complex systems assembly, and global services.

On  March  31,  2000,   Solectron   completed  the   acquisition   of  Alcatel's
manufacturing  business  in  Aguadilla,  Puerto  Rico.  The  purchase  price was
approximately  $48.2  million,  subject  to  adjustments.  The  acquisition  was
accounted  for as a purchase  of a business  resulting  in foreign  goodwill  of
approximately $13.3 million,  subject to adjustment.  The condensed consolidated
financial  statements  include the operating  results of this operation from the
date of acquisition.  Pro forma results of operations are not presented  because
the  effect of this  acquisition  is not  significant.  Alcatel  specializes  in
building  next-generation  networks and end-to-end data voice solutions. As part
of the acquisition of Alcatel's  manufacturing business in Aguadilla,  Solectron
will assume full manufacturing responsibility for Alcatel's PCB products focused
on the networking and telecommunication industries. Additionally, Solectron will
provide a full range of  manufacturing  services  to Alcatel  for the next three
years including prototyping and high-volume PCB assembly.

On April 6, 2000,  Solectron  announced  the  completion of  acquisition  of the
manufacturing assets of Premisys Communications, Inc., a wholly owned subsidiary
of  Zhone  Technologies,   Inc.  (Zhone).  The  total  purchase  price  for  the
manufacturing  assets and  intangible  assets was  approximately  $15.5 million,
subject to  adjustment.  The  transaction  was  accounted  for as a purchase  of
assets, and the purchase price was allocated to the assets acquired based on the
relative  fair  values  of the  assets  at the date of  acquisition.  Zhone is a
communications equipment provider integrating expertise in voice, video and data
communications.   Under  the  agreement,   Solectron   becomes  Zhone's  virtual
supply-chain
                                       63
<PAGE>


partner and signed a five-year  commitment  with Zhone to provide  product  life
cycle  management  services,   including  NPI  through  repair  and  end-of-life
services.

NOTE I - Subsequent Events

On June 5, 2000,  Solectron  acquired  the  manufacturing  assets of four Nortel
manufacturing  facilities  including  Calgary,  Canada;  Research Triangle Park,
North Carolina;  Monterrey,  Mexico;  and Cwmcarn,  Wales. On June 30, 2000, the
Company  completed the purchase of  manufacturing  assets at two Nortel Networks
manufacturing  and repair  facilities  located  in Pont de Buis and  Douarnenez,
France, and Monkstown, Northern Ireland. On August 31, 2000, Solectron completed
an additional  asset  acquisition at Nortel  Networks  manufacturing  and repair
operation in Turkey.  Solectron will provide  prototyping,  PCB assembly,  small
sub-assembly and repair services to Nortel in these  locations.  Under the terms
of the agreements,  Solectron will pay approximately  $900 million to assume the
assets  contemplated  in these  agreements.  The  companies  also entered into a
multi-year supply agreement,  valued in excess of $10 billion in sales, with the
option to renew.





                                       64
<PAGE>



INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Solectron Corporation:

We have audited the  accompanying  supplemental  consolidated  balance sheets of
Solectron  Corporation and  subsidiaries as of August 31, 1999 and 1998, and the
related supplemental  consolidated  statements of income,  stockholders' equity,
comprehensive  income,  and cash  flows for each of the years in the  three-year
period ended August 31, 1999. In connection with our audits of the  supplemental
consolidated financial statements,  we also have audited the financial statement
schedule - valuation and qualifying  accounts.  These supplemental  consolidated
financial  statements and financial statement schedule are the responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
supplemental  consolidated financial statements and financial statement schedule
based on our audits.

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

The  supplemental  consolidated  financial  statements  and financial  statement
schedule  give  retroactive  effect to the merger of Solectron  Corporation  and
Americom  on April  28,  2000 and  Bluegum  on July 14,  2000,  which  have been
accounted  for  as  pooling  of  interests  as  described  in  Note  10  to  the
supplemental  consolidated  financial statements.  Generally accepted accounting
principles  prescribe  giving  effect  to  a  consummated  business  combination
accounted for by the pooling-of-interests method in financial statements that do
not include the date of consummation.  These financial  statements do not extend
through  the date of  consummation.  However,  they will  become the  historical
consolidated  financial  statements of Solectron  Corporation  and  subsidiaries
after  financial  statements  covering the date of  consummation of the business
combination are issued.

In our opinion, the supplemental  consolidated  financial statements referred to
above  present  fairly in all  material  respects,  the  financial  position  of
Solectron  Corporation and  subsidiaries as of August 31, 1999 and 1998, and the
results  of their  operations  and their cash flows for each of the years in the
three-year  period ended August 31, 1999, in conformity with generally  accepted
accounting  principles  applicable after consolidated  financial  statements are
issued for a period  which  includes  the date of  consummation  of the business
combination. 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 LLP

Mountain View, California
August 28, 2000


                                       65
<PAGE>



FINANCIAL STATEMENT SCHEDULE

The financial statement Schedule II - VALUATION AND QUALIFYING ACCOUNTS is filed
as part of this Form 8-K.

                    SOLECTRON CORPORATION AND SUBSIDIARIES
               SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                                (in millions)

                                    Balance   Amounts
                                    at        Charged                 Balance at
                                    Beginning To                      End
Description                         of Period Operations (Deductions) Of Period
-----------                         --------- ---------- ------------ ----------
Year ended August 31, 1999:
Allowance for doubtful
  accounts receivable                 $ 4.7     $ 2.5      $(0.8)      $ 6.4
Year ended August 31, 1998:
Allowance for doubtful
  accounts receivable                 $ 4.7     $ 3.0      $(3.0)      $ 4.7
Year ended August 31, 1997:
Allowance for doubtful
  accounts receivable                 $ 3.6     $ 2.5      $(1.4)      $ 4.7



                                       66
[{"type": "8-K", "sequence": "1", "filename": "0001.txt", "secsgml_size_bytes": 221167}]
{"company-data": {"conformed-name": "SOLECTRON CORP", "cik": "0000835541", "assigned-sic": "3672", "irs-number": "942447045", "state-of-incorporation": "DE", "fiscal-year-end": "0831"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "001-11098", "film-number": "716982"}, "business-address": {"street1": "777 GIBRALTAR DR", "city": "MILPITAS", "state": "CA", "zip": "95035", "phone": "4089578500"}, "mail-address": {"street1": "777 GIBRALTAR DR", "city": "MILPITAS", "state": "CA", "zip": "95035"}}
SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                 ---------------

                                    FORM 8-K

                                 CURRENT REPORT

                     PURSUANT TO SECTION 13 OR 15(D) OF THE
                       SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): September 5, 2000

                              SOLECTRON CORPORATION
 ------------------------------------------------------------------------------
              (Exact name of registrant as specified in charter)

          DELAWARE                   1-11098               94-2447045
--------------------------    ---------------     -------------------
(State or other jurisdiction      (Commission            (IRS Employer
      of incorporation)          File Number)         Identification No.)

777 GIBRALTAR DRIVE, MILPITAS, CALIFORNIA                     95035
-----------------------------------------              ------------
(Address of principal executive offices)                  (Zip Code)

Registrant's telephone number, including area code      (408) 957-8500

                                 NOT APPLICABLE
 ------------------------------------------------------------------------------
        (Former name or former address, if changed since last report.)
Item 5. Other Events

On April 28, 2000, Solectron  Corporation  (Solectron) completed its acquisition
of AMERICOM Wireless  Services,  Inc.  (AMERICOM).  Solectron also completed the
acquisition of the Bluegum Group (Bluegum) on July 14, 2000.  Included herein as
Exhibit 99.1 are (i) the audited supplemental  consolidated financial statements
of Solectron and subsidiaries as of August 31, 1999 and 1998 and for each of the
years in the  three-year  period  ended  August 31, 1999 and (ii) the  unaudited
supplemental  condensed  consolidated  financial  statements  of  Solectron  and
subsidiaries  as of May 31, 2000 and 1999 and for the  nine-month  periods ended
May 31, 1999 and 1998. These supplemental consolidated financial statements give
retroactive  effect to the  acquisitions of AMERICOM and Bluegum which were both
accounted for as a pooling of interests.

Item 7. Financial Statements and Exhibits

(a)   Exhibits

    Exhibit                        Description                         Page
    -------                        -----------                         ----
     23.1     Consent of KPMG LLP, Independent Auditors..............   5

     99.1     Selected Supplemental Consolidated Financial Data......   6

              Management's Discussion and Analysis of Financial
               Condition and Results of Operations....................  6

              Quantitative and Qualitative Disclosures About Market
                Risk.................................................  23

              Supplemental Financial Statements and Data.............  25

              Independent Auditors' Report...........................  65

              Financial Statement Schedule...........................  66

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

                                       2
SIGNATURES

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

Date: September 5, 2000               SOLECTRON CORPORATION

                                      /s/ SUSAN S. WANG
                                      Susan S. Wang
                                      Senior Vice President,
                                      Chief Financial Officer and Secretary
                                      (Principal Financial and
                                      Accounting Officer)

                                       3
EXHIBIT INDEX

  Exhibit                          Description
  -------                          -----------

   23.1     Consent of KPMG LLP, Independent Auditors
   99.1     Selected Supplemental Consolidated Financial Data
            Management's Discussion and Analysis of Financial
              Condition an Results of Operations
            Quantitative and Qualitative Disclosures About Market Risk
            Supplemental Financial Statements and Data
            Independent Auditors' Report
            Financial Statement Schedule

                                       4
EXHIBIT 23.1

                         CONSENT OF INDEPENDENT AUDITORS

THE BOARD OF DIRECTORS
SOLECTRON CORPORATION

We consent to the  incorporation  by  reference in the  registration  statements
(Nos.  333-92269,   333-89035,   333-85949,   333-75813,   33-75865,  333-69443,
333-24293,   333-17643,   333-02523,  33-57575,  33-58580,  33-46686,  33-75270,
33-33461,  333-34494,  and  333-40176)  on Forms S-3,  S-4 and S-8 of  Solectron
Corporation  of our report dated August 28, 2000,  relating to the  supplemental
consolidated  balance sheets of Solectron  Corporation  and  subsidiaries  as of
August 31, 1999 and 1998, and the related supplemental  consolidated  statements
of income,  stockholders' equity,  comprehensive income, and cash flows for each
of the years in the  three-year  period ended  August 31, 1999,  and the related
financial  statement  schedule,  which  report  appears  in the Form  8-K  dated
September 5, 2000 of Solectron Corporation.

                                    KPMG LLP

Mountain View, California
September 5, 2000

                                       5
EXHIBIT 99.1

SELECTED SUPPLEMENTAL CONSOLIDATED FINANCIAL DATA

The  following  selected  supplemental  consolidated  financial  information  of
Solectron,  combined with  AMERICOM and Bluegum on a pooling of interests  basis
should  be read in  conjunction  with the  supplemental  consolidated  financial
statements  and the  notes  included  therein,  and the  unaudited  supplemental
condensed consolidated financial statements and notes included elsewhere in this
document.

                          Selected Financial Highlights
                     (In millions, except per share data)

Consolidated Statements of Income Data:

                 Nine Months Ended
                       May 31,                Years Ended August 31,
                 ----------------- --------------------------------------------
                    2000     1999     1999    1998     1997     1996     1995
                 -------- -------- -------- -------- --------  -------  -------

Net sales        $9,401.3 $6,961.7 $9,669.2 $6,102.2 $4,408.5 $3,231.8 $2,347.2
Operating income    461.2    366.1    516.1    368.6    303.2    213.6    144.0
Income before
  income taxes      488.0    362.3    514.5    375.5    307.5    213.2    140.6
Net income          326.2    246.8    350.3    251.3    203.7    139.6     92.2
Basic net income
 per share(1)        0.54     0.46     0.65     0.49     0.42     0.31     0.25
Diluted net income
 per share(1)        0.52     0.44     0.61     0.47     0.40     0.30     0.22

Consolidated Balance Sheet Data:

                    As of May 31,                As of August 31,
                  ----------------- --------------------------------------------
                     2000     1999     1999    1998     1997     1996     1995
                  -------- -------- -------- -------- -------- --------  -------
Net working
capital           $5,738.2 $2,062.3 $3,162.7 $1,278.1 $1,137.5 $  860.9 $  377.5
Total assets       9,221.4  3,967.7  5,420.5  2,843.7  2,209.9  1,627.9  1,034.4
Long-term debt     3,295.8    917.7    922.7    386.8    386.2    388.3     31.8
Stockholders'
  equity           3,584.6  1,968.1  3,166.9  1,475.4  1,150.2    787.8    564.8

(1) All net  income  per  share  amounts  have  been  adjusted  to  reflect  the
    two-for-one stock splits through March 8, 2000.

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.

Solectron  provides  electronics  manufacturing  services to original  equipment
manufacturers  (OEMs) who design and sell  networking  equipment,  workstations,
personal  and  notebook  computers,  computer  peripherals,   telecommunications
equipment or other electronic equipment.  These OEMs include Cisco Systems, Inc.
(Cisco),  Compaq Computer Corporation (Compaq),  Ericsson Telecom AB (Ericsson),
Hewlett-Packard  Company, Inc. (HP), International Business Machines Corporation
(IBM) and Nortel  Networks  Limited  (Nortel).  These  companies  contract  with
Solectron to build their products or to obtain other related services.

                                       6
Solectron  furnishes  integrated  supply-chain  solutions  that span the  entire
product life cycle - from technology solutions, to manufacturing and operations,
to global services. These services include the following range of services:

-     Advanced building block design solutions;
-     Product design and manufacturing;
-     New product introduction management;
-     Materials purchasing and management;
-     Prototyping;
-     Printed circuit board assembly (the process of placing  components on an
      electrical printed circuit board that controls the processing  functions
      of a personal computer or other electronic equipment);
-     Systems  assembly (for example,  building  complete systems such as mobile
      telephones and testing them to ensure functionality);
-     Distribution;
-     Product repair; and
-     Warranty services.

Solectron's  performance  of these  services  allows  its  customers  to  remain
competitive  by focusing on their core  competencies  of sales,  marketing,  and
research and  development.  We have  manufacturing  facilities  in the Americas,
Europe and Asia/Pacific.  This geographic presence gives our customers access to
manufacturing  services  in the  locations  where they need to be close to their
expanding markets for faster product delivery.

During 1997, Solectron established a strategic, global manufacturing partnership
with  Ericsson's  Business Area Infocom  Systems.  We  established a New Product
Introduction  (NPI)  center in Sweden and  transferred  production  from certain
Ericsson  plants  worldwide  to our  manufacturing  sites  around the world.  In
October 1997, we acquired certain assets,  primarily equipment and inventory, of
Ericsson's  printed circuit board (PCB) assembly operation located in Sao Paulo,
Brazil.

In February 1998, Bluegum, an Australian subsidiary of Solectron, acquired IBM's
manufacturing  facility in  Wangaratta,  Australia.  Under the  agreements,  IBM
outsourced the manufacturing and functional  testing of PCB and the assembly and
system final  testing of personal  computers  and servers to Solectron for three
years. IBM also made available  certain of its  intellectual  property rights to
Solectron.

In April 1998,  Solectron acquired NCR Corporation's (NCR) manufacturing  assets
in Columbia,  South Carolina;  Duluth,  Georgia; and Dublin,  Ireland. Under the
terms of the agreement,  NCR outsourced the  manufacturing  of certain  computer
components to Solectron for at least five years.

In June 1998,  Solectron acquired IBM'S Electronic Card Assembly and Test (ECAT)
manufacturing assets in Charlotte,  North Carolina,  and non-exclusive rights to
certain IBM intellectual property.  Under the terms of the agreement, we provide
PCB assembly services to IBM in North America for three years. In addition,  IBM
made  available  to  Solectron  intellectual  property  rights  covering  a wide
spectrum of  technologies  and  capabilities.  IBM also  provided  to  Solectron
failure  analysis  and  characterization   tools  for  process  development  and
manufacturing, including fault detection and isolation.

In September 1998, Solectron's Australian subsidiary,  Bluegum, acquired another
manufacturing   facility  in   Australia   through   the   purchase  of  Alcatel
telecommunications manufacturing operations based in Liverpool, New South Wales.
Alcatel  specializes in building  next-generation  networks and end-to-end  data
voice  solutions.  Under the  agreements,  we  provide a range of  manufacturing
services to Alcatel for three years including  telecommunications  equipment and
PCB assembly.  Alcatel also made available certain of its intellectual  property
rights to Solectron.

In October 1998, Solectron acquired the wireless telephone  manufacturing assets
of  Mitsubishi  Consumer  Electronics  America,  Inc.'s (MCEA)  Cellular  Mobile
Telephone  (CMT)  division  in  Braselton,  Georgia.  MCEA was a  subsidiary  of
Mitsubishi Electric Corporation

                                       7
(Mitsubishi).  Under the terms of the agreement, we provide MCEA-CMT with a full
range of manufacturing  services for five years,  including NPI management,  PCB
assembly and full systems assembly for MCEA's branded and private-label cellular
products sold in North  America.  In October 1999, we combined the operations of
Braselton and Duluth into a newly constructed manufacturing facility in Suwanee,
Georgia.

In February 1999,  Solectron  acquired IBM's  Electronic  Card Assembly and Test
(ECAT)  manufacturing  assets in  Austin,  Texas,  and  non-exclusive  rights to
certain IBM intellectual property.  Under the terms of the agreement, we provide
PCB  assembly  for   motherboards   used  in  IBM's  mobile  computer   products
manufactured  worldwide for three years. These services include physical design,
early prototyping, new product launch, PCB assembly and test, volume production,
end-of-life  support,  field return services and life cycle management.  We also
provide IBM's  worldwide  design teams a full range of  integrated  NPI services
which involve  pre-manufacturing  support, such as design and layout,  component
and  concurrent  engineering,  test  development,   prototype,  procurement  and
assembly.

In July 1999,  Solectron issued common stock to acquire Sequel,  Inc.  (Sequel).
Sequel was a privately held  corporation  specializing in notebook  computer and
liquid crystal display repair service and support. We acquired Sequel's business
operations in San Jose,  California;  Memphis,  Tennessee;  and Reading,  United
Kingdom. We also assumed Sequel's ownership in joint-venture operations in Japan
and  Taiwan.  The  acquisition  is  expected  to enable us to expand  our global
support services capabilities by adding quick-turn service operations,  customer
service  centers and  help-desk  support for the  end-users  of  Solectron-built
products.

In  August  1999,   Solectron  acquired  the  manufacturing  assets  of  Trimble
Navigation  Limited  (Trimble)  in  Sunnyvale,   California,  and  assumed  full
manufacturing  responsibility of Trimble's Global  Positioning  System (GPS) and
related  radio  frequency  (RF)  technology  products for three  years.  Trimble
specializes in RF products  enabled by GPS technology.  We also acquired certain
intellectual  property  rights related to RF technology.  Under the terms of the
agreement,  we provide  Trimble a full range of integrated  services  across the
entire  product  life cycle  including  design  consultation,  prototyping,  NPI
management, and volume PCB and systems assembly.

In September 1999,  Solectron announced the acquisition of manufacturing  assets
in several phases of IBM's Netfinity server operations in Greenock, Scotland. In
addition,  we acquired certain IBM intellectual  property rights included in the
design  and  manufacture  of PC  server  motherboards.  Under  the  terms of the
agreement,  we  assumed  NPI  and  manufacturing   responsibility  for  the  PCB
assemblies used in IBM's Netfinity server lines which were formerly manufactured
at IBM's Greenock  operations.  We provide IBM full-service NPI management which
includes a full range of premanufacturing  services,  specifically component and
concurrent engineering, test development,  prototype,  procurement and assembly.
We also  provide IBM for three  years fully  integrated  PCB  assembly  services
including  early  prototyping,  new product  launch,  assembly and test,  volume
production,  end-of-life  support  and life  cycle  management.  The  volume PCB
assembly  services were transferred from IBM's Greenock facility to our existing
global  manufacturing  operations.  In  addition,  we  have  established  a new,
full-service  NPI center in Port  Glasgow,  Scotland,  to support the IBM design
teams.

In October 1999, Solectron signed a definitive agreement with Acer, Inc. (Acer),
a core unit of the Acer Group, the world's  third-largest  PC  manufacturer,  to
form a strategic  alliance to provide global design,  manufacturing  and service
solutions for OEM-branded  personal  computers,  servers and workstations.  As a
result of the alliance, it is expected that customers will be able to access the
extensive technology,  motherboard and system-level design services,  and global
supply-base,   manufacturing,   distribution,   logistics  and  global  services
operations of both  companies to further  streamline  their global supply chain.
Solectron  and  Acer  plan  to  leverage  their  combined  resources,  including
facilities,  systems  and  personnel,  to provide  the  industry's  first  fully
integrated,  global and optimized end-to-end design,  manufacturing and services
solution.  The  companies  will manage this  alliance  under a joint  management
matrix.

                                       8
In November 1999, Solectron acquired NULOGIX Technical Services, Inc. (NULOGIX),
a wholly owned subsidiary of IBM Canada, in its entirety.  NULOGIX is located in
Vaughan,  Canada, and specializes in repair,  remanufacturing and refurbishment.
With this  acquisition,  we expect to be able to provide the  Canadian  market a
full range of value-added  global  service  solutions.  These  services  include
product repair,  upgrades,  remanufacturing  and maintenance through factory and
fast-hub  service  centers located around the world;  help-desk  support through
customer call centers for  end-users;  logistics and parts  management;  returns
processing;   warehousing;   engineering  change  management;   and  end-of-life
manufacturing.

In  November  1999,   Solectron  completed  its  acquisition  of  SMART  Modular
Technologies,  Inc.  (SMART)  which was accounted for as a pooling of interests.
SMART is a  designer  and  manufacturer  of memory  modules  and  memory  cards,
embedded computers, and I/O products. Through the acquisition,  Solectron gained
a manufacturing  presence in Aguada,  Puerto Rico, and additional  manufacturing
capacity through SMART's facilities in Fremont,  California;  Penang,  Malaysia;
and East Kilbride,  Scotland.  In addition,  Solectron  gained design centers in
Fremont, California; Bangalore, India; Boston, Massachusetts; and Ayr, Scotland.
The  acquisition  enables  Solectron  to expand  its  service  capabilities  and
infrastructure by integrating SMART into the technology business unit with Force
Computers, Inc. (Force). In addition,  Solectron is benefiting from the business
purchase  transaction  of  Compaq's  embedded  and real  time  product  line and
business in Fremont, California and Scotland by SMART in August 1999.

In March 2000,  Solectron  completed  the  acquisition  of the  complex  systems
manufacturing assets of Ericsson's  telecommunications  infrastructure equipment
operations  in  Longuenesse,  France,  and  Ostersund,  Sweden.  As  part of the
agreement,  we provide a complete range of integrated  supply-chain solutions to
Ericsson.   This  includes  supply-base  management,   early  prototyping,   NPI
management, complex PCB assembly,  configure-to-order and build-to-order complex
systems assembly, and global services.

In March 2000,  Solectron  completed the acquisition of Alcatel's  manufacturing
business in Aguadilla,  Puerto Rico. As part of the acquisition, we assumed full
manufacturing   responsibility   for  Alcatel's  PCB  products  focused  on  the
networking and  telecommunication  industries.  Additionally,  we will provide a
full  range of  manufacturing  services  to  Alcatel  for the next  three  years
including prototyping and high-volume PCB assembly.

In April 2000,  Solectron completed the acquisition of the manufacturing  assets
of  Premisys   Communications,   Inc.,  a  wholly  owned   subsidiary  of  Zhone
Technologies,  Inc.  (Zhone).  Zhone  is  a  communications  equipment  provider
integrating  expertise  in  voice,  video  and data  communications.  Under  the
agreement, we become Zhone's virtual supply-chain partner and signed a five-year
commitment  with  Zhone to  provide  product  life  cycle  management  services,
including NPI through repair and end-of-life services.

In April  2000,  Solectron  completed  the  acquisition  of  AMERICOM  which was
accounted for as a pooling of interests. AMERICOM, a privately held corporation,
specializes  in  wireless  handset  repair  and   refurbishment  and  outsourced
technical  customer support services.  As part of the transaction,  we expect to
gain  specialized  repair and testing  equipment and assume  responsibility  for
AMERICOM's business operations in Los Angeles, California; Louisville, Kentucky;
Baltimore,  Maryland; and Dallas, Texas; as well as AMERICOM's field technicians
and support operations throughout the United States.

In  June  2000,  Solectron  acquired  the  manufacturing  assets  of six  Nortel
manufacturing and repair facilities including Calgary, Canada; Research Triangle
Park,  North  Carolina;  Monterrey,  Mexico;  Cwmcarn,  Wales;  Pont de Buis and
Douarnenez,  France;  and Monkstown,  Northern  Ireland.  On August 31, 2000, we
completed an additional  asset  acquisition at Nortel  manufacturing  and repair
operation  in  Turkey.  We  will  provide  prototyping,   PCB  assembly,   small
sub-assembly  and repair  services to Nortel in these  locations.  Following the
transaction  in  Northern  Ireland,  Solectron  purchased  a 50,000  square-foot
facility in Carrickfergus,  just outside of Belfast. During renovations, we will
operate from  Nortel's  facility in Monkstown  and will transfer work to the new
site, which is expected to be fully  operational in September 2000. The new site
will be a NPI  center  that  will  serve

                                       9
Nortel  telecommunications  needs and manufacture  optical networking  products.
Under the terms of the agreements with Nortel,  we will pay  approximately  $900
million to assume the assets  contemplated  in these  agreements.  The companies
also  entered into a multi-year  supply  agreement,  in excess of $10 billion in
sales, with the option to renew.

In  June  2000,   Solectron  completed  the  acquisition  of  IBM  Corporation's
manufacturing operations in Hortolandia, Sao Paulo state, Brazil. We will assume
responsibility  for the systems  configuration  and  assembly of IBM's  Personal
Systems Group,  Retail Systems  Solutions  Group,  and Enterprise  Systems Group
products sold into the Brazilian,  Mercosul and Andean  markets.  As part of the
multi-year agreement,  we will provide IBM with an extensive range of integrated
services including NPI support, PCB and systems assembly,  product configuration
services, repair and end-of-life product support.

In July 2000,  Solectron  completed  the  acquisition  of  Bluegum,  Australia's
leading electronics  contract  manufacturer.  The transaction was accounted as a
pooling  of   interests.   It  is  expected  that   Solectron   will  gain  NPI,
manufacturing, systems assembly, and services capability in Liverpool, New South
Wales; and Wangaratta and Melbourne, Victoria; and program offices in Sydney and
North Melbourne, Australia and Singapore.

RESULTS OF OPERATIONS

The  electronics  industry  is subject to rapid  technological  change,  product
obsolescence  and  price  competition.  These and other  factors  affecting  the
electronics industry, or any of Solectron's major customers in particular, could
materially harm Solectron's results of operations.

In addition,  Solectron  acquired AMERICOM  effective April 28, 2000 and Bluegum
effective  July 14,  2000,  accounting  for both  acquisitions  as a pooling  of
interests.  Accordingly,  our historical financial statements have been restated
retroactively to include the financial results of both AMERICOM and Bluegum.

RESULTS OF OPERATIONS FOR YEARS ENDED AUGUST 31, 1999, 1998 AND 1997

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

                                       10
Years Ended August 31,
                                        -----------------------
                                         1999     1998    1997
                                        ------   ------  ------
           Net sales                     100.0%   100.0%  100.0%
           Cost of sales                  90.3     89.1    87.6
                                        ------   ------   -----
           Gross profit                    9.7     10.9    12.4
           Operating expenses:
             Selling, general and
               Administrative              3.9      4.4     4.9
             Research and development      0.4      0.5     0.5
             Acquisition costs              --       --     0.1
                                        ------   ------   -----
               Operating income            5.4      6.0     6.9
           Net interest income              --      0.1     0.1
                                        ------   ------  ------
           Income before income taxes      5.4      6.1     7.0
           Income taxes                    1.7      2.0     2.4
                                        ------   ------  ------
           Net income                      3.7%     4.1%    4.6%
                                        ======   ======  ======

NET SALES

Solectron's net sales have increased  significantly  in each of the past several
years,  reflecting the growing trend toward  outsourcing  within the electronics
industry. For the year ended August 31, 1999, net sales grew to $9.7 billion, an
increase  of 58.5% over  fiscal  1998 net sales.  Fiscal  1998 net sales of $6.1
billion were 38.4%  greater  than fiscal  1997.  The sales growth in fiscal 1999
compared to fiscal 1998 was  attributable to significant  sales volume increases
from our  worldwide  customers  and from our  acquisitions.  The sales growth in
fiscal 1998 over fiscal 1997 was primarily due 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.  Solectron does not currently  anticipate any future
decline in sales,  but  continues to seek  diversification  of our customer base
among many countries, market segments and product lines within market segments.

Manufacturing and Operations

Net sales from our worldwide  manufacturing  operations group have contributed a
significant  share of total sales for the past three fiscal  years.  Fiscal year
1999 sales grew to $8.5 billion,  an increase of 62.1% over fiscal year 1998. In
fiscal year 1998 net sales of $5.2 billion were 45.8% greater than fiscal 1997.

Within the  Americas,  sales growth was  primarily  due to demand  increases and
acquisitions of assets from Ericsson, NCR, IBM ECAT and Mitsubishi during fiscal
1999 and 1998.  Sales from the  acquisition of IBM ECAT in Austin,  Texas,  were
recognized  beginning in March 1999 because the Texas site consistently  reports
its  results one month in arrears.  In  addition,  the Mexico site was among the
largest  contributors due to the strong demand growth in fiscal 1999 as compared
to fiscal 1998. The Milpitas,  California,  site also  experienced  sales growth
despite the  strategic  transfer of personal  computer PCB programs and computer
peripherals  systems  assembly  programs  to Mexico and  networking  business to
Penang.  The sales  growth from fiscal 1997 to fiscal 1998 was  attributable  to
start-up and major new programs at the Texas and  Massachusetts  sites,  and the
addition  of new sites in Mexico and Brazil in fiscal  1998.  Additionally,  the
acquired sites from NCR and IBM ECAT in Charlotte  contributed  incremental  net
sales to fiscal 1998 as compared to fiscal 1997.

Solectron's  operations  in  Milpitas,  California,  contributed  a  substantial
portion of Solectron's  net sales and operating  income during fiscal 1999, 1998
and 1997. In recent  years,  management  has  undertaken  deliberate  actions to
achieve improved global load balancing by transferring certain projects from the
Milpitas site to other sites worldwide. However, the performance of the Milpitas
operation  is expected to  continue  to be 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 materially
harm Solectron's consolidated results of operations.

                                       11
In Europe,  net sales at all of Solectron's  European sites  increased in fiscal
1999 over fiscal  1998.  The increase was  principally  due to overall  business
growth and increased  demand from our  telecommunications  customers.  Net sales
from our European operations in fiscal 1998 increased over fiscal 1997 primarily
due to core business growth and new accounts.  Sales growth at the Scotland site
was  particularly  strong due to the ramp up of major  customers'  PCB  assembly
activities.  The new locations in Sweden also  contributed to the sales increase
in fiscal 1998 compared to fiscal 1997.

All  Asia/Pacific  sites  contributed  to the sales increase in fiscal 1999 over
fiscal 1998 primarily due to core business growth.  In particular,  sales growth
at the Penang, Malaysia, site was attributable to increased demand from personal
computer   customers  and  networking   business   transferred   from  Milpitas,
California.  The Johor,  Malaysia,  site also experienced higher product demand.
Net sales from the Asia/Pacific manufacturing locations increased in fiscal 1998
over fiscal 1997 primarily as a result of certain projects  transferred from the
Milpitas,  California, site to meet demand growth. In addition, Bluegum acquired
Alcatel's  telecommunications  manufacturing  operations  in  New  South  Wales,
Australia in September 1998.

Technology Solutions

The technology solutions group consists of SMART Modular Technologies,  Inc. and
Force  Computers,  subsidiaries  of Solectron.  This business unit was formed on
November  30,  1999  coincident  with the  merger  of  SMART.  Net sales for the
technology  solutions  business  unit consist of sales of specialty and standard
memory products,  PC cards,  embedded computer modules and  communications  card
products. Net sales for fiscal years 1999, 1998 and 1997 were $1.1 billion, $830
million,  and $795 million,  respectively.  The increase in fiscal 1999 of 37.0%
over  fiscal  1998  was  primarily  due to an  increase  in the  average  memory
densities of the standard  memory  products,  as well as an increase in embedded
computer  and  communications  card  products.  Fiscal 1998 sales were  slightly
higher than fiscal 1997 due to an increase in sales of standard memory products,
communications card products and embedded computer modules,  partially offset by
a substantial  decline in the cost of certain  memory devices used in production
and a decrease in sales of specialty products.

Global Services

This  group  was  established  in June  1999.  It  consists  of  three  business
acquisitions  including  Sequel  in July  1999,  NULOGIX  in  November  1999 and
AMERICOM in April 2000,  as well as a small  division of  Solectron in Milpitas.
Net sales were $103.9 million,  $65.4 million, and $47.5 million in fiscal years
1999, 1998 and 1997, respectively.

                                       12
Net Sales from  International  Sites - Net sales from Solectron's  international
sites, as a percentage of consolidated net sales, have grown over the last three
fiscal years.  International locations contributed 33% of consolidated net sales
in fiscal  1999,  compared  to 28% in fiscal 1998 and 21% in fiscal  1997.  As a
result of Solectron's international sales and facilities, Solectron's operations
are  subject  to the  risks of doing  business  abroad.  While,  to date,  these
dynamics have not materially harmed Solectron's results of operations, we cannot
assure that there will not be such an impact in the future.

Net Sales to Major Customers - Three major customers accounted for more than 10%
of our net sales in fiscal 1999,  1998 and 1997. The following table lists these
customers and the percentage of net sales attributed to them.

                                             Years Ended August 31,
                                            -----------------------
                                              1999   1998     1997
                                            ------  ------  -------
           Compaq Computer Corporation
           (Compaq)                            12%     *       *
           Cisco Systems, Inc. (Cisco)         11%    10%      *
           Hewlett-Packard Company (HP)         *     11%     11%

* net sales less than 10%

No other  customers  accounted  for more than 10% of net sales during any of the
years presented.

Solectron's top ten customers accounted for 74% of net sales in fiscal 1999, 68%
of net  sales  in  fiscal  1998  and 63% of net  sales in  fiscal  1997.  We are
dependent upon continued revenues from Compaq,  Cisco, HP, IBM and our other top
ten customers.  We cannot  guarantee that these or any other  customers will not
increase  or  decrease  as  a  percentage  of  consolidated   net  sales  either
individually  or as a group.  Consequently,  any  material  decrease in sales to
these  or  other  customers  could  materially  harm   Solectron's   results  of
operations.

Solectron  believes  that its ability to continue  achieving  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,  we cannot  assure that any of
Solectron's  current  customers will continue to utilize  Solectron's  services.
Because of these factors,  we cannot assure that Solectron's  historical revenue
growth rate will continue.

GROSS PROFIT

The gross margin  percentages  were 9.7%,  10.9% and 12.4% for fiscal 1999, 1998
and 1997, respectively. The reductions primarily reflect increased sales derived
from systems build  projects that  generally  yield lower  margins,  green field
start-up operations,  and an increase in the proportion of technology solutions'
net sales derived from its lower margin  standard memory  products.  Solectron's
net sales from systems  build  projects  contributed  21% of net sales in fiscal
1999,  19% of net sales in fiscal  1998 and 9% of net sales in fiscal  1997.  In
addition,  the  amortization  of  intellectual  property  resulting from certain
acquisitions reduced gross margins. The decrease in fiscal 1998 from fiscal 1997
was primarily  due to a shift toward  higher  volume  projects and systems build
projects that typically have lower margins and start-up  costs  associated  with
our operations in China and Mexico.

For  our  worldwide  manufacturing  operations,  we  anticipate  that  a  larger
percentage  of our  sales  may be  derived  from  systems-build  projects  which
generally  yield lower profit  margins  than PCB  assembly.  For our  technology
solutions  business,  we expect  that a majority  of our sales  from  technology
solutions may continue to be derived from turnkey projects which typically yield
lower  profit  margins  than the  consignment  projects.  In  addition,  factors
affecting technology  solutions' profit margins include the mix between sales of
specialty memory modules,  standard memory modules,  communication card products

                                       13
and embedded  computer  modules,  as well as changes in average memory densities
used in  memory  products.  Currently,  a  significant  amount  of net sales are
derived from the sales of standard  memory  modules which  typically  have lower
profit margins than its specialty memory modules.

In the  foreseeable  future,  Solectron's  overall  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, percentage of sales derived from systems-build and turnkey projects,
pricing within the electronics industry, component costs and delivery linearity,
and the cost  structure at  individual  sites.  Over time,  gross margins at the
individual  sites  and for  Solectron  as a whole  may  continue  to  fluctuate.
Increases in the systems-build  business or turnkey  projects,  additional costs
associated with new projects,  and price erosion within the electronics industry
could harm our gross margin.

In  addition,  we have  experienced  component  shortages.  While the  component
availability  fluctuates from time to time and is still subject to lead time and
other  constraints,  this could possibly have a negative impact on our sales and
gross  margins for the  foreseeable  future.  Therefore,  we cannot  assure that
Solectron'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  41.6% in fiscal  1999 over  fiscal 1998 and 24.3% in fiscal 1998 over
fiscal 1997.  The dollar  increase in fiscal 1999  primarily  reflects  expenses
associated with sales growth including increased human resources costs necessary
to support business  infrastructure and further development costs of information
systems, as well as increased costs of acquisition related activities.  Expenses
incurred  relating to the  business  acquisition  from  Alcatel in  Australia by
Bluegum and the asset acquisitions from Mitsubishi in Braselton, Georgia and IBM
ECAT in Austin,  Texas,  also contributed to the increase in SG&A expenses.  The
fiscal 1998 increase was due to investment in  infrastructure  such as personnel
and related  departmental  expenses at all  manufacturing  locations  as well as
investment in  information  systems to support the increased size and complexity
of our business. Additionally, the sites added in fiscal 1998, including Brazil,
NCR and IBM ECAT in Charlotte,  North  Carolina,  contributed to the increase in
SG&A expenses.

As a percentage of net sales,  SG&A  expenses were 3.9% in fiscal 1999,  4.4% in
fiscal 1998 and 4.9% in fiscal 1997.  The primary reason for the fiscal 1999 and
1998 decrease in SG&A  expenses as a percentage of net sales is the  significant
increase  in the sales  base,  partially  offset by the  costs  associated  with
investments  in our business  infrastructure,  information  systems and start-up
costs for new sites.  We  anticipate  SG&A expenses will continue to increase in
terms  of  absolute  dollars  in the  future  and  may  possibly  increase  as a
percentage of net sales as we continue to develop the  infrastructure  necessary
to support our current and prospective business.

RESEARCH AND DEVELOPMENT EXPENSES

With the  exception  of our  technology  solutions  business  unit,  Solectron'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.
Technology  solutions' R&D efforts are concentrated on the design and testing of
new products to be included in its memory,  embedded  computers  and I/O product
lines.

As a percentage of net sales, R&D expenses were 0.4% in fiscal 1999, and 0.5% in
fiscal 1998 and 1997.  In absolute  dollars,  R&D  expenses  increased  35.5% in
fiscal 1999 over fiscal  1998 and 27.2% in fiscal  1998 over  fiscal  1997.  The
increases in R&D expenses were  primarily due to technology  solutions  business
unit's focused efforts on the  development

                                       14
and  improvement  of its products.  We expect that R&D expenses will increase in
absolute  dollars in the future and may  increase as a  percentage  of net sales
while  technology  solutions  and the acquired  IBM sites  continue to invest in
their R&D efforts.  In addition,  certain new R&D projects will be undertaken at
some of Solectron's  Asia/Pacific  sites,  particularly at the sites in Malaysia
because of the tax holiday. (See "Income Taxes.")

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  in
November 1996.

NET INTEREST INCOME (EXPENSE)

Net interest  expense was $1.6  million in fiscal 1999  compared to net interest
income  of $6.9  million  and $4.3  million  in  fiscal  1998 and  fiscal  1997,
respectively. The net interest expense in fiscal 1999 versus net interest income
in fiscal  1998 was  primarily  attributable  to the  issuance  of 4% yield zero
coupon  convertible  senior  notes in January  1999,  partially  offset by lower
interest  expense from the redemption of 6% convertible  subordinated  notes due
2006 which were  converted  to common  stock in March  1999.  SMART's  secondary
public offering of common stock completed  during September 1997 has resulted in
significant  increases  in  interest  income  during  fiscal 1998 as compared to
fiscal 1997.

In fiscal 1999, we capitalized  approximately  $3.2 million of interest  expense
related to the costs of computer  software  developed  for  internal use and the
facility  construction  projects at the Brazil, China, Mexico and Romania sites.
We expect  to use more of our cash and  short  term  investments  during  future
periods in order to fund anticipated future growth.

INCOME TAXES

Income taxes  increased to $164.2  million in fiscal 1999 from $124.2 million in
fiscal 1998 and $103.8 million in fiscal 1997, primarily due to increased income
before income taxes. Solectron's effective income tax rate decreased slightly to
31.9% in fiscal 1999 from 33.1% in fiscal 1998 and 33.8% 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
those  in the  United  States,  primarily  due to the  tax  holiday  granted  to
Solectron's  sites in Malaysia.  The Malaysian tax holiday is effective  through
January  31,  2002,  subject to some  conditions,  including  certain  levels of
research and development  expenditures.  Solectron has also been granted various
tax holidays in China,  which are effective for various terms and are subject to
some conditions.

LIQUIDITY AND CAPITAL RESOURCES

Net  working  capital  was $3.2  billion at August 31,  1999,  compared  to $1.3
billion at August 31, 1998. A major  component of working  capital at August 31,
1999,  primarily  consisted  of  cash  from  the  proceeds  of the  zero  coupon
convertible senior notes in January 1999 and the common stock offering in August
1999.

During fiscal 1999, we used approximately  $164.2 million of cash and short-term
investments to fund our asset  acquisitions  including  Mitsubishi in Braselton,
Georgia;  IBM's ECAT in Austin,  Texas; and Trimble in Sunnyvale,  California as
well   as   business   acquisitions   including   Alcatel's   telecommunications
manufacturing  operations in New South Wales,  Australia by Bluegum and Compaq's
embedded  and real time product  line and  business in Fremont,  California  and
Scotland by SMART.  In the first nine months of fiscal 2000, we used  additional
funds for our acquisitions.  As we continue to grow, it is expected that we will
require greater amounts of working capital to support our operations. We believe
that our current level of working  capital,  together with cash  generated  from
operations and our available  credit  facilities,  will provide adequate working
capital for operations for the

                                       15
foreseeable  future.  However,  we may need to raise additional funds to finance
our  rapid  expansion,   including   establishing  new  locations  or  financing
additional  acquisitions.  We cannot assure that such funds, if needed,  will be
available on terms acceptable to us or at all.

Inventory   levels   fluctuate   directly   with  the   volume  of   Solectron's
manufacturing. Changes or significant fluctuations in product market demands can
cause  fluctuations in inventory  levels that may result in changes of inventory
turns and  liquidity.  Historically,  we have been able to manage our  inventory
levels with regard to these fluctuations.  However, should material fluctuations
occur in product demand, we could experience slower turns and reduced liquidity.
The  increase  in  inventory  levels  at  year-end  1999 from  year-end  1998 is
substantially a result of overall growth and the greater number of manufacturing
locations at August 31, 1999, compared to August 31, 1998, as each location must
maintain  a level of  inventory  adequate  to allow the  location  to respond to
customer manufacturing requirements.  Subsequent to the year end of fiscal 1999,
Solectron  has  experienced   shortages  in  certain  components   resulting  in
incomplete kits which contributed to an increase in inventory on hand.

Cash provided by operating  activities was $96.6 million in fiscal 1999,  $212.3
million in fiscal  1998 and $217.8  million in fiscal  1997.  The  decreases  in
fiscal  1999 and  1998  were  primarily  due to  increased  levels  of  accounts
receivable  and  inventory,  partially  offset by increases in net income before
depreciation and amortization, and current liabilities.

During fiscal 1999,  Solectron invested  approximately $449.4 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  our  new  manufacturing  sites,
principally in Brazil,  Mexico and Romania.  We expect capital  expenditures  in
fiscal 2000 to be approximately $450 million.

In addition to working  capital as of August 31, 1999,  which  included cash and
cash  equivalents of $1.4 billion and short-term  investments of $453.6 million,
Solectron has available a $100 million unsecured multi-currency revolving credit
facility is subject to certain financial  covenants.  We also have approximately
$105  million in unused  foreign  credit  facilities  of which $24  million is a
committed credit line.

RESULTS OF OPERATIONS FOR NINE MONTHS ENDED MAY 31, 2000 AND 1999

The following table sets forth, for the periods indicated,  certain items in the
Unaudited  Supplemental  Condensed  Consolidated   Statements  of  Income  as  a
percentage of net sales.  The financial  information  and the  discussion  below
should  be  read  in  conjunction  with  the  unaudited  supplemental  condensed
consolidated financial statements and notes thereto.

                                       16
Nine Months Ended
                                                  May 31,
                                              -----------------
                                                2000      1999
                                              -------   -------
         Net sales                              100.0%    100.0%
         Cost of sales                           90.8      90.4
                                              -------   -------
         Gross profit                             9.2       9.6
         Operating expenses:
           Selling, general and
             administrative                       3.4       3.9
           Research and development               0.5       0.5
           Acquisition and restructuring          0.4        --
                                              -------   -------
         costs
           Operating income                       4.9       5.2
           Net interest income (expense)          0.3      (0.1)
                                              -------   -------
         Income before income taxes and
           cumulative effect of change
           in accounting principle                5.2       5.1
         Income tax expense                       1.7       1.6
                                              -------   -------
         Income before cumulative effect of
           change in accounting principle         3.5       3.5
                                              -------   -------
         Cumulative effect of change in
           accounting principle                    --        --
                                              -------   -------
         Net income                               3.5%      3.5%
                                              =======   =======

NET SALES

Net sales for the  nine-month  period of fiscal 2000  increased to $9.4 billion,
35.0% over the same  period in fiscal  1999.  The growth in sales was  primarily
attributable  to major new program  ramp-ups,  strong  demand from our customers
worldwide and acquisitions made during fiscal 1999 and through the third quarter
of fiscal  2000.  However,  the sales  increase  was  constrained  by  component
shortages.

Solectron has three  business  units  including  manufacturing  and  operations,
technology   solutions,   and  global   services.   Our  core  business   group,
manufacturing  and operations,  provided 87.5% and 87.0%,  respectively,  of net
sales for the nine-month  periods in fiscal 2000 and 1999. Our newly established
technology  solutions group consisting of SMART and Force  contributed 10.8% and
12.0%, respectively,  of net sales for the nine-month periods in fiscal 2000 and
1999. The new global services unit pooled with AMERICOM and the services unit of
Bluegum, which started in fiscal 2000, contributed 1.7% and 1.0%,  respectively,
of net sales for the nine-month periods in fiscal 2000 and 1999.

Manufacturing and Operations

Net sales from our worldwide manufacturing operations group grew to $8.3 billion
for the  nine-month  period in fiscal 2000 compared to $6.1 billion for the same
period in fiscal 1999.  This  increase was 35.8% over the  comparable  period of
fiscal 1999.  The  increase in net sales was  principally  due to strong  demand
growth   from   our   customers    and    acquisitions    including    Alcatel's
telecommunications  manufacturing business in Liverpool, Australia by Bluegum in
September 1998;  manufacturing assets of Mitsubishi in October 1998; IBM ECAT in
Austin,  Texas in February  1999;  Trimble,  California  in August  1999;  IBM's
Netfinity server operations in Greenock,  Scotland in September 1999; Ericsson's
telecommunications  infrastructure  equipment operations in Longuenesse,  France
and  Ostersund,  Sweden in March 2000;  and Zhone,  California in April 2000; as
well as the acquisition of Alcatel's manufacturing business in Aguadilla, Puerto
Rico in March 2000.

Within the Americas, the Milpitas site in California, Guadalajara site in Mexico
and Charlotte site in North Carolina were the largest contributors primarily due
to new programs from our customers.  However, sales in the Americas were impeded
by the  shortage of  components.  Sales growth in the  Milpitas  site  continued
despite the  strategic  transfer of personal  computer PCB programs and computer
peripherals  systems  assembly  programs  to Mexico and  networking  business to
Penang.
                                       17
In Europe,  the net sales increase in the nine-month  period of fiscal 2000 over
the same period of fiscal 1999  primarily  resulted from greater demand from our
mobile phone and telecommunications customers. Additionally, the acquisitions of
manufacturing assets of IBM's Netfinity server operations in Greenock,  Scotland
in September 1999 and  Ericsson's  telecommunications  infrastructure  equipment
operations  in  Longuenesse,   France  and  Ostersund,   Sweden  in  March  2000
contributed incremental net sales for the nine-month period in fiscal 2000.

In  Asia/Pacific,  the net sales growth was  primarily  due to demand  growth in
mobile  phones,  networking  and personal  computer  projects for the nine-month
period in fiscal 2000 compared to the same period of fiscal 1999.  Additionally,
the China site started expanding in production to meet demand growth. Our Penang
site in Malaysia  continues to benefit from the growth of  networking  business.
Also, Bluegum acquired Alcatel's telecommunications  manufacturing operations in
New South Wales, Australia in September 1998.

Technology Solutions

Net sales from our new  technology  solutions  group,  which  includes SMART and
Force, grew 22.6% to $1.0 billion for the nine-month period over the same period
of fiscal 1999.  The increase in net sales  primarily  resulted  from an overall
increase in the average memory densities  incorporated  into the standard memory
products  and  growth  in sales of  communication  card  products  and  embedded
computer  modules.  In  addition,  the  embedded  and real time product line and
business  acquired  during August 1999 from Compaq  further  contributed  to the
increase.  The increase in net sales was partially offset by declines in average
selling prices.

Global Services

This  newly  established  group  reported  net sales of $160.2  million  for the
nine-month  period of fiscal 2000  compared to $68.4 million for the same period
in fiscal 1999. Net sales benefited from the business  acquisitions of Sequel in
July 1999,  NULOGIX in November  1999,  AMERICOM in April 2000, and the services
unit of Bluegum in July 2000.

Concentration of Sales - The operations in Milpitas,  California,  contributed a
substantial  portion of Solectron's net sales and operating income during fiscal
1999,  1998 and 1997.  In recent years,  management  has  undertaken  deliberate
actions to achieve  improved  global  load  balancing  by  transferring  certain
projects  from  the  Milpitas  site  to  other  sites  worldwide.  However,  the
performance  of  the  Milpitas  operation  is  expected  to  continue  to  be  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 materially harm Solectron's  consolidated  results
of operations.

International  Sales - In the first nine  months of fiscal  2000,  international
locations  contributed  42.8% of consolidated net sales compared to 37.9% in the
same period of fiscal 1999. As a result of Solectron's  international  sales and
facilities,  Solectron's  operations  are subject to the risks of doing business
abroad.  While these dynamics have not materially harmed Solectron's  results of
operations,  we  cannot  assure  that  there  will not be such an  impact in the
future, including potential adverse effects in operating results associated with
the risks of doing business abroad.

                                       18
Net Sales to Major  Customers - Several of our  customers  accounted  for 10% or
more of our net sales in the  nine-month  periods of fiscal  2000 and 1999.  The
following  table  details  these  customers  and  the  percentage  of net  sales
attributed to them.
                                             Nine Months Ended
                                                  May 31,
                                             -----------------
                                               2000      1999
                                             -------   -------
           Cisco Systems, Inc. (Cisco)          12%       10%
           Ericsson Telecom AB (Ericsson)       11%        *
           Compaq Computer Corporation           *        13%
           (Compaq)

----------------
* Less than 10%.

No other  customer  accounted  for more than 10% of net sales  during any of the
periods presented.

Solectron's  top  ten  customers   accounted  for  approximately  71%  and  75%,
respectively,  of consolidated net sales in the first nine months of fiscal 2000
and 1999.  We are dependent  upon  continued  revenues from Cisco,  Ericsson and
Compaq,  as well as our other top ten customers.  We cannot guarantee that these
or any  other  customers  will not  increase  or  decrease  as a  percentage  of
consolidated  net sales either  individually  or as a group.  Consequently,  any
material  decrease in sales to these or other  customers  could  materially harm
Solectron's results of operations.

Solectron  believes  that its ability to continue  achieving  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,  we cannot  assure that any of
Solectron's  current  customers will continue to utilize  Solectron's  services.
Because of these factors,  we cannot assure that Solectron's  historical revenue
growth rate will continue.

GROSS PROFIT

The gross  margin  percentage  decreased  to 9.2% for the  nine-month  period of
fiscal 2000 compared with 9.6% for the same period of fiscal 1999. The reduction
was primarily attributable to manufacturing  inefficiencies due to non-linearity
of materials receipts, a high level of business  development  activities and new
site integration  support  expenditures,  as well as capacity ramp-up for future
demand growth.

For  our  worldwide  manufacturing  operations,  we  anticipate  that  a  larger
percentage  of our  sales  may be  derived  from  systems-build  projects  which
generally  yield lower profit  margins  than PCB  assembly.  For our  technology
solutions  business,  we expect  that a majority  of our sales  from  technology
solutions may continue to be derived from turnkey projects which typically yield
lower  profit  margins  than the  consignment  projects.  In  addition,  factors
affecting technology  solutions' profit margins include the mix between sales of
specialty memory modules,  standard memory modules,  communication card products
and embedded  computer  modules,  as well as changes in average memory densities
used in memory  products.  Currently,  a  significant  majority of net sales are
derived from the sales of standard  memory  modules which  typically  have lower
profit margins than its specialty memory modules.

In the  foreseeable  future,  Solectron's  overall  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, percentage of sales derived from systems-build and turnkey projects,
pricing within the electronics industry, component costs and delivery linearity,
and the cost  structure at  individual  sites.  Over

                                       19
time,  gross  margins at the  individual  sites and for Solectron as a whole may
continue  to  fluctuate.  Increases  in the  systems-build  business  or turnkey
projects,  additional  costs  associated  with new  projects,  and price erosion
within the electronics industry could harm our gross margin.

In  addition,  we have  experienced  component  shortages.  While the  component
availability  fluctuates from time to time and is still subject to lead time and
other  constraints,  this could possibly have a negative impact on our sales and
gross  margins for the  foreseeable  future.  Therefore,  we cannot  assure that
Solectron'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 19.4%,  for the nine-month  period of fiscal 2000 over the same period
of fiscal 1999.  As a percentage  of net sales,  SG&A expenses were 3.4% for the
nine-month  period  in the  fiscal  2000 and 3.9% for the  comparable  period in
fiscal  1999.  The  increase  in  absolute  dollars  for the fiscal  2000 period
primarily resulted from increased human resources and information  systems costs
to support sales growth and increased costs of acquisition  related  activities.
The decline as a percentage of net sales for the fiscal 2000 period reflects our
on-going effort to manage operating  expenses relative to sales growth and gross
margin  levels.  We anticipate  SG&A expenses will increase in terms of absolute
dollars in the future, and may possibly increase as a percentage of revenue,  as
we  continue  to  invest  in  our  infrastructure  such  as  marketing,   sales,
supply-base  management as well as continuing  investment in information systems
to support the increased size and complexity of our business.

RESEARCH AND DEVELOPMENT EXPENSES

With the exception of our technology solutions operations,  Solectron'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. Technology solutions'
R&D efforts are  concentrated  on new product  development  and  improvement  of
product  designs  through   improvements  in   functionality   and  the  use  of
microprocessors in embedded applications.

As a percentage of net sales, R&D expenses were 0.5% for both nine-month periods
in fiscal 2000 and 1999. In absolute dollars, R&D expenses were $44.7 million in
the first  nine  months of fiscal  2000  compared  to $32.5  million in the same
period of fiscal  1999.  The  increase in R&D expenses in the fiscal 2000 period
compared to the fiscal 1999 period was  primarily due to increased R&D effort at
technology  solutions and new R&D projects initiated at various sites. We expect
that R&D  expenses  will  increase  in  absolute  dollars  in the future and may
increase as a percentage  of net sales as SMART and Force  continue to invest in
their R&D efforts and additional R&D projects are undertaken at certain sites.

ACQUISITION AND RESTRUCTURING COSTS

For the  nine-month  period of fiscal 2000,  acquisition  costs of $25.5 million
included  $20.3  million  recorded  in the second  quarter of fiscal  1999 which
related to the merger of SMART consisting of investment banker fees, legal fees,
accounting  fees,  registration  fees and other  incidentals.  During  the third
quarter of fiscal  2000,  acquisition  costs of $5.2  million  were  recorded in
connection  with the  acquisition  of  AMERICOM.  These  costs  included  direct
transaction fees, as well as legal fees, accounting fees,  registration fees and
other incidentals.

Total restructuring costs of $7.7 million for the nine-month period comprised of
$4.7 million which was recorded in the second quarter of fiscal 2000  associated
with the  consolidation  of certain  facilities  as a result of the mergers with
SMART and Sequel.

                                       20
These restructuring  transaction costs of $4.7 million included lease exit costs
of approximately $2.4 million, fixed asset write-offs and other incidental costs
of approximately $1.4 million,  as well as severance costs of approximately $0.9
million.  In the third  quarter  of  fiscal  2000,  restructuring  costs of $1.8
million related to  re-alignment of the operations in Atlanta,  Georgia in third
quarter of fiscal 2000. Such  restructuring  costs consisted of severance costs,
long-term  assets written off and other  incidental  costs.  Additionally,  $1.2
million  was  recorded  for  long-term  assets  written  off  due to  operations
restructured in Wangaratta, Australia.

As of May 31, 2000,  liabilities related to restructuring  activities,  totaling
approximately  $3.6  million,  are  expected  to be  paid  out by the end of the
calendar year 2000.

NET INTEREST INCOME (EXPENSE)

Net interest  income was $26.8  million for the first nine months of fiscal 2000
compared to $3.8 million of net  interest  expense for the same period of fiscal
1999. The net interest income in the fiscal 2000 periods primarily resulted from
interest income earned on undeployed  cash and investments  from the proceeds of
the 2.75%  zero-coupon  convertible  senior notes which were issued in May 2000,
offset  in  part  by  interest  expense  on the 4% and  2.75  yield  zero-coupon
convertible  senior  notes as well as on the 7 3/8% senior  notes.  In the first
nine-month period of fiscal 2000, we capitalized  approximately  $0.9 million of
interest  expense  related  to the  costs of  computer  software  developed  for
internal  use. We expect to utilize more of the  undeployed  cash during  fiscal
2000 in order to fund anticipated future growth.

INCOME TAXES

For the  nine-month  period of fiscal  2000,  income  taxes  increased to $158.3
million  from  $115.5  million in the  fiscal  1999  period.  The  increase  was
primarily due to increased income before income taxes. 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  those in the  United
States,  primarily  due to the tax  holiday  granted  to  Solectron's  sites  in
Malaysia.  The  Malaysian  tax holiday is  effective  through  January 31, 2002,
subject to some conditions, including certain levels of research and development
expenditures.  Solectron  has also been  granted  various tax holidays in China,
which are effective for various terms and are subject to some conditions.

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE

Statement  of  Position  (SOP)  98-5,   "Reporting  on  the  Costs  of  Start-up
Activities."  This SOP  requires  companies  to expense  all costs  incurred  in
connection with start-up activities. The Company recorded a cumulative effect of
change in accounting  principle of $3.5 million, net of $1.6 million tax benefit
in the first quarter of fiscal 2000.

LIQUIDITY AND CAPITAL RESOURCES

Net working capital was $5.7 billion at May 31, 2000 compared to $3.2 billion at
the end of fiscal 1999.  During the first nine months of fiscal 2000, cash, cash
equivalents  and  short-term  investments  increased  to $3.4  billion from $1.9
billion  which  reflects  the  proceeds of 2.75% yield  zero-coupon  convertible
senior debt issued in May 2000.

We used $297.7 million for acquisitions of additional  manufacturing assets from
Trimble in  California,  acquisition  funding of  manufacturing  assets at IBM's
Netfinity  server  operations  in  Greenock,  Scotland;  Ericsson  in France and
Sweden; and Zhone,  California;  as well as the business acquisitions of NULOGIX
in Canada and  Compaq's  embedded  and real time  product  line and  business in
Fremont,  California and Scotland, and Alcatel Puerto Rico during the first nine
months of fiscal 2000.

                                       21
As we continue to grow, it is expected that we will require  greater  amounts of
working capital to support our operations.  We believe that our current level of
working capital,  together with cash generated from operations and our available
credit facilities,  will provide adequate working capital for our operations for
the  foreseeable  future.  However,  we may  need to raise  additional  funds to
finance our rapid expansion,  including  establishing new locations or financing
additional  acquisitions.  We cannot assure that such funds, if needed,  will be
available on terms acceptable to us or at all.

Inventory   levels   fluctuate   directly   with  the   volume  of   Solectron's
manufacturing. Changes or significant fluctuations in product market demands can
cause  fluctuations in inventory  levels that may result in changes of inventory
turns and  liquidity.  The  increase  in  inventory  levels at May 31, 2000 from
fiscal year end 1999 was primarily due to ramp-up  programs,  incomplete kits on
hand  awaiting  short   components,   and  purchased   inventory  through  asset
acquistions.

In the first nine months of fiscal 2000,  Solectron  invested  $323.5 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 which was retired or sold.  Expenditures  were also made for the
construction of buildings for the sites in Mexico,  Romania,  North Carolina and
Massachusetts.  We  expect  total  capital  expenditures  in  fiscal  2000 to be
approximately $450 million.

In  addition  to cash  and  cash  equivalents  of $2.6  billion  and  short-term
investments  of $0.8 billion as of May 31, 2000,  Solectron has available a $100
million unsecured  multicurrency revolving credit facility that expires in April
2002. This credit facility is subject to certain  financial  covenants.  We also
have approximately $105 million in unused foreign credit facilities of which $24
million is committed credit line.

"YEAR 2000" ISSUES

Solectron  developed a  comprehensive  program to address the issues  associated
with the programming  code in the computer  systems as the year 2000 approached.
The Year 2000  problem  was  pervasive  and  complex,  since  computer  systems,
manufacturing  equipment and industrial control systems would have been affected
in some way by the  rollover  of the two digit  year value to 00.  Systems  that
could  not  properly  recognize  such  dates  could  have  generated   erroneous
information  or caused a system to fail. The Year 2000 issue created risk for us
from  unforeseen  problems in our systems and from those of third  parties  with
whom we do business.

We  experienced  no significant  operational  or  administrative  problems as we
passed  the  transition  to the  year  2000.  While  the New Year  rollover  was
potentially  the most critical  period,  the computer  related  problems may not
surface for months from now. We will continue to diligently  monitor the systems
for any Year 2000  issues  and any other  date  related  computer  issues in the
coming  months.  Any  failure of  Solectron's  and/or  third  parties'  computer
systems, manufacturing equipment and industrial control systems could materially
harm our ability to conduct business.

The total cost for the  completion  of Year 2000 program was  approximately  $35
million. Of this amount,  approximately $10.0 million was for the replacement of
capital equipment,  approximately half of which comprises  noncompliant  systems
that would not otherwise have been replaced at that point in time. A significant
portion of these costs was not  incremental  to us, but rather  represented  the
redeployment  of  existing  resources.   Certain  other  information  technology
projects  were  delayed due to the focus on Year 2000  issues.  The total amount
spent on the program in the prior fiscal year ended  August 31, 1999,  was $27.0
million,  of which $18.0  million  principally  pertained  to payroll  costs for
personnel  involved  in the program  and costs of outside  consultants  and $9.0
million  principally  pertained to capital  expenditures.  Prior to fiscal 1999,
costs of software and hardware  applications  incurred for Year 2000  compliance
were not  tracked  separately,  but were  estimated  to be in the  range of $2.0
million to $3.0 million.

                                       22
RECENT ACCOUNTING PRONOUNCEMENTS

Effective in the first quarter of fiscal 1999,  Solectron  adopted  Statement of
Financial Accounting Standards No. 130 (SFAS No. 130), "Reporting  Comprehensive
Income," which requires us to report and display certain  information related to
comprehensive  income.  Comprehensive  income  includes  net  income  and  other
comprehensive  income. Other comprehensive income is classified  separately into
foreign currency items,  minimum pension liability  adjustments,  and unrealized
gains and  losses on certain  investments  in debt and  equity  securities.  The
adoption  of SFAS No.  130 had no  impact  on  Solectron's  financial  position,
results of operations or cash flows.

Effective in the first  quarter of fiscal 1999,  Solectron  adopted the American
Institute of Certified Public  Accountants  (AICPA)  Statement of Position (SOP)
98-1,  "Accounting for the Costs of Computer Software  Developed or Obtained for
Internal  Use."  SOP 98-1  provides  guidance  on  accounting  for the  costs of
computer  software  developed or obtained  for internal use and for  determining
when specific costs should be capitalized and when they should be expensed.  The
impact  of  adopting  SOP  98-1 was not  significant  to  Solectron's  financial
position, results of operations or cash flows.

In April 1998,  the AICPA issued SOP 98-5,  "Reporting  on the Costs of Start-Up
Activities." SOP 98-5 requires that all start-up costs related to new operations
must be  expensed  as  incurred.  In  addition,  all  start-up  costs  that were
capitalized in the past must be written off when SOP 98-5 is adopted. We adopted
SOP 98-5 in the first quarter of fiscal 2000.

In June 1998,  the  Financial  Accounting  Standards  Board (FASB) issued SFAS
No. 133,  "Accounting for Derivative  Instruments and Hedging  Activities." As
amended  by SFAS  No.  137 and  138,  SFAS  No.  133  establishes  methods  of
accounting  for  derivative  financial   instruments  and  hedging  activities
related to those  instruments as well as other hedging  activities.  Solectron
anticipates  that  the  adoption  of SFAS No.  133  will  not have a  material
impact  on its  financial  position,  results  of  operations  or cash  flows.
Solectron will adopt SFAS No. 133 in its first fiscal quarter of 2001.

In December  1999, the  Securities  and Exchange  Commission  (SEC) issued Staff
Accounting   Bulletin   (SAB)  No.  101,   "Revenue   Recognition  in  Financial
Statements,"  which provides  guidance related to revenue  recognition  based on
interpretations  and  practices  followed by the SEC and was effective the first
fiscal  quarter of fiscal years  beginning  after December 15, 1999 and requires
companies to report any changes in revenue recognition as a cumulative change in
accounting principle at the time of implementation in accordance with Accounting
Principles Board opinion 20, "Accounting Changes." Subsequently, SAB No.101A and
101B  were  issued  to  delay  the  implementation  of SAB No.  101.  It will be
effective  for  Solectron  in the  Company's  fourth  quarter  of  fiscal  2001.
Solectron is currently  evaluating the impact,  if any, SAB No. 101 will have on
its financial position or results of operations.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

FOREIGN CURRENCY EXCHANGE RATES RISK

We do not use derivative  financial  instruments for speculative  purposes.  Our
policy is to hedge our foreign  currency  denominated  transactions  in a manner
that  substantially  offsets the effects of changes in foreign currency exchange
rates.  Presently,  we use foreign  currency  borrowings  and  foreign  currency
forward contracts to hedge only those currency exposures associated with certain
assets and liabilities  denominated in non functional currencies.  Corresponding
gains and losses on the underlying  transaction  generally  offset the gains and
losses on these foreign currency hedges.

As of August 31,  1999,  all of the  foreign  currency  hedging  contracts  were
scheduled  to mature in less  than  three  months  and  there  were no  material
deferred  gains or losses.  In addition,  our  international  operations in some
instances act as a natural hedge because both  operating  expenses and a portion
of sales are denominated in local currency.  In these

                                       23
instances,  including our current  experience  involving the  devaluation of the
Brazilian real, 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.
Also, since less than 12% of Solectron's net sales are denominated in currencies
other  than  the  U.S.  dollar,  we do not  believe  our  total  exposure  to be
significant.

Solectron  has  currency   exposures  arising  from  both  sales  and  purchases
denominated in currencies other than the functional currency of Solectron sites.
Fluctuations  in the rate of exchange  between the  currency of the exposure and
the functional currency of the Solectron site could seriously harm our business,
operating results and financial condition.  For example, if there is an increase
in the rate at which a foreign currency is exchanged for U.S.  dollars,  it will
require more of the foreign currency to equal a specified amount of U.S. dollars
than before the rate increase.  In such cases,  and if we price our products and
services in the foreign  currency,  we will receive less in U.S. dollars than we
did before the rate  increase  went into  effect.  If we price our  products and
services in U.S. dollars and competitors price their products in local currency,
an increase in the  relative  strength of the U.S.  dollar  could  result in our
prices being  uncompetitive in markets where business is transacted in the local
currency.

INTEREST RATE RISK

The primary  objective of our  investment  activities is to preserve  principal,
while at the same time, maximize yields without  significantly  increasing risk.
To achieve this  objective,  we maintain our portfolio of cash  equivalents  and
short-term investments in a variety of securities, including both government and
corporate obligations, certificates of deposit and money market funds. As of May
31, 2000,  approximately  85% of our total  portfolio was scheduled to mature in
less than six  months.  As of August 31,  1999,  approximately  93% of our total
portfolio  was  scheduled  to  mature  in one year or less,  with the  remainder
maturing  in  less  than  two  years.  See  Note  2  of  Notes  to  Supplemental
Consolidated Financial Statements.

The following table presents the amounts of our cash  equivalents and short-term
investments that are subject to interest rate risk by year of expected  maturity
and weighted average interest rates as of August 31, 1999:

                                   2000      2001     Total   Fair Value
                                 -------   -------  --------  ----------
                                         (dollars in millions)
        Cash equivalents and     $1,326.4  $111.4   $1,437.8   $1,437.8
        short-term investments
        Average interest rates       5.25%   5.39%

We have  entered  into an interest  rate swap  transaction  under which we pay a
fixed rate of interest  hedging  against the variable  interest rates charged by
the lessor for the facility  lease at Milpitas,  California.  The interest  rate
swap expires in the year 2002,  which  coincides  with the maturity  date of the
lease term. As we intend to hold the interest rate swap until the maturity date,
we are not subject to market risk.  In fact,  such  interest rate swap has fixed
the interest rate for the facility lease, thus reducing interest rate risk.

Solectron's  long-term debt  instruments are subject to fixed interest rates. In
addition, the amount of principal to be repaid at maturity is also fixed. In the
case of the convertible  notes,  such notes are based on fixed conversion ratios
into common  stock.  Therefore,  we are not exposed to variable  interest  rates
related to our long-term debt instruments.

                                       24
SUPPLEMENTAL FINANCIAL STATEMENTS AND DATA

            Unaudited Supplemental Quarterly Financial Information

For each fiscal  quarter during the first nine months ended May 31, 2000 and two
fiscal  years  ended  August 31, 1999 and August 31,  1998 (in  millions  except
percentages and per share data):

                                          First    Second    Third     Fourth
           2000                           Quarter  Quarter   Quarter   Quarter
           ----                          --------  -------   --------  --------
      Net sales                          $2,834.6  $2,921.7  $3,645.0
      Gross profit                       $  277.0  $  279.9  $  305.5
      Gross margin                            9.8%      9.6%      8.4%
      Operating income                   $  155.3  $  135.7  $  170.2
      Operating margin                        5.5%      4.6%      4.7%
      Income before cumulative effect of
        change in accounting principle   $  113.3  $   96.7  $  119.7
      Cumulative effect of change in
        accounting principle,
        net of income tax benefi         $   (3.5) $     --  $     --
                                         --------  --------  --------
      Net income                         $  109.8  $  96.7   $  119.7
                                         ========  ========  ========
      Basic net income per share: (1)
        Income before cumulative effect of
         change in accounting principle  $  0.19   $   0.16  $   0.20
        Cumulative effect of change in
          accounting principle           $ (0.01)  $     --  $     --
                                         --------  --------  --------
        Net income                       $  0.18   $   0.16  $   0.20
                                         --------  --------  --------
      Diluted net income per share: (1)
        Income before cumulative effect
         of change in accounting
         principle                       $   0.18  $   0.16   $   0.19
        Cumulative effect of change in
         accounting principle            $  (0.01) $     --   $     --
                                         --------  --------   --------
        Net income                       $   0.17  $   0.16   $   0.19
                                         ========  ========   ========
           1999
           ----
      Net sales                          $2,272.0  $2,249.3  $2,440.4  $2,707.5
      Gross profit                       $  211.7  $  216.9  $  240.8  $  266.9
      Gross margin                            9.3%      9.6%      9.9%      9.9%
      Operating income                   $  115.1  $  117.0  $  134.0  $  150.0
      Operating margin                        5.1%      5.2%      5.5%      5.5%
      Net income                         $   77.5  $   78.4  $   90.9  $  103.5
      Basic net income
        per share(1)                     $   0.15  $   0.15  $   0.16  $   0.18
      Diluted net income
       per share(1)                      $   0.14  $   0.14  $   0.16  $   0.17

           1998
           ----
      Net sales                          $1,340.9  $1,369.4  $1,465.0  $1,926.9
      Gross profit                       $  160.3  $  158.6  $  159.6  $  188.1
      Gross margin                           12.0%     11.6%     10.9%      9.8%
      Operating income                   $   90.0  $   92.4  $   83.4  $  102.8
      Operating margin                        6.7%      6.7%      5.7%      5.3%
      Net income                         $   61.7  $   63.1  $   57.8  $   68.7
      Basic net income
        per share (1)                    $   0.12  $   0.12  $   0.11  $   0.13
      Diluted net income
        per share (1)                    $   0.12  $   0.12  $   0.11  $   0.13

(1) Adjusted to reflect two-for-one stock splits through March 8, 2000.

                                       25
SOLECTRON CORPORATION AND SUBSIDIARIES
                   SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
                     (In millions, except per share data)

                                                    As of August 31,
                                                  ------------------
                                                    1999       1998
                                                  --------  --------
         ASSETS
         Current assets:
           Cash and cash equivalents              $1,428.1  $  306.4
           Short-term investments                    453.6     183.5
           Accounts receivable, less allowances
             Of $6.4 and $4.7, respectively        1,282.5     785.5
           Inventories                             1,197.0     843.8
           Prepaid expenses and other
             current assets                          121.2     136.3
                                                  --------  --------
             Total current assets                  4,482.4   2,255.5
         Net property and equipment                  723.8     505.3
         Other assets                                214.3      82.9
                                                  --------  --------
         Total assets                             $5,420.5  $2,843.7
                                                  ========  ========

         LIABILITIES AND STOCKHOLDERS' EQUITY
         Current liabilities:
           Short-term debt                        $   46.9  $   23.8
           Accounts payable                        1,050.4     751.2
           Accrued employee compensation             103.7      83.2
           Accrued expenses                           46.6      39.6
           Other current liabilities                  72.1      79.6
                                                  --------  --------
             Total current liabilities             1,319.7     977.4
         Long-term debt                              922.7     386.8
         Other long-term liabilities                  11.2       4.1
                                                  --------  --------
             Total liabilities                     2,253.6   1,368.3
                                                  --------  --------
         Commitments
         Stockholders' equity:
           Preferred stock, $.001 par value; 1.2
             shares authorized; no shares issued        --        --
           Common stock,  $.001 par value;  800.0
             shares  authorized;  594.1 and 519.9
             shares  issued and  outstanding,
             respectively,  adjusted for stock split
             effective March 8, 2000                   0.3       0.2
           Additional paid-in capital              2,081.4     658.6
           Retained earnings                       1,173.1     824.8
           Accumulated other comprehensive losses    (87.9)     (8.2)
                                                  --------  --------
              Total stockholders' equity           3,166.9   1,475.4
                                                  --------  --------
         Total liabilities and stockholders'
           equity                                 $5,420.5  $2,843.7
                                                  ========  ========

See accompanying notes to supplemental consolidated financial statements.

                                       26
SOLECTRON CORPORATION AND SUBSIDIARIES
                SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
                     (In millions, except per share data)

                                           Years Ended August 31,
                                        ---------------------------
                                          1999     1998      1997
                                        -------- --------  --------

         Net sales                       $9,669.2 $6,102.2 $4,408.5
         Cost of sales                    8,732.9  5,435.6  3,862.1
                                         -------- -------- --------
         Gross profit                       936.3    666.6    546.4
         Operating expenses:
           Selling, general and
            Administrative                  379.7    268.1    215.7
           Research and development          40.5     29.9     23.5
           Acquisition costs                  --       --       4.0
                                         -------- -------- --------
         Operating income                   516.1    368.6    303.2
         Interest income                     36.7     32.3     31.2
         Interest expense                   (38.3)   (25.4)   (26.9)
                                         -------- -------- --------
         Income before income taxes         514.5    375.5    307.5
         Income taxes                       164.2    124.2    103.8
                                         -------- -------- --------
         Net income                      $  350.3 $  251.3 $  203.7
                                         ======== ======== ========
         Net income per share:
           Basic                         $   0.65 $   0.49 $   0.42
           Diluted                       $   0.61 $   0.47 $   0.40
         Weighted average number of shares:
           Basic                            542.6    510.1    487.4
           Diluted                          579.0    556.6    507.8

See accompanying notes to supplemental consolidated financial statements.

                                       27
SOLECTRON CORPORATION AND SUBSIDIARIES
         SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                  (In millions)
Accumulated
                                     Common Stock    Additional                Other            Total
                                   ---------------   Paid-In     Retained   Comprehensive    Stockholders'
                                    Shares  Amount   Capital     Earnings   Income(losses)      Equity
                                   ------- -------  -----------  ---------  --------------  -------------
Balances as of August 31,1996  460.3    $0.1    $ 415.2      $ 370.7     $    1.8          $ 787.8
     Net income                        --      --         --        203.7           --            203.7
     Foreign currency translation      --      --         --           --        (12.4)           (12.4)
     Stock issued under stock
       option and employee
       purchase plans                15.1      --       42.0           --           --             42.0
     Stock issued in business
       combination                   24.8      --       24.0           --           --             24.0
     Issuance of common stock, net    2.9      --       86.9           --           --             86.9
     Repayment of shareholder
       note receivable                 --      --        0.3           --           --              0.3
     Tax benefit associated with
       exercise of stock options       --      --       17.9           --           --             17.9
                                   ------   ------   -------      --------    --------         --------
     Balances as of August 31,1997  503.1     0.1      586.3        574.4        (10.6)         1,150.2
     Net income                        --      --         --        251.3           --            251.3
     Foreign currency translation      --      --         --           --          2.4              2.4
     Stock issued under stock
       option and employee
       purchase plans                15.4     0.1       54.2           --           --             54.3
     Issuance of common stock, net    1.9      --       15.7           --           --             15.7
     Repayment of shareholder
       note receivable                0.1      --        0.1           --           --              0.1
     Cash dividends                    --      --         --         (0.9)          --             (0.9)
     Repurchase of common stock      (0.6)     --       (9.2)          --           --             (9.2)
     Tax benefit associated with
       exercise of stock options       --      --        11.5          --           --             11.5
                                   -------  ------   -------      -------     --------          --------
     Balances as of August 31,1998  519.9     0.2      658.6        824.8         (8.2)         1,475.4
     Net income                        --      --         --        350.3           --            350.3
     Foreign currency translation      --      --         --           --        (78.6)           (78.6)
     Unrealized loss on investments    --      --         --           --         (1.1)            (1.1)
     Stock issued under stock
       option and employee
       purchase plans                12.7      --       81.5           --           --             81.5
     Issuance of common stock
       dividends                       --     0.1         --         (0.1)          --               --
     Conversion of long-term
       debt, net                     27.2      --      225.3           --           --            225.3
     Issuance of common stock,
       net of issuance
       costs of $32.5                34.2      --    1,069.9           --           --          1,069.9
     Stock issued in business
       combination                    0.5      --       17.8           --           --             17.8
     Cash dividends                    --      --         --         (1.9)          --             (1.9)
     Repurchase of common stock      (0.4)     --       (7.1)          --           --             (7.1)
     Tax benefit associated with
       exercise of stock options       --      --       35.4           --           --             35.4
                                   ------  ------   --------     --------     --------         --------
     Balances as of August 31,1999  594.1    $0.3   $2,081.4     $1,173.1     $  (87.9)        $3,166.9
                                   ======  ======   ========     ========     ========         ========
See accompanying notes to supplemental consolidated financial statements.

                                       28
SOLECTRON CORPORATION AND SUBSIDIARIES
         SUPPLEMENTAL CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                  (In millions)

                                         Years Ended August 31,
                                        ------------------------
                                          1999    1998     1997
                                        -------  -------  ------
Net income                               $350.3   $251.3  $203.7
Other comprehensive income (loss):
Foreign currency translation
 adjustments, net of income tax benefit
 of $0.4 in 1999                          (78.6)    2.4   (12.4)
Unrealized loss on investments, net of
 income tax benefit of $0.6 in 1999        (1.1)     --      --
                                         ------   ------  ------
Comprehensive income                     $270.6   $253.7  $191.3
                                         ======   ======  ======

-----------

Accumulated foreign currency translation losses were $86.8 million at August 31,
1999, $8.2 million at August 31, 1998, and $10.6 million at August 31, 1997. For
fiscal year 1999, the foreign currency  translation loss primarily resulted from
the  devaluation of the Brazilian  real.  Most of Solectron's  foreign  currency
translation  adjustment  amounts  relate to  investments  which are permanent in
nature.  To the  extent  that  such  amounts  relate  to  investments  which are
permanent  in  nature,  no  adjustment  for  income  taxes is made.  Accumulated
unrealized losses on investments were $1.1 million at August 31, 1999.

See accompanying notes to supplemental consolidated financial statements.

                                       29
SOLECTRON CORPORATION AND SUBSIDIARIES
              SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (In millions)

                                               Years Ended August 31,
                                             --------------------------
                                               1999      1998     1997
                                             -------- --------- -------
        Cash flows from operating Activities:
          Net income                          $350.3    $251.3   $203.7
          Adjustments to reconcile net
           income to net cash provided
           by operating activities:
            Depreciation and amortization      200.4     134.6    109.9
            Non-cash interest expense           18.5       --       --
            Tax benefit associated with the
             exercise of stock options          35.4      11.5     17.9
            Gain on disposal of fixed assets    (4.6)     (2.3)     --
            Other                                5.5      (0.6)    (6.9)
            Changes in operating assets
             and liabilities:
              Accounts receivable             (505.2)   (271.2)  (110.0)
              Inventories                     (329.7)   (165.2)  (115.9)
              Prepaid expenses and other
               current assets                   16.2     (38.7)   (62.3)
              Accounts payable                 294.8     248.8    143.4
              Accrued expenses and other
               current liabilities              15.0      44.1     38.0
                                              ------    ------   ------
        Net cash provided by
          Operating activities                  96.6     212.3    217.8
                                              ------    ------   ------
        Cash flows from investing activities:
          Purchases of short-term             (598.0)   (244.9)  (310.8)
        investments
          Sales and maturities of short-term
           investments                         327.8     358.1    204.4
          Acquisition of manufacturing
           locations and assets               (164.2)   (204.0)     --
          Capital expenditures                (449.4)   (279.1)  (205.7)
          Proceeds from sales of fixed
           assets                               41.7      60.4     11.5
          Other                                (32.0)    (15.6)    16.5
                                              ------    ------   ------
        Net cash used in investing
          activities                          (874.1)   (325.1)  (284.1)
                                              ------    ------   ------

   (continued)
                                       30
SOLECTRON CORPORATION AND SUBSIDIARIES
        SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
                                  (In millions)

                                       Years Ended August 31,
                                     ---------------------------
                                       1999      1998     1997
                                     --------  -------  --------
Cash flows from financing activities:
  Net proceeds from bank
   lines of credit                       22.1     22.8      0.8
  Net proceeds from issuance of
   long-term debt                       732.1      1.4       --
  Repayments of long-term debt           (2.7)    (2.3)    (4.7)
  Repurchase of common stock             (7.1)    (9.2)      --
  Proceeds from exercise of stock
   options                               81.5     54.3     42.0
  Net proceeds from issuance of
   common stock                       1,069.9     15.7     86.9
  Dividends paid                         (1.4)    (0.4)      --
  Other                                  (0.4)    (2.2)      --
                                      -------   ------   ------
Net cash provided by financing
  activities                          1,894.0     80.1    125.0
                                      -------   ------   ------
Effect of exchange rate changes on
  cash and cash equivalents               5.2      1.7     (3.5)
                                      -------   ------   ------
Net increase (decrease) in cash
  and cash equivalents                1,121.7    (31.0)    55.2
Cash and cash equivalents at
  beginning of year                     306.4    337.4    282.2
                                      -------   ------   ------
Cash and cash equivalents at
  end of year                        $1,428.1   $306.4   $337.4
                                     ========   ======   ======

Cash paid:
  Interest                            $  27.7   $ 25.7   $ 38.7
  Income taxes                        $ 114.5   $ 93.7   $108.6
Non cash investing and financing
 activities:
  Issuance of common stock upon
   conversion of long-term debt, net  $ 225.4   $   --   $   --
  Issuance of common stock for
   business combination, net
   of cash acquired                   $  14.7   $   --   $ 24.0

See accompanying notes to supplemental consolidated financial statements.

                                       31
SOLECTRON CORPORATION AND SUBSIDIARIES
           NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)  Description of Operations and Principles of  Consolidation:  Solectron (the
Company) provides integrated supply chain solutions that span the entire product
life  cycle,  including  technology,  manufacturing  and  global  services.  The
Company's  primary  services  include  the  manufacturing  and  testing  of  PCB
assemblies  as well as system  level  assembly and  testing.  In  addition,  the
Company designs,  manufactures  and markets memory modules,  flash memory cards,
high performance embedded computer modules and systems and I/O product solutions
primarily to the computer,  networking,  telecommunications  and medical imaging
industries.  The Company  also  provides  materials  procurement  and  materials
management in support of its  manufacturing,  assembly and testing services.  In
addition,  the Company's services include preproduction planning such as product
design and product prototyping;  distribution;  and end-of-life product services
involving  product repair and warranty  services.  The Company has manufacturing
operations located in the Americas, Europe and Asia/Pacific.

The accompanying  supplemental  consolidated  financial  statements  include the
accounts of Solectron and its  subsidiaries  after  elimination of  intercompany
accounts and transactions.

On April 28, 2000,  Solectron completed its acquisition of AMERICOM, a privately
held corporation  which specializes in wireless handset repair and refurbishment
and  outsourced   technical   customer   support   services.   Solectron  issued
approximately  1.8  million  shares  of its  common  stock to  exchange  for all
outstanding  common  stock  and  to  extinguish   obligations  under  the  stock
appreciation rights plan of AMERICOM.  On July 14, 2000, Solectron completed the
acquisition of Bluegum which is a leading electronics  contract  manufacturer in
Australia. Solectron issued approximately 2.3 million shares of its common stock
to exchange for all outstanding common shares and stock options of Bluegum. Both
transactions were accounted for as a pooling of interests.

Accordingly,  Solectron's  historical  financial  statements  have been restated
retroactively  to include the financial  results of AMERICOM and Bluegum.  While
AMERICOM's  fiscal year was from January 1 to December 31, Bluegum's fiscal year
was from July 1 to June 31 since its inception  from February  1998.  AMERICOM's
results of  operations  for the years ended  December  31,  1999,  1998 and 1997
together with Bluegum's  results of operations for the years ended June 30, 1999
and 1998 have been combined with Solectron's results of operations for the years
ended August 31, 1999, 1998 and 1997, respectively. AMERICOM's balance sheets as
of December 31, 1999 and 1998 together with Bluegum's  balance sheets as of June
30,  1999 and 1998 have been  combined  with  Solectron's  balance  sheets as of
August 31, 1999 and 1998, respectively.  Both AMERICOM and Bluegum changed their
fiscal year ends to coincide with Solectron's beginning in fiscal 2000.

Restated financial  information includes certain adjustments for the elimination
of net sales and cost of sales  related to  shipments by Solectron to Bluegum as
well as for certain reclassifications made to AMERICOM's and Bluegum's financial
statements to conform with Solectron's financial statement  presentation.  There
were  no  adjustments  necessary  to  conform  the  accounting  policies  of the
combining companies.

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

                                       32
investments  are investment  grade  short-term  debt  instruments  with original
maturities greater than three months.

Solectron accounts for its investments in debt and equity securities pursuant to
the provisions of Statement of Financial  Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."  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.  If
material,   unrealized   gains  or  losses  are   reported  as  a  component  of
comprehensive income or loss, net of related tax effect.

(c)  Inventories:  Inventories  are  stated at the lower of  weighted  average
cost or market.

(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  related  lease  terms,  using  the  straight-line  method.
Estimated useful lives are presented below.

               Machinery and equipment      2 - 5 years
               Furniture and fixtures       3 - 5 years
               Leasehold improvements       Lease term
               Buildings*                   15-20 years

* Useful lives for buildings in China,  Australia and Scotland are 30 years,  40
  years and 50 years, respectively.

(e)  Other  Assets:  Other  assets  consist  of  intangible  assets,   including
intellectual  property  rights,  goodwill and debt  issuance  costs.  Intangible
assets are amortized using the straight-line  method,  over the expected life of
the  asset - ten years for  intellectual  property  rights  and  goodwill.  Debt
issuance costs related to the zero-coupon convertible senior notes are amortized
using the  effective  interest  method over seven  years.  Debt  issuance  costs
related to the senior notes are amortized using the straight-line  method, which
does not differ  materially from the effective  interest  method,  over the debt
term of ten years.

(f) Impairment of Long-Lived  Assets:  Solectron  reviews property and equipment
for impairment  whenever  events or changes in  circumstances  indicate that the
carrying amount of an asset may not be recoverable.  Recoverability  of property
and equipment is measured by comparison  to its carrying  amount,  including the
unamortized  portion of goodwill  allocated to the property  and  equipment,  to
future net cash flows the property and  equipment  are expected to generate.  If
such assets are  considered to be impaired,  the  impairment to be recognized is
measured  by the  amount  by which  the  carrying  amount  of the  property  and
equipment,  including the allocated  goodwill,  if any,  exceeds its fair market
value.  Solectron  assesses the recoverability of  enterprise-level  goodwill by
determining  whether the unamortized  goodwill balance can be recovered  through
undiscounted  future net cash  flows of the  acquired  operation.  The amount of
enterprise-level  goodwill  impairment,  if any, is measured  based on projected
discounted  future net cash flows using a discount rate reflecting the Company's
average cost of funds.

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

(h) 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  potential  common shares  outstanding  during the period.
Potential  common shares  consist of

                                       33
stock  options  that are  computed  using the  treasury  stock method and shares
issuable upon conversion of Solectron's  outstanding  convertible notes computed
using the as-if-converted method. Share and per-share data presented reflect the
two-for-one stock splits effective through March 8, 2000.

(i)  Revenue  Recognition:  Solectron  recognizes  revenue  upon  shipment  of
product to its customers.

(j) Employee  Stock Plans:  Solectron  accounts for its stock option plans and
its Employee Stock Purchase Plan using the intrinsic value method.

(k) Foreign Currency: For foreign subsidiaries using the local currency as their
functional currency,  assets and liabilities are translated at exchange rates in
effect at the  balance  sheet date and income and  expenses  are  translated  at
average  exchange  rates.  The  effects  of these  translation  adjustments  are
reported in other comprehensive  income.  Exchange gains and losses arising from
transactions denominated in a currency other than the functional currency of the
entity involved and remeasurement  adjustments for foreign  operations where the
U.S.  dollar is the  functional  currency are included in income.  To date,  the
effect of such amounts on net income has not been material.

(l) 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
items.  Gains and losses on hedges of firm commitments are deferred and included
in the basis of the transaction when it occurs.

(m) Year End:  Solectron's  financial  reporting year ends on the last Friday in
August.  Fiscal years 1999, 1998 and 1997 each contained 52 weeks.  For purposes
of presentation in the accompanying  financial  statements and notes,  Solectron
has indicated its accounting years as ending on August 31.

Solectron's  subsidiaries,  Solectron Texas,  Inc. (Texas) and Solectron Brasil,
Ltda.  (Brazil),  report  their  results  one  month  in  arrears.   Solectron's
supplemental  consolidated  financial  position  as of August 31, 1999 and 1998,
include the financial position of the Texas and Brazil operations as of July 31,
1999 and 1998.  Similarly,  Solectron's  supplemental  consolidated  results  of
operations and cash flows for the years ended August 31, 1999 and 1998,  include
the results of operations and cash flows of the Texas and Brazil  operations for
the twelve-month periods ended July 31, 1999 and 1998. Solectron's  supplemental
consolidated  results of operations and cash flows for the year ended August 31,
1997,  include the results of operations  and cash flows of the Texas  operation
for the twelve-month period ended July 31, 1997.

(n) Recent Accounting  Pronouncements:  Effective in the first quarter of fiscal
1999,  Solectron  adopted  Statement of Financial  Accounting  Standards No. 130
(SFAS No. 130), "Reporting  Comprehensive Income," which requires the Company to
report  and  display  certain  information  related  to  comprehensive   income.
Comprehensive  income includes net income and other comprehensive  income. Other
comprehensive  income is  classified  separately  into foreign  currency  items,
minimum  pension  liability  adjustments,  and  unrealized  gains and  losses on
certain investments in debt and equity securities.  The adoption of SFAS No. 130
had no impact on Solectron's  financial position,  results of operations or cash
flows.

Effective in the first  quarter of fiscal 1999,  Solectron  adopted the American
Institute of Certified Public  Accountants  (AICPA)  Statement of Position (SOP)
98-1,  "Accounting for the Costs of Computer Software  Developed or Obtained for
Internal  Use."  SOP 98-1  provides  guidance  on  accounting  for the  costs of
computer  software  developed or obtained  for internal use and for  determining
when specific costs should be capitalized and when they should be expensed.  The
impact  of  adopting  SOP  98-1 was not  significant  to  Solectron's  financial
position, results of operations or cash flows.

In April 1998,  the AICPA issued SOP 98-5,  "Reporting  on the Costs of Start-Up
Activities." SOP 98-5 requires that all start-up costs related to new operations
must be  expensed  as

                                       34
incurred. In addition, all start-up costs that were capitalized in the past must
be written off when SOP 98-5 is adopted.  Solectron expects that the adoption of
SOP 98-5 will not have a material impact on its financial  position,  results of
operations or cash flows.

In June 1998,  the  Financial  Accounting  Standards  Board (FASB) issued SFAS
No. 133,  "Accounting for Derivative  Instruments and Hedging  Activities." As
amended  by SFAS  No.  137 and  138,  SFAS  No.  133  establishes  methods  of
accounting  for  derivative  financial   instruments  and  hedging  activities
related to those  instruments as well as other hedging  activities.  Solectron
anticipates  that  the  adoption  of SFAS No.  133  will  not have a  material
impact  on its  financial  position,  results  of  operations  or cash  flows.
Solectron will adopt SFAS No. 133 in its first fiscal quarter of 2001.

In December  1999, the  Securities  and Exchange  Commission  (SEC) issued Staff
Accounting   Bulletin   (SAB)  No.  101,   "Revenue   Recognition  in  Financial
Statements,"  which provides  guidance related to revenue  recognition  based on
interpretations  and  practices  followed by the SEC and was effective the first
fiscal  quarter of fiscal years  beginning  after December 15, 1999 and requires
companies to report any changes in revenue recognition as a cumulative change in
accounting principle at the time of implementation in accordance with Accounting
Principles Board opinion 20, "Accounting Changes." Subsequently, SAB No.101A and
101B  were  issued  to  delay  the  implementation  of SAB No.  101.  It will be
effective  for  Solectron  in the  Company's  fourth  quarter  of  fiscal  2001.
Solectron is currently  evaluating the impact,  if any, SAB No. 101 will have on
its financial position or results of operations.

(o)  Reclassifications:  Certain prior year amounts have been  reclassified to
conform to the 1999 presentation.

                                       35
NOTE 2. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

Cash,  cash  equivalents  and short-term  investments as of August 31, 1999, and
1998, consisted of the following:

                                           Cash and
                                             Cash       Short-Term
                                          Equivalents   Investments
                                          -----------   -----------
                                             (in millions)
              1999
              ----------------------------
              Cash                          $  229.6        $   --
              Money market funds               119.7           0.7
              Certificates of deposit           55.1          38.8
              Market auction securities         33.5          39.1
              U.S. government securities       603.9         274.4
              Corporate obligations            313.9         100.6
              Other                             72.4           --
                                            -------         ------
                Total                       $1,428.1        $453.6
                                            ========        ======

              1998
              ----------------------------
              Cash                           $ 138.6       $    --
              Money market funds                74.2            --
              Certificates of deposit            0.1          11.4
              Market auction securities         10.7          28.8
              U.S. government securities        52.0         118.2
              Corporate obligations              6.0          17.5
              Municipal obligations              5.4            --
              Other                             19.4           7.6
                                             -------        ------
                Total                        $ 306.4        $183.5
                                             =======        ======

Short-term  investments  are carried at fair market  value,  which  approximates
cost.  As of August 31,  1999 and 1998,  unrealized  gains and  losses  were not
significant.  Realized  gains and losses for the fiscal  years ended  August 31,
1999 and 1998 were not significant.  As of August 31, 1999, approximately 93% of
Solectron's  short-term  investments  mature  in one  year  or  less,  with  the
remainder maturing in less than two years.

NOTE 3. INVENTORIES

Inventories as of August 31, 1999 and 1998, consisted of:

                                           1999      1998
                                         --------   ------
                                           (in millions)
          Raw materials                  $  862.9   $617.3
          Work-in-process                   237.6    175.6
          Finished goods                     96.5     50.9
                                         --------   ------
            Total                        $1,197.0   $843.8
                                         ========   ======

                                       36
NOTE 4. PROPERTY AND EQUIPMENT

Property and equipment as of August 31, 1999 and 1998, consisted of:

                                               1999    1998
                                             -------  ------
                                              (in millions)
              Land                            $ 24.8  $ 23.6
              Buildings and improvements       142.8    99.4
              Leasehold improvements            61.8    46.7
              Factory equipment                749.9   575.4
              Computer equipment and
               software                        168.9    92.1
              Furniture, fixtures and other     48.9    38.9
              Construction-in-progress          94.0    59.3
                                              ------  ------
                                             1,291.1   935.4
              Less accumulated depreciation
               and amortization                567.3   430.1
                                              ------  ------
              Net property and equipment      $723.8  $505.3
                                              ======  ======

NOTE 5. LINES OF CREDIT

Solectron has available a $100 million unsecured multicurrency revolving line of
credit that expires April 30, 2002.  Borrowings  under the credit  facility bear
interest,  at  Solectron's  option,  at either the bank's prime rate, the London
interbank  offering  rate (LIBOR) plus a margin,  or the bank's  certificate  of
deposit  (CD) rate plus a margin.  The margin under the LIBOR or CD rate options
will vary depending on Solectron's  Standard & Poor's Corporation and/or Moody's
Investor  Services,  Inc. rating for its long-term  senior  unsecured debt. This
margin was 0.4% at August 31, 1999. Under the credit agreement, the Company must
meet certain financial covenants.  As of August 31, 1999 and 1998, there were no
borrowings outstanding under this line of credit.

In May 1999,  Solectron  entered  into a new  unsecured  revolving  bank line of
credit agreement that expired in May 2000.  Borrowings under this agreement were
limited to $30 million and bear  interest at either one percent below the bank's
prime rate or a 1% spread over LIBOR,  at  Solectron's  option.  The Company was
required to  maintain  specified  levels of  tangible  net worth and comply with
certain other covenants  related to this line of credit.  As of August 31, 1999,
no borrowings were outstanding under this agreement.

Additionally, AMERICOM had a bank line of credit of $12 million as of its fiscal
year ended December 31, 1999.  Borrowings against this line of credit, which was
terminated  in May 2000,  were $8.0  million  with an interest  rate of 8.5% per
annum.

Solectron also had  approximately  $127 million in uncommitted  foreign lines of
credit and other bank facilities as of August 31, 1999.  Borrowings were payable
on demand.  The interest  rates ranged from the bank's prime lending rate to the
bank's prime rate plus 2.0%. As of August 31, 1999,  borrowings  and  guaranteed
amounts   under  these  lines  of  credit   were  $41   million,   which  had  a
weighted-average  interest  rate of 5.1% per  annum.  In  addition,  Solectron's
Australian site, Bluegum,  had approximately $42.5 million in committed lines of
credit with its local banks, which were terminated in July 2000. As of Bluegum's
fiscal  year ended June 30,  1999,  borrowings  under these lines of credit were
$15.6 million and had a  weighted-average  interest rate of 6.95% per annum, and
it had a non-interest bearing short-term note balance of $1.8 million to be paid
off in two six-month  installments  by June 30, 2000 to IBM  resulting  from its
acquisition of IBM's manufacturing facility in Wangaratta, Australia in February
1998.

Solectron  had an asset  securitization  arrangement  with a bank under which it
might sell up to $220  million of eligible  accounts  receivable.  There were no
borrowings  outstanding  under  this  arrangement  as of August  31,  1999.  The
securitization  arrangement, at Solectron's discretion, was not renewed upon its
expiration in September 1999.

                                       37
NOTE 6. LONG-TERM DEBT

Long-term debt at August 31, 1999 and 1998, consisted of (in millions):

                                                     1999     1998
                                                   -------  --------
           Zero coupon convertible senior notes
             due 2019, face value $1,656.0,
             fair value of $1,029.9 in 1999         $767.6       --
           6% subordinated notes due 2006, face
             value $230.0, fair value of $333.5
             in 1998 converted into 27.2 shares
             of common stock                            --   $230.0
           7 3/8% senior notes due 2006, face value
             $150.0, fair value of $143.8 in 1999
             and $157.7 in 1998                      149.8    149.8
           Other, fair value of $5.3 in 1999 and
             $7.0 in 1998                              5.3      7.0
                                                    ------   ------
            Total long-term debt                    $922.7   $386.8
                                                    ======   ======

In January 1999, Solectron issued 1,656,000 zero coupon convertible senior notes
to qualified institutional investors in a private placement at an issue price of
$452.89 per note which resulted in gross proceeds of approximately $750 million.
These notes are unsecured and unsubordinated  indebtedness with a maturity value
aggregating $1.656 billion. There will be no interest payment prior to maturity.
Each note has a yield of 4% with a maturity value of $1,000 on January 27, 2019.
Solectron is amortizing the issue discount using the effective  interest  method
over the term of the notes.  Each note is  convertible at any time by the holder
at a conversion  rate of 14.944  shares per note,  adjusted for the  two-for-one
stock splits effective  through March 8, 2000.  Holders may require Solectron to
purchase  all or a portion of their notes on January 27,  2002,  and January 27,
2009,  at a price of $510.03  and  $672.97 per note,  respectively.  Also,  each
holder may require  Solectron to  repurchase  all or a portion of such  holder's
notes upon a change in control of Solectron  occurring on or before  January 27,
2002. Solectron,  at its option, may redeem all or a portion of the notes at any
time on or after  January  27,  2003.  In  addition,  Solectron  filed  with the
Securities Exchange Commission a registration statement for resales of the notes
and the common stock issuable upon conversion.  Such registration  statement was
declared effective in June 1999.

In  February  1996,  Solectron  issued  convertible  subordinated  notes  for an
aggregate  principal amount of $230 million.  The notes were in denominations of
and had a maturity value of $1,000 each, payable on March 1, 2006.  Interest was
payable  semiannually at 6%. Each note was convertible at any time by the holder
into  shares  of  common  stock at a  conversion  price of  $33.80  per share as
adjusted for the two-for-one  stock splits through March 8, 2000. The notes were
redeemable  at the  option  of  Solectron  beginning  on March 3,  1999.  During
February  and  March  1999,  all  of the  convertible  subordinated  notes  were
voluntarily converted into shares of common stock.

In March 1996,  Solectron  issued $150  million  aggregate  principal  amount of
senior notes.  These notes are in  denominations of and have a maturity value of
$1,000 each and are due on March 1, 2006. Interest is payable  semiannually at a
rate of 7 3/8% per annum. The notes may not be redeemed prior to maturity.

NOTE 7. FINANCIAL INSTRUMENTS

Fair Value of Financial Instruments

The fair value of Solectron'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 Solectron's  short term  investments
(see Note 2) is  determined  based on quoted  market  prices.  The fair value of
Solectron's  long-term  debt (see Note 6) is determined  based on broker trading
prices.

                                       38
Derivatives

Solectron  enters into  forward  exchange  contracts to hedge  foreign  currency
exposures  on a  continuing  basis for  periods  consistent  with its  committed
exposures.  These  transactions  generally  do not expose  Solectron  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
counterparties  to these contracts  expose Solectron to credit related losses in
the event of nonperformance.  However, the counterparties to these contracts are
substantial  and  creditworthy  multinational  commercial  banks.  The  risk  of
counterparty  nonperformance  associated with these  contracts is remote.  Since
these contracts generally have maturities of less than three months, the amounts
of unrealized gains and losses are immaterial. Foreign currency forward exchange
contracts  outstanding  totaled $66.0 million at the end of fiscal year 1999 and
$31.3 million at the end of fiscal year 1998. These contracts were originated by
Solectron's  international  subsidiaries  primarily for the purchase and sale of
European currencies, U.S. dollar, Malaysian ringgit and Japanese yen to mitigate
foreign currency exposures.

Business and Credit Concentrations

Financial  instruments that potentially  subject  Solectron to concentrations of
credit risk consist of cash, cash equivalents,  short-term investments and trade
accounts   receivable.   Solectron's   cash,  cash  equivalents  and  short-term
investments are managed by recognized  financial  institutions  which follow the
Company's  investment policy. Such investment policy limits the amount of credit
exposure in any one issue and the  maturity  date of the  investment  securities
that  typically   comprise   investment  grade   short-term  debt   instruments.
Concentrations  of credit risk in accounts  receivable  resulting  from sales to
major customers are discussed in Note 13.  Solectron  generally does not require
collateral for sales on credit. The Company also closely monitors  extensions of
credit and has not experienced significant credit losses in the past.

NOTE 8. COMMITMENTS AND CONTINGENCIES

Solectron  leases various  facilities  under  operating  lease  agreements.  The
facility  leases  outstanding  as of August 31,  1999  expire at  various  dates
through 2008. All such leases require Solectron to pay property taxes, insurance
and normal maintenance costs.  Payments of some leases are periodically adjusted
based on LIBOR  rates.  Certain  leases for  Solectron's  facilities,  including
Milpitas and San Jose, California;  Everett,  Washington;  Suwanee, Georgia; and
Columbia,  South  Carolina,  provide  Solectron with an option at the end of the
lease term of either  acquiring  the property at its original  cost or arranging
for the property to be acquired.  For these  leases,  Solectron is  contingently
liable  under a first loss  clause for a decline in market  value of such leased
facilities up to 85% of the original  costs,  or  approximately  $129 million in
total as of August  31,  1999,  in the event  Solectron  does not  purchase  the
properties or reach an agreement  with the lessor to extend the lease at the end
of the  respective  lease terms.  Under such  agreements,  the Company must also
maintain  compliance with financial  covenants similar to its credit facilities.
During September 1999, Solectron entered into another similar facility lease for
Milpitas,  California,  under which the Company is contingently  liable up to an
additional amount of approximately $21 million for a decline in market value.

In  addition,   Solectron  periodically  enters  into  lease  arrangements  with
third-party  leasing companies under which it sells fixed assets and leases them
back from the leasing  companies.  Solectron is  accounting  for these leases as
operating leases.

Future minimum payments related to lease obligations, including the $129 million
contingent  liability discussed above, are $73.2 million,  $58.5 million,  $93.5
million,  $59.6  million and $69.4 million in each of the years in the five-year
period ending August 31, 2004,  and an aggregate  $5.0 million for periods after
that date.  Rent expense was $89.3 million,  $35.9 million and $24.6 million for
the years ended August 31, 1999, 1998 and 1997, respectively.

                                       39
SMART  Modular  Technologies,  Inc.  (SMART),  a wholly  owned  subsidiary  of
Solectron  Corporation,  and certain of SMART's  ex-officers and  ex-directors
have been named as defendants in six  securities  class action  lawsuits filed
in the United States  District Court for the Northern  District of California,
Boren v. SMART  Modular  Technologies,  Inc.,  et al., No. C 98 20692 JW (PVT)
(filed July 1, 1998),  Woszczak v. SMART Modular  Technologies,  Inc., et al.,
No. C 98 2617 JL (filed July 2, 1998),  Bisson v. SMART Modular  Technologies,
Inc.,  et al.,  No. C 98 20714 JF  (filed  July 8,  1998),  D'Amato  v.  SMART
Modular  Technologies,  Inc., et al., No. C 98 2804 PJH (filed July 16, 1998),
Cha v.  SMART  Modular  Technologies,  Inc.,  et al.,  No. C 98 2833 BZ (filed
July 17, 1998) and Chang v. SMART  Modular  Technologies,  Inc., et al., No. C
98 3151 SI (filed  August 13, 1998)  (collectively,  the  "Federal  Actions").
The  plaintiffs in the Federal  Actions allege that  defendants  made material
misrepresentations  and omissions  during the period from July 1, 1997 through
May 21, 1998 in violation of Section 10(b) of the  Securities  Exchange Act of
1934  and  Rule  10b-5  promulgated  thereunder.   The  Federal  Actions  were
consolidated  on October 9, 1998,  and a  consolidated  complaint was filed on
November 30, 1998 (the "Federal  Complaint").  On November 2, 1999, defendants
filed a motion to dismiss the Federal Complaint. This motion is pending.

On October 22,  1998, a putative  securities  class  action  lawsuit,  captioned
Reagan v. SMART Modular  Technologies,  Inc., et al.,  Case No.  H204162-5  (the
"State  Complaint"),  was filed  against  SMART and certain of  ex-officers  and
ex-directors  in the  Superior  Court of the  State  of  California,  County  of
Alameda.  The State Complaint alleges  violations of Sections 25400 and 25500 of
the California  Corporations Code and seeks  unspecified  damages on behalf of a
purported  class of purchasers of SMART common stock during the period from July
1, 1997 through May 21, 1998. The factual allegations of the State Complaint are
nearly  identical  to the  factual  allegations  contained  within  the  Federal
Complaint.  On February 22, 1999, the Superior  Court granted  SMART's motion to
stay the state action pending resolution of the federal action.

While the  Company  believes  that all claims  related to the state and  federal
securities  actions are without  merit and intends to defend  itself  vigorously
against these actions,  it is possible that an  unfavorable  outcome may result.
The Company is unable to estimate the financial  impact, if any, of these cases.
Accordingly,  no  amounts  have been  accrued in the  accompanying  supplemental
consolidated financial statements.

NOTE 9. RETIREMENT PLANS

Solectron has various  retirement  plans that cover a significant  number of its
associates.  The major  plans are  defined  contribution  plans,  which  provide
retirement  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
retirement benefits the participant is to receive.  Contributions to these plans
are based on varying percentages of each participant's base salary.  Solectron's
expense for the defined  contribution plans totaled $11.3 million,  $5.0 million
and $3.2 million in 1999, 1998 and 1997, respectively.

                                       40
NOTE 10. INCOME TAXES

The components of income taxes for the fiscal years ended August 31, 1999,  1998
and 1997, were as follows (in millions):

                                          1999   1998    1997
                                         ------ ------  ------
                Current:
                  Federal                $ 81.6 $ 90.1  $ 75.7
                  State                    15.2   16.4    14.4
                  Foreign                  29.7   19.9     7.5
                                         ------ ------  ------
                                          126.5  126.4    97.6
                                         ------ ------  ------
                Deferred:
                  Federal                  (3.1)  (7.9)  (10.3)
                  State                     1.4   (1.8)   (1.4)
                  Foreign                   4.0   (4.0)    --
                                         ------ ------  -----
                                            2.3  (13.7)  (11.7)
                                         ------ ------  ------
                Charge in lieu of taxes
                  attributable to
                  employee stock plans     35.4   11.5    17.9
                                         ------ ------  ------
                      Total              $164.2 $124.2  $103.8
                                         ====== ======  ======

The overall  effective  income tax rate  (expressed as a percentage of financial
statement income before income taxes) varied from the U.S.  statutory income tax
rate for the fiscal years ended August 31, 1999, 1998 and 1997, as follows:

                                              1999    1998   1997
                                             -----   -----  -----
            Federal tax rate                 35.0%   35.0%  35.0%
            State income tax, net of
             federal tax benefit              2.9     3.2    3.1
            Income of international
             subsidiaries taxed at
             different rates                  0.1    (1.0)  (0.9)
            Tax holiday                      (5.9)   (5.6)  (3.0)
            Tax credits                      (0.1)   (0.1)  (0.4)
            Tax exempt interest income       (0.3)   (0.4)  (0.2)
            FSC benefit                      (0.1)   (0.1)  (0.1)
            Other                             0.3     2.1    0.3
                                             ----    ----   ----
            Effective income tax rate        31.9%   33.1%  33.8%
                                             ====    ====   ====

The tax effects of temporary  differences that gave rise to significant portions
of deferred tax assets and  liabilities as of August 31, 1999 and 1998,  were as
follows (in millions):

                                                  1999   1998
                                                 -----  -----
            Deferred tax assets:
             Accruals, allowances and reserves   $19.3  $22.4
             State income tax                      5.4    7.1
             Acquired intangible assets            3.3    1.9
             Net undistributed profits of
              Subsidiaries                         2.8    2.2
             Plant and equipment                   4.0    5.8
             Net operating loss carryover          8.0    0.6
             Other                                 5.2    3.7
                                                 -----  -----
            Total deferred tax assets             48.0   43.7
                                                 -----  -----
            Deferred tax liabilities:
             Depreciation                         (3.3)  (0.5)
             Other                                (2.7)  (0.3)
                                                 -----  -----
            Total deferred tax liabilities        (6.0)  (0.8)
                                                 -----  -----
            Net deferred tax assets              $42.0  $42.9
                                                 =====  =====

Based on Solectron'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.  Accordingly,  Solectron  has not  established  any  valuation
allowance.

                                       41
Worldwide income before income taxes for the fiscal years ended August 31, 1999,
1998 and 1997, consisted of the following (in millions):

                                        1999   1998   1997
                                       ------ ------ ------
                      U.S.             $349.7 $279.2 $263.1
                      Non-U.S.          164.8   96.3   44.4
                                       ------ ------ ------
                         Total         $514.5 $375.5 $307.5
                                       ====== ====== ======

Cumulative undistributed earnings of the international  subsidiaries amounted to
$374.6 million as of August 31, 1999, of which  approximately  $351.7 million is
intended to be permanently  reinvested.  The amount of income tax liability that
would result had such earnings been repatriated is estimated to be approximately
$82.2 million.

Solectron  has been  granted a tax  holiday  for its  Malaysian  sites  which is
effective through January 31, 2002, subject to certain conditions. Solectron has
also been granted various tax holidays in China, which are effective for various
terms and are subject to certain conditions.

NOTE 11. STOCKHOLDERS' EQUITY

Issuance of Common Stock

In August 1999,  Solectron sold, through an underwritten  public offering,  34.1
million  shares of common stock which  generated  net proceeds of  approximately
$1.1 billion.

Stock Repurchase

During fiscal 1999, SMART repurchased approximately 454,000 shares of its common
stock in the open market at an average  purchase price of $15.75 per share and a
total cost of approximately $7.1 million.  During fiscal 1998, SMART repurchased
approximately  632,000  shares  of its  common  stock in the open  market  at an
average  purchase  price of $14.50 per share and a total  cost of  approximately
$9.2 million.  As of August 31, 1999,  all shares  repurchased by SMART had been
reissued  pursuant  to the  exercise  of stock  options  previously  granted  to
employees from its various stock plans.

Stock Split

Effective February 24, 1999 and March 8, 2000,  Solectron completed  two-for-one
stock splits effected as stock dividends.  All references to share and per share
data have been retroactively adjusted to reflect the stock splits.

                                       42
Pro Forma Fair Value Disclosures

Solectron  accounts for its employee  stock plans,  which consist of fixed stock
option plans and an Employee  Stock  Purchase  Plan,  using the intrinsic  value
method under APB No. 25. No compensation expense related to these plans has been
recognized in the Company's financial  statements.  The table below sets out the
pro forma  amounts  of net  income  and net  income  per share  that  would have
resulted for the fiscal years ended August 31, 1999, 1998 and 1997, if Solectron
accounted  for its  employee  stock  plans  under  the  fair  value  recognition
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation."

                                          1999    1998    1997
                                        ------- ------- -------
                                  (in millions, except per share data)
              Net income:
                           As reported   $350.3  $251.3  $203.7
                           Pro forma     $314.3  $222.0  $189.3

              Net income per share:
              Basic        As reported   $ 0.65  $ 0.49  $ 0.42
                           Pro forma     $ 0.58  $ 0.43  $ 0.39
              Diluted      As reported   $ 0.61  $ 0.47  $ 0.40
                           Pro forma     $ 0.55  $ 0.42  $ 0.37

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

                                   1999          1998            1997
                               -----------  ------------   ----------
        Expected life of
         options               3 to 5 years  3 to 5 years  4.3 to 5 years
        Expected life of
         purchase rights         3 months      3 months       3 months
        Volatility              48% to 80%    44% to 80%     40% to 78%
        Risk-free interest
         rate                  4.5% to 5.8%  5.1% to 5.9%   5.2% to 6.5%
        Dividend yield             zero          zero           zero

Options vest over several years and new option  grants are  generally  made each
year.  In  addition,  the pro forma  disclosures  required  by SFAS No.  123 are
effective for options granted after the Company's fiscal year 1995. Accordingly,
the pro forma  amounts  shown above may not be  representative  of the pro forma
effect on reported net income in future years.

Stock Option Plans

Solectron's  stock option plans  provide for grants of options to  associates 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.  In connection  with the
acquisition of Force  Computers,  Inc. in November 1996,  Solectron  assumed all
options  outstanding  under the Force option plan.  Options under the Force plan
generally  vest over a four-year  period  beginning on the grant date and have a
ten-year term. No further options may be granted under the Force plan.

In connection with the merger with SMART Modular Technologies,  Inc. in November
1999,  Solectron  assumed all options  outstanding  under the SMART  plans.  The
options vest over a three to five year period  beginning  generally on the grant
date. The term of the options is five years for 10%  shareholders  (participants
who own stock  possessing  more than 10% of the voting  power of all  classes of
SMART's  outstanding  capital  stock)  and ten years for all other  options.  In
October 1995,  the Board of Directors  suspended the issuance of further  grants
under the 1989 Stock Plan.  No further  options  may be granted  under the SMART
plans.

                                       43
In connection with the merger with Bluegum in July 2000,  Solectron  assumed all
options  outstanding  under the Bluegum plan. The options vested  immediately on
the date of grant and the term of the options is five years.  No further options
may be granted under the Bluegum plan.

A summary of stock  option  activity  under the plans for the fiscal years ended
August 31, 1999, 1998 and 1997, follows (in millions, except per share data):

                                    1999            1998              1997
                              ---------------  ----------------  ---------------
                                     Weighted          Weighted         Weighted
                              Number Average   Number  Average   Number Average
                              of    Exercise   of      Exercise  of     Exercise
                              Shares Price     Shares  Price     Shares Price
      Outstanding,
       beginning of year       45.5   $ 7.37   47.1    $ 4.71    44.6   $ 3.48
      Granted                  15.6   $18.04   15.5    $11.82    14.9   $ 7.32
      Assumed from
       Force plan                --       --     --        --     3.4   $ 0.55
      Exercised               (11.5)  $ 5.69  (14.2)   $ 3.19   (13.8)  $ 2.43
      Canceled                 (3.7)  $ 8.39   (2.9)   $ 8.50    (2.0)  $ 5.50
                              -----           -----             -----
      Outstanding,
       end of year             45.9   $11.29   45.5    $ 7.37    47.1   $ 4.71
                               ====            ====             =====
      Exercisable
       at year-end             22.0   $ 7.61   12.3    $ 9.62    10.7   $11.31
                               ====            ====              ====
      Weighted-average
       fair value of
       options granted
       during the year                 $7.07           $ 4.40           $ 2.98

Information  regarding  the stock  options  outstanding  at August 31, 1999,  is
summarized in the table below (in millions, except number of years and per share
data).

                                    Outstanding              Exercisable
                         -------------------------------  -----------------
                                  Weighted
                                  Average      Weighted            Weighted
            Range of     Number   Remaining    Average    Number   Average
            Exercise     of       Contractual  Exercise   of       Exercise
            Prices       Shares   Life         Price      Shares   Price
         -------------   ------   -----------  ---------  ------   --------

         $ 0.33-$ 1.50*     0.7   5.09 years    $  0.84    0.6     $  0.78
         $ 1.51-$ 3.26      0.1   0.40 years    $  1.97    0.1     $  1.97
         $ 3.27-$ 4.75      7.7   2.57 years    $  4.21    7.5     $  4.20
         $ 4.76-$ 6.00      7.0   3.41 years    $  5.78    5.0     $  5.76
         $ 6.01-$11.00     10.0   4.90 years    $  9.27    4.9     $  8.99
         $11.01-$13.50     10.4   6.28 years    $ 12.85    2.3     $ 12.77
         $13.51-$16.50      1.1   8.50 years    $ 15.86    0.2     $ 16.08
         $16.51-$26.50      8.1   7.47 years    $ 21.20    1.4     $ 20.73
         $26.51-$36.50      0.8   7.21 years    $ 35.76     --     $ 36.09
                           ----                           ----
         $ 0.33-$36.50     45.9   5.14 years    $ 11.29   22.0     $  7.61
                           ====                           ====

*Options  in this range of exercise  prices  represent  the  options  assumed in
connection with the acquisition of Force and Bluegum.

A total of 32.0  million  shares of common  stock  remain  reserved for issuance
under the plans as of August 31, 1999.

On December 1, of each year,  each  independent  member of Solectron's  Board of
Directors  is granted an option to purchase  6,000 shares of common stock at the
fair market value on such date. These options vest over one year and have a term
of five years.

                                       44
Employee Stock Purchase Plan

Under Solectron's Employee Stock Purchase Plans (the Purchase Plans), associates
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 Plans permit eligible  associates to purchase common stock
through payroll deductions for up to 15% of qualified compensation. As of August
31, 1999,  3.7 million  shares remain  available for issuance under the Purchase
Plans.

The weighted  average fair value of the purchase  rights granted by Solectron in
fiscal  1999,  1998 and 1997 was  $9.67,  $4.99  and  $2.96,  respectively.  The
weighted-average  fair value of the purchase  rights  granted by SMART in fiscal
1999, 1998 and 1997 was $5.69, $5.86 and $3.41, respectively.

NOTE 12. SEGMENT AND GEOGRAPHIC INFORMATION

Solectron  provides  integrated  supply  chain  solutions  that span the  entire
product  life cycle,  including  technology,  manufacturing  and  services.  The
Company has 45 manufacturing facilities in the Americas, Europe and Asia/Pacific
to serve these similar customers.  Solectron is operated and managed by industry
segment, as well as geographically.  Each industry segment has its own president
and support staff.  Solectron's management uses an internal management reporting
system,  which provides  important  financial data, to evaluate  performance and
allocate  Solectron's  resources on an industry  segment and  geographic  basis.
Intersegment  adjustments are related  primarily to intersegment  sales that are
generally recorded at prices that approximate arm's length transactions. Certain
corporate  expenses are allocated to these  operating  segments and are included
for performance  evaluation.  Some  amortization  expenses are also allocated to
these operating  segments,  but the related intangible assets are not allocated.
The accounting  policies for the segments are the same as for Solectron taken as
a whole.  Solectron has three reportable  operating segments:  manufacturing and
operations,  global  services and technology  solutions.  Information  about the
operating  segments for the fiscal  years ended August 31, 1999,  1998 and 1997,
was as follows:

                                       45
1999       1998       1997
                                       --------   --------    -------
                                                 (in millions)
        Net sales:
        Manufacturing and operations   $8,495.6   $5,240.2    $3,594.5
        Technology solutions            1,137.5      830.4       794.8
        Global services                   103.9       65.4        47.5
        Intersegment adjustments          (67.8)     (33.8)      (28.3)
                                       --------   --------    --------
                                       $9,669.2   $6,102.2    $4,408.5
                                       ========   ========    ========
        Depreciation and amortization:
        Manufacturing and operations   $  167.8   $  110.2    $   96.0
        Technology solutions               21.5       16.7         9.3
        Global services                     2.2        1.5         1.2
        Corporate                           8.9        6.2         3.4
                                       --------   --------    --------
                                       $  200.4   $  134.6    $  109.9
                                       ========   ========    ========
        Interest income:
        Manufacturing and operations   $    8.0   $    7.1    $    3.4
        Technology solutions                7.2        8.3         2.7
        Global services                      --         --          --
        Corporate                          21.4       17.7        24.9
        Intersegment adjustments            0.1       (0.8)        0.2
                                       --------   --------    --------
                                       $   36.7   $   32.3    $   31.2
                                       ========   ========    ========
        Interest expense:
        Manufacturing and operations   $    3.4   $    1.9    $    0.1
        Technology solutions                0.7        0.5         0.3
        Global services                      --         --          --
        Corporate                          34.5       23.7        26.7
        Intersegment adjustments           (0.3)      (0.7)       (0.2)
                                       --------   --------    --------
                                       $   38.3   $   25.4    $   26.9
                                       ========   ========    ========
        Pre-tax income:
        Manufacturing and operations   $  484.0   $  302.8    $  235.5
        Technology solutions               82.6       81.4        79.5
        Global services                     9.6        5.5         3.5
        Corporate                         (61.7)     (14.2)      (11.0)
                                       --------   --------    --------
                                       $  514.5   $  375.5    $  307.5
                                       ========   ========    ========
        Capital expenditures:
        Manufacturing and operations   $  392.0   $  225.7    $  174.1
        Technology solutions               24.1       40.1        24.2
        Global services                     3.8        2.7         0.5
        Corporate                          29.5       10.6         6.9
                                       --------   --------    --------
                                       $  449.4   $  279.1    $  205.7
                                       ========   ========    ========
        Total Assets:
        Manufacturing and operations   $3,344.7   $2,298.0    $1,454.4
        Technology solutions              556.7      430.0       386.2
        Global services                    64.8       19.3        12.0
        Corporate                       2,717.0      942.4       886.9
        Intersegment adjustments       (1,262.7)    (846.0)     (529.6)
                                       --------   --------    --------
                                       $5,420.5   $2,843.7    $2,209.9
                                       ========   ========    ========

                                       46
The following  enterprise  wide  information is provided in accordance with SFAS
No. 131.  Geographic  net sales  information  reflects  the  destination  of the
product shipped. Long-lived assets information is based on the physical location
of the asset. No country, other than the United States,  accounted for more than
10% of total sales or total assets in the periods presented.  For major customer
information,  the Company's  operating segments  contributed various percentages
aggregating  up to 10% or more of  consolidated  net  sales  for such  customers
identified in Note 13.

                                         1999      1998      1997
                                      --------  --------   --------
                                               (in millions)
      Net sales derived from:
           PCB assembly               $6,502.0  $4,167.9   $3,224.9
           Systems build               2,058.6   1,128.6      393.9
           Technology solutions
             products                  1,108.6     805.7      789.7
                                      --------  --------   --------

                                      $9,669.2  $6,102.2   $4,408.5
                                      ========  ========   ========
      Geographic net sales:
           United States              $6,514.3  $4,380.1   $3,497.6
           Europe                      1,959.4   1,271.8      679.2
           Asia/Pacific and other      1,230.0     469.8      251.0
           Intersegment adjustments      (34.5)    (19.5)     (19.3)
                                      --------  --------   --------
                                      $9,669.2  $6,102.2   $4,408.5
                                      ========  ========   ========
      Long-lived assets:
           United States              $  523.2  $  304.0   $  229.2
           Europe                        100.1      95.7       65.5
           Asia/Pacific and other        314.8     188.5      108.5
                                      --------  --------   --------
                                      $  938.1  $  588.2   $  403.2
                                      ========  ========   ========

NOTE 13. MAJOR CUSTOMERS

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

                                                1999   1998  1997
                                                ----   ----  ----
             Compaq Computer Corp. (Compaq)     12%     *     *
             Cisco Systems, Inc. (Cisco)        11%    10%    *
             Hewlett-Packard Company (HP)        *     11%   11%

-----------

* net sales less than 10%

Solectron  has  concentrations  of  credit  risk due to sales to these and other
Solectron's   significant   customers.   In  particular,   Compaq  accounts  for
approximately   12%  of  total   accounts   receivable,   and  HP  accounts  for
approximately  9%  of  total  accounts   receivable  at  August  31,  1999.  The
concentration of credit risk is intensified  because the majority of Solectron's
customers are in the same industry.  The Company considers its concentrations of
credit risk in  establishing  the reserves  for bad debt and believes  that such
reserves are adequate.

NOTE 14. PURCHASE OF ASSETS

In October 1998, Solectron acquired the wireless telephone manufacturing assets,
primarily  inventory  and  fixed  assets,  of  Mitsubishi  Consumer  Electronics
America,  Inc.'s (MCEA) Cellular  Mobile  Telephone (CMT) division in Braselton,
Georgia. MCEA was a subsidiary of Mitsubishi Electric Corporation  (Mitsubishi).
The  acquisition  was  accounted  for as a purchase of assets,  and the purchase
price of approximately $25 million was allocated to the assets acquired based on
their  relative fair values at the date of  acquisition.  Under the terms of the
agreement,  the Company will provide MCEA-CMT with a full range of manufacturing
services for five years, including NPI management, PCB assembly and full systems
assembly for MCEA's branded and  private-label  cellular  products sold in North
America.

In February 1999,  Solectron  acquired IBM's  Electronic  Card Assembly and Test
(ECAT)   manufacturing   assets,   primarily   inventory,   in  Austin,   Texas.
Additionally,  Solectron
                                       47
acquired the non-exclusive  rights to use certain IBM intellectual  property for
approximately $53 million. The total purchase price for the manufacturing assets
and  intellectual  property  rights was  approximately  $83 million,  subject to
adjustment.  The transaction was accounted for as a purchase of assets,  and the
purchase  price was allocated to the assets  acquired based on the relative fair
values  of the  assets  at the  date of  acquisition.  Under  the  terms  of the
agreements,  Solectron  will  provide  assembly for  motherboards  used in IBM's
mobile  computer  products  manufactured  worldwide  for the next  three  years.
Solectron  will  also  provide  IBM's  worldwide  design  teams a full  range of
integrated NPI services.

In  August  1999,  Solectron  acquired  the  manufacturing   assets,   primarily
inventory, of Trimble Navigation Limited (Trimble) in Sunnyvale, California, and
assumed full manufacturing responsibility of Trimble's Global Positioning System
(GPS) and related radio  frequency (RF)  technology  products for the next three
years.  Additionally,  Solectron acquired certain  intellectual  property rights
related to RF technology for approximately $11 million. The total purchase price
for the transaction was  approximately $27 million,  subject to adjustment.  The
acquisition  was accounted for as a purchase of assets,  and the purchase  price
was  allocated to the acquired  assets based on the relative  fair values of the
assets at the date of acquisition.

NOTE 15. BUSINESS COMBINATIONS

In September 1998, Bluegum acquired Alcatel's  telecommunications  manufacturing
operations in New South Wales,  Australia.  This  transaction  was accounted for
under the purchase method of accounting, and the purchase price of approximately
$23.3  million was allocated to the assets  acquired  based on the relative fair
values of the assets at the date of acquisition. Pro forma results of operations
are not presented because the effect of this acquisition is not significant.

In July 1999, Solectron issued  approximately  520,000 shares of common stock to
acquire all of the outstanding  capital stock of Sequel. It was a privately held
corporation  specializing in notebook computer and liquid crystal display repair
service and  support.  This  transaction  was  accounted  for under the purchase
method  of  accounting.   The  consolidated  financial  statements  include  the
operating  results of Sequel from the date of  acquisition.  The total  purchase
price was approximately $17.8 million,  subject to adjustments.  The acquisition
was  accounted  for  as a  purchase  of a  business  resulting  in  goodwill  of
approximately  $4 million.  Pro forma  results of  operations  are not presented
because the effect of this acquisition is not significant.

In August 1999, SMART acquired  Compaq's embedded and real time product line and
business in Fremont,  California and Scotland.  Pursuant to the agreement, SMART
acquired certain assets with a fair value totaling $1.2 million. The acquisition
was  accounted  for under the purchase  method of  accounting,  and the purchase
price of approximately  $16.2 million was allocated to the assets acquired based
on the  relative  fair  values  of the  assets  at the date of  acquisition.  In
addition, the Company may be required to pay an earn-out payment to Compaq in an
amount not to exceed $5 million provided  certain  milestones are met during the
twelve month period from September 1, 1999 to August 31, 2000. Pro forma results
of operations  are not presented  because the effect of this  acquisition is not
significant.

NOTE 16. NET INCOME PER SHARE

Share and per share data presented  reflect the two-for-one stock splits through
March 8, 2000.  The  following  table sets  forth the  computation  of basic and
diluted net income per share.

                                       48
Years Ended August 31,
                                         ----------------------------
                                            1999      1998     1997
                                         --------- --------- --------
                                                  (in millions
                                             except per share data)
       Net income - basic                $  350.3  $  251.3  $  203.7
        Interest expense from
         convertible subordinated
         notes, net of  taxes                 5.0       9.6        -
                                         --------  --------  --------
       Net income - diluted              $  355.3  $  260.9  $  203.7
                                         ========  ========  ========

       Weighted average shares - basic      542.6     510.1     487.4
        Common shares issuable upon
         stock options exercised             22.6      19.3      20.4
        Common shares issuable upon
         conversion of convertible
         subordinated notes                  13.8      27.2        -
                                          -------  --------  --------

       Weighted average shares - diluted    579.0     556.6     507.8
                                          =======  ========  ========

       Net income per share - basic       $  0.65  $   0.49  $   0.42
                                          =======  ========  ========

       Net income per share - diluted     $  0.61  $   0.47  $   0.40
                                          =======  ========  ========

When the  exercise  price of an option to purchase  common stock is greater than
the average fair market price of the period, such option is not included for the
calculation because the effect would have been antidilutive.

During fiscal 1999,  1998 and 1997, the exercise price for 3.9 million  options,
9.9 million options and 2.0 million options,  respectively were greater than the
average fair market value of the Company's  common stock and  consequently  were
excluded from the diluted calculation.

In addition,  the calculation for the year ended August 31, 1999 did not include
the 24.7 million  common  shares  issuable  upon  conversion  of the zero coupon
senior notes as they would have been antidilutive.  The calculation for the year
ended August 31, 1997, did not include the 27.2 million  common shares  issuable
upon  conversion of the convertible  subordinated  notes as they would have been
antidilutive.

NOTE 17. SUBSEQUENT EVENTS

On April 28, 2000,  Solectron completed its acquisition of AMERICOM, a privately
held corporation  which specializes in wireless handset repair and refurbishment
and  outsourced   technical   customer   support   services.   Solectron  issued
approximately  1.8  million  shares  of its  common  stock in  exchange  for all
outstanding  common  stock  and  to  extinguish   obligations  under  the  stock
appreciation rights plan of AMERICOM. On July 14, 2000, Solectron also completed
the acquisition of Bluegum which is a leading electronics contract  manufacturer
in Australia.  Solectron issued  approximately  2.3 million shares of its common
stock in  exchange  for all  outstanding  common  shares  and stock  options  of
Bluegum.  Both  acquisitions  were  accounted  for as a  pooling  of  interests.
Accordingly,  the accompanying supplemental financial data have been restated to
include both AMERICOM and Bluegum.

The results of operations  previously  reported by the separate  enterprises and
the combined  amounts  presented in the accompanying  supplemental  consolidated
financial statements are summarized below:

                                       49
Years Ended August 31,
                                 -------------------------------
                                    1999       1998       1997
                                 ---------  ---------  ---------
                                                (in millions)
               Net sales
                 Solectron       $ 8,391.4  $ 5,288.3  $ 3,694.4
                 SMART *             995.9      714.6      694.6
                 Americom **          63.7       36.7       24.5
                 Bluegum ***         247.2       87.2         -
                 Eliminations        (29.0)     (24.6)      (5.0)
                                 ---------  ---------  ---------
                                 $ 9,669.2  $ 6,102.2  $ 4,408.5
                                 =========  =========  =========

               Net income
                 Solectron       $   294.0  $   198.8  $   158.1
                 SMART *              53.5       51.5       45.4
                 Americom **           2.8        1.8        0.2
                 Bluegum ***            -        (0.5)        -
                 Eliminations           -        (0.3)        -
                                 ---------  --------- ----------
                                 $   350.3  $   251.3  $   203.7
                                 =========  =========  =========

*   Results are for the years ended October 31.
**  Results are for the years ended December 31.
*** Results are for the years ended June 30.

No  adjustments  were necessary to conform  accounting  policies of the combined
entities.

On November 30, 1999,  Solectron  completed its  acquisition of SMART which is a
designer and manufacturer of memory modules and memory cards, embedded computers
and I/O products.  Under the terms of the agreement,  each share of SMART common
stock was exchanged for 0.51 shares of Solectron common stock.  Solectron issued
approximately  47.6  million  shares of  Solectron  common stock and assumed all
stock options held by SMART  employees.  The  acquisition was accounted for as a
pooling of interests.

On March 1, 2000,  Solectron  completed the  acquisition of the complex  systems
manufacturing assets of Ericsson's  telecommunications  infrastructure equipment
operations  in  Longuenesse,  France,  and  Ostersund,  Sweden.  As  part of the
agreement,  Solectron will provide a complete  range of integrated  supply chain
solutions to Ericsson. This includes supply base management,  early prototyping,
New Product  Introduction (NPI) management,  complex printed circuit board (PCB)
assembly,  configure-to-order  and build-to-order  complex systems assembly, and
global services.

Effective March 8, 2000, Solectron had a two-for-one stock split effected in the
form of stock  dividend  and issued to the holders of record as of February  23,
2000. Share and per share data presented reflect such stock split transaction.

On  March  31,  2000,   Solectron   completed  the   acquisition   of  Alcatel's
manufacturing  business  in  Aguadilla,  Puerto  Rico.  Alcatel  specializes  in
building next generation  networks and end-to-end data voice solutions.  As part
of the acquisition of Alcatel's  manufacturing business in Aguadilla,  Solectron
will  assume  full  manufacturing  responsibility  for  Alcatel's  PCB  products
focussed  on the  networking  and  telecommunication  industries.  Additionally,
Solectron will provide a full range of manufacturing services to Alcatel for the
next three years including prototyping and high volume PCB assembly.

On June 5, 2000,  Solectron  acquired  the  manufacturing  assets of four Nortel
manufacturing  facilities  including  Calgary,  Canada;  Research Triangle Park,
North Carolina;  Monterrey,  Mexico;  and Cwmcarn,  Wales. On June 30, 2000, the
Company  completed the purchase of  manufacturing  assets at two Nortel Networks
manufacturing  and repair  facilities  located  in Pont de Buis and  Douarnenez,
France, and Monkstown, Northern Ireland. On August 31, 2000, Solectron completed
an additional  asset  acquisition at Nortel  Networks  manufacturing  and repair
operation in Turkey.  Solectron will provide  prototyping,  PCB assembly,  small
sub-assembly and repair services to Nortel in these  locations.  Under the terms
of the agreements,  Solectron will pay approximately  $900 million to assume the
assets
                                       50
contemplated in these  agreements.  The companies also entered into a multi-year
supply agreement, in excess of $10 billion in sales, with the option to renew.

                                       51
SOLECTRON CORPORATION AND SUBSIDIARIES
              SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEETS
                                  (In millions)
                                   (Unaudited)

                                                    May 31,   August 31,
                                                     2000       1999
                                                  ---------   ---------
         ASSETS
         Current assets:
           Cash, cash equivalents and
             short-term investments                $3,419.9   $1,881.7
           Accounts receivable, net                 1,856.7    1,282.5
           Inventories                              2,549.3    1,197.0
           Prepaid expenses and other
             current assets                           236.3      121.2
                                                   --------   --------
             Total current assets                   8,062.2    4,482.4
         Net property and equipment                   848.2      723.8
         Other assets                                 311.0      214.3
                                                   --------   --------
         Total assets                              $9,221.4   $5,420.5
                                                   ========   ========

         LIABILITIES AND STOCKHOLDERS' EQUITY
         Current liabilities:
           Short-term debt                         $   57.8   $   46.9
           Accounts payable                         1,850.5    1,050.4
           Accrued employee compensation              120.2      103.7
           Accrued expenses                           122.5       46.6
           Other current liabilities                  173.0       72.1
                                                   --------   --------
             Total current liabilities              2,324.0    1,319.7
         Long-term debt                             3,295.8      922.7
         Other long-term liabilities                   17.0       11.2
                                                   --------   --------
             Total liabilities                      5,636.8    2,253.6
                                                   --------   --------
         Commitments
         Stockholders' equity:
           Common stock                                 0.6        0.3
           Additional paid-in capital               2,221.5    2,081.4
           Retained earnings                        1,485.7    1,173.1
           Accumulated other comprehensive losses    (123.2)     (87.9)
                                                   --------   --------
              Total stockholders' equity            3,584.6    3,166.9
                                                   --------   --------
         Total liabilities and
           stockholders' equity                    $9,221.4   $5,420.5
                                                   ========   ========

See  accompanying  notes  to  supplemental   condensed   consolidated  financial
statements.

                                       52
SOLECTRON CORPORATION AND SUBSIDIARIES
           SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                     (In millions, except per share data)
                                   (Unaudited)

                                              Nine Months Ended
                                                   May 31,
                                             --------------------
                                                2000       1999
                                             ---------  ---------

         Net sales                           $ 9,401.3  $ 6,961.7

         Cost of sales                         8,538.9    6,292.3
                                             ---------  ---------
         Gross profit                            862.4      669.4
         Operating expenses:
           Selling, general and
             administrative                      323.3      270.8
           Research and development               44.7       32.5
           Acquisition and restructuring
             costs                                33.2         --
                                             ---------  ---------
             Operating income                    461.2      366.1
           Interest income                        67.4       23.4
           Interest expense                      (40.6)     (27.2)
                                             ---------  ---------
         Income before income taxes and
           cumulative effect of change
           in accounting principle               488.0      362.3
         Income tax expense                      158.3      115.5
                                             ---------  ---------
         Income before cumulative effect of
           change in accounting principle        329.7      246.8
         Cumulative effect of change in
           accounting principle                   (3.5)        --
                                             ---------  ---------

         Net income                            $ 326.2  $   246.8
                                             =========  =========

         Basic net income per share:
           Income before cumulative effect
            of change in accounting
            principle                        $    0.55  $    0.46
           Cumulative effect of change in
            accounting principle                 (0.01)        --
                                             ---------  ---------
                                             $    0.54  $    0.46
                                             =========  =========

         Diluted net income per share:
           Income before cumulative effect
            of change in accounting
            principle                        $    0.53  $    0.44
           Cumulative effect of change in
            accounting principle                 (0.01)        --
                                             ---------  ---------
                                             $    0.52  $    0.44
                                             =========  =========

         Shares used to compute net income
           per shares:

             Basic                               597.8      534.4
             Diluted                             622.7      573.8

See  accompanying  notes  to  supplemental   condensed   consolidated  financial
statements.

                                       53
SOLECTRON CORPORATION AND SUBSIDIARIES
    SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                  (In millions)
                                   (Unaudited)

                                                  Nine Months Ended
                                                       May 31,
                                                ---------------------
                                                   2000        1999
                                                ---------   ---------
Net income                                         $326.2      $246.8

Other comprehensive income (loss):
Foreign currency translation adjustments,
 net of income tax benefit of $1.0 in
 fiscal 2000                                        (33.7)      (56.9)
Unrealized loss on investments, net of
 income tax benefit of $1.0 in fiscal 2000           (1.6)         -
                                                 --------   ---------
Comprehensive income                              $ 290.9    $  189.9
                                                 ========   =========

---------------
Accumulated  foreign currency  translation losses were $120.5 million at May 31,
2000 and $86.8 million at August 31, 1999. For the  nine-month  period of fiscal
year 1999, the foreign  currency  translation  loss primarily  resulted from the
devaluation  of the Brazilian  real.  The  translation  loss for the  nine-month
period of fiscal year 2000 was  principally due to the weakened French franc and
British sterling.  Most of Solectron's foreign currency  translation  adjustment
amounts relate to investments  which are permanent in nature. To the extent that
such amounts relate to investments  which are permanent in nature, no adjustment
for income taxes is made. Accumulated unrealized losses on investments were $2.7
million at May 31, 2000 and $1.1 million at August 31, 1999.

See  accompanying  notes  to  supplemental   condensed   consolidated  financial
statements.

                                       54
SOLECTRON CORPORATION AND SUBSIDIARIES
         SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (In millions)
                                   (Unaudited)

                                                  Nine Months Ended
                                                       May 31,
                                                ---------------------
                                                   2000        1999
                                                ---------   ---------

        Cash flows from operating activities:
          Net income                            $  326.2     $ 246.8
          Adjustments to reconcile net
           income to net cash provided
           by operating activities:
            Depreciation and amortization          173.1       139.1
            Non-cash interest expense               27.4        10.6
            Tax benefit associated with the
             exercise of stock options              52.6        21.5
            Cumulative effect of change in
             accounting principle for
             Start-up costs                          3.5          --
            Other                                   (4.7)      (15.1)
            Changes in operating assets
             and liabilities:
              Accounts receivable                 (637.7)     (255.8)
              Inventories                       (1,192.4)     (182.1)
              Prepaid expenses and other
               current assets                      (98.6)      (10.1)
              Accounts payable                     874.3        63.9
              Accrued expenses and other
               current liabilities                 198.7        16.6
                                                --------    --------
        Net cash (used in) provided by
          Operating activities                    (277.6)       35.4
                                                --------    --------
        Cash flows from investing activities:
          Purchases of short-term               (1,079.1)     (494.6)
        investments
          Sales and maturities of short-term
           investments                             699.8       286.7
          Acquisition of manufacturing
           locations and assets                   (297.7)     (108.4)
          Capital expenditures                    (323.5)     (328.9)
          Proceeds from sales of fixed
           assets                                   71.7        16.8
          Other                                    (13.5)      (15.4)
                                                ---------   --------
        Net cash used in investing activities     (942.3)     (643.8)
                                                ---------    -------

   (continued)

                                       55
SOLECTRON CORPORATION AND SUBSIDIARIES
   SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
                                  (In millions)
                                   (Unaudited)

                                                  Nine Months Ended
                                                       May 31,
                                                ---------------------
                                                   2000        1999
                                                ---------   ---------

Cash flows from financing activities:
  Net proceeds from bank lines of credit              4.5       14.4
  Net proceeds from issuance of
   long-term debt                                 2,297.3      732.2
  Repayments of long-term debt                       (0.5)      (2.0)
  Repurchase of common stock                           --       (7.2)
  Proceeds from exercise of stock
   options                                           97.1       55.1
  Net proceeds from issuance of
   common stock                                      11.1        8.9
  Dividends paid                                     (1.4)      (1.1)
  Other                                               8.3       15.8
                                                  -------    -------
Net cash provided by financing
  activities                                      2,416.4      816.1
                                                  -------    -------
Effect of exchange rate changes on
  cash and cash equivalents                         (15.2)       0.3
                                                 --------    -------
Net increase (decrease) in cash
  and cash equivalents                            1,181.3      208.0
Cash and cash equivalents at
  beginning of year                               1,417.4      306.4
                                                 --------    -------
Cash and cash equivalents at
  end of year                                    $2,598.7    $ 514.4
                                                 ========    =======

Cash paid:
  Interest                                        $  15.8    $  27.4
  Income taxes                                    $ 103.3    $  85.7
Non cash investing and financing activities:
  Issuance of common stock upon
   conversion of long-term debt, net              $    --    $ 230.0
  Issuance of common stock for
   business combination, net
   of cash acquired                               $   1.0    $    --

See  accompanying  notes  to  supplemental   condensed   consolidated  financial
statements.

                                       56
Notes to Supplemental Condensed Consolidated Financial Statements

NOTE A - Basis of Presentation

The accompanying unaudited supplemental condensed consolidated balance sheets as
of May 31,  2000 and August 31,  1999,  and the related  unaudited  supplemental
condensed consolidated statements of income for the nine-month periods ended May
31,  2000  and  1999,  and the  unaudited  supplemental  condensed  consolidated
statements of comprehensive income for the nine-month periods ended May 31, 2000
and 1999, and the unaudited supplemental  condensed  consolidated  statements of
cash flows for the nine months ended May 31, 2000 and 1999 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
Company's financial  position,  operating results and cash flows for the periods
presented.  The results of operations  for the  nine-month  period ended May 31,
2000 are not  necessarily  indicative  of results to be expected  for the entire
year. These unaudited  supplemental  condensed consolidated financial statements
should  be read in  conjunction  with the  supplemental  consolidated  financial
statements and notes thereto for the year ended August 31, 1999 included in Item
5. of this Current Report on Form 8-K.

For clarity of presentation, the Company has indicated its third fiscal quarters
as ending on May 31, 2000 and 1999,  and its fiscal year as ending on August 31,
1999. In fact, the Company's third quarter of fiscal 2000 ended on May 26, 2000,
its third  quarter of fiscal 1999 ended on May 28, 1999 and its 1999 fiscal year
ended on August 27, 1999.

On April 28, 2000,  Solectron  acquired  AMERICOM,  a privately held corporation
which  specializes in wireless handset repair and  refurbishment  and outsourced
technical customer support services.  Solectron issued approximately 1.8 million
shares of its common stock in exchange for all  outstanding  common stock and to
extinguish  obligations under the stock appreciation rights plan of AMERICOM. On
July  14,  2000,  Solectron  acquired  Bluegum  which is a  leading  electronics
contract  manufacturer in Australia.  Solectron issued approximately 2.3 million
shares of its common stock in exchange  for all  outstanding  common  shares and
stock options of Bluegum.  Both  transactions  were  accounted for as pooling of
interests.

Accordingly,  Solectron's  historical  financial  statements  have been restated
retroactively  to include the financial  results of AMERICOM and Bluegum.  While
AMERICOM's  fiscal year was from January 1 to December 31, Bluegum's fiscal year
was from July 1 to June 31 since its inception from February 1998.  AMERICOM and
Bluegum  changed  their fiscal years to coincide with  Solectron's  beginning in
fiscal 2000.

Since the results of operations  of AMERICOM from  September 1, 1999 to December
31,  1999 are  included  in  fiscal  year  1999 as well as in first  and  second
quarters  of fiscal  2000,  net income of $1.3  million for such period has been
recorded as an adjustment to retained  earnings in first quarter of fiscal 2000.
In addition, Bluegum's results of operations for July and August of 1999 are not
included in any fiscal period  presented and net loss of $78,000 for such period
has been recorded as an adjustment to retained  earnings in the first quarter of
fiscal 2000.

Restated financial  information includes certain adjustments for the elimination
of net sales and cost of sales  related to  shipments by Solectron to Bluegum as
well as for  certain  reclassifications  made on  AMERICOM's  and  Bluegum's  to
conform  with  Solectron's  financial  statement  presentation.  There  were  no
adjustments  necessary  to conform  the  accounting  policies  of the  combining
companies.

                                       57
NOTE B - Inventories

Inventories consisted of (in millions):

                                          May 31,    August 31,
                                           2000         1999
                                         --------    ----------
                                             (in millions)
          Raw materials                  $2,006.0     $  862.9
          Work-in-process                   380.8        237.6
          Finished goods                    162.5         96.5
                                         --------     --------
            Total                        $2,549.3     $1,197.0
                                         ========     ========

                                       58
NOTE C - Net Income Per Share

The following  table sets forth the  computation of basic and diluted net income
per share for the nine-month periods ended May 31, 2000 and 1999.

                                                  Nine Months Ended
                                                       May 31,
                                                ---------------------
                                                   2000        1999
                                                ---------   ---------
                                                    (in millions
                                                except per share data)

       Income before cumulative effect
         of change in accounting principle      $  329.7    $   246.8

       Cumulative effect of change in
         accounting principle, net of
         income tax benefit                         (3.5)          --

       Interest expense from
       convertible subordinated notes,
          net of income taxes                         --          5.0
                                                --------    ---------

       Net income - diluted                     $  326.2    $   251.8
                                               =========    =========

       Weighted average shares - basic             597.8        534.4

       Common shares issuable upon
         exercise of stock options                  24.9         20.9

       Common shares issuable upon
         assumed conversion of
         convertible subordinated notes               --         18.5
                                               ---------    ---------

       Weighted average shares - diluted           622.7        573.8
                                               =========    =========

       Basic net income per share:
         Income before cumulative
           effect of change in
           accounting principle                $    0.55    $    0.46

         Cumulative effect of change in
           accounting principle                    (0.01)          --
                                               ---------    ---------

              Net income per share             $    0.54    $    0.46
                                               =========    =========

       Diluted net income per share:
         Income before cumulative
           effect of change in
           accounting principle                $    0.53    $    0.44

         Cumulative effect of change in
           accounting principle                    (0.01)          --
                                               ---------    ---------

              Net income per share             $    0.52    $    0.44
                                               ==========   =========

For the  nine-month  period ended May 31, 2000,  options to purchase 1.9 million
shares of the  Company's  common  stock with  exercise  prices  greater than the
average fair market  values of its common stock for such period at $39.43,  were
not included in the calculation because the effect would have been antidilutive.

Prior to  fiscal  2000,  the  fiscal  years of  Solectron  and  SMART  differed.
Solectron's  condensed  consolidated  statements  of income  for the  nine-month
period  ended May 31, 1999 were  combined  with SMART's  condensed  consolidated
statements  of  income  for the  nine-month

                                       59
period  ended July 31,  1999.  For  Solectron,  options to purchase  3.4 million
shares of Solectron's common stock with exercise prices greater than the average
fair market values of its common stock at $19.69 for the nine-month period ended
May 31, 1999 were not included in the calculation  because the effect would have
been antidilutive.  For SMART, options to purchase 1.5 million shares of SMART's
common stock with exercise prices greater than the average fair market values of
its common  stock at $18.31 for the  nine-month  period ended July 31, 1999 were
not included in the calculation because the effect would have been antidilutive.

In addition,  the calculation  for the nine-month  period ended May 31, 2000 did
not include the 24.7  million  and 49.6  million  common  shares  issuable  upon
conversion  of the  zero-coupon  senior  convertible  notes  due 2019 and  2020,
respectively, as they would have been antidilutive.

NOTE D - Commitments

Solectron  leases various  facilities  under  operating  lease  agreements.  The
facility  leases  expire at various  dates  through  2014.  Most of such  leases
require Solectron to pay property taxes, insurance and normal maintenance costs.
Payments of some leases are periodically  adjusted based on LIBOR rates. Certain
leases for Solectron's  facilities,  including  Milpitas,  Fremont and San Jose,
California; Everett, Washington; Suwanee, Georgia; and Columbia, South Carolina,
provide  Solectron  with an  option  at the  end of the  lease  term  of  either
acquiring  the property at its original cost or arranging for the property to be
acquired. For these leases,  Solectron is contingently liable under a first loss
clause for a decline in market value of such leased  facilities up to 85% of the
original  costs, or  approximately  $170 million in total as of May 31, 2000, in
the  event  Solectron  does  not  purchase  the  properties  at  the  end of the
respective lease terms.  Under such  agreements,  the Company must also maintain
compliance  with  financial  covenants  similar  to its $100  million  unsecured
multicurrency revolving credit facility.

Additionally,   Solectron  periodically  enters  into  lease  arrangements  with
third-party  leasing companies under which it sells fixed assets and leases them
back from the leasing  companies.  Solectron is  accounting  for these leases as
operating leases.

NOTE E - Segment Information

The Company has transitioned its operations into three strategic  business units
- manufacturing and operations,  technology solutions, and global services. Each
business unit has its own president and support  staff.  Solectron's  management
uses an internal management reporting system, which provides important financial
data, to evaluate  performance  and allocate  resources for these three business
units.  Intersegment  adjustments were related  primarily to intersegment  sales
that  were  generally   recorded  at  prices  that  approximated   arm's  length
transactions.  Certain  corporate  expenses  were  allocated to these  operating
segments  and  were  included  for  performance  evaluation.  Some  amortization
expenses  were also  allocated  to these  operating  segments,  but the  related
intangible assets were not allocated.  The accounting  policies for the segments
were the same as for Solectron taken as a whole.

                                       60
Segment  information by business units for the nine-month  periods ended May 31,
2000 and 1999, was as follows:
                                       Nine Months Ended
                                            May 31,
                                     ---------------------
                                         2000       1999
                                     ---------   ---------

        Net sales:
        Manufacturing and operations $8,281.2     $6,099.7
        Technology solutions          1,044.4        851.8
        Global services                 160.2         68.4
        Intersegment adjustments        (84.5)       (58.2)
                                     --------     --------
                                     $9,401.3     $6,961.7
                                     ========     ========
        Depreciation and
          amortization:
        Manufacturing and operations $  129.1     $  118.0
        Technology solutions             19.3         15.3
        Global services                  10.4          0.9
        Corporate                        14.3          4.9
                                     --------     --------
                                     $  173.1     $  139.1
                                     ========     ========
        Interest income:
        Manufacturing and operations $    5.7     $    5.7
        Technology solutions              5.1          5.2
        Global services                   0.1           --
        Corporate                        82.2         23.9
        Intersegment adjustments        (25.7)       (11.4)
                                     --------     --------
                                     $   67.4     $   23.4
                                     ========     ========
        Interest expense:
        Manufacturing and operations $   30.0     $   13.8
        Technology solutions              0.8          0.9
        Global services                   1.1          0.4
        Corporate                        34.9         23.5
        Intersegment adjustments        (26.2)       (11.4)
                                     --------     --------
                                     $   40.6     $   27.2
                                     ========     ========
        Pre-tax income:
        Manufacturing and operations $  449.1     $  335.0
        Technology solutions             44.9         59.9
        Global services                  (0.3)         6.2
        Corporate                       (10.8)       (38.8)
                                     --------     --------
                                     $  482.9 a,b $  362.3
                                     ========     ========
        Capital expenditures:
        Manufacturing and operations $  270.1     $  289.6
        Technology solutions             21.6         15.9
        Global services                  12.2          1.7
        Corporate                        19.6         21.7
                                     --------     --------
                                     $  323.5     $  328.9
                                     ========     ========

                                       May 31,    August 31,
                                        2000         1999
                                     ----------   ----------
        Total Assets:
        Manufacturing and operations   $ 5,249.7   $ 3,344.7
        Technology solutions               602.8       556.7
        Global services                    110.3        64.8
        Corporate                        5,611.0     2,717.0
        Intersegment Adjustments        (2,352.4)   (1,262.7)
                                       ---------    --------
                                       $ 9,221.4    $5,420.5
                                       ==========   ========

                                       61
----------------------------
a.Includes $5.1 million for cumulative effect of change in accounting  principle
  for start-up costs.

b.Reflects  acquisition  costs of $16.5 million,  $5.2 million and $3.8 million,
  respectively, recorded in technology solutions, global services and corporate;
  and  restructuring  costs of $2.8  million,  $1.9  million  and $3.0  million,
  respectively,   recorded  in  technology   solutions,   global   services  and
  manufacturing and operations.

NOTE F - Zero-Coupon Convertible Senior Notes

In May 2000, Solectron issued 4,025,000 zero-coupon  convertible senior notes at
an issue price of $579.12 per note which resulted in gross proceeds to Solectron
of approximately  $2.3 billion under an effective  registration  statement filed
with the  Securities  and Exchange  Commission.  These notes are  unsecured  and
unsubordinated  indebtedness  of  Solectron  with a maturity  value  aggregating
$4.025  billion.  There  will be no  interest  payment  by  Solectron  prior  to
maturity.  Each note has a yield of 2.75% with a maturity value of $1,000 on May
8, 2020. Solectron is amortizing the issue discount using the effective interest
method over the term of the notes.  Each note is  convertible at any time by the
holder at a  conversion  rate of 12.3309  shares per note.  Holders  may require
Solectron  to purchase all or a portion of their notes on May 8, 2003 and May 8,
2010,  at a price of $628.57  and  $761.00 per note,  respectively.  Also,  each
holder may require  Solectron to  repurchase  all or a portion of such  holder's
notes  upon a change in  control of the  Company  occurring  on or before May 8,
2003. Solectron,  at its option, may redeem all or a portion of the notes at any
time on or after May 8, 2003.

Note G - Pooling of Interests

On April 28, 2000,  Solectron completed the acquisition of AMERICOM, a privately
held corporation  which specializes in wireless handset repair and refurbishment
and  outsourced  technical  customer  support  services  and  accounted  for the
transaction  as a pooling  of  interests.  Solectron  issued  approximately  1.8
million shares of its common stock in exchange for all outstanding  stock and to
extinguish  obligations  under the stock  appreciation  rights plan of AMERICOM.
This  transaction  was  previously  not  considered  material  to the  Company's
consolidated  results of  operations,  and the  Company's  historical  financial
statements  were not restated to reflect the  financial  position and results of
operations  of AMERICOM.  Acquisition  costs of $5.2  million  were  recorded in
connection  with the  acquisition  of  AMERICOM.  These  costs  included  direct
transaction fees, as well as legal fees, accounting fees,  registration fees and
other incidentals.

On July 14, 2000,  Solectron  completed the  acquisition  of Bluegum,  a leading
electronics  contract  manufacturer in Australia,  and issued  approximately 2.3
million shares of its common stock in exchange for all outstanding common shares
and stock options of Bluegum. This acquisition was accounted for as a pooling of
interests.  As the  combined  effect of Bluegum  Group and  AMERICOM  are deemed
material  to  the  Company's  consolidated  financial  statements,   Solectron's
historical financial statements have been restated  retroactively to include the
financial results of AMERICOM and Bluegum.

The results of operations  previously  reported by the separate  enterprises and
the  combined  amounts  presented  in the  accompanying  supplemental  condensed
consolidated financial statements are summarized below:

                                       62
Nine Months Ended
                                        May 31,
                                 --------------------
                                   2000        1999
                                 --------   ---------
                                     (in millions)
               Net sales
                 Solectron       $ 8,372.2  $ 6,005.3
                 SMART *             889.6      745.5
                 Americom **          53.5       44.0
                 Bluegum ***         124.8      188.3
                 Eliminations        (38.8)     (21.4)
                                 ---------  ---------
                                 $ 9,401.3  $ 6,961.7
                                 =========  =========
               Net income
                 Solectron       $   307.7  $   205.1
                 SMART *              28.4       39.2
                 Americom **          (2.8)       2.0
                 Bluegum ***          (6.9)       0.5
                 Eliminations         (0.2)        -
                                 ---------  ---------
                                 $   326.2  $   246.8
                                 =========  =========

*   Results  are for the nine  months  ended May 31,  2000 and July 31,  1999.
**  Results are for the nine months ended May 31, 2000 and September  30, 1999.
*** Results are for the nine months ended May 31, 2000 and March 31, 1999.

No  adjustments  were necessary to conform  accounting  policies of the combined
entities.

NOTE H - Acquisitions of Manufacturing Assets and Business

On March 1, 2000,  Solectron  completed the  acquisition of the complex  systems
manufacturing assets of Ericsson's  telecommunications  infrastructure equipment
operations in Longuenesse,  France,  and Ostersund,  Sweden.  The total purchase
price for the  manufacturing  assets and  intangible  assets  was  approximately
$162.2  million,  subject to adjustment.  The transaction was accounted for as a
purchase of assets,  and the purchase price was allocated to the assets acquired
based on the relative fair values of the assets at the date of  acquisition.  As
part of the  agreement,  Solectron  will provide a complete  range of integrated
supply-chain solutions to Ericsson. This includes supply-base management,  early
prototyping,  NPI  management,  complex  PCB  assembly,  configure-to-order  and
build-to-order complex systems assembly, and global services.

On  March  31,  2000,   Solectron   completed  the   acquisition   of  Alcatel's
manufacturing  business  in  Aguadilla,  Puerto  Rico.  The  purchase  price was
approximately  $48.2  million,  subject  to  adjustments.  The  acquisition  was
accounted  for as a purchase  of a business  resulting  in foreign  goodwill  of
approximately $13.3 million,  subject to adjustment.  The condensed consolidated
financial  statements  include the operating  results of this operation from the
date of acquisition.  Pro forma results of operations are not presented  because
the  effect of this  acquisition  is not  significant.  Alcatel  specializes  in
building  next-generation  networks and end-to-end data voice solutions. As part
of the acquisition of Alcatel's  manufacturing business in Aguadilla,  Solectron
will assume full manufacturing responsibility for Alcatel's PCB products focused
on the networking and telecommunication industries. Additionally, Solectron will
provide a full range of  manufacturing  services  to Alcatel  for the next three
years including prototyping and high-volume PCB assembly.

On April 6, 2000,  Solectron  announced  the  completion of  acquisition  of the
manufacturing assets of Premisys Communications, Inc., a wholly owned subsidiary
of  Zhone  Technologies,   Inc.  (Zhone).  The  total  purchase  price  for  the
manufacturing  assets and  intangible  assets was  approximately  $15.5 million,
subject to  adjustment.  The  transaction  was  accounted  for as a purchase  of
assets, and the purchase price was allocated to the assets acquired based on the
relative  fair  values  of the  assets  at the date of  acquisition.  Zhone is a
communications equipment provider integrating expertise in voice, video and data
communications.   Under  the  agreement,   Solectron   becomes  Zhone's  virtual
supply-chain
                                       63
partner and signed a five-year  commitment  with Zhone to provide  product  life
cycle  management  services,   including  NPI  through  repair  and  end-of-life
services.

NOTE I - Subsequent Events

On June 5, 2000,  Solectron  acquired  the  manufacturing  assets of four Nortel
manufacturing  facilities  including  Calgary,  Canada;  Research Triangle Park,
North Carolina;  Monterrey,  Mexico;  and Cwmcarn,  Wales. On June 30, 2000, the
Company  completed the purchase of  manufacturing  assets at two Nortel Networks
manufacturing  and repair  facilities  located  in Pont de Buis and  Douarnenez,
France, and Monkstown, Northern Ireland. On August 31, 2000, Solectron completed
an additional  asset  acquisition at Nortel  Networks  manufacturing  and repair
operation in Turkey.  Solectron will provide  prototyping,  PCB assembly,  small
sub-assembly and repair services to Nortel in these  locations.  Under the terms
of the agreements,  Solectron will pay approximately  $900 million to assume the
assets  contemplated  in these  agreements.  The  companies  also entered into a
multi-year supply agreement,  valued in excess of $10 billion in sales, with the
option to renew.

                                       64
INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Solectron Corporation:

We have audited the  accompanying  supplemental  consolidated  balance sheets of
Solectron  Corporation and  subsidiaries as of August 31, 1999 and 1998, and the
related supplemental  consolidated  statements of income,  stockholders' equity,
comprehensive  income,  and cash  flows for each of the years in the  three-year
period ended August 31, 1999. In connection with our audits of the  supplemental
consolidated financial statements,  we also have audited the financial statement
schedule - valuation and qualifying  accounts.  These supplemental  consolidated
financial  statements and financial statement schedule are the responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
supplemental  consolidated financial statements and financial statement schedule
based on our audits.

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

The  supplemental  consolidated  financial  statements  and financial  statement
schedule  give  retroactive  effect to the merger of Solectron  Corporation  and
Americom  on April  28,  2000 and  Bluegum  on July 14,  2000,  which  have been
accounted  for  as  pooling  of  interests  as  described  in  Note  10  to  the
supplemental  consolidated  financial statements.  Generally accepted accounting
principles  prescribe  giving  effect  to  a  consummated  business  combination
accounted for by the pooling-of-interests method in financial statements that do
not include the date of consummation.  These financial  statements do not extend
through  the date of  consummation.  However,  they will  become the  historical
consolidated  financial  statements of Solectron  Corporation  and  subsidiaries
after  financial  statements  covering the date of  consummation of the business
combination are issued.

In our opinion, the supplemental  consolidated  financial statements referred to
above  present  fairly in all  material  respects,  the  financial  position  of
Solectron  Corporation and  subsidiaries as of August 31, 1999 and 1998, and the
results  of their  operations  and their cash flows for each of the years in the
three-year  period ended August 31, 1999, in conformity with generally  accepted
accounting  principles  applicable after consolidated  financial  statements are
issued for a period  which  includes  the date of  consummation  of the business
combination. 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 LLP

Mountain View, California
August 28, 2000

                                       65
FINANCIAL STATEMENT SCHEDULE

The financial statement Schedule II - VALUATION AND QUALIFYING ACCOUNTS is filed
as part of this Form 8-K.

                    SOLECTRON CORPORATION AND SUBSIDIARIES
               SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                                (in millions)

                                    Balance   Amounts
                                    at        Charged                 Balance at
                                    Beginning To                      End
Description                         of Period Operations (Deductions) Of Period
-----------                         --------- ---------- ------------ ----------
Year ended August 31, 1999:
Allowance for doubtful
  accounts receivable                 $ 4.7     $ 2.5      $(0.8)      $ 6.4
Year ended August 31, 1998:
Allowance for doubtful
  accounts receivable                 $ 4.7     $ 3.0      $(3.0)      $ 4.7
Year ended August 31, 1997:
Allowance for doubtful
  accounts receivable                 $ 3.6     $ 2.5      $(1.4)      $ 4.7

                                       66