Solectron Corporation

Solectron Corporation

March 24, 2005 16:00 ET

Solectron Announces Second-Quarter Results


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: SOLECTRON CORPORATION

NYSE SYMBOL: SLR

MARCH 24, 2005 - 16:00 ET

Solectron Announces Second-Quarter Results

MILPITAS, Calif.--(CCNMatthews - Mar 24, 2005) -

Solectron Corporation (NYSE:SLR), a leading provider of electronics
manufacturing and integrated supply chain services, today reported sales
of $2.76 billion in the second quarter of fiscal 2005. Sales in the
second quarter of fiscal 2004 were $2.89 billion, and sales in the first
quarter of fiscal 2005 were $2.69 billion.

The company reported a GAAP loss from continuing operations in the
second quarter of $5 million, or zero cents per share, compared with a
GAAP loss from continuing operations of $90 million, or 11 cents per
share, in the second quarter of last year. The interim financial
information from our prior periods, as well as balance sheet information
presented in this press release, may be affected by the adjustments
described under "Section 404 Testing, Impact of Prior Period
Adjustments" below.

The company had non-GAAP net income from continuing operations of $40
million, or 4 cents per share, excluding $45 million of charges. The
company reported an impairment charge of $40 million related to the
pending sale of one of its Japanese facilities. In addition, the company
recorded a restructuring charge of $3 million and a charge of $2 million
related to its convertible note exchange offer.

The company reported sequentially improved revenues due to stronger
demand in the networking, computing and storage and industrial markets.
Revenues from communications, consumer and automotive were weaker in the
second quarter.

"Solectron demonstrated stability in profitability while improving
working capital management, generating strong cash flow from operations
of approximately $280 million," said Mike Cannon, president and chief
executive officer. "While we are pleased with sequential growth in
second quarter revenue, we are not seeing the anticipated growth from
several customers primarily in the consumer and computing markets. We
now expect that second half revenues and earnings will not be higher
than first half results."

Quarterly Highlights

The company made further improvements in working capital during the
quarter with a reduction in accounts receivable of $41 million and a
reduction in inventory of $162 million. Inventory turns were 7.9 and the
company's cash conversion cycle was 45 days, an improvement of six days
from the prior period. Capital expenditures were $34 million, and
depreciation and amortization was $51 million.

Third-Quarter 2005 Guidance

Fiscal third-quarter guidance is for sales of $2.6 billion to $2.8
billion, and for non-GAAP EPS from continuing operations to range from 4
cents to 6 cents, on a fully diluted basis.

Section 404 Testing, Impact of Prior Period Adjustments

As part of the company's self-assessment and self-testing of its
internal control over financial reporting under Section 404 of the
Sarbanes-Oxley Act of 2002, management has identified errors related to
account reconciliations and tax account roll-forwards for fiscal years
2002, 2003 and 2004. Although the company believes such errors were
immaterial to its financial statements for each of such prior periods
and no evidence of fraud was noted, under relevant Securities and
Exchange Commission accounting interpretations a restatement of the
financial statements for such prior periods to correct immaterial
misstatements therein is required if the aggregate correcting adjustment
related to such errors would be material to the financial statements of
the current fiscal period. Accordingly, the company will restate its
historical financial information for those periods.

The company is working to finalize the financial statement impact of
these errors, but currently estimates that operating and other expenses
will increase by a net of approximately $20 million over the three-year
period. Additionally, the company currently estimates that tax expense
will decrease by approximately $20 million over the same time period.

In addition, for the fiscal quarter ending Nov. 30, 2004, the company
will have similar adjustments resulting in the potential reduction of
expenses in the amount of approximately $5 million, which will be
included in the restatement. The majority of this amount is caused by
the restatement of prior quarters and is not in addition to the total
impact described above.

Under Public Company Accounting Oversight Board Auditing Standard No. 2,
the restatement of the company's financial statements is at least a
significant deficiency and is a strong indicator that a material
weakness in internal controls over financial reporting exists. The
company's management is reviewing its disclosure controls and internal
controls over financial reporting to remediate this situation.

Due to the time and effort involved in completing the required analysis,
the company anticipates a delayed filing of its Form 10-Q for the fiscal
quarter ended Feb. 28, 2005.

Non-GAAP Information

In addition to disclosing results determined in accordance with
generally accepted accounting principles (GAAP), Solectron also
discloses non-GAAP results of operations that exclude certain items. By
disclosing this non-GAAP information, management intends to provide
investors with additional information to further analyze the company's
performance, core results and underlying trends. Management utilizes a
measure of net income and earnings per share on a non-GAAP basis that
excludes certain charges to better assess operating performance. Each
excluded item is considered to be of a non-operational nature in the
applicable period. Earnings guidance is provided only on a non-GAAP
basis due to the inherent difficulty in forecasting such charges.
Consistent with industry practice, management has historically applied
these non-GAAP measures when discussing earnings or earnings guidance
and intends to continue doing so.

Non-GAAP information is not determined using GAAP; therefore, the
information is not necessarily comparable to other companies and should
not be used to compare the company's performance over different periods.
Non-GAAP information should not be viewed as a substitute for, or
superior to, net income or other data prepared in accordance with GAAP
as measures of our profitability or liquidity. Users of this financial
information should consider the types of events and transactions for
which adjustments have been made. See the tables to the press release
for a reconciliation of non-GAAP amounts to amounts reported under GAAP.

Webcast To Be Held Today

At 4:30 p.m. EST today, Solectron will hold a conference call to discuss
this earnings report. A live Internet broadcast of the call can be
joined by going to www.solectron.com. Supplemental financial information
related to the conference call will also be available at this Web site
location. Following the live broadcast, the archived Webcast will be
available at www.solectron.com/investor/events.htm. In addition, audio
replays of the call will be available two hours following the call
through April 7. Call +1 (800) 642 1687 from within the United States or
+1 (706) 645 9291 from outside the United States and specify pass code:
3881218.

Safe Harbor

This release contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended. Specific
forward-looking statements relate to our financial outlook for the third
quarter of fiscal 2005 and beyond, our finalization of the prior period
adjustments, the timing of the filing of our second quarter Form 10-Q,
and our remediation of any weaknesses or deficiencies in our internal
controls over financial reporting. These forward-looking statements
involve a number of risks and uncertainties, and are based on current
expectations, forecasts and assumptions.

Actual outcomes and results could differ materially. These risks and
uncertainties include: our ability to continue to win and satisfy
customers; reliance on major customers; the present and future strength
of the worldwide economy overall, and in the telecommunications and
other electronics technology sectors in particular; our ability to
continue to improve our operating metrics; the accuracy of our
projections of cash flows and capital requirements; incurring more
restructuring-related charges than currently anticipated; the risk of
price fluctuation; fluctuations in operating results; changes in
technology; competition; variations in demand forecasts and orders that
may give rise to operational challenges such as excess plant, equipment
and materials; risks associated with international sales and operations;
our ability to properly manage acquisitions; any unidentified weaknesses
or deficiencies in our internal controls over financial reporting;
interest rate risk; existing and new environmental regulations; market
and segment risk; the ability to retain key personnel; the impact of our
outstanding litigation and of other contingent liabilities; delays in
our ability to finalize the amounts and financial statement impacts of
prior period adjustments, which could cause additional delay in our
second quarter Form 10-Q filing; and our ability to fully remediate
weaknesses or deficiencies in our internal controls over financial
reporting to prevent future errors in our financial statements. In
addition, the independent audit of our interim fiscal 2005 financial
statements will not be available until after the fiscal year-end, and
the final audited results could differ from the preliminary, unaudited
results contained in this release.

For a further list and description of risks and uncertainties, see the
reports filed by Solectron with the Securities and Exchange Commission,
specifically Forms 8-K, 10-K, 10-Q, S-3 and S-4. Solectron disclaims any
intention or obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise. Supplemental information, condensed consolidated balance
sheets and statements of operations follow. All monetary amounts are
stated in U.S. dollars.



Income from Continuing Operations Reconciliation Quarter Ended
(in millions) Feb. 28, 2005
-------------------------------------------------- -----------------
Income from continuing operations on a GAAP basis $ (4.7)
Impairment, restructuring and other charges $ 45.0
-----------------
Income from continuing operations on a non-GAAP
basis $ 40.3
=================

-------------------------------------------------- -----------------
Earnings Per Share Reconciliation Quarter Ended
(in millions, except per-share data) Feb. 28, 2005
-------------------------------------------------- -------------------
Diluted net income per share from continuing
operations on a GAAP basis $ -
Impairment, restructuring and other charges $ 0.04
-----------------
Diluted net income per share from continuing
operations on a non-GAAP basis $ 0.04
=================
Shares used to compute diluted net income per
share - GAAP and non-GAAP 980.9
-------------------------------------------------- -----------------



About Solectron

Solectron (www.solectron.com) provides a full range of worldwide
manufacturing and integrated supply chain services to the world's
premier high-tech electronics companies. Solectron's offerings include
new-product design and introduction services, materials management,
product manufacturing and product warranty and end-of-life support. The
company is based in Milpitas, Calif., and had sales from continuing
operations of $11.64 billion in fiscal 2004.



SOLECTRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(U.S. dollars in millions)
Unaudited

February 28 August 31
2005 2004
------------- -------------
ASSETS
Current assets:
Cash, cash equivalents and short-term
investments $ 1,956.9 $ 1,430.0
Accounts receivable, net 1,388.6 1,549.9
Inventories 1,243.4 1,457.2
Prepaid expenses and other current
assets 193.0 192.9
Current assets of discontinued
operations - 36.4
------------- -------------
Total current
assets 4,781.9 4,666.4
Property and equipment, net 665.4 726.6
Goodwill 134.6 134.6
Other assets 227.3 277.5
Long-term assets of discontinued
operations - 11.9
------------- -------------
Total assets $ 5,809.2 $ 5,817.0
============= =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 19.2 $ 25.1
Accounts payable 1,361.3 1,417.3
Accrued employee
compensation 162.6 175.2
Accrued expenses and other current
liabilities 456.1 495.1
Current liabilities of discontinued
operations - 46.4
------------- -------------
Total current
liabilities 1,999.2 2,159.1
Long-term debt 1,208.0 1,221.4
Other long-term liabilities 72.3 55.9
Long-term liabilities of discontinued
operations - 1.8
------------- -------------
Total
liabilities 3,279.5 3,438.2
------------- -------------

Stockholders' equity:
Common stock 1.0 1.0
Additional paid-in capital 7,848.5 7,775.9
Accumulated deficit (5,157.0) (5,209.5)
Accumulated other comprehensive
losses (162.8) (188.6)
------------- -------------
Total stockholders'
equity 2,529.7 2,378.8
------------- -------------
Total liabilities and
stockholders' equity $ 5,809.2 $ 5,817.0
============= =============

NOTE: The balance sheet information presented herein may be affected
by the adjustments described in "Section 404 Testing, Impact of
Prior Period Adjustments" above.





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


Three Months Ended Six Months Ended
February 28 February 28
--------------------- -----------------------
2005 2004 2005 2004
--------- --------- ---------- ----------

Net sales $ 2,756.0 $ 2,887.4 $ 5,446.6 $ 5,584.2
Cost of sales 2,599.7 2,756.3 5,134.1 5,325.6
--------- --------- ---------- ----------

Gross profit 156.3 131.1 312.5 258.6
Operating expenses:
Selling, general
and administrative 104.7 109.2 200.2 223.9
Restructuring and
impairment costs 43.2 73.6 44.8 100.6
--------- --------- ---------- ----------

Operating
income (loss) 8.4 (51.7) 67.5 (65.9)

Interest income 9.1 3.6 14.9 6.0
Interest expense (16.7) (44.4) (33.0) (88.3)
Other income-net 1.1 3.3 4.1 9.3
--------- --------- ---------- ----------

Income (loss) from
continuing
operations
before income
taxes 1.9 (89.2) 53.5 (138.9)
Income tax expense 6.6 0.5 11.3 3.0
--------- --------- ---------- ----------

(Loss) income
from continuing
operations $ (4.7) $ (89.7) $ 42.2 $ (141.9)

Discontinued
operations:
Income (loss) from
discontinued
operations $ 1.3 $ 25.3 $ 12.0 $ (42.0)
Income tax expense - 3.6 1.7 3.9
--------- --------- ---------- ----------
Income (loss) on
discontinued
operations 1.3 21.7 10.3 (45.9)
--------- --------- ---------- ----------
Net (loss)
income $ (3.4) $ (68.0) $ 52.5 $ (187.8)
========= ========= ========== ==========

Basic net (loss)
income per share:
Continuing operations $ - $ (0.11) $ 0.04 $ (0.17)
Discontinued
operations - 0.03 0.01 (0.06)
--------- --------- ---------- ----------
Basic net (loss)
income per share $ - $ (0.08) $ 0.05 $ (0.23)
========= ========= ========== ==========

Diluted net (loss)
income per share:
Continuing
operations $ - $ (0.11) $ 0.04 $ (0.17)
Discontinued
operations - 0.03 0.01 (0.06)
--------- --------- ---------- ----------
Diluted net (loss)
income per share $ - $ (0.08) $ 0.05 $ (0.23)
========= ========= ========== ==========

Shares used to
compute basic 977.1 835.6 966.7 834.6
net (loss) income
per share

Shares used to
compute diluted 977.1 835.6 970.6 834.6
net (loss) income
per share


NOTE: The interim financial information from prior periods presented
herein may be affected by the adjustments described in "Section
404 Testing, Impact of Prior Period Adjustments" above.



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