** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

** **

**FORM 10-Q**

 

**(MARK ONE)**
| ý                                                 | **QUARTERLY REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.**  |
|--------------------------------------------------------|------------------------------------------------------------------------------------------------|
|                                                   |                                                                                           |
| **For  the quarterly period ended September 30, 2001** |
|                                                   |
| **OR**                                                 |
|                                                   |
| o                                                      | **TRANSITION REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.** |

** **

**For the transition period from_________ to _________**

** **

**COMMISSION FILE NUMBER:001-15883**

** **

**MANUFACTURERS'SERVICES LIMITED******(EXACT NAME OF REGISTRANT AS SPECIFIED INITS CHARTER)

 

| **DELAWARE**                                                                          |   | **04-3258036**                        |
|---------------------------------------------------------------------------------------|--------|---------------------------------------|
| (STATE  OR OTHER JURISDICTION OFINCORPORATION OR ORGANIZATION)                        |   | (I.R.S.  EMPLOYER IDENTIFICATION NO.) |
|                                                                                  |   |                                  |
| **300  BAKER AVENUE, SUITE 106, CONCORD, MASSACHUSETTS**                              |   | **01742**                             |
| (ADDRESS  OF PRINCIPAL EXECUTIVE OFFICES)                                             |   | (ZIP  CODE)                           |
|                                                                                  |   |                                  |
|                                                                                  |   |                                  |
| **(978)  287-5630**                                                                   |
| (TELEPHONE  NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) |
|                                                                                  |   |                                  |
| **NOT  APPLICABLE**                                                                   |
| (Former  Name, Former Address and Former Fiscal Year, if Changed Since Last Report)   |

 

Indicate by check mark whether theRegistrant: (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the Registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90 days. Yes ýNo o

 

At November 13, 2001, there were33,929,682 shares of Common Stock, $0.001 par value, outstanding.

 

 

MANUFACTURERS'SERVICES LIMITED

INDEX

 
| PART I.  FINANCIAL INFORMATION |
|-------------------------------------|
|                                |   |
| Item 1.                             | Financial Statements |
|                                |   |
|                                | Condensed  Consolidated Balance Sheets – September 30, 2001 (Unaudited) and December 31,  2000 |
|                                |   |
|                                | Condensed  Consolidated Statements of Operations (Unaudited) -Three and Nine Months  Ended September 30, 2001 and October 1, 2000 |
|                                |   |
|                                | Condensed  Consolidated Statements of Cash Flows (Unaudited) -Three and Nine Months  Ended September 30, 2001 and October 1, 2000. |
|                                |   |
|                                | Notes  to Condensed Consolidated Financial Statements |
|                                |   |
| Item  2.                            | Management's  Discussion and Analysis of Financial Condition and Results of Operations |
|                                |   |
| Item  3.                            | Quantitative  and Qualitative Disclosure about Market Risk |
|                                |   |
| PART II.  OTHER INFORMATION    |
|                                |   |
| Item 6.                             | Exhibits and  Reports on Form 8-K |
|                                |   |
|                                | Signatures |

 

PART I. FINANCIALINFORMATION

 

Item 1. FinancialStatements

 

MANUFACTURERS' SERVICES LIMITED

CONDENSEDCONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE DATA)

 
|                                                                                                                                                                                |   | **September  30,** |       | **December  31,** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|------------|-------------------|--------|
|                                                                                                                                                                                |   | **2001**           | ** ** | **2000**          |   |
|                                                                                                                                                                                |   | **(UNAUDITED)**    |       |              |   |
| ASSETS                                                                                                                                                                              |   |               |       |              |   |
| Current  assets:                                                                                                                                                                    |   |               |       |              |   |
| Cash and cash equivalents                                                                                                                                                           |   | $                  | 21,774     |              | $      | 10,388 |   |
| Accounts receivable, less  allowance for doubtful accounts of $10,479 and $2,239 at September 30, 2001  and December 31, 2000, respectively                                         |   | 206,636            |       | 359,978           |   |
| Inventories                                                                                                                                                                         |   | 165,608            |       | 363,485           |   |
| Prepaid  expenses and other current assets                                                                                                                                          |   | 28,981             |       | 36,060            |   |
|                                                                                                                                                                                |   |               |       |              |   |
| Total  current assets                                                                                                                                                               |   | 422,999            |       | 769,911           |   |
|                                                                                                                                                                                |   |               |       |              |   |
| Property  and equipment, net                                                                                                                                                        |   | 59,320             |       | 93,649            |   |
| Goodwill and other  intangibles, net                                                                                                                                                |   | 14,100             |       | 44,535            |   |
| Other  assets                                                                                                                                                                       |   | 14,504             |       | 25,422            |   |
|                                                                                                                                                                                |   |               |       |              |   |
| Total  assets                                                                                                                                                                       |   | $                  | 510,923    |              | $      | 933,517 |   |
|                                                                                                                                                                                |   |               |       |              |   |
| LIABILITIES AND  STOCKHOLDERS' EQUITY                                                                                                                                               |   |               |       |              |   |
| Current liabilities                                                                                                                                                                 |   |               |       |              |   |
| Current  portion of long-term debt and capital lease obligations                                                                                                                    |   | $                  | 5,927      |              | $      | 7,737 |   |
| Accounts payable                                                                                                                                                                    |   | 175,605            |       | 474,579           |   |
| Accrued  expenses and other current liabilities                                                                                                                                     |   | 50,696             |       | 53,170            |   |
|                                                                                                                                                                                |   |               |       |              |   |
| Total  current liabilities                                                                                                                                                          |   | 232,228            |       | 535,486           |   |
|                                                                                                                                                                                |   |               |       |              |   |
| Long-term  debt and capital lease obligations                                                                                                                                       |   | 136,385            |       | 181,344           |   |
| Other liabilities                                                                                                                                                                   |   | 3,423              |       | 1,239             |   |
|                                                                                                                                                                                |   |               |       |              |   |
| Total liabilities                                                                                                                                                                   |   | 372,036            |       | 718,069           |   |
|                                                                                                                                                                                |   |               |       |              |   |
| Commitments and  contingencies (Note 3)                                                                                                                                             |   |               |       |              |   |
|                                                                                                                                                                                |   |               |       |              |   |
| Stockholders' equity                                                                                                                                                                |   |               |       |              |   |
| Preferred  stock, $0.001 par value, 3,000,000 shares authorized; no shares issued and  outstanding                                                                                  |   |               |       |              |   |
|                                                                                                                                                                                |   |               |       |              |   |
| Common  stock, $0.001 par value; 150,000,000 shares authorized; 33,828,638 and  33,346,735 shares issued and outstanding at September 30, 2001 and December  31, 2000, respectively |   | 34                 |       | 33                |   |
| Additional paid in capital                                                                                                                                                          |   | 264,356            |       | 262,024           |   |
| Accumulated  deficit                                                                                                                                                                |   | (105,441           | )          | (34,396           | )      |
| Accumulated other comprehensive  loss                                                                                                                                               |   | (13,315            | )          | (12,213           | )      |
| Treasury  stock, at cost; 1,551,220 shares at September 30, 2001                                                                                                                    |   | (6,747             | )          | ---               |   |
|                                                                                                                                                                                |   |               |       |              |   |
| Total  stockholders' equity                                                                                                                                                         |   | 138,887            |       | 215,448           |   |
|                                                                                                                                                                                |   |               |       |              |   |
| Total  liabilities and stockholders' equity                                                                                                                                         |   | $                  | 510,923    |              | $      | 933,517 |   |

 

Seeaccompanying notes to the interim condensed consolidated financial statements.

 

MANUFACTURERS'SERVICES LIMITED

CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS — UNAUDITED

(INTHOUSANDS, EXCEPT PER SHARE DATA)

 
|                                             |   | **Three  months ended** |    | **Nine  months ended** |   |
|--------------------------------------------------|--------|-------------------------|---------|------------------------|--------|
|                                             |   | **September 30,**       |    | **October 1,**         |   | **September 30,** |   | **October 1,** |   |
|                                             |   | **2001**                |    | **2000**               |   | **2001** |   | **2000** |   |
| Net  sales                                       |   | $                       | 318,247 |                   | $      | 424,444 |   | $ | 1,250,460 |   | $ | 1,119,686 |   |
| Cost  of goods sold                              |   | 294,419                 |    | 399,450                |   | 1,160,279 |   | 1,057,221 |   |
|                                             |   |                    |    |                   |   |   |   |   |   |
| Gross  profit                                    |   | 23,828                  |    | 24,994                 |   | 90,181 |   | 62,465 |   |
|                                             |   |                    |    |                   |   |   |   |   |   |
| Operating  expenses:                             |   |                    |    |                   |   |   |   |   |   |
| Selling,  general and administrative             |   | 94,051                  |    | 16,267                 |   | 154,556 |   | 47,160 |   |
| Legal  settlement                                |   | -                       |    | -                      |   | - |   | 6,000 |   |
|                                             |   |                    |    |                   |   |   |   |   |   |
| Operating  income (loss)                         |   | (70,223                 | )       | 8,727                  |   | (64,375 | ) | 9,305 |   |
|                                             |   |                    |    |                   |   |   |   |   |   |
| Interest  expense, net                           |   | (4,816                  | )       | (3,546                 | )      | (16,366 | ) | (11.107 | ) |
| Foreign  exchange gain (loss)                    |   | (129                    | )       | (1,756                 | )      | 63 |   | (2,722 | ) |
| Other  income                                    |   | 11,255                  |    | -                      |   | 11,255 |   | - |   |
|                                             |   |                    |    |                   |   |   |   |   |   |
| Income  (loss) before provision for income taxes |   | (63,913                 | )       | 3,425                  |   | (69,423 | ) | (4,524 | ) |
| Provision  for income taxes                      |   | 586                     |    | 854                    |   | 1,622 |   | 1,880 |   |
|                                             |   |                    |    |                   |   |   |   |   |   |
| Income  (loss) before extraordinary loss         |   | $                       | (64,499 | )                      | $      | 2,571 |   | $ | (71,045 | ) | $ | (6,404 | ) |
| Extraordinary  loss                              |   | -                       |    | (2,036                 | )      | - |   | (2,663 | ) |
|                                             |   |                    |    |                   |   |   |   |   |   |
| Net  income (loss)                               |   | $                       | (64,499 | )                      | $      | 535 |   | $ | (71,045 | ) | $ | (9,067 | ) |
|                                             |   |                    |    |                   |   |   |   |   |   |
| Net  income (loss) applicable to common stock    |   | $                       | (64,499 | )                      | $      | 535 |   | $ | (71,045 | ) | $ | (30,991 | ) |
|                                             |   |                    |    |                   |   |   |   |   |   |
| Basic  income (loss) per share:                  |   |                    |    |                   |   |   |   |   |   |
| Income  (loss) before extraordinary loss         |   | $                       | (1.92   | )                      | $      | 0.08 |   | $ | (2.12 | ) | $ | (1.17 | ) |
| Extraordinary  loss                              |   | $                       | --      |                   | $      | (0.06 | ) | $ | -- |   | $ | (0.11 | ) |
| Net  income (loss) applicable to common stock    |   | $                       | (1.92   | )                      | $      | 0.02 |   | $ | (2.12 | ) | $ | (1.28 | ) |
| Weighted  average shares outstanding             |   | 33,647,342              |    | 31,620,372             |   | 33,548,072 |   | 24,122,559 |   |
|                                             |   |                    |    |                   |   |   |   |   |   |
| Diluted  income (loss) per share:                |   |                    |    |                   |   |   |   |   |   |
| Income  (loss) before extraordinary loss         |   | $                       | (1.92   | )                      | $      | 0.08 |   | $ | (2.12 | ) | $ | (1.17 | ) |
| Extraordinary  loss                              |   | $                       | --      |                   | $      | (0.06 | ) | $ | -- |   | $ | (0.11 | ) |
| Net  income (loss) applicable to common stock    |   | $                       | (1.92   | )                      | $      | 0.02 |   | $ | (2.12 | ) | $ | (1.28 | ) |
| Weighted  average shares outstanding             |   | 33,647,342              |    | 32,977,277             |   | 33,548,072 |   | 24,122,559 |   |

 

Seeaccompanying notes to the interim condensed consolidated financial statements.

 

MANUFACTURERS' SERVICES LIMITED

CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED

(IN THOUSANDS)

 
|                                                                                       |   | **NINE  MONTHS ENDED** |    |
|--------------------------------------------------------------------------------------------|--------|------------------------|---------|
|                                                                                       |   | **September 30,**      |    | **October 1,** |   |
|                                                                                       |   | **2001**               |    | **2000** |   |
| CASH FLOWS  RELATING TO OPERATING ACTIVITIES:                                              |   |                   |    |   |   |
| Net  loss                                                                                  |   | $                      | (71,045 | ) | $ | (9,067 | ) |
| Adjustments  to reconcile net loss to net cash provided by (used in) operating activities: |   |                   |    |   |   |
| Depreciation  and amortization                                                             |   | 27,289                 |    | 19,934 |   |
| Amortization  of capitalized finance fees                                                  |   | 1,983                  |    | 988 |   |
| Extraordinary  loss                                                                        |   | -                      |    | 2,663 |   |
| Additions  to allowance for doubtful accounts                                              |   | 10,753                 |    | 661 |   |
| Non  cash charge for equity awards                                                         |   | 779                    |    | 4,429 |   |
| Foreign  exchange loss                                                                     |   | 538                    |    | 2,145 |   |
| Deferred  taxes                                                                            |   | (1,391                 | )       | 45 |   |
| Write-downs  on disposal and impairment of capitalized assets                              |   | 59,402                 |    | - |   |
| Gain  on stock return by customer                                                          |   | (6,747                 | )       | - |   |
| Litigation  settled by shareholder                                                         |   | -                      |    | 1,000 |   |
| Changes  in operating assets and liabilities:                                              |   |                   |    |   |   |
| Accounts  receivable                                                                       |   | 141,971                |    | (94,463 | ) |
| Inventories                                                                                |   | 194,537                |    | (135,574 | ) |
| Prepaid  expenses and other assets                                                         |   | 9,311                  |    | 3,636 |   |
| Accounts  payable                                                                          |   | (294,646               | )       | 75,744 |   |
| Accrued  expenses and other liabilities                                                    |   | (395                   | )       | 8,449 |   |
|                                                                                       |   |                   |    |   |   |
| Net  cash provided by (used in) operating activities                                       |   | 72,339                 |    | (119,410 | ) |
|                                                                                       |   |                   |    |   |   |
| CASH  FLOWS RELATING TO INVESTING ACTIVITIES:                                              |   |                   |    |   |   |
| Acquisition  of business, net of cash acquired                                             |   | -                      |    | (3,763 | ) |
| Purchase  of intangible assets                                                             |   | (1,393                 | )       | (5,972 | ) |
| Proceeds  from sale of fixed assets                                                        |   | 266                    |    | 3,568 |   |
| Purchases  of property and equipment                                                       |   | (13,261                | )       | (30,687 | ) |
| Cost  of internal use software                                                             |   | (1,262                 | )       | (9,595 | ) |
|                                                                                       |   |                   |    |   |   |
| Net  cash used in investing activities                                                     |   | (15,650                | )       | (46,449 | ) |
|                                                                                       |   |                   |    |   |   |
| CASH  FLOWS RELATING TO FINANCING ACTIVITIES:                                              |   |                   |    |   |   |
| Proceeds  from long-term debt                                                              |   | -                      |    | 110,000 |   |
| Net  proceeds from (payments on) revolving line-of-credit                                  |   | (40,800                | )       | 62,400 |   |
| Repayments  of long-term debt and capital lease obligations                                |   | (5,671                 | )       | (81,101 | ) |
| Debt  issuance and amendment costs                                                         |   | (373                   | )       | (7,229 | ) |
| Proceeds  from exercise of stock options                                                   |   | 193                    |    | 1,481 |   |
| Proceeds  from employee stock purchase plan                                                |   | 2,140                  |    | - |   |
| Proceeds  from the issuance of common stock, net of issuance costs                         |   | -                      |    | 161,427 |   |
| Retirement  of preferred stock                                                             |   | -                      |    | (57,000 | ) |
| Dividend  payments on preferred stock                                                      |   | -                      |    | (4,135 | ) |
|                                                                                       |   |                   |    |   |   |
| Net  cash provided by (used in) financing activities                                       |   | (44,511                | )       | 185,843 |   |
|                                                                                       |   |                   |    |   |   |
| Effect  of foreign exchange rates on cash                                                  |   | (792                   | )       | (1,790 | ) |
|                                                                                       |   |                   |    |   |   |
| Net  increase in cash                                                                      |   | 11,386                 |    | 18,194 |   |
| Cash  and cash equivalents at beginning of period                                          |   | $                      | 10,388  |   | $ | 24,182 |   |
| Cash  and cash equivalents at end of period                                                |   | $                      | 21,774  |   | $ | 42,376 |   |

 

Seeaccompanying notes to the interim condensed consolidated financial statements.

 

MANUFACTURERS' SERVICES LIMITED

NOTESTO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED

(IN THOUSANDS, EXCEPT SHARE DATA)

 

1.          BASISOF PRESENTATION

 

The accompanying consolidated financial statements ofManufacturers' Services Limited (the "Company") are unaudited, andcertain information and footnote disclosure related thereto normally includedin financial statements prepared in accordance with generally accepted accountingprinciples has been omitted in accordance with Rule 10-01 of Regulation S-X.Accordingly, these statements should be read in conjunction with the auditedfinancial statements and notes thereto for the year ended December 31, 2000included in the Company's Annual Report on Form 10-K. In the opinion ofmanagement, the accompanying unaudited consolidated financial statements wereprepared following the same policies and procedures used in the preparation ofthe audited financial statements and reflect all adjustments (consisting ofnormal recurring adjustments) considered necessary to present fairly thefinancial position and results of operations of the Company. The results ofoperations for the interim periods are not necessarily indicative of theresults for the entire fiscal year.

 

2.          CURRENTASSETS

 

Inventories are comprised of the following:

 
|                                   |   | **September  30,** |    | **December  31,** |   |
|----------------------------------------|--------|--------------------|---------|-------------------|--------|
|                                   |   | **2001**           |    | **2000**          |   |
| Raw materials and purchased  inventory |   | $                  | 128,473 |              | $      | 310,175 |   |
| Work-in-process                        |   | 34,258             |    | 48,162            |   |
| Finished  goods                        |   | 2,877              |    | 5,148             |   |
|                                   |   |               |    |              |   |
|                                   |   | $                  | 165,608 |              | $      | 363,485 |   |

 

As of September 30, 2001, the Company hadapproximately $30,900 of current assets associated with a customer that isdisputing its obligation to pay the Company for a portion of these assets.  Of these total assets, $18,100 areoutstanding receivables and $12,800 is inventory purchased specifically for thecustomer. The Company is engaged in discussions with the customer to resolvethe disputed amounts. Although the customer continues to make scheduled periodicpayments to the Company, no final agreement has been reached to date. While thecustomer has sufficient unencumbered assets to satisfy the full amounts theCompany believes it is owed, the customer’s ability to pay, or the timingwithin which the customer will pay the Company, could be negatively impacted bycertain restrictions on the disposition of its largest tangible assets andgeneral weakness in the customer’s overall financial performance. The Companyhas established a reserve of approximately $13,700, but is vigorously pursuingcollection of the entire $30,900. The Company continues to pursue opportunitiesto reduce the assets by manufacturing product, upon receipt of cash in advanceof production, for the customer using on-hand inventory related to thecustomer.  In the third quarter of 2001,the Company began deferring revenue recognition on these shipments untilreceipt of payment.  No revenue wasrecognized on products shipped to this customer during the quarter endedSeptember 30, 2001.

 

 

3.          CONTINGENCIES

 

DEFERRED REVENUE

 

In June 2000, the Company received a payment of$14,592 in connection with a supply agreement with a customer. The agreementincludes a provision whereby the Company will either retain or repay a portionof this amount each quarter, through the fourth quarter of 2001, dependent uponsales levels achieved in each quarter. This $14,592 was recorded as deferred revenue, and is being amortized asthe Company either recognizes the revenue or repays amounts to thecustomer.  At September 30, 2001, theremaining deferred revenue balance of approximately $1,500 was included inaccrued expenses.  During the quarterended September 30, 2001, approximately $2,000 was recognized as revenue basedon the sales levels achieved.

 

4.          ACQUISITIONS

 

In September 2000, the Company acquired certain assetsfrom 3Com Corporation used in the production of cable and DSL modems, carriersystems products and digital cameras for total consideration of $79,127. In thesecond quarter of 2001, the Company finalized the purchase price allocation,resulting in a decrease of $1,053 to the long-term assets acquired in thetransaction. In connection with the asset acquisition, the Company entered intoa two-year supply agreement with 3Com. During the nine months ended September30, 2001, the supply agreement provided a significant positive contribution tothe Company's operating results due to 3Com's contractual payment commitments,that were not accompanied by the corresponding variable expenses associatedwith the manufacture of products, as 3Com did not achieve its contractualminimum requirements. On September 14, 2001, the supply agreement was amended.The amendment allowed the Company to reduce a significant amount of the costbase it had been maintaining to support its capacity requirements for 3Com,reduces correspondingly the amount of 3Com's minimum guaranteed purchasecommitments and provides for the Company to continue manufacturing products for3Com at a level equal to 3Com's current demand. 3Com’s minimum guaranteedpurchase commitments were reduced from $30,000 per quarter to average quarterlycommitments of approximately $11,700. The amendment shortens the minimumcommitment aspect of the supply agreement to June 30, 2002 and accelerates thereceipt of payments to the Company. In connection with this amendment, theCompany reduced its workforce at its Mt. Prospect facility by approximately 60%(note 8).

 

In January 2001, the Company acquired certain assetsfrom Oce-Industries used in the production of complex printer systems for$5,883 in cash and assumed liabilities. These assets consisted of a manufacturing facility, other fixed assetsand an intangible asset.  The transactionwas accounted for as a purchase of assets, and the purchase price was allocatedto the assets acquired based on the relative fair values of the tangible andintangible assets at the date of acquisition. In connection with the asset acquisition, the Company entered into athree-year supply agreement to manufacture complex printer systems forOce-Industries.

 

5. BUSINESS SEGMENT INFORMATION

 

The Company's operations comprise a single line ofbusiness, providing electronics design and manufacturing services. Informationabout the Company's operations in different geographic regions is presented inthe table below:

 
|                     |               | **Three  Months Ended** |    | **Nine  Months Ended** |    |
|--------------------------|--------------------|-------------------------|---------|------------------------|---------|
|                     |               | **September 30,**       |    | **October 1,**         |    | **September 30,** |   | **October 1,** |   |
|                     |               | **2001**                |    | **2000**               |    | **2001** |   | **2000** |   |
| Net  sales               |               |                    |    |                   |    |   |   |   |   |
| United  States           | —  Corporate  |                    | $       | —                 |    | $ | — |   | $ | — |   | $ | — |   |
|                     | —  Operations |                    | 228,007 |                   | 300,129 |   | 925,212 |   | 783,170 |   |
| Europe                   |               | 82,796                  |    | 81,415                 |    | 276,118 |   | 224,883 |   |
| Asia                     |               | 7,444                   |    | 42,900                 |    | 49,130 |   | 111,633 |   |
|                     |               |                    |    |                   |    |   |   |   |   |
|                     |               | $                       | 318,247 |                   | $       | 424,444 |   | $ | 1,250,460 |   | $ | 1,119,686 |   |
|                     |               |                    |    |                   |    |   |   |   |   |
| Operating  income (loss) |               |                    |    |                   |    |   |   |   |   |
| United  States           | —  Corporate  |                    | $       | (6,965                 | )       | $ | (5,313 | ) | $ | (21,388 | ) | $ | (26,606 | ) |
|                     | —  Operations |                    | (60,905 | )                      | 8,419   |   | (29,421 | ) | 21,493 |   |
| Europe                   |               | 3,073                   |    | 3,921                  |    | 7,295 |   | 10,198 |   |
| Asia                     |               | (5,426                  | )       | 1,700                  |    | (20,859 | ) | 4,220 |   |
|                     |               |                    |    |                   |    |   |   |   |   |
|                     |               | $                       | (70,223 | )                      | $       | 8,727 |   | $ | (64,375 | ) | $ | 9,305 |   |
|                          |                    |                         |         |                        |         |  |  |  |  |  |  |  |  |  |  |

 
|                 |               | **September  30,** |    | **December  31,** |    |
|----------------------|--------------------|--------------------|---------|-------------------|---------|
|                 |               | **2001**           |    | **2000**          |    |
| Identifiable  Assets |               |               |    |              |    |
| United  States       | —  Corporate  |               | $       | 14,565            |    | $ | 13,395 |   |
|                 | —  Operations |               | 315,485 |              | 662,559 |   |
| Europe               |               | 139,605            |    | 173,426           |    |
| Asia                 |               | 41,268             |    | 84,137            |    |
|                 |               |               |    |              |    |
|                 |               | $                  | 510,923 |              | $       | 933,517 |   |

 

6. EARNINGS PER SHARE

 

The followingtable illustrates the reconciliation of the numerator and denominator of basicand diluted income (loss) per share before extraordinary loss as required bySFAS 128:

 
|                                                                        |   | **Three  Months Ended** |    | **Nine  Months Ended** |   |
|-----------------------------------------------------------------------------|--------|-------------------------|---------|------------------------|--------|
|                                                                        |   | **September 30,**       |    | **October 1,**         |   | **September 30,** |   | **October 1,** |   |
|                                                                        |   | **2001**                |    | **2000**               |   | **2001** |   | **2000** |   |
| Numerator—basic  and diluted earnings  per share:                 |   |                    |    |                   |   |   |   |   |   |
| Income  (loss) before extraordinary loss                                    |   | $                       | (64,499 | )                      | $      | 2,571 |   | $ | (71,045 | ) | $ | (6,404 | ) |
| Dividends  on senior redeemable preferred stock                             |   | —                  |    |                   |   | — |   | (3,464 | ) |
| Accretion  of senior redeemable preferred stock and call premium            |   | —                  |    |                   |   | — |   | (18,460 | ) |
|                                                                        |   |                    |    |                   |   |   |   |   |   |
| Income  (loss) available to common stockholders before extraordinary loss   |   | $                       | (64,499 | )                      | $      | 2,571 |   | $ | (71,045 | ) | $ | (28,328 | ) |
|                                                                        |   |                    |    |                   |   |   |   |   |   |
| Denominator:                                                                |   |                    |    |                   |   |   |   |   |   |
| Basic  income (loss) per share — weighted average shares outstanding   |   | 33,647,342              |    | 31,620,372             |   | 33,548,072 |   | 24,122,559 |   |
| Effect  of dilutive securities — stock options and warrants            |   | —                  |    | 1,356,905              |   | — |   | — |   |
|                                                                        |   |                    |    |                   |   |   |   |   |   |
| Diluted  income (loss) per share — Weighted average shares outstanding |   | 33,647,342              |    | 32,977,277             |   | 33,548,072 |   | 24,122,559 |   |
|                                                                        |   |                    |    |                   |   |   |   |   |   |
| Basic  income (loss) per share                                              |   | $                       | (1.92   | )                      | $      | 0.08 |   | $ | (2.12 | ) | $ | (1.17 | ) |
| Diluted  income (loss) per share                                            |   | $                       | (1.92   | )                      | $      | 0.08 |   | $ | (2.12 | ) | $ | (1.17 | ) |

 

For the three and nine months ended September 30,2001, 5,352,810 anti-dilutive options and warrants have been excluded from thecalculation of EPS and for the three and nine months ended October 1, 2000, 1,500and 3,944,654, respectively, anti-dilutive options and warrants have beenexcluded from the calculation of EPS, as the Company had a net loss availableto common stockholders for the periods or the exercise price was greater thanthe estimated fair market price of the common shares.

 

7. COMPREHENSIVE INCOME (LOSS)

 

The following table illustrates thecomponents of comprehensive income (loss) as required by SFAS 130:

 
|                                         |   | **Three  Months Ended** |    | **Nine  Months Ended** |   |
|----------------------------------------------|--------|-------------------------|---------|------------------------|--------|
|                                         |   | **September 30,**       |    | **October 1,**         |   | **September 30,** |   | **October 1,** |   |
|                                         |   | **2001**                |    | **2000**               |   | **2001** |   | **2000** |   |
| Net  income (loss)                           |   | $                       | (64,499 | )                      | $      | 535 |   | $ | (71,045 | ) | $ | (9,067 | ) |
| Other  comprehensive income (loss)           |   |                    |    |                   |   |   |   |   |   |
| Foreign  currency translation adjustments    |   | 3,066                   |    | (2,742                 | )      | (1,102 | ) | (4,940 | ) |
| Unrealized  gain on securities held for sale |   | —                  |    | 195                    |   | — |   | 149 |   |
|                                         |   |                    |    |                   |   |   |   |   |   |
| Comprehensive  loss                          |   | $                       | (61,433 | )                      | $      | (2,012 | ) | $ | (72,147 | ) | $ | (13,858 | ) |

 

8.          RESTRUCTURINGAND OTHER ASSET WRITEDOWNS

 

In the third quarter of 2001, management approved aplan to restructure certain operations in the United States and Asia.  Pursuant to the restructuring plan, theCompany announced its intention to close its Salt Lake City, Utah facility inthe first quarter of 2002 in light of operating losses related to decliningdemand from the facility's primary customers. During the nine months ended September 30, 2001, the facility generatedrevenues of $323,879 and a net operating loss, excluding restructuring chargesand asset impairments, of $14,967. During fiscal 2000, the facility generatedrevenues of $577,830 and operating income of $5,070. Production for customersserved in the Company's Salt Lake City facility is expected to be transferredto one or more of the Company's other facilities. Restructuring costs relatedto closure of the Salt Lake City facility recorded in the third quarter of 2001were $54,460 and were comprised of severance costs of $1,594 for approximately200 manufacturing and managerial employees, lease termination costs of $613 andthe write-down of intangible assets, machinery and equipment and othercapitalized assets of $52,254. Of these asset write-downs, $24,687 was relatedto intangible assets. The remaining tangible assets were written down to theirestimated fair market value and are to be disposed of in the first quarter of2002.

 

Othercharges recorded for this plan, related to downsizing operations at theCompany's Mt. Prospect, Illinois facility as well as other operations in theUnited States and Asia, totaled $12,297. These charges were comprised of thewrite-down of capitalized assets to be abandoned of $2,383, lease terminationcosts of $207 and severance of $9,706 related to personnel reductions ofapproximately 1,017 managerial and manufacturing employees.  A corresponding liability for the cashportion of the third quarter restructuring charge was recorded in accruedexpenses and other current liabilities, of which approximately $1,346 was paidduring the quarter ended September 30, 2001. The restructuring plan is expected to be substantially complete by the endof the first quarter of 2002.

 

Inthe second quarter of 2001, management approved a plan to restructure certainoperations in the United States, Spain, Ireland and Asia.  The total charge recorded for this plan was$10,151, which was comprised of the write-off of capitalized assets which wereabandoned totaling $4,765, lease termination costs of $1,783 and severancecosts of $3,603 related to the reduction of approximately 653 managerial andmanufacturing employees.  Acorresponding liability for the cash portion of this charge was recorded inaccrued expenses and other current liabilities, of which approximately $4,675was paid during the nine months ended September 30, 2001.  The restructuring plan was substantiallycomplete by the end of the third quarter of 2001.

 

In the first quarter of 2001, management approved aplan to restructure certain of the Company’s Asian operations.  The total charge recorded for this plan was$2,791, which was comprised of lease termination costs of $1,788 and severanceof $1,003 related to personnel reductions of approximately 333 managerial andmanufacturing employees.  Acorresponding liability was recorded in accrued expenses and other currentliabilities, of which $2,105 was paid during the nine months ended September 30,2001.  The restructuring plan wascompleted during the second quarter of 2001.

 

Thefollowing table sets forth the activity in the restructuring reserves throughSeptember 30, 2001:

 
| **Balance  at December 31, 2000** |   | **$**   | **-**   |   |
|-----------------------------------|--------|---------|---------|--------|
| Restructuring  provision          |   | 2,791   |    |
| Cash  payments                    |   | (464    | )  |
|                              |   |    |    |
| Balance  at April 1, 2001         |   | 2,327   |    |
| Restructuring  provision          |   | 10,151  |    |
| Asset  writedowns                 |   | (4,765  |  ) |
| Cash  payments                    |   | (2,536  | )       |
|                              |   |    |    |
| Balance  at July 1, 2001          |   | $       | 5,177   |   |
|                              |   |    |    |
| Restructuring  provision          |   | 66,757  |    |
| Asset  writedowns                 |   | (54,637 |  ) |
| Cash  payments                    |   | (5,126  |  ) |
|                              |   |    |    |
| Balance  at September 30, 2001    |   | $       | 12,171  |   |

 

Reserves remaining at September 30, 2001 representliabilities for severance and lease termination payments.

 

9.          OTHERINCOME

 

TheCompany recorded $11,255 of other income in the third quarter of 2001.  Of this amount, $6,747 was related to thereturn of 1,551,220 shares of the Company’s common stock to the Company inconnection with the amendment of a supply agreement with a customer (note4).  The remaining $4,508 of otherincome was a gain from insurance proceeds received during the quarter for abusiness interruption claim related to losses incurred on component shortagesdue to a fire at a supplier’s manufacturing facility in fiscal 2000.

 

10.        SUBSEQUENTEVENT

 

In October 2001, the Company amended its bank creditfacility in connection with the change in its assets resulting from therestructuring charges and asset write-downs recorded in the quarter endedSeptember 30, 2001 and the overall mix of the Company’s business. The amendmentmodifies certain definitions upon which the financial tests in certaincovenants are calculated. Additionally, the Company agreed to increase the applicable interest rates on both theterm loan facility and revolving credit facility by 1.00% per annum inrecognition of changes in the Company’s industry and the credit marketsgenerally. Following the amendment, the iterest rate on the revolving creditfacility is, at the Company's option either:

 

- 2.25% per annum plus the base rate which is thehigher of:

 

             --the rate as publicly announced from time to time by Bank of America as its"reference rate", or

 

             --the federal funds effective rate plus 0.50% per annum; or

 

- the reserve-adjusted London interbank offered rate,or Adjusted LIBOR plus 3.25% per annum.

 

The interest rate on ourterm loan facility is, at the Company's option, either:

 

- the base rate plus 4.00 % per annum; or

 

- the sum of Adjusted LIBOR plus 5.00% per annum.

 

             The applicable interest rates for the Company's bankcredit facility will be subject to adjustment +/-0.50%, based on the ratio ofits consolidated total debt to consolidated EBITDA (as defined in the October2001 amendment to the credit facility) and the Company’s credit rating. 

 

The amendment alsoincludes provisions requiring the Company to receive approval from the lendersfor acquisitions having a purchase price greater than $2.5 million and for anyadditional term loan borrowings under the bank credit facility.

 

11.        RECENTLYISSUED ACCOUNTING PRONOUNCEMENTS

 

In July 2001, the Financial Accounting Standards Board"FASB" issued SFAS No. 141, "Business Combinations"and SFAS No. 142, "Goodwill and Other Intangible Assets." SFASNo. 141 requires that all business combinations be accounted for under thepurchase method only and that certain acquired intangible assets in a businesscombination be recognized as assets apart from goodwill.  SFAS No. 142 requires that ratableamortization of goodwill be replaced with periodic tests of the goodwill'simpairment and that intangible assets other than goodwill be amortized overtheir useful lives. SFAS No. 141 is effective for all businesscombinations initiated after June 30, 2001 and for all businesscombinations accounted for by the purchase method for which the date ofacquisition is after June 30, 2001. The provisions of SFAS No. 142will be effective for fiscal years beginning after December 15, 2001, andwill thus be adopted by the Company, as required, in fiscal year 2002. Theimpact of SFAS No. 142 on the Company's financial statements has not yetbeen determined.

 

In October 2001, the FASB issued SFAS No. 144"Accounting for the Impairment or Disposal of Long-Lived Assets"("FAS 144"). FAS 144 supercedes FASB Statement No. 121,"Accounting for the Impairment of Long-Lived Assets and for Long-LivedAssets to be Disposed of". FAS 144 applies to all long-lived assets(including discontinued operations) and consequently amends AccountingPrinciples Board Opinion No. 30, "Reporting Results of Operations –Reporting the Effects of Disposal of a Segment of a Business". SFAS No.144 is effective for financial statements issued for fiscal years beginningafter December 31, 2001, and will thus by adopted by the Company, as required,on January 1, 2002. The impact of SFAS No. 144 on the Company's financialstatements has not yet been determined.

 

 
| ITEM  2. | MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
|----------|----------------------------------------------------------------------------------------|

 

OVERVIEW

 

We are a leading global provider of advancedelectronics manufacturing and supply chain services to original equipmentmanufacturers (OEMs). We have established a global network of manufacturingfacilities in the world's major electronics markets—North America, Europe andAsia. We have developed relationships with leading OEMs in rapidly growingindustries such as wired and wireless communications, networking and storageequipment, computer systems and peripherals, industrial equipment, medicalproducts and commercial avionics. We offer our customers an outsourcingsolution that represents a lower total cost of ownership than that provided bytheir internal operations through efficient management of our business andaggressive management of our asset base. We seek to differentiate ourselves byproviding exceptional customer service and by broadly and deeply integratingour services into our customers' OEM operations.  We provide integrated supply chain solutions that address allstages of the product life cycle, including engineering and design, new productintroduction, materials procurement and management, printed circuit boardassembly, product assembly and system integration, testing, logistics anddistribution, and after-market support. We believe that this comprehensiverange of services promotes our growth by attracting new customers and capturingadditional outsourcing opportunities within our existing customer base.

 

Since our founding in 1994, we have experiencedsubstantial growth driven primarily by acquisitions of existing OEMmanufacturing facilities and by the increasing number of OEMs who areoutsourcing their manufacturing requirements. Over the next several years, weintend to continue to actively pursue strategic acquisitions and to benefitfrom this increasing trend by OEMs to outsource their manufacturing and supply chainrequirements.

 

We work closely with our customers to anticipate andforecast their future volume of orders and delivery dates. We derive most ofour net sales under purchase orders from our customers. We recognize sales, netof product return and warranty costs, typically at the time of product shipmentor as services are rendered. Our cost of goods sold includes the cost ofelectronic components and materials, labor costs and manufacturing overhead.The procurement of raw materials and components requires us to commitsignificant working capital to our operations and to manage the purchasing,receiving, inspection and stocking of these items. Our typical customercontract contains provisions which specify that we may recover from thecustomer inventory costs and material acquisition costs for raw material whichbecomes excess or obsolete due to customer reschedules, cancellations orproduct changes.

 

Our operating results are affected by the level ofcapacity utilization in our manufacturing facilities, indirect labor costs andselling, general and administrative expenses. Gross margins and operatingincome generally improve during periods of high-volume and high-capacityutilization in our manufacturing facilities and decline during periods oflow-volume and low-capacity utilization. However, certain of our customercontracts contain guaranteed minimum commitments, requiring the customer toeither purchase certain contractual minimum quantities or pay for amounts indeficit of the minimum purchase commitment. Such contracts, including our contract with 3Com related tomanufacturing services provided in Mt. Prospect, Illinois, help offset thenegative impact of low-capacity utilization on gross margins and operatingincome.

 

During the nine months ended September 30, 2001, the3Com supply contract related to our Mt. Prospect facility provided asignificant positive contribution to our operating results due to 3Com’scontractual payment commitments, that were not accompanied by the correspondingvariable expenses associated with the manufacture of products, coupled with3Com not achieving its contractual minimum requirements.  On September 14, 2001, we amended the supplyagreement with 3Com. The amendment allows us to reduce a significant amount ofthe cost base we had been maintaining to support its capacity requirements for3Com, reduces correspondingly the amount of 3Com’s minimum guaranteed purchasecommitments and provides for MSL to continue manufacturing products for 3Com atour Mt. Prospect facility at a level equal to 3Com’s current demand. Theamendment shortens the term of the agreement to June 30, 2002 and acceleratesthe receipt of payments to MSL.  Inconnection with this amendment, we reduced our workforce at Mt. Prospect byapproximately 60%, and recorded a restructuring charge for severance cost of$8.6 million was incurred during the quarter ended September 30, 2001 relatedto personnel reductions. While we expect the 3Com contract to continue toprovide a positive contribution to our operating results through the term ofthe contract, the expiration of the fixed price element contract may have anegative impact on our operating results.

 

Asof September 30, 2001, we had approximately $30.9 million of current assetsassociated with a customer that is disputing its obligation to pay for aportion of these assets.  Of these totalassets, $18.1 million is outstanding receivables and $12.8 million is inventorypurchased specifically for the customer. We are engaged in discussions with thecustomer to resolve the disputed amounts. Although the customer continues tomake scheduled periodic payments to us, no final agreement has been reached todate. While the customer has sufficient unencumbered assets to satisfy the fullamounts we believe we are owed, the customer’s ability to pay, or the timingwithin which the customer will pay us, could be negatively impacted by certainrestrictions on the disposition of its largest tangible assets and generalweakness in the customer’s overall financial performance. We have established areserve related to these assets of $13.7 million, but we are vigorouslypursuing collection of the entire $30.9 million. We continue to pursueopportunities to reduce the assets by manufacturing product, upon receipt ofcash in advance of production for the customer using on-hand inventory relatedto the customer.  In the third quarterof 2001, we began deferring revenue recognition on all such shipments untilreceipt of payment.  No revenue wasrecognized on products shipped to this customer during the third quarter of2001.

 

As a result of the current economic uncertainty andslowdown in the economy generally, several of our customers and competitorshave announced layoffs and have indicated that revenues and earnings in futureperiods may be less than previously expected. Furthermore, the economicslowdown has been prolonged, and in some instance deepened, as a consequence ofthe September 11 terrorist attacks in the United States. Such a continuedslowdown in economic growth could have a negative impact on our futurefinancial performance.

 

Our business strategy includes the continued expansionof our global manufacturing network. Currently, approximately 85% of our netsales worldwide are denominated in US dollars, while our labor and utilitycosts in facilities outside of the United States are denominated in localcurrencies. Foreign currency gains and losses are the result of transactingbusiness in a currency that is different from the functional currency of ouroperating entity and the movements in those currencies between the time atransaction is recorded for financial reporting purposes and the time paymentis made or received. We currently use forward foreign exchange contracts on alimited basis to minimize our foreign currency risk but not for trading orspeculative purposes. We expect to continue to utilize forward foreign exchangecontracts only to the extent that these contracts minimize exposure and reducerisk from exchange rate fluctuations on specific underlying transactions thatcreate foreign currency exchange rate risk for us. Any increase or decrease inour use of derivative financial instruments will likely be as a result of thesecontracts.

 

ACQUISITIONS

 

A significant portion of our growth has come fromrecent acquisitions, which have strengthened existing customer relationships,added new customers and increased our range of service offerings.

 

InSeptember 2001, we announced we had entered into an agreement to acquire assetsand operations from MCMS, Inc., a contract manufacturing company headquarteredin Nampa, Idaho. The agreement provides for us to acquire MCMS's operations inMexico, Malaysia, China, San Jose, California and Nampa, Idaho. On September18, 2001, MCMS filed a voluntary petition under Chapter 11 of the United StatesBankruptcy Code with the Bankruptcy Court in Wilmington, Delaware.  The purchase price is expected to beapproximately $43.5 million, subject to certain adjustments, the assumption ofcertain liabilities and the satisfaction of specified closing conditions. Thetransaction is subject to approval by the United States Bankruptcy Courtsupervising the MCMS Chapter 11 case. Prior to such approval, third parties mayobject to the transaction or make higher bids for the assets.  Additionally, we may withdraw from thetransaction if all closing conditions are not satisfied.  Provided all closing conditions aresatisfied, and no third party objectors or competitive bid prevent us fromclosing, the transaction is scheduled to close on or about December 3, 2001.

 

In January 2001, we acquired selected fixed assets andintangible assets from Oce-Industries, an existing customer and a leadingNetherlands-based OEM, for $5.9 million in cash and assumed liabilities.  As part of the transaction, we acquired a130,000 square foot manufacturing facility in Guerande, France.  In connection with this acquisition, weentered into a three-year supply agreement to manufacture complex printersystems for Oce-Industries.  We alsoretained the facility employees.  Theacquisition of the Guerande facility expanded our relationship withOce-Industries and provided us with our operations in France.

 

In September 2000, we acquired selected inventory,fixed assets and intangible assets from 3Com, an existing customer, for $78.1million. The purchase price consisted of $59.1 million in cash, financed with aterm loan under our bank credit facility, and 1,551,220 shares of our CommonStock. As part of this transaction, we leased a 404,000 square footmanufacturing facility located in Mt. Prospect, Illinois, near Chicago. Inconnection with this acquisition, we entered into a two-year supply agreementwith 3Com to produce digital subscriber line (DSL) and cable modems, carriersystems products and digital cameras. The term of the fixed price element ofsupply agreement was shortened by three months to June 30, 2002 in connectionwith the September 2001 amendment to the agreement. We also retained thefacility employees. In addition to expanding our relationship with 3Com, thisacquisition enhanced our new product introduction, product assembly and systemsintegration and testing capabilities.

 

RESTUCTURING AND ASSET WRITEDOWNS

 

During the quarter ended September 30, 2001, weapproved a plan to restructure certain operations in the United States andAsia.  Pursuant to the restructuringplan, we announced our intention to close our Salt Lake City, Utah facility inthe first quarter of 2002 in light of operating losses related to decliningdemand from the facility's primary customers. During the nine months ended September 30, 2001, the facility generatedrevenues of $323.9 million and a net operating loss, excluding restructuringcharges and asset impairments, of $15.0 million. During fiscal 2000, thefacility generated revenues of $577.8 million and operating income of $5.1million. Production for customers served at the Salt Lake City facility isexpected to be transferred to one or more of our other facilities.Restructuring costs related to closure of the Salt Lake City facility recordedin the third quarter of 2001 were $54.5 million and were comprised of severancecosts of $1.6 million for approximately 200 manufacturing and managerialemployees, lease termination costs of $0.6 million and the write-down ofintangible assets, machinery and equipment and other capitalized assets of$52.3 million.  Of these assetwrite-downs, $24.7 million was related to intangible assets.  Other charges recorded under this plan,including those incurred for the restructuring of our Mt. Prospect facility inconnection with the amendment of the 3Com supply agreement, totaled $12.3million, which were comprised of the write-down of capitalized assets to beabandoned of $2.4 million, lease termination costs of $0.2 million andseverance of $9.7 million related to personnel reductions of approximately1,017 managerial and manufacturing employees. As of September 30, 2001, we had paid approximately $1.3 million of thecash portion of the charge.  We expectthe restructuring plan to be substantially complete by the end of the firstquarter of 2002, and the savings from the implementation of the plan to beapproximately $48.0 million annually. We expect to begin realizing the majority of these savings in the firstquarter of 2002.  Of these savings,approximately 65% will be reflected in cost of goods sold, and the remaining35% will be reflected in selling, general and administrative expenses in ourreported results of operations.

 

During the quarter ended July 1, 2001, we approved aplan to restructure certain operations in the United States, Spain, Ireland andAsia. The total restructuring charge recorded for this plan was $10.2 million,which was comprised of the write-off of capitalized assets which were abandonedof $4.8 million, lease termination costs of $1.8 million and severance costs of$3.6 million related to the reduction of approximately 653 managerial andmanufacturing employees.  As ofSeptember 30, 2001, we had paid approximately $4.7 million of the cash portionof the charge.  The restructuring planwas substantially complete at the end of the third quarter of 2001, andapproximately $3.5 million of the anticipated $18.5 million of annual savingsfrom the implementation of this plan were realized in the third quarter of2001.  These savings are reflected incost of goods sold in our reported results of operations.

 

During the quarter ended April 1, 2001, we approved aplan to restructure certain operations in Asia, including moving some of ourAsian operations to China. The total restructuring charge recorded for thisplan was $2.8 million, which was comprised of lease termination costs of $1.8million and severance of $1.0 million related to personnel reductions ofapproximately 333 managerial and manufacturing employees.  As of September 30, 2001, we had paid $2.1million of the cash portion of the charge. The restructuring plan was substantially complete at the end of thesecond quarter of 2001, and the expected savings from the implementation ofthis plan are estimated to be approximately $4.3 million annually.  Approximately $1.0 million of these savingswere realized in the nine months ended September 30, 2001, as reflected in costof goods sold in our reported results of operations.

 

The following table sets forth the activity in therestructuring reserves through September 30, 2001 (dollars in thousands):

 
| Balance at December 31, 2000   |   | **$**   | **-**   |   |
|--------------------------------|--------|---------|---------|--------|
| Restructuring  provision       |   | 2,791   |    |
| Cash  payments                 |   | (464    | )  |
|                           |   |    |    |
| Balance  at April 1, 2001      |   | 2,327   |    |
| Restructuring  provision       |   | 10,151  |    |
| Asset  writedowns              |   | (4,765  | )       |
| Cash  payments                 |   | (2,536  | )  |
|                           |   |    |    |
| Balance  at July 1, 2001       |   | $       | 5,177   |   |
|                           |   |    |    |
| Restructuring  provision       |   | 66,757  |    |
| Asset  writedowns              |   | (54,637 | )  |
| Cash  payments                 |   | (5,126  | )  |
|                           |   |    |    |
| Balance  at September 30, 2001 |   | $       | 12,171  |   |

 

Reserves remaining at September 30, 2001 representliabilities for severance and lease termination payments.

 

We have implemented further plans to restructureoperations since September 30, 2001, and we may implement further restructuringplans during fiscal 2001 in light of the current economic downturn.  Plans to date in the fourth quarter of 2001include further headcount reductions at our Mt. Prospect, Illinois facility andthe planned termination of remaining personnel at our Salt Lake Cityfacility.  Additional plans may includefurther headcount reductions, lease terminations, and disposal of underutilizedmanufacturing assets.

 

RESULTS OF OPERATIONS

 

The following table sets forth specified operatingdata, in dollars and as a percentage of net sales, for the periods indicated:

 
|                                                                    |   | **Three  Months Ending**   |    | **Nine  Months Ending** |   |
|-------------------------------------------------------------------------|--------|----------------------------|---------|-------------------------|--------|
|                                                                    |   | **September 30, 2001**     |    | **October 1, 2000**     |   | **September 30, 2001** |   | **October 1, 2000** |   |
|                                                                    |   | **(Dollars in thousands)** |    |
| Net  sales                                                              |   | $                          | 318,247 |                    | 100.0  | % | $ | 424,444 |   | 100.0 | % | $ | 1,250,460 |   | 100.0 | % | $ | 1,119,686 |   | 100.0 | % |
|                                                                    |   |                       |    |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost  of goods sold                                                     |   | 294,419                    |    | 92.5                    |   | 399,450 |   | 94.1 |   | 1,160,279 |   | 92.8 |   | 1,057,2211 |   | 94.4 |   |
|                                                                    |   |                       |    |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross  profit                                                           |   | 23,828                     |    | 7.5                     |   | 24,994 |   | 5.9 |   | 90,181 |   | 7.2 |   | 62,465 |   | 5.6 |   |
| Selling,  general and administrative (a)                                |   | 94,051                     |    | 29.6                    |   | 16,267 |   | 3.8 |   | 154,556 |   | 12.4 |   | 47,160 |   | 4.2 |   |
| Litigation  settlement (b)                                              |   | —                     |    | —                  |   | — |   | — |   | — |   | — |   | 6,000 |   | 0.9 |   |
|                                                                    |   |                       |    |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating  income (loss)                                                |   | (70,223                    | )       | (22.1                   | )      | 8,727 |   | 2.1 |   | (64,375 | ) | (5.1 | ) | 9,305 |   | 0.8 |   |
| Interest  expense, net                                                  |   | (4,816                     | )       | (1.5                    | )      | (3,546 | ) | (0.8 | ) | (16,366 | ) | (1.3 | ) | (11,107 | ) | (1.0 | ) |
| Foreign  exchange gain (loss)                                           |   | (129                       | )       | 0.0                     |   | (1,756 | ) | (0.4 | ) | 63 |   | 0.0 |   | (2,722 | ) | (0.2 | ) |
| Other  income (c)                                                       |   | 11,255                     |    | 3.5                     |   | -- |   | -- |   | 11,255 |   | 0.9 |   | --- |   | --- |   |
| Income  (loss) before provision for income taxes and extraordinary loss |   | (63,913                    | )       | (20.1                   | )      | 3,425 |   | 0.8 |   | (69,423 | ) | (5.6 | ) | (4,524 | ) | (0.4 | ) |
| Provision  for income taxes                                             |   | 586                        |    | 0.2                     |   | 854 |   | 0.2 |   | 1,622 |   | 0.1 |   | 1,880 |   | 0.2 |   |
|                                                                    |   |                       |    |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income  (loss) before extraordinary loss                                |   | (64,499                    | )       | (20.3                   | )      | 2,571 |   | 0.6 |   | (71,045 | ) | (5.7 | ) | (6,404 | ) | (0.6 | ) |
| Extraordinary  loss                                                     |   | —                     |    | —                  |   | (2,036 | ) | (0.5 | ) | — |   | — |   | (2,663 | ) | (0.2 | ) |
|                                                                    |   |                       |    |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net  income (loss)                                                      |   | $                          | (64,499 | )                       | (20.3% | ) | $ | 535 |   | 0.1 | % | $ | (71,045 | ) | (5.7% | ) | $ | (9,067 | ) | (0.8% | ) |

 

----

(a)        Includes$260, $210, $779 and $4,429 of non-cash charges related to stock-basedcompensation in the three months endedSeptember 30, 2001 and October 1, 2000, and the nine months ended September 30,2001 and October 1, 2000, respectively. Additionally, includes charges related to restructuring and assetwrite-downs of $66,757 and $79,699 in the three months and nine months endedSeptember 30, 2001, respectively. 

 

(b)        Representsthe settlement of a legal claim arising from a potential acquisition that wasnot consummated.

 

(c)        Includes$4.5 million gain on an insurance claim received related to businessinterruption losses and $6.7 million of income from shares of our stockreturned by a customer in connection with the amendment of a supply agreement.

FISCAL QUARTER ENDED SEPTEMBER 30, 2001COMPARED TO FISCAL QUARTER ENDED OCTOBER 1, 2000

 

NET SALES

 

Net sales for the quarter ended September 30, 2001decreased $106.2 million, or 25.0%, to $318.2 million from $424.4 million forthe quarter ended October 1, 2000. Net sales for the quarter ended September30, 2001 included net sales of $93.1 million attributable to our Mt. Prospectand Guerande facilities, which were acquired in September 2000 and January2001, respectively, and $16.1 million from three new customers. The decreasenoted resulted primarily from volume reductions related to the economicdownturn experienced in 2001, including $81.8 million from a customer in thepersonal digital assistant sector. Additional volume reductions of $17.9 million were the result of thecancellation of programs for two customers. 

 

GROSS PROFIT

 

Gross profit increased to 7.5% of net sales for thequarter ended September 30, 2001 from 5.9% of net sales for the quarter endedOctober 1, 2000. This increase resulted primarily from the positive effects ofour Mt. Prospect and Guerande facilities, which operate under customercontracts with guaranteed minimum purchase commitments.  Our contract with 3Com related to our Mt.Prospect facility provided the majority of this contribution.  The mix of customer programs also positivelyimpacted gross profit in the quarter ended September 30, 2001. These increaseswere partially offset by the decrease in utilization of our manufacturingcapacity related to the economic downturn experienced during the first ninemonths of 2001 and inventory provisions recorded in the quarter ended September30, 2001 related to a customer dispute.

 

SELLING, GENERAL AND ADMINISTRATIVE

 

Selling, general and administrative expense for the quarterended September 30, 2001 increased to $94.1 million, or 29.6% of net sales,from $16.3 million, or 3.8% of net sales, for the quarter ended October 1,2000.  This increase is related torestructuring and asset write-down charges of $66.8 million incurred in thequarter ended September 30, 2001 and an increase in bad debt expense, primarilyassociated with a customer dispute ($7.3 million).  Additional increases include expenses related to the asset andbusiness acquisitions that occurred since the third quarter of 2000, includingamortization of intangible assets ($0.3 million) and expenses related to humanresources, accounting and information systems necessary to support the newfacilities ($2.2 million).

 

INTEREST EXPENSE, NET

 

Net interest expense increased to $4.8 million for thequarter ended September 30, 2001 from $3.5 million for the quarter endedOctober 1, 2000, reflecting higher average borrowings, partially offset by theimpact of decreasing interest rates.

 

FOREIGN EXCHANGE GAINS/LOSSES

 

Foreign exchange gains for the three months endedSeptember 30, 2001 were $0.1 million. Foreign exchange losses for the three months ended October 1, 2000 were$1.8 million. Approximately $0.5 million of the loss for the three months endedOctober 1, 2000 related to the strengthening of the US dollar in relation tothe Spanish peseta in connection with a US dollar denominated loan for ourValencia facility, which was repaid in 2000. The remainder of the foreign exchange loss for the three months ended October1, 2000 related to the strengthening of the US dollar in relation to theSpanish peseta on materials purchased in Valencia which must be settled in USdollars.  The reduction in foreignexchange losses was attributable to the increased use, and effectiveness, offorward exchange contracts to hedge currency losses.

 

OTHER INCOME

 

During the three months ended September 30, 2001 werecorded a $4.5 million in income on an insurance claim received in the quarterrelated to business interruption losses in 2000.  Also, we recorded $6.7 million in income during the three monthsended September 30, 2001 related to 1,551,220 shares of our common stockreturned from 3Com in connection with the amendment of our supply agreementwith 3Com pertaining to our Mt. Prospect facility.

 

PROVISION FOR INCOME TAXES

 

Provision for income taxes was $0.6 million for thequarter ended September 30, 2001 and $0.9 million for the quarter ended October1, 2000. Our tax provisions in both quarters resulted from the mix of profits andlosses experienced by us across the jurisdictions within which we operate. Forthe quarter ended September 30, 2001, losses in the United States and Asiaprovided us with no income tax benefit while profits in Spain and Francerequired us to record tax provisions.

 

NINEMONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE MONTHS ENDED OCTOBER 1, 2000

 

NETSALES

 

Net sales for the nine months ended September 30,2001 increased $130.8 million, or 11.7%, to $1,250.5 million from $1,119.7million for the nine months ended October 1, 2000. Net sales for the ninemonths ended September 30, 2001 included $299.4 million attributable to our Mt.Prospect and Guerande facilities, which were acquired in September 2000 andJanuary 2001, respectively. Additional increases include $43.1 million fromfive existing customers and $35.4 million from three new customers won sinceOctober 1, 2000.  These additional saleswere partially offset by volume reductions related to the economic downturn aswell as $46.9 million related to the cancellation of two customers' programs.

 

GROSSPROFIT

 

Gross profit increased to 7.2% of net sales for thenine months ended September 30, 2001 from 5.6% of net sales for the nine monthsended October 1, 2000. This increase resulted primarily from the positiveeffects of our Mt. Prospect and Guerande facilities, which operate undercustomer contracts with guaranteed minimum purchase commitments. Our contractwith 3Com related to our Mt. Prospect facility provided the most significantcontribution.  The mix of customerprograms also positively impacted gross profit in the nine months endedSeptember 30, 2001.  These increaseswere partially offset by the decrease in utilization of our manufacturingcapacity related to the economic downturn experienced during 2001.

 

SELLING,GENERAL AND ADMINISTRATIVE

 

Selling, general and administrative expense for thenine months ended September 30, 2001 increased to $154.6 million, or 12.4% ofnet sales, from $47.2 million, or 4.2% of net sales, for the nine months endedOctober 1, 2000. This increase is related to restructuring and asset write-downcharges of $79.7 million incurred in the nine months ended September 30, 2001and an increase in bad debt expense of $8.5 million, primarily associated witha customer dispute. The increase also includes expenses related to the assetand business acquisitions that occurred since the second quarter of 2000,including amortization of intangible assets ($1.3 million) and costs related tohuman resources, accounting and information systems necessary to support thenew facilities ($8.0 million). Additional increases include consulting andprofessional fees, primarily associated with integrating information systems($4.0 million), amortization of internal use software ($1.6 million),administrative costs associated with four start-up operations and growth of ourcorporate organization to support new facilities.   These increases were partially offset by a reduction instock-based compensation due to a $3.8 million charge recognized in the quarterended April 2, 2000 related to stock granted to senior management.

 

LEGALSETTLEMENT

 

In April 2000, we agreed to settle a claim fordamages brought against us arising from a potential acquisition that was notconsummated.  As a result, we recorded a$6.0 million charge in the three months ended April 2, 2000.

 

INTERESTEXPENSE, NET

 

Net interest expense increased to $16.4 million forthe nine months ended September 30, 2001 from $11.1 million for the nine monthsended October 1, 2000, reflecting higher average borrowings, partially offsetby the impact of decreasing interest rates.

 

FOREIGNEXCHANGE GAINS/LOSSES

 

Foreign exchange gains for the nine months endedSeptember 30, 2001 were $0.1 million compared to foreign exchange losses of$2.7 million for the nine months ended October 1, 2000.  Approximately $1.1 million of the loss forthe nine months ended October 1, 2000 related to the strengthening of the USdollar in relation to the Spanish peseta in connection with a US dollardenominated loan for our Valencia facility, which was repaid in 2000.  The remainder of the foreign exchange lossfor the nine months ended October 1, 2000 related to the strengthening of theUS dollar in relation to the Spanish peseta on materials purchased in Valenciawhich must be settled in US dollars. The change in foreign exchange gains and losses was attributable to theincreased use, and effectiveness, of forward foreign exchange contracts tohedge currency losses.

 

OTHERINCOME

 

During the three months ended September 30, 2001 werecorded a $4.5 million gain on an insurance claim received in the quarterrelated to business interruption losses. Also, we recorded $6.7 million in income during the three months endedSeptember 30, 2001 related to 1,551,220 shares of our common stock returnedfrom 3Com in connection with the amendment of our supply agreement with 3Compertaining to our Mt. Prospect facility.

 

PROVISIONFOR INCOME TAXES

 

Provision for income taxes was $1.6 million for thenine months ended September 30, 2001 and the nine months ended October 1,2000.  Our tax provisions in bothperiods resulted from the mix of profits and losses experienced by us acrossthe jurisdictions within which we operate. For the nine months ended September30, 2001, losses in the United States and Asia provided us with no income taxbenefit while profits in Spain and France required us to record tax provisions.

 

LIQUIDITY AND CAPITAL RESOURCES

 

At September 30, 2001, we had cash and cashequivalents of $21.8 million, total bank and other debt of $142.3 million and$35.5 million of unused borrowing availability under our revolving bank creditfacility.  During the quarter endedSeptember 30, 2001, our operations were funded primarily with borrowings underour bank credit facility and cash generated from operations.

 

Net cash provided by operating activities of $72.3million for the nine months ended September 30, 2001 resulted primarily from adecrease in operating assets of $345.8 million, depreciation and amortizationof $27.3 million and non-cash charges aggregating $65.3 million offset by a netloss of $71.0 million and a decrease in operating liabilities of $295.0million.  The most significant non-cashitems included in the net loss for the nine months ended September 30, 2001were $59.4 million of write-downs and losses on asset impairments anddisposals, $10.8 million of additions to the allowance for doubtful accountsand a $6.7 million non-cash gain related to 1,551,220 shares of our commonstock returned from 3Com in connection with the amendment of our supplyagreement pertaining to our Mt. Prospect facility.  The decrease in operating assets included an approximately $117.0million reduction in inventory attributable to the sale of excess inventoryunder the provisions of our customer contracts.  Of the $117.0 million of excess inventory sales recorded duringthe period, $8.2 million remaining to be collected were recorded in prepaidexpenses and other current assets at September 30, 2001.  Net cash used in operating activities of$119.4 million for the nine months ended October 1, 2000 resulted primarilyfrom a net loss of $9.1 million and an increase in operating assets of $226.4million offset by an increase of operating liabilities of $84.2 million,depreciation and amortization of $19.9 million and other non-cash itemsaggregating $11.9 million.  Othernon-cash items include non-cash charges for equity awards of $4.4 million andother non-cash charges of $1.0 million associated with the obligations ofDonaldson, Lufkin & Jenrette Securities Corporation under a litigationsettlement agreement with Lockheed Martin Corporation.  The increase in depreciation andamortization for the nine months ended September 30, 2001 compared to the ninemonths ended October 1, 2000 reflects the impact of asset and businessacquisitions as well as an overall increase in the depreciable asset base dueto investments in manufacturing equipment and internal use software.

 

Net cash used in investing activities for the ninemonths ended September 30, 2001 was $15.7 million, consisting primarily of$13.0 million of net capital expenditures, $1.3 million of internal usesoftware, and $1.4 million for the acquisition of intangible assets related toour Guerande facility.  Capitalexpenditures include $3.9 million related to the purchase of our Guerandefacility. Net cash used in investing activities for the nine months endedOctober 1, 2000 was $46.4 million, consisting of $27.1 million of net capitalexpenditures, $9.6 million of internal use software, and $3.8 million for theacquisition of Qualitronics, Inc.  TheQualitronics, Inc. acquisition was partially funded with $2.8 million ofproceeds from the initial public offering; the remaining $1.0 million was paidduring the three months ended October 1, 2000.

 

Net cash used in financing activities for the ninemonths ended September 30, 2001 was $44.5 million, consisting of net paymentsunder our bank credit facility of $46.5 million and proceeds from the issuanceof stock under our employee stock purchase plan of $2.1 million.  Net cash provided by financing activitiesfor the nine months ended October 1, 2000 was $185.8 million, including netproceeds of $161.4 million from the issuance of common stock in the initialpublic offering which closed in June 2000. These proceeds were used to pay off a portion of borrowings under ourbank credit facility ($99.5 million) and retire all of our outstanding seniorpreferred stock ($58.9 million, including remaining dividends owed).  Other financing activities for the ninemonths ended October 1, 2000 included net borrowings under our bank creditfacility of $190.8 million, including $85.0 million of term loan borrowings tofund the acquisition of the Mt. Prospect facility and excluding amounts paidoff with proceeds from the initial public offering, and $1.9 million ofdividends paid on our senior preferred stock prior to the retirement.

 

In October 2001, we amended our bank credit facilityin connection with the change in our assets resulting from the restructuringcharges and asset write-downs recorded in the quarter ended September 30, 2001and the overall mix of our business. The amendment modifies certain definitionsupon which the financial tests in certain covenants are calculated.Additionally, we agreed to increase the applicable interest rates on both ourterm loan facility and revolving credit facility by 1.00% per annum inrecognition of changes in our industry and the credit markets generally.  Following the amendment, the interest rateon our revolving credit facility is, at our option, either:

 

- 2.25% per annum plusthe base rate, which is the higher of:

 

--  the rate as publicly announced from time totime by Bank of America as its "reference rate", or

 

--  the federal funds effective rate plus 0.50%per annum; or

 

- the reserve-adjustedLondon interbank offered rate, or Adjusted LIBOR, plus 3.25% per annum.

 

The interest rate on our term loanfacility is, at our option, either:

 

- the base rate plus4.00% per annum; or

 

- the sum of Adjusted LIBORplus 5.00% per annum.

 

 The applicableinterest rates for our bank credit facility will be subject to adjustment,+/-0.50%, based on the ratio of our consolidated total debt to consolidatedEBITDA (as defined in the October 2001 amendment to the credit facility) andour corporate credit rating.  

 

The amendment also includes provisions requiring us toreceive approval from our lenders for acquisitions having a cost greater than$2.5 million and for additional term loan borrowings under the bank credit facility.

 

We believe our current level of working capital, cashexpected to be generated from operations, leasing capabilities and amountsavailable under our existing revolving credit facility will be adequate to meetour anticipated future operating expenses, capital expenditures and debtobligations for at least the next twelve months. In the event the currenteconomic slowdown continues or is deepened by further terrorist attacks such asthose that occurred on September 11, 2001, our operating performance or assetvalues may decline or be impaired. In that event, our access to working capitaland our revolving credit facility could contract. Our liquidity needs beyondthe next twelve months are not expected to be materially different from currentneeds except for the financing requirements of future acquisitions, if any, andfor future internal growth.

 

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

In July 2001, the Financial Accounting Standards Boardissued SFAS No. 141, "Business Combinations" and SFAS No. 142,"Goodwill and Other Intangible Assets." SFAS No. 141 requiresthat all business combinations be accounted for under the purchase method onlyand that certain acquired intangible assets in a business combination berecognized as assets apart from goodwill. SFAS No. 142 requires that ratable amortization of goodwill bereplaced with periodic tests of the goodwill's impairment and that intangibleassets other than goodwill be amortized over their useful lives. SFASNo. 141 is effective for all business combinations initiated afterJune 30, 2001 and for all business combinations accounted for by thepurchase method for which the date of acquisition is after June 30, 2001.The provisions of SFAS No. 142 will be effective for fiscal yearsbeginning after December 15, 2001, and we will adopt the provisions, asrequired, in fiscal year 2002. The impact of SFAS No. 142 on our financialstatements has not yet been determined.

 

In October 2001, the FASB issued SFAS No. 144"Accounting for the Impairment or Disposal of Long-Lived Assets"("FAS 144"). FAS 144 supercedes FASB Statement No. 121,"Accounting for the Impairment of Long-Lived Assets and for Long-LivedAssets to be Disposed of". FAS 144 applies to all long-lived assets(including discontinued operations) and consequently amends AccountingPrinciples Board Opinion No. 30, "Reporting Results of Operations –Reporting the Effects of Disposal of a Segment of a Business". SFAS No.144 is effective for financial statements issued for fiscal years beginning afterDecember 31, 2001, and will thus by adopted by the Company, as required, onJanuary 1, 2002. The impact of SFAS No. 144 on our financial statements has notyet been determined.

 

FORWARD LOOKING STATEMENTS

 

This Form 10-Q includes forward-looking statements.Some of the forward-looking statements can be identified by the use offorward-looking words such as "believes," "expects,""may," "will," "should," "seeks,""approximately," "intends," "plans,""estimates" or "anticipates" or the negative of those wordsor other comparable terminology. Forward-looking statements involve risks anduncertainties. A number of important factors could cause actual results todiffer materially from those in the forward-looking statements. These factorsinclude systems failures, technological changes, volatility of securitiesmarkets, government regulations and economic conditions and competition in theareas in which we conduct our operations. For a discussion of factors thatcould cause actual results to differ, please see the discussion under"Risk Factors" included below in this Form 10-Q. The forward-lookingstatements made in this Form 10-Q represent our views only as of the date ofthis Report, and we disclaim any duty to update these statements, even if subsequentevents cause our views to change.

 

RISKFACTORS

 

YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBEDBELOW BEFORE MAKING AN INVESTMENT DECISION. ADDITIONAL RISKS NOT PRESENTLYKNOWN TO US OR THAT WE CURRENTLY DEEM IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS.ANY OF THESE RISKS COULD HAVE A MATERIAL AND NEGATIVE EFFECT ON OUR BUSINESS,FINANCIAL CONDITION OR RESULTS OF OPERATIONS.

 

BECAUSE A SIGNIFICANT PORTION OF OURSALES CURRENTLY COMES FROM A SMALL NUMBER OF CUSTOMERS, ANY DECREASE IN SALESFROM THESE CUSTOMERS COULD HARM OUR OPERATING RESULTS.

 

We depend on a small number of customers for a largeportion of our business. Our ten largest customers accounted for approximately88% of net sales in the nine months ended September 30, 2001 and approximately88% of net sales for fiscal 2000. Changes in our customers' orders have, in the past, had a significantimpact on our operating results. If a major customer significantly reduces theamount of business it does with us, there would be an adverse impact on ouroperating results.

 

We expect to continue to depend on sales to our majorcustomers. Because it is not always possible to replace lost business on atimely basis, it is likely that our operating results would be adverselyaffected if one or more of our major customers were to cancel, delay or reducea large amount of business with us in the future. Our customer agreementstypically permit the customer to terminate the agreement on three to sixmonth's notice. Were a customer to terminate its agreement with us, it islikely that our operating results would be adversely affected.  Moreover, our operating results have beenpositively affected by several customer contracts containing guaranteed minimumcommitments, including our contract with 3Com at our Mt. Prospect, Illinoisfacility.  While those contractsgenerally have fixed terms and may not be terminated (absent a breach) prior totheir stated expiration, our operating results would be adversely affected ifwe fail to renew those contracts on similarly favorable terms.

 

In addition, we generate significant accountsreceivable in connection with providing services to our major customers. If oneor more of our customers were to become insolvent or otherwise be unable to payfor our services, or were unwilling to make payments in a timely fashion, ouroperating results and financial condition could be adversely affected.

 

WE HAVE MADE SEVERAL RECENT STRATEGICACQUISITIONS OF MANUFACTURING FACILITIES AND BUSINESSES AND MAY MAKE MOREACQUISITIONS IN THE FUTURE, AND THE FAILURE TO SUCCESSFULLY INTEGRATE ACQUIREDFACILITIES AND BUSINESSES MAY ADVERSELY AFFECT OUR FINANCIAL PERFORMANCE.

 

We have made several significant acquisitions sincethe beginning of fiscal 1999, and selectively pursuing strategic acquisitionsremains an important part of our overall business strategy. However, anyacquisitions we make could result in:

 
| -      | difficulty integrating  our operations, technologies, financial controls and information systems,  products and services with those of the acquired facility; |
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|   |                                                                                                                                                          |
| -      | difficulty in managing  and operating geographically dispersed businesses, including some located in  foreign countries;                                      |
|   |                                                                                                                                                          |
| -      | diversion of our  capital and our management's attention away from other business issues;                                                                     |
|   |                                                                                                                                                          |
| -      | an increase in our  expenses and our working capital requirements;                                                                                            |
|   |                                                                                                                                                          |
| -      | potential loss of key  employees and customers of facilities or businesses we acquire; and                                                                    |
|   |                                                                                                                                                          |
| -      | financial risks, such  as:                                                                                                                                    |
|   |                                                                                                                                                          |
| -      | potential  liabilities of the facilities and businesses we acquire;                                                                                           |
|   |                                                                                                                                                          |
| -      | our  need to incur additional indebtedness; and                                                                                                               |
|   |                                                                                                                                                          |
| -      | dilution  if we issue additional equity securities.                                                                                                           |

 

We may not successfully integrate any operations,technologies, systems, products or services that we acquire, and we cannotassure you that any of our recent or future acquisitions will be successful. Ifany of our recent or future acquisitions are not successful, it is likely thatour financial performance will be adversely affected.

 

OUR GROWTH MAY BE LIMITED AND OURCOMPETITIVE POSITION MAY BE HARMED IF WE ARE UNABLE TO IDENTIFY, FINANCE ANDCOMPLETE FUTURE ACQUISITIONS.

 

Weexpect to selectively pursue strategic acquisitions as part of our overallbusiness strategy. Competition for acquiring attractive facilities andbusinesses in our industry is substantial. In executing this part of ourbusiness strategy, we may experience difficulty in identifying suitableacquisition candidates or in completing selected transactions. In addition, ourexisting bank credit facilities limit our ability to acquire the assets orbusinesses of other companies. If we are able to identify acquisitioncandidates, such acquisitions may be financed with substantial debt or withpotentially dilutive issuances of equity securities. Our ability tosuccessfully complete acquisitions in the future will depend upon severalfactors, including the continued availability of financing. We cannot assureyou that financing for acquisitions will be available on terms acceptable tous, if at all.

 

THE INCURRENCE OF INDEBTEDNESS COULD HARMOUR OPERATING RESULTS AND FINANCIAL CONDITION.

 

Our growth and acquisition strategy could require usto incur substantial amounts of indebtedness. As of September 30, 2001, ourtotal debt was $142.3 million and our interest expense for the nine monthsended September 30, 2001 was $16.4 million. In addition, we may incuradditional indebtedness in the future. Our future level of indebtedness could have adverse consequences for ourbusiness, including:

 
| -      | vulnerability to the  effects of poor economic and industry conditions affecting our business;                                                                                                                                                                                                                                                          |
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|   |                                                                                                                                                                                                                                                                                                                                                    |
| -      | dedication of a  substantial portion of our cash flow from operations to repayment of debt,  limiting the availability of cash for working capital, capital expenditures  or acquisitions which may be attractive to us;                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                    |
| -      | reduced flexibility in  planning for, or reacting to, changes in our business and industry, due to  the debt repayment obligations and restrictive covenants contained in our  debt instruments; and                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                    |
| -      | failure to comply with  the financial covenants under the agreements governing our indebtedness  relating to matters such as interest coverage, leverage, consolidated EBITDA  and net worth resulting in an event of default, which if not cured or waived,  could cause substantially all of our indebtedness to become immediately due  and payable. |

 

We have financial instruments that are subject tointerest rate risk, principally debt obligations under our bank creditfacility. An increase in the base rates upon which our interest rates aredetermined could have an adverse effect on our operating results and financialcondition.

 

COMPETITION FROM EXISTING OR NEWCOMPANIES IN THE EMS INDUSTRY COULD CAUSE US TO EXPERIENCE DOWNWARD PRESSURE ONPRICES, FEWER CUSTOMER ORDERS, REDUCED MARGINS, THE INABILITY TO TAKE ADVANTAGEOF NEW BUSINESS OPPORTUNITIES AND THE LOSS OF MARKET SHARE.

 

We operate in a highly competitive industry. Wecompete against many domestic and foreign companies, some of which havesubstantially greater manufacturing, financial, research and development andmarketing resources than we do. Some of our competitors have broader geographicbreadth and range of services than we do. In addition, some of our competitorsmay have more developed relationships with our existing customers than we do.We also face competition from the manufacturing operations of our current andpotential customers, who continually evaluate the benefits of internalmanufacturing versus outsourcing. As more OEMs dispose of their manufacturingassets and increase the outsourcing of their products, we will face increasingcompetitive pressures to grow our business in order to maintain our competitiveposition.

 

LONG-TERM CONTRACTS ARE NOT TYPICAL INOUR INDUSTRY, AND REDUCTIONS, CANCELLATIONS OR DELAYS IN CUSTOMER ORDERS WOULDADVERSELY AFFECT OUR OPERATING RESULTS.

 

As is typical in the EMS industry, we do not usuallyobtain long-term purchase orders or commitments from our customers. Instead, wework closely with our customers to develop non-binding forecasts of the futurevolume of orders.  Customers may canceltheir orders, change production quantities from forecasted volumes or delayproduction for a number of reasons beyond our control.  Significant or numerous cancellations,reductions or delays in orders by our customers would reduce our net sales. Inaddition, because many of our costs are fixed, a reduction in net sales couldhave a disproportionate adverse effect on our operating results. From time totime we make capital investments in anticipation of future businessopportunities. There can be no assurance that we will receive the anticipatedbusiness. If we are unable to obtain the anticipated business, our operatingresults and financial condition may be harmed.

 

WE DEPEND ON OUR SUPPLIERS, SOME OF WHICHARE THE SOLE SOURCE FOR OUR COMPONENTS, AND OUR PRODUCTION WOULD BESUBSTANTIALLY CURTAILED IF THESE SUPPLIERS ARE NOT ABLE TO MEET OUR DEMANDS ANDALTERNATIVE SOURCES ARE NOT AVAILABLE.

 

We order raw materials and components to complete ourcustomers' orders, and some of these raw materials and components are orderedfrom sole-source suppliers. Although we work with our customers and suppliersto minimize the impact of shortages in raw materials and components, wesometimes experience short-term adverse effects due to price fluctuations anddelayed shipments. In the past, there have been industry-wide shortages ofelectronic components, particularly memory and logic devices. If a significantshortage of raw materials or components were to occur, we may have to delayshipments, and our operating results would be adversely affected. In somecases, supply shortages of particular components will substantially curtailproduction of products using these components. While most of our significantcustomer contracts permit quarterly or other periodic reviews of pricing basedon decreases and increases in the prices of raw materials and components, weare not always able to pass on price increases to our customers. Accordingly,some raw material and component price increases could adversely affect ouroperating results. We also depend on a small number of suppliers for many ofthe other raw materials and components that we use in our business. If we wereunable to continue to purchase these raw materials and components from oursuppliers, our operating results would be adversely affected. Because many ofour costs are fixed, our margins depend on our volume of output at ourfacilities and a reduction in volume will adversely affect our margins

 

IF WE ARE LEFT WITH EXCESS INVENTORY, OUROPERATING RESULTS WILL BE ADVERSELYAFFECTED.

 

We typically purchase components and manufactureproducts in anticipation of customer orders based on customer forecasts. For avariety of reasons, such as decreased end-user demand for the products we aremanufacturing, our customers may not purchase all of the products we havemanufactured or for which we have purchased components. In such event, we wouldattempt to recoup our materials and manufacturing costs by means such asreturning components to our vendors, disposing of excess inventory throughother channels or requiring our OEM customers to purchase or otherwisecompensate us for such excess inventory. Some of our significant customeragreements do not give use the ability to require our OEM customers to do so.To the extent we are unsuccessful in recouping our material and manufacturingcosts, not only would our net sales be adversely affected, but our operatingresults would be disproportionately adversely affected. Moreover, carryingexcess inventory would reduce the working capital we have available to continueto operate and grow our business.

 

UNCERTAINTIES AND ADVERSE TRENDSAFFECTING THE ELECTRONICS INDUSTRY OR ANY OFOUR MAJOR CUSTOMERS MAY ADVERSELY AFFECT OUR OPERATING RESULTS.

 

Our business depends on the electronics industry,which is subject to rapid technological change, short product life cycles andpricing and margin pressure.  Inaddition, the electronics industry has historically been cyclical and subjectto significant downturns characterized by diminished product demand, rapiddeclines in average selling prices and production over-capacity. When thesefactors adversely affect our customers, we may suffer similar effects. Ourcustomers' markets are also subject to economic cycles and are likely toexperience recessionary periods in the future. The economic conditionsaffecting the electronics industry, in general, or any of our major customers,in particular including the acceleration of the economic slowdown andheightened levels of uncertainty related to the September 11 terrorist attacksin the United States, may adversely affect our operating results.

 

BECAUSE WE HAVE SIGNIFICANT OPERATIONSOVERSEAS, OUR OPERATING RESULTS COULD BE

HARMED BY ECONOMIC, POLITICAL, REGULATORYAND OTHER FACTORS EXISTING IN FOREIGN

COUNTRIES IN WHICH WE OPERATE.

 

We have substantial manufacturing operations in Europeand Asia. Our international operations are subject to inherent risks, which mayadversely affect us, including:

 
| -      | political and economic  instability in countries where we have manufacturing facilities, particularly  in Asia where we conduct a significant portion of our business; |
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|   |                                                                                                                                                                   |
| -      | fluctuations in the  value of foreign currencies;                                                                                                                      |
|   |                                                                                                                                                                   |
| -      | high levels of  inflation, historically the case in a number of countries in Asia where we do  business;                                                               |
|   |                                                                                                                                                                   |
| -      | changes in labor  conditions and difficulties in staffing and managing our foreign operations;                                                                         |
|   |                                                                                                                                                                   |
| -      | greater difficulty in  collecting our accounts receivable and longer payment cycles;                                                                                   |
|   |                                                                                                                                                                   |
| -      | burdens and costs of  our compliance with a variety of foreign laws;                                                                                                   |
|   |                                                                                                                                                                   |
| -      | increases in the  duties and taxes we pay;                                                                                                                             |
|   |                                                                                                                                                                   |
| -      | imposition of  restrictions on currency conversion or the transfer of funds; and                                                                                       |
|   |                                                                                                                                                                   |
| -      | expropriation of  private enterprises.                                                                                                                                 |

 

OUR QUARTERLY OPERATING RESULTS ARESUBJECT TO FLUCTUATIONS AND SEASONALITY AND IF WE FAIL TO MEET THE EXPECTATIONSOF SECURITIES ANALYSTS OR INVESTORS THE PRICE OF OUR SECURITIES MAY DECREASE.

 

Our annual and quarterlyresults may vary significantly depending on various factors, many of which arebeyond our control, and may not meet the expectations of securities analysts orinvestors. If this occurs, the price of our common stock would likely decline.These factors include:

 
| -      | variations in the  timing and volume of customer orders relative to our manufacturing capacity; |
|--------|-------------------------------------------------------------------------------------------------|
|   |                                                                                            |
| -      | introduction and  market acceptance of our customers' new products;                             |
|   |                                                                                            |
| -      | changes in demand for  our customers' existing products;                                        |
|   |                                                                                            |
| -      | the timing of our  expenditures in anticipation of future orders;                               |
|   |                                                                                            |
| -      | effectiveness in  managing our manufacturing processes;                                         |
|   |                                                                                            |
| -      | changes in competitive  and economic conditions generally or in our customers' markets          |
|   |                                                                                            |
| -      | the timing of, and the  price we pay for, acquisitions and related integration costs;           |
|   |                                                                                            |
| -      | changes in the cost or  availability of components or skilled labor; and                        |
|   |                                                                                            |
| -      | foreign currency  exposure.                                                                     |

 

As is the case with many technology companies, wetypically ship a significant portion of our products in the last few weeks of aquarter. As a result, any delay in anticipated sales is likely to result in thedeferral of the associated revenue beyond the end of a particular quarter,which would have a significant effect on our operating results for thatquarter. In addition, most of our operating expenses do not vary directly withnet sales and are difficult to adjust in the short term. As a result, if netsales for a particular quarter were below our expectations, we could notproportionately reduce operating expenses for that quarter, and, therefore,that revenue shortfall would have a disproportionate adverse effect on ouroperating results for that quarter.

 

LOSS OF ANY OF OUR KEY PERSONNEL COULDHURT OUR BUSINESS BECAUSE OF THEIR EXPERIENCE IN THE EMS INDUSTRY AND THEIRTECHNOLOGICAL EXPERTISE.

 

We operate in the highly competitive EMS industry anddepend on the services of our key senior executives and our technologicalexperts. The loss of the services of one or several of our key employees or aninability to attract, train and retain qualified and skilled employees,specifically engineering, operations and sales personnel, could result in theloss of customers or otherwise inhibit our ability to operate and grow ourbusiness successfully. In addition, our ability to successfully integrateacquired facilities or businesses depends, in part, on our ability to retainand motivate key management and employees hired by us in connection with theacquisition.

 

IF WE ARE UNABLE TO MAINTAIN OURTECHNOLOGICAL EXPERTISE IN DESIGN AND MANUFACTURING PROCESSES WE WILL NOT BEABLE TO SUCCESSFULLY COMPETE.

 

We believe that our future success will depend uponour ability to develop and provide design and manufacturing services that meetthe changing needs of our customers. This requires that we successfullyanticipate and respond to technological changes in design and manufacturingprocesses in a cost-effective and timely manner. As a result, we continuallyevaluate the advantages and feasibility of new product design and manufacturingprocesses. We cannot, however, assure you that our process development effortswill be successful.

 

WE ARE SUBJECT TO A VARIETY OFENVIRONMENTAL LAWS THAT EXPOSE US TO POTENTIAL FINANCIAL LIABILITY.

 

Our operations are regulated under a number offederal, state and foreign environmental and safety laws and regulations thatgovern, among other things, the discharge of hazardous materials into the airand water as well as the handling, storage and disposal of these materials.These laws and regulations include the Clean Air Act, the Clean Water Act, the Resource,Conservation and Recovery Act, and the Comprehensive Environmental Response,Compensation and Liability Act, as well as analogous state and foreign laws.Compliance with these environmental laws is a major consideration for usbecause we use hazardous materials in our manufacturing process. In addition,because we are a generator of hazardous wastes, we, along with any other personwho arranges for the disposal of our wastes, may be subject to financialexposure for costs associated with an investigation and any remediation ofsites at which we have arranged for the disposal of hazardous wastes if thesesites become contaminated, even if we fully comply with applicableenvironmental laws. In the event of a violation of environmental laws, we couldbe held liable for damages. And for the costs of remedial actions and couldalso be subject to revocation of our effluent discharge permits. Any revocationcould require us to cease or limit production at one or more of our facilities,thereby negatively impacting our revenues and results of operations.Environmental laws could also become more stringent over time, imposing greatercompliance costs and increasing risks and penalties associated with anyviolation, which also could negatively impact our operating results.

 

OUR CONTROLLING STOCKHOLDERS AND SOME OFOUR DIRECTORS MAY HAVE INTERESTS THAT DIFFER FROM YOURS.

 

Credit Suisse First Boston, through certain of itsaffiliates, owns approximately 49% of our outstanding common stock and, as aresult, has significant control over our business, policies and affairs,including, effectively, the power to appoint new management, prevent or cause achange of control and approve any action requiring the approval of the holdersof our common stock, such as adopting amendments to our certificate ofincorporation and approving mergers or sales of all or substantially all of ourassets. In addition, under the terms of a stockholders agreement between us,certain other parties and those affiliates of Credit Suisse First Boston, thoseaffiliates have the right to elect a majority of our directors if they own 50%or more of our outstanding common stock. Circumstances may occur in which theinterests of these stockholders could be in conflict with your interests.

 

PROVISIONS IN OUR CHARTER DOCUMENTS ANDDELAWARE LAW MAY DELAY, DETER OR PREVENT SOMEONE FROM ACQUIRING US, WHICH COULDDECREASE THE VALUE OF OUR COMMON STOCK.

 

Provisions in our charterand bylaws may have the effect of delaying, deterring or preventing a change ofcontrol or changes in our management that investors might consider favorableunless approved by our stockholders and directors affiliated with Credit SuisseFirst Boston. Those provisions serve to limit the circumstances in which apremium may be paid for our common stock in proposed transactions or where aproxy contest for control of our board may be initiated. If a change of controlor change in management is delayed, deterred or prevented, the market price ofour common stock could suffer.

 

ITEM 3. QUANTITATIVE ANDQUALITATIVE DISCLOSURE ABOUT MARKET RISKS

 

There have been no material changes in our market riskduring the quarter ended September 30, 2001. Market risk information is contained under the caption “Quantitative andQualitative Disclosure Relating to Market Risks” in our Annual Report on Form10-K for the fiscal year ended December 31, 2000.

 

PARTII. OTHER INFORMATION

 

ITEM 6. EXHIBITS ANDREPORTS ON FORM 8-K

 

(a)         Exhibits

 

 EXHIBIT INDEX

 

**EXHIBIT                                                                                                               DESCRIPTION**

**NUMBER**

                        

2.1(1)              Securities Purchase Agreementdated as of January 20, 1995 by and among MSL and the parties listed therein.

2.2(1)              WarrantAgreement dated as of August 31, 1995 by and among MSL, Bank of AmericaNational Trust and Savings Association and the parties listed therein.

2.3(1)              Preferred Stock and WarrantSubscription Agreement dated as of November 26, 1999 by and among MSL and theparties listed therein.

2.4(1)              Escrow Agreement dated as ofNovember 26, 1999 by and among MSL and the parties listed therein.

2.5(1)              AssetPurchase Agreement dated as of November 19, 1999 among 3Com Corporation,Manufacturers' Services Limited and Manufacturers' Services Salt Lake CityOperations, Inc.

2.6(2)              AssetPurchase Agreement dated as of September 26, 2000 among 3Com Corporation,Manufacturers' Services Limited and Manufacturers' Services Salt Lake CityOperations, Inc.

3.1(1)              Restated Certificate ofIncorporation of MSL.

3.2(1)              Amended and Restated By-Laws ofMSL.

3.4(5)              Amended and Restated Articles ofIncorporation of MSL

3.3(1)              Form of certificate representingshares of common stock, $.001 par value per share.

4.1(1)              Stockholders Agreement dated as ofJanuary 20, 1995 by and among MSL and the stockholders named therein.

4.2(1)              StockholdersAgreement Amendment dated November 26, 1999 by and among MSL and thestockholders named therein.

4.3(1)              Credit Agreement dated August 21,1998 among MSL, MSL Overseas Finance B.V and the lenders named therein.

4.4(1)              FirstAmendment to Credit Agreement and Limited Waiver dated as of February 26, 1999by and among MSL, MSL Overseas Finance B.V. and the lenders named in the CreditAgreement.

4.5(1)              SecondAmendment to Credit Agreement and Consent dated as of November 23, 1999 by andamong MSL, MSL Overseas Finance B.V. and the lenders named in the Credit Agreement.

4.6(4)              FirstAmended and Restated Credit Agreement dated as of September 29, 2000 by andbetween Manufacturers' Services Limited and the lenders named in the CreditAgreement.

4.7(4)              First Amendment Agreement andConsent dated as of  September 29, 2000by and between Manufacturers' Services Limited and the lenders named therein.

4.8(3)              First Amendment to First Amendedand Restated Credit Agreement dated as of October 25, 2000 by and betweenManufacturers' Services Limited and the lenders named therein

4.9(5)              SecondAmendment to First Amended and Restated Credit Agreement dated as of March 2,2001 by and between Manufacturers’ Services Limited and the lenders namedtherein

4.10                 ThirdAmendment to First Amended and Restated Credit Agreement dated as of October18, 2001 by and between Manufacturers’ Services Limited and the lenders namedtherein.

10.1(1)            Employment Agreement dated as ofJanuary 20, 1995 by and between MSL and Kevin C. Melia.

10.2(1)            Employment Letter dated as of June20, 1997 by and between MSL and Robert E. Donahue.

10.3(1)            Employment Letter dated as ofSeptember 27, 1995 by and between MSL and Rodolfo Archbold.

10.4(1)            Employment Letter dated as ofJanuary 4, 1996 by and between MSL and Dale R. Johnson.

10.5(1)            Severance Letter dated June 25, 1996by and between MSL and Dale R. Johnson.

10.6(1)            Employment Letter dated as ofJanuary 23, 1998 by and between MSL and James N. Poor.

10.7(1)            Second Amended and RestatedNon-Qualified Option Plan.

10.8(1)            Form of 2000 Equity Incentive Plan.

10.9(1)            Form of 2000 Employee Stock PurchasePlan.

10.10(1)          Form of Indemnification Agreement.

10.11(1)          Office/WarehouseLease dated as of April 14, 1997 by and between Amberjack, Ltd. andManufacturers' Services Limited - Roseville, Inc.

10.12(1)          Leasedated as of May 5, 1998 by and between International Business MachinesCorporation and Manufacturers' Services Western U.S. Operations, Inc.

10.13(1)          Supply Agreement dated as of November27, 1999 buy and between MSL and 3Com Corporation.

10.14(1)          OutsourcingAgreement dated as of June 1, 1998 by and between International BusinessMachines Corporation and Manufacturers' Services Western US Operations, Inc.

10.15(1)          Manufacturing,Integration and Fulfillment Contract dated as of June 26, 1998 by and betweenInternational Business Machines S.A. and Global Manufacturers' Services -Valencia

10.16(1)          GlobalRequirements Agreement No. MSL 183G dated as of July 30, 1997 by and betweenMSL and Iomega Corporation.

10.17(1)          Supply Agreement dated as of November27, 1999 by and between MSL and Palm Computing, Inc.

10.18(1).         Manufacturing Services Agreement datedas of June 1, 1999 by and between Hewlett-Packard Singapore Pte Ltd. andManufacturers' Services Singapore Pte Ltd

10.19(1)          2000 Cash Incentive Compensation Plan.

10.20(4)          SupplyAgreement dated as of September 26, 2000 between Manufacturers' Services SaltLake City Operations, Inc. and 3Com Corporation.

10.21(4)          Leasedated as of September 26, 2000 by and between 3Com Corporation andManufacturers' Services Salt Lake City Operations, Inc.

10.22(4)          2000 Non-employee Director StockOption Plan, as amended

10.23(4)          2000 Non-qualified Stock Option Plan

10.24(4)          Second Amended and RestatedNon-qualified Stock Option Plan, as amended

10.25(4)          2000 Equity Incentive Plan, as amended

10.26(5)          Formof Change in Control Agreement for Kevin Melia, Robert Donahue, Albert Notini,Rodolfo Archbold, James Poor, Alan Cormier, Richard Gaynor, Francis Binder,Richard Buckingham and Sam Landol

10.27(5)          FirstAmendment to Supply Agreement between Manufacturers’ Services Salt Lake CityOperations, Inc. and Palm, Inc., effective as of December 1, 2000.

10.28(5)          Amendment to Employment Letter datedas of September 27, 1995 between MSL and Rodolfo Archbold

10.29(5)          FirstAmendment to Supply Agreement between Manufacturers Services Salt Lake CityOperations, Inc. and 3Com Corporation, effective as of January 15, 2001

10.30(6)          2000 Equity Incentive Plan, as amended

10.31(6)          2000 Employee Stock Purchase Plan, asamended

10.32(6)          2000 Non-Qualified Stock Option Plan,as amended

10.33                      Amendment to SupplyAgreement between Manufacturers Services Salt Lake City Operations, Inc. and3Com Corporation effective as of September 14, 2001

----

+                      Confidential treatmentrequested as to certain portions which portions have been filed separately withthe Securities and Exchange Commission.

                        

(1)                   Filedas an Exhibit to the Registrant's Registration Statement on Form S-1, asamended (File No. 333-96227), filed on February 4, 2000

(2)                   Filed as an Exhibit to theRegistrant's Current Report on Form 8-K filed on October 11, 2000

(3)                   Filed as an Exhibit to theRegistrant’s Current Report on Form 8-K filed on December 5, 2000

(4)                   Filed as an Exhibit to theRegistrant’s Quarterly Report on Form 10-Q filed on November 14, 2000

(5)                   Filed as an Exhibit to theRegistrant’s Annual Report on Form 10-K filed on April 2, 2001

(6)                   Filed as an Exhibit to theRegistrant's Quarterly Report on Form 10-Q filed on August 14, 2001

 

(b)        Reports on Form 8-K

 

OnSeptember 17, 2001, the Company filed a report on Form 8-K furnishinginformation under Item 9, Regulation FD Disclosure relating to the amendment ofa supply agreement with 3Com Corporation.

 

OnSeptember 18, 2001, the Company filed a report on Form 8-K furnishinginformation under Item 9, Regulation FD Disclosure relating to the potentialpurchase of certain assets of MCMS, Inc.

 

SIGNATURES

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized:

 
|   |                           | MANUFACTURERS'  SERVICES LIMITED                      |
|--------|--------------------------------|-------------------------------------------------------|
|   |                           | (Registrant)                                          |   |
|   |                           |                                                  |   |
|   |                           | Date: November 14,  2001                              |   |
|   |                           |                                                  |   |
|   | By:                            | /s/ Albert A. Notini                                  |   |
|   |                           |                                                  |   |
|   |                           | Albert  A. Notini                                     |   |
|   |                           | Executive  Vice President and Chief Financial Officer |
|   | (Principal  Financial Officer) |                                                  |
|   |                           |                                                  |   |
|   | By:                            | /s/ Richard J. Gaynor                                 |   |
|   |                           |                                                  |   |
|   |                           | Richard  J. Gaynor                                    |   |
|   |                           | Vice President and  Corporate Controller              |
|   |                           | (Principal Accounting  Officer)                       |   |
|        |                                |                                                       |  |  |  |  |