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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(MARK ONE)

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

FOR THE TRANSITION PERIOD FROM                              TO                             

COMMISSION FILE NUMBER: 001-15883

Manufacturers' Services Limited
(Exact Name of Registrant as Specified in Its Charter)

Registrant's telephone number, including area code: (978) 287-5630

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

NONE

        Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes o    No ý

        The aggregate market value of the voting common stock held by non-affiliates of the Registrant (based on the closing sale price of the Common Stock as reported on the New York Stock Exchange on June 28, 2002) was $66,136,190. For purposes of this determination, shares of Common Stock held by each officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

        The number of outstanding shares of the Registrant's Common Stock as of the close of business on March 7, 2003, was 33,425,233.

DOCUMENTS INCORPORATED BY REFERENCE

TABLE OF CONTENTS

        This report includes forward-looking statements. Any statement in this report that is not a statement of historical fact may be deemed to be a forward-looking statement. Some of the forward-looking statements can be identified by the use of forward-looking words such as "believes," "expects," "may," "will," "should," "seeks," "approximately," "intends," "plans," "estimates" or "anticipates" or the negative of those words or other comparable terminology. Forward-looking statements in this report include:

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forecasts in the growth of the electronic manufacturing services ("EMS") industry, and our ability to capitalize on such growth;



•

statements regarding our future revenues, expense levels, liquidity and capital resources, operating results and projections regarding our business strategy of focusing on high-growth, high-margin business.

        Forward-looking statements involve risks and uncertainties. A number of important factors could cause actual results to differ materially from those indicated in the forward-looking statements. For a discussion of factors that could cause actual results to differ, please see the discussion under "Risk Factors" contained in this report. Any forward-looking statements in this report represent our views as of the date of this report, and we disclaim any duty to update these statements, even if subsequent events cause our views to change.

PART

Item 1. Business

Overview

        Manufacturers' Services Limited ("MSL") is a global electronic manufacturing and supply chain services company providing a portfolio of integrated capabilities that allows our customers to get their products to market faster, reduce their total cost, and improve their operating performance. Our customers include leading original equipment manufacturers ("OEMs") many of whom have chosen outsourcing as a core manufacturing strategy. We have developed relationships with customers in a diverse range of industries, including industrial equipment, commercial avionics, retail infrastructure, medical products, voice and data communications, network storage, office equipment, computers, computer peripherals and consumer electronics. By efficiently and aggressively managing our business, costs and asset base, we are able to offer our customers an outsourcing solution that represents a lower total cost of ownership than that typically provided by their internal operations. We seek to differentiate ourselves by providing a superior customer experience through open and active communication, personalized service, a deep understanding of our customers' needs, attention to each customer's unique operating requirements, customized and flexible supply chain solutions and rapid response.

        We provide integrated supply chain solutions that address all stages of our customer's product life cycle, including engineering and design, new product introduction, global supply chain management, printed circuit board assembly, high speed automated manufacturing, final product assembly including configure-to-order and build-to-order, integration and testing of complex systems, fulfillment and distribution and after-market services. We assist our customers in the design and product introduction phases of development to reduce product time-to-market and optimize design for manufacturing. We obtain competitive component pricing and greater sourcing flexibility for our customers through our material and inventory management expertise and our global information systems. We utilize sophisticated assembly and manufacturing techniques in order to provide the complex functionality and small product size that is required by OEMs. We subject our manufactured products to a comprehensive set of tests for quality, functionality and reliability, including, in some instances, product-specific tests that we design for our customers. Among our capabilities, we differentiate ourselves with our advanced configure-to-order and build-to-order offerings. Additionally, we assist our customers in packaging and distributing the final products directly into their distribution channels and to their end users. We also provide a wide range of after-market support services such as repair, refurbishment, system upgrades, spare part manufacturing and end-of-life management. By providing these design, engineering, manufacturing, fulfillment and after-market services, we enable our customers to focus on their core competencies, and we enhance their competitiveness by reducing the cost of their products and shortening the time from product conception to product introduction in the marketplace. Additionally, this comprehensive range of services promotes our growth initiatives by attracting new customers and capturing additional outsourcing opportunities with our existing customers.

        We have established a global network consisting of 13 manufacturing, design and fulfillment facilities in the world's major electronics markets—North America, Europe and Asia—to serve the increasing outsourcing needs of both global and regional OEMs. Our manufacturing facilities are strategically located near our customers and their end-markets, which benefits our customers by reducing the time required to get their products to market and by increasing their flexibility to respond quickly to changing market conditions. We believe that the combination of our services and our global manufacturing network has enabled us to become an integral part of our customers' product development, manufacturing and fulfillment strategies.

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        We are organized as a Delaware corporation, incorporated in 1994. Our principal executive office is located at 300 Baker Avenue, Suite 106, Concord, MA 01742 and our telephone number is (978) 287-5630. We maintain a website with the address www.msl.com. We are not including the information contained in our website as part of, or incorporating it by reference into, this annual report on Form 10-K. We make available free of charge through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after we electronically file these materials with, or otherwise furnish them to, the Securities and Exchange Commission.

Industry Background

        Historically, OEMs have been fully integrated, performing the engineering and design, new product introduction, assembly and manufacturing, testing, fulfillment and after-market support functions for their products. In recent years, however, OEMs have been under pressure to reduce costs, focus on core competencies, reduce supply chain investment and shorten time to market. In response, they have increasingly outsourced various design, manufacturing, fulfillment and after market functions to EMS companies. By focusing on these functions, we believe that EMS companies have provided OEMs with cost savings, superior technological know-how, access to more advanced manufacturing processes and shortened time to market. These services enable OEMs to concentrate on their core competencies, such as product development, marketing, customer relationship management and sales. As a result of this outsourcing strategy, many OEMs are continuing to divest a significant portion of their manufacturing facilities, and many newer OEMs are choosing to outsource rather than build an internal manufacturing infrastructure.

        Today, the EMS industry is comprised of companies that provide a broad range of services, including engineering and design, new product introduction, assembly and manufacturing, testing, distribution and fulfillment and after-market support services for OEMs in the electronics industry. Nonetheless, the penetration of EMS companies into the total available market remains low. IDC, an independent research firm, estimates that the EMS industry will grow at 8% annually from approximately $111 billion in 2001 to $162 billion in 2006. Other independent research analysts forecast a higher growth rate. Although the EMS industry as a whole is in a current economic downturn, the trend toward outsourcing by OEMs has continued, as they are increasingly under pressure to pursue operating efficiencies.

        As OEMs have continued to move manufacturing programs to lower cost regions, they have sought EMS providers with a global footprint. We believe that larger EMS providers with a global presence will grow faster than the industry average because they can offer multinational OEMs a comprehensive set of outsourced services through a single global manufacturing platform.

        We believe that the factors driving OEMs to favor an outsourcing strategy include:

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Reduced Total Supply Chain Cost.  OEMs need to continually reduce costs to remain competitive. EMS companies are able to manufacture products at a reduced total cost to OEMs because of higher utilization of manufacturing capacity, access to leading-edge manufacturing technologies, superior procurement and inventory management capabilities, proficiency in purchasing materials and components, generally lower labor and fixed costs and a continual focus on improving the entire supply chain from product design to after-market support.



•

Ability to Focus on Core Competencies.  By shifting design, manufacturing, testing, fulfillment and distribution and after-market support functions to EMS companies, OEMs can focus their resources on their core competencies and where they provide the most value, including product development, marketing, customer relationship management and sales.

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•

Access to Leading Technologies.  OEMs are continually seeking access to engineering expertise and manufacturing technologies necessary to build their increasingly complex products. OEMs are motivated to work with EMS companies to gain access to their expertise in product design, assembly, manufacturing and testing technologies, as well as their expertise in global supply chain management, fulfillment and after-market support. In addition, EMS companies provide OEMs with access to advanced information systems, enabling OEMs to better monitor and control the global production and distribution of their products.



•

Reduced Total Fixed Costs.  Outsourcing to EMS companies allows OEMs to lower their total investment in inventory and manufacturing assets and shift more of their fixed costs to variable costs, enabling them to increase their return on assets. As a result, OEMs can react more quickly to changing market conditions and allocate capital to other core activities.



•

Accelerated Time-to-Market and Time-to-Global Volume.  By using EMS companies with capabilities in all major global markets, OEMs can expand sales and simultaneously introduce new products worldwide. Once products have been developed, OEMs need to quickly reach commercial volume production and distribute their products in all major markets in order to achieve the greatest impact in a competitive market.

Our Business Strategy

        Our objective is to be a leading global provider of advanced electronics manufacturing services to leading and emerging OEMs. Our strategy includes the following key elements:

        Focus on Companies in Growing Markets With Medium Volume and Complexity Manufacturing Needs and Customized High Volume Requirements.    We target leading and emerging OEMs in industries such as industrial equipment, commercial avionics, medical products, voice and data communications, computers and computer peripherals. We believe that these markets are diverse and growing and offer us the opportunity to leverage our assets and service offerings. We will continue to focus on specific product segments including industrial controls, commercial avionics, medical diagnostic and monitoring equipment, medical devices, retail infrastructure and automation products, network storage, switching and transmission equipment, and wireless communication products. We believe that the significant demand for these products, coupled with the high degree of expertise and technology we offer, provide the most significant opportunities for an attractive return on investment.

        Establish and Maintain Long-Term Partnerships with Leading OEMs Through Manufacturing Life-Cycle Solutions.    We seek to establish and maintain relationships with leading OEMs and deliver complete product life-cycle solutions to them, beginning with early involvement in their product engineering and design and new product introduction cycles and continuing through manufacturing, testing, fulfillment and after-market support services. We believe that the provision of a comprehensive solution is critical to our customers' success, and can provide an important competitive advantage. We also serve creditworthy emerging companies to establish an early outsourcing relationship that can provide us with attractive growth opportunities as these companies' products gain market acceptance.

        Expand and Enhance Our Global Manufacturing Capabilities.    We currently maintain manufacturing facilities in North America, Europe and Asia, which allow us to serve the world's major electronics markets. This strategically positioned network of integrated manufacturing facilities reduces the time and cost required to bring our customers' products to market and allows for the simultaneous introduction of our customers' products in multiple major global markets. We intend to continue to seek and evaluate strategic opportunities to enhance our geographic presence, particularly in lower cost regions, and expand the scope of our manufacturing capabilities.

        Enhance Our Integrated Design, Manufacturing and Related Services.    We intend to continue to enhance our service offerings to meet the evolving needs of our customers and to control and manage

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more effectively their supply chain. OEMs are increasingly requiring a wider range of advanced services from EMS companies. We offer our customers a comprehensive range of services and have expanded the scope of our capabilities through acquisitions and selective investments. We believe that our ability to support customers with this comprehensive range of services provides us increased insight into our customers' future manufacturing requirements. This is also critical to further penetrating the EMS market and attracting new customers.

        Increase Penetration of Our Existing Customers, Expand Our Customer Base and Pursue Selected Acquisitions.    We believe that expanding our relationships with our existing customers, continuing growth of our customer base and pursuing selected acquisitions are all critical to our future success. We continually evaluate the requirements of our existing customers, and seek the opportunity to provide them with additional services from existing facilities, thereby strengthening our relationships with our customers and increasing the utilization of existing manufacturing facilities. We actively pursue new customers by conducting a focused marketing effort, designed to increase our brand awareness and the likelihood of winning new business. In addition, we intend to continue to pursue acquisitions of selected manufacturing and design facilities from OEMs as well as existing independent EMS providers and related companies that offer us relationships with key customers, strong and experienced management teams, strategic capabilities, attractive locations and enhanced service offerings.

Our Services

        We believe that OEMs are increasingly demanding an integrated outsourcing solution from EMS companies and seeking collaborative relationships. We provide our customers with a total solution that includes a full range of services tailored to our customers' unique operating requirements that allow us to take our customers' products from initial design through production, test, fulfillment and after-market support. The services that we offer OEMs include:

        New Product Introduction.    We offer technical services that shorten the time it takes our customers to introduce their products into the market and that help our customers optimize the commercial manufacturing of their products. Our integrated approach draws on our design, supply chain management and manufacturing, quality and test engineering experience to enable a fast, cost-effective ramp to volume production. We are able to assist our customers with component selection, materials strategies and supply chain development, manufacturing process development, reliability modeling, quality plan development and test plan implementation. In addition, we have the infrastructure necessary to produce the low volumes associated with prototype manufacturing, thereby enabling our customers to avoid substantial investment in specialized manufacturing equipment.

        Printed Circuit Board Assembly.    We offer printed circuit board ("PCB") assembly services designed to meet our customers' needs for volume, mix, and complexity. Our global facilities are experienced in many PCB assembly methods, including conventional and ultra-fine pitch surface mount technology, pin-through-hole and mixed technology and advanced package array technology. As OEMs seek to provide greater functionality in smaller products, they increasingly require more sophisticated manufacturing technologies and processes. Our investment in advanced manufacturing equipment and technology and our experience and expertise in miniaturization, packaging and interconnect technologies enable our customers to have access to a wide variety of advanced manufacturing solutions and PCB assembly methods without having to make substantial capital investments. We collaborate on process development with leading suppliers of state-of-the-art assembly and test equipment and perform beta site equipment and process evaluations for them. These activities enhance our ability to deliver cost-effective PCB assembly solutions for our customers.

        Global Supply Chain Management.    We offer global supply chain management services that involve planning, purchasing and expediting the delivery of materials and components used in the manufacturing process. Our strategy is to become increasingly involved in selecting and qualifying

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suppliers to meet our customers' needs. Our global information system for materials management enables us to achieve competitive component pricing and greater sourcing flexibility. We employ various inventory management techniques, such as just-in-time and line-side stocking, that allow us to coordinate product shipments with our customers' requirements. Just-in-time is an inventory control method of ordering materials only on an as-needed basis. Line-side stocking is another inventory control method, in which components are located within our manufacturing facilities but owned by the supplier or customer until they are used in the manufacturing process. Both just-in-time and line-side stocking eliminate much of the expense and managerial oversight of maintaining inventory. We are also investing in additional supply chain management solutions that will further increase efficiency, resulting in lower costs and increased responsiveness to our customers.

        Fulfillment and Distribution.    We offer services related to the final configuration and shipment of our customers' products. We perform final product packaging, including configure-to-order and build-to-order offerings, and distribution services for completed products, as well as direct order fulfillment. We increasingly deliver final products directly into our customers' distribution channels and to our customers' end-users. We believe that these services complement our comprehensive manufacturing solution, enabling our customers to be more responsive to changing market demands and to get their products to market more quickly and cost effectively.

        Final Product Assembly.    We offer assembly and manufacturing services that include assembly of subsystems of electronics products, which include multiple components, and the final assembly and integration of complete products that incorporate printed circuit board assemblies, complex electromechanical subassemblies, enclosures, power supplies and other components. We build a wide range of final products and we believe we are well positioned to take advantage of the anticipated acceleration in outsourcing of final product assembly and integration. In addition, our build-to-order and configure-to-order capabilities complement our expertise in final product assembly by allowing us to postpone the final configuration of our customers' products until actual end-user specifications are received, thus reducing finished inventory levels for us and our customers.

        High Speed Automated Manufacturing.    We offer high-speed low-touch automated manufacturing services for customers in the medical device and computer peripheral markets. Our ability to combine electronics design and manufacturing with high-speed automated assembly provides a particularly strong capability for medical device manufacturers who are tasked with the challenge of integrating electronics into their medical assemblies. Our skilled staff is experienced in installing, commissioning, operating and optimizing automated production lines on behalf of our customers. We work closely with third party equipment manufacturers and are experienced in operating and maintaining automated manufacturing equipment from leading integrators in the US and Europe. In the early stages of product development, our engineering team works with the customer to ensure that the product can be manufactured in volume and meet agreed quality, output and uptime targets. We maintain significant expertise in technologies such as automation, plastics, vision systems, laser marking, ultrasonic welding, programmable logic controller ("PLC") programming, and traceability systems.

        Testing.    We provide our customers with testing services. We work with our customers to develop product-specific test strategies, and in some cases we design and build specific test platforms for our customers' products. Our functional testing capabilities are supported with software expertise in UNIX, VisualBasic, C and C++. We also offer microwave and radio frequency engineering experience and support the microwave and radio frequency test requirements of many products.

        Engineering and Design.    We offer engineering, design, prototype and related services that help our customers design their products for optimal manufacturing and testing. Our electrical, mechanical and packaging engineers provide our customers with circuit design, microwave and radio frequency engineering, printed circuit board layout, mechanical design and test fixture design services. We also provide design for procurement, for manufacturing and for testing services. Our design for procurement

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service identifies areas in which the overall cost of our customers' products can be reduced through a decrease in material costs and effective inventory management. Our design for manufacturability service seeks to achieve defect-free and cost-effective product designs, reduce product development cycles, create high initial production yields and establish superior product quality. Our design for testability service focuses on achieving the highest level of fault detection and isolation before products are shipped.

        After-Market Services.    We provide a wide range of after-market services, including repair, refurbishment, remanufacturing, system upgrades and spare part manufacturing. These services are supported by specific information systems and testing technologies and can be tailored to meet the specific requirements of each customer.

Customers and Market Segments

        Our customers include leading OEMs primarily in the computer systems and related peripherals, networking and communications equipment, consumer electronics and industrial and medical devices industries. Our net sales were distributed over the following significant industries for the years indicated:

        A small number of customers have historically comprised a major portion of our net revenue. The table below sets forth the respective portion of net revenue attributable to our customers who individually accounted for 10% or more of our net revenue in any respective period:

*

Less than 10% of net revenues

        Sales to our top 10 customers represented 80%, 87% and 88% of net revenues for 2002, 2001 and 2000, respectively. As illustrated in the two tables above, the historic percentages of net revenues we have received from specific customers or in significant industries have varied substantially from year to year. Accordingly, these historic percentages are not necessarily indicative of the percentages of net revenues that we may receive from any customer or industry in the future. In 2002, we disengaged with two of our large customers, Palm and 3Com due to changing strategies and products at these customers.

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Sales and Marketing

        We take our services to market through a direct sales force based in North America and Europe. Our salespeople have knowledge of local markets, which we believe is critical to identifying new customers and developing new business opportunities. Our direct sales force is complemented by several independent firms who serve as our representatives in areas where we believe the most significant opportunities exist, and in areas where we have no direct salespeople.

        We also seek to grow by developing close, long-term relationships with our customers, working with them through a product's entire life cycle, from product design to after-market support. The costs to an OEM of starting significant production at an EMS company are high, whether for a new product or for a product currently manufactured internally or by another EMS company. Consequently, EMS companies generally face a long sales cycle and must perform satisfactorily on a trial basis prior to obtaining significant orders from a potential customer. Therefore, we seek to work closely with our customers during the initial product design and development stage. We support our customer relationships with cross-functional customer focus teams that are led by dedicated program managers. Each team is responsible for focusing on new programs, products and/or parts and developing an in-depth understanding of our customers' requirements and outsourcing needs. Customer focus teams for major global accounts are complemented by seasoned global account managers who coordinate a broad range of services provided from multiple sites around the world.

        We conduct an active, focused marketing effort, designed to increase our brand awareness and the likelihood of winning new business. We communicate important news about our company to existing and potential customers through various news media, including national and local business publications and industry trade journals. Our technical personnel and functional managers often take industry leadership roles by publishing technical papers, speaking on industry panels and maintaining active roles in industry and technical associations. In addition, we have established ongoing relationships with key industry analysts and trade journalists, and we periodically host seminars on topics of interest to potential customers at our manufacturing facilities. We also maintain a website enabling potential customers to learn more about us.

Customer Focused Approach

        High customer satisfaction is critical for success in the EMS industry. We seek to differentiate ourselves by providing a superior customer experience through open and active communication, personalized service, a deep understanding of our customers' needs, attention to each customer's unique operating requirements, customized and flexible supply chain solutions and rapid response.

        Satisfying customers begins with a service attitude that we reinforce and reward. We have developed management reports which, we believe, summarize several key measurements of the customer's experience with us, including, for example, percentage of on-time deliveries and the quality of our manufacturing processes. Our senior managers receive these reports weekly, enabling them to monitor our performance so that we can take specific corrective actions, if necessary, on a timely basis. Each major customer has a dedicated program manager who manages the day-to-day relationship with the customer.

        We have implemented processes, information systems and other tools that enable our employees to provide high levels of customer service. One example is our continuous process improvement program, in which we rigorously evaluate operational processes relative to industry best practices and develop action plans to improve our performance. This program ensures that best practices are standardized across our global operations, leading to continuous improvement. In addition, we will continue to invest in information systems that increase the quality of our customer service. We implemented a suite of software tools to help us better control the quality of our manufacturing processes and provide timely information to our customers. Our investments increasingly include Internet-based solutions that reduce

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transaction costs and facilitate a more efficient flow of information between us and our suppliers and customers.

Supply Chain Management

        Supply chain management is critical for competing in the EMS industry, as OEMs are increasingly outsourcing their entire product supply chain to EMS companies. We offer our customers a supply chain solution that typically represents a lower total cost of ownership than that provided by their internal operations. Supply chain management involves the coordination of components and products throughout the design, manufacturing and distribution functions, ensuring that the correct component or product is delivered to its appropriate destination at the proper time and at the lowest overall cost. We believe that, through the use of our highly trained professionals and our significant investment in information systems, our supply chain management expertise reduces our customers' total costs and increases our flexibility to respond to changing customer demands.

        We have strong relationships with a broad range of suppliers. We believe our product design capabilities and scale of procurement enhance our ability to obtain advantageous pricing on, and secure supply sources of, selected materials and components. We believe we can reduce our customers' total costs by working closely with them in their product development stages. For example, we help our customers select components while a product is being designed to ensure advantageous sourcing and pricing from preferred suppliers. We also utilize a rigorous process for evaluating supplier performance based on our Total Cost of Ownership solution. This approach realizes lower total costs for our customers by focusing on improving our suppliers' quality, delivery, flexibility and service.

        Asset management is a critical element of efficient supply chain management. To reduce our inventory risk, we use inventory management techniques which closely integrate our manufacturing processes with our customers' actual orders. One inventory management technique we utilize for certain customers is demand-pull manufacturing, which initiates production of our customers' products based upon their actual inventory usage. Demand-pull manufacturing is, in some cases, complemented by our direct order fulfillment process, whereby we ship products directly from our facilities to our customers' distribution channel and end users. Direct order fulfillment results in lower inventory levels for both us and our customers and permits faster delivery of our customers' products.

        We utilize information systems to improve the efficiency and flexibility of the supply chain. Our enterprise resource planning system provides comprehensive and timely information required for managing the logistical complexities in our business. We have also implemented a component database and global information system to optimize our materials management, allowing us to consolidate data on historical purchases and perform global searches for component inventory and competitive pricing. We will continue to implement e-commerce solutions that link us to our customers and suppliers, providing them with timely information on specific orders, product demand, inventory and component lead times in order to facilitate planning and increase the efficiency of the entire supply chain.

Backlog

        Our backlog at December 31, 2002 was $568 million. Backlog consists of firm purchase orders and forecast requirements with certain customers with whom we have long-term contracts. Although we expect to fill substantially all of our backlog during 2003, customer orders may be canceled, changed or delayed without significant penalty. As a result, backlog may not be a meaningful indicator of future financial results.

Information Systems

        Information systems are a critical element for achieving our strategic business objectives. We believe that our investment in information systems will deliver competitive advantages for our

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customers by improving supply chain management and increasing product quality and operational flexibility. We have implemented a common technological infrastructure that allows our customers and suppliers to communicate and transact with us in an easy and consistent manner. We believe this increases the efficiency of the supply chain.

        Our information systems strategy consists of selecting leading software applications and establishing strong relationships with our software suppliers. Our enterprise resource planning system manages the entire order cycle from receiving customer orders and planning production schedules to billing customers and tracking their payments. Having an enterprise resource planning platform allows us to quickly respond to fluctuations in our customers' orders in different parts of the world and also facilitates simultaneous product introduction in multiple regions.

        Our standard suite of engineering applications focuses on reducing our customers' new product introduction set-up time and controlling our manufacturing processes. These engineering applications allow us to collect customer design data in any format and automatically convert this information into commands that run our production lines. These tools also monitor our manufacturing operations and alert our technicians and operators to process deviations. Early error detection minimizes rework and reduces repair and customer returns.

        Our global information system for material management optimization is based on two integrated applications. Our strategic sourcing application consolidates purchasing history from suppliers and future demand from our manufacturing sites. This allows us to realize significant materials cost savings by concentrating our purchases with a smaller number of preferred suppliers. The component supplier application provides standardized component information that is integrated with an industry database that enables our customers' designers to select components from our preferred suppliers. This optimizes the selection of components used in our customers' products and provides them with advantages in pricing and sourcing of components.

        Our information solutions portfolio increasingly includes a broad range of e-business tools. Both customers and suppliers can communicate with us through a comprehensive suite of electronic data interchange applications. In addition, customers can obtain order status and product quality information, 24 hours a day, through our secure web-based applications at many of our sites. We continually assess investments in e-business tools in our effort to leverage the speed and technology of the Internet to facilitate the flow of information and increase the total efficiency of the supply chain.

International Operations

        We believe that our global network of operations is an important strategic element allowing us to provide product design, manufacturing and after-market support services in locations that meet our customers' cost and regional requirements in Europe, North America and Asia. We will continue to seek strategic opportunities to acquire additional facilities throughout the world, especially in low-cost regions, either through OEM divestitures or acquisitions of regional EMS companies and other related companies.

        Our facilities in Europe serve European customers as well as customers in North America and Asia that have significant sales in Europe. Our Athlone, Ireland facility provides medium complexity and low to medium volume PCBA and system assembly services, as well as after market repair services. Our Valencia, Spain facility offers a comprehensive range of integrated services including design, low, medium and high-volume production and highly complex assembly and manufacturing, configuration-to-order and global order fulfillment. In addition, our Valencia facility has a significant product repair capability. Both our Athlone and Valencia facilities have strong technical capabilities, including radio frequency engineering and test capabilities. Our Galway, Ireland facility provides high speed automated manufacturing services to a key global customer. In January 2001, we acquired a facility in Guerande, France from Océ, which expanded our relationship with Océ, an existing customer.

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        Our Mexico facility, which was acquired in July 2002 from Lexmark International, Inc, provides medium to high-volume manufacturing and related support services for customers in North America.

        Our Asian operations, including facilities located in Johor Bahru, Malaysia and Singapore, enable us to provide cost competitive manufacturing for global customers and a range of regional manufacturing and support services. Many OEMs recognize Southeast Asia as a competitive region that offers both low-cost manufacturing and strong technical skills. Our Singapore facility offers high speed automated manufacturing services and our Malaysia facility offers a wide range of lower to medium-volume and more complex assembly and manufacturing services. During 2002, we closed our international procurement office in Singapore and our Shenzhen, China facility and consolidated its operations into our Malaysia facility. We closed the China facility since it did not meet our long-term strategic goals for China, although we expect to pursue other opportunities to expand our presence and capabilities in China and Asia in general.

        We intend to further expand our international capabilities in product design, new product introduction services, assembly and manufacturing, fulfillment and after-market support services. We currently expect to establish operations in Central or Eastern Europe during the next several years. We also intend to expand into other locations in Europe and Asia in order to establish or enhance relationships with key customers, provide services to important regional markets, expand our range of service offerings and improve our ability to reduce our customers' time-to-global market and time-to-global volume. See Note 18, "Business Segment Information," in our consolidated financial statements for information relating to our international operations.

Research and Development

        We engage in ongoing research and development activities to meet our customers' increasingly sophisticated EMS needs. Changes in our customers' products drive our research and development efforts. As our customers' products are both decreasing in size and increasing in functionality, we must continually develop advanced manufacturing and assembly technologies such as chip scale packaging, flip-chip, ball grid array, micro-ball grid array and ultra-fine pitch surface mount technology and invest in the equipment to support them. The evolution and extension of these technologies has placed additional demands on process materials and chemistry, substrates for interconnecting devices and the manufacturing environment.

        We work with our customers, our suppliers and universities located near our manufacturing facilities to develop and qualify advanced process capabilities concurrent with, or prior to, our customers' needs. We are a member of an industry consortium consisting of OEMs, equipment suppliers and other EMS companies. This consortium supports process development and provides access to manufacturing equipment, laboratory and research and development personnel that complement our internal development work. The development and refinement of new manufacturing processes are performed primarily at our advanced engineering facility in Arden Hills, Minnesota. At Arden Hills and our other facilities, new processes and equipment are qualified through a rigorous process to ensure production readiness.

        In addition to our process development focus on printed circuit board assembly and testing technologies, we have an ISO 9001 certified center for research and development in Valencia, Spain, which globally supports specific customer requirements. In Valencia, we have over 30 engineers who use state-of-the-art tools that can interface with customer design teams during the product design and development phase. We also work with selected universities and design firms to complement our services and provide a vehicle to continually upgrade our skills in this dynamic industry environment. As a result of these relationships, we have built strong design capabilities that can support customers with wireless technology requirements.

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        For the years ended December 31, 2002, 2001 and 2000 we spent $4.9 million, $6.2 million and $6.3 million, respectively, on research and development activities.

Competition

        The EMS industry is highly competitive. We believe that the principal competitive factors in our industry, not listed by significance, are:

•

service offerings;



•

customer relationships;



•

technological capabilities;



•

geographic location and coverage;



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pricing;



•

product quality;



•

customer service;



•

reliability in meeting product delivery schedules;



•

access to capital; and



•

flexibility and timeliness in responding to design and schedule changes.

        We compete against large, global EMS providers, including Celestica Inc., Flextronics International Ltd., Jabil Circuit Inc., Sanmina-SCI Corporation and Solectron Corporation. We also compete against mid-tier EMS providers including Benchmark Electronics, Plexus and Pemstar, as well as numerous small EMS providers.

        We believe that large publicly-listed OEMs prefer to enter into outsourcing relationships with publicly listed EMS companies because public EMS companies provide greater access to capital markets. Some of our competitors are substantially larger and have greater financial, operating, manufacturing and marketing resources than we do. Some of our competitors have broader geographic breadth and range of services than we do. In addition, some of our competitors may have better relationships with our existing customers than we do. We also face competition from the manufacturing operations of our current and potential customers, who continually evaluate the relative benefits of internal manufacturing compared to outsourcing. As more OEMs dispose of their manufacturing assets and increase their use of outsourcing, we face increasing competitive pressures to grow our business in order to maintain our competitive position.

Governmental Regulation

        Our operations are subject to a variety of federal, state and local regulatory requirements relating to environmental compliance and site cleanups, waste management and health and safety matters. In particular, we are subject to regulations promulgated by:

•

the Occupational Safety and Health Administration, pertaining to health and safety in the workplace;



•

the Environmental Protection Agency, pertaining to the use, storage, discharge and disposal of hazardous chemicals used in the manufacturing processes;



•

the FDA pertaining to regulatory standards for medical device manufacturing; and



•

corresponding state and foreign government agencies.

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        To date the costs of compliance and workplace and environmental remediation have not been material to us. Nevertheless, additional or modified requirements may be imposed in the future. If such additional or modified requirements are imposed on us, or if conditions requiring remediation are found to exist, we may be required to incur substantial additional expenditures.

Employees

        As of December 31, 2002, we had approximately 3,129 full-time employees worldwide, supplemented with skilled temporary workers as necessary to support periodic fluctuations in customer and market demand. Each of our U.S. based sites is non-union while our Spain, Ireland, France and Mexico locations are union represented. We have no history of labor disputes and believe that our employee relationships are good.

Item 2. Properties

        Our principal executive offices are located in Concord, Massachusetts. We also have product design and manufacturing facilities in the United States, France, Spain, Ireland, Singapore, Malaysia and Mexico. Information about these facilities is set forth below:

(a)

We own approximately 418,000 square feet of manufacturing and logistics space and lease approximately 100,000 square feet of warehouse space.

        Leases for our facilities expire between August 2004 and April 2017. We currently expect to be able to extend the terms of expiring leases or to find suitable replacement facilities on reasonable terms. We believe that our facilities are well maintained and suitable for their respective operations. As a result of the current economic environment and our reduced revenue levels, we currently have some excess space capacity which we expect to utilize with future revenue growth. We anticipate that as our business grows we may need to obtain additional facilities through acquisitions, leases or new construction. We may encounter unforeseen difficulties, costs or delays in expanding our facilities.

Item 3. Legal Proceedings

        A class action complaint filed on December 6, 2000, alleging violations of federal securities laws has been pending in the United States District Court, Southern District of New York against us, certain of our former officers and the underwriters that participated in our initial public offering ("IPO"). We understand that various other plaintiffs have filed substantially similar class action cases against

12

approximately 300 other publicly traded companies and their IPO underwriters, which cases have been consolidated to a single federal district court for coordinated case management. The complaint, which seeks unspecified damages among other things, alleges that the prospectus filed by us relating to stock sold in our initial public offering contained false and misleading statements with respect to the commission arrangements between the underwriters and their customers. We believe that this claim against us lacks merit.

        On July 15, 2002, we together with the other issuers named as defendants in these coordinated proceedings filed a collective motion to dismiss the consolidated complaints on various legal grounds. In February 2003, that motion was denied with respect to most issuers. On October 9, 2002, the court approved a stipulation between the plaintiffs and the individual defendants providing for the dismissal of the individual defendants without prejudice.

        While we can make no promises regarding the outcome of this action, we believe that the final result will have no material effect on its consolidated financial condition or result of operations.

        We are party to other lawsuits in the ordinary course of business. We do not believe that these other proceedings individually or in the aggregate will have a material adverse effect on our financial position, results of operations and cash flows.

Item 4. Submission of Matters to a Vote of Security Holders

        No matters were submitted to a vote of our stockholders during the fourth quarter of 2002.

Executive Officers of the Registrant

        The following table sets forth information with respect to our executive officers:

        Robert C. Bradshaw has been our Chief Executive Officer, President and a director since January 2002. In January 2003, Mr. Bradshaw assumed the position of Chairman of the Board of Directors. Prior to joining us, Mr. Bradshaw served as President of SCI Systems, Inc., an engineering and electronic manufacturing services provider, from November 2000 to December 2001 and as Chief Operating Officer from December 1999 through December 2001. From June 1998 through December 1999, he served as President—Eastern Region and Corporate Vice President of Solectron Corporation, an electronics manufacturing services company. Prior to this, he served in numerous executive positions with IBM Corporation, an information technology company, from 1978 through 1998.

        Albert A. Notini has served as our Executive Vice President and Chief Financial Officer since October 2000. Mr. Notini joined us in May 2000 as Executive Vice President, Business Development and General Counsel and served in that capacity until October 2000. Prior to joining us, Mr. Notini was the Executive Vice President, Corporate Development and Administration and General Counsel of Wang Global Corporation, a worldwide provider of network services, from January 1999 to June 1999. Wang Global was acquired by Getronics NV in June of 1999 and Mr. Notini served as Executive Vice President of Getronics until February, 2000. Mr. Notini joined Wang Global in February 1994 as Senior Vice President and General Counsel. Prior to joining Wang Global, Mr. Notini was a Senior Partner at the Boston law firm of Hale and Dorr LLP. Mr. Notini currently serves as a director of ePresence, Inc.

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        Santosh Rao has been our Executive Vice President and Chief Operating Officer since February 2002. Prior to joining us, Mr. Rao served as Executive Vice President, Asia Pacific for Sanmina-SCI from September 2001 until January 2002. From November 2000 until August 2001 he was Senior Vice President, Southern Asia Pacific of SCI Systems, Inc. Previously he served Solectron Corporation, an electronic manufacturing services corporation as Vice President, General Manager from September 1998 to November 2000 and as Vice President of Operations from November 1995 to August 1998. Prior to Solectron, he held a number of technical and financial positions with IBM Corporation.

        Richard J. Gaynor has served as our Vice President and Corporate Controller since January 2001. Prior to joining us, Mr. Gaynor served as Vice President and Chief Financial Officer for Evans & Sutherland Computer Corporation, a hardware and software company, from January 2000 to January 2001. From 1994 to 1999, he was Operations Controller and Vice President of Finance at Cabletron Systems, Inc., a telecommunications and networking company.

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

        Our common stock has traded on the New York Stock Exchange under the symbol "MSV" since our initial public offering on June 22, 2000. The following table sets forth the high and low closing sales prices per share for our common stock as reported on the New York Stock Exchange for each full quarterly period within the two most recent years.

        As of March 7, 2003, we had approximately 1,071 stockholders of record.

        We have never declared or paid any cash dividends on shares of our common stock, and we do not anticipate paying cash dividends on our common stock in the foreseeable future. Our bank credit facilities limit our ability to pay cash dividends on our common stock.

        During the period covered by this report, we issued 830,000 shares of 5.25% Convertible Preferred Stock that were not registered under the Securities Act of 1933, as amended.

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Item 6. Selected Consolidated Financial Data

        The following selected consolidated financial data as of and for the dates and periods indicated have been derived from our audited consolidated financial statements. The information set forth below is not necessarily indicative of the results of future operations and should be read in conjunction with the consolidated financial statements and notes thereto incorporated into Item 8 of this report.

(a)

Increase in revenues and expenses from 1999 to 2000 mainly resulted from the purchase of certain assets from 3Com in November 1999 and September 2000, which included its Salt Lake City manufacturing facility in November 1999. Revenues related to these acquisitions contributed $546 million of revenue in 2000.

(b)

During 2001 the Company recorded restructuring charges totaling $91.9 million, mainly related to the closure of the Company's Salt Lake City facility.

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

        You should read the following discussion of our financial condition and results of operations with our consolidated financial statements and notes included elsewhere in this Form 10-K.

Overview

        We are a global electronic manufacturing and supply chain services company providing a portfolio of integrated capabilities that allows our customers to get their products to market faster, reduce their total costs and improve their operating performance. Our customers include leading OEMs who have chosen outsourcing as a core manufacturing strategy. We have developed relationships with OEMs in a diverse range of industries, including industrial equipment, commercial avionics, retail infrastructure, medical products, voice and data communications, network storage, office equipment, computers, computer peripherals and consumer electronics. By efficiently and aggressively managing our business, costs and asset base, we are able to offer our customers an outsourcing solution that represents a lower total cost of ownership than that typically provided by their internal operations. We seek to differentiate ourselves by providing a superior customer experience through open and active communication, personalized service, a deep understanding of our customers' needs, attention to each customers unique operating requirements, customized and flexible supply chain solutions and rapid response.

        We provide integrated supply chain solutions that address all stages of our customer's product life cycle, including engineering and design, new product introduction, global supply chain management, printed circuit board assembly, high speed automated manufacturing, final product assembly including configure-to-order and build-to-order, integration and testing of complex systems, fulfillment and distribution and after-market services. We believe this comprehensive range of services promotes our growth by attracting new customers and capturing additional outsourcing opportunities with our existing customers.

        We have a global network consisting of 13 manufacturing, design and fulfillment facilities in the world's major electronics markets—North America, Europe and Asia—to serve the increasing outsourcing needs of both multinational and regional OEMs. Our manufacturing facilities are strategically located near our customers and their end-markets, which benefits our customers by reducing the time required to get their products to market and by increasing their flexibility to respond quickly to changing market conditions. We believe that the combination of our services and our global manufacturing network has enabled us to become an integral part of our customers' product development and manufacturing strategies.

        Since our founding in 1994 through 2000, our growth had been driven primarily by acquisitions of existing OEM manufacturing facilities and by the increasing number of OEMs who had outsourced their manufacturing requirements. During the past two years, we have closed certain facilities and reduced our workforce to reflect our reduced revenue stream resulting from adverse economic conditions affecting demand for our customers' end-market products. Despite this recent downsizing, we intend to continue to actively pursue strategic acquisitions and to continue to benefit from expected increases in OEMs that outsource their manufacturing requirements.

        We work closely with our customers to anticipate and forecast their future volume of orders and delivery dates. We derive most of our net sales under purchase orders from our customers. We recognize sales, net of expected product return and warranty costs, typically at the time of product shipment or as services are rendered, provided no post-delivery obligations remain and collection is reasonably assured. Our cost of goods sold usually includes the cost of components and materials, labor costs and manufacturing overhead. Under some contracts, our customers will own the components and consign the inventory to us. In these situations, we may recognize revenue (and related cost of sales) only on the labor and overhead used to assemble the product. The procurement of raw materials and components requires us to commit significant working capital to our operations and to manage the

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purchasing, receiving, inspection and stocking of these items. Our typical customer contract contains provisions which specify that we may recover from the customer inventory costs and material acquisition costs for raw material which becomes excess or obsolete due to customer reschedules, cancellations or product changes.

        Our operating results are affected by the level of capacity utilization in our manufacturing facilities, indirect labor costs and selling, general and administrative expenses. Gross margins and operating income generally improve during periods of high-volume and high-capacity utilization in our manufacturing facilities and decline during periods of low-volume and low-capacity utilization. However, certain of our customer contracts contained guaranteed minimum commitments, requiring the customer to either purchase certain contractual minimum quantities or pay for amounts less than the minimum purchase commitment. Such contracts helped offset the negative impact of low-capacity utilization on gross margins and operating income. Currently we have only one customer contract containing guaranteed minimum commitments.

        One such contract with 3Com, which expired as of June 30, 2002, had contributed an additional $21.5 million in revenue during the first six months of 2002 and $71.2 million in 2001 in guaranteed minimum payments, as their volumes were in deficit of contractual minimums. This supply contract had provided a significant positive contribution to our operating results due to 3Com's contractual payment commitments, which were not accompanied by the corresponding variable expenses associated with the manufacture of products. On September 14, 2001, we had amended the supply agreement with 3Com to allow us to reduce a significant amount of the cost base we had been maintaining to support the original contractual capacity requirements for 3Com, to reduce correspondingly the amount of 3Com's minimum guaranteed purchase commitments and to continue manufacturing products for 3Com at our Mt. Prospect, Il facility at a level equal to 3Com's reduced demand. 3Com's minimum guaranteed purchase commitments were reduced from $30.0 million per quarter to average quarterly commitments of approximately $10.7 million. The amendment shortened the term of the supply contract for which 3Com had minimum contractual commitments from September 30, 2002 to June 30, 2002 and 3Com also returned 1,551,220 shares of our common stock. As a result of the expiration of the 3Com contract in 2002, and the expected negative impact on our future operating results from the loss of the take or pay agreement, we implemented a plan in the third quarter of 2002 to close our Mt. Prospect facility. We recorded a net restructuring charge for severance and asset write-downs related to the plant closing of $5.8 million in the third quarter of 2002. All other customers at our Mt. Prospect facility were transferred to other MSL facilities.

        On July 24, 2002, we entered into a settlement agreement with a customer that had been disputing its obligation to pay a portion of the $21.5 million to us, related to services rendered primarily during 2000 and 2001, that consisted of the following (in millions):

        We had previously established reserves against these current assets of $10.5 million, for a net exposure to us of $11.0 million. The agreement settled the disputed outstanding accounts receivable, inventory and accounts payable between the two parties. As part of the total settlement amount of $15.1 million, we received an immediate payment of $1.5 million, a secured promissory note in the amount of $13.6 million with interest accruing at 7% per year and an agreement to complete the purchase of an additional $2.6 million of inventory as part of ongoing orders, which the customer subsequently purchased. The promissory note is secured by restricted shares (until January 2004) held by the customer in a Taiwan-based publicly listed semi-conductor manufacturing company. Payment on

17

the note is due at $0.2 million per week, ending in January 2004. In addition, the accrued interest amounts are due on a monthly basis.

        On February 28, 2003, the customer missed the scheduled interest payment and subsequently stopped making principal payments. On March 13, 2003, we sent the customer a notice of default. On March 21, 2003, the customer filed under Chapter 11 of the United States Bankruptcy Code. In the Chapter 11 proceedings the customer will have special avoidance powers which may impact our ability to recover amounts owed under the secured promissory note. As a result, we recorded an additional charge to bad debt expense in the fourth quarter of 2002 in the amount of $5.4 million to reserve for the remaining unreserved principal amount outstanding at December 31, 2002. We intend to aggressively pursue collection of the remaining outstanding balance of $9.5 million, which is fully reserved at December 31, 2002.

Recent Acquisitions

        On July 1, 2002, we acquired for approximately $6.0 million in cash and assumed liabilities, all of the capital stock and certain assets of Lexmark Electronics S.A. de C.V., a subsidiary of Lexmark International, Inc. located in Reynosa, Mexico, that provides printed circuit board assemblies for laser printers. Included in the purchase price was $3.2 million of inventory that we had agreed to purchase within 60 days after the closing. The acquired assets consist of cash of $0.8 million, manufacturing assets and other working capital related to the operations, while the liabilities consist of accounts payable and accrued liabilities. The transaction was accounted for as a purchase of a business, and the purchase price was allocated to the assets and liabilities based upon their relative fair values at the date of acquisition. The excess of the fair value of assets acquired over the purchase price was allocated to the acquired fixed assets, which reduced their recorded fair values. As part of the transaction, we retained approximately 230 employees, assumed an existing lease that expires in February 2010, for a 156,000 square foot manufacturing facility in Reynosa and entered into an eighteen-month supply agreement to provide printed circuit board assemblies to Lexmark. The supply agreement includes certain minimum guaranteed purchase commitments for the first 12 months.

        In January 2001, we acquired selected fixed assets from Océ, an existing customer and a leading Netherlands-based OEM, for $5.9 million in cash and assumed liabilities. As part of the transaction, we acquired a 130,000 square foot manufacturing facility in Guerande, France. In connection with this acquisition, we entered into a three-year supply agreement to manufacture complex printer systems for Océ. We also retained the facility employees. The acquisition of the Guerande facility expanded our relationship with Océ and provided us with our operations in France. The supply agreement included certain minimum guaranteed purchase commitments for the first 24 months.

Restructuring and Asset Writedowns

        In response to the global economic downturn and continued slowdown in the EMS industry experienced in 2002 and 2001, and the related weakening in demand from our customer base, we evaluated our worldwide workforce and manufacturing operations for opportunities to align costs with current demand. The following is a summary of the actions approved and instituted in 2002 and 2001. There were no restructuring activities in 2000.

        In the first quarter of 2002, we approved a plan to restructure certain operations, primarily related to closing our facility in China and a workforce reduction at our corporate headquarters. The China facility, which ceased operations during the third quarter of 2002, was closed as the site did not meet our long-term strategic goals. The total charge recorded for this plan was $5.5 million, which was comprised of asset write downs of $3.1 million, lease termination costs of $0.6 million and severance of $1.8 million related to the reduction of 371 manufacturing and 24 managerial employees. This plan will substantially be complete by the end of the second quarter of 2003.

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        In the second quarter of 2002, we recorded a gain of $0.6 million from the sale of our Salt Lake City building. An impairment charge for the building was previously recorded as part of a restructuring charge taken in the third quarter of 2001 when we wrote down the building to its estimated fair market value.

        In the third quarter of 2002, we recorded restructuring and asset write-down charges of $9.8 million, primarily related to closing our facility in Mt. Prospect, Illinois and restructuring of certain manufacturing space in Singapore. Prior to its closing, the Mt Prospect facility generated net sales in 2002 of $97.0 million (principally from three customers) and net income of $13.5 million. However, the net income amount included approximately $21.5 million in additional revenue from a guaranteed minimum contract with 3Com that expired on June 30, 2002. We have disengaged from activities with 3Com as of September 29, 2002, and all other customers have been transferred to our other facilities. The total restructuring charge is comprised of severance of $3.7 million related to the termination of approximately 313 manufacturing and managerial employees, asset write downs of $2.1 million and lease termination and facility costs of $4.0 million. This plan is expected to be complete by the end of the second quarter of 2003, except for lease payments in Singapore which may continue until the lease expires in 2010.

        In the fourth quarter of 2002, we reversed $1.2 million of restructuring accruals taken in previous periods. Of the total amount, $0.9 million relates to charges taken in the third quarter of 2002 from our Mt. Prospect facility shutdown, of which $0.4 million was for a refund of the building security deposit and $0.3 million related to a gain on the sale of assets previously written down as part of the facility closing.

        During the first quarter of 2001, we approved a plan to restructure certain operations in Asia. The total restructuring charge recorded for this plan was $2.8 million, which was comprised of lease termination costs of $1.8 million and severance of $1.0 million related to personnel reductions of approximately 333 managerial and manufacturing employees. The restructuring plan was substantially complete at the end of the second quarter of 2001.

        During the second quarter of 2001, we approved a plan to restructure certain operations in the United States, Spain, Ireland and Asia. The total charge recorded for this plan was $10.2 million, which was comprised of the write-off of capitalized assets which were abandoned of $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 and manufacturing employees. This plan was substantially completed by the end of the third quarter of 2001.

        During the third quarter of 2001, we approved a plan to restructure certain operations in the United States and Asia. The total charge recorded for this plan was $66.8 million, which was comprised of asset write-downs of $54.6 million, lease termination costs of $0.8 and severance costs of $11.3 million. Pursuant to the restructuring plan, we announced our intention to close our Salt Lake City, Utah facility in the first quarter of 2002 in light of operating losses related to declining demand from the facility's primary customers. During the year ended December 31, 2001, the facility generated revenues of $349.7 million and had a net operating loss, excluding restructuring charges and asset impairments, of $27.2 million. During fiscal 2000, the facility generated revenues of $577.8 million and operating income of $5.1 million. Production for the primary customer, Palm, served at the Salt Lake City facility was transferred to one of our other facilities. Restructuring costs and asset write-downs related to closure of the Salt Lake City facility recorded in the third quarter of 2001 were $54.5 million and were comprised of severance costs of $1.6 million for approximately 200 manufacturing and managerial employees, lease termination costs of $0.6 million and the write-down of intangible assets, machinery and equipment and other capitalized assets of $52.3 million. Of these asset write-downs, $24.7 million was related to intangible assets, and $5.5 million was related to internal use software. The remaining 316 employees were terminated in the fourth quarter of 2001. Other charges recorded under this plan, including those incurred for the restructuring of our Mt. Prospect facility in connection with

19

the amendment of the 3Com supply agreement, totaled $12.3 million, which were comprised of the write-down of capitalized assets to be abandoned of $2.4 million, lease termination costs of $0.2 million and severance of $9.7 million related to personnel reductions of approximately 1,017 managerial and manufacturing employees. This plan was substantially completed by the end of the second quarter of 2002.

        During the fourth quarter of 2001, we approved a plan to restructure our corporate organization and operations worldwide. The plan included the termination of the remaining employees at our Salt Lake City facility, which ceased production in December 2001 and closed in the first quarter of 2002. The total charge recorded for this plan was $12.2 million, which was comprised of the write-off of capitalized assets which were abandoned of $2.4 million, lease termination costs of $0.8 million and severance costs of $8.9 million related to the reduction of approximately 489 managerial and manufacturing employees. This plan was substantially completed by the end of the fourth quarter of 2002.

        We do not currently have further plans to restructure our operations. However, in light of the continued weak economy, particularly in the electronics and manufacturing sectors, we may be required to implement cost savings plans in the future. Such plans may include further headcount reductions, lease terminations, and disposal of underutilized manufacturing assets, as well as shutdowns or consolidations of facilities. If we were to implement such plans, it may result in significant further costs related to severance payments and lease termination costs, as well as write downs of certain long-lived assets. We cannot currently estimate the cost of such plans, if any.

        The major components of the restructuring plans (net of reversals) are as follows:

        The following table sets forth the activity in the restructuring reserves through December 31, 2002:

        Reserves remaining at December 31, 2002 represent liabilities for severance mainly in our Concord headquarters and lease termination payments, mainly in Singapore. Substantially all severance related

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restructuring reserves at December 31, 2002 will be paid by the end of the second quarter of 2003, while the lease payments in Singapore may continue until the lease expires in 2010.

Critical Accounting Policies and Estimates

        The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingencies. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, allowances for doubtful accounts, excess and obsolete inventory provisions, deferred tax asset valuation allowances, restructuring, asset impairments and write-downs and contingencies and litigation. We base our estimates on historical experience, current information available on our business and customer relationships, and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

        We believe the following critical accounting policies involve our more significant judgments and estimates used in the preparation of our consolidated financial statements.

•

Revenue recognition—We recognize revenue under current authoritative literature, including SAB 101, which identifies four basic criteria for revenue recognition:

1.

Persuasive evidence of an arrangement

2.

Delivery has occurred or services rendered

3.

Fixed or determinable sales price

4.

Collectibility is reasonably assured

            Determination of criteria (3) and (4) is based on our judgment regarding the fixed nature of the sales price charged for products delivered or services rendered and the collectibility of those sales. Should changes in conditions cause us to determine these criteria are not met for certain future transactions, revenue recognized for any reporting period could be adversely affected.

            In general, our sales are made pursuant to supply contracts. These contracts specify the terms of the arrangements, the points at which title and transfer of risk of loss occur and payment terms. These arrangements also specify contractual rights and obligations concerning the establishment of cost standards and resulting purchase price variances and revaluation of cost standards and excess or obsolete inventory. Our supply contracts typically contain provisions allowing us to sell, and requiring the customer to purchase, excess or obsolete inventory arising from changes in customer forecasts back to the customer at the original price paid for the inventory on a customer-by-customer basis. Because sales under these provisions produce no margin and significantly reduce our risk of ownership and loss with respect to excess inventory, we do not record these sales as revenue. In 2001, we sold approximately $145.0 million of inventory back to our customers under contractual arrangements which was not included in revenue. These sales were immaterial in 2002. Sales of excess inventory to customers without these contractual obligations are recorded in revenue, which increases our reported revenue while decreasing certain operating margin percentages, including gross profit. These revenues have been immaterial.

            Under some of our supply contracts we have very limited inventory risk since our customers own the inventory. In some cases we never own the inventory and in other situations we may take ownership of the inventory only during the value-add manufacturing/assembly process and then immediately transfer ownership back to the customer. Under these types of arrangements, we

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may record revenue for only the net amount of the transaction (i.e. value-add portion and not the material content) in accordance with EITF No. 99-19 "Reporting Revenue Gross as a Principal versus Net as an Agent". We review the details of each contract, on an on-going basis, to determine if we are the principal or agent in the transaction and whether or not we take title to the product and have risks and rewards of ownership. If we determine that we are acting as an agent or broker without assuming the risks and rewards of ownership of the inventory, we will report the transaction on a net basis and exclude the costs of inventory materials from our revenue. If the facts and circumstances of these transactions were different, or if a contract is amended, and it was determined that we were the principal in the transaction and had risks and rewards of ownership of the inventory, we would record these transactions on a gross basis which would increase our revenue and cost of sales by the same amount but have no impact on gross margin or operating income.

•

Inventory write-downs—We make estimates about our inventory carrying values at the end of each reporting period. These estimates are based on the details of our customer contracts, prior experience and the financial health of our customers. Substantially all of our inventory purchase commitments are based upon purchase orders or demand forecasts that our customers provide to us. The forecasted period is generally three months, except for long lead-time items for which the period is longer. Customers frequently make changes to their forecasts, thereby often requiring that we make changes to our inventory purchases, commitments, and production scheduling which may require us to cancel open purchase commitments with our vendors. This process may lead to on-hand inventory quantities and on-order purchase commitments that are in excess of the customer's revised needs, or parts that become obsolete before use in production.

            We execute supply agreements with virtually all of our customers. Under these supply agreements, the responsibility for excess or obsolete inventory related to raw materials that we purchased or ordered to meet customers' demand forecasts typically lies with our customers. However, we are responsible for excess and obsolete inventory resulting from inventory purchases in excess of inventory needed to meet customer demand forecasts at the time the purchase commitments were made, as well as inventory purchases generally not covered by supply agreements. Each agreement specifies the agreed-upon definition of excess and obsolete inventory and the procedures for disposition, including our right to sell the inventory back to the customer. The supply agreements generally allow a period of time during which we and our customers work together to reduce or eliminate the amount of potentially excess and obsolete inventory. After a specified time period, we may exercise our contractual right to sell the remaining excess and obsolete inventory back to the customer. The time period allowed to mitigate excess and obsolete inventory can vary and consequently, there will be time lags between when excess or obsolete inventory is first identified and when we are paid from the exercise of our right to sell this inventory to the customer.

            We normally do not write down excess or obsolete inventory when (i) the customer supply agreement provides us with the contractual right to sell inventory that is considered excess or obsolete back to our customers, and (ii) we believe the customer is capable of honoring its contractual obligation to purchase the inventory. If our customers do not comply with their contractual obligations, the inventory reserves included in our financial statements may be understated. For example, we are subject to the risk that a customer may not comply with its contractual obligation to purchase the excess and obsolete inventory under a supply agreement because the customer is experiencing weakening financial conditions. For the few customers with which we do not have supply agreements, we write down excess and obsolete inventory for items which we have determined that our customers have no responsibility.

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            Where we have identified excess or obsolete inventory that we are responsible for, we make judgments with respect to recording inventory writedowns based on various factors such as the aging and anticipated future demand of the inventory.

            As of December 31, 2002, $51.2 million of our net inventory was held under a supply agreement with one major customer. Of this amount, approximately 57% is inventory that exceeds demand to fulfill forecast requirements at December 31, 2002. Our supply agreement places responsibility on our customer for inventory purchased consistent with its forecasts, but requires us to hold such inventory, subject in some instances to a monthly carrying charge, prior to the time the customer declares the product end of life. At such time as the product is declared end of life, the customer is required to repurchase any remaining unmitigated inventory. We believe that we have properly valued the inventory that we are responsible for as of December 31, 2002, and believe the customer is credit worthy.

•

Reserve for Doubtful Accounts—We evaluate the collectibility of our accounts receivable based on a combination of factors. In cases where we are aware of circumstances that may impair a specific customer's ability to meet its financial obligations to us, we record a specific allowance against amounts due to us, and thereby reduce the net recognized receivable to the amount we reasonably believe will be collected in the future. For all other customers, we recognize allowances for doubtful accounts based on the length of time the receivables are outstanding, the current business environment and our historical experience. However, the ultimate collectibility of a receivable is dependent upon the financial condition of each customer, which can change rapidly. If the financial condition of our customers deteriorates or if economic conditions worsen, additional allowances may be required in the future. At December 31, 2002, our bad debt reserve was $12.2 million which represented approximately 10% of outstanding account and note receivables.

•

Valuation of long-lived and intangible assets and goodwill—We assess the impairment of identifiable intangibles, long-lived assets and goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider include the following:

•

significant under-performance relative to expected historical or projected future operating results;

•

significant changes in the manner of our use of the acquired assets or the strategy for our overall business;

•

significant negative industry or economic trends; and

•

our market capitalization relative to book value.

            When we determine that the carrying value of intangibles or long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment, we measure impairment based on one of two methods. For assets related to ongoing operations we plan to continue, we use a projected discounted cash flow method using a discount rate determined to be commensurate with the risk inherent in our current business model or a market value approach. For assets to be disposed of, we assess the value of the assets based on current market conditions for similar assets. If we determine that certain long-lived assets meet any of the impairment indicators noted, and these assets were determined to be impaired, an adjustment to writedown the long-lived assets would be charged to income in the period such determination was made.

            For goodwill we perform impairment tests annually in accordance with SFAS 142. The test are performed by determining the fair values of our reporting units using both a projected discounted cash flow model and a market value approach, and then comparing those values to the carrying values of the reporting units, including goodwill. The impairment analysis is based

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on significant estimates of future results made by management, including revenue, cash flow, working capital levels and discount rates at the reporting unit level. To date, no goodwill impairments have occurred as a result of these impairment analyses. At December 31, 2002, our goodwill balance was $8.4 million.

•

Restructuring and Related Impairment Costs—We have recorded restructuring and impairment costs in light of customer demand declines and economic downturns. These restructuring and impairment charges include employee severance and benefit costs, costs related to leased facilities that will be abandoned and subleased, costs related to leased equipment that will be abandoned and impairment of owned building and equipment that will be disposed of. For owned buildings and equipment, the impairment loss recognized is based on the fair value less costs to sell, with fair value estimated based on existing market prices for similar assets. Severance and benefit costs have been recorded in compliance with Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity." For leased facilities that will be abandoned and subleased, the estimated lease loss is accrued for future lease payments subsequent to abandonment less any estimated sublease income. The recognition of restructuring charges requires that we make certain judgments and estimates regarding the nature, timing and amount of costs associated with these plans. The estimates of future liabilities may change, requiring additional restructuring charges or the reduction of liabilities already recorded. At the end of each reporting period, we evaluate the remaining accrued balances to ensure that no excess accruals are retained and the utilization of the provisions are for their intended purpose in accordance with the restructuring programs. Starting in 2003, we will account for any future restructuring type activities under SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities".

•

Deferred tax asset valuation allowances—We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized in accordance with SFAS 109. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event we were to determine that we would be able to realize deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, should we determine that we would not be able to realize all or part of our net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made.


The Company's effective tax rate considers the impact of undistributed earnings of subsidiary companies outside the U.S. Deferred taxes have not been provided for the potential remittance of such undistributed earnings, as it is the Company's policy to permanently reinvest its retained earnings. Material changes in the Company's working capital and long-term investment requirements could impact the level and source of future remittances and, as a result, the Company's effective tax rate.

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Results of Operations

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

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

Net Sales

        Net sales for the year ended December 31, 2002 decreased $668.2 million, or 44%, to $853.7 million from $1,522.0 million for the year ended December 31, 2001. The decrease mainly relates to the closing of our Salt Lake City facility in the fourth quarter of 2001 and our Mt. Prospect facility in the third quarter of 2002, which had resulted in revenue decreases of $350.0 million and $224.8 million, respectively. These facility closings were primarily related to the disengagement of two customers, Palm and 3Com, which generated revenues of $270.2 million and $295.8 million, respectively, in 2001 and $49.5 million and $41.1 million, respectively, in 2002. The reduction of the Palm business resulted from Palm's shift in its personal digital assistant manufacturing strategy to an Asian-based original design manufacturer ("ODM") model to address changes in its end markets. The decrease in the 3Com business was mainly caused by 3Com discontinuing a certain product line in late 2001. The remaining 3Com business was terminated in 2002 after we closed our Mt. Prospect facility and disengaged with the customer. All other customers at the Salt Lake City and Mt. Prospect facilities were transferred to other MSL facilities.

        The remaining decrease in net sales resulted primarily from volume reductions related to the decrease in demand for electronic manufacturing services experienced in 2002. Of these volume

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reductions, $167.4 million related to three customers and $62.3 million related to the cancellation of programs with 5 customers. These decreases were offset by $23.2 million in revenue increases from three new customers, including $19.2 million from our Reynosa, Mexico acquisition, and $24.6 million from increased revenues from one customer in the avionics market.

        There was no material impact on net sales from inflation or price increases or decreases.

Gross Profit

        Gross profit increased to 8.9% of net sales for the year ended December 31, 2002 from 7.2% of net sales for the year ended December 31, 2001. This increase resulted primarily from the positive effects of closing down our Salt Lake City facility, which had been operating in 2001 at a gross margin of 1.9% on sales of $350 million. Excluding Salt Lake City's margin impact from the 2002 and 2001 consolidated amounts, the Company's gross margins would have been 9.2% in 2002 and 8.8% in 2001, respectively. The mix of customer programs also positively impacted the gross profit in 2002, as a higher percentage of our revenues were generated from our automated manufacturing business, which has higher gross profit margins. Also, the margins were positively impacted by a reduction of inventory charges, from $20.7 million in 2001 to $5.4 million in 2002. Of this $20.7 million charge in 2001, $10.7 million related to two customers who disputed their obligations under our contracts to repurchase excess inventory in 2001. For one of these customers, the Company entered into a settlement agreement in July 2002 to resolve the disputed inventory items for which a total provision was taken in 2001 of $5.3 million. The nature and status of this dispute is described in more detail in the "Overview" section above. For the second customer, the Company had taken a $5.4 million provision in 2001 due to the customer's breach of a contractual obligation and increasing concerns regarding the customer's financial condition. This dispute is currently in arbitration and the Company believes it has properly written down this inventory to its current fair market value.

        These positive contributions to gross profit margin were partially offset by the decrease in utilization of our manufacturing capacity related to the economic downturn experienced during 2002 and 2001. Our fixed costs as a percentage of revenues were higher in 2002 than 2001 as the Company could not reduce enough fixed costs to offset the reduction in revenue. However, our restructuring activities previously discussed are intended to better align our costs structure with our revenues.

Selling, General and Administrative

        Selling, general and administrative expense for the year ended December 31, 2002 decreased to $67.4 million, or 7.9% of net sales, from $95.7 million, or 6.3% of net sales, for the year ended December 31, 2001. This decrease of $28.3 million is related mainly to the various restructuring activities the Company executed throughout 2001 and 2002. The closure of the Salt Lake City facility in the fourth quarter of 2001 contributed $27.4 million to this overall decrease, of which $17.5 million related to bad debt charges taken in 2001. Approximately $7.5 million of Salt Lake City's bad debt expense in 2001 related to one customer that was disputing its obligation to pay. The nature and status of this dispute is described in more detail in the "Overview" section above. The remaining $10.0 million of bad debt expense recorded in 2001 was the result of writing off disputed or non-collectible items from other customers in Salt Lake City.

        Other decreases include $1.9 million in consulting services, mostly incurred in the Concord headquarters and primarily related to integrating information systems during 2001 to support new facilities, $1.2 million in sales and representative commissions as a direct result of the significantly lower sales revenue, and $1.2 million from subcontracted services, most of which were incurred in the Company's Mt Prospect facility in 2001 related to integration of information systems in that facility.

        Although selling, general and administrative expenses have increased as a percentage of sales over the past three years, from 3.6% in 2000, to 6.3% in 2001 and to 7.7% in 2002, we do not believe this trend will continue, provided revenue in 2003 exceeds that of 2002, since expenses in absolute dollars

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have decreased in 2002 from 2001. The increase as a percentage of net sales was caused by the significant decrease in net sales over the past two years as we reduced the size of our business due to the loss of two significant customers. We do not expect revenues to decline this significantly in the future.

        In our Form 10-K for the year ended December 31, 2001, restructuring and asset writedown and amortization charges were included in selling, general and administrative expenses.

Amortization Expense

        Amortization expense decreased to $3.7 million for the year ended December 31, 2002 compared to $8.5 million for the year ended December 31, 2001. We adopted Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets, on January 1, 2002. In accordance with SFAS 142, we ceased amortizing goodwill as of January 1, 2002. In the year ended December 31, 2001, we amortized $1.1 million of goodwill expense and $7.4 million of intangible asset amortization, $4.5 million of which related to the Company's Salt Lake City intangible assets, which were later written off in the third quarter 2001 restructuring. Total amortization expense in 2002 related to the Company's asset acquisition from 3Com in September 2000, and related mainly to customer relationships. These assets were amortized over the term of our supply agreement with 3Com, which expired on June 30, 2002.

Restructuring and Asset Writedowns

        See the previous discussion in the section titled "Restructuring and Asset Writedowns".

Interest Expense, Net

        Net interest expense decreased to $7.0 million for the year ended December 31, 2002 from $20.1 million for the year ended December 31, 2000, reflecting significantly lower average borrowings and a decrease in interest rates. Long-term debt decreased from $181 million at December 31, 2000 to $18.0 million at December 31, 2002. Average borrowings decreased due to paying down debt from positive cash flow generated from operations and proceeds received from the preferred stock offering in the first quarter of 2002. In addition, the prime interest rate declined steadily from 9.50% in January 2001 to 4.25% in December 2002, and we were able to obtain lower interest rates through the replacement of our credit agreement in the second quarter of 2002.

Change in Fair Value of Derivative

        During the year ended December 31, 2002, we recorded a reduction in the fair value of our warrant derivative. The warrant was issued as part of our preferred stock offering in the first quarter of 2002, and was originally assigned a fair value of $3.2 million. At December 31, 2002, the warrant's fair value was $2.7 million as a result of the change in the market value of our common stock. The reduction in the value of this liability was recorded as a non-operating gain.

Foreign Exchange Gains/Losses

        There were no significant foreign exchange gains or losses for either of years ended December 31, 2002 or December 31, 2001.

Other Income

        During the year ended December 31, 2001, we recorded a $4.5 million gain on an insurance claim received in the third quarter of 2001 related to business interruption losses. Also, we recorded $6.7 million in income during the year ended December 31, 2001 related to 1,551,220 shares of our common stock returned by 3Com in connection with the amendment of our supply agreement with 3Com pertaining to our Mt. Prospect facility.

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Provision for Income Taxes

        Provision for income taxes was $2.1 million for the year ended December 31, 2002 and $0.5 million for the year ended December 31, 2001. Our tax provisions in both periods resulted from the mix of profits and losses experienced by us across the jurisdictions within which we operate. For the year ended December 31, 2002, losses in the United States and Asia provided us with no income tax benefit while profits in Spain and France required us to record tax provisions. For the year ended December 31, 2001, losses in the United States and Asia provided us with no income tax benefit while profits in France required us to record tax provisions. We do not record an income tax benefit on tax losses in the United States or Asia because we do not currently believe it is more likely than not that we will be able to utilize these taxable losses in the future.

Extraordinary Loss

        During the year ended December 31, 2002 we recorded an extraordinary loss of $4.0 million. The extraordinary loss related to the write-off of deferred financing costs from the termination of the Company's previous credit agreement in the second quarter of 2002.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

Net Sales

        Net sales for the year ended December 31, 2001 decreased $236.1 million, or 13.4%, to $1,522.0 million from $1,758.1 million for the year ended December 31, 2000. Net sales for the year ended December 31, 2001 included incremental net sales of $192.2 million attributable to our Mt. Prospect and Guerande facilities, which were acquired in September 2000 and January 2001, respectively. Of the revenues for our Mt. Prospect and Guerande facilities in 2001, $72.3 million was recorded for payments received under customer contracts with guaranteed purchase commitments, primarily under our contract with 3Com related to our Mt. Prospect facility.

        The decrease in net sales noted resulted primarily from volume reductions related to the decrease in demand for electronic manufacturing services experienced in 2001. Demand related reductions included $228.1 million less net sales from customers served in our Salt Lake City facility, which ceased production in December 2001 and closed in the first quarter of 2002, including a decrease of $137.2 million from a customer in the personal digital assistant sector. This customer was the most significant customer of our Salt Lake City facility, and we continued to provide services to the customer in one of our other facilities until 2002. Other significant demand-related volume reductions aggregated $140.3 million for three customers at facilities other than in Salt Lake City. Also, volume reductions of $66.2 million were the result of the cancellation of programs for two customers.

        Revenues did not include inventory sold back to customers with no mark-up under contractual arrangements of approximately $145.0 million in 2001. Transactions of this nature were not material in 2000.

Gross Profit

        Gross profit increased to 7.2% of net sales for the year ended December 31, 2001 from 5.6% of net sales for the year ended December 31, 2000. This increase resulted primarily from the positive effects of our Mt. Prospect and Guerande facilities, which operate under customer contracts 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 positively impacted gross profit in the year ended December 31, 2001. The mix of customer programs improved in 2001 versus 2000 due to a lower percentage of net sales from high-volume, low mix programs, which typically earn lower gross margins.

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        These increases in gross margin percentage were partially offset by the decrease in utilization of our manufacturing capacity related to the economic downturn experienced during 2001 and increased inventory charges recorded in the year ended December 31, 2001. Inventory charges totaling $20.7 million were recorded in 2001 as compared to $6.7 million in 2000. Of the charges recorded in 2001, approximately $10.7 million were related to two customers, which were discussed previously. The remainder of inventory charges recorded in 2001 related primarily to changes in customer demand that resulted in excess quantities on hand that could not be put readily back to vendors or the specific customer concerned.

Selling, General and Administrative

        Selling, general and administrative expense for the year ended December 31, 2001 increased to $95.7 million, or 6.3% of net sales, from $63.0 million, or 3.6% of net sales, for the year ended December 31, 2000. This increase of $32.7 million is mainly related to an increase in bad debt expense of $15.8 million. Bad debt expense increased to $17.9 million in 2001 from $2.1 million in 2000, $17.5 million of which was incurred in our Salt Lake City facility in 2001, as described previously.

        The increase also includes expenses related to the asset and business acquisitions that occurred since the second quarter of 2000, including amortization of intangible assets of $1.1 million and costs related to human resources, accounting and information systems necessary to support the new facilities of $8.3 million. Additional increases include consulting and professional fees, primarily associated with integrating information systems of $4.1 million, depreciation of non-production assets and amortization of internal use software of $1.5 million, administrative costs associated with start-up operations in Ireland, China and Puerto Rico and growth of our corporate organization to support new facilities. These increases were partially offset by a reduction in stock-based compensation due to a $3.8 million charge recognized in 2000 related to stock granted to senior management.

Amortization Expense

        Amortization expense increased to $8.5 million for the year ended December 31, 2001 from $7.4 million for the year ended December 31, 2000. This increase consists mainly of $2.5 million related to intangible assets from our Mt Prospect facility, which we acquired in September 2000, and therefore, had a full year of amortization expense in 2001. This increase was offset by a decrease of $1.5 million related to intangible assets at our Salt Lake City facility. In connection with the restructuring of Salt Lake City in the third quarter of 2001, all intangible assets were written-off and no additional amortization expense on these assets was recorded.

Legal Settlement

        In April 2000, we agreed to settle a claim for damages brought against us arising from a potential acquisition that was not consummated. As a result, we recorded a $6.0 million charge in the three months ended April 2, 2000.

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Interest Expense, Net

        Net interest expense increased to $20.1 million for the year ended December 31, 2001 from $17.7 million for the year ended December 31, 2000, reflecting higher average borrowings and increased amortization of capitalized finance fees, partially offset by the impact of decreasing interest rates. Average borrowings were higher in 2001 due to a full year of borrowings under our previous $85.0 million term loan associated with the purchase of assets from 3Com in September 2000, and the use of net proceeds from our June 2000 initial public offering of our common stock of $161.3 million to pay down a significant portion of our debt in 2000.

Foreign Exchange Gains/Losses

        Foreign exchange gains for the year ended December 31, 2001 were $0.3 million compared to foreign exchange losses of $2.0 million for the year ended December 31, 2000. Approximately $1.1 million of the loss for the year ended December 31, 2000 related to the strengthening of the US dollar in relation to the Spanish peseta in connection with a US dollar denominated loan for our Valencia facility, which was repaid in 2000. The remainder of the foreign exchange loss for the year ended December 31, 2000 related to the strengthening of the US dollar in relation to the Spanish peseta on materials purchased in Valencia which must be settled in US dollars, partially offset by foreign exchange gains realized in Asia related to the strengthening of certain Asian currencies in relation to the US dollar. The change in foreign exchange gains and losses was attributable to the increased use, and effectiveness, of forward foreign exchange contracts to fix the price of materials purchased in Spain which must be settled in US dollars.

Provision for Income Taxes

        Provision for income taxes was $0.5 million for the year ended December 31, 2001 and $3.0 million for the year ended December 31, 2000. Our tax provisions in both periods resulted from the mix of profits and losses experienced by us across the jurisdictions within which we operate. For the year ended December 31, 2001, losses in the United States and Asia provided us with no income tax benefit while profits in France required us to record tax provisions. We do not record an income tax benefit on tax losses in the United States or Asia because we do not currently believe it is more likely than not that we will be able to utilize these taxable losses in the future.

Extraordinary Loss

        During the year ended December 31, 2000 we recorded an extraordinary loss of $2.8 million, net of $0.3 million tax benefit. The extraordinary loss related to the write-off of deferred financing costs due to the repayment of a term loan and the replacement of a previous credit facility.

Liquidity and Capital Resources

        At December 31, 2002, we had cash and cash equivalents of $49.0 million, total bank and other debt of $23.7 million and $49.1 million of unused borrowing capacity under the credit agreement we entered into in June 2002 (the "2002 Credit Agreement"). In addition, we had $2.7 million of unused borrowing capacity under revolving credit facility in Spain. At December 31, 2002, we had no borrowings under either the revolver portion of the 2002 Credit Agreement or the revolving credit facility in Spain. This compares to our cash balance of $30.9 million and total bank and other debt of $120.6 million at December 31, 2001. During 2002, our operations were funded primarily with cash generated from operations.

        Net cash provided by operating activities was $86.3 million for the year ended December 31, 2002, resulting primarily from a decrease in operating assets of $107.2 million, depreciation and amortization of $21.2 million and other non-cash charges aggregating $20.0 million, partially offset by a net loss of

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$20.7 million and a decrease in operating liabilities of $41.5 million. The most significant other non-cash items were $6.9 million of write-downs and losses on asset impairments and disposals, mainly as a result of restructuring activities at our China, Singapore and Mt Prospect facilities; a charge to our allowance for doubtful accounts of $6.1 million, of which $5.4 million relates to a customer who defaulted on its note payable to us as discussed above; and a $4.0 extraordinary loss from the write-off of capitalized bank fees in connection with the refinancing of our credit agreement in the second quarter of 2002. The decrease in operating assets included a $67.3 million reduction in accounts receivable, of which approximately $28 million related to a customer who was disputing its obligation to pay this balance. This amount, along with $11.9 million in inventory and $10.2 million in accounts payable to the customer, were converted, on a net basis, to a secured note receivable from the customer in July 2002, which was previously discussed. The remaining decrease in accounts receivable was due to significantly lower revenues in 2002 and better cash management practices. The decrease in operating assets also included a decrease in inventories of $35.6 million, of which $11.9 million relates to one customer discussed above. The remaining inventory decrease was a result of overall lower volumes through the manufacturing plants and improved inventory management. The decrease in operating liabilities included a $28.9 million reduction in accounts payable, of which $10.2 million was previously discussed, and the remaining decrease is a result of reduced production in 2002.

        Net cash provided by operating activities of $107.7 million for the year ended December 31, 2001 resulted primarily from a decrease in operating assets of $421.2 million, depreciation and amortization of $33.5 million and non-cash charges aggregating $67.5 million, partially offset by a net loss of $95.1 million and a decrease in operating liabilities of $319.4 million. The most significant non-cash items included in the net loss for the year ended December 31, 2001 were $61.8 million of write-downs and losses on asset impairments and disposals, mainly from the shut-down of our Salt Lake City facility, $11.7 million of additions to the allowance for doubtful accounts and a $6.7 million non-cash gain related to 1,551,220 shares of our common stock returned from 3Com. The decrease in operating assets included an approximately $145.0 million reduction in inventory attributable to the sale of excess inventory under the provisions of our customer contracts. We also entered an agreement with a customer during the year in which the customer purchased approximately $25.0 million of inventory that we agreed to repurchase for the same amount from the customer as we fulfill their future demand requirements.

        Net cash used in operating activities of $98.9 million for the year ended December 31, 2000 resulted from a net loss of $4.0 million and an increase in operating assets of $441.7 million offset by an increase in operating liabilities of $304.4 million, depreciation and amortization of $29.3 million and other non-cash items aggregating $13.1 million. The net increase in operating assets and liabilities was attributable to growth in accounts receivable, inventories and accounts payable related to increased levels of business at our existing facilities and the acquisitions of our Mt. Prospect facility and Qualitronics. Other non-cash items include non-cash charges for equity awards of $5.2 million and other non-cash charges of $1.0 million associated with the obligations of Donaldson, Lufkin & Jenrette Securities Corporation under a litigation settlement agreement with Lockheed Martin Corporation.

        Net cash used in investing activities for the year ended December 31, 2002 was $5.9 million, consisting of $5.2 million from the acquisition of our Reynosa, Mexico facility (net of cash acquired of $0.8 million) and $4.3 million of purchases of property and equipment. These amounts were partially offset by $4.0 million of net proceeds principally from the sale of our Salt Lake City building. Net cash used in investing activities for the year ended December 31, 2001 was $17.2 million, consisting primarily of $14.5 million of net capital expenditures, $1.4 million of internal use software, and $1.4 million for the acquisition of intangible assets related to our Guerande facility. Capital expenditures include $3.9 million related to the purchase of our Guerande facility. Net cash used in investing activities for the year ended December 31, 2000 was $57.5 million, consisting of $47.7 million of net capital expenditures, $6.0 million for the acquisition of intangible assets related to our Mt. Prospect facility

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and $3.8 million for the acquisition of Qualitronics. Capital expenditures have decreased over the past two years due to reduced manufacturing capacity requirements associated with the economic downturn experienced in 2002 and 2001. We expect capital expenditures in 2003, excluding effects of any acquisitions, to be approximately $10 million, primarily for the purchase of additional manufacturing assets.

        Net cash used in financing activities for the year ended December 31, 2002 was $65.0 million, consisting of $111.8 million of net payments under our previous credit facility, which was replaced in the second quarter by our 2002 Credit Agreement, and repayment of long-term debt and capital leases of $7.3 million. This was partially offset by $37.7 million in net proceeds from the issuance of convertible preferred stock and warrants, $10.4 million in borrowings under the new 2002 Credit Agreement and $9.2 million from a mortgage on our Spain facility. Net cash used in financing activities for the year ended December 31, 2001 was $69.0 million, consisting primarily of net payments under our previous credit facility of $70.1 million (of which $0.9 million were payments on the term loan) and proceeds from the issuance of stock under our employee stock purchase plan of $2.1 million. Net cash provided by financing activities for the year ended December 31, 2000 was $144.1 million, including net proceeds of $161.3 million from the issuance of common stock in the initial public offering which closed on June 28, 2000. These proceeds were used to pay off a portion of borrowings under previous bank credit facility of $99.4 million and retire all of our outstanding senior preferred stock of $58.9 million, including remaining dividends owed. Other financing activities included net borrowings under our bank credit facility of $149.2 million, excluding amounts paid off with proceeds from the initial public offering, $7.9 million in debt issuance costs and $2.2 million of dividends paid on our senior preferred stock prior to the retirement.

        In March 2002, we issued $41.5 million of convertible preferred stock and warrants to purchase 1,612,281 shares of common stock in a private placement to qualified accredited investors (the "Offering"). Proceeds of the Offering, net of offering costs, were $37.7 million. We used the proceeds to pay down a portion of our borrowings under the previous bank credit facility. The convertible preferred stock accrues dividends quarterly at the rate of 5.25% per annum, payable quarterly in common stock or cash, at our option. If we choose to pay dividends in common stock or to redeem the convertible preferred stock with common stock, the shares of common stock issued will be computed using 95% of the market value of the common stock over a prescribed measurement period. In September and December 2002, we paid dividends then due on the convertible preferred stock by issuing 382,350 and 110,028 shares, respectively, of our common stock with total market values of $1.0 million and $0.6 million, respectively.

        The convertible preferred stock is convertible to common stock based on a conversion price of $6.44 per share. We may require holders to convert to common stock provided the price of our common stock has traded at 150% of the conversion price for a specified period. The preferred stock has a scheduled maturity of March 14, 2007, unless converted earlier, and is redeemable for our common stock or cash, at our option. The warrants are exercisable at any time through March 14, 2007. We have the right to require the exercise of the warrants after March 14, 2003 if our common stock trades for 175% of the warrant exercise price for a specified period.

        In June 2002, we replaced our existing Credit Agreement with a $110.5 million credit facility consisting of a $100 million senior secured revolving credit facility and a $10.5 million three-year term loan (the "2002 Credit Agreement"). In August 2002, the 2002 Credit Agreement was expanded when the senior secured revolving credit facility was increased to $120 million in connection with the final syndication of the facility. The 2002 Credit Agreement is secured by substantially all domestic assets and a pledge of 65% of the shares of certain foreign subsidiaries. Restrictive covenants for the 2002 Credit Agreement include restrictions on leverage ratios as well as covenants requiring minimum net worth, EBITDA and fixed charge coverage ratios. The three-year term loan has a regular quarterly

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payment of $0.3 million payable on the first business day of each quarter, with the remaining outstanding balance due at maturity.

        Borrowings under the revolving facility are limited to the sum of 85% of all eligible accounts receivable of the U.S. domestic subsidiaries of the Company and 85% of the orderly liquidation value of the eligible inventory of the U.S. domestic subsidiaries of the Company. Borrowings are limited further by any outstanding letters of credit, which were $3.0 million at December 31, 2002. A weekly borrowing base is determined by domestic receivables and domestic inventory. The revolving facility provides for an annual commitment fee of 0.50% on the unused portion of the revolving facility, payable in arrears quarterly. The cost of borrowing under the revolving facility is either the base rate (the bank's prime rate) or LIBOR, plus the applicable spread costs. The Company has the option of choosing either the base rate or LIBOR. In the first year the spread cost is fixed for base rate and LIBOR loans. The spread on the base rate loans is 1.75% over the base rate and on the LIBOR loans is the chosen LIBOR period rate plus 3.25%. In the second and third years the spreads will reset quarterly based on the average net availability of borrowings for the preceding quarter. The spread on the base rate loans will be between 1.25% and 2.25% and on the LIBOR loans will be between 2.5% and 3.5%. The interest rate under the term loan is equal to the sum of the Cash Interest Rate (which is the greater of (i) the base rate in effect plus 6.0% or (ii) 11.0%) plus the Deferred Interest Rate (which is equal to 3.0%). The interest rate on the term loan at December 31, 2002 was 14.0%.

        The 2002 Credit Facility requires us to obtain within 180 days of the closing (and maintain at all times), interest rate hedging agreements covering a notional amount of not less than $10 million of the revolving loans, provided, that upon the request of the administrative agent, we must increase the amount covered by the hedge agreements up to an aggregate amount equal to 25% of the aggregate outstanding balance of the revolving loans at such time. However, in no event shall the aggregate amount covered by such hedge agreements at any time exceed $20 million. Since we have no revolving loans outstanding at December 31, 2002, we received a temporary 90-day waiver of the interest rate hedge requirement and have not entered into any interest rate hedge agreement at December 31, 2002.

        Also in June 2002, we entered into a ten-year mortgage loan for 10 million Euros ($9.2 million) and a 3 million Euro ($2.7 million) revolving credit facility in Valencia, Spain. There were no borrowings under the revolving credit facility at December 31, 2002. The mortgage loan is secured by the property and buildings of Global Manufacturers' Services Valencia, S.A., our Spanish subsidiary, has a monthly amortizing repayment schedule and the cost of borrowing under the mortgage is three-month Euribor plus 0.85%. The credit agreement has a final maturity of June 26, 2003 and is secured by named receivables of Global Manufacturers' Services Valencia, S.A. The cost of borrowing under the credit facility is variable starting at 0.49% over the Madrid Interbank Market rate.

        Our principal sources of funding for our operating expenses, capital expenditures and debt obligations are expected to be our current cash and cash equivalents, cash generated from operations and available borrowings under our 2002 Credit Agreement. The amount of cash generated from operations will be dependent upon such factors as the successful execution of our business plan and worldwide economic conditions. Borrowings under our 2002 Credit Agreement are dependent upon a borrowing base calculation derived from our domestic accounts receivable and inventory. Availability fluctuates according to the quantity and quality of our receivables and our US inventory. Borrowings under our 2002 Credit Agreement could be limited by a number of factors, including the following:

•

revenue reductions from decreased customer demand or lost customers causing lower borrowing assets, particularly accounts receivable,



•

a lower percentage of our business being conducted in the US and Mexico,



•

deterioration in the value of the assets comprising the borrowing base, or



•

failure to comply with Credit Agreement covenants.

33

        We were in compliance with all covenants under our 2002 Credit Agreement as of December 31, 2002. We have received from our lending institutions an amendment to our 2002 Credit Agreement that permanently excludes from our covenant calculations a $5.4 million charge for bad debt related to the write-off of a note receivable from a customer who recently filed for bankruptcy, which was previously discussed in "Item 7—Overview".

        We have the opportunity to make capital investments in the second quarter of 2003 which are necessary to support new business. We believe that it is in the best interest of shareholders to make these investments as soon as possible to support this new business. We have requested and received from our lenders participating in our 2002 Credit Agreement, permission to make these investments in the second quarter through a modification of the fixed charge coverage ratio and the consolidated trailing 12 month adjusted domestic EBITDA covenants for the second quarter.

        In the event we do not have adequate funding from our 2002 Credit Agreement, we would work with our lending institutions to modify the 2002 Credit Agreement or identify other sources of capital to obtain necessary debt or equity financing. In such a circumstance, there is no assurance we would be able to modify the 2002 Credit Agreement with existing lenders or obtain alternative debt or equity financing to satisfy our funding needs. While there can be no assurance we will have sufficient funds to meet our cash requirements over the next twelve months, we believe that funds generated from operations and borrowings available under the 2002 Credit Agreement will be adequate to meet our anticipated future operating expenses, capital expenditures and debt obligations for at least the next twelve months.

Contractual Obligations

        We have certain contractual obligations that extend out beyond 2003. These commitments include long-term debt and lease obligations. The following summarizes our debt and other contractual obligations at December 31, 2002:

Off-Balance Sheet Arrangements

        We do not have any financial partnerships with unconsolidated entities, such as entities often referred to as structured finance, special purpose entities or variable interest entities which are often established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Accordingly, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had such relationships.

Recently Issued Accounting Pronouncements

        In December 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure". This statement amends SFAS123 "Accounting for Stock-Based

34

Compensation", and provides additional transition guidance for those entities that elect to voluntarily adopt the accounting provisions of SFAS 123. The standard is intended to encourage the adoption of SFAS 123 relating to the fair value based method of accounting for employee stock options. We currently apply the disclosure only provisions of SFAS 123. Under the provisions of SFAS 148, companies that choose to adopt the accounting provisions of SFAS 123 will be permitted to select from three transition methods: the prospective method, the modified prospective method and the retroactive restatement method. The prospective method, however, may no longer be applied for adoptions of the accounting provisions of SFAS 123 for periods beginning after December 15, 2003. SFAS 148 requires certain new disclosures that are incremental to those required by SFAS 123, which must also be made in interim financial statements. The transition and annual disclosure provisions of SFAS 148 are effective for fiscal years ending after December 31, 2002. The new interim disclosure provisions are effective for the first interim period beginning after December 15, 2002. We are currently reviewing the alternatives under the provisions of SFAS 148.

        In November 2002, the FASB issued FIN No. 45 "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34." The Interpretation requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken by issuing the guarantee. The Interpretation also requires additional disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees it has issued. The accounting requirements for the initial recognition of guarantees are applicable on a prospective basis for guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for all guarantees outstanding, regardless of when they were issued or modified, as of December 31, 2002. We do not believe that the adoption of FIN No. 45 will have a material effect on our consolidated financial statements.

        In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal Activities". SFAS No. 146 addresses significant issues regarding the recognition, measurement and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for under EITF No. 94-3. We are required to adopt the provisions of SFAS No. 146 effective for exit or disposal activities initiated after December 31, 2002. The adoption of SFAS No. 146 will change on a prospective basis the timing of when restructuring charges are recorded from a commitment date approach to when the liability is incurred.

        In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statements No.4, 44 and 64, Amendment of FASB Statement No.13, and Technical Corrections as of April 2002". FASB No. 145 eliminates FASB No. 4 "Reporting Gains and Losses from Extinguishment of Debt", which required companies to classify gains or losses from the extinguishment of debt as an extraordinary item, net of tax. As a result of this new FASB, gains and losses from extinguishment of debt should be classified as extraordinary items only if they meet the criteria in APB Opinion No.30 "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions". We do not believe that the extinguishment of debt will qualify as an extraordinary item as defined in APB 30, and therefore we will be required to classify these charges as operating expenses. We will adopt SFAS No. 145 on January 1, 2003, and will reclassify the extraordinary loss in all prior periods for comparative purposes.

        In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" to be effective for all fiscal years beginning after June 15, 2002, with early adoption permitted. SFAS No. 143 establishes accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost. It also provides accounting guidance for legal obligations associated with the retirement of tangible long-lived assets. We will adopt SFAS No. 143 in fiscal 2003 and do not believe the adoption of SFAS No. 143 will have a material impact on our financial position, results of operations or cash flows.

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Related Party Transactions

        At December 31, 2002, affiliates of Credit Suisse First Boston Corporation ("CFSB") owned approximately 49% of our outstanding common stock, not including warrants to purchase 749,797 shares of the our common stock, and had one seat on our Board of Directors. The details of the warrants are described below. Further, CSFB is a member of the bank group under our 2002 Credit Agreement and has committed to lend up to $10 million of the overall 2002 Credit Agreement. In connection with structuring this agreement, certain affiliates of CFSB were paid $0.6 million.

        Affiliates of CFSB participated in our convertible preferred stock offering in March 2002. These affiliates purchased 300,000 shares of the convertible preferred stock, which is convertible into 2,331,003 shares of common stock, and warrants to purchase 582,751 shares of common stock. In connection with this investment, we paid an affiliate of CSFB an advisory fee of 1.446% on the total amount invested in the offering (an aggregate of $0.6 million) in return for (i) CSFB's services in helping to structure and arrange the transaction, (ii) the agreement by the CSFB affiliates not to sell or otherwise transfer any of the our securities for six months (other than as part of an underwritten offering we initiate), and (iii) the agreement by the CSFB affiliates to accept piggyback registration rights instead of having the common stock issuable upon the conversion or exercise of its securities included in the shelf registration statement which was filed with the SEC to register the resale of the common stock underlying the preferred stock and warrants sold to other investors in the offering. The registration statement, covering 5,937,461 shares, became effective on April 23, 2002.

        Affiliates of CFSB also participated in the issuance of our redeemable preferred stock in November 1999, which included warrants to purchased 1,160,542 shares of common stock. The redeemable preferred stock was redeemed and warrants to purchase 937,812 shares were cancelled at the time of our initial public offering in June 2000. At December 31, 2002, 167,046 of these warrants were still outstanding.

        Total fees paid to CSFB in the fiscal years ended December 31, 2002, 2001 and 2000, were $1,225, $82 and $3,560, respectively. There were no amounts payable to CSFB at December 31, 2002.

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RISK FACTORS

        You should carefully consider the risks described below before deciding to invest in our common stock. Additional risks not presently known 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 our sales currently comes from a small number of customers, any decrease in sales from these customers could harm our operating results.

        We depend on a small number of customers for a large portion of our business, and changes in such customers' orders have, in the past, had a significant impact on our operating results. If a major customer significantly reduces the amount of business it does with us, there would be an adverse impact on our operating results. The following table sets forth the percentages of our total net sales to those customers who accounted for 10% or more of our total net sales in any of the last three fiscal years and the percentage of our total net sales to our ten largest customers in those years:

*

Less than 10% of net revenues

        We expect to continue to depend on sales to our major customers. Because it is not always possible to replace lost business on a timely basis, it is likely that our operating results would be adversely affected if one or more of our major customers were to cancel, delay or reduce a large amount of business with us. Our customer agreements typically permit the customer to terminate the agreement on three to six month's notice. Were a major customer to terminate its agreement with us, it is likely that our operating results, through lower revenue and lower fixed cost absorption, would be adversely affected, as was demonstrated by the negative impact in 2002 from the loss of two significant customers, Palm and 3Com. Moreover, our operating results in the past have been positively affected by several customer contracts containing guaranteed minimum commitments, including our contract with 3Com at our Mt. Prospect, Illinois facility, which expired on June 30, 2002. While those contracts generally have fixed terms and may not be terminated (absent a breach) prior to their stated expiration, the favorable effects of the contracts are unlikely to be replicated after these contracts expire or otherwise terminate.

        In addition, we generate significant accounts receivable in connection with providing services to our major customers. If one or more of our customers were to become insolvent or otherwise be unable to pay for our services, or were to become unwilling to make payments in a timely fashion, our operating results and financial condition could be adversely affected.

The incurrence of indebtedness could harm our operating results and financial condition. We depend on our credit facilities to finance our operations and the modification or termination of these facilities could harm our operating results and financial condition.

        Our growth and acquisition strategy could require us to incur substantial amounts of indebtedness. As of December 31, 2002, our total debt was $23.7 million and our interest expense for the year ended

37

December 31, 2002 was $7.0 million. In addition, we may incur additional indebtedness in the future. Our future level of indebtedness could have adverse consequences for our business, including:

•

vulnerability to the effects of poor economic and industry conditions affecting our business;



•

dedication of a substantial portion of our cash flow from operations to repayment of debt and interest expense, 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 fixed charge coverage ratio, minimum adjusted tangible net worth, and minimum domestic EBITDA, 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 to interest rate risk, principally debt obligations under our 2002 Credit Agreement. An increase in the base rates upon which our interest rates are determined could have an adverse effect on our operating results and financial condition.

We have made several strategic acquisitions of manufacturing facilities and businesses and may make more acquisitions in the future, and the failure to successfully integrate acquired facilities and businesses may adversely affect our financial performance.

        We have made several significant acquisitions in the past, and selectively pursuing strategic acquisitions remains an important part of our overall business strategy. However, any acquisitions we make could result in:

•

difficulty integrating our operations, technologies, financial controls and information systems, products and services with those of the acquired facility;



•

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, including employees;



•

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 cannot assure you that any of our recent or future acquisitions will be successful. If any of our recent or future acquisitions are not successful, it is likely that our financial performance will be adversely affected.

Our growth may be limited and our competitive position may be harmed if we are unable to identify, finance and complete future acquisitions.

        We expect to selectively pursue strategic acquisitions as part of our overall business strategy. Competition for acquiring attractive facilities and businesses in our industry is substantial. In executing

38

this part of our business strategy, we may experience difficulty in identifying suitable acquisition candidates or in completing selected transactions. In addition, our existing bank credit facilities limit our ability to acquire the assets or businesses of other companies. If we are able to identify acquisition candidates, such acquisitions may be financed with substantial debt or with potentially dilutive issuances of equity securities. Our ability to successfully complete acquisitions in the future will depend upon several factors, including the continued availability of financing. We cannot assure you that financing for acquisitions will be available on terms acceptable to us, if at all.

If we are left with excess inventory, our operating results will be adversely affected.

        We typically purchase components and manufacture products in anticipation of customer orders based on customer forecasts. For a variety of reasons, such as decreased end-user demand for the products we are manufacturing, our customers may not purchase all of the products we have manufactured or for which we have purchased components. In such event, we would attempt to recoup our materials and manufacturing costs by means such as returning components to our vendors, disposing of excess inventory through other channels or requiring our OEM customers to purchase or otherwise compensate us for such excess inventory. Some of our significant customer agreements give us limited ability to require our OEM customers to do so. To the extent we are unsuccessful in recouping our material and manufacturing costs, not only would our net sales be adversely affected, but our operating results would be disproportionately adversely affected. Moreover, carrying excess inventory would reduce the working capital we have available to continue to operate and grow our business.

Long-term purchase orders and commitments are not typical in our industry, and reductions, cancellations or delays in customer orders would adversely affect our operating results.

        As is typical in the EMS industry, we do not usually obtain long-term purchase orders or commitments from our customers. Instead, we work closely with our customers to develop non-binding forecasts of the future volume of orders. Customers may cancel their orders, change production quantities from forecasted volumes or delay production 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. In addition, because many of our costs are fixed, a reduction in net sales could have a disproportionate adverse effect on our operating results. From time to time we make capital investments in anticipation of future business opportunities. There can be no assurance that we will receive the anticipated business. If we are unable to obtain the anticipated business, our operating results and financial condition may be harmed.

Competition from existing or new companies in the EMS industry could cause us to experience downward pressure on prices, fewer customer orders, reduced margins, the inability to take advantage of new business opportunities and the loss of market share.

        We operate in a highly competitive industry. We compete against many domestic and foreign companies, some of which have substantially greater manufacturing, financial, research and development, engineering and marketing resources than we do. Some of our competitors have broader geographic breadth and range of services than we do. In addition, some of our competitors may have more developed relationships with our existing customers than we do. We also face competition from the manufacturing operations of our current and potential customers, who continually evaluate the benefits of internal manufacturing versus outsourcing. As more OEMs dispose of their manufacturing assets and increase the outsourcing of their products, we will face increasing competitive pressures to grow our business in order to maintain our competitive position.

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We depend on our suppliers, some of which are the sole source for our components, and our production would be substantially curtailed if these suppliers are not able to meet our demands and alternative sources are not available.

        We order raw materials and components to complete our customers' orders, and some of these raw materials and components are ordered from sole-source suppliers. Although we work with our customers and suppliers to minimize the impact of shortages in raw materials and components, we sometimes experience short-term adverse effects due to price fluctuations, extended lead times and delayed shipments. In the past, there have been industry-wide shortages of electronic components, particularly memory and logic devices. If a significant shortage of raw materials or components were to occur, we may have to delay shipments to customers, and our operating results would be adversely affected. In some cases, supply shortages of particular components will substantially curtail production of products using these components. While most of our significant customer contracts permit quarterly or other periodic reviews of pricing based on decreases and increases in the prices of raw materials and components, we are not always able to pass on price increases to our customers. Accordingly, some raw material and component price increases could adversely affect our operating results. We also depend on a small number of suppliers for many of the other raw materials and components that we use in our business. If we were unable to continue to purchase these raw materials and components from our suppliers, our operating results would be adversely affected. Because many of our costs are fixed, our margins depend on our volume of output at our facilities and a reduction in volume will adversely affect our margins.

Uncertainties and adverse trends affecting the electronics industry or any of our major customers may adversely affect our operating results.

        Our business depends in a large part on the electronics industry, which is subject to rapid technological change, short product life cycles and pricing and margin pressure. In addition, the electronics industry has historically been cyclical and subject to significant downturns characterized by diminished product demand, rapid declines in average selling prices and production over-capacity. When these factors adversely affect our customers, we may suffer similar effects. Our customers' markets are also subject to economic cycles and are likely to experience recessionary periods in the future. The economic conditions affecting the electronics industry in general or any of our major customers, in particular, including the economic slowdown may adversely affect our operating results.

Because we have significant foreign operations, our operating results could be harmed by economic, political, regulatory and other factors existing in foreign countries in which we operate.

        We have substantial manufacturing operations in Europe, Asia and Mexico. Our international operations are subject to inherent risks, which may adversely affect us, including:

•

political and economic instability in countries where we have manufacturing facilities, particularly in Asia where we conduct a portion of our business;



•

fluctuations in the value of foreign currencies;



•

high levels of inflation, historically the case in a number of countries in Asia and Mexico 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;

40

•

imposition of restrictions on currency conversion or the transfer of funds; and



•

expropriation of private enterprises.

Our business may be impacted by geopolitical events.

        As a global business, we operate and have customers located in many countries. Geopolitical events, such as terrorist acts and the current conflict in Iraq may effect the overall economic environment and negatively impact the demand for our customers' products. As a result, orders on our factories may be lower and our financial results may be adversely affected.

Our quarterly operating results are subject to fluctuations and seasonality and if we fail to meet the expectations of securities analysts or investors the price of our securities may decrease.

        Our annual and quarterly results may vary significantly depending on various factors, many of which are beyond our control, and may not meet the expectations of securities analysts or investors. 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, we typically ship a significant portion of our products in the last few weeks of a quarter. As a result, any delay in anticipated sales is likely to result in the deferral of the associated revenue beyond the end of a particular quarter, which would have a significant effect on our operating results for that quarter. In addition, most of our operating expenses do not vary directly with net sales and are difficult to adjust in the short term. As a result, if net sales for a particular quarter were below our expectations, we could not proportionately reduce operating expenses for that quarter, and, therefore, that revenue shortfall would have a disproportionate adverse effect on our operating results for that quarter.

Loss of any of our key personnel could hurt our business because of their experience in the EMS industry and their technological expertise.

        We operate in the highly competitive EMS industry and depend on the services of our key senior executives and our technological experts. The loss of the services of one or several of our key employees or an inability to attract, train and retain qualified and skilled employees, specifically engineering, operations and sales personnel, could result in the loss of customers or otherwise inhibit our ability to operate and grow our business successfully. In addition, our ability to successfully integrate acquired facilities or businesses depends, in part, on our ability to retain and motivate key management and employees hired by us in connection with the acquisition.

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If we are unable to maintain our technological expertise in design and manufacturing processes we will not be able to successfully compete.

        We believe that our future success will depend upon our ability to develop and provide design and manufacturing services that meet the changing needs of our customers. This requires that we successfully anticipate and respond to technological changes in design and manufacturing processes in a cost-effective and timely manner. As a result, we continually evaluate the advantages and feasibility of new product design and manufacturing processes. We cannot, however, assure you that our process development efforts will be successful.

We are subject to a variety of environmental laws that expose us to potential financial liability.

        Our operations are regulated under a number of federal, state and foreign environmental and safety laws and regulations that govern, among other things, the discharge of hazardous materials into the air and 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 us because we use hazardous materials in our manufacturing process. In addition, because we are a generator of hazardous wastes, we, along with any other person who arranges for the disposal of our wastes, may be subject to financial exposure for costs associated with an investigation and any remediation of sites at which we have arranged for the disposal of hazardous wastes if these sites become contaminated, even if we fully comply with applicable environmental laws. In the event of a violation of environmental laws, we could be held liable for damages and the costs of remedial actions, as well as subject to revocation of our effluent discharge permits. Any revocation could 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 greater compliance costs and increasing risks and penalties associated with any violation, which also could negatively impact our operating results.

Our controlling stockholders and some of our directors may have interests that differ from yours.

        Credit Suisse First Boston, through certain of its affiliates, owns approximately 49% of our outstanding common stock and, as a result, has significant control over our business, policies and affairs, including, effectively, the power to appoint new management, prevent or cause a change of control and approve any action requiring the approval of the holders of our common stock, such as adopting amendments to our certificate of incorporation and approving mergers or sales of all or substantially all of our assets. Circumstances may occur in which the interests of these stockholders could be in conflict with your interests.

Provisions in our charter documents and Delaware law may delay, deter or prevent someone from acquiring us, which could decrease the value of our common stock.

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

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Item 7A. Quantitative and Qualitative Disclosure Relating to Market Risks

Interest Rate Risk

        Our exposure to interest rate risk arises from variable rate debt arrangements entered into for other than trading purposes.

        The cost of borrowings under the revolving facility is contained under the caption Liquidity and Capital Resources in "Management's Discussion and Analysis of Financial Condition and Results of Operations

        The following table summarizes our market risks associated with our variable rate debt in place at December 31, 2002 based on current maturities and interest rates:

(a)

As of December 31, 2002, approximately $51.9 million of the unused credit under our revolving credit facilities was available for additional borrowings based on a borrowing base calculation utilizing domestic accounts receivable and domestic inventory.

        The carrying cost of the above credit facility approximates fair value due to the variable nature of the interest rates.

Foreign Currency Exchange Rate Risk

        We also have exposure to various foreign currency exchange-rate fluctuations for cash flow received from our foreign subsidiaries. This risk is mitigated because the functional currency of our subsidiaries in Ireland, Singapore and Malaysia is the US dollar and most of their financial transactions are denominated in US dollars. The foreign currency exchange-rate risk for our subsidiaries in Spain and France is mitigated because their functional currency is the Euro and most of their financial transactions are denominated in Euros. Our exposure to foreign currency exchange-rate fluctuations is primarily related to an intercompany loan payable to the corporate entity, an intercompany receivable from the corporate entity and specific trade receivables and payables, all at our subsidiary in Spain, which are denominated in US dollars. Our foreign currency exchange-rate exposure on the intercompany balances and the trade receivables and payables is mitigated by the use of foreign exchange contracts which are effective as a means of minimizing exposure and reducing risk from exchange rate fluctuations related to these specific transactions. We actively monitor our foreign

43

currency exchange-rate exposure and manage our foreign exchange contract positions to maintain the effectiveness of this risk mitigation process.

        As of December 31, 2002, we had the following foreign exchange forward contracts outstanding:

        At December 31, 2002, we had $7.4 million in U.S. denominated trade receivables and $16.0 million in U.S. denominated trade payables at our subsidiary in Spain. The net unrealized gain (loss) on these balances was immaterial as of December 31, 2002 due to the use of foreign exchange contracts. A hypothetical 10% fluctuation in the foreign currency exchange rate between the Euro and the US dollar would result in a change in unrealized gain/loss of $0.9 million.

Item 8. Financial Statements and Supplementary Data

Quarterly Results of Operations

        The following table sets forth our unaudited financial information for the past eight quarterly periods. The information presented has been derived from our unaudited consolidated financial statements that, in our opinion, reflect all normal, recurring adjustments necessary for a fair presentation. The operating results for any quarter are not necessarily indicative of results for any future period.

        Our quarterly operating results are subject to fluctuations and seasonality. Our first quarters are typically subject to lower volumes of customer orders as compared to our fourth quarters due to the seasonal nature of the sales of certain significant customers, resulting in lower utilization of manufacturing capacity in the first quarter which may adversely affect our operating results.

        All other information generally required by this item is included in Item 15 of Part IV of this Report and is incorporated into this item by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

        Not applicable.

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Item 10. Directors and Executive Officers of the Registrant

        The information required by Item 10 is contained at the end of Part I of this Report under the heading "Executive Officers of the Registrant" and is incorporated by reference to the sections captioned "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement for the Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the end of our fiscal year ended December 31, 2002.

Item 11. Executive Compensation

        The information required by Item 11 is incorporated by reference to the section captioned "Executive Compensation and Other Matters", "Employment Contracts and Change in Control Agreements" and "Election of Directors—Director Compensation" in the Proxy Statement for the Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the end of our fiscal year ended December 31, 2002.

Item 12. Security Ownership of Certain Beneficial Owners and Management

        Information required by Item 12 is incorporated herein by reference to the section captioned "Beneficial Ownership of Voting Stock" in the Proxy Statement for the Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the end of our fiscal year ended December 31, 2002.

        The following table summarizes information with respect to options under our equity compensation plans at December 31, 2002:

(1)

Excluding securities reflected in column 1, "Number of securities to be issued upon exercise of outstanding options, warrants and rights."

(2)

Includes 485,861 shares of common stock reserved for future issuance under our 2000 Employee Stock Purchase Plan.

(3)

The 2000 Non-Qualified Stock Option Plan is our only equity compensation plan that has not been approved by our stockholders. For further details about the 2000 Non-Qualified Stock Option Plan and our other plans, see Note 15 of the Notes to the Consolidated Financial Statements.

Item 13. Certain Relationships and Related Transactions

        Information required by Item 13 is incorporated herein by reference to the section captioned "Transactions with Related Parties" in the Proxy Statement for the Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the end of our fiscal year ended December 31, 2002.

45

Item 14. Controls and Procedures

        Based on their evaluation of the Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934) as of a date within 90 days of the filing date of this Annual Report on Form 10-K, the Company's chief executive officer and chief financial officer have concluded that the Company's disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and are operating in an effective manner.

        There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their most recent evaluation and up to the filing date of this Annual Report on Form 10-K.

        It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)

The following documents are filed as part of this Report:

1.

Consolidated Financial Statements (see index on page F-1 of this report).

2.

Quarterly Results of Operations (See Item 8 above). Financial Statement Schedule (see index on page F-1 of this report). This financial statement schedule should be read in conjunction with our consolidated financial statements, and related notes thereto.

Schedules not listed in the Index to Consolidated Financial Statements and Schedule have been omitted because they are not applicable, not required, or the information required to be set forth therein is included in the consolidated financial statements or notes thereto.

3.

Exhibits. See Item 15(c) below.

(b)

Reports on Form 8-K.

On December 4, 2002, the Company filed a Current Report on Form 8-K to report under Item 9 (REGULATION FD DISCLOSURE) that on November 27, 2002, the Company mailed a dividend notice, set forth in Item 7 (EXHIBITS), to the then current shareholders of the Company's 5.25% Series A Convertible Preferred Stock.

(c)

Exhibits. The exhibits listed on the Exhibit Index below are filed as part of, or incorporated by reference into, this Report.

(d)

Financial Statement Schedules. See Item 15(a) above.

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SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on this 31st day of March 2003.

* * * *

        Pursuant to the requirements of the Securities Exchange Act of 1934, this Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

47

EXHIBIT INDEX

48

49

50

+

Confidential treatment requested as to certain portions which portions have been filed separately with the Securities and Exchange Commission.

(1)

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

(2)

Filed as an Exhibit to the Registrant's Current Report on Form 8-K filed on October 11, 2000.

(3)

Filed as an Exhibit to the Registrant's Current Report on Form 8-K filed on December 5, 2000.

(4)

Filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q filed on November 14, 2000.

(5)

Filed as an Exhibit to the Registrant's Annual Report on Form 10-K filed on April 2, 2001.

(6)

Filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q filed on August 14, 2001.

(7)

Filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q filed on November 14, 2001.

(8)

Filed as an Exhibit to the Registrant's Annual Report on Form 10-K filed on March 29, 2002.

(9)

Filed as an Exhibit to the Registrant's Current Report on Form 8-K filed on March 18, 2002.

(10)

Filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q filed on May 15, 2002.

(11)

Filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q filed on August 14, 2002.

(12)

Filed as an Exhibit to the Registrant's Current Report on Form 8-K filed on June 28, 2002.

(13)

Filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q filed on November 13, 2002.